2021 (4) TMI 1175 - HC - Income Tax

Invalidity of Income Tax reassessment notice under Section 147 for AY 2007-08 due to procedural non-compliance

Sri Viresh Hemani Versus Income Tax Officer, Ward-3, Rourkela

The High Court held that the notice for reassessment under Section 147 of the Income Tax Act, 1961 for AY 2007-08 was invalid due to the failure to ... Reopening of assessment u/s 147 - non disposal of objections prior to issuance of the impugned SCN - HELD THAT:- The Court is unable to agree with the above submission on behalf of the Department. A perusal of the SCN reveals that there is no mention of the Petitioner's detailed objections given in writing on 8th October, 2013. In fact, even the counter affidavit filed by the Department is silent on disposal of such objections prior to issuance of the impugned SCN. Indeed the requirement spelt out by the Supreme Court in GKN Driveshafts [2002 (11) TMI 7 - SUPREME COURT], that an assessee's objection to the reopening of the assessment should be disposed of by the Assessing Officer by a speaking order is a mandatory requirement that cannot be dispensed with. Admittedly this mandatory requirement has not been complied with in the instant case. On this ground alone the re- assessment proceeding is vitiated. Relying on the decision in Principal Commissioner of Income Tax, Kerala v. N.C. Cables Ltd [2017 (1) TMI 1036 - DELHI HIGH COURT], Mr. Ray submitted that there was a failure by the competent authority in terms of Section 151 of the IT Act to authorize the reopening of the assessment. Factually, the above position has not been able to be disputed by Mr. Mohapatra, learned Standing Counsel on behalf of the Department. Indeed the impugned letter dated 10th / 20th May, 2013 issued by the Joint Commissioner of Income Tax, Rourkela Range, to the ITO simply states 'Approval is hereby accorded u/s. 151(2) of the I.T. Act, 1961 for initiation of proceeding u/s. 147 of the I.T. Act, 1961 in the case of Sri Viresh Hemani'. There is no indication of any application of mind by the authority. Moreover, the approval under Section 151 of the Act had to be granted by the Principal Chief Commissioner, or the Chief Commissioner, or the Principal Commissioner, or the Commissioner, if the reopening is beyond four years. However, the above approval in the instant case was issued by the Joint Commissioner and therefore, it was not a valid approval under Section 151 of the IT Act. - Decided in favour of assessee. Issues:Challenge to notice for reassessment under Section 147 of the Income Tax Act, 1961 for AY 2007-08 based on alleged escaped income assessment. Failure to dispose of objections before issuing show cause notice (SCN). Lack of valid authorization for reopening assessment under Section 151 of the IT Act.Analysis:The writ petition challenged a notice issued by the Income Tax Officer (ITO) for reassessment under Section 147 of the Income Tax Act, 1961, for the Assessment Year (AY) 2007-08, alleging escaped income assessment. The petitioner, a proprietor of a travel business, filed the return in 2007 but received the impugned notice in 2013, leading to objections raised by the petitioner regarding the reopening of the assessment. The ITO proceeded to issue a show cause notice (SCN) without deciding on the objections raised by the petitioner, which was a mandatory requirement as per the Supreme Court's decision in GKN Driveshafts case. The failure to dispose of objections before issuing the SCN rendered the reassessment proceeding vitiated.The petitioner also argued that there was a lack of valid authorization for reopening the assessment under Section 151 of the IT Act. The approval granted by the Joint Commissioner did not demonstrate proper application of mind, as required by law. Additionally, the approval under Section 151 should have been granted by specific higher authorities if the reopening is beyond four years, which was not the case here. The absence of a valid authorization further invalidated the notice issued for reassessment.In light of the above reasons, the High Court held that the notice issued for reassessment could not be sustained in law and was set aside. Consequently, all consequential proceedings were also set aside. The writ petition was allowed with no order as to costs. The judgment highlighted the importance of complying with procedural requirements, including disposing of objections before initiating reassessment proceedings and obtaining valid authorization for reopening assessments under the relevant provisions of the IT Act.