2015 (3) TMI 1449 - AT - Income Tax

Reopening of Assessment Quashed for Missing Notice Under Section 143(2); AO's Satisfaction Note Found Deficient

Delhi Kalyan Samiti Versus ITO (E), Trust Ward III, Delhi and (Vice-Versa)

The ITAT Delhi held that the reopening of assessment was invalid as the AO failed to issue mandatory notice u/s 143(2) after the assessee filed a return ... Reopening of assessment - notice was issued in view of the purported information received from DIT(E) Delhi, wherein, it has been alleged that appellant received deposit from Delhi Lottery Fund - 'reason to believe' v/s 'reason to suspect' - HELD THAT:- From a perusal of the satisfaction note, we find that the AO had referred to the application for registration u/s 12A filed by the assessee before DIT(E), Delhi, wherein along with the said application, the assessee had disclosed the fact that an amount of Rs.38.74 crores lying as fixed deposit in the name of the assessee company. Since no return was filed by the assessee from Assessment Years 2000-01 to 2002-03, the AO after satisfying that interest income on the said fixed deposit of the assessee has escaped assessment has initiated 147/148 proceedings against the assessee. Since no notice u/s 143(2) was issued to the assessee after the assessee has filed return of income in response to a notice u/s 148/142(1) of the Act and prior to framing the impugned order the assessment thus framed was without jurisdiction - Since the assessee has filed return pursuant to section 142(1) notice on 19.12.2007, there is no failure to file return as contemplated u/s 144(1)(b) of the Act, for the AO to resort to best judgement assessment, so the said contention of the revenue also fails. In the light of the facts and circumstances, we find that AO failed to issue mandatory notice u/s 143(2), after the assessee has filed return on 19.12.2007 pursuant to notice issued u/s 142(1) of the Act, therefore, the impugned assessment cannot be upheld since the non-issuance of mandatory notice u/s 143(2) cannot be cured as held in M/S. HOTEL BLUE MOON [2010 (2) TMI 1 - SUPREME COURT] and so we have no alternative but to quash it. Validity of reopening of assessment - as argued satisfaction as required u/s 147 of the Act has not been recorded by the AO before issuance of notice u/s 148, when the records suggest otherwise - As per satisfaction note reproduced by the ld CIT(A) it does not records satisfaction of the AO, that income chargeable to tax has escaped assessment - we fail to comprehend as to why the AO has not specifically recorded satisfaction about escapement of income in his reasons recorded when on similar facts he had recorded reasons before issuance of notice u/s 148 for Assessment Year 2000-01 to 2003-04 which was decided by us to be valid. The said reasons wherein the satisfaction of escapement of income was recorded finally ended up with an assessment on 24.12.2007 making additions of more than 3 crores for Assessment Year 2000-01 to 2002-03. So for the relevant assessment years i.e. 2003-04 to 2005-06, when the impugned notice was recorded on 28.03.2008, the escaped income of the assessee was already assessed against it. In the light of the aforesaid fact which the CIT(A) might not have taken note while passing the impugned order, we find merit in the revenue’s contention that this issue may be remanded back to the ld CIT(A) for fresh adjudication. ISSUES: Whether the Assessing Officer (AO) had jurisdiction to reopen the assessment under section 147 read with section 148 of the Income Tax Act based on recorded reasons to believe that income had escaped assessment.Whether the initiation of proceedings under section 147/148 without valid approval from the Additional Commissioner of Income Tax was lawful.Whether the assessment framed under section 144/148 without issuance of a notice under section 143(2) after filing of return was valid.Whether the return filed beyond the time prescribed in the notice under section 148 was a valid return for the purposes of assessment.Whether the levy of interest under section 234B was justified on the facts of the case.Whether the reasons recorded by the AO for reopening the assessment for Assessment Years 2003-04 to 2005-06 satisfied the statutory requirement under section 147 before issuance of notice under section 148.Whether the appellate authority erred in quashing the reopening of assessment for Assessment Years 2003-04 to 2005-06 without proper examination of the reasons recorded by the AO. RULINGS / HOLDINGS: On jurisdiction to reopen assessment (AY 2000-01 to 2002-03), the Court held that the AO had recorded valid reasons to believe that income chargeable to tax had escaped assessment, based on the undisputed fact of fixed deposits held by the assessee society and absence of registration under section 12A for those years; thus, reopening under sections 147/148 was justified.Regarding initiation of proceedings without valid approval from Additional Commissioner, this ground was raised but not specifically adjudicated in the judgment excerpt.The assessment framed under section 144/148 without issuance of notice under section 143(2) after return filing was held to be without jurisdiction and not tenable, as the issuance of notice under section 143(2) is mandatory once a return is filed in response to notice under section 142(1).The return filed beyond the time prescribed in the notice under section 148 was held to be a valid return; hence, the AO's reliance on the return being invalid due to late filing was rejected.The levy of interest under section 234B was upheld by the lower authorities but the judgment excerpt does not explicitly rule on this ground.For Assessment Years 2003-04 to 2005-06, the Court found that the reasons recorded by the AO on 28.03.2008 did not explicitly record satisfaction that income chargeable to tax had escaped assessment; however, a note-sheet dated 28.03.2008 indicated such satisfaction, which the appellate authority may not have considered. Therefore, the matter was remanded for fresh adjudication.The appellate authority's quashing of reopening for Assessment Years 2003-04 to 2005-06 was set aside and remanded for reconsideration after proper examination of the AO's reasons and records. RATIONALE: The Court applied the statutory framework under sections 147, 148, 142(1), 143(2), and 144 of the Income Tax Act, emphasizing that the AO must record 'reason to believe' that income has escaped assessment before issuing notice under section 148; this is a condition precedent and mandatory.The Court relied on established precedents that 'reason to believe' is not synonymous with 'reason to suspect' and must be based on objective material on record.It was noted that the AO's satisfaction must be explicit and recorded before issuance of notice under section 148 to confer jurisdiction.The Court recognized legislative intent and statutory provisions that mandate issuance of notice under section 143(2) once a return is filed in response to section 142(1) notice, and that failure to issue such notice renders the assessment invalid and not a mere procedural irregularity.The Court distinguished between valid and invalid returns based on timeliness and compliance with notices, holding that late return filed pursuant to section 142(1) notices is valid for assessment purposes.For the later assessment years, the Court identified a factual gap in the appellate authority's consideration of the AO's recorded satisfaction, leading to remand for fresh adjudication, thus maintaining procedural fairness and adherence to statutory requirements.No dissent or doctrinal shift was indicated; the Court followed settled legal principles and statutory mandates.