2025 (9) TMI 1558 - AT - Income Tax

Reopening notice under s.148 and assessment under s.144 r.w.s.147 quashed for lack of service and wrong jurisdiction

ITAT held the reopening notice under s.148 and consequential assessment under s.144 r.w.s.147 were invalid. The Tribunal found the assessee's correct ... Validity of Reopening of assessment u/s 147 - non service of notice to assessee - assessee’s actual jurisdiction lies with ITO, Ward No-2(5), Chandigarh or ITO, Ward-2, Jagraon - HELD THAT:- Assessee’s jurisdiction actually lies with ITO, Ward-2(5), Chandigarh because the assessee’s residential address is 69, Banur, Punjab. When these facts were confronted to D.R. she cannot confronted the above facts but she argued only on the premise that once notice under section 148 of the Act was issued it is the responsibility of the assessee to file the details. We noted that the notice issued under section 148 of the Act on 29.03.2019 and consequent assessment made by ITO, Ward – 2, Jagraon for the A.Y. 2012-13, neither the 148 nor the assessment order passed u/s 144 r.w.s 147 of the Act is served on assessee and that also out of jurisdiction. Hence, we quash the notice issued under section 148 of the Act for reopening assessment and consequent assessment order. Appeal filed by assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings initiated under section 147 read with section 144 of the Income-tax Act are valid where the reopening notice under section 148 was issued and assessment framed by an Assessing Officer who did not have territorial jurisdiction over the assessee. 2. Whether the notice under section 148 was validly served on the assessee where the address used for service was not the assessee's residential/recorded address and the assessee contends she had no nexus with the place to which notice was sent. 3. Whether recorded reasons for reopening under section 147 (including reliance on AIR information and a finding of 'non-PAN' and non-filing of return) sustain a reason to believe that income had escaped assessment when contrary facts (existence of PAN and filing of returns at a different address) are shown. 4. Whether the addition of the purchase consideration as income from undisclosed sources under section 69 is tenable when reopening and service are challenged and when ownership was joint. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reopening when assessment was framed by a non-jurisdictional Assessing Officer Legal framework: Reopening under section 147 requires valid issuance and service of notice under section 148 and that proceedings be conducted by the officer having jurisdiction; jurisdictional competence is a condition precedent to a valid reassessment and assessment under sections 147/148/144. Precedent treatment: No specific precedent was cited or relied upon in the judgment; the Tribunal applied statutory jurisdictional principles to the facts. Interpretation and reasoning: The Tribunal examined the record and found that the notice dated 29.03.2019 was issued by Income-tax Officer, Ward-2, Jagraon, while the assessee's established residential/address nexus (and PAN-linked filings) placed jurisdiction with a different ITO (ITO Ward-2(5), Chandigarh). The Tribunal noted that neither the section 148 notice nor the assessment order under section 144 r.w.s 147 was served upon the assessee at her known address and that the proceedings were conducted out of the proper territorial jurisdiction. Ratio vs. Obiter: Ratio - a reopening and reassessment effected by an officer lacking territorial jurisdiction and without valid service is void and liable to be quashed. (This is the operative basis for the decision.) Conclusions: The Tribunal quashed the section 148 notice and consequent assessment framed under section 147 r.w.s. 144 on the ground that the proceedings were initiated and completed by a non-jurisdictional officer and therefore lacked jurisdiction. Issue 2 - Validity of service of notice under section 148 (electronic/registered post vs. actual notice) Legal framework: Service of notices under the Act may be effected by electronic communication and registered post in accordance with section 282 and relevant rules; however, effective service is a precondition to valid reassessment and must be examined against the facts (actual address, nexus, and methods employed). Precedent treatment: The judgment addressed statutory provisions (section 282 and Rule 127) cited by the CIT(A) but did not apply or distinguish specific case law. Interpretation and reasoning: The CIT(A) upheld service on the basis that electronic communication requirements were met and that the assessee's failure to open email was not a valid excuse. The Tribunal, however, found that the notice and assessment had not been served on the assessee at her recorded/residential address and that the physical address used in the notice bore no nexus to the assessee's dwelling. The Tribunal gave weight to contemporaneous documentary evidence (purchase deed, PAN and returns filed at the Banur, Mohali address) showing a different address and thus concluded that service was not effected in accordance with requirements for valid issuance/communication of notice in this case. Ratio vs. Obiter: Ratio - where the address used for service has no nexus with the assessee and the notice/assessment are not in fact served at the assessee's proper address, the service is invalid and reassessment cannot stand. Conclusions: The Tribunal held the service to be defective in the circumstances and relied on that defect (in conjunction with the jurisdictional defect) to quash the reopening and reassessment. Issue 3 - Sufficiency and correctness of reasons recorded for reopening under section 147 (AIR, non-PAN, non-filing of return) Legal framework: Reopening under section 147 requires a reason to believe that income chargeable to tax has escaped assessment; reasons must be based on material and correct facts. Misstated or contrary factual premises may vitiate the recorded reasons. Precedent treatment: The Court/Tribunal did not rely on or distinguish authority but applied the statutory test of 'reason to believe' to the record. Interpretation and reasoning: The AO's reasons relied on AIR indicating a property transaction of Rs. 1,00,21,000 and erroneously stated that the assessee had no PAN and had not filed a return. The assessee produced the registered sale deed showing her address at Banur (Mohali), joint ownership status with another purchaser, and a PAN (AHFPK0713J) and subsequent return filings at the correct jurisdiction. The Tribunal observed that where the factual premises recorded by the AO are shown to be incorrect (existence of PAN, filing history and correct address), the justification for reopening is undermined. While the AO may rely on AIR to form a reason to believe, the presence of contrary facts on record that negate the AO's assumptions weakens the sufficiency of the reasons recorded. Ratio vs. Obiter: Ratio - reasons recorded for reopening must rest on accurate material; recording reasons on incorrect factual assumptions (e.g., 'non-PAN' when PAN exists and returns have been filed) undermines the legality of reopening. (This finding informs the decision to quash.) Conclusions: The Tribunal treated the incorrect factual basis (non-PAN/non-filing) as a material defect in the reasons for reopening and, together with jurisdictional and service defects, concluded that the reopening was unsustainable. Issue 4 - Addition under section 69 (income from undisclosed sources) where reopening and service are challenged and ownership was joint Legal framework: Section 69 permits treating unexplained investments as income from undisclosed sources where the assessee fails to explain the source of funds for specified investments/transactions; however, such addition presupposes valid reassessment proceedings and that the burden on the assessee to explain is exercised in proceedings where jurisdiction and service are valid. Precedent treatment: No judicial authorities were relied upon; the Tribunal applied statutory principles. Interpretation and reasoning: The AO assessed the full purchase consideration as unexplained income under section 69 after finding no response to multiple notices. The assessee asserted the purchase was in joint names and produced the sale deed showing joint ownership and her residential address; she contended lack of service and lack of jurisdiction prevented her from effectively contesting or explaining the source. The Tribunal concluded that an addition under section 69 cannot be sustained where the foundational reassessment itself is quashed for jurisdictional/service defects and where the assessee's capacity to explain the source was frustrated by defective proceedings. Ratio vs. Obiter: Ratio - substantive additions under section 69 are contingent on the validity of reassessment proceedings; if such proceedings are quashed for jurisdiction/service defects, the additions fall. Conclusions: The Tribunal set aside the addition under section 69 as it followed from the quashed reopening and assessment; the joint ownership fact and defective proceedings supported granting relief to the assessee. Cross-references and Final Outcome For Issues 1-4 (see above): The Tribunal found interrelated defects - incorrect factual basis in the reasons to reopen (non-PAN/non-filing), defective/insufficient service at a non-nexus address and initiation/completion of proceedings by a non-territorially-competent AO - and held that these combined defects vitiated the reopening under section 147, the notice under section 148, and the consequent assessment under section 144 r.w.s. 147. The Tribunal quashed the notice and set aside the assessment and CIT(A)'s confirmation on jurisdiction/service grounds, allowing the appeal.