Invalid Reassessment Notice, The Entire Proceedings have To Collapse: Calcutta High Court
The Calcutta High Court has held that the foundation of a reassessment proceeding is a valid notice, and if the notice is held to be invalid, the entire edifice sought to be raised has to collapse.The division bench of T.S. Sivagnanam and Justice Hiranmay Bhattacharyya have observed that the assessing officer is bound to furnish reasons within a reasonable time, the noticee is entitled...
The Calcutta High Court has held that the foundation of a reassessment proceeding is a valid notice, and if the notice is held to be invalid, the entire edifice sought to be raised has to collapse.
The division bench of T.S. Sivagnanam and Justice Hiranmay Bhattacharyya have observed that the assessing officer is bound to furnish reasons within a reasonable time, the noticee is entitled to file their objection to the notice, and the assessing officer is bound to dispose of it by passing a speaking order.
The respondent/assessee filed the return of income for the assessment year 2009-10, declaring a total income of nil. The return was processed under Section 143 (1) of the Income Tax Act. A survey under Section 133A was conducted from which it was found that the assessee had deposited money with M/s. Nissan Developers and Properties Pvt. Ltd. to the tune of Rs. 59,42,709/-. It was observed by the department that the company is a specified person of the assessee.
According to the Assessing Officer, the assessee was hit by Section 13(1)(c)(ii) and Section 13(1)(d) of the Act. The assessment was reopened under Section 147 of the Act by the issuance of a notice under Section 148. Subsequently, notices under Section 143(2) and Section 142(1) were issued. The assessee, through their authorised representative, appeared before the Assessing Officer and produced details and documents and made their submissions.
The Assessing Officer observed that from the documents it was seen that the assessee had deposited Rs. 59,42,709 and Rs. 3,65,97,000 with M/s. Nissan Developers and Properties Pvt. Ltd. and Poddar Projects Ltd., respectively, and both these companies are specified persons of the assessee. Therefore, the Assessing Officer held that these amounts were to be taxed separately at the Maximum Marginal Rate in terms of the proviso to Section 164(2). The Assessing Officer pointed out that two of the trustees were also directors of the companies with substantial interest, and the companies had substantial interest in that e-mail ID as that of the trust, and they all functioned from the same address. The total amount of Rs. 4,24,39,709 was treated as income by invoking Section 13(1)(b) read with Section 11(5).
The assessee was aggrieved by the order of AO and filed an appeal before the CIT (A). The CIT(A) substantially affirmed the view taken by the Assessing Officer except for granting partial relief, such as with regard to the claim for carry forward of the depreciation, etc.
The assessee preferred an appeal before the Tribunal. The assessee contended before the Tribunal that the CIT(A) failed to take note of the material irregularity committed by the Assessing Officer while initiating proceedings under Section 148 for reopening assessment under Section 147 without noting the vital fact that the basis of issuing notice under Section 148 was on a wrong assumption of the fact that the assessee had invested money with its specified persons. The solitary reason recorded by the Assessing Officer for reopening of the assessment was deleted by the CIT(A). The assessment under the other heads done by the Assessment Officer which were not shown as reasons for reopening ought to have been held to be illegal.
The Tribunal noted that the addition of Rs. 59,42,709, which was made in the reassessment proceedings, had been deleted by the CIT(A). The reassessment on the heads which were not part of the reasons recorded for the reopening of the assessment is not sustainable.
The department contended that after the insertion of Explanation 3 to Section 147, even if the issue was not one of the reasons recorded while reopening the assessment, the Assessing Officer has the power to assess the escaped income on such other issues as come to his notice subsequently in the course of the proceedings under Section 147.
The court noted that Explanation 3, inserted by the amendment, empowers the assessing officer to assess the income in respect of any issue which has escaped assessment when such issue comes to his notice subsequently in the course of the proceedings under Section 147. The reasons for an issue have not been included in the reasons recorded under Section 148(2), which is a prerequisite for a valid notice. The notice was held to be unsustainable.
Case Title: CIT Versus B.P. Poddar Foundation For Education
Citation: 2022 LiveLaw (Cal) 307
Case No: ITAT/143/2021
Date: 13.09.2022
Counsel For Appellant: Senior Advocate Vipul Kundalia, Advocate Anurag Roy
Counsel For Respondent: Advocates Saurabh Bagaria, Saumya Kejriwal, G.S. Gupta