2006 (11) TMI 166 - HC - Income Tax

Reopening of the assessment - notice issued u/s 143(2) - change of opinion - Non speaking order - Whether the Appellate Tribunal was right in law in treating the letter dated December 20, 2004, by the Assessing Officer is equivalent to a notice prescribed u/s 143(2), when the letter is nothing but furnishing the reasons for reopening the assessment? - HELD THAT - Following the two High Court judgments in the case of CIT v. Gyan Prakash Gupta 1985 (7) TMI 9 - RAJASTHAN HIGH COURT and in Sant Baba Mohan Singh v. CIT 1972 (1) TMI 28 - ALLAHABAD HIGH COURT . We are of the view that there are only procedural irregularities committed by the Assessing Officer and hence the reassessment cannot be annulled. Learned counsel for the assessee also relied on the Supreme Court judgment in the case of GKN Driveshafts (India) Ltd. v. ITO 2002 (11) TMI 7 - SUPREME COURT to support his contention that objections were not considered by the Assessing Officer while completing the reassessment and hence the order of the reassessment is bad in law. It is clear that the Assessing Officer has to furnish reasons, within a reasonable time and on receipt of the same, the assessee can file objection to the issue of notice and the Assessing Officer is bound to dispose of the same by a speaking order, before proceeding with the reassessment. In the present case, the objections have not been considered at all by the Assessing Officer before proceeding with the reassessment. Reassessment order was completed without considering the objections to the reopening of the assessment. It is nothing but a procedural defect and, therefore, it could not be held that the reassessment is a nullity in law. Since we are of the view that these are only irregularities committed by the Assessing Officer (i.e.) not considering the objections as well as not issuing notice u/s 143(2) of the Act, before completing the reassessment, we set aside the order of the Tribunal as well as the lower authorities with a direction to the Assessing Officer to consider the matter afresh, particularly the objections given by the assessee for reopening and issue notice u/s 143(2) of the Act, after giving opportunity to the assessee to raise all contentions relating to the reopening of the assessment as well as the merits of the case and permit the assessee to produce materials and evidence, if any, and pass orders in accordance with law, as expeditiously as possible. As the matter is remanded, it is not necessary to answer the above questions of law, as the same is likely to adversely affect the rights of either parties. Thus, the tax case is disposed of. Consequently, M. P. Nos. 1 and 2 of 2006 are closed.

Issues Involved:
1. Validity of treating a letter as a notice under section 143(2) of the Income-tax Act, 1961.
2. Timing and validity of the return filed by the appellant.
3. Issuance of notice under section 143(2) before filing the return.
4. Contents of the letter dated December 20, 2004, and its compliance with legal requirements.
5. Valuation of closing net assets and its impact on the concept of slump sale.
6. Remanding the assessment for taxing depreciable assets under section 50.
7. Consideration of slump sale under section 45 of the Act.
8. Non-compete fees and their taxability.
9. Remanding assessment for verifying fresh additions to book profits.

Detailed Analysis:

1. Validity of Treating a Letter as a Notice Under Section 143(2):
The court examined whether the letter dated December 20, 2004, by the Assessing Officer could be considered equivalent to a notice under section 143(2). The tribunal's decision to treat the letter as such was challenged. The court concluded that the failure to issue a proper notice under section 143(2) constituted a procedural irregularity, not a nullity, thereby not invalidating the reassessment.

2. Timing and Validity of the Return Filed by the Appellant:
The court addressed whether the appellant's letter dated December 18, 2004, could be considered as the return of income. The tribunal held that the return filed on January 17, 2005, was valid. The court noted that the original return and the subsequent return filed were identical, and the Assessing Officer considered the latter for reassessment, indicating procedural adherence.

3. Issuance of Notice Under Section 143(2) Before Filing the Return:
The court examined if a notice under section 143(2) could be issued before the return was filed. The tribunal's conclusion that such a notice could be issued was upheld, noting that procedural irregularities did not render the reassessment null and void.

4. Contents of the Letter Dated December 20, 2004:
The court evaluated whether the letter dated December 20, 2004, complied with the requirements to inform the appellant of their options to attend, produce evidence, or rely on evidence for the return. The tribunal's conclusion that the letter did not meet these requirements was noted, but it was considered a procedural irregularity.

5. Valuation of Closing Net Assets:
The court considered whether the valuation of closing net assets by a chartered accountant firm could detract from the concept of slump sale. The tribunal's decision to remand the matter for reassessment was upheld, indicating the need for a detailed examination of asset valuation.

6. Remanding Assessment for Taxing Depreciable Assets:
The court addressed the tribunal's decision to remand the assessment for taxing depreciable assets under section 50. The decision was upheld, indicating the necessity of reassessment to ensure compliance with legal provisions.

7. Consideration of Slump Sale Under Section 45:
The court evaluated whether the consideration received in a slump sale was outside the purview of capital gains under section 45. The tribunal's decision to remand the matter for reassessment was upheld, requiring a detailed examination of the transaction's nature.

8. Non-Compete Fees and Their Taxability:
The court examined the tribunal's decision to remand the issue of non-compete fees for fresh verification. The tribunal's decision was upheld, noting the need for reassessment to determine the taxability of non-compete fees as capital receipts.

9. Remanding Assessment for Verifying Fresh Additions to Book Profits:
The court considered the tribunal's decision to remand the assessment for verifying fresh additions to book profits. The tribunal's decision was upheld, indicating the necessity of reassessment to ensure accurate computation of book profits.

Conclusion:
The court concluded that the procedural irregularities committed by the Assessing Officer, such as not issuing a notice under section 143(2) and not considering objections, did not render the reassessment null and void. The court set aside the tribunal's order and remanded the matter to the Assessing Officer for fresh consideration, directing compliance with procedural requirements and providing the appellant an opportunity to present their case. The tax case was disposed of with no costs, and related miscellaneous petitions were closed.

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