2011 (3) TMI 1231 - HC - Income Tax

Reassessment - Time limitation - assessee filed income-tax return for the assessment year 2004-05 disclosing an income claiming exemption under section 10(23C) - Held that - If the Income-tax Officer has reason to believe that income had escaped assessment as clarified in Explanation 2 to section 147 of the Act proceedings can be initiated for reassessment. As already noticed that claim of excess deduction/allowance in a case of non-assessment or excessive relief having been granted where assessment has been made also amounts to escapement. In so far as the initiation of reassessment proceedings are concerned it is prima facie convinced that the respondent is well within the jurisdiction in issuing the notices. It shall be open to the petitioner to raise all the pleas before the respondent pursuant to the notices issued under section 143(2) of the Act. In such an event it is needless to observe that the respondent shall consider all the matters before passing reassessment orders - writ petition dismissed without any order as to costs. Against assessee.

Summary

Issues Involved:
1. Validity of reassessment notices under Section 148 of the Income-tax Act, 1961.
2. Alleged change of opinion by the Assessing Officer.
3. Limitation period for issuing reassessment notices.
4. Jurisdiction of the High Court under Article 226 of the Constitution of India.
5. Compliance with Section 11(5) and Section 13(1)(d) of the Income-tax Act.
6. Relevance of prior scrutiny and assessment orders.
7. Impact of subsequent judicial decisions on reassessment proceedings.

Detailed Analysis:

1. Validity of Reassessment Notices under Section 148 of the Income-tax Act, 1961:
The writ petitions challenged the reassessment notices issued by the respondent under Section 148 of the Income-tax Act, proposing to reassess the income for five assessment years. The court noted that the reassessment notices were based on the petitioner's participation in a chit fund scheme, which was alleged to be in contravention of Section 11(5) of the Act, thereby disentitling the petitioner from claiming exemption under Section 11(1) of the Act.

2. Alleged Change of Opinion by the Assessing Officer:
The petitioner argued that the reassessment was a result of a change of opinion, as the Assessing Officer had already scrutinized the returns for the relevant assessment years. The court held that the acceptance of the return after scrutiny does not amount to passing an assessment order, and the concept of "change of opinion" does not apply when there is no assessment. The court further noted that the issue of contravention of Section 11(5) was not considered by the Assessing Officer during the original assessment.

3. Limitation Period for Issuing Reassessment Notices:
The petitioner contended that the reassessment notices were time-barred as they were issued beyond the period of four years. The court observed that under Section 149(1)(b) of the Act, reassessment notices could be issued within six years if the income chargeable to tax, which had escaped assessment, amounted to or was likely to amount to one lakh rupees or more. The notices were issued within the permissible time limit.

4. Jurisdiction of the High Court under Article 226 of the Constitution of India:
The court emphasized that the writ jurisdiction, especially in tax matters, is not ordinarily exercised in view of the elaborate appeal system provided by the statute. The court held that it would only intervene to scrutinize jurisdictional errors and that the petitioner has effective remedies under the Income-tax Act, including appeals to the Commissioner and the Appellate Tribunal.

5. Compliance with Section 11(5) and Section 13(1)(d) of the Income-tax Act:
The court noted that the petitioner's participation in the chit fund scheme was in contravention of Section 11(5) of the Act, attracting the provisions of Section 13(1)(d), which bars the petitioner from claiming exemption under Section 11(1). The court observed that the petitioner was required to comply with the investment modes specified under Section 11(5) to avail the benefit of exemption.

6. Relevance of Prior Scrutiny and Assessment Orders:
The court held that the prior scrutiny and acceptance of returns under Sections 143(2) and 142(1) do not preclude the reassessment proceedings. The court noted that the issue of compliance with Section 11(5) was not considered during the original assessments, and the reassessment was justified based on the subsequent discovery of facts.

7. Impact of Subsequent Judicial Decisions on Reassessment Proceedings:
The court referred to the decision of the Income-tax Appellate Tribunal in Priyadarshini Educational Academy v. Asst. CIT, which held that investment in a chit fund is not in accordance with Section 11(5) and disentitles the assessee from claiming exemption. The court held that subsequent judicial decisions constitute "information" for reopening the original assessment.

Conclusion:
The court dismissed the writ petitions, holding that the reassessment notices were valid and within the jurisdiction of the respondent. The petitioner was directed to raise all objections before the respondent during the reassessment proceedings. The court emphasized that the petitioner has effective remedies under the Income-tax Act and that the reassessment proceedings should be completed following the due process of law.