2012 (3) TMI 266 - HC - Income Tax

Validity of notice issued u/s 148 for re-opening of assessment beyond 4 years A.Y. 2004-05 purport to be reopened on ground of escapement of income received in A.Y. 2003-04, assessment of which was framed after scrutiny belief formed on basis of letter of Additional DIT (Investigation) - approval u/s 151 for issue of notice u/s 148 granted by CIT Held that - It is impossible to comprehend as to how the Assessment for A.Y. 2004-05 can be reopened on the ground that income escaped assessment in A.Y. 2003-04. Moreover, exfacie the reasons disclosed cannot form the basis of a reason to believe escapement of income for A.Y. 2004 05. Also, letter dated 11.03.2010 of Additional DIT (Investigation) was much prior to the finalization of the Assessment for A.Y. 2003-04 on 27.12.2010. Thus, no new tangible material is on record as required u/s 147. Further, requirement of Section 151(2) could have only been fulfilled by the satisfaction of the Joint Commissioner that this is a fit case for the issuance of a notice u/s 148. In instant case, approval was granted by CIT. There is no statutory provision here under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Therefore in view of non-compliance of the mandatory requirements of Section 147 and 151(2), the notice reopening the assessment cannot be sustained in law - Decided in favor of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Tangible material for reopening the assessment beyond four years.
3. Validity of approval under Section 151 for reopening the assessment.
4. Compliance with mandatory requirements under Sections 147 and 151(2).

Detailed Analysis:

1. Legality of the Notice Issued Under Section 148
The petitioner questioned the legality of the notice issued on 30 March 2011 under Section 148 of the Income Tax Act, 1961, proposing to reopen the assessment for Assessment Year (AY) 2004-05. The petitioner, an advocate, had already undergone scrutiny for AY 2003-04, resulting in an additional tax liability of Rs. 4.9 crores. The Assessing Officer (AO) alleged that the petitioner received an amount of Pound Sterling 6,50,000 in his Zurich bank account, which was not declared for tax purposes. The petitioner contended that the amount was received for employment in Dubai and not for services rendered in India.

2. Tangible Material for Reopening the Assessment Beyond Four Years
The petitioner argued that there was no tangible material on record to justify reopening the assessment beyond four years. The basis for reopening was a letter dated 11 March 2010 from the Additional DIT (Investigation), which was already available when the assessment for AY 2003-04 was finalized on 27 December 2010. The court found that the reasons disclosed to the petitioner could not form a basis for reopening the assessment for AY 2004-05, as the alleged income was received in the previous year relevant to AY 2003-04.

3. Validity of Approval Under Section 151 for Reopening the Assessment
The petitioner contended that the notice for reopening was issued on 30 March 2011, but the approval under Section 151 was received on 31 March 2011, making the notice invalid. The court examined the requirement under Section 151(2), which mandates that no notice shall be issued without the satisfaction of the Joint Commissioner. In this case, the approval was granted by the Commissioner of Income Tax, not the Additional Commissioner, which was against the statutory requirement. The court held that the satisfaction of the Joint Commissioner could not be substituted by the satisfaction of another authority.

4. Compliance with Mandatory Requirements Under Sections 147 and 151(2)
The court found that the mandatory requirements under Sections 147 and 151(2) were not fulfilled. The reopening of the assessment was based on information already considered in the previous year's assessment, and there was no new tangible material. Additionally, the approval for reopening was not granted by the appropriate authority, rendering the notice invalid.

Conclusion:
The court concluded that the petitioner was entitled to succeed. The notice dated 30 March 2011 for reopening the assessment was quashed and set aside due to non-compliance with the mandatory requirements of Sections 147 and 151(2) of the Income Tax Act, 1961. The court emphasized that when the statute mandates the satisfaction of a particular functionary for the exercise of a power, it must be that authority's satisfaction, and it cannot be substituted by another.