2012 (5) TMI 95 - HC - Income Tax

Quashing/setting aside the re-assessment proceedings on the ground that the original re-assessment proceedings had abated Held that - The tribunal aside the original proceedings on the technical ground and the AO thereafter had recorded fresh reasons and issued notice under Section 147/148 of the Act - the reasons to believe now recorded have to stand independently and separate from the reasons to believe, which were recorded earlier before initiation of the re-assessment proceedings, which abated thus the said reasons to believe and issue of notice cannot be faulted and rejected on the ground that in the earlier/original assessment or re-assessment proceedings, notice under Section 143(2) was not served on the assessee within the statutory time/period - a valid ground to quash the first/original assessment/re-assessment order cannot be a ground to quash the re-assessment proceedings, which have been initiated afresh after recording reasons to believe against assessee.

Issues Involved:
1. Validity of re-assessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Requirement and impact of statutory notice under Section 143(2) of the Income Tax Act, 1961.
3. Legality of issuing fresh notice under Section 147/148 after the original re-assessment proceedings were quashed.
4. Allegation of change of opinion in re-assessment proceedings.

Detailed Analysis:

1. Validity of Re-assessment Proceedings under Section 147/148 of the Income Tax Act, 1961:
The core issue was whether the Income Tax Appellate Tribunal (ITAT) was correct in quashing the re-assessment proceedings on the grounds that the original re-assessment proceedings had abated. The respondent-assessee did not file a return for the assessment year 1995-96. The Assessing Officer (AO) issued a notice under Section 148 on 21st January 1997, and the assessment was completed under Section 144. However, this order was set aside by the tribunal for not serving the statutory notice under Section 143(2) within the stipulated period. Fresh reasons were recorded, and another notice under Section 147/148 was issued on 23rd March 2002. The tribunal quashed these proceedings, stating the AO did not have fresh information to justify the issuance of the second notice.

2. Requirement and Impact of Statutory Notice under Section 143(2) of the Income Tax Act, 1961:
The tribunal quashed the original re-assessment proceedings because the statutory notice under Section 143(2) was not served within 12 months from the end of the month in which the return was filed. This procedural lapse was critical and led to the tribunal's decision to invalidate the original re-assessment. The tribunal emphasized that the failure to issue the notice within the prescribed period denuded the AO of the power to scrutinize the return filed in response to the notice under Section 148.

3. Legality of Issuing Fresh Notice under Section 147/148 after Original Re-assessment Proceedings were Quashed:
The High Court examined whether the AO could issue a fresh notice under Section 147/148 after the original proceedings were quashed. The court held that the reasons to believe recorded for the fresh notice must stand on their own and be separate from the earlier reasons. The court cited the case of R. Kakkar Glass and Crockery House Vs. Commissioner of Income-tax, stating that a fresh notice is valid if it complies with all legal requirements, even if the original notice was quashed on technical grounds. The court concluded that the fresh re-assessment proceedings could not be faulted merely because the original proceedings were invalidated due to the non-service of notice under Section 143(2).

4. Allegation of Change of Opinion in Re-assessment Proceedings:
The respondent-assessee contended that the re-assessment proceedings were a result of a change of opinion. The court rejected this argument, stating that the original proceedings were quashed for technical reasons, and the merits were not examined. The Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd. was referenced, clarifying that the failure to issue notice under Section 143(2) does not amount to a change of opinion. The court emphasized that the AO's power to issue a fresh notice under Section 147/148 is preserved if new material indicating escaped income is available.

Conclusion:
The High Court answered the question of law in favor of the appellant, holding that the ITAT was incorrect in quashing the re-assessment proceedings on the basis that the original proceedings had abated. The court directed the tribunal to decide the appeal on merits, emphasizing that the procedural lapse in the original proceedings did not preclude the AO from issuing a fresh notice under Section 147/148. The parties were directed to appear before the Assistant Registrar of the tribunal for further proceedings.

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