2013 (10) TMI 782 - AT - Income Tax

Reassessment u/s 147 - validity of reassessment proceedings where period of limitation for issuance notice us/ 143(2) did not expire - Held that - The return of income was processed under section 143(1)(a) on March 9, 2001. However, the Assessing Officer issued a notice under section 148 of the Income-tax Act on April 30, 2001. Such a notice was objected to as time barred. In spite of that the Assessing Officer has not withdrawn the notice and he has issued notice under section 143(2) of the Act and completed the assessment on March 28, 2003. That was carried on appeal before the Commissioner of Income- tax (Appeals), who held that the assessment was ab initio void, inasmuch as the Assessing Officer had issued notice under section 148 of the Act when he had sufficient time to issue notice under section 143(3) of the Act Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Income-tax Appellate Tribunal. The Tribunal, following the decision of this court in the case of CIT v. K. M. Pachayappan has dismissed the appeal filed by the Revenue. Dismissing the appeal, that the Tribunal was right in holding that notice under section 148 of the Act could not be issued for making an assessment under section 147 of the Act, when time limit was available for issue of notice under section 143(2) of the Act for making an assessment under section 143(3) of the Act - Following decision of COMMISSIONER OF INCOME-TAX Versus TCP LTD. 2009 (4) TMI 396 - MADRAS HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the issuance of notice under Section 148 of the Income Tax Act before the expiry of the time limit for issuance of notice under Section 143(2).
2. Classification of the land sold by the assessee as agricultural or non-agricultural for the purpose of claiming exemption under Section 2(14)(iii).
3. Reopening of assessment under Section 147 without new tangible material.

Issue-wise Detailed Analysis:

1. Validity of the Issuance of Notice under Section 148 Before the Expiry of the Time Limit for Issuance of Notice under Section 143(2):

The assessee argued that the issuance of notice under Section 148 of the Act for reopening the assessment was invalid as it was issued before the expiry of the time limit for issuing notice under Section 143(2). The appellate tribunal examined the legal precedents and relevant case laws, including CIT vs. K.M. Pachayappan (304 ITR 264 (Mad.)), CIT vs. Qatalys Software Technologies (308 ITR 349 (Mad.)), and the third member decision of the Chennai Bench in Super Spinning Mills Ltd. Vs. ACIT (3 ITR (Trib.) 258). The tribunal concluded that the issuance of notice under Section 148 before the expiry of the time limit for notice under Section 143(2) is legally invalid. The tribunal followed the consistent view laid down in judicial precedents, holding that the reopening of assessment made by issuance of notice under Section 148 before the expiry of the time limit for issuance of notice under Section 143(2) is legally invalid and the assessment order passed in consequence thereof is unsustainable. Consequently, the tribunal quashed the assessment order passed under Section 143(3).

2. Classification of the Land Sold by the Assessee as Agricultural or Non-Agricultural for the Purpose of Claiming Exemption under Section 2(14)(iii):

During the assessment proceedings, the Assessing Officer (AO) found that the land sold by the assessee was not used for agricultural purposes. The assessee had purchased the land from Shri S. Lokanath and sold it to Shri M. Neelkanta Naidu, claiming it as agricultural land to seek exemption under Section 2(14)(iii). However, investigations revealed that no agricultural activities were carried out on the land, and structures were constructed on it before the sale. The AO, therefore, treated the land as non-agricultural and disallowed the exemption claim. The CIT(A) upheld this decision, noting that the assessee admitted to the non-agricultural use of the land and provided no evidence to prove otherwise.

3. Reopening of Assessment under Section 147 Without New Tangible Material:

The assessee also contended that the reopening of the assessment under Section 147 was invalid as there was no new tangible material to justify the action. The tribunal acknowledged this argument but focused primarily on the legal issue of the timing of the notice under Section 148. Given that the tribunal quashed the assessment order based on the invalidity of the notice under Section 148, it did not find it necessary to further adjudicate on the merits of the reopening under Section 147.

Conclusion:

The tribunal allowed the appeal of the assessee, primarily on the grounds that the issuance of notice under Section 148 before the expiry of the time limit for issuance of notice under Section 143(2) was legally invalid. Consequently, the assessment order passed under Section 143(3) was quashed. Other grounds raised by the assessee became redundant and were not adjudicated. The judgment was pronounced in the open court on 11-10-2013.