2014 (7) TMI 644 - AT - Income Tax

Reopening of assessment u/s 148 - no option to file return was given Held that - The CIT(A) has himself accepted that 30 days time as provided in the notice u/s. 148 of the Act to the assessee for submission of the return of income has not been provided to the assessee and the assessment was finalised on 28.1.2012 - the CIT(A) has erred in deciding the issue in favour of the Revenue Decided in favour of Assessee. Income escapement - Whether the discrepancy between the income shown as per the return of income vis-a-vis as per certificate of TDS would necessarily lead to escapement of income for assuming jurisdiction u/s. 148 of the Act Held that - A variation in these two figures does not necessarily lead to escapement of income - Mere need to verify the discrepancy does not bring the matter within the scope of cases in which reassessment proceedings can be validly initiated - There is subtle, though significant, distinction between reason to believe and reason to suspect - While the former is good enough to hold that income has escaped assessment and initiate suitable remedial measures in respect thereof, the latter can, at best, be the ground to verify and examine the matter further - Mere fact that matter needs to be verified and examined further can never be a reason good enough to believe that income has escaped assessment and to invoke the reassessment proceedings thus, the reopening of assessment on the basis of receipt shown in the TDS certificate is not sustainable in law - the CIT(A) has wrongly held that the AO rightly initiated proceeding u/s. 147 of the Act The decision in RAFEEQ IQBAL Versus INCOME TAX OFFICER 2013 (11) TMI 8 - ITAT HYDERABAD followed - Decided in favour of Assessee.

Summary

Issues involved:
1. Validity of notice u/s. 148 and jurisdiction for re-assessment.
2. Correctness of reasons recorded for re-assessment.
3. Assessment order validity regarding notice u/s. 143(2).
4. Discrepancy between income shown in return and TDS certificate for jurisdiction under section 148.

Detailed analysis:
1. The appeal was against the order of the CIT(A) for the assessment year 2007-08. The assessee, a partnership firm in the business of civil contracts, filed its return of income with a claim for a refund. The ACIT requested original TDS certificates and other documents, noting discrepancies in the gross works contract amounts. The AO completed the assessment, making substantial additions to the income returned by the assessee. The assessee challenged the legality of the assessment on the grounds of improper notice u/s. 147 and incorrect reasons recorded for re-assessment.

2. The notice u/s. 148 was dispatched but not received by the assessee within the stipulated time for filing a return of income. The CIT(A) upheld the validity of the notice, stating that the assessee appeared before the AO in response to the notices. However, the ITAT found that the CIT(A) erred in deciding in favor of the Revenue as the notice was not served within the required timeframe, thus allowing the appeal on this ground.

3. The AO proceeded with the assessment without serving the notice u/s. 143(2) on the assessee, which was raised as a procedural irregularity. The CIT(A) held that the only grievance should be the lack of opportunity for representation, deciding in favor of the Revenue. However, the ITAT did not adjudicate on this issue as the appeal was allowed on other grounds.

4. The ITAT further analyzed the discrepancy between the income shown in the return and the TDS certificate, which led to the re-assessment under section 147. Citing precedents, the ITAT held that a mere variation between the two figures does not necessarily indicate income escapement. Relying on previous decisions, the ITAT concluded that the reassessment based on this discrepancy was not legally sustainable, thereby deciding against the Revenue and allowing the assessee's appeal.

In conclusion, the ITAT allowed the assessee's appeal, primarily due to the invalidity of the notice u/s. 148 and the unsustainable basis for re-assessment regarding the discrepancy between income figures in the return and TDS certificate. The judgment highlighted procedural irregularities and legal principles governing re-assessment proceedings.