2015 (8) TMI 469 - HC - Income Tax

Validity of reopening of assessment - exemption claimed under Section 10AA - revision u/s 263, Held that - Once having participated in the reassessment proceedings without challenging the notice under Section 148 of the Act and thereafter reassessment proceedings are dropped and thereafter a show-cause notice has been issued by the Commissioner taking the reassessment order which is a one line order under revision, in such facts and circumstances of the case, it is not open for the petitioner now to challenge the notice under Section 148 of the Act. As observed hereinabove, it is nothing but a malafide and an afterthought. Therefore, in the facts and circumstances of the case, petitioner now cannot be permitted to challenge the notice under Section 148 of the Act. As observed hereinabove, in the first year i.e. AY 2007-08, the Assessing Officer accepted the return accepting the exemption under Section 10AA of the Act claimed by the assessee and sent the intimation under Section 143(1) of the Act, without any discussion on the issue / exemption under Section 10AA of the Act claimed by the assessee. As the same was allowed in the first year which was without any discussion at all and it was an intimation under Section 143(3) of the Act, in the subsequent years the Assessing Officers have mechanically allowed the exemption under Section 10AA of the Act claimed by the assessee. That does not mean that the exemption under Section 10AA of the Act allowed by the Assessing Officers in the first year, which was allowed without any further discussion and/or without applying any mind, cannot be reopened. The same can always be permitted to be reopened, however subject to the conditions being fulfilled under Section 147 of the Act. Under the circumstances, on the aforesaid ground, the notice under Section 148 of the Act cannot be quashed and set aside. However, as observed hereinabove, as such it is not open for the petitioner now to challenge the notice under Section 148 of the Act in the facts and circumstances of the case narrated hereinabove. - Decided against assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Participation in reassessment proceedings without objection.
3. The principle of Rule of Consistency in granting exemptions under Section 10AA of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 29.03.2014 issued under Section 148 of the Income Tax Act, 1961, to reopen the assessment for AY 2007-08. The petitioner argued that the notice was invalid as it was issued based on an audit objection, which the Assessing Officer did not accept. The petitioner contended that there was no tangible fresh material to justify the reassessment and cited several judicial precedents to support the claim that reassessment based on audit objections or change of opinion is impermissible. However, the court noted that the petitioner did not challenge the initiation of reassessment proceedings at the initial stage and participated in the reassessment proceedings without raising any objections. The court also observed that the reassessment order was a one-line order without any application of mind, which led to the issuance of a show-cause notice under Section 263 of the Act by the Commissioner. The court concluded that the petitioner could not challenge the notice under Section 148 of the Act at this stage, as it was an afterthought and malafide.

2. Participation in Reassessment Proceedings Without Objection:
The court emphasized that the petitioner participated in the reassessment proceedings initiated by the notice dated 29.03.2014 without raising any objections. The reassessment proceedings were dropped by the Assessing Officer through a one-line order dated 25.06.2014. The petitioner did not challenge the notice under Section 148 of the Act at that time. It was only after the Commissioner issued a show-cause notice under Section 263 of the Act, taking the reassessment order under revision, that the petitioner challenged the notice under Section 148 of the Act. The court held that the petitioner could not be permitted to challenge the notice under Section 148 of the Act after having participated in the reassessment proceedings and after the reassessment order was in favor of the petitioner. The court described the challenge as an afterthought and malafide.

3. The Principle of Rule of Consistency in Granting Exemptions Under Section 10AA of the Income Tax Act, 1961:
The petitioner argued that the exemption under Section 10AA of the Act was consistently allowed in subsequent years and, therefore, should be allowed for the assessment year 2007-08 as well. The court rejected this argument, stating that the exemption was granted in the first year (AY 2007-08) without any scrutiny or detailed inquiry. The court noted that the Assessing Officer accepted the return and allowed the exemption under Section 10AA of the Act without any discussion or application of mind. The court held that the principle of Rule of Consistency does not apply in this case, as the exemption was allowed mechanically in subsequent years based on the initial assessment, which lacked scrutiny. The court concluded that the exemption under Section 10AA of the Act could be reopened subject to the conditions under Section 147 of the Act being fulfilled.

Conclusion:
The court dismissed the Special Civil Application, ruling that the petitioner could not challenge the notice under Section 148 of the Act at this stage. The court found that the challenge was malafide and an afterthought, given the petitioner's participation in the reassessment proceedings without objection and the subsequent issuance of a show-cause notice under Section 263 of the Act. The principle of Rule of Consistency was also deemed inapplicable in this case. The petition was dismissed, and the rule was discharged.

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