2015 (10) TMI 522 - AT - Income Tax

Reopening of assessment - validity of notice - Held that - Income-tax Act empowers the Assessing Officer to issue notice under Section 143(2) to verify the correctness of the income or loss disclosed by the assessee. The Assessing Officer has to issue the notice under Section 143(2) within the time limit specified in the said Section. If the Assessing Officer failed to issue the notice under Section 143(2) within the time limit specified in that Section, he cannot issue the notice under Section 148 just for the purpose of ensuring the correctness of the income disclosed or the loss disclosed or to scrutinize certain income or expenses. In view of the above, we are of the opinion that reopening of assessment by the Assessing Officer for the purpose of scrutiny of dividend income, capital loss or household expenses is not permissible. Therefore, the notice issued under Section 148 is quashed and consequentially, the assessment order framed in pursuance to the notice under Section 148 is also quashed. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice issued under section 148 for reopening assessment.
2. Permissibility of reopening assessment for scrutiny of dividend income, capital loss, and household expenses.
3. Penalty under Section 271(1)(c) of the Income Tax Act.

Analysis:
1. Validity of notice under section 148:
The appeal challenged the order of the CIT(A) regarding the validity of the notice issued under section 148 for reopening the assessment for the AY 1999-2000. The reasons recorded for reopening highlighted discrepancies in the computation of assessable income, particularly focusing on dividend income, capital loss, and household expenses. The Tribunal observed that the notice under section 148 was not permissible solely for verification purposes. It emphasized that the Assessing Officer should have issued a notice under Section 143(2) within the specified time limit for scrutinizing disclosed income or loss. Consequently, the Tribunal quashed the notice under section 148 and the assessment order framed based on it.

2. Permissibility of reopening for scrutiny:
The Tribunal clarified that the Assessing Officer's power to issue notices under Section 143(2) was crucial for verifying disclosed income or loss. Failure to adhere to the time limit for issuing such notices precluded the subsequent use of section 148 for mere scrutiny purposes. The Tribunal emphasized that section 148 could not be invoked solely for reworking dividend income, capital loss, or household expenses. Therefore, the Tribunal held that the reassessment for such purposes was impermissible, leading to the quashing of the notice and the consequent assessment order.

3. Penalty under Section 271(1)(c):
The cross-appeals involved challenges against the penalty imposed under Section 271(1)(c) of the Income Tax Act. The Tribunal, having quashed the assessment order based on the invalid notice under section 148, ruled that any penalty levied on the basis of such additions did not survive. Consequently, the Tribunal allowed the assessee's appeal against the penalty sustained by the CIT(A) and dismissed the Revenue's appeal against the penalty deleted by the CIT(A). The decision pronounced on the appeals highlighted the interplay between the validity of the notice, the permissibility of reassessment, and the implications for associated penalties under the Income Tax Act.