2016 (6) TMI 855 - HC - Income Tax

Reopening of assessment - Tribunal set aside the entire assessment proceedings only on the ground that reopening of the assessment was not permissible in law - Held that - The conclusions of the Tribunal are completely opposed to the decision of Supreme Court in case of Assistant Commissioner of Income tax v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007 (5) TMI 197 - SUPREME Court ) wherein held So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1). The sole ground on which the Tribunal quashed the reassessment, therefore, is not legally sustainable. The judgement of the Tribunal is therefore, set aside. Both the appeals are restored before the Tribunal for fresh consideration and disposal in accordance with law keeping all other contentions of both the sides open. By way of abundant caution, we clarify that it would be open for the assessee to challenge the validity of reopening on all grounds other than the one which we have found not sustainable. - Decided in favour of revenue

Summary

Issues:
1. Validity of reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Assessing Officer reverting to issues other than those in the reopening reasons recorded for reassessment.

Issue 1: Validity of Reopening of Assessment
The case involved appeals concerning the reopening of assessment under section 147 of the Income Tax Act, 1961. The respondent's return of income for the assessment year 2004-2005 was initially accepted without scrutiny under section 143(1). Subsequently, the Assessing Officer issued a notice for reopening the assessment, which led to reassessment proceedings. The Tribunal set aside the assessment, primarily questioning the legality of the reopening. The Tribunal relied on a decision of the Delhi High Court to support its conclusion that the reopening action was akin to a review exercise without a legal basis. However, the High Court noted that the Tribunal's decision contradicted the Supreme Court's ruling in a similar case involving the distinction between assessments under sections 143(1) and 143(3) of the Act.

Issue 2: Assessing Officer Reverting to Other Issues
The second issue raised in the case was whether the Assessing Officer was justified in considering issues beyond those mentioned in the reasons recorded for the reassessment. The Tribunal had based its decision solely on the legality of the reopening, overlooking other contentions raised by the respondent. The High Court acknowledged that multiple other contentions were indeed presented before the Tribunal but remained unaddressed. Consequently, the High Court set aside the Tribunal's judgment, emphasizing that all contentions should be considered during reassessment proceedings. The High Court restored the appeals before the Tribunal for a fresh examination, allowing both parties to present their arguments comprehensively.

In conclusion, the High Court held that the Tribunal's decision to quash the reassessment solely on the ground of the legality of reopening was not legally sustainable. The High Court set aside the Tribunal's judgment, directing a fresh consideration of all issues by the Tribunal, while allowing the respondent to challenge the validity of reopening on all grounds except the one found unsustainable by the High Court. The tax appeals were allowed to a limited extent, emphasizing a thorough consideration of all contentions during reassessment proceedings.