2017 (6) TMI 86 - HC - Income Tax

Reopening of assessment - Whether the tribunal could have permitted addition of a new ground assailing notice under Section 148 of the Act when there was no challenge to it before the Assessing Officer or the CIT (Appeals) by way of any objections? - Held that - Consedering the amplitude of power of the tribunal as per Section 245 of the Act, as the facts were not in dispute and were clear, the tribunal had committed no jurisdictional error in entertaining the additional ground assailing the notice issued under Section 148 of the Act. Accordingly, question no. 1 as above is answered in favour of the assessee and against the department holding that despite no plea regarding the validity of the notice having been taken by the respondent assessee before the Assessing Officer and the CIT (appeals) but as his objections against the notice were left undetermined, the tribunal was justified in permitting the said ground to be taken for the first time in appeal before it. Whether the tribunal is justified in setting aside the assessment order as confirmed by the Commissioner of Income Tax, Appeals holding the notice to be bad and assessment illegal only for the reason that the objections to the notice were not decided? - Held that - The non disposal of the objections vitiates the reassessment proceedings. However, it can not be a ground for invalidating the notice itself unless any lacuna in the notice is established which we are afraid, has not been done by the tribunal. Accordingly, the proceedings for reassessment may stand vitiated but the notice can not held to be bad in law. There is no finding by the tribunal for holding the notice to be bad or illegal except for the fact that the objections of assessee filed against it were not decided. In view of the fact that the objections were not considered and decided and that no illegality in the notice was established, the tribunal erred in holding the notice to be bad. The discussion above permits us to answer the second question partly in favour of the assessee and partly in favour of revenue and it is held that as the objections of the assessee respondent were left undecided the reassessment could not have been done and as such the tribunal has not erred in setting aside the order of assessment but the notice issued under Section 148 of the Act can not be said to be illegal and bad in law without recording finding that it is contrary to law. This aspect has to be dealt with by the tribunal before passing a fresh order of reassessment.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act
2. Justification of setting aside the assessment order
3. Allowance of appeal despite lack of explanation for entries in books

Issue 1 - Validity of notice under Section 148:
The appeals arose from a common order of the Income Tax Appellate Tribunal allowing the assessee's appeals for multiple assessment years. The respondent was given notice under Section 148 of the Income Tax Act based on information about accommodation entries. The Additional Commissioner passed a revised assessment order adding income on account of bogus entries. The Tribunal set aside the assessment order, stating that the notice for re-opening the assessment proceedings was bad in law. The Revenue contended that the tribunal erred in allowing the assessee to challenge the notice under Section 148. The High Court held that the tribunal had jurisdiction to entertain the additional ground challenging the notice, as long as relevant facts were on record.

Issue 2 - Justification of setting aside the assessment order:
The tribunal permitted the assessee to raise a ground that objections against the notice under Section 148 were not decided before the reassessment order. The Chartered Accountant certified that objections were filed but remained undecided. The Supreme Court clarified that objections must be decided before proceeding with reassessment. The non-disposal of objections vitiates reassessment proceedings but does not invalidate the notice unless a specific lacuna is established. The tribunal erred in holding the notice to be bad without finding any illegality. The High Court partly favored the assessee, stating that reassessment could not proceed without deciding objections, but the notice itself was not illegal.

Issue 3 - Allowance of appeal despite lack of explanation for entries:
The High Court did not address the third question due to the premature nature of the issues discussed. It directed the Assessing Authority to consider and decide the objections of the assessee on merits and proceed with reassessment if necessary. The order setting aside the reassessment was maintained, leaving the third question for consideration during reassessment proceedings if the notice is found to be legal.

In conclusion, the High Court partially allowed the appeals, emphasizing the importance of deciding objections before reassessment and maintaining the legality of the notice under Section 148. The judgment highlighted the need for proper consideration of objections and adherence to legal procedures in reassessment proceedings.