2018 (4) TMI 1289 - HC - Income Tax

Reopening of assessment - sanction u/s 151 - a condition precedent to issue the reopening notice - Held that - It is settled position that reopening of an assessment is an exceptional power vested in the Assessing Officer to unsettle, settled issues/ assessment. Therefore, the exercise of such a power can only be done as the AO fulfilling the conditions precedent for issuing the notice. The notice of reopening has to be issued within the time provided for reopening notice (date of service is immaterial). The Courts have held the date of handing over to the postal authorities, would be considered as the date of issue. The sanction under Section 151 is also a condition precedent to issue the reopening notice. Assessee is entitled to ask the Revenue whether or not, the condition precedent for reopening the assessment, i.e. date of posting of the notice and a copy of the sanction order from the superior authority as provided under Section 151. This attitude of not supplying copy of the necessary sanction to the Petitioner when asked for, is not justified in the least. This is more so as it would be open to the Petitioner also to challenge that the Sanctioning Authority had not applied his mind while granting the sanction, making the reopening notice bad.

Summary

Issues:
Challenge to notice seeking to reopen assessment for Assessment Year 2010-11 under Section 148 of the Income Tax Act, 1961 beyond the prescribed time limit; Failure to disclose material facts; Accrual of income on grant of refund; Non-service of order on rectification application; Lack of necessary sanctions for reopening notice.

Analysis:

1. The primary issue in this case revolves around the challenge to a notice dated 30th March, 2017, seeking to reopen the assessment for Assessment Year 2010-11 under Section 148 of the Income Tax Act, 1961. The regular assessment for the said year was completed on 29th March, 2012, under Section 143(3) of the Act, making the impugned notice beyond the four-year limit from the end of the relevant Assessment Year. The notice must satisfy the first proviso to Section 147 of the Act before the Assessing Officer can assume jurisdiction. The reasons for reopening the assessment are based on the verification of records and an alleged failure to disclose fully all material facts necessary for the assessment.

2. The reasons for reopening the assessment focus on the interest income received on a refund for the Assessment Year 2008-09, which was not offered for tax in the subject Assessment Year, leading to an alleged escapement of income. The petitioner contested this by pointing out that the interest income was denied in the Assessment Year 2008-09, leading to a rectification application and subsequent refund. The petitioner relied on a Tribunal decision regarding the treatment of interest income under Section 244A of the Act, which the Revenue agreed needed examination. This difference in interpretation indicates a possible view warranting admission.

3. Another contention raised by the petitioner was the non-service of the order on their rectification application dated 26th March, 2010. The Revenue did not dispute this fact, leading to the argument that there was no failure to disclose facts not within their knowledge at the time of filing the return of income. This aspect also requires further consideration and evaluation.

4. Additionally, the petitioner sought information regarding the date of handing over the notice to postal authorities and the sanction accorded to the reopening notice by higher authorities under Section 151 of the Act. The lack of necessary documentation, including the appropriate sanction and evidence of notice delivery, raises concerns about the validity of the reopening notice. The court emphasized the significance of complying with these requirements, highlighting that the date of handing over to postal authorities is crucial, and the sanction under Section 151 is a condition precedent for issuing the reopening notice.

5. The court expressed dissatisfaction with the Revenue's failure to provide essential documentation when requested by the petitioner, emphasizing that reopening an assessment is an exceptional power that must adhere to specific conditions. The refusal to supply the necessary sanction could lead to challenges regarding the Sanctioning Authority's due diligence and the jurisdictional validity of the reopening notice. The court granted interim relief in favor of the petitioner, emphasizing the importance of fulfilling all conditions precedent for issuing a reopening notice.