2018 (5) TMI 1547 - HC - Income Tax

Re-assessment proceedings - validity of fresh notice issued u/s 148 after 4 years when original notice was withdrawn during the judicial proceedings - no clear evidence of withdrawal of earlier notice - original notice was issued within the time limit - should the reassessment process be allowed to continue? - Held that - The Revenue desired that in view of the special events, the fresh notice may be treated as an extension of the original notice and deemed to have been issued within four years from the end of the relevant assessment year. The Court while rejecting such a prayer did make a passing remark and perhaps inadvertent reference if we may say so, that the Assessing Officer had consciously withdrawn the notice of reopening. When the prayer to treat the fresh notice as continuous of the original, this passing remark would not change the factual position. An admitted factual position is that the first notice of reopening was not withdrawn when the earlier writ petition was disposed of by the High Court, when the department filed an Misc. Civil Application for review or recall or even when Assessing Officer issued a fresh notice dated 29.03.2017 which is impugned in this petition. Fact of the matter is there is no formal withdrawal of notice till date. A notice of reopening which is once issued would remain in operation unless it is specifically withdrawn, quashed or gets time barred. First instance would be at the volition of the Assessing Officer as the person who had issued the notice. He can recall the notice for valid reasons and may even issue a fresh notice which is not impermissible in law. Nevertheless, there has to be an action of withdrawal. Mere intention, a stated intention or even an intention which is otherwise put in practice cannot be equated with withdrawal of the notice. The conclusion that we have reached would invariably result in frustrating the Revenue s attempt to reopen the assessment and may have been seen to be based on somewhat technical reasons. Having succeeded on all other grounds, the Revenue may legitimately feel somewhat disappointed. Nevertheless, our duty is to give effect to the legal principles. The law does not recognize two parallel assessments. - petition is allowed - decided in favor of assessee.

Issues Involved:
1. Validity of the notice for reopening the assessment.
2. Whether the reasons recorded for reopening were based on incorrect facts.
3. Whether the reasons recorded for the fresh notice differed materially from the previous notice.
4. Legality of issuing a fresh notice without withdrawing the first notice.
5. Validity of the reasons recorded for reopening the assessment.
6. Validity of the transfer of jurisdiction.
7. Validity of the sanction for reopening the assessment.

Detailed Analysis:

1. Validity of the notice for reopening the assessment:
The petitioner, a private limited company engaged in share broking, challenged a notice dated 29.03.2017 issued by the Assistant Commissioner of Income Tax seeking to reopen the petitioner’s assessment for the assessment year 2010-11. The petitioner argued that the notice was invalid as it was issued without withdrawing the previous notice dated 31.03.2015, which was still pending. The court held that there can be only one process of assessment or reassessment and pending any such assessment, a fresh notice of reopening cannot be issued. The court cited the case of Aditya Medisales Ltd vs. Deputy Commissioner of Income Tax, Circle 1(1) to support this view.

2. Whether the reasons recorded for reopening were based on incorrect facts:
The petitioner contended that the reasons recorded by the Assessing Officer proceeded on incorrect facts, specifically referring to the court's direction for withdrawal of the earlier notice and issuance of a fresh notice. The court noted that while the Assessing Officer did refer to the court's direction, the court had never given any such directions. However, this incorrect reference was deemed severable and did not destroy the core of the reasons recorded by the Assessing Officer.

3. Whether the reasons recorded for the fresh notice differed materially from the previous notice:
The petitioner argued that there was no material difference in the reasons recorded for the issuance of the earlier notice and those recorded for the present notice. The court examined the reasons recorded in both notices and found that while the previous reasons were based on information received about fictitious losses created by some brokers, the fresh reasons included a detailed background and analysis of the misuse of the client code modification facility. The court concluded that the fresh reasons were more elaborate and demonstrated the Assessing Officer's application of mind.

4. Legality of issuing a fresh notice without withdrawing the first notice:
The court emphasized that the first notice of reopening was never formally withdrawn. The law does not recognize two parallel assessments, and in the absence of a formal withdrawal of the first notice, the issuance of a fresh notice was deemed invalid. The court reiterated that mere intention to withdraw the notice is not sufficient; there must be a formal action of withdrawal.

5. Validity of the reasons recorded for reopening the assessment:
The court found that the reasons recorded by the Assessing Officer for reopening the assessment were based on tangible material and demonstrated a bona fide belief that income chargeable to tax had escaped assessment. The reasons were deemed sufficient to sustain a notice of reopening, even beyond the period of four years.

6. Validity of the transfer of jurisdiction:
The petitioner raised doubts about the legality of the transfer of jurisdiction without a formal challenge. The court examined the original files and found that there was proper concurrence between the two Commissionorates regarding the transfer of the petitioner’s assessment. The court was satisfied that the transfer was valid and in accordance with the law.

7. Validity of the sanction for reopening the assessment:
The petitioner argued that there was no valid sanction for reopening the assessment. The court examined the original files and found that the proposal for sanction was placed before the Commissioner of Income Tax, who had granted the necessary sanction after due application of mind. The court concluded that there was clear application of mind on the part of the sanctioning authority.

Conclusion:
The court allowed the petition on the ground that the fresh notice of reopening was issued without formally withdrawing the first notice. The law does not permit two parallel assessments, and in the absence of a formal withdrawal of the first notice, the second notice was deemed invalid. The petition was disposed of accordingly.

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