2023 (1) TMI 680 - HC - Income Tax

Reopening of assessment - validity of second notice issued u/s 148 - AO non-disposing of the return of income filed by the assessee in response to the first notice - whether the AO could have issued a second notice under Section 148 of the Act when the assessee had filed his return of income in response to the first notice issued under Section 148A and such return was not disposed of? - HELD THAT - This question of law has been answered in several decisions and one of the earliest decisions is in the case of S. Raman Chettiar 1961 (1) TMI 82 - MADRAS HIGH COURT wherein the Court held that when a return is furnished by the assessee in consequence of a notice issued under Section 34 of the Income Tax Act, 1922, it was not open to the Income Tax Officer to ignore that return and issue a further notice under Section 34(1)(a) on the assumption that there had been an omission or failure on the part of the assessee to make return of his income. This decision was affirmed by the Hon ble Supreme Court in the Commissioner of Income Tax, Madras vs. S. Raman Chettiar, 1964 (10) TMI 18 - SUPREME COURT The underlying legal principle is that, when a notice under Section 148 of the Act is issued, the original assessment proceedings are entirely opened up or left open and the finality which had occurred in the first assessment order does not exist any longer. Therefore, without disposing of the return of income filed by the assessee in response to the first notice, the assessing officer could not have issued a second notice for reopening of the assessment which, at the relevant point of time, did not exist in the eye of law. Tribunal had rightly affirmed the order passed by the Commissioner of Income Tax (Appeals) and dismissed the appeal filed by the revenue.

Summary

Issues involved:
1. Delay in filing the appeal under Section 260A of the Income Tax Act, 1961.
2. Validity of issuing a second notice under Section 148 of the Income Tax Act when the return filed in response to the first notice was not disposed of.

Analysis:
1. Issue of Delay in Filing Appeal:
The High Court of Calcutta considered a delay of 595 days in filing the appeal under Section 260A of the Income Tax Act, 1961. Despite the respondent's opposition to condone the delay due to lack of explanation, the Court exercised discretion in favor of the appellant/revenue and allowed the application for condonation of delay.

2. Validity of Second Notice under Section 148:
The main issue in the appeal was whether the Assessing Officer could issue a second notice under Section 148 of the Act when the assessee had already filed a return of income in response to the first notice, and such return was not disposed of. The Court referred to various legal precedents, including the case of S. Raman Chettiar vs. CIT, to establish the principle that issuing a second notice without disposing of the return filed in response to the first notice is not permissible. The Court emphasized that the original assessment proceedings are reopened when a notice under Section 148 is issued, and the finality of the first assessment order no longer exists until the return is disposed of.

3. Appellant's Contention and Tribunal's Decision:
The senior standing counsel for the appellant/revenue argued that the issue regarding the validity of the second notice was not raised by the assessee before the Assessing Officer. However, the Court noted that as the issue was a question of law, it was appropriate for the assessee to raise it before the appellate forum, which was done in this case. The Court upheld the decision of the Tribunal, which affirmed the order passed by the Commissioner of Income Tax (Appeals) and dismissed the appeal filed by the revenue.

4. Final Judgment:
Based on the legal principles established and the arguments presented, the High Court found no grounds to interfere with the Tribunal's order. Consequently, the appeal filed by the revenue was dismissed, and the substantial questions of law were answered against the revenue. The connected application for stay was also dismissed accordingly.

In conclusion, the High Court of Calcutta upheld the Tribunal's decision regarding the validity of issuing a second notice under Section 148 of the Income Tax Act and dismissed the appeal filed by the revenue, emphasizing the importance of disposing of the return filed in response to the first notice before issuing a second notice for reopening assessment proceedings.