1995 (4) TMI 100 - AT - Income Tax

Assessing Officer, Assessment Proceedings, Income Escaping Assessment, Reassessment Proceedings

Summary

Issues Involved:
1. Legality of reopening assessments under Section 147 of the Income-tax Act.
2. Validity of notices issued under Sections 142(1) and 143(2) of the Income-tax Act.
3. Levy of penalty under Section 271(1)(a) of the Income-tax Act.

Detailed Analysis:

1. Legality of Reopening Assessments under Section 147:

The appeals concern the reopening of assessments for the years 1977-78 and 1978-79. The Assessing Officer had issued notices under Section 148 due to non-filing of returns, but no reasons for the belief that income had escaped assessment were recorded. The assessee argued that mere non-filing of returns does not justify action under Section 147 and cited the Supreme Court decision in Johri Lal (HUF) v. CIT to support this.

The CIT(A) upheld the reopening, reasoning that the assessee's history of declaring positive income justified the belief that income had escaped assessment. However, the Tribunal found that the Explanation 2 to Section 147, which the Department relied on, was not applicable as it came into effect from 1st April 1989, after the relevant assessment years. The Tribunal concluded that the Assessing Officer did not properly form a belief that income had escaped assessment, rendering the reopening invalid. Consequently, the assessments were quashed.

2. Validity of Notices Issued under Sections 142(1) and 143(2):

The CIT(A) found procedural irregularities in the issuance of notices under Sections 142(1) and 143(2). The notices were issued and served in a manner that did not provide the assessee with a reasonable opportunity to comply, violating principles of natural justice. The Tribunal concurred that the overlapping and improperly timed notices deprived the assessee of a fair chance to respond, further invalidating the assessments.

3. Levy of Penalty under Section 271(1)(a):

Penalties were levied for non-filing of returns even after notices under Section 148 were issued. The Tribunal noted that since the assessments were quashed, the income was effectively zero, and thus, no penalty was leviable. The appeals against the penalties were allowed, and the penalties were set aside.

Conclusion:
The Tribunal quashed the assessments for the years 1977-78 and 1978-79 due to improper formation of belief by the Assessing Officer and procedural irregularities in issuing notices. Consequently, the penalties under Section 271(1)(a) were also set aside. The appeals were treated as allowed.