2005 (11) TMI 28 - HC - Income Tax

In our considered opinion, if reasons are supplied along with the notice under section 148(2, it shall obviate unnecessary harassment to the assessee as well to the Revenue by avoiding unnecessary litigation which will save courts also from being involved in unproductive litigations. Above all it shall be in consonance with the principles of natural justice. In view of the admitted position in the undisputed facts of the instant case that reasons have been disclosed/communicated though during pendency of the writ petition in this court, the grievance of the parties, if any, has become non-existent and there being no surviving cause of action today, the writ petition does not survive and hence is liable to fail.

Summary

Issues Involved:
1. Whether the reasons for initiating reassessment proceedings under Section 148 of the Income-tax Act, 1961, must be communicated to the assessee along with the notice or can be communicated later.
2. Validity of the reassessment proceedings initiated without prior communication of reasons.
3. Whether the reassessment proceedings were arbitrary and without basis.
4. Whether the block assessment proceedings restrict the initiation of reassessment proceedings under Section 148.

Detailed Analysis:

Issue 1: Communication of Reasons for Reassessment
The court examined whether the reasons for initiating reassessment under Section 148 must be communicated to the assessee along with the notice. The petitioner argued that reasons should be disclosed in the notice itself to avoid arbitrariness and enable the assessee to file an effective return. The respondents contended that reasons were communicated during the pendency of the writ petition and that the reassessment proceedings were initiated after obtaining necessary approval.

The court held that Section 148(2) of the Income-tax Act does not expressly mandate the communication of reasons along with the notice. However, judicial pronouncements have interpreted that reasons should be communicated to avoid arbitrary action. The court emphasized that the reasons should be disclosed to the assessee at the earliest opportunity to ensure fairness and compliance with natural justice principles.

Issue 2: Validity of Reassessment Proceedings
The petitioner challenged the validity of the reassessment proceedings on the ground that no reasons were communicated before initiating the proceedings. The court noted that reasons were communicated during the pendency of the writ petition, making the grievance of the petitioner inconsequential. The court further observed that the sufficiency or adequacy of reasons is not justiciable, and the existence of reasons is sufficient to confer jurisdiction on the Assessing Officer.

Issue 3: Arbitrariness of Reassessment Proceedings
The petitioner contended that the reassessment proceedings were arbitrary and without any basis, as there was no change in circumstances after the block assessment order. The court rejected this argument, stating that the reasons recorded by the Assessing Officer indicated a significant change in circumstances justifying the reassessment proceedings. The court found that the reasons were germane to the material facts of the case and were not issued in a mechanical manner.

Issue 4: Block Assessment vs. Reassessment Proceedings
The petitioner argued that the block assessment proceedings should restrict the initiation of reassessment proceedings under Section 148. The respondents countered that block assessment and regular assessment proceedings are independent of each other. The court upheld the respondents' view, stating that block assessment is based on material found during the search, while regular assessment is based on facts and information. The court concluded that the block assessment does not restrict the initiation of reassessment proceedings under Section 148.

Conclusion:
The court dismissed the writ petitions, holding that the reasons for initiating reassessment proceedings were valid and had been communicated during the pendency of the writ petition. The court emphasized the importance of communicating reasons to the assessee at the earliest opportunity to ensure fairness and compliance with natural justice principles. The reassessment proceedings were found to be neither arbitrary nor without basis, and the block assessment proceedings did not restrict the initiation of reassessment proceedings under Section 148.