2012 (9) TMI 16 - HC - Income Tax

Challenge against reopening of assessment - reasons were not recorded before issuance of notice - Held that - It cannot be stated that the AO had not recorded reasons before issuance of the notice. Firstly, the reasons recorded are found on the file immediately after the original notice u/s 148. Though such reasons are not dated, the note-sheet maintained by the AO concerned recorded that the notice is issued after recording reasons. The power u/s 147 cannot be exercised to circumvent the proceedings under section 143(3) - Held that - On recalling that the return filed by the petitioner was not taken in scrutiny. No assessment, thus, took place. The AO without any assessment, merely issued an intimation under section 143(1) accepting such return. In that view of the matter, it cannot be stated that the AO formed any opinion with respect to any of the aspects arising in such return. In such a case, scope for reopening such assessment u/s 147 as compared to an assessment which was previously framed u/s 143(3), whether beyond or within four years from the end of the relevant assessment year, is substantially wider. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. Central as well as the State Sales Tax and other income in the net profit would not qualify for deduction under section 80HHC and debit entry for warranty expenses out of which only an amount of Rs.1,05,48,633/- was incurred during the financial year under consideration - such reason would permit the AO to reopen the assessment - not find that the notice for reopening is invalid or lacks jurisdiction - against assessee.

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Recording of reasons before issuance of the notice.
3. Use of section 147 to circumvent the time limit for issuing notice under section 143(2).
4. Legitimacy of the reasons recorded by the Assessing Officer for reopening the assessment.

Detailed Analysis:

1. Validity of the Notice Issued under Section 148:
The petitioner challenged the notice dated 20.12.2004 issued by the Deputy Commissioner of Income Tax under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2002-03. The petitioner argued that the notice was invalid as the Assessing Officer assumed jurisdiction not vested in him. The primary contention was that the reasons for reopening were not recorded before issuing the notice.

2. Recording of Reasons Before Issuance of the Notice:
The petitioner contended that the reasons were not recorded by the Assessing Officer before issuing the notice. The court examined the original file and noted that the reasons recorded by the Assessing Officer were found immediately after the notice for reopening the assessment. Although the reasons did not carry a specific date, the note-sheet maintained by the Assessing Officer indicated that the notice was issued after recording reasons. Additionally, an affidavit in-reply confirmed that the reasons were recorded before issuing the notice. The court concluded that it could not be stated that the Assessing Officer had not recorded reasons before issuing the notice.

3. Use of Section 147 to Circumvent the Time Limit for Issuing Notice under Section 143(2):
The petitioner argued that the assessment proceedings could not be reopened to circumvent the time limit for issuing the notice under section 143(2). The court acknowledged that the time limit prescribed in the proviso to section 143(2) must be given due weightage. However, the court also noted that merely because no such notice was issued, it did not mean that the assessment could not be reopened under section 147. The court emphasized that the basic requirement of section 147 is that the Assessing Officer must have "reason to believe" that income chargeable to tax has escaped assessment.

4. Legitimacy of the Reasons Recorded by the Assessing Officer for Reopening the Assessment:
The petitioner contended that the reasons recorded by the Assessing Officer were not germane and were only for verification purposes. The court agreed that for mere verification of claims, the power to reopen an assessment could not be exercised. However, the court found that in two out of the four reasons recorded, the Assessing Officer had some material to form a belief that income chargeable to tax had escaped assessment. The first reason pertained to the claim of deduction under section 80HHC, and the third reason related to the debiting of warranty expenses. The court concluded that these reasons were valid and permitted the Assessing Officer to reopen the assessment.

Conclusion:
The court held that the notice for reopening the assessment was valid and did not lack jurisdiction. The petition was dismissed, and the interim relief granted earlier was vacated.

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