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2015 (11) TMI 1209 - AT - Income TaxReopening of assessment - non serving of notice - assessee submitted that the order u/s 143(1) was passed by the AO on 21.12.2004 and the notice u/s 148 was claimed to be issued on 29.03.2011 at a wrong address which remained unserved, was beyond a period of six years - disallowance of expenditure on account of site expenses - Held that - In the present case, it is an admitted fact that the notice u/s 143(2) of the Act was not issued before framing the assessment u/s 147 r.w.s 143(3) of the Act. This fact has also been admitted by the AO in his remand report dated 10.12.2012. AO was required to serve the notice u/s 143(2) of the Act before passing the assessment order u/s 147 of the Act within stipulated time limit but no such notice has been issued to the assessee. Therefore, the reassessment framed vide order dated 29.12.2011 was not valid. Moreover, from the reasons recorded, it is clear that the AO himself admitted that the assessee had claimed and was allowed an expenditure on account of site expenses in the profit and loss account which were of capital in nature. So, no new material came in possession of the AO for issuing the notice u/s 148 of the Act. There was nothing in the reason recorded to show that any tangible material had come into his possession subsequent to the issue of the intimation u/s 143(1) of the Act. - Decided in favour of assessee
Issues Involved:
1. Validity of the reassessment proceedings under Section 147 of the Income-tax Act, 1961. 2. Validity of the notice issued under Section 148 of the Act. 3. Requirement of issuing notice under Section 143(2) of the Act. 4. Treatment of expenditure incurred by the assessee as capital expenditure. Detailed Analysis: 1. Validity of the Reassessment Proceedings under Section 147: The assessee contended that the reassessment proceedings initiated under Section 147 were beyond jurisdiction, bad in law, and void-ab-initio. The primary argument was that the Assessing Officer (AO) did not have "reason to believe" that income had escaped assessment, which is a prerequisite for initiating proceedings under Section 147. The Tribunal noted that the AO must have a rational connection between the reasons for the belief and the relevant material. The belief must be honest and reasonable, not based on mere suspicion or speculation. The Tribunal cited various case laws to support this principle, including Johri Lal (HUF) Vs CIT and ITO Vs Lakhmani Mewal Das. 2. Validity of the Notice Issued under Section 148: The assessee argued that the notice under Section 148 was invalid as it was issued to the wrong address and was not served on the appellant. The Tribunal observed that the notice was issued to the address available in the PAN directory and the return filed for the relevant assessment year. The AO had issued the notice based on the address in the records, and the change of address was only communicated later by the assessee. The Tribunal held that the AO could not be faulted for sending the notice to the address on record. The Tribunal also noted that the assessee participated in the assessment proceedings, which indicated that the notice had served its purpose. 3. Requirement of Issuing Notice under Section 143(2): The Tribunal emphasized that issuing a notice under Section 143(2) is mandatory before passing the assessment order under Section 147. The Tribunal cited the case of Alpine Electronics Asia Pte. Ltd. Vs DGIT, where it was held that for returns filed pursuant to a notice under Section 148 after October 1, 2005, it is mandatory to serve a notice under Section 143(2) within the stipulated time limit. In this case, the AO did not issue a notice under Section 143(2), which rendered the reassessment invalid. The Tribunal also referenced CIT Vs Hotel Blue Moon, which supports the necessity of serving a notice under Section 143(2). 4. Treatment of Expenditure Incurred by the Assessee: The assessee contended that the expenditure of Rs. 87,69,732 incurred for completing civil work orders for constructing roads should not be treated as capital expenditure. The AO had treated these expenses as capital in nature, leading to the reassessment. The Tribunal noted that the AO had not provided a satisfactory explanation for disallowing these expenses. However, the primary reason for quashing the reassessment was the procedural lapses in issuing notices under Sections 148 and 143(2), rather than the nature of the expenditure itself. Conclusion: The Tribunal quashed the reassessment order dated 29.12.2011, passed under Sections 147/143(3) of the Income-tax Act, 1961, due to the invalidity of the notice issued under Section 148 and the failure to issue a notice under Section 143(2). The appeal of the assessee was allowed, and the reassessment proceedings were deemed invalid.
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