2006 (9) TMI 174 - HC - Income Tax

Notice issued u/s 148 proposing to reassess the income but no reason were recorded reasons given thereafter on request of petitioner were unconnected with the reasons stated in the notice issued u/s 142 no regular assessment in stipulated time no allegation of escapement - return filed had already become final and that finality could not be disturbed even in a proceeding u/s 147 - held that AO had no jurisdiction to proceed with the items covered in the notices issued u/s 143(2) and 142

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income-tax Act, 1961.
2. Legality of notices issued under Sections 143(2) and 142(1) of the Income-tax Act.
3. Jurisdiction of the Assessing Officer to reassess income not connected to the reasons recorded for reopening the assessment.
4. Maintainability of the writ petition under Article 226 of the Constitution of India.

Detailed Analysis:

1. Validity of the reopening of assessment under Section 147 of the Income-tax Act, 1961:
The petitioner, a state-owned company, challenged the reopening of its assessment for the assessment year 2000-01. The original return, filed on November 28, 2000, and revised on January 5, 2001, was accepted under Section 143(1) on January 31, 2002. The regular assessment under Section 143(3) was not completed by the deadline of March 31, 2003. Subsequently, a notice under Section 148 was issued on March 28, 2005, on the grounds that excise duty (16%) was not included in the valuation of closing stock. The court held that the Department's issuance of Exhibit P3 under Section 148 and the subsequent communication of reasons (Exhibit P6) were valid. However, the court emphasized that the reasons for reopening must be recorded before issuing the notice, as mandated by Section 148(2).

2. Legality of notices issued under Sections 143(2) and 142(1) of the Income-tax Act:
The petitioner received notices under Sections 143(2) and 142(1) directing it to produce various documents and information. The court found that these notices (Exhibits P7 and P8) were issued for reasons unrelated to the initial grounds for reopening the assessment. The court noted that the Assessing Officer cannot conduct a roving inquiry under the guise of reassessment, especially when the regular assessment period under Section 143(3) had expired. The court referred to the Supreme Court's ruling in GKN Driveshafts (India) Ltd. v. ITO, which requires the Assessing Officer to furnish reasons for reopening the assessment within a reasonable time.

3. Jurisdiction of the Assessing Officer to reassess income not connected to the reasons recorded for reopening the assessment:
The court held that the Assessing Officer could only reassess income that was connected to the reasons recorded for reopening the assessment. In this case, the reasons recorded (non-inclusion of excise duty in closing stock) were unrelated to the additional issues raised in Exhibits P7 and P8 (e.g., provision for shortage of lime-shell stock). The court emphasized that the Assessing Officer must comply with Section 148(2) for each separate issue of escaped income, particularly when the issues are unconnected. The court cited the Punjab and Haryana High Court's decision in Vipan Khanna v. CIT, which supports this view.

4. Maintainability of the writ petition under Article 226 of the Constitution of India:
The Revenue argued that the writ petition was not maintainable and that the petitioner should seek alternate remedies under the Income-tax Act. However, the court held that when the petitioner can establish that the Assessing Officer lacks jurisdiction, the remedy under Article 226 is available. The court referred to several precedents, including Gursahai Saigal v. CIT and GKN Driveshafts (India) Ltd., to support the maintainability of the writ petition.

Conclusion:
The court allowed the writ petition, quashing Exhibit P12 (the order directing compliance with statutory notices) and the notices issued under Sections 143(2) and 142(1) (Exhibits P7 and P8). The court concluded that the Assessing Officer had no jurisdiction to proceed with the reassessment on issues unconnected with the initial grounds for reopening the assessment.

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