2017 (2) TMI 453 - HC - Income Tax

Remand of the matter to AO for passing appropriate orders in the scrutiny proceedings under Section 143 (3) - best judgment assessment u/s 144 - Held that - Though the appellant-revenue had made a prayer for remand of the matter to the Assessing Officer for passing an order in the scrutiny proceedings by considering the material placed by the assessee before the Assessing Officer, the Appellate Tribunal rejected the prayer without recording any reasons much less any cogent reasons. If the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal were of the view that the order under Section 144 of the Act was passed by the Assessing officer in violation of the principles of natural justice, the Authorities should have made an appropriate order for remand of the matter to the Assessing Officer in the proceedings initiated against the assessee under Section 143 (3) of the Act. Without assigning any reason for rejecting the prayer for remand, the Tribunal rejected the prayer in paragraph 8 of the impugned order. Though it was pointed out by the appellant-revenue that the Assessing Officer that had passed the order under Section 144 of the Act has changed and the matter would come up before another Income Tax Officer and no prejudice would be caused to the assessee if the matter is remanded, the Tribunal rejected the prayer of the appellant-revenue. Since no order was passed in the matter of scrutiny under Section 144 (3) of the Act and the order was passed under Section 144 of the Act on the assumption that the assessee had not supplied the relevant material that was sought from him, it was necessary for the Tribunal to have remanded the matter to the Assessing Officer to complete the scrutiny and pass an appropriate order in the proceedings under Section 143 (3) of the Act. The substantial question of law is answered in favour of the appellant-revenue and against the assessee.

Summary

Issues:
Challenge to order under Section 144 of the Income Tax Act, 1961 by the Revenue, rejection of prayer for remand by the Income Tax Appellate Tribunal, justification of remand for completing scrutiny under Section 143 (3) of the Act.

Analysis:
The case involved a challenge by the Revenue against the order of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal regarding the initiation of proceedings under Section 144 of the Income Tax Act, 1961. The assessee, engaged in real estate business, had filed a return for the assessment year 2007-08, which was selected for scrutiny under Section 143 (2) of the Act. The Assessing Officer passed an order under Section 144 of the Act, leading to the initiation of penalty proceedings under Section 271 (1) (c) against the assessee. The Commissioner of Income Tax (Appeals) set aside the order under Section 144, stating that the conditions for best judgment assessment were not satisfied. The Income Tax Appellate Tribunal upheld this decision, emphasizing that the order under Section 144 was not sustainable due to a violation of natural justice principles.

The main contention raised by the Revenue was the rejection of their prayer for remand by the Income Tax Appellate Tribunal. The Tribunal's refusal to remand the matter to the Assessing Officer under Section 143 (3) for completing scrutiny was challenged. The Revenue argued that even though the best judgment assessment was not justified, a remand was necessary to ensure a thorough review of the case. The Tribunal's failure to provide reasons for rejecting the remand request was highlighted as a procedural flaw.

On analyzing the facts and legal provisions, the High Court admitted the appeal based on a substantial question of law regarding the Tribunal's authority to reject the remand prayer. The Court observed that the assessee had cooperated during scrutiny, and the best judgment assessment was deemed inappropriate. Despite the change in the Assessing Officer, the Tribunal's unexplained denial of remand was considered unjustified. Therefore, the Court held in favor of the Revenue, allowing the appeal partially and remanding the matter to the Assessing Officer for completing scrutiny under Section 143 (3) of the Act. The Tribunal's decision to reject the remand request was quashed and set aside.

In conclusion, the High Court's judgment addressed the procedural irregularity in rejecting the remand request, emphasizing the importance of completing scrutiny under Section 143 (3) of the Income Tax Act. The decision aimed to ensure a fair assessment process and adherence to natural justice principles in tax proceedings.