2020 (8) TMI 357 - AT - Income Tax

Validity of reopening of assessment u/s 147 - second notice issued u/s 148 - HELD THAT - In the present case, reassessment proceedings initiated in pursuance to notice issued under section 148 of the Act on 02/07/2008 were still alive. The Assessing Officer issued second notice under section 148 of the Act on 29/03/2011. The second notice was evidently not in consonance with the law set out by the Hon ble High Courts. Thus, the second notice issued u/s 148 of the Act on 29/3/2011 is bad in law and the subsequent proceedings arising therefrom are vitiated. Second reassessment proceedings were initiated after the expiry of four years from the end of the relevant assessment year. The second notice u/s 148 of the Act was issued on 29/3/2011. Assessee has undisputedly filed return of income u/s 139 of the Act and has also responded to notice issued under section 148, therefore, the first two conditions does not get attracted in the present case. As regards condition no. (3), the reasons recorded for reopening does not indicate that income chargeable to tax has escaped assessment in the impugned assessment year by reason of failure on the part of assessee to disclose fully and truly all the material facts, necessary for the assessment. In the present case, reading of the reasons for reopening does not suggest that the reopening of assessment beyond four years is a result of failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment. The present case does not fall within any of the conditions set out in proviso to section 147 of the Act for initiating reassessment proceedings. Ergo, the reassessment is liable to be quashed on this ground as well. Approval for issue of second notice under section 148 - Authorized Representative of the assessee has drawn our attention to the communication dated 18/03/2011 as addressed by the Assessing Officer to the CIT. The Assessing Officer has clearly brought the fact to the notice of CIT that the reassessment proceedings are time barred on 31/03/2009 itself and hence, reassessment order under section 143(3) r.w.s. 147 was not passed within time barring limit, the case cannot be opened again. CIT has granted permission to the AO for initiating reassessment proceedings without properly examining reasons for reopening. The reassessment proceedings were initiated beyond period of four years and nowhere in the reasons it has been brought out that the assessee has failed to disclose fully and truly all material facts necessary for the assessment. CIT has not recorded his satisfaction on the reasons recorded by the Assessing Officer for reopening. Further, the Assessing Officer had brought the fact to the notice of CIT that earlier notice was issued under section 148 of the Act on 02/07/2008, however, no assessment order under section 143(3) r.w.s. 147 of the Act was passed within time barring limit, hence, the case cannot be reopened again. CIT without commenting on the observations made by the AO approved permission for reopening the assessment. Evidently, the permission was granted in a mechanical manner without application of mind. Thus, in the facts of the case and in the light of law laid down by the Hon ble Jurisdictional High Court, notice dated 29/3/2011 u/s 148 of the Act is held invalid, reassessment proceedings arising there from are vitiated and hence, liable to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:

1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Disallowance of alleged excess provision of royalty.
3. Charging of interest under Section 234B of the Act.

Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act, 1961:

The assessee challenged the reopening of the assessment on three grounds:

a. Issuance of Second Notice During Pending Reassessment Proceedings:
The first notice under Section 148 was issued on 02/07/2008, but no action was taken, and a second notice was issued on 29/03/2011. The Tribunal cited precedents (A.S.S.P. & Co. vs. CIT and CIT vs. P. Krishnankutty Menon) to assert that successive reassessment proceedings are invalid if the first reassessment is pending. The Tribunal concluded that the second notice was illegal as it was issued without completing the pending reassessment proceedings.

b. Issuance of Second Notice Beyond Four Years:
The second notice was issued beyond the four-year limit without indicating any failure by the assessee to disclose fully and truly all material facts. The Tribunal referenced cases (Tao Publishing (P) Ltd. vs. Dy. CIT and Hindustan Lever Ltd. vs. R.B. Wadkar) to emphasize that reopening beyond four years requires specific conditions to be met, which were not satisfied in this case. Thus, the reassessment was quashed on this ground as well.

c. Mechanical Approval by CIT:
The approval for reopening was granted by the CIT without proper application of mind, ignoring the Assessing Officer’s opinion that the case was time-barred. The Tribunal cited German Remedies Ltd. vs. DCIT and My Car (Pune) (Pvt.) Ltd. vs. ITO to highlight the necessity for the CIT to verify the reasons for reopening and ensure proper application of mind. The Tribunal found that the CIT’s approval was mechanical and invalidated the reassessment proceedings.

2. Disallowance of Alleged Excess Provision of Royalty:
The assessee argued that the excess provision for royalty was reversed in subsequent years, making it tax neutral. The Tribunal did not adjudicate this issue as the reassessment proceedings were quashed on legal grounds.

3. Charging of Interest under Section 234B of the Act:
The Tribunal did not address this issue as the reassessment proceedings were quashed.

Conclusion:
The Tribunal allowed the appeal, quashing the reassessment proceedings due to multiple legal defects, including the invalid issuance of the second notice under Section 148, the improper approval by the CIT, and the lack of conditions for reopening beyond four years. The other grounds on merits were not adjudicated as they became academic.