2021 (6) TMI 409 - HC - Income Tax

Reopening of assessment u/s 147 - deemed assessment - earlier proceeding initiated was withdrawn - notice under Section 148 was issued before completion of the Assessment was dropped and thereafter, a fresh notice was issued based on the identical reasons - survey under Section 133A - survey revealed undisclosed income in terms of the valuable jewellery and cash - HELD THAT - Since the petitioner failed to offer amount for payment of Income Tax in his return of income under Section 139 of the Income Tax Act, 1961, a notice dated 04.12.2015 was issued to the petitioner under Section 148 - The said notice was issued even before the time for completing the assessment expired on 31.12.2016 i.e, 21 month from the end of the assessment year 2013-14 under Section 153 (1) for the assessment year 2013-14. Having issued the aforesaid notice dated 04.12.2015 under Section 148 it was incumbent to have completed assessment within a period of nine months as per Section 153(2) of the Income Tax Act, 1961 from the date of issue of the said notice. Since the period of nine months expired on 03/04.09.2016 in terms of Section 153(2) which is three months before the last date for completing the assessment on 31.12.2016, the officer therefore could not have proceeded further after the expiry of the nine months on the strength of the said proceeding initiated on 04.12.2015 after the first week of the September, 2006. Thus, there was a deemed assessment. Thus, there is no infirmity in the impugned proceeding after the earlier proceeding initiated vide notice dated 4.12.2015 was withdrawn was withdrawn vide communication dated 26.12.2016. The respondent can issue a fresh notice under Section 148 of the Income Tax Act, 1961 which is what the respondent has done. It is to be emphasized that after 31.12.2016, the respondent had 4 years to invoke section 148 of the Income Tax Act 1961. Thus, the dropping of the earlier proceedings was only on account of technical reasons. It was not after a thorough scrutiny and consideration of the reply of the petitioner. It was withdrawn only for technical reason to pave way for issue of a fresh notice under Section 148 of the Income Tax Act, 1961 on 24.03.2017. The earlier proceedings initiated vide Notice dated 4.12.2015 was not dropped on merits. Issuance of earlier notice under Section 148 of the Income Tax Act, 1961 did not preclude issue of fresh notice under the same section on 24.3.2017. The petitioner has indulged in large scale evasion of tax as is evident from the survey conducted on 03.09.2012.Since the reassessment proceeding remained inconclusive, there is no case made for interference - No merits in these present writ petitions.

Summary

Issues:
1. Validity of survey conducted under the Income Tax Act, 1961
2. Legality of re-opening assessment under Section 147
3. Compliance with statutory timelines for assessment completion
4. Justifiability of dropping earlier proceedings and issuing a fresh notice under Section 148
5. Allegations of tax evasion based on survey findings

Issue 1: Validity of survey conducted under the Income Tax Act, 1961
The judgment dealt with two writ petitions concerning the legality of a survey conducted under Section 133A of the Income Tax Act, 1961. The survey revealed undisclosed income in the form of valuable jewellery and cash at the petitioner's business premises adjacent to their residence. The petitioner failed to disclose these assets in their income tax returns, leading to the initiation of assessment proceedings.

Issue 2: Legality of re-opening assessment under Section 147
The respondent re-opened the assessment under Section 147 due to the undisclosed income found during the survey. The petitioner challenged the re-opening, citing a decision by the Gujarat High Court regarding the maintainability of issuing fresh notices based on identical reasons after dropping earlier proceedings. The court analyzed the timelines and legal provisions governing assessment proceedings under Section 153 of the Income Tax Act.

Issue 3: Compliance with statutory timelines for assessment completion
The court emphasized the importance of adhering to statutory timelines for completing assessments under the Income Tax Act. It noted that the respondent failed to complete the assessment within the stipulated nine-month period after issuing the initial notice under Section 148. Consequently, the court deemed the assessment completed, and the respondent was precluded from further proceedings based on the same notice.

Issue 4: Justifiability of dropping earlier proceedings and issuing a fresh notice under Section 148
The court scrutinized the decision to drop the earlier assessment proceedings initiated under Section 148 and subsequently issue a fresh notice. It concluded that the dropping of the earlier proceedings was merely for technical reasons to allow for the issuance of a fresh notice. The court found no merit in the petitioner's argument that the earlier notice precluded the issuance of a fresh notice.

Issue 5: Allegations of tax evasion based on survey findings
The court acknowledged the substantial tax evasion indicated by the survey findings. It noted the discrepancy between the undisclosed income found during the survey and the amount disclosed by the petitioner in their income tax returns. The court held that the petitioner's evasion of tax, as evidenced by the survey, did not warrant interference in the reassessment proceedings.

In conclusion, the court dismissed the writ petitions, allowing the petitioner to file additional representations if advised. It directed the respondent to complete the assessment within a specified timeline, emphasizing the importance of adhering to statutory procedures in income tax assessments.