2022 (9) TMI 359 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - non obtaining the sanction as per provisions of section 151(1) - whether notice under Section 148 of the Act is one of jurisdiction of the Assessing Officer? - HELD THAT - It is to be noted that it is purely a question of law and can be raised at any stage. Tribunal in the impugned order has held that assessee had not filed any appeal nor raised any plea during hearing of the appeal on that aspect. It is relevant to record that in the first round of litigation the ITAT had granted full relief to the assessee. Feeling aggrieved by that order, the revenue had filed an appeal before this Court. Once there is no dispute with regard to the question that issuance of notice under Section 148 of the Act is a jurisdictional issue and ITAT had granted full relief to the assessee, we are persuaded to accept the submission made by Shri.Shankar that assessee did not challenge that finding, because, it was unnecessary and would only increase the litigation. In our considered view the matter requires reconsideration in the hands of ITAT on this aspect. Whether the transfer of assets ought to have been considered under Sections 45(1) or 45(4)? - In view of law laid in SHREE CHAMUNDI MOPEDS LTD. v. CHURCH OF SOUTH INDIA TRUST ASSOCIATION 1992 (4) TMI 183 - SUPREME COURT the matter requires reconsideration by the ITAT. Justification in assessing the firm after it had ceased to exist - Undisputed fact is, firm has been converted into a Part IX company. Referring to Section 188 of the Act it was urged by Shri.Aravind that the notice has been rightly issued to the Partnership firm. Since we are persuaded to remand the matter, we do not wish to consider this aspect on merits and keep this contention open. Appeal is allowed. Matter is remanded for fresh consideration by the ITAT as expeditiously as possible. Liberty is reserved to the aggrieved party to challenge the questions of law raised with regard to the merits of the case based on the outcome of the order to be passed by the ITAT on the jurisdictional aspect with regard to issuance of notice under Section 148 of the Act and the valuation.

Summary

Issues Involved:
1. Validity of notice under Section 148 of the Act
2. Merits of the matter regarding the transfer of assets under Sections 45(1) or 45(4) of the Act
3. Issuance of notice under Section 148 and order passed under Section 143(3) in the name of a partnership firm that ceased to exist
4. Applicability of Section 45(4) of the Act in relation to assets allotted to partners
5. Computation of capital gains
6. Assessment of the firm after it had ceased to exist
7. Correctness of the value adopted by the Assessing Officer

Analysis:

Issue 1: Validity of notice under Section 148 of the Act
The appellant raised concerns about the validity of the notice under Section 148 of the Act, arguing that it was unsustainable based on Revenue audit objection. The court acknowledged that the notice's validity is a jurisdictional issue and should be challenged. The matter was remanded for reconsideration by the ITAT.

Issue 2: Merits of the matter regarding the transfer of assets under Sections 45(1) or 45(4) of the Act
The appellant contested the ITAT's findings on the transfer of assets under Sections 45(1) or 45(4) of the Act. The court noted that the matter required reconsideration based on relevant legal precedents.

Issue 3: Issuance of notice under Section 148 and order passed under Section 143(3) in the name of a partnership firm that ceased to exist
The appellant argued that since the partnership firm was converted into a company, the notice should have been issued to the succeeding company. The court agreed that the issue required further examination upon remand to the ITAT.

Issue 4: Applicability of Section 45(4) of the Act in relation to assets allotted to partners
The court found that the ITAT had not considered the applicability of Section 45(4) of the Act regarding assets allotted to partners, necessitating a reevaluation by the ITAT.

Issue 5: Computation of capital gains
The appellant raised concerns about the computation of capital gains, which had not been adequately addressed in the second round of litigation. The court emphasized the need for the ITAT to consider this aspect upon remand.

Issue 6: Assessment of the firm after it had ceased to exist
The appellant questioned the assessment of the firm after it had ceased to exist, citing legal principles. The court directed a fresh consideration by the ITAT to address this issue.

Issue 7: Correctness of the value adopted by the Assessing Officer
The appellant challenged the value adopted by the Assessing Officer, emphasizing the need for a correct assessment. The court allowed the appeal and remanded the matter for further consideration by the ITAT, preserving the right to challenge the questions of law raised.