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TMI Blog2017 (8) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... tained only part of the assessee's appeal, the principle of merger as flowing from the proviso to section 147 of the Act would not apply. Validity of notice u/s 148 when scrutiny assessment was made but same was annulled - re-appreciation of facts - Held that:- Nothing contained in the language of section 147 would permit us to hold that even if all the parameters to enable the Assessing Officer to assess or reassess the income by reopening the assessment are present, same may not be permitted in cases where the original assessment framed by the Assessing Officer has failed on any technical ground, such as in the present case i.e. want of service of notice under section 143(2) of the Act. Once the original assessment is declared as invalid as having been completed without the service of notice on the assessee within the statutory period, there would be thereafter no assessment in the eye of law. Following the decisions of the various High Courts, notice u/s 148 sustained - Decided in favor of revenue. - Special Civil Application No. 8352 of 2017 - - - Dated:- 25-7-2017 - Akil Kureshi And Biren Vaishnav, JJ. Darshan R Patel, Advocate For the Petitioner Mrs Maun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the objections of the assessee. Regarding non service of notice under section 143(2) of the Act, the Assessing Officer observed that proper notice was generated and issued on 23.9.2013 and dispatched for service through Speed Post on the last known address of the assessee on 24.9.2013. Regarding the income, he held that the assessee was in the business of purchase and development of the land; the assessee had shown the land as stock in trade and the income earned by the assessee through the sale of land would be a business income. 6. The assessee challenged the order of assessment before the Commissioner (Appeals). The assessee raised the ground of jurisdiction of the Assessing Officer to make the assessment without the service of notice under section 143(2) of the Act. The assessee also questioned the order on merits. 7. The Commissioner (Appeals) by an order dated 8.12.2016 allowed the appeal of the assessee on the ground that there was no proof of service of notice under section 143(2) of the Act. In the opinion of the CIT (Appeals), not mere issuance of notice but service thereof was important. Since there was no evidence of service of notice on the assessee before the du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25397520 5 Land 1 2011 12 30.06.11 0 78997 640 78997640 785/785 78997640 78997640 35447 0594 17646 1557 144948233 17800 9037 Total Net Capital Gain ₹ 144948233/ 3. In this regard, it is found that the land under question was purchased by the partnership firm from the liquidator of the company namely; the Associated Pulp Paper Ltd under the order of Hon'ble Court dated 11.08.2006 and sale document was executed on 24/08/2007. The assessee being partnership firm had purchased this property with intention of developing the said land for the business purpose. The said land was also held as stock in trade as per the return of income for the AY 201112. The partnership firm was formed on 20/08/2007 and as per the partnership deed, the main business of the firm was sale/purchase of land and bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.3.2015 was carried in appeal by the assessee. Commissioner(Appeals) had set aside the order. The assessment order therefore, merged in that of the Commissioner (Appeals) by virtue of proviso to section 147 of the Act. Therefore, no reopening would be permissible. iii) Even otherwise the action of the Assessing Officer is impermissible in law. The original assessment having failed on the ground of non issuance of mandatory notice for scrutiny, the Assessing Officer cannot resort to the process of reopening of the assessment to cure the defect or to save limitation which had already lapsed. iv) In support of his contentions, counsel relied on the following decisions to which we would make a further reference at a later stage : a) In case of Radhawami Salt Works v. Asst. Commissioner of Income TA (Special Civil Application No.16644/2012 and connected matter, judgment dated 14.6.2017). b) In case of United Phosphorus Ltd. v. Additional Commissioner of Incometax (Special Civil Application No.3352/2001 judgment dated 8.3.2011). c) In case of National Dairy Development Board v. Deputy Commissioner of Income Tax Anand Circle (Special Civil Application No.14449/2010 judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Assessing Officer wanted to scrutinise the return for the assessment year 20122013 for which notice under section 143(2) of the Act was issued on 23.9.2013 and dispatched for service on 24.9.2013. The position which is concluded by virtue of the order of the Appellate Commissioner is such notice was not served on the assessee before 30.9.2013. The assessee raised such contention before the Assessing Officer and also participated in the assessment. The Assessing Officer rejected the ground of non service of notice and taxed the proceeds out of sale of land as the business income. In the appeal, CIT(Appeals) held that the assessment was invalid since it was carried out without notice under section 143(2) of the Act. In that view of the matter, CIT(Appeals) did not examine the assessee's contention regarding the additions made by the Assessing Officer. This order of the CIT(Appeals) has become final. After this order was passed, the Assessing Officer issued the impugned notice for reopening which was done within a period of four years from the end of relevant assessment year. 13. In light of such facts, we need to test the assessee's contentions. Regarding the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of further proceedings. 15. In the case on hand, the assessee had raised two contentions before the Commissioner(Appeals). First was with respect to the validity of the assessment framed by the Assessing Officer without service of notice and second was with respect to merits of additions made by him in such order of assessment. The Commissioner (Appeals) confined his comments only to first of his contentions and declared that the assessment was invalid since it was framed without service of notice. In that view of the matter, he refused to comment on the assessee's contention on merits of the additions. Essentially, therefore, the order of Commissioner (Appeals) dealt with only one part of the assessee's appeal and refused to enter into the other part. The order of Commissioner, therefore, was confined to the ground of invalidity of assessment perse and not on the merits of the additions made. The reopening is based on the belief of the Assessing Officer that the sale proceeds should be taxed as the business income and not as capital gain. This subject matter was not a part of the order of the Commissioner (Appeals). The Commissioner (Appeals) having entertained o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer from carrying out reassessment. d) In case of State of Gujarat v. Doshi Printing Press (Tax Appeal No.87/2015 and connected matters judgment dated 9.2.2015), the Court applied the principle of merger finding that against the order of assessment, the assessee had filed appeal and the appellate authority had modified the order of assessment. 18. This brings us to the last contention of the counsel for the assessee that the Assessing Officer could not have issued notice of reopening to bypass or circumvent the statutory period for issuance of notice under section 143(2) of the Act. The argument was that power of reopening the assessment cannot be exercised to overcome the situation where scrutiny assessment is not possible, for want of service of notice under section 143(2) of the Act within the statutory time period. As is wellknown section 143 of the act pertains to assessment. Subsection (1) of section 143 provides the manner in which the Assessing Officer would process a return filed by the assessee. Subsection( 2) of section 143 provides that where a return has been filed and the Assessing Officer considered it necessary or expedient to ensure that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment, would be entirely permissible under section 147 of the Act. Merely on the ground that the reasons recorded by the Assessing Officer proceeded on the same basis on which the Assessing Officer initially desired to make additions but which failed on account of setting aside the order of assessment, would not preclude the Assessing Officer from carrying out the exercise of reopening of the assessment. In the present case, facts are peculiar. It is not as if the Assessing Officer after noticing certain discrepancies in the return of the assessee, slept over his right to undertake the scrutiny assessment. The scrutiny assessment was initiated by issuance of notice under section 143(2) of the Act on 23.9.2013. It was also dispatched for service to the assessee on 24.9.2013 by Speed Post on the last known address. The Commissioner (Appeals) however, held that there was no proof of service of notice and since section 143(2) requires service of notice, the assessment was framed without complying with the mandatory requirements. 21. We may refer to some of the decisions on the point. In case of A G Group Corporation (supra), the Court noticed that at one point the Revenue had reo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, the Assessing Officer cannot try to scrutinize the return. This aspect substantially overlaps with the later contention of the petitioner that the reasons recorded by the Assessing Officer were not germane and were not sufficient to permit reopening. 12. We must recall that the return filed by the petitioner was not taken in scrutiny. No assessment, thus, took place. The Assessing Officer without any assessment, merely issued an intimation under section 143(1) of the Act accepting such return. In that view of the matter, it cannot be stated that the Assessing Officer formed any opinion with respect to any of the aspects arising in such return. In such a case, scope for reopening such assessment under section 147 of the Act as compared to an assessment which was previously framed under section 143(3) of the Act, whether beyond or within four years from the end of the relevant assessment year, is substantially wider. The Apex Court in case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) noticed such distinction and noted that the scheme of sections 143(1) and 143(3) of the Act is entirely different. It was noticed that after 1.4.1989 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. 23. In case of Commissioner of IncometaxIII v. Kiranbhai Jamnadas Sheth (HUF) reported in (2013) 39 taxmann. Com 116, this issue directly came up for consideration. Relying on the judgment in case of Inductotherm (India) P.Ltd.(supra), the view of the Tribunal that notice under section 148 could not have been issued without previously having issued notice under section 143(2) of the Act within the time available for framing the original assessment was reversed. 24. In case of Commissioner of Incometax v. Vishal Gupta reported in (2012) 22 taxmann.com 82(Delhi), issue very similar to case on hand came up for consideration. It was a case where the assessment for the assessment years 19951996 and 19961997 were quashed by the Tribunal on the ground that statutory notice under section 143(2) of the Act was not served on the assessee within the stipulated period. The Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of such material the additional income cannot be said to have escaped assessment, then it shall not be permissible for the Assessing Officer to issue a fresh notice on the basis of the same material in respect of the same item of income. However, in case some fresh material comes into the possession of the Assessing Officer subsequently suggesting escapement of income under the same head or some other head, we see no fetters on his power to issue a fresh notice under Section 148. Needless to emphasise that all such subsequent notices have to conform to the parameters prescribed under the law including the provision regarding limitation. 25. Similar issue came once again before the Delhi High Court in case of Biotech International Ltd. v. Assistant Commissioner of Incometax reported in (2010) 230 CTR 533 (Delhi). It was a case where the assessee company filed return of income for the assessment year 20012002. The Assessing Officer passed the order of assessment under section 143(3) of the Act. Such order was challenged on the ground that notice under section 143(2) of the Act was not served on the company within the statutory timeframe. CIT(Appeals) having rejected such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the question in the negative placing heavy reliance on the decision in case of CIT v. Orient Craft Ltd. reported in (2013) 354 ITR 536. This issue directly does not arise in the present case. In any case, we are not in agreement with the view expressed in the judgment. In our view, such a proposition would be opposed to the decision of Supreme Court in case of Rajesh Jhaveri Stock Brokers (P) Ltd.(supra) as reiterated in later judgment in case of Deputy Commissioner of Incometax and another v. Zuari Estate Development and Investment Company Ltd. reported in (2015) 373 ITR 661 (SC). It would also be opposed to the logic adopted by the Court in case of Inductotherm (India) P.Ltd.(supra). This decision of Delhi High Court in case of Orient Craft Ltd. (supra) came up for consideration before this Court in case of Olwin Tiles India Pvt. Ltd. v. Deputy Commissioner of Incometax reported in (2016) 382 ITR 291 (GUJ). It was opined as under : 9. In case of Orient Craft Ltd. (supra), heavily relied upon by Shri Shah, the Division Bench of Delhi High Court, in the context of reopening of an assessment, which was originally accepted under Section 143(1) of the Act, reiterated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions of this Court and other courts to the extent inconsistent with the above decisions of the Supreme Court cannot be said to reflect the correct legal position. c) Decision of Allahabad High Court in case of Manoo Lal Kedarnath v. Union of India reported in (1978) 114 ITR 884 (Allahabad) also was rendered in different factual background. The proceedings of reopening undertaken by the ITO were set aside in the appeal by the Tribunal. However, before the decision of the Tribunal, the Assessing Officer issued a second notice of reopening in respect of some items which were the subject matter of earlier reassessment proceedings. It was held that fresh reassessment proceedings were initiated without application of mind. The same was quashed. d) Decision of Jharkhand High Court in case of Incometax, Jamshedpur v. Pradeep Iron Industries (P) Ltd. reported in (2014) 45 taxmann. Com 64 (Jharkhand) was a case in which the time limit for completion of assessment was to expire on 31.3.1990. The Assessing Officer issued notice for reopening the assessment only 22 days before the expiry of such period. The Tribunal opined that the notice was issued merely to get extension of ..... 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