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July 8, 2022

The reopening of the case by an officer with no jurisdiction invalidates the entire proceeding.

by CA Shivam Jaiswal in Income Tax

The reopening of the case by an officer with no jurisdiction invalidates the entire proceeding.

Facts and issues of the case       

The appellant is an assessee on the file of the second respondent. For the assessment year 2011-2012, she filed her return of income on 19.04.2012 admitting an income of Rs.11,60,000/-, which was processed by the Assessing Officer under Section 143 (1) of the Income Tax Act, 1961 (in short, “the Act”). While so, after a period of five years, she received a notice dated 28.03.2018 issued by the first respondent under Section 148 of the Act purportedly to re-assess the income of return submitted by her for the assessment year 2011-2012. In response, she submitted a reply dated 26.04.2018 stating that the first respondent has no jurisdiction to issue such a notice under Section 148 of the Act and therefore, she requested to drop the reassessment proceedings. Subsequently, the first respondent transferred the files pertaining to  the  appellant  to  the  second  respondent.  Thereafter,  the second respondent continued the reassessment proceedings by issuing a notice dated 14.12.2018 under section 143(2) r/w 129 of the Act, directing the appellant to appear and file return of income to the notice under section 148 of the Act along with supportive documents. Aggrieved over the same, the appellant preferred WP.No.34136 of 2018 to quash both the notices dated 28.03.2018 and 14.12.2018 issued by the respective respondents 1 and 2.

It was contended by the respondents before the writ court that the appellant had received a sum of Rs.53,50,000/- towards her share in respect of the property at Mumbai, from a developer within the jurisdiction of the first respondent and therefore, notice dated 28.03.2018 under section 148 of the Act was issued by the first respondent. When the appellant raised an issue of jurisdiction, the entire materials collected by the first respondent were sent to the second respondent for continuing the reassessment proceedings. Accordingly, the second respondent seized of the reassessment proceedings within whose jurisdiction the appellant resides. According to the respondents, in the original assessment proceedings for the assessment year 2011-2012, it was not known as to whether the appellant had disclosed the said sum of Rs.53,50,000/- received by her towards transfer of FSI rights in respect of the property situated at Mumbai and therefore, she was directed to appear before the second respondent and explain the same. In any event, there is tangible material evidence available to initiate reassessment proceedings against the appellant.

Upon hearing both sides, the learned Judge, having observed that the notice initially issued by the first respondent against the appellant though improper, need not be set aside, in view of the fact that the said proceedings were subsequently transferred to the Income Tax Authorities at Chennai; the commencement of the proceedings by issuing notice dated 14.12.2018 is in no way prejudiced the appellant; and she is at liberty to file her objections and avail an opportunity of hearing to be provided under the IT Act, dismissed the said writ petition, by the order impugned herein. Therefore, the appellant / writ petitioner is before this court with this appeal.

The learned counsel for the appellant would contend that the first respondent lacks jurisdiction to initiate the reassessment proceedings by issuing the notice dated 28.03.2018 knowing fully well that the appellant is not residing within the jurisdiction of the first respondent. Further, after a period of five years from the completion of the original assessment for the assessment year 2011-2012, the reassessment proceedings were initiated, alleging that some of the income was not disclosed by the appellant truly and fully. However, the fact remains that there was no income omitted to be included by the appellant for assessment during the assessment year in question. Therefore, the reassessment proceedings ought not to have been initiated by the first respondent against the appellant.

Adding further, the learned counsel for the appellant contended that when the reassessment proceedings initiated by the first respondent itself is invalid, the second respondent without issuing notice afresh under section 148 of the Act, cannot be permitted to continue the further proceedings by issuing notice dated 14.12.2018 invoking Section 129 of the Act. According to the learned counsel, even assuming that the reassessment proceedings are valid, as per Section 149 (b) of the Act, the second respondent cannot issue a notice under Section 148 of the Act beyond the period of six years from the end of the relevant assessment year. It is also submitted that the limitation period for initiation of reassessment proceedings for the assessment year 2011-12 came to an end on 31.03.2018; the second respondent, who is the jurisdictional assessing officer, did not issue any notice under Section 148 of the Act, before 31.03.2018 to reopen the return of income declared by the appellant; and therefore, the second respondent cannot ride upon the borrowed satisfaction of the first respondent to continue with the reassessment proceedings without issuance of notice under section 148 of the Act within the prescribed time frame, which vitiate the entire reassessment proceedings. However, the learned Judge erred in observing that there is no irregularity or infirmity in initiating the reassessment proceedings by the first respondent by issuing notice dated 28.03.2018 and transmitting the files to the second respondent, who in turn, issued notice dated 14.12.2018 for continuation of the reassessment proceedings; and dismissing the writ petition, by the order impugned herein.

The learned counsel placed reliance on the decisions of various High Court and the Hon’ble Supreme Court and ultimately, submitted that when once the initiation of the reassessment proceedings is without jurisdiction and held to be invalid, the other consequential proceedings must also necessarily held to be invalid; and therefore, the writ appeal will have to be allowed, by setting aside the order impugned herein and the notices impugned in the writ petition.

Opposing this appeal, the learned Senior Panel Counsel appearing for the respondents would contend that the reassessment proceedings were initiated by issuing notice under section 148 of the Act by the first respondent inasmuch as the particulars relating to the PAN number of the appellant were not available and the details about the developer, who had made payment to the appellant, were not furnished. However, when the issue of jurisdiction was raised by the appellant, the first respondent transferred the entire files relating to the reassessment proceedings of the appellant to the second respondent. The appellant, without filing her return of income to the notice under section 148 of the Act for the relevant assessment year to the second respondent, approached this Court invoking Article 226 of the Constitution of India. Even in the writ proceedings, the appellant did not state anything about the amount received by her. Therefore, the learned Judge justified the notices issued by the respondents and rightly dismissed the writ petition, granting liberty to the appellant to submit her objections to the notice dated 14.12.2018 issued by the second respondent and also avail an opportunity of personal hearing to be provided. Thus, according to the learned counsel, the order of the learned Judge does not require any interference at the hands of this court.

Observation by the court

Heard both sides and perused the materials available on record.The subject matter of challenge before the writ court was the notice dated 28.03.2018 issued by the first respondent under section 148 of the Act and the consequential notice dated 14.12.2018 issued by the second respondent under section 143(2) r/w 129 of the Act, for the assessment year 2011-12. The learned Judge decided the same against the appellant / writ petitioner.

In this writ appeal, the learned counsel for the appellant made elaborate contentions both on legal and factual aspects. Firstly, in law, it is submitted that the first respondent lacks jurisdiction to issue reassessment notice under section 148 of the Act; when the same was pointed out by the appellant, the first respondent transferred the entire files to the jurisdictional assessing officer / second respondent, who inturn, continued the reassessment proceedings by issuing notice under section 143(2) r/w 129 of the Act, without issuing any fresh notice under section 148 of the Act; and hence, the notices so issued by the respective respondents are invalid and the same vitiate the reassessment proceedings. Secondly, on facts, it is contended that the appellant disclosed fully and truly all the material facts necessary for her assessment for the relevant assessment year and there was no income omitted to be included by way of reassessment proceedings. However, the learned Judge failed to appreciate the same in a proper perspective and erred in dismissing the writ petition filed by the appellant herein.

On the other hand, the learned senior panel counsel appearing for the respondents reiterating the averments made in the counter affidavit, justified the reassessment proceedings initiated by the respondents against the appellant, as affirmed by the learned Judge in the writ petition.On a plain reading of the aforesaid provisions, it is apparent that section 148 provides for issuance of notice where income has escaped assessment and the assessing officer intends to make assessment, reassessment or recomputation under section 147. Under sub-section (1) to section 148, the assessing officer shall issue notice to the assessee requiring him/her to furnish a return of income in respect of which he/she is assessable for the relevant assessment year; and under sub-section (2) to section 148, the assessing officer shall before issuing any notice under this section, record his reasons for doing so. It is also crystal clear from the provisions of section 129 of the Act that the same is applicable, when there is a change of incumbent without any change of jurisdiction and one Assessing Officer is succeeded by another in the same office.

In the instant case, it could be seen that the assessment of the appellant was reopened upon receipt of credible information from the Directorate of Income Tax (I & CI), Mumbai, to the effect that she received a sum of Rs.53,50,000/- for transfer of her FSI right in the property at Mumbai. Pursuant to the same, the first respondent issued notice dated 28.03.2018 under section 148 of the Act stating that he has reasons to believe that the income of the appellant chargeable to tax for the assessment year 2011-12 has escaped assessment within the meaning of section 147 of the Act; and therefore, he proposed to assess/re-assess the income for the said assessment year and he directed the appellant to file her return of income in the prescribed form within 30 days from the service of notice. Upon receipt of the said notice, the appellant in her reply dated 26.04.2018, pointed out that she is a permanent resident of Chennai and her PAN is AAKPK7417K and an assessee on the file of the second respondent; and she therefore, requested the first respondent to drop the proposal. Consequently, the files pertaining to the reassessment of the appellant were transmitted to the second respondent. Thereafter, without issuing any fresh notice under section 148 of the Act, the second respondent / jurisdictional assessing officer continued the reassessment proceedings initiated by the first respondent, who lacks jurisdiction to issue notice under section 148 of the Act, and sent a notice dated 14.12.2018 under section 143(2) r/w section 129 of the Act to the appellant, calling upon her to appear either in person or through an authorised representative and produce the documents in support of the return of income filed by her. Thus, both the notices issued by the respondents 1 and 2 respectively were challenged by the appellant.

The legal proposition laid down in the aforesaid decisions is that “notice under section 148 is mandatory to reopen/ reassess the income of the assessee and such a notice should have been issued by the competent assessing officer, who has jurisdiction”; “The jurisdictional Assessing Officer, who records the reasons for reopening the assessment as contemplated under sub section (2) of section 148, has to issue notice under section 148(1), then only, such a notice issued under section 148(1) would be a valid notice”; “The officer recording the reasons under section 148(2) of the Act and the officer issuing notice under section 148(1) has to be the same person”; “Section 129 is applicable when in the same jurisdiction, there is a change of incumbent and one assessing officer is succeeded by another”; and “when once the initiation of reassessment proceedings is held to be invalid, whatever follows thereafter must also, necessarily be invalid”.

Applying the provisions of law as well as the legal proposition laid down in the aforesaid decisions to the facts of the present case, wherein, admittedly, the appellant is an assessee on the file of the second respondent and hence, the first respondent has no jurisdiction over the appellant to issue notice under section 148 for reopening the assessment for the relevant assessment year, after recording the reasons to believe that some of the income of the appellant has escaped assessment, this court is of the opinion that the notice dated 28.03.2018 issued by the first respondent under section 148 of the Act, without jurisdiction, lacks legal sanctity and hence, the same is held to be invalid. As a sequitur, the continuation of the reassessment proceedings by the second respondent, who is the jurisdictional assessing officer, without issuing any fresh notice as contemplated under section 148, but issuing notice dated 14.12.2018 under section 143(2) r/w 129 of the Act, which applies only for change in incumbent within the same jurisdiction, is also held to be invalid.

Conclusion

In the ultimate analysis, the writ appeal stands allowed by setting aside the notices impugned in the writ petition and the order impugned herein. No costs. Consequently connected miscellaneous petition is closed.

Charu-K.-Bagadia-Vs-ACIT-Madras-High-Court

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