2025 (2) TMI 1176 - HC - Income Tax

Validity of the Notice(s) issued u/s 148 - reasons to believe - whether subsequent notices issued u/s 143(2) and 142(1) of the Act as the same are issued without jurisdiction and also barred by limitation? - HELD THAT - AO has recorded the reasons in view of the report of the District Valuation Officer. Moreover the Survey conducted reveals that the assessee has not truly disclosed his income chargeable to tax which has escaped assessment for the relevant Financial Years. AO has recorded his own valid and proper satisfaction for existence of reason to believe that the income of the relevant assessment years has escaped assessment. Thus the notice cannot be treated to have been passed without jurisdiction. Even otherwise the petitioner would get full opportunity to raise his defence in the appellate proceedings. Accordingly the Petition being bereft of any merit is liable to be and is hereby dismissed. Decided against assessee.

Summary

1. The core legal questions considered in this judgment are:

- Whether the notices issued under Section 148, and subsequent notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961, were validly issued or were barred by jurisdictional limitations.

- Whether the Assessing Officer had jurisdiction to issue a commission under Section 131 of the Act to the District Valuation Officer when no assessment proceeding was pending for the relevant Assessment Years (2001-2002, 2002-2003, and 2003-2004).

- Whether the Assessing Officer recorded proper satisfaction and applied mind appropriately before reopening the assessments under Section 147 of the Act.

- Whether a mere change of opinion by the Assessing Officer can constitute a valid reason to reopen assessment proceedings.

- Whether the issuance of notices and reopening of assessments was arbitrary or based on tangible material indicating escapement of income.

2. Issue-wise detailed analysis:

Issue 1: Jurisdiction and validity of notices under Sections 148, 143(2), and 142(1)

The petitioner challenged the legality of notices issued under these sections, contending they were issued without jurisdiction and barred by limitation. However, the petitioner did not press the limitation ground during arguments. The main contention was the absence of pending proceedings for the relevant Assessment Years, which allegedly vitiated the Assessing Officer's jurisdiction to issue a commission under Section 131. The petitioner also argued that the Assessing Officer failed to record proper satisfaction before reopening assessments under Section 147.

The respondents countered by asserting that the Assessing Officer had jurisdiction under Sections 147 and 148 to initiate reassessment proceedings upon discovering escapement of income. They emphasized that reasons for reopening were communicated to the assessee, and a survey under Section 133A had revealed discrepancies in declared income versus valuation reports.

The Court noted that a survey was conducted on 8.7.2003, during which the assessee declared a certain amount for construction expenditure on a nursing home and residential unit. However, the District Valuation Officer's report indicated a significant unexplained difference in valuation, suggesting escapement of income. Based on this tangible material, the Assessing Officer recorded reasons to believe that income had escaped assessment and reopened the cases under Section 147. The Court found that the Assessing Officer's satisfaction was validly recorded and was not arbitrary.

Issue 2: Jurisdiction to issue commission under Section 131 when no proceedings are pending

The petitioner relied on a precedent where it was held that a commission under Section 131 can only be issued if proceedings are pending before the Assessing Officer. The petitioner argued that since no proceeding was pending for the relevant years, the issuance of commission was without jurisdiction.

The Court distinguished the cited precedent on facts, noting that in the present case, the survey and subsequent tangible material justified reopening. Hence, the Assessing Officer had jurisdiction to issue a commission as part of the reassessment proceedings initiated under Section 147. The Court held that the issuance of commission was in accordance with law and proper procedure.

Issue 3: Requirement of proper satisfaction and application of mind under Section 147

The petitioner contended that the Assessing Officer's order for reopening was non-speaking, perfunctory, and lacked proper application of mind, relying on the principle that reopening cannot be based on mere change of opinion.

The Court examined the legal framework and precedents, particularly the Supreme Court's ruling in the Techspan India Private Limited case, which clarified that reopening under Section 147 requires "tangible material" indicating escapement of income and not merely a change of opinion. The Court emphasized that the Assessing Officer's satisfaction must have a live link with the formation of belief that income has escaped assessment.

In the present case, the Court found that the Assessing Officer's satisfaction was based on the District Valuation Officer's report following the survey, which revealed unexplained investment and undervaluation of construction expenditure. This constituted tangible material sufficient to form a reason to believe escapement of income. The Court held that the reopening was not a mere change of opinion but was supported by relevant material.

Issue 4: Distinction between power to review and power to reassess

The Court reiterated the legal principle that the Assessing Officer has no power to review an assessment but only to reassess if there is reason to believe that income has escaped assessment. The reopening cannot be justified on the basis of change of opinion alone, as that would amount to review, which is not permissible under the Act.

The Court found that in the present case, the reopening was not based on a mere change of opinion but on tangible material obtained through survey and valuation report, thereby falling within the scope of reassessment.

Issue 5: Treatment of competing arguments

The petitioner's arguments regarding lack of jurisdiction and absence of proper satisfaction were considered but rejected on the basis that the Assessing Officer had recorded valid reasons supported by tangible evidence. The respondents' arguments regarding the survey, valuation report, and proper procedure followed were accepted.

The Court also noted that the petitioner had the opportunity to raise objections and that a speaking order was passed rejecting those objections. Further, the petitioner would have the right to appeal against the final order under Section 246A.

3. Significant holdings:

- "The language of Section 147 makes it clear that the assessing officer certainly has the power to reassess any income which escaped assessment for any assessment year subject to the provisions of Sections 148 to 153. However, the use of this power is conditional upon the fact that the assessing officer has some reason to believe that the income has escaped assessment."

- "Section 147 of the IT Act does not allow the reassessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment."

- "One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, assessing officer has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."

- The Court concluded that the Assessing Officer had valid jurisdiction and recorded proper satisfaction based on tangible material from the survey and valuation report, thus the notices issued under Sections 148, 143(2), and 142(1) were lawful and not barred by jurisdictional defect.

- The reopening of the assessments was not based on mere change of opinion but on tangible evidence indicating escapement of income.

- The petitioner's objections were duly considered and rejected by a speaking order, and the petitioner retains the right to appeal against the final assessment order.