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2023 (8) TMI 1642 - AT - Income Tax


The core legal questions considered in this judgment revolve around the validity of the assessment proceedings initiated under section 147 of the Income Tax Act ("the Act") for the assessment year 2012-13. Specifically, the issues are:
  • Whether the non-issuance of a statutory notice under section 143(2) of the Act vitiates the assessment proceedings initiated under section 147 read with section 143(3) of the Act.
  • Whether the assessee filed a return of income in response to the notice under section 148 of the Act, thereby necessitating issuance of notice under section 143(2) of the Act.
  • Whether the reopening of the assessment under section 147 was valid in the absence of prior sanction from the Principal Commissioner of Income Tax (PCIT) as required under the Act.
  • Whether the assessment order is sustainable on merits in the absence of material substantiating the assessee's claims.

Issue 1: Validity of Assessment Proceedings Without Issuance of Notice under Section 143(2)

Relevant Legal Framework and Precedents: Section 143(2) of the Act mandates issuance of a notice to the assessee for scrutiny assessment where a return has been filed under section 139(1). Section 147 empowers reopening of assessments where income has escaped assessment, and section 148 prescribes the procedure for issuing notice of such reopening. The interplay between sections 143(2), 147, and 148 has been judicially examined in landmark decisions such as ACIT vs. Hotel Blue Moon (2010) and PCIT vs. Oberoi Hotels (2018), which emphasize the mandatory nature of section 143(2) notice if a return is filed in response to the reopening notice under section 148.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee did not file any return of income in response to the notice under section 148 within the stipulated time. The Tribunal observed that the notice under section 148 itself is a notice of assessment and does not require a separate notice under section 143(2) unless a return is filed in response to the section 148 notice. The Tribunal relied on the principle that if no return is filed pursuant to section 148 notice, the requirement to issue a notice under section 143(2) does not arise, and hence, its non-issuance does not vitiate the proceedings.

Key Evidence and Findings: The assessment order records that multiple notices under section 148 and related communications were issued and served, but the assessee did not respond or file a return within the prescribed time. The return was filed online only on 11/12/2019, after several hearings, and a letter dated 12/12/2019 requested the Assessing Officer to treat this late return as filed in response to the section 148 notice.

Application of Law to Facts: The Tribunal applied the legal principle that the mandatory issuance of a section 143(2) notice arises only if a return is filed in response to the section 148 notice. Since the return was not filed within the prescribed period and was belatedly filed without prior approval or extension, the Tribunal held that the assessment proceedings were not vitiated by the absence of a section 143(2) notice.

Treatment of Competing Arguments: The assessee argued that since the return was filed online on 11/12/2019 and requested to be treated as a return filed pursuant to section 148 notice, the failure to issue a section 143(2) notice rendered the assessment invalid. The Revenue contended that the late filing did not amount to a valid return in response to the section 148 notice, and hence, no requirement for section 143(2) notice arose. The Tribunal sided with the Revenue, emphasizing the importance of timely compliance and the absence of any extension or approval for late filing.

Conclusion: The Tribunal concluded that the non-issuance of a notice under section 143(2) of the Act does not vitiate the assessment proceedings under section 147 read with section 143(3) where no return is filed in response to the section 148 notice within the prescribed time.

Issue 2: Whether the Assessee Filed a Return in Response to Section 148 Notice

Relevant Legal Framework and Precedents: The requirement for issuance of notice under section 143(2) hinges on whether the assessee files a return in response to the section 148 notice. The Supreme Court in ACIT vs. Hotel Blue Moon and various High Court decisions have held that filing a return or requesting to treat the original return as filed in response to the section 148 notice triggers the mandatory issuance of a section 143(2) notice.

Court's Interpretation and Reasoning: The Tribunal examined the timeline of notices and responses. It was found that the assessee neither filed the return within the time specified in the section 148 notice nor requested any extension. The return filed on 11/12/2019 was after multiple notices and hearings and was not accompanied by any prior approval for late filing. The Tribunal held that such belated filing does not amount to a valid return filed in response to the section 148 notice.

Key Evidence and Findings: Multiple notices issued on 28/03/2019, 12/04/2019, and 24/10/2019 were served on the assessee, but no response was received until after 29/11/2019. The return was filed online on 11/12/2019, and the letter dated 12/12/2019 requested to treat it as a return filed pursuant to the section 148 notice. However, no extension or permission for late filing was granted.

Application of Law to Facts: The Tribunal applied the principle that a return filed beyond the stipulated time without approval is not a valid return in response to the section 148 notice. Therefore, the legal requirement for issuing a section 143(2) notice was not triggered.

Treatment of Competing Arguments: The assessee's contention that the return filed on 11/12/2019 should be treated as a return in response to the section 148 notice was rejected due to non-compliance with procedural timelines and absence of extension. The Revenue's argument that no valid return was filed in response to the section 148 notice was accepted.

Conclusion: The Tribunal concluded that the assessee did not file a valid return in response to the section 148 notice, and hence, the assessment proceedings did not require issuance of a section 143(2) notice.

Issue 3: Validity of Reopening Without Prior Sanction of PCIT

Relevant Legal Framework: Section 151 of the Act requires prior sanction before issuing notice under section 148. The nature of sanction depends on whether there was an earlier assessment under section 143(3) or section 147. Section 151(1) requires sanction of the Principal Commissioner of Income Tax (PCIT) if reopening is after assessment under section 143(3) or section 147, while section 151(2) requires sanction of the Joint Commissioner if no such assessment was made earlier.

Court's Interpretation and Reasoning: The Tribunal noted that there was no prior assessment under section 143(3) or section 147 for the relevant assessment year. Therefore, the case falls under section 151(2), where sanction of the Joint Commissioner suffices. The assessee did not challenge the validity of such sanction or claim its absence.

Application of Law to Facts: Since the case did not require PCIT sanction under section 151(1), and no challenge was raised regarding the Joint Commissioner's sanction, the reopening was held to be valid.

Conclusion: The reopening of assessment under section 147 was valid and not vitiated by lack of prior sanction from the PCIT.

Issue 4: Merits of the Assessment

Relevant Legal Framework: The Tribunal's jurisdiction in the appeal includes examining whether the assessment order is sustainable on merits based on the materials on record.

Court's Interpretation and Reasoning: The Tribunal observed that the assessee did not produce any material to substantiate its claims on merits. The primary arguments advanced related to procedural defects, which were rejected. Consequently, there was no basis to interfere with the assessment order on merits.

Conclusion: The assessment order was upheld on merits due to lack of supporting evidence from the assessee.

Significant Holdings:

"The notice under section 148 of the Act is by itself a notice of assessment and it does not require a separate notice under section 143(2) of the Act, which according to the learned CIT(A) has to be necessarily issued in case of a return filed under section 139 of the Act or in response to notice under section 142(1) of the Act, calling for a return."

"Non-issuance of notice under section 143(2) of the Act vitiates the proceedings if the assessee filed the return of income, such a return as filed was not acceptable to the learned Assessing Officer and the assessment has to be made at variance with the return filed by the assessee. If no return of income is filed by the assessee, such allegation does not arise."

"It's not the option of the assessee to file the return of income pursuant to the notice under section 148 of the Act whenever she pleases. For want of compliance with the letter of law, there is no proper filing of return of income."

"In this case, it's not the case of the assessee that there was any assessment under section 143(3) or section 147 of the Act earlier. Then the case of the assessee falls not under section 151(1), but it falls under section 151(2) of the Act, in which case the satisfaction of the Joint Commissioner is sufficient."

The Tribunal thus established the core principles that (i) a section 143(2) notice is mandatory only if a return is filed in response to a section 148 notice; (ii) failure to file a return within prescribed time without extension negates the requirement for section 143(2) notice; (iii) reopening without PCIT sanction is valid if prior assessment was not made under sections 143(3) or 147; and (iv) procedural defects cannot be invoked when the assessee has not complied with timelines or produced substantive evidence on merits.

Accordingly, the Tribunal dismissed the appeal and upheld the assessment order passed under section 143(3) read with section 147 of the Act for the assessment year 2012-13.

 

 

 

 

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