2020 (1) TMI 1733 - AT - Income Tax

Validity of re-assessment order framed u/s 143(3) r.w.s. 147 - reason to believe - HELD THAT - On a reading of the reasons recorded it is noticed that the assessee had deposited cash in saving account for which no trail is available. The assessee has simultaneously not filed return of income. Therefore the AO in our view rightly formed reason to believe that chargeable income has escaped income in the absence of return of income. The belief appears to be held in good faith based upon reasonable grounds and cannot be reckoned to be a mere pretense. The conditions did exist for reopening the assessment based on such grounds. As per the Section 147 of the Act what is required is reason to believe but not the established fact of escapement of income. At the stage of issue of notice the only question relevant would be whether there was a relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove the escapement of income is not a matter of concern at that stage as held in ACIT vs. Rajesh Javeri Stock Brokers Pvt. Ltd. 2007 (5) TMI 197 - SUPREME COURT . The first plea of the assessee capsuled above is thus found to be without merit. Validity of approval and memo obtained u/s 151 - We notice indeed that while granting approval u/s 151 of the Act marking yes showing its purported satisfaction towards escapement of income it is not discernible as to the date on which such approval was obtained. We find a clear case of remissness on the part of the JCIT in remaining silent on the date of approval. The approval under s. 151 of the Act is statutory in nature and a pre-condition to enable the AO to put the proceedings under s. 147 of the Act in operation. In the absence of any date it will be difficult to speculate the actual date of approval. The approval if granted after the issuance of notice u/s 148 of the Act would be a nullity in law. The onus was on Revenue to establish that the approval was taken prior to the issuance of notice u/s 148 of the Act. The onus remains undischarged. Therefore approval granted by the JCIT cannot be reckoned to be a valid approval in the peculiar facts. Invalidity of Section 147 proceedings i.e. whether the issue of notice under s. 143(2) of the Act within time is a sin qua non for proceedings further for reassessment pursuant to notice under s. 148 - It is the case of Revenue that since the requirement if Section 147/Section 148 of the Act are duly met with the provisions of Section 143(2) of the Act are rendered procedural and does not affect the validity of the assessment. As noted above return filed in response to notice u/s 148 of the Act is deemed to be return filed u/s 139 of the Act and all the provisions of the Act shall apply accordingly. As a consequence the notice of assessment has to be necessarily issued as mandated under s. 143(2) of the Act insofar as the return filed in response to Section 148 of the Act is concerned. As in CIT vs. Sukhini P. Modi 2014 (11) TMI 50 - GUJARAT HIGH COURT has taken note of the decision of Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT and held that reassessment would not be valid without following the procedure prescribed for issuance of notice under s. 143(2) of the Act. We prefer to follow the decision in preference to the decision of Madhya Bharat Energy Corporation Ltd. 2011 (7) TMI 66 - DELHI HIGH COURT relied upon on behalf of the Revenue more so for the reason that the decision of Hon ble Supreme Court in Hotel Blue Moon (supra) has not been brought to the notice of the Hon ble Delhi High Court. Therefore failure to issue notice u/s 143(2) of the Act has rendered the reassessment bad in law where the return filed has been acted upon for the purposes of reassessment. Hence the reassessment order passed u/s 143(3) r.w.s. 147 of the Act dated 18.02.2016 appealed against deserves to be quashed. Assessee appeal allowed.

Summary

ISSUES:

Whether the reasons recorded under Section 147 of the Income Tax Act, 1961 constitute valid "reason to believe" for reopening assessment.Whether the approval under Section 151 of the Act is valid in the absence of a recorded date of approval prior to issuance of notice under Section 148.Whether issuance of notice under Section 143(2) of the Act is mandatory for validity of reassessment proceedings under Sections 147 and 148 when a return is filed in response to notice under Section 148.Whether failure to issue notice under Section 143(2) renders the reassessment order void ab initio.

RULINGS / HOLDINGS:

The reasons recorded under Section 147, based on undisputed cash deposits and non-filing of return, constitute a valid "reason to believe" and are sufficient to initiate reassessment; the requirement is "reason to believe" and not proof of escapement of income.The approval under Section 151 of the Act is invalid if the date of approval is not recorded, as approval must precede issuance of notice under Section 148; absence of proof that approval was obtained prior to notice issuance results in failure to discharge the onus on Revenue.Issuance of notice under Section 143(2) is mandatory and not merely procedural for reassessment under Section 147 when a return is filed in response to notice under Section 148; failure to issue such notice invalidates the reassessment proceedings.The reassessment order passed without issuance of notice under Section 143(2) is void ab initio and liable to be quashed, as established by binding precedents and jurisdictional High Court rulings.

RATIONALE:

The Court applied the statutory framework under the Income Tax Act, 1961, particularly Sections 143(2), 147, 148, and 151, alongside judicial precedents including the Supreme Court ruling in ACIT vs. Rajesh Javeri Stock Brokers Pvt. Ltd. emphasizing the standard of "reason to believe."The Court underscored the statutory requirement under Section 151 that approval for reopening must be obtained before issuance of notice under Section 148, and the absence of a recorded date of approval constitutes a procedural defect undermining validity.The Court relied on a series of authoritative decisions from various High Courts and ITAT benches holding the mandatory nature of notice under Section 143(2) for reassessment proceedings under Section 147 when a return is filed in compliance with notice under Section 148, including the jurisdictional High Court decision in CIT vs. Sukhini P. Modi and the Supreme Court decision in ACIT v. Hotel Blue Moon.The Court noted a doctrinal preference for the binding jurisdictional High Court precedent over conflicting decisions from other jurisdictions, emphasizing that failure to issue notice under Section 143(2) cannot be cured under Section 292BB and renders reassessment void.