2025 (4) TMI 1618 - AT - Income Tax

Validity of reopening of assessment without serving any notice - HELD THAT - The Revenue could not prove that there was service of notice u/s 148 of the Act before completion of the reassessment u/s 144 r.w.s. 148 of the Act. As a matter of fact the Assessing Officer in the remand proceedings admitted that notice issued u/s 148/142(1) of the Act had returned by the authorities and therefore it can be safely concluded that there was never been any service of notice to the Assessee. Thus the reassessment made u/s 144 r.w.s. 148 of the Act is hereby quashed. Decided in favour of assessee.

Summary

The core legal questions considered in this appeal are:

1. Whether the initiation of reassessment proceedings under section 147 of the Income Tax Act and completion of assessment under sections 147/144 were valid, particularly focusing on the jurisdictional requirements of issuance and service of notice under sections 148 and 142(1) of the Act.

2. Whether the reasons recorded for reopening the assessment under section 147 constituted valid "reason to believe" and were not mechanical or without application of mind.

3. Whether the approval under section 151 of the Act was validly obtained before initiating reassessment proceedings.

4. Whether the addition of Rs. 16,44,030/- as unexplained cash deposits in the bank account was justified and sustainable on facts and law.

5. Whether the principles of natural justice were complied with, particularly whether the appellant was granted a proper opportunity of hearing before passing the impugned order.

Issue 1: Validity of initiation and completion of reassessment proceedings under sections 147/148/144

Legal framework and precedents: Section 147 empowers the Assessing Officer (AO) to reassess income if there is a "reason to believe" that income has escaped assessment. However, before reassessment, a notice under section 148 must be issued and served on the assessee. Service of notice is a jurisdictional requirement, as established by various judicial pronouncements including the jurisdictional High Court's ruling in CIT vs. Chetan Gupta, which held that both issuance and service of notice under section 148 are mandatory and not mere procedural formalities. The onus lies on the Revenue to prove proper service of notice. Failure to serve notice renders the reassessment void ab initio.

Court's interpretation and reasoning: The Tribunal examined the facts that notices under sections 148 and 142(1) were sent to an incorrect address (1533, Patal Nagar, Patila Chowk, Jind instead of 153/3, Patel Nagar, Patiala, Jind) and returned with postal remarks "left without address." The AO's own remand report admitted non-service of notices despite efforts including deputing an inspector for service. The Tribunal relied heavily on the authoritative ruling of the jurisdictional High Court in CIT vs. Chetan Gupta, which clarified that service of notice is a jurisdictional precondition for reassessment. Since the Revenue failed to prove proper service, the reassessment proceedings and consequent assessment under sections 147/144 were held to be without jurisdiction and void ab initio.

Application of law to facts: The factual admission by the AO that notices were returned unserved was determinative. The Tribunal rejected the Revenue's reliance on other judgments and the AO's contention that the assessee's current residence was different, holding that the statutory requirement of service at the correct address as per records was not fulfilled. The Tribunal concluded that the reassessment was invalid due to lack of jurisdiction.

Treatment of competing arguments: The Revenue argued that the notices were issued at the address available with the department and that the assessee was residing elsewhere. It also relied on a Supreme Court judgment dated October 18, 2019, to support its case. However, the Tribunal distinguished these submissions on facts and emphasized the binding nature of the jurisdictional High Court's decision on the necessity of service. The Tribunal found the Revenue's arguments insufficient to cure the jurisdictional defect.

Conclusion: The reassessment proceedings initiated under section 147 and completed under sections 147/144 were quashed for want of valid service of notice under section 148, rendering the entire assessment void ab initio.

Issue 2: Validity of reasons recorded for reopening assessment (reason to believe)

Legal framework and precedents: The reopening of assessment under section 147 requires the AO to have a "reason to believe" that income has escaped assessment, based on tangible, relevant, and reliable material. Reasons recorded must not be mechanical or without application of mind.

Court's interpretation and reasoning: Although the assessee raised this ground, the Tribunal did not adjudicate on this issue because the reassessment was quashed on the jurisdictional ground of non-service of notice. The Tribunal noted that since the assessment was quashed on a point of law, other grounds, including the validity of reasons recorded, became academic and were not decided.

Issue 3: Validity of approval under section 151

Legal framework: Section 151 requires prior approval for issuance of notice under section 148 in certain cases.

Court's reasoning: This ground was also not adjudicated due to the quashing of reassessment on jurisdictional grounds.

Issue 4: Justification of addition of Rs. 16,44,030/- as unexplained cash deposits

Legal framework: Additions on account of unexplained cash deposits must be supported by evidence and proper appreciation of facts and law.

Court's reasoning: Since the reassessment was quashed on jurisdictional grounds, the Tribunal did not examine the merits of this addition.

Issue 5: Compliance with principles of natural justice

Legal framework: Natural justice requires that the assessee be given a proper opportunity to be heard before passing an adverse order.

Court's reasoning: This ground was also not considered due to the quashing of the assessment on jurisdictional grounds.

Significant holdings and core principles established:

"Under Section 148 of the Act, the issue of notice to the Assessee and service of such notice upon the Assessee are jurisdictional requirements that must be mandatorily complied with. They are not mere procedural requirements."

"For the AO to exercise jurisdiction to reopen an assessment, notice under Section 148 (1) has to be mandatorily issued to the Assessee. Further the AO cannot complete the reassessment without service of the notice so issued upon the Assessee in accordance with Section 282 (1) of the Act read with Order V Rule 12 CPC and Order III Rule 6 CPC."

"Reassessment proceedings finalized by an AO without effecting proper service of notice on the Assessee under Section 148 (1) of the Act are invalid and liable to be quashed."

"The onus is on the Revenue to show that proper service of notice has been affected under Section 148 of the Act on the Assessee or an agent duly empowered by him to accept notices on his behalf."

Applying these principles, the Tribunal held that the reassessment proceedings and consequent assessment were without jurisdiction and void ab initio due to non-service of notices, thereby allowing the appeal on this ground and quashing the assessment. Other grounds raised by the assessee were not adjudicated as they became academic post quashing of the assessment.