2017 (7) TMI 576 - HC - Income Tax

Reopening of assessment - reasons to believe - validity of second notice under Section 148(1) - Held that - For reasons which are not clear the Revenue did not pursue the notice dated 23rd March 2015 issued to the Petitioner under Section 148 of the Act. An attempt was made by Mr Rahul Chaudhary to suggest that since the AO who issued the said notice was replaced by another AO the said notice was not pursued. He however insisted that under Section 129 of the Act it was possible to continue proceedings which commenced with the notice dated 23rd March 2015 and that was in fact what was done on 18th January 2016 when the second notice was issued by the incumbent AO. A careful perusal of the notice dated 18th January 2016 reveals that it does not state anywhere that it is in continuation of the earlier notice dated 23rd March 2015. There is no noting even on the file made by the AO that while issuing the said notice he was proposing to continue the proceedings that already commenced with the notice dated 23rd March 2015. Annexure- A to the notice under Section 142(1) of the Act reveals what weighed with the AO when he issued the said notice dated 18th January 2016. In this document with the sub-heading proceedings u/s 148/147 for AY 2008-2009 show cause notice - reg. . It is plain to understand that according to the AO the notice dated 18th January 2016 under Section 148 of the Act was issued initiating afresh the proceedings. It was not merely in continuation of the earlier proceedings that commenced with the notice dated 23rd March 2015. The entire proceedings under Section 148 of the Act stood vitiated since even according to the AO he initiated proceedings on 18th January 2016 on which date such initiation was clearly time barred. Secondly the fresh initiation did not have the approval of the Additional CIT as required by law. The Court has not been provided with any satisfactory explanation as to why the notice dated 23rd March 2015 issued by the AO under Section 148 of the Act was not carried to its logical end. The mere fact that the AO who issued that notice was replaced by another AO can hardly be the justification for not proceeding in the matter. On the other hand the AO did not seek to proceed under Section 129 of the Act but to proceed de novo under Section 148 of the Act. This was a serious error which cannot be accepted to be a mere irregularity. It is not clear why the AO did not wait for the process of supplying reasons to the Petitioner considering the Petitioner s objections thereto and passing a reasoned order thereon to be completed before issuing the notice under Section 142(1) and 143(2) of the Act. There appears to be non-application of mind by the AO to the legal requirement. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the second notice under Section 148 of the Income Tax Act, 1961.
2. Communication of reasons for reopening the assessment.
3. Procedural lapses and their impact on the reassessment proceedings.

Detailed Analysis:

1. Validity of the second notice under Section 148 of the Income Tax Act, 1961:

The petitioner, Mastech Technologies Pvt. Ltd., challenged two notices dated 23rd March 2015 and 18th January 2016 issued under Section 148 of the Income Tax Act, 1961 by the Deputy Commissioner of Income Tax (AO). The petitioner argued that a second notice under Section 148(1) could not have been issued when no action was taken pursuant to the first notice. The court noted that the second notice dated 18th January 2016 did not state it was in continuation of the earlier notice and was treated by the AO as initiating fresh proceedings which were time-barred and lacked the approval of the Additional CIT. Consequently, the court held that the second notice and all proceedings pursuant to it could not be sustained in law.

2. Communication of reasons for reopening the assessment:

The petitioner contended that the reasons for reopening the assessment were not communicated in detail, and only a single line was provided without particulars or material basis. The court observed that the reasons recorded in Annexure-A to the proforma, which contained the approval of the Additional CIT, were not communicated to the petitioner. The court found that the communication of reasons was inadequate and did not comply with the mandatory requirement of Section 148. This procedural lapse invalidated the reassessment proceedings.

3. Procedural lapses and their impact on the reassessment proceedings:

The court identified several procedural lapses in the reassessment process. The AO issued notices under Sections 142(1) and 143(2) of the Act without waiting for the process of supplying reasons and considering the petitioner's objections. The court noted a lack of clarity and non-application of mind by the AO to the legal requirements. The court concluded that these procedural lapses were not mere irregularities but significant errors that invalidated the entire reassessment proceedings.

Conclusion:

The court set aside the notices dated 23rd March 2015 and 18th January 2016, both under Section 148 of the Act, and all consequential proceedings, including the assessment order dated 30th March 2016. The petition was allowed, and no orders as to costs were made.