In case of change of AO, newly appointed AO shall continue proceeding from stage where they were left by earlier AO

DCIT Vs Mastech Technologies Pvt. Ltd. (Supreme Court of India)

In case of change of AO, newly appointed AO shall continue proceeding from stage where they were left by earlier AO

The Hon’ble Supreme Court (“the Supreme Court”) in the case of Dy. Commissioner of Income Tax New Delhi v. M/s Mastech Technologies Pvt. Ltd. (Civil Appeal No. No. 8077 OF 2022) dated November 03, 2022 held that in case of transfer of Assessing Officer (“AO”), the new AO can only continue the proceeding from the stage at which earlier AO had left.

Facts:

M/s Mastech Technologies Pvt. Ltd. (“the Respondent”) filed return of income for Assessment Year 2008-09 declaring loss. On March 23, 2015, the AO issued notice (“First Notice”) for reassessment under Section 148 of the Income Tax Act, 1961 (“the Income Tax Act”). However, due to transfer of the AO, the case was assigned to the new AO. Subsequently, the new AO again issued notice (“Second Notice”) under Section 148 of the Income Tax Act dated January 18, 2016. The Respondent submitted its objection against re-opening the assessment vide letter dated March 07, 2016. However, the AO rejected the objection of the Respondent and vide Order dated on March 30, 2016 (“the Order”), passed an Order directing the Respondent to deposit additional tax under Section 143(3) of the Income Tax Act.

The Respondent field writ petition being Mastech Technologies Pvt. Ltd. Dy Commissioner of Income Tax (W.P(C) No. 2858 of 2016), before the Hon’ble Delhi High Court (“the High Court”), challenging the Order. The Delhi High Court vide judgement and order dated July 13, 2017 (“the High Court Order”) quashed the re-opening of the assessment and also set aside the assessment order passed by the AO for the Assessment Year 2008-09 on the ground that issuance of the Second Notice under Section 148 would result into dropping of the First Notice. Consequently, the Second Notice issued by the AO dated January 18, 2016 would be considered as fresh notice which was barred by limitation. Further, no reasons were recorded when the Second Notice was issued as to whether the Second Notice was issued in continuation of the First Notice.

Aggrieved with the order passed by the Delhi High Court, the Department  (“the Appellant”) filed Civil Appeal No. 8077 of 2022 before the Supreme Court contending that order of quashing the assessment passed by the High Court was not correct.

Issue:

Whether in case where an AO is transferred and new AO takes charge, a fresh Notice is required to be issued or new AO can continue the proceedings from the stage where earlier AO left?

Held:

The Supreme Court held that:

• Section 129 of the Income Tax Act permits to continue the earlier proceeding in case of change of the AO from the stage at which the proceeding were before the earlier AO.
• The Second Notice issued by the AO was not required by law. However, the Second Notice could not be said to drop the First Notice.
• The reason to re-open the assessment was already furnished after the First Notice. Further, it was to be noted that assessment order was passed on the basis of First Notice and not on the basis of the Second Notice.
• Therefore, the Supreme Court held that the Delhi High Court Order of quashing and setting aside the re-opening of the assessment is unsustainable.

Relevant Provisions

Section 129 of the Income Tax Act:

129. Whenever in respect of any proceeding under this Act an income- tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor:

Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1) Leave granted.

2) We have heard Mr. Balbir Singh, learned ASG, appearing for the appellant and Mr. Apoorv Kathore, learned Advocate, appearing on behalf of the respondent-assessee.

3) Feeling aggrieved and dissatisfied with the impugned judgment and order dated 13.07.2017 passed by the High Court of Delhi at New Delhi in Writ Petition (C) No. 2858 of 2016, by which in exercise of powers under Article 226 of the Constitution of India, the High Court has not only quashed and set aside the reopening of the assessment but has also quashed and set aside the Assessment Order for the A.Y. 2008-09.

4) The facts leading to the present Appeal, in a nut shell, are as under:-

i) That the assessee filed return of income for the A.Y. 2008-09 declaring loss of of Rs.6,10,314/- which was processed under Section 143(1) of the Income Tax Act, 1961 (for short “the Act”).

ii) After obtaining the prior approval of the Additional Commissioner of Income Tax for re-opening of the assessment, the Assessing Officer issued a notice under Section 148 of the Act dated 23.03.2015.

iii) At the instance of the assessee, the Assessing Officer supplied the reasons for re-opening, vide letter dated 18.05.2015. However, it appears that thereafter, the earlier Assessing Officer, who issued the notice under Section 148 of the Act dated 23.03.2015, was transferred and the new Assessing Officer was in charge and therefore, though not required considering Section 129 of the Act, the subsequent Assessing Officer issued another notice under Section 148 of the Act on dated 18.01.2016.

iv) Again, at the request of the assessee, the subsequent Assessing Officer supplied the reasons for re-opening of the assessment.

v) That thereafter, the Assessing Officer issued the notice under Section 142(1) of the Act and also issued a notice under Section 143(2) of the Act dated 16.02.2016.

vi) The Assessing Officer, vide letter dated 23.02.2016, informed the assessee of the reasons for re-opening of the assessment for the A.Y. 2008-09.

vii) The assessee submitted its objections to the re-opening of the assessment, vide communication/letter dated 07.03.2016. The Assessing Officer rejected the objections of the assessee to the re-opening of the assessment, vide letter/communication dated 21.03.2016.

viii) That thereafter, the Assessing Officer passed the order of assessment under Section 143(3) of the Act on 30.03.2016 making an addition of Rs.1,35,00,000/- on account of accommodation entry and zero addition of Rs.2,43,000/- on account of commission.

5) The assessee approached the High Court by way of writ petition challenging the re-opening of the assessment for the A.Y. 2008-09 on 01.04.2016. The High Court passed an interim order on 01.04.2016 that the assessment proceedings may go on but no final assessment order shall be passed and the same shall be subject to the ultimate outcome of the final decision in the writ petition. At this stage, it is required to be noted that prior thereto, the actual final assessment order was already passed on 30.03.2016.

6) By the impugned judgment and order, the High Court has set aside the reopening of the assessment for the A.Y. 2008-09 mainly on the following grounds:-

i) That in view of the issuance of the second notice under Section 148 of the Act on dated 18.01.2016, the first notice under Section 148 dated 23.03.2015 was given up/dropped;

ii) In view of the above, the second notice dated 18.01.2016 is considered to be the fresh notice, the same was barred by limitation;

iii) no reasons were recorded while reopening when the second show cause notice dated 18.01.2016 was issued.

7) The High Court has observed, as above, by further observing that in the notice dated 18.01.2016, it was not specifically mentioned that the same is in continuation of the earlier notice dated 23.03.2015.

8) Having heard learned counsel appearing for the respective parties and considering the facts narrated hereinabove and the material on record, we are of the opinion that the impugned judgment and order passed by the High Court quashing and setting aside the re-opening of the assessment for the A.Y. 2008-09 is unsustainable. As such, Section 129 of the Act permits to continue with the earlier proceedings in case of change of the Assessing Officer from the stage at which the proceedings were before the earlier Assessing Officer.

In that view of the matter, as such, fresh show cause notice dated 18.01.2016 was not at all warranted and/or required to be issued by the subsequent Assessing Officer. Still, for whatever reason, the subsequent Assessing Officer issued the fresh notice on dated 18.01.2016 which, as observed hereinabove, was not warranted and/or required at all. Section 129 of the Act is very clear.

9) In that view of the matter, the subsequent issuance of the notice dated 18.01.2016 cannot be said to be dropping the earlier show cause notice dated 23.03.2015, as observed and held by the High Court. The reasons to reopen the assessment for the A.Y. 2008-09 were already furnished after the first show cause notice dated 23.03.2015 which ought to have been considered by the High Court. However, the High Court has considered the reasons recorded after the second show cause notice dated 18.01.2016 which was not required to be considered at all.

10) In view of the above finding, the finding recorded by the High Court that the subsequent notice dated 18.01.2016 can be said to be barred by limitation is unsustainable.

11) At this stage, it is required to be noted that the Assessment Order is passed on the basis of the first notice dated 23.03.2015 and not on the basis of the notice dated 18.01.2016.

12) Under the circumstances and in view of the above factual aspect, the High Court has erred in quashing and setting aside the reopening of the assessment for the A.Y. 2008-09. The impugned judgment and order passed by the High Court holding so is unsustainable and the same deserves to be quashed and set aside.

13) At the same time, as the assessee did not challenge the Assessment Order on merits which it ought to have challenged before the CIT-A and the High Court has set aside the Assessment Order on the ground that initiation of the reassessment is bad in law, we relegate the original petitioner to file an Appeal before the CIT-A and if the same is filed within a period of 4 weeks from today, the same be considered in accordance with law and on its own merits, subject to compliance of other requirements, while preferring the appeal against the Assessment Order. However, the assessee shall not be permitted to re-agitate before the CIT-A and/or the Appellate Authority that the reopening was bad in law.

14) In view of the above and for the reasons stated above, the impugned judgment and order passed by the High Court is set aside. However, we reserve the liberty in favour of the assessee to challenge the Assessment Order before the learned CIT-A and if the same is filed within a period of four weeks from today, the same be considered in accordance with law and on its own merits, subject to compliance of the requirements while preferring the Appeal before the learned CIT-A and without raising the issue with respect to limitation. It is made clear that the assessee shall not be permitted to re-agitate the question of reopening of the assessment which is concluded now by the present order.

The present Appeal is, accordingly, allowed to the aforesaid extent. No costs.

Leave granted.

The present Appeal is allowed to the extent as indicated in the signed order. No costs.

Pending applications, if any, stand disposed of.

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