1. Introduction

Section 148 of the Income Tax Act, 1961 is a complete code in respect of the powers conferred with the jurisdictional assessing officer to step into the assessment/reassessment proceedings. In addition, section 148 embodies and inherently carries with it the layers of riders attached primarily falling in nature of the time constraints, assumption of jurisdiction by the assessing officer, holding of foreign interest, according of sanction by the competent authorities etc. so as to legitimately take up any proceedings under the statute.  One amongst the myriad aspects of dealing with a notice issued under section 148 and to put the assessee to guard against the arbitrary action is to introspect whether the action of the authority issuing notice under section 148 fulfills the requirements postulated by the Income Tax Act or not. Jurisdiction primarily acquires a crucial place in so far as the assumption of power by the department is concerned and in absence of lawful jurisdiction, the proceedings altogether cannot survive the test of legality and legitimacy. One such issue came up for consideration recently before the Hon’ble Gujarat High Court in Pankajbhai Jaysukhlal Shah vs. Assistant Commissioner of Income Tax reported at (2019) 110 Taxmann.com 51 (Gujarat) / (2020) 312 CTR (Guj) 300, Special Civil Application No.230 of 2019 dated 19th April, 2019. The Hon’ble Court was confronted with the moot issue as to whether the authority issuing notice under section 148 and the authority recording reasons to believe escapement of income must be one and the same authority as per provisions of section 148(1)/(2) of the statute in order to pave way for a lawful action.

2. Facts

The assessee namely Sh.Pankajbhai Jaysukhlal Shah filed his return of income for the assessment year 2011-12 on 01st September, 2012 declaring total income of Rs.44,05,746/- for the purposes of assessment. In line with the procedure pertaining to processing of returns, the return was processed under section 143(1) of the Income Tax Act, 1961. Pursuant to processing of return under section 143(1), the Income Tax Officer, Ward 2(2), Jamnagar sought to reopen the assessment of the petitioner for the previous year 2010-11 relevant to the assessment year 2011-12. In response to notice under section 148, the assessee submitted that return originally filed be treated as filed in response to notice issued under section 148 and requested the assessing officer to supply a copy of the reasons recorded for reopening of assessment for the previous year 2010-11. Upon receipt of reasons recorded for reopening of assessment, the assessee noticed that reasons to believe escapement of income have been recorded by Deputy Commissioner of Income Tax, Circle -2, Jamnagar instead of by the Income Tax Officer, issuing notice under section 148 of the Income Tax Act, 1961. In furtherance, the assessee participated in the proceedings accompanied by raising objection to the assumption of jurisdiction under section 148 before the authority concerned. The assessee prior to disposal of objection raised in the course of proceedings before the officer concerned invoked the writ jurisdiction of the High Court seeking reliefs falling in nature of challenge to the notice issued by the Income Tax Officer, Ward 2(2), Jamnagar. By the time, the claim of the assessee was petitioned, adjudicated and finally decided by the Hon’ble High Court, the assessing officer had passed the assessment order but as the issue pertained to the jurisdiction, the Hon’ble High Court issued notice in the matter concerned to the department. The assessee contended before the High Court that the impugned notice under section 148 of the Income Tax Act, 1961 was issued by Mr.Neeraj Kumar, Income Tax Officer, Ward 2(2), Jamnagar on perusing the reasons recorded for escapement of income as supplied to the assessee whereas the reasons were recorded by Mr.Chintamani V.Dingankar, Deputy Commissioner of Income Tax, Circle -2, Jamnagar.  Attention of the Hon’ble Court was drawn to the language of the statutory provision whereby under section 148 of the Income Tax Act, 1961, it is the assessing officer who can visualize a reason to believe for escapement of income and can subsequently record his satisfaction for doing so. The assessee strongly contended that in the instant case, reasons were record by Deputy Commissioner of Income Tax, Circle 2, Jamnagar whereas the impugned notice under section 148 was issued by the Income Tax Officer, Ward 2(2), Jamnagar therefore, the notice issued under section 148 is without jurisdiction. The assessee in his support relied upon the pronouncement of Hon’ble Gujarat High Court in Hynoup Food & Oil Industries Ltd vs. Assistant Commissioner of Income Tax (2008) 219 CTR (Guj) 124 : (2008) 307 ITR 115 (Guj) to press upon the issue that notice issued under section 148 in the instant case is bad in law and without jurisdiction.

3. Reasoning of the Hon’ble High Court

The Hon’ble Gujarat High Court in the course of proceedings before it took note of the averments contained in the affidavit filed by the first respondent i.e. Deputy Commissioner of Income Tax, Circle 2, Jamnagar who was holding jurisdiction over the case to submit that it was he who recorded reasons to believe for escapement of income on 27th March, 2018. Thereafter, per requirements of the statue, the approval of Principal Commissioner, Jamnagar was obtained which was conveyed on 28th March, 2018 and accordingly notice was issued on 29th March, 2018. In further, as per averments made in the affidavit, it was submitted by the department that issuance of notice under section 148 by the Income Tax Officer is a procedural lapse which happened on account of the mandate of e-assessment scheme and non-migration of PAN in time. It was thus prayed that being a procedural lapse, such defect would be covered for immunity under section 292B of the Act therefore, the impugned notice issued by Income Tax Officer cannot be said to be invalid and without jurisdiction. The Hon’ble High Court per Para No.7, 8, 9 & 10 opined as under:-

7. Having regard to the conduct of the petitioner of participating in the proceedings before the Assessing Officer and thereafter, at the later stage, filing objections and approaching this court before such objections could be disposed of, ordinarily this court would be reluctant to interfere in such a case, more so, when the assessment order has already been passed, but having regard to the peculiar facts of the case, where the very jurisdiction of the Assessing Officer who issued the notice under section 148 of the Act is under challenge, this court has entertained the petition.

8. In the present case, what is the subject matter of challenge is the notice issued under section 148 of the Act on the ground that the assumption of jurisdiction on part of the Assessing Officer by issuance of such notice is invalid. The sole contention on the basis of which such notice is challenged before this court is that the notice has been issued by the Income Tax Officer, Ward No.2(2) Jamnagar, whereas the reasons have been recorded by the Deputy Commissioner of Income-tax, Circle-2, Jamnagar. In this regard, reference may be made to section 147 of the Act which provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently during the course of the proceedings under that section. Section 148 of the Act provides for issue of notice where income has escaped assessment and provides that before making the assessment, reassessment or recomputation under section 147 of the Act, the Assessing Officer shall serve on the assessee a notice requiring him to furnish return of income as specified thereunder. Sub-section (2) thereof postulates that the Assessing Officer shall, before issuing any notice under that section, record his reasons for doing so.

9. This court in Hynoup Hynoup Food & Oil Industries Ltd. (supra), has on a conjoint reading of sections 147 and 148(2) of the Act, held that the officer recording the reasons under section 148(2) of the Act and the officer issuing notice under section 148(1) of the Act has to be the same person. In this case, admittedly the officer who recorded the reasons for reopening the assessment has not issued the notice under section 148(1) of the Act. In this regard, in response to the averments made in the petition regarding lack of jurisdiction on part of the Assessing Officer on the ground of the impugned notice having been issued by an officer other than the officer who recorded the reasons, the first respondent has filed an affidavit-in-reply, wherein it has been averred thus :

“3. Xxxxxxx. So the Assessing Officer viz. the DCIT/ACIT, Cir-2, Jamnagar who was holding the jurisdiction over the case recorded reasons on 27/03/2018. Thereafter, as per the requirement of the Income-tax Act, 1961, the approval of the Pr.CIT, Jamnagar was sought to issue notice u/s. 148 on 27/03/2018. The Pr. CIT, Jamnagar gave the approval to issue notice u/s. 148 on 28/03/2018. Subsequently, the notice u/s. 148 was issued on 29/03/2018.xxxxx

4. Xxxxxxx I submit that the reasons are recorded by Mr. Chintamani v. DingankarDeputy Commissioner of Income Tax, Circle-2, Jamnagar having jurisdiction over the petitioner. I submit that at the relevant point of time, the PAN of the petitioner was lying with the Income Tax Officer, Ward 2(2), Jamnagar as he was holding territorial jurisdiction over the case and therefore, the impugned notice came to be issued by the ITO, Ward 2(2) as the PAN could not be migrated at the last moment to the DCIT, Circle-2. But as the income of the assessee was more than Rs. 15 lakh, the DCIT/ACIT, Cir-2, Jamnagar held the jurisdiction over the case as per CBDT Instruction. The notice u/s. 148 was required to be issued by 31/03/2018 and the migration of the PAN was not possible in that short period. It is pertinent to mention that as per the prevailing scheme of e-assessment, the assessment was required to be made as e-Assessment and all the correspondences/notices needed to be done online through the ITBA application as the such correspondences/notices then goes to the e-filing account of the assessee which enable the assessee to respond through his/her e-filing account. As the PAN was lying in the jurisdiction of the Income-tax Officer, Ward-2(2) Jamnagar, the notice was issued from petitioner’s Assessing Officer code. However, the assessment was completed by DCIT/ACIT, Circle-2, Jamnagar who was holding the jurisdiction over the case and who recorded the reasons for reopening and formed his belief for reopening u/s. 147. Since the assessment was completed by the same Assessing Officer who recorded the reasons for reopening and who holding the jurisdiction over the case, the validity of issued of notice is correct and it is not a case of borrowed opinion. It was a procedural lapse which was (sic. had) happened on account of mandate of e-assessment scheme and non-migration of PAN in time.”

10. From the averments made in the affidavit-in-reply filed on behalf of the respondent, it is evident that it was the Deputy Commissioner of Income-tax, Circle-2, Jamnagar, who had jurisdiction over the petitioner. Previously the Income-tax officer, Ward 2(2), Jamnagar was having jurisdiction over the petitioner, however, as per the CBDT instructions, in view of the fact that the income of the assessee was more than Rs. 15 lakhs, DCIT/ACIT Jamnagar held the jurisdiction over the petitioner. It appears that it was not possible for the jurisdictional Assessing Officer viz. the Deputy Commissioner of Income-tax to issue the notice under section 148 of the Act on or before 31.3.2018 as migration of the Permanent Account Number was not possible within that short period. Therefore, the Income-tax officer has issued notice under section 148 of the Act instead of the jurisdictional Assessing Officer. Thus there is an admission on part of the first respondent that the Deputy Commissioner of Income-tax, Circle-2, Jamnagar who had jurisdiction over the petitioner had not issued notice under section 148 of the Act but it is the Income-tax officer, Ward 2(2), Jamnagar, who did not have any jurisdiction over the petitioner, in respect of the present case, who had issued such notice. As held by this Court in case of Hynoup Hynoup Food & Oil Industries Ltd. (supra),, it is the officer who records the reasons who has to issue the notice under section 148(1) of the Act whereas in the present case the reasons have been recorded by the jurisdictional Assessing Officer, whereas the notice under section 148(1) of the Act has been issued by an officer who did not have jurisdiction over the petitioner. Since the notice under section 148 of the Act is a jurisdictional notice, any inherent defect therein cannot be cured under section 292B of the Act. A notice under section 148(1) of the Act would be a valid notice if the jurisdictional Assessing Officer records the reasons for reopening the assessment as contemplated under sub-section (2) of section 148 and thereafter the same officer namely the jurisdictional Assessing Officer issues the notice under section 148(1) of the Act. In the facts of the present case, while the reasons for reopening the assessment have been recorded by the jurisdictional Assessing Officer viz. the Deputy Commissioner of Income-tax, Circle-2, Jamnagar, the impugned notice under section 148(1) of the Act has been issued by the Income Tax Officer, Ward 2(2), Jamnagar who had no jurisdiction over the petitioner, and hence, such notice was bad on the count of having been issued by an officer who had not authority in law to issue such notice. As a necessary corollary it follows that no proceedings could have been taken under section 147 of the Act in pursuance of such invalid notice. In the aforesaid premises, the impugned notice under section 148(1) of the Act as well as all the proceedings taken pursuant thereto cannot be sustained.

11. It may be noted that before the Assessing Officer, during the course of assessment proceedings also, the petitioner had raised such objections with regard to the jurisdiction of the Assessing Officer. However, the Assessing Officer has proceeded further and instead of recording the objections raised by the petitioner, namely that the notice has been issued by the Income Tax Officer though the reasons have been recorded by DCIT, has recorded that the notice was issued by the DCIT, Circle-2 and subsequently, ACIT was holding charge of Circle-2 and, therefore, there was no harm in passing the assessment order. It, therefore, appears that the Assessing Officer has not even understood the contention raised by the petitioner during the course of assessment proceedings.

12. In light of the above discussion, the petition succeeds and is accordingly allowed. The impugned notice dated 29.3.2018 issued under section 148 of the Income Tax Act, 1961, and all the proceedings pursuant thereto including the assessment order dated 28.12.2018 are hereby quashed and set aside.

The Hon’ble High Court noted that a notice under section 148(1) of the Act can only be construed as a valid notice if the jurisdictional assessing officer records the reasons for reopening the assessment under sub section 148(2) and thereafter the same officer namely the jurisdictional assessing officer issues notice under section 148(1) of the Act. In the facts of the case, reasons to believe for reopening of assessment have been recorded by the jurisdictional assessing officer i.e. Deputy Commissioner of Income Tax, Circle 2, Jamnagar, but the impugned notice under section 148(1) has been issued by the Income Tax Officer, Ward 2(2), Jamnagar, who had no jurisdiction over the petitioner assessee and hence such notice issued under section 148 is bad on account of being issued by an officer who had no authority in law to issued such notice. Necessarily, it followed that impugned notice issued under section 148(1) as well as all consequential proceedings arising thereto cannot be sustained. The Hon’ble High Court also introspected the issue pertaining to section 292B of the statue to settle that it was not a case wherein the assessee during the course of assessment proceedings never challenged the proceedings for want of jurisdiction. The assessee had challenged the jurisdiction and had raised such objection before the assessing officer, however, the assessing officer proceeded to frame the assessment instead of recording the objections raised by the petitioner assessee namely to the effect that the notice has been issued by ITO even though the reason to believe was that of the Deputy Commissioner of Income Tax, Circle 2, Jamnagar which was later transferred to Assistant Commissioner of Income Tax, Circle 2, Jamnagar.  The High Court also noticed pronouncement of its own seat in Hynoup Food & Oil Industries Ltd vs. Assistant Commissioner of Income Tax (supra), wherein it was settled that officer recording the reasons under section 148(2) of the Act and the officer issuing notice under section 148(1) of the Act had to be the same person.

4. Conclusion

The Hon’ble High Court in exercise of its writ jurisdiction settled a tricky and complex issue by observing that in so far as the proceedings under section 148 when read in conjunction with the provisions of section 147 are concerned, authority issuing notice under 148(1) and the authority visualizing reasons to believe for escapement of income under section 148(2) must be one and the same person. Since in the present case, the notice under section 148 was issued by Income Tax Officer, Ward 2(2), Jamnagar and the reasons to believe was that of the Deputy Commissioner of Income Tax, Circle 2, Jamnagar who at present was holding jurisdiction over the assessee, the notice issued in the present matter under section 148 cannot be sustained.  The High Court also took note of the CBDT Instruction which provided that where income of the assessee was more than 15 lakhs, Deputy Commissioner / Assistant Commissioner of Income Tax, Jamnagar has jurisdiction over the assessee. The Hon’ble High Court well settled the issue by considering the jurisprudence governing the principles of lawfully assuming jurisdiction under section 148 to establish that the authority issuing notice under section 148(1) and the authority contemplating reasons to believe for the purposes of escapement of income must be one and the same person i.e. the jurisdictional officer concerned and the department cannot take assistance of section 292B to contend that the notice issued under section 148 was legal in light of the procedural defects noticeable accompanied by deep-seated and vehement challenge to the jurisdiction concerned.

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