In any assessment/-re-assessment there are various practical aspects involved which should be dealt with very carefully to make sure that the law is properly followed and any shortcoming of the revenue in issuing notices, obtaining approvals etc. should be duly highlighted in the assessment/-re-assessment proceedings. This article discusses various practical aspects related to assessments/re-assessments which should be kept in mind to make an appropriate representation before tax authorities.
|S. No.||Issues Covered|
|1.||Basis search on a third party, re-opening of the assessee’s case u/s 148 of the Act is bad in law|
|2.||Any material collected at the back of the assessee cannot be used against it unless it is confronted to the assessee|
|3.||Re-opening by non-jurisdictional tax officer is bad in law|
|4.||If the AO issues the notice for reopening the assessment before obtaining the sanction of the CIT, the reopening is void-ab-initio|
|5.||Merely stating “approved” is not sufficient sanction of CIT|
|7.||Concept of material fact|
1. Basis search on a third party, re-opening of the assessee’s case u/s 148 of the Act is bad in law
If during the course of search on Mr. A some documents were seized which either pertains to Mr. B or any information contained therein relates to Mr. B, then any proceedings on Mr. B can be initiated u/s 153C (r.w.s. 153A) and not u/s 148. The relevant provisions of Section 153C of the Act are reproduced below:
Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,—
a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or
b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to,
a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A:
Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person:”
♦ From a reading of section 153C, it is clear that section 153C inter-alia provides that notwithstanding anything contained in section 147/148/149/151/153, where the Assessing Officer (‘AO’) of the searched person (Mr. A in our example) is satisfied that
then, seized documents etc. shall be handed over to the AO having jurisdiction over such other person (Mr. B in our example) and that AO of such other person shall proceed against such other person and issue notice and assess or re-assess the income of such other person in accordance with the provisions of section 153A, if, the AO of such other person is satisfied that the seized documents etc. have a bearing on the determination of the total income of such other person. Thus,
(a) if the seized documents pertains or pertain to a person other than the searched person, then the AO of such other person shall make an assessment as per section 153A of the Act; or
(b) even if the seized documents do not pertains to a person other than the searched person but some information contained in seized documents relates to a person (Mr. B in our example) other than the searched person (Mr. A in our example), still the AO of such other person shall make an assessment as per section 153A of the Ac & not as per section 147/148 of the Act.
To analyse whether or not the case of the assessee falls u/s 153C and not u/s 148, depending upon the facts of the case, inter-alia, the assessee should ask the AO and peruse copy of following documents:
(i) Reasons Recorded;
(ii) Report of the AO who has conducted the search;
(iii) Seized documents.
Section 153C of the Act supersedes the applicability of provisions of section 148 of the Act. Therefore, if any documents etc. received from the AO of the searched person and such documents etc. pertains to or any information contained therein relates to the assessee, then proceedings could be initiated u/s 153C and not u/s 148. In such a situation, any proceedings u/s 148 would be invalid and any notice issued u/s 148 and proceedings u/s 147 would be void ab-initio. In support of this, assessee can place reliance on the following judicial pronouncements:
“8. I have heard both the parties and perused the records, especially the impugned order as well as the Paper Book. On having gone through the decisions cited above especially the decision of Amritsar Bench in the case of ITO vs. Arun Kumar Kapoor (supra), I find that in that case as in the present case before me, reassessment was initiated on the basis of incriminating material found in search of third party and the validity of the same was challenged by the assessee before the Learned CIT(Appeals) and the Learned CIT(Appeals) vitiated the proceedings. The same was questioned by the Revenue before the ITAT and the ITAT after discussing the cases of the parties and the relevant provisions in details has come to the conclusion that in the above situation, provisions of sec. 153C were applicable which excludes the application of sections 147 and 148 of the Act. The ITAT held the notice issued under sec. 148 and proceedings under sec. 147 as illegal and void ab initio. It was held that Assessing Officer having not followed procedure under sec. 153C, reassessment order was rightly quashed by the Learned CIT(Appeals). I also draw my support from the ITAT, New Delhi decision in the case of Rajat Shubra Chatterji vs. ACIT, New Delhi ITA No. 2430/Del/2015 dated 20.5.2016, wherein the reassessment was quashed on the similar facts and circumstances by following the ITAT, Amritsar decision in the case of ITO vs. Arun Kumar Kapoor (supra). In the present case before me, it is an admitted fact, as also evident from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the Assessing Officer on the basis of information available with the AO. I thus respectfully following the decision of Co-ordinate Bench of the ITAT, Amritsar in the case of ACIT vs. Arun Kapur – 140 TTJ 249 vs. (Amritsar) and the ITAT, Delhi decision in the case of Rajat Shubra Chatterji vs. ACIT, New Delhi ITA No. 2430/Del/2015 dated 20.5.2016 hold that provisions of sec. 153C of the Act were applicable in the present case for framing the assessment, if any, which excludes the application of sec. 147 of the Act hence, notice issued under sec. 148 of the Act and assessment framed in furtherance thereto under sec. 147 read with section 143(3) of the Act are void ab initio. Hence, the reassessment in question is accordingly quashed. Since I have already quashed the reassessment, there is no need to adjudicate other grounds.”
“7…………..the assessment proceedings in the case of Vaibhav Jain and Navneet Jain have been initiated u/s.153C of the Act, and therefore, if in view of the department the information so received is considered as a material, the assessment in the present case should have been made u/s.153C and accordingly proceeded u/s.153A to 153C which should have been initiated in the present case but the proceedings u/s.147/148 of the Act has been initiated which itself is bad in law and the reliance is placed in the case of Rajat Subhra Chaterjee, reported in (2016) 47 CCH 0135 (Del Tri) ………………………………………………………………………………………………
7.1 And also the decision of SMC Bench of ITAT in ITA No.99/D/2017 dated 22.03.2017 wherein the said decision has been relied upon in the case of Rajat Subhra Chaterjee, reported in (2016) 47 CCH 0135 (Del Tri). In the circumstances and facts of the case, the proceedings initiated u/s.148 of the Act are ab initio and are directed to be quashed. Accordingly, grounds no.1 and 2 of the assessee being the legal grounds are allowed.
7.2 Since the assessee succeeds on the legal grounds, therefore, the grounds on merit become infructuous and are of academic in nature and do not require any adjudication.”
“7. On having gone through the decisions cited above especially the decision of Amritsar Bench in the case of ITO vs. Arun Kumar Kapoor (supra), we find that in that case as in the present case before us, reassessment was initiated on the basis of incriminating material found in search of third party and the validity of the same was challenged by the assessee before the Learned CIT(Appeals) and the Learned CIT(Appeals) vitiated the proceedings. The same was questioned by the Revenue before the ITAT and the ITAT after discussing the cases of the parties and the relevant provisions in details has come to the conclusion that in the above situation, provisions of sec. 153C were applicable which excludes the application of sections 147 and 148 of the Act. The ITAT held the notice issued under sec. 148 and proceedings under sec. 147 as illegal and void ab initio. It was held that Assessing Officer having not followed procedure under sec. 153C, reassessment order was rightly quashed by the Learned CIT(Appeals). In the present case before us, it is an admitted fact, as also evident from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the Assessing Officer on the basis of information received from the Directorate of Income-tax (Inv.) on the basis of search & seizure operation conducted at the premises of Rock Land Group of Cases and the documents related to the assessee found during the course of search were made available to the Assessing Officer of the present assessee. We thus respectfully following the decision of Co-ordinate Bench of the ITAT in the case of ACIT vs. Arun Kapur – 140 TTJ 249 (Amritsar) hold that provisions of sec. 153C of the Act were applicable in the present case for framing the assessment, if any, which excludes the application of sec. 147 of the Act, hence, notice issued under sec. 148 of the Act and assessment framed in furtherance thereto under sec. 147 read with section 143(3) of the Act are void ab-initio. The reassessment in question is accordingly quashed. The ground No.1 is accordingly allowed.”
First proviso to sec. 153C – 6 years
In view of first proviso to sec. 153C, the date of receiving the documents and report by the AO of the assessee from the AO of the searched person shall be construed as the date of initiation of search for the assessee. Accordingly, the period of 6 years should be calculated as referred to in section 153C(1).
2. Any material collected at the back of the assessee cannot be used against it unless it is confronted to the assessee
Any information which is collected at the back of the assessee and sought to be used against the assessee must be provided to the assessee and must be confronted to the assessee during the course of re-assessment proceedings. If despite specific written request made by the assessee the underlying information is not provided to the assessee, it will tantamount to vitiating the principles of natural justice. No addition can be made to the income of the assessee without confronting the information sought to be used against the assessee. In support of this ratio, following judicial pronouncements can be referred to:
“5.1 ……………………………… It is also not clear from the order of the ld. CIT(E) whether any correspondence or information received from Investigation Wing, Varanasi or Lucknow and Ld. CIT(E), Kolkata have been confronted to the assessee before taking action in the matter. Nothing is brought to our notice, if any information or material received from ld. CIT(E), Kolkata or any Investigation Wing was ever supplied to the assessee for comments of the assessee. The impugned order is silent regarding this fact. Therefore, it is clear that whatever information was received by the ld. CIT(E) from ld. CIT(E), Kolkata or Investigation Wing, was not supplied to the assessee. Therefore, any material collected at the back of the assessee cannot be read in evidence against the assessee. We rely upon the decision of the Hon’ble Supreme Court in the case of Kishin Chand Chellaram v. CIT  4 Taxman 29/125 ITR 713. ………………………………………………………………… .”
“3. We have heard the learned counsel for the parties and do not find any legal infirmity in the view taken by the Tribunal. There are categorical findings that the Assessing Officer did not recover any document from the possession of the assessee nor the assessee was ever confronted with the seized material. The explanation of the assessee was called, which he replied and there was no mention of any seized material referred to by the Assessing Officer despite the fact that the seized material was transferred to the Assessing Officer by the Deputy Commissioner, Income-tax, Range-II, Jalandhar. It is in these circumstances that we find that the view taken by the Tribunal is fully supported by the judgment of Hon’ble the Supreme Court in the case of Kishinchand Chellaram v. CIT  125 ITR 713. There is no substantial question of law which would warrant admission of the appeal. Accordingly, the appeal fails and the same is dismissed.”
“7.5 We have heard the rival contentions, perused the facts and material available before us. We find that the AO has not brought any positive material to show that the assessee has made investment in loans through Shri Manish Tambi. The AO has not provided the copy of seized material to the assessee and effective opportunity of confrontation was not given to the assessee. The inquiries or material if any was gathered behind the back of the assessee, the same cannot be used against the assessee without providing opportunity of confrontation to the assessee. If the AO proposes to act on such material as he might have gathered as a result of his private enquiries behind the back of the assessee, he must disclose the substance of all such material to the assessee and if this is not done, the principles of natural justice stand violated…………………………………………………………………….”
3. Re-opening by non-jurisdictional tax officer is bad in law
If any tax officer, without having any jurisdiction on the assessee wrongly issued a notice to the assessee then the re-opening is in itself void-ab-initio. The proceedings initiated by the non-jurisdictional tax officer are void-ab-initio and cannot be continued by issuing a further notice by the jurisdictional tax officer if jurisdictional tax officer has never issued any notice u/s 148 of the Act within the time specified in law.
In such a case further notices issued by the jurisdictional tax officer cannot cure the defect in initiation of re-assessment proceedings. Such further notices cannot validate the improper notice issued under section 148 of the Act by non-jurisdictional tax officer. This view is supported by following judicial pronouncements:
“1. This is an appeal in respect of the assessment year 1994-1995 directed against the order passed by the Income Tax Appellate Tribunal on 21-9-2007. The issue sought to be raised in the present appeal pertains to the jurisdiction of the Assessing Officer in issuing the notice under section 148. The Tribunal on consideration of the facts that jurisdictional ITO did not issue any notice under section 148 to assessee in spite of objection taken by assessee before Assistant Commissioner of Income Tax. The Tribunal, therefore, concluded that there was a jurisdictional defect in notice issued under section 148 on basis of which the Assessing Officer assumed jurisdiction and made assessment. In fact, this was the very view taken by the Commissioner Income Tax (Appeals) also which has been confirmed by the Tribunal.
2. We see no reason to interfere with these findings on fact. No substantial question of law arises for our consideration. The appeal is dismissed.”
“5. We perused the relevant material on record. In the present case the notice u/s 148 was issued on 2nd March 2009 by ITO Ward-26(4) New Delhi. After receipt of notice the appellant had responded through its authorized Representative and submitted the copy of the return filed under provisions of section 139. After noticing that the jurisdiction over the appellant is vested with ITO Ward-26(3), the file was transferred by ITO Ward-26(4) to ITO Ward – 26(3). The ITO Ward-26(3), New Delhi had proceeded with the framing assessment without issuing fresh notice u/s 148. It means that ITO Ward-26(4), New Delhi had no valid jurisdiction over the appellant, at the time of issuing notice u/s 148 of the Act. In such circumstances, it was held by the Hon’ble Allahabad High Court in the case of CIT Vs. M/s MT Builders Pvt. Ltd., (2012) 349 ITR 271 (All.) that the notice issued by an Officer who had no valid jurisdiction over the assessee is invalid. The notice under Section 148 of the Act issued by the Income Tax Officer, Ward-26(4) is non est in the eyes of law since he had no valid jurisdiction over the appellant either territorial as notified under Section 124 of the Act or by transferring the case under the provisions of Section 127 of the Act. Now, the question is whether the action of the Income Tax Officer, Ward-26(3) New Delhi was valid in law in concluding the assessment proceedings based on the notice issued under Section 148 of the Act by the Income Tax Officer, Ward-26(4) who had no valid jurisdiction to issue the notice. The issue of valid jurisdiction is a condition precedent to the validity of any assessment under Section 147 of the Act; therefore, the assessment made pursuant to such notice is bad in law. In support of this proposition we rely upon the cases of Hon’ble Apex Court in the cases of Y. Narayana Chetty Vs. ITO, 35 ITR 388, 392 (SC); CIT Vs. Maharaja Pratap singh Bahadur, 41 ITR 421 (SC); and CIT Vs. Robert, 48 ITR 177 (SC). In the light of the above settled principle of law, we have no hesitation to quash the reassessment proceedings since there was no valid notice pursuant to which the reassessment proceeding was made in the present case. Accordingly, the appeal filed by the appellant is allowed.”
Whether where Assessing Officer on basis of notice under section 148 issued by another Income-tax Officer, framed reassessment under section 143(2) without recording any reasons and without issuing a fresh notice under section 148, reassessment so framed was invalid in law and, thus, it was liable to be quashed – Held, yes
– Where notice under section 148 was issued by ITO, Ghaziabad whereas assessee was being assessed in Delhi, as ITO, Ghaziabad, on date of issue of notice had no jurisdiction to assess assessee, such notice was invalid [In favour of assessee]
“8.During the course of hearing, it has been emerged that one of the officers was designated to collect AIR information and to make necessary enquiry on the basis of the same. After collecting the information from the assessee with regard to the AIR information, a report along with the record is to be submitted to the concerned officer who can take necessary action, but the designated officer has no jurisdiction over all the assessees with respect to whom he received AIR information. In the instant case, the designated officer having received information from the AIR has issued notice under section 148 of the Act to the assessee without ascertaining the facts about his jurisdiction over the assessee. He has also made an attempt to frame assessment over the assessee without having jurisdiction over the assessee. The assessee has raised objection about jurisdiction before the Assessing Officer on receipt of notice under section 148 of the Act. Thereafter, the Assessing Officer has transferred the file to the concerned Assessing Officer, i.e., Income-tax Officer – V having jurisdiction over the assessee. The Income-tax Officer – V has not issued any notice under section 148 of the Act in order to assume jurisdiction to complete the assessment under section 147 of the Act. He has proceeded further on the basis of the notice issued under section 148 of the Act by a designated officer. Since the notice under section 148 of the Act was issued by an officer not having jurisdiction over the assessee, the notice itself is bad and invalid. Therefore, the assessment framed consequent thereto also deserves to be quashed. Since nothing is placed before us to substantiate that the notice under section 148 of the Act was issued by the competent officer, we hold the notice under section 148 of the Act issued to the assessee as invalid and therefore, the assessment framed consequent thereto is quashed. Since the assessment is quashed, the additions made therein are set aside. Accordingly, the appeal of the assessee is allowed.”
“17. Having heard learned Counsel for the parties and perusing the records, we are of the view that on 29.3.2004, when the notice under Section 148 (1) of the Act was issued, ACIT, Range-IV, Lucknow have no jurisdiction over the Assessee on the date of issuance of such notice as the jurisdiction over the Assessee was transferred to the Additional CIT, Range-I, Lucknow vide order dated 1.8.2001 passed under Section 120 of the Act by the CCIT, Lucknow. Therefore, it cannot be situation where two Assessing Officer would have simultaneous jurisdiction over the assessee, one being Additional CIT, Range-I, Lucknow and other being ACIT, Range-IV, Lucknow. In these backgrounds, the Tribunal has rightly held that the issuance of notice under Section 148 (1) of the Act by the ACIT, Range-IV, Lucknow was without jurisdiction”.
“9. Section 147 of the Act reads as follows:
“147. 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 sections 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 in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)”
10. Now, as per section 147 of the Act, the AO may assess or reassess any income escaping assessment, if he has reasons to believe such escapement of income. The section starts with the words ‘If the Assessing Officer has reason to believe’. The word ‘Assessee’ in this phrase was substituted for the words ‘Income Tax’ by the Direct Tax Laws (amendment) Act 1987, w.e.f. 1.04.1988. The same enactment also introduced section 2(7A) in the Act. As per this section, ‘Assessing Officer’ means an Officer, as named therein, who is vested with the relevant jurisdiction.
11. Thus, it was only the Officer having jurisdiction over the matter who, u/s. 147, could have formed any reason to believe escapement of income and none other. It has not been shown otherwise. To reiterate, in the present case, the ACIT-1 Agra, who recorded the reasons to believe escapement of income and issued the notice u/s. 148 of the Act admittedly did not exercise jurisdiction over the matter. In fact, evidently, this was the reason why the matter was transferred from the ACIT-1, Agra to the ITO 4(2) Agra. Therefore, the formation of the reasons to believe escapement of income is in direct violation of the provisions of section 147 of the Act.
12. Then, section 147 also provides that the Assessing Officer, if he has reason to believe escapement of income, he may assess or reassess such income subject to the provision of sections 148 to 153 of the Act. So, the assessment or reassessment u/s. 147 is subject to, inter alia, the provisions of section 148 of the Act.
13. Section 148(1) (relevant portion) is:
“148 (1) before making the assessment, reassessment…………………u/s. 147, the Assessing Officer shall serve on the assessee a notice…………………”
14. Section 148 (1), again, uses the expression ‘Assessing Officer’ which, as considered above, is the expression defined in section 2(7A), to mean the authority exercising the relevant jurisdiction. Since the ACIT-1, Agra, did not have jurisdiction over the matter, he could not, in law, have issued the notice u/s. 148 of the Act.
15. Reliance on ‘Manju Agarwal v. ITO’, (APB, 89/1 to 89/23), decision dated 23.08.2013, in ITA No.550/Agra/2012, rendered by this Bench, is appropriate in this regard.
16. In view of the above, I hold that since the reasons to believe escapement of income in this case were recorded by the AO who did not exercise the relevant jurisdiction, i.e., jurisdiction over the matter, such reasons are non-est, being in flagrant violation of the express provisions of section 147 read with those of section 2(7A) of the Act. These reasons are, thus, struck down as void ab initio, null and void. Since the reasons to believe escapement of income themselves have been declared null and void, all proceedings in furtherance thereof, culminating in the impugned order are also void ab initio and are quashed as such. Nothing further survives for adjudication.”
“5. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that undisputedly in assessment year 2008-09, the return was filed with Income Tax Officer – 5(4), Kanpur, as the assessee was having only salary income, but thereafter w.e.f. 2009-10 the assessee started filing return of income with Income Tax Officer – 3(2), Kanpur. During the course of hearing, a specific query was raised with regard to the jurisdiction over the assessee and the Revenue has candidly admitted that on account of additional income besides salary, the jurisdiction over the assessee shifted to Income Tax Officer – 3(2), Kanpur and he has filed the return of income with the correct Assessing Officer having jurisdiction over the assessee. During the course of hearing, it was also specifically asked from the ld. D.R. whether the assessee was under any obligation to inform the old Assessing Officer with whom he had been filing the return of income, when on account of change in circumstances, the assessee was required to file the return of income with some other Assessing Officer. Despite affording various opportunities, the ld. D.R. could not furnish a satisfactory explanation; whereas the ld. counsel for the assessee has contended that the assessee was not under any obligation to inform the earlier Assessing Officer with regard to the filing of the return of income with different Assessing Officer on account of change of jurisdiction. The ld. counsel for the assessee, on the other hand, has contended that the assessee is required to file the return of income with the Assessing Officer of the Department and it is the duty of the Assessing Officer to send the return of income to the correct Assessing Officer if it is filed with the wrong Assessing Officer. Since the assessee has filed the return of income with the correct Assessing Officer on account of change of jurisdiction, the assessee cannot be held responsible for any mistake or error on the part of the Department. It is also undisputed fact that at the relevant point of time when the notice under section 148 of the Act was issued by Income Tax Officer – 5(4), Kanpur, the jurisdiction over the assessee was changed and it was with Income Tax Officer – 3(2), Kanpur, therefore, notice under section 148 of the Act was issued by an Officer having no jurisdiction over the assessee…………………………………………………………………………………………………………..
6. Since it has been established that notice under section 148 of the Act was issued by the Assessing Officer having no jurisdiction over the assessee, the reopening is bad in law and, therefore, the assessment framed consequent thereto is not sustainable in the eyes of law. We accordingly subscribe the view of the ld. CIT(A) who has rightly annulled the assessment.”
“3. We have considered the facts of the case and submissions made before us. It is an admitted position that the reasons were recorded by non-jurisdictional ITO, who also issued and served a notice under s. 148 on the assessee. On the other hand, the assessee informed the particulars of his AO soon after receipt of notice under s. 148. Subsequently, the case was transferred to ITO, Suratgarh under the order of the CIT. The ITO, Suratgarh did not record the reasons under s. 147 and also did not issue a fresh notice to the assessee. In these circumstances, it is clear that the jurisdiction to make assessment on the basis of an invalid notice was not properly assumed by the ITO, Suratgarh. Therefore, the assessment made on the basis of invalid notice is also invalid in the eyes of law. Coming to the provision contained in s. 292B, it may be mentioned that while it may be resorted to in a case of any administrative or clerical omission, it cannot be resorted to for curing jurisdictional defect which is fundamental in nature and goes to the root of the matter.
4. If the AO issues the notice for reopening the assessment before obtaining the sanction of the CIT, the reopening is void-ab-initio
If as per “Proforma for seeking approval of the Pr. CIT/Addl. CIT for initiating proceeding u/s 148 of the Act” the approval of the Pr. CIT / CIT was not obtained before the issuance of 148 notice and said approval was obtained only after post expiry of last date for issuance of 148 notice, then, in view of the provisions of section 151(1) r.w.s. 148 of the Act notice issued u/s 148 of the Act is bad in law. Section 151 of the Act provides as under:
“Section 151 – Sanction for issue of notice
(1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.
(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.
(3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.”
Above view is supported by following judicial precedents:
“5. …………………………………………………………………………………. Accordingly, when the Assessing Officer admittedly issued notice U/s. 148 after the four years from the end of the assessment year and without obtaining the sanction U/s. 151 then such notice issued U/s. 148 is in violation of provisions of Section 151 of the Act and consequently the same is invalid and the entire reassessment proceedings stand vitiated. Hence, we hold that the reopening of the assessee is not valid and the same is quashed. The consequential reassessment is also quashed.”
“12. In the opinion of this court also, resort to Section 292B of the IT Act cannot be made to validate an action, which has been rendered illegal due to breach of mandatory condition of the sanction on satisfaction of Chief Commissioner or Commissioner under proviso to sub-section (1) of Section 151. This is an inherent lacunae affecting the very correctness of the notice under Section 148 and is such which is not curable by recourse to Section 292B of the IT Act.”
Where Assessing Officer instead of taking approval from Joint Commissioner as per provisions of section 151, obtained approval from Commissioner and issued notice under section 148 said notice was invalid.
The AO issued a notice for reopening on 30 March 2011 when as a matter of fact approval was received with reference to the provisions of Section151 from the Commissioner of Income Tax on 31 March 2011. As on the date on which the notice of reopening was issued, the Assessing Officer was not in receipt of the approval which is required under Section 151, the reopening was quashed.
In view of above, when the AO has issued notice u/s 148 without obtaining the sanction as required u/s 151 then such notice issued u/s 148 is in violation of provisions of Section 151 of the Act and consequently the same is invalid.
5. Merely stating “approved” is not sufficient sanction of CIT
If as per “Proforma for seeking approval of the Pr. CIT/Addl. CIT for initiating proceeding u/s 148 of the Act”, while granting his approval the Ld. Pr. CIT / CIT merely stated “Yes, Approved”, it will not be a sufficient sanction and renders reopening invalid. Pr. CIT / CIT has to apply his mind before according sanction to the reasons recorded by the AO. If satisfaction/ approval of Pr. CIT / CIT is without application of mind and granted in a mechanical manner, then re-assessment is invalid. In support of this ratio, following judicial pronouncements can be referred to:
“7. ………………………………………….. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO’s belief is well reasoned and bonafide, he is to accord his sanction to the issue of notice u/s. 148 of the Act. In the instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put “approved” and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction.
8. Hon’ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. Vs CIT 258 ITR 317 has held that “the proviso to sub-section (1) of section151 of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the Assessing Officer concerned, that it is a fit case for the issue of such notice. These are some in-builts safeguards to prevent arbitrary exercise of power by an Assessing Officer to fiddle with the completed assessment”.
9. The observations of the Hon’ble High Court are very much relevant in the instant case as in the present case also the Commissioner has simply mentioned “approved” to the report submitted by the concerned AO. In the light of the ratios/observations of the Hon’ble High Court mentioned hereinabove, we have no hesitation to hold that the reopening proceedings vis-à-vis provisions of Sec. 151 are bad in law and the assessment has to be declared as void ab initio.”
10.1. A perusal of the above demonstrates that the Ld. CIT-V, Delhi has written “approved” on 25.3.2008. The issue is whether such approval would meet the requirements prescribed u/s 151 of the Act.
10.2. The Mumbai ‘E’ Bench of the Tribunal in ITA 611/Mum/2004 Amarlal Bajaj (supra) order dt. 24.7.2013 has considered the legal position ……………………..
10.4. ………………………… respectfully following the decision of the Coordinate Bench in the matter, we hold that the reopening is bad in law for the reason that the Ld. CIT-V, Delhi has not recorded his satisfaction as contemplated u/s 151 of the Act.
“11. Section 151 of the Act clearly stipulates that the Commissioner of Income-tax (Appeals), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression “approved” says nothing. It is not as if the Commissioner of Income-tax (Appeals) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the court is satisfied that the findings by the Income-tax Appellate Tribunal cannot be disturbed.”
“7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so “Yes, I am satisfied”. In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:—
‘The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format “Yes, I am satisfied” which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.’
8. If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 148, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration.
9. As far as explanation to Section 151, brought into force by Finance Act, 2008 is concerned, the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so, the said amended provision does not help the revenue.
10. In view of the concurrent findings recorded by the learned appellate authorities and the law laid down in the case of Arjun Singh (supra), we see no question of law involved in the matter, warranting reconsideration.
11. The appeals are, therefore, dismissed.”
6. Additional Evidence
Relevant provisions related to additional evidence to be produced before hon’ble CIT(A) are contained in Rule 46A of the Income-tax Rules, 1962:
“Production of additional evidence before Commissioner (Appeals)
(1) The appellant shall not be entitled to produce before …….. the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely :—
(a) where the Assessing Officer has refused to admit evidence which ought to have been admitted ; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer ; or
(c) where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal ; or
(d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(4) Nothing contained in this rule shall affect the power of the ……………. the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, ………………………..”
Inter-alia, an assessee could place following arguments to request admission of additional evidence:
Assessee was prevented by sufficient cause from producing these evidences
Depending upon facts, it could be submitted that the documents which the assessee intends to file before CIT(A) were not available with the assessee before the closure of assessment/re-assessment proceedings and therefore, the assesse was prevented by sufficient cause from producing these evidences before the closure of assessment/re-assessment proceedings. An affidavit could be filed in this regard that these documents/evidences were not available with the assessee before closure of assessment/re-assessment.
These evidences are very relevant and material in deciding the matter under appeal
The Assessee could take a plea that the documents which the assessee intends to furnish as additional evidence are very relevant and material in deciding the matter under appeal and will further strengthen the documentary evidences produced during the course of assessment/re-assessment proceedings. Hence, the Appellant’s case clearly falls under Rule 46A. Thus, in the facts and circumstances of the case and in law these evidences deserve to be admitted.
The Assessee could also make a humble prayer before the Hon’ble CIT(A) that in the interest of equity & justice these documents deserve to be admitted, as these documents
1. goes to the root of the matter,
2. are very relevant and material in deciding the matter under appeal; and
3. will further strengthen the documentary evidences produced during the course of re-assessment proceedings.
Power of CIT(A) to admit and examine the additional evidence
Power of CIT(A) to admit and examine the documents being co-terminus with that of the assessing officer, serious prejudice would be caused to the assessee if the additional evidence is not taken on record and examined. Power granted to CIT(A) u/s 250(4) of the Act is not controlled by the provisions of Rule 46A of the Rules. Assessee could plead that as the additional evidence could not be placed earlier because it was earlier not available with the assessee, therefore the same should now be admitted. Further, it could be pleaded that in the absence of additional evidence, the correct taxable income of the assessee cannot be determined.
Rule 46A cannot override the Principles of Natural Justice
Rule 46A cannot override the ‘Principles of Natural Justice’. In case the additional evidences were not available with the assessee earlier and surfaced or came in possession of the assessee after the assessment order is passed and the assessee moved with such evidences and produce them before the Hon’ble CIT(A) which are the vital evidences and goes to the roots of the case, the admissibility of such evidences cannot be denied over riding the principles of natural justice. In this regard, assessee could place reliance on the following judicial precedents:
“4. In our opinion, the documents, which the appellants have now filed before this Court are of some relevance and those documents should be looked into by the High Court before it comes to a conclusion whether the appeal requires to be allowed or to be rejected.
5. Taking that view of the matter, we set aside the order passed by the High Court and remand the matter back to the High Court for fresh disposal of I.T.A.No.109 of 2005, after accepting the documents that were/may be filed by the appellants.”
“6. ………………………. whatever evidences were filed by assessee at the appellate stage are relevant and goes to the root of the matter and may explain the source of cash deposits in the bank account of assessee. The same requires consideration and examination at the level of Ld. CIT(A). Once the additional evidences have been examined by the A.O. at the appellate stage and A.O. says that the claim of assessee is verifiable would support the claim of assessee that these documents were essential for just decision in the matter. The Ld. CIT(A) therefore instead of rejecting these additional evidences should have admitted the additional evidences for deciding the appeal on merits. Hon’ble Supreme Court in the case of Tek Ram 262 CTR 118 and Hon’ble P&H High Court in the case of Mukta Metal Works, 336 ITR 555, admitted the additional evidences as being relevant and required to be looked into.
6.1. In view of these circumstances, I am of the view that the Ld.CIT(A) should have admitted these additional evidences and decided the appeal of assessee on merits. In this view of the matter, I set aside the order of Ld.CIT(A) and direct him to admit the additional evidences as above and decide the appeal of assessee on merits, giving reasons of decision on merits in accordance with law by giving reasonable, sufficient opportunity of being heard to assessee.”
“8. From the facts narrated above, we notice that the assessee could collect various evidences only after passing of the assessment order. According to the assessee, these additional evidences are vital documents which are required to be considered in order to adjudicate the issue in a judicious manner. The principle “Audi alteram partem”, i.e. no man should be condemned unheard is the basic canon principles of natural justice and accordingly we find merit in the contentions of the assessee that Rule 46A of the Income Tax Rules cannot be over ride the principles of natural justice. Hence we are of the view that the learned CIT(A) was not justified in refusing to admit the various additional evidences furnished by the assessee. ………………………”.
7. Concept of material fact
In many cases of re-assessment where re-assessment is initiated after four years from the end of relevant assessment year, generally the department raise an allegation in the reasons recorded that that the Assessee had failed to disclose fully or truly all the material facts.
Where there is such an allegation that the assessee had not made full and true disclosure of all the material facts, it is the duty of the AO to record in the reasons as to what material facts were not disclosed and how the material facts disclosed were not true. It is necessary for the Revenue to show from the ‘Reasons Recorded’ as to what material is not fully disclosed and/or not truly disclosed. On this issue Hon’ble Bombay High Court in the case of Betts India (P.) Ltd. vs. DCIT –  62 taxmann.com 129 (Bombay), noted as under:
“10. In view of the above facts, we specifically asked Ms. Desai, the learned Counsel for the Revenue to tell us what facts were not truly disclosed by the appellant and also where do the reasons recorded in support of the impugned notice dated 22/03/2011 so indicate. The respondent- Revenue contended that on reading of the notice as a whole, an inference can be drawn that there was a failure on the part of the appellant to disclose truly all material facts necessary for assessment. This inference is being drawn on the basis that it is the result of claiming higher depreciation (admittedly disclosed) that the book profits of the petitioner was reduced. We are not able to understand what facts were not truly disclosed that is either falsely declared or were so disclosed that the true facts were suppressed in the form of suppresso veri. We find no such indication in the reasons recorded in support of the impugned notice. We are not able to understand how inference of disclosing falsely material facts can be drawn from the reasons recorded.”
In view of above, if in the ‘Reasons Recorded’ it is not specified as to what facts were not fully or truly disclosed, no inference of not disclosing any material facts or making a false disclosure of material facts can be drawn from the ‘Reasons Recorded’. Accordingly, the action initiated to re-open u/s 147/148 would become invalid.
8. Cross Examination
If the revenue has relied upon the statement of any person then on a request by the assessee the revenue should provide an opportunity of cross examination of such person. Not providing an opportunity to the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the assessment/re-assessment order is a serious flaw which makes the order a nullity. On this issue, support can be drawn from the following judicial precedents:
“6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guesswork as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.”
“The case of the Revenue is that the Assessing Officer had received information from the Deputy Director of Income-tax (Investigation), Faridabad that while carrying out post-search enquiries relating to a third party, Shri Anand Prakash, the sole proprietor of M/s. Jai Trading Co. had deposed that he was providing bogus/false transactions purporting to relate to sale/ purchase of food grain items and that the cash deposits with him were from parties who had approached him for “accommodation entries” in the form of agricultural receipts. The enquiries with the banks on whom cheques were drawn and credited in the account of M/s. Jai Trading Co. showed that the assessees in the present cases were also the beneficiaries of such illegal transactions.
Based on the sworn statement of Shri Anand Prakash, reassessment proceedings against the assessees under section 147/148 were initiated ………………………………………………….., what is of great importance is the fact that the assessees had demanded an opportunity to cross-examine Shri Anand Prakash, but this was declined on the ground that the statement of this person had been recorded by the Deputy Director of Income-tax (Investigation), Faridabad. Further, while the assessees do not deny that they have sold produce to M/s. Jai Trading Company and have submitted copies of the bills issued by the latter, they maintain that these sales were genuine.
Having heard learned counsel for the parties at great length, we are of the view that the order of the Tribunal is unassailable. ………………………………..
This is where the failure of the Revenue to produce Shri Anand Prakash for cross-examination by the assessees, assumes fatal consequences. Reassessment proceedings have been initiated after several years of the acceptance of the return under section 143(1) of the Income-tax Act. The assessees have themselves relied on the banking transactions between themselves and Shri Anand Prakash; secondly, on bills issued by them to Shri Anand Prakash, and on the unassailed payment of rent to Shri Mool Chand. It is true that the assessees’ failure to produce Shri Kishan Chand had the consequence of not proving that the said person was tilling the land on their behalf. This failure cannot inexorably lead to the conclusion that no agricultural income had been generated by the assessees. Such an inference can only be drawn from the statement of Shri Anand Prakash to the effect that the transactions between him and the assessees were bogus. Therefore, it was mandatory for the Revenue to produce Shri Anand Prakash for cross-examination by the assessees on their specific demand in this regard. The facts on which the decision to invoke section 147/148 is predicated may in some cases be sufficient both for decision to carry out a reassessment as well to justify or sustain the fresh assessment. However, there may well be instances where the former said reopening may pass muster in the light of some facts, but those facts by themselves may turn out to be insufficient to preserve the assessment itself. Once sections 147 and 148 are resorted to, the Assessing Officer must first discharge the burden of showing that income has escaped assessment. It is only thereafter that the assessee has to provide all the answers. We find no reason why the initial burden of proof should not rest on the Assessing Officer even where the assessment has gone through under section 143(1) of the Act. The Tribunal has, therefore, arrived at the correct conclusion.”
The ruling of Jaipur Tribunal was later upheld by the Rajasthan High court in its order dated 31 July 2017 in ITA No. 197/2012. While upholding the order of Jaipur Tribunal the Rajasthan High court held that
“6. We have heard learned counsel for the parties.
7. Taking into consideration the observation made by the Tribunal regarding not allowing cross-examination of Mr. Thakkar from whose documents the amount is alleged to have been taken in the interest of the assessee.
8. In that view of the matter the finding recorded by the Tribunal is just and proper and issues is answered in favour of the of the assessee against the department.”
Thereafter, the department filed an SLP to Supreme Court. Supreme Court vide its order dated 28 March 2018 [SLP (Civil) Diary No(s). 9432/2018] dismissed the SLP filed by department.
“……………..Needless to repeat, in our view, the addition made by the Assessing Officer and thereafter sustained by the CIT(A) suffers from a primary infirmity in the sense that the same has been made without testing the alleged evidence available with the Assessing Officer, in spite of specific request by the assessee for cross examination of Shri Sanjay Rastogi. Hence, on this count, the addition deserves to be deleted. Accordingly, the orders of lower authorities are set aside and the addition is deleted.” (Para 12)
Expenses related to cross examination
The assessee should also submit in its request to the AO that that the assessee is ready to pay fees, travelling expenses and any other expenses related to cross examination.
Despite enough judicial precedents on the above issues, sometimes tax authorities do not properly follow the underlying ratios. If the assessee carefully deals with the above critical facets, the outcome of the assessment/re-assessment proceedings could altogether be different.