Notice us 148 not invalid if assessee do not challenge it. Settled law is that if assessee chooses not to challenge notice issued it is to be treated as valid – ITAT
ABCAUS Case Law Citation:
ABCAUS 1210 (2017) (04) ITAT
The Grievance:
The appellant assessee company was aggrieved by the order of the Commissioner of Income Tax (Appeals) in dismissing the appeal of the assessee challenging the reopening of the assessment by issue of notice u/s 148 of the Income Tax Act, 1961 (‘the Act”).
The Ground of Appeal:
The following grounds were raised by the assessee before the Tribunal
1. That the assessment order as well as CIT Appellate order is against the law and facts of the case.
2. That the· LD. ITO was not justified to initiate the proceedings under Sec 148 when I have filed all required documents in the original proceedings and as per recent judgments ,the court held that material obtained .subsequent to assessment order is not valid ground for reopening the assessment.
3. That Ld. ITO was in. error to reopen the assessment u/s. 147/148 on the basis of sole reason of Valuation Report because the valuation report is only expert opinion.
4. That the appellant has declared the sale of assests in regular assessment, therefore there was no failure or omission to disclose material facts.
5. That the Ld. ITO as well as Hon’ble CIT (A) were not justified to not accept the contention of appellant in respect of comparable cases for rejecting the valuation report prepared by valuation officer.
6. That the learned ITO as well as Hon’ble CIT (A) was in error not to accept the value mentioned in the sale deed which was accepted by registrar and collected the stamp duty. That the Ld. CIT(A) was also unjustified and without application of mind to confirm the additions made by the Ld. ITO without going to the facts and contentions made by me.
Assessment Year : 2008-09
Date/Month of Pronouncement: April, 2017
Important Case Laws Cited/relied upon:
ACIT Vs. Sh. Saidan Kapoor
Govindraju Vs. ITO
M/s U.S. Foods {P} Ltd. Vs. DClT
Brief Facts of the Case:
The case of the assessee was selected for scrutiny and the assessment was completed. In the assessment order, it was mentioned that the assessment was completed subject to the outcome of the valuation report of the Valuation Officer. Thereafter, the said report was received determining the value of the property sold by the assessee in the year under consideration at Rs. 3,66J7,300/- as against Rs. 77,50,000/- declared by the assessee. Pursuant thereto, a notice under section 148 of the Act was issued to the assessee proposing to re-open the assessment.
During the course of reassessment proceedings, the assessee objected to value determined by the Valuation Officer. The AO dismissed those objections and made an addition of Rs. 48,21,216/- on account of understated capital gain in the hands of the assessee.
Aggrieved by the assessment order passed u/s 147, the assessee filed appeal before CIT(A) who dismissed it.
Contentions of the appellant assessee:
It was submitted that the sole reason for issuance of notice of reassessment was the valuation report and that was only an expert opinion. The assessee relied upon the judgment passed by the Tribunal in the case of Saidan Kapoor. It was further submitted that all the required documents were submitted during the original proceedings and the material obtained subsequent to the assessment order could not be used to reopen an assessment.
Observations made by the Tribunal:
The Tribunal referring to the objections filed by the assessee to the issuance of notice u/s 148 , observed that in the objections raised by the assessee during the reassessment proceedings there was no challenge to the validity of the notice with respect to the grounds raised in the present appeal i.e.
(i) reopening on the basis of valuation report
(ii) material obtained subsequent to assessment order for issuance of notice under section 148.
Thus there were no objections taken by the assessee in the reassessment proceedings on aforesaid grounds.
The Tribunal observed that it is settled law that if the assessee chooses not to challenge the notice issued under section 148 of the Act the same is to be treated as valid and final.
It was noted that the objections raised by the assessee pertained to the sufficiency of reasons for issuance of notice under section 148 which could not be gone into at the stage of reassessment. The judgment relied upon by the assessee was not applicable in the present case in view of the failure of the assessee to challenge the validity of the notice under section 148.
It was observed that on the subject, the Hon’ble Karnataka High Court had held as under;
“The question which first arises is with regard to the validity of the reopening proceedings, which is by issuance of notice under section 148, reasons for which are to be recorded under sub-section (2). The assessee has an opportunity to challenge the reasons given for issuance of notice and if the same are found to be vague or illegal or without any basis, the notice would become invalid.
In the case of Raymond Woollen Mills Ltd. vs. ITO (1999) 236 ITR 34 (SC) where such notice had been challenged, the Supreme Court held that what is to be seen is “whether there was prima facie some material on the basis of which the Department can reopen the case. The sufficiency of correctness of the material is not to be considered at this stage”. Relying on this decision, the Apex Court, in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman, 316, while considering the issuance of notice under section 147 of the Acty prior to the amendment of 2009, has held that the final outcome of the proceedings is not relevant and at the initial stage, what is required is ‘reason-to believe but not established fact of escapement of income. It further held that “at the stage” of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief whether the material would conclusively prove the escapement is not the concern at this stage.
This would clearly mean that the issuance of notice is justifiable. If the assessee chooses not to challenge the notice or if it is challenged and found to be valid, then in either case, such notice is to be treated as valid and final. Since the validity of the notice issued under section 148(2) can be challenged or is subject to judicial scrutiny, in our view, the assessment or reasssessment of any other income in the case of a validly issued notice cannot be said to be a case of fishing and roving enquiry. The assessee has the opportunity to challenge the notice, and if it is held to be invalid for not giving adequate reasons for reopening the assessment, the entire reopening proceedings would lapse. In such a case there would be no question of assessment of either such income of the first part of section 147 or any other income of its second part. But if the notice is either not challenged or if challenged and found to be justified, it would be a case of reopening the assessment on the basis of a valid notice.”
It was observed that the belief that the AO may form can be based on information obtained from the original assessment record. The Tribunal observed that in the case of M/s U. S. Foods, the Tribunal had held as under;
“It is well settled that at the time of issue of notice under section 148, it is only the relevancy of the reasons that can be looked into and not the sufficiency [S. Narayanappa v. CIT [1967] 63 ITR 219 (SC).”
Held:
The grounds raised by the assessee relating to the validity of notice under section 148 of the Act were dismissed.
Download Full Judgment
Author’s Note:
It can be seen from the grounds of appeal, the assessee no where stated that the notice issued u/s 148 was without jurisdiction or illegal or void ab initio. The above judgment is an example how a poorly drafted otherwise meritorious appeal may be turned down.
