Re-opening u/s 148 on incorrect facts assuming that assessee does not have PAN and he did not file any of his return quashed as invalid
In a recent judgment, ITAT Delhi has held that AO had invoked jurisdiction for reopening assessment u/s 147/148 on basis of incorrect facts and non application of mind by assuming that the assessee does not have PAN and he did not file any of his return.
ABCAUS Case Law Citation:
4379 (2025) (01) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the re-assessment u/s 147/144 the Income Tax Act, 1961 (the Act).
The return for the relevant assessment year was filed by the assessee. The case of assessee was reopened by issuance of notice u/s 148 of the Act and the assessment was concluded u/s 147/144 of the Act.
There was allegedly Non-PAN AIR information with the AO that during the relevant Assessment Year, the assessee sold a residential property and sale proceeds were utilized for construction of another residential house for claiming exemption under section 54 of the Act.
The case of assessee was that he was not aware of the re-assessment proceedings and later the assessee came to know about the Assessment Order passed under section 147/144 of the Act. Then assessee collected the certified copy of the order from the office of the Assessing Officer and challenged the same in first appeal.
The CIT(A) granted the benefit of indexed cost of acquisition to the assessee and reduced the amount of capital gain but did not allow the claim of exemption from capital gains made under section 54 of the Act by the assessee.
Before the Tribunal, the assessee raised additional grounds that he was never served upon with the notice issued under section 148 of the Act and therefore the consequential assessment made under section 144/147 of the Act was invalid and void-ab-initio. Further, the reasons to believe recorded by the Assessing Officer were factually incorrect and recorded without application of mind. Also, it was contended that the approval granted by the competent authority under section 151 of the Act before reopening the assessment was mechanical and without application of mind.
The assessee submitted that he having come to know of the exparte assessment filed an RTI application to get the copy of all notices and other letters issued by the Assessing Officer during the course of assessment proceedings. The assessee received copies of notices in response to the RTI and found that all the notices/communications including notice under section 148 of the Act was issued on the address of the property which had been sold by the assessee.
It was contended that it is settled law that mere issuance of notice under section 148 for reopening of assessment is not sufficient, service thereof to the assessee is mandatory. The assessee was never served with the notice issued under section 148 by the AO. Since the assessment was made ex-parte and the assessee never participated in the proceedings, the assessee did not get the opportunity to raise this ground before the AO.
It was also contended that reasons to believe recorded by the AO were factually incorrect and contains serious grave errors and are without any prior verification and shows complete non application of mind and contained the following factual inaccuracies:
1. Address of the assessee wrongly mentioned
2. It was mentioned that PAN was not available.
3. It was mentioned that the assessee had neither filed any return of income while the assessee was regular in filing his return of income.
The Tribunal observed that the mandate of Section 148(1) of the Act is that, reassessment shall not be made until there has been service of notice, which is a condition precedent to making an order of assessment. The service means service in accordance with law. Revenue cannot dispute that for reopening of assessment under section 147 the Act, issuance of notice is mandatory requirement and without same assumption of jurisdiction is vitiated. Further, in numerous decisions jurisdictional High Court and Tribunal has held that reassessment proceedings finalised by an AO without effecting proper service of notice on the Assessee under Section 148(1) of the Act are invalid and liable to be quashed.
It was observed that Delhi High Court held that under Section 148 of the Act, the issue of notice to the Assessee and service of such notice upon the Assessee are jurisdictional requirements that must be mandatorily complied with. They are not mere procedural requirements. In another case, Delhi High Court held that proceedings under section147 of the said Act cannot be initiated without the service of notice as provided in section 148 of the said Act The service of notice is a pre-condition for framing an assessment order under section 147. In yet another occasion, the Delhi High Court held that when the AO issued the reassessment notice, he was under a duty to access the available PAN data base of the addressee or the address available in the income tax return to which the communication related or the address available in the last income return filed by the addressee.
The Tribunal observed that AO had issued notice on the same property which was sold by the assessee and on which the AO himself computed capital gain. The fact that AO knew the property had been sold by the assessee was evident from the Assessment Order itself wherein it was mentioned that the assessee had sold residential plot.
The Tribunal opined that AO seemed to have not gone through the income tax returns filed by the assessee. The AO considered it to be a case of re-opening based on Non-PAN AIR Information, so he did not take recourse to the records. However, it was established that the assessee in the return of income filed for the relevant Assessment Year had changed his address and continuously showing his new address. The new address was also updated in his PAN databaseTherefore, the address of the assessee as mentioned in the reasons to believe was completely incorrect.
The Tribunal opined that AO had not taken recourse as per provisions of the Act and the Rules. The observed that as per sub-rule (1) of Rule 127, for the purposes of subsection (1) of section 282, the addresses to which a notice or a summons, etc. may be delivered or transmitted, shall be as per the sub-rule (2). Clause (a) of sub-rule (2) of Rule 127 includes four sources of address for such transmission. First one being the address available in PAN database of the addressee. The AO did not even consider the address available at the PAN database for proper service of notice. In fact, second proviso to sub rule (2) of rule 127 provides that if the communication cannot be delivered to the address mentioned at sub rule (1), it can be delivered to the address available with the banking company, post office, insurance company, records of the Government, local authority or furnished in form 61,61A. The AO did not even choose to make any enquiry for proper and valid delivery of notice as per the law.
The Tribunal opined that as held by the Delhi High Court, it is settled proposition of law that the onus is on the Revenue to establish that proper service of notice has been affected under section 148 of the Act which is a jurisdictional precondition to finalize the re-assessment. However, the revenue failed to discharge its burden and assessee established that at time of issuance of notice there was non application of mind. The notice was issued, but it seems that was a mere formality. Such issuance of notice, which when issued, is known to be not possible to reach the hands of assessee, cannot be considered to be even issued.
Further, the Tribunal observed that reopening is based on consideration of facts which were incorrect and same establish that there was no effort of the AO to verify any fact as was available with him in the Non-Pan Information and same was accepted without any perusal of records and application of mind The AO assumed that the assessee did not have PAN and he did not file any of his return and therefore without going through the return of income of the assessee and without verifying the fact whether the income which in the opinion of AO had escaped assessment has actually escaped or not, he recorded reasons and issued notice, that too at incorrect address. He did not even care to go through the PAN database of the assessee and the records with the department.
The Tribunal also noted that a Co-ordinate Bench quashed the reassessment where case was reopened on the factually incorrect premise that the assessee had not filed his return of income and therefore, the income had escaped assessment.
The ITAT held that the AO had invoked his jurisdiction for reopening assessment u/s 147/148 of the Act on basis of incorrect facts and non application of mind and also AO failed to serve the mandatory notice as per law.
Accordingly, the Tribunal sustained the additional grounds and the appeal was allowed.
Download Full Judgment Click Here >>
- Revision u/s 263 without specifying info AO not called – SC declines to interfere with quashing
- Appellant not barred to argue points other than on which appeal is admitted by Court – SC
- How to solve “please select type of account” error appearing at incometax e-portal.
- Validity of renewal of GST provisional attachment order after its expiry u/s 83
- Supreme Court refused to quash order transferring case u/s 127 of Income Tax Act
