The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) quashed the reopening of the assessment for the assessment year ( AY ) 2017-18 due to procedural flaws in the issuance of the notice.
Indu Pankaj Dhandharia, the appellant-assessee and legal heir of the original assessee, contested the validity of the reopening of the assessment for the AY 2017-18. The reopening was initiated by a notice dated July 20, 2022, issued manually, which the appellant argued was against the procedures outlined in Circular No. 19 of 2019.
Get a Copy of Direct Taxes Law and Practices Including Tax Planning with Free E-Book Access, Click Here
The Assessing Officer ( AO ) asserted that a sanction had been obtained from the Principal Commissioner of Income Tax ( PCIT ), before issuing the order under Section 148A(d) of the Act. The AO relied on a report indicating a difference between the consideration of a property and its stamp duty value, positing that this discrepancy suggested potential income that may have escaped assessment. The AO maintained that this information warranted the reopening of the assessment for further investigation into the alleged undisclosed income.
The Commissioner of Income Tax (Appeals) [CIT(A)] did not address the procedural concerns raised by the appellant regarding the manual issuance of the notice. Instead, the CIT(A) primarily focused on the merits of the AO’s findings and dismissed the appeal based on the substantive issues rather than considering the procedural flaws in the reopening process.
Get a Copy of Direct Taxes Law and Practices Including Tax Planning with Free E-Book Access, Click Here
The Authorized Representative ( AR ) contended that the manual issuance of the notice contravened Circular No. 19 of 2019, which outlined specific procedures for issuing notices under Section 148. The AR emphasized that the information relied upon by the AO did not have a direct linkage to the appellant, arguing that this lack of connection rendered the reopening invalid. Moreover, the AR highlighted that the AO had failed to provide tangible material that demonstrated that income chargeable to tax had escaped assessment, thereby questioning the legitimacy of the reassessment process.
The Departmental Representative ( DR ) countered the AR’s assertions by stating that the notice was valid as it had been sanctioned by the Principal Commissioner of Income Tax, in accordance with Section 151. The DR argued that the discrepancies identified by the AO provided sufficient grounds to indicate that income had escaped assessment, thereby justifying the reopening. The DR maintained that the AO had acted within the bounds of the law and had adequate reason to initiate reassessment proceedings.
The tribunal analyzed the procedural validity of the reopening of the assessment, referencing the decision of the Bombay High Court in Pravina Jagdish Patel and Hexaware Technologies, which established that a notice issued under Section 148 must comply with the provisions of Section 151A.
Get a Copy of Direct Taxes Law and Practices Including Tax Planning with Free E-Book Access, Click Here
The bench observed that the notice was issued by the Joint AO ( JAO ) instead of the First AO ( FAO ), rendering the reopening invalid. Furthermore, it noted that the sanction for reopening had not been obtained from the appropriate authority as required by Section 151 of the Act, leading to a quashing of the reopening of the assessment.
The two member bench comprising Sunil Kumar Singh ( Judicial Member ) and Prashant Maharishi ( Accountant Member ) found that the AO’s reopening of the assessment was procedurally flawed, leading to the dismissal of challenging the reopening of the assessment.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
