Notice u/s 148 of income tax act 1961 - Lunawat

NOTICE U/S 148

OF

INCOME TAX ACT 1961 18th June 2020

CA. PRAMOD JAIN

B. Com (H), FCA, FCS, FCMA, LL.B.

DISA, MIMA, IP

This document would help in better

understanding of critical issues related to

notice u/s 148 of the Income Tax Act, 1961

through various judicial pronouncements

CA. PRAMOD JAIN

B. COM (H), FCA, FCS, FCMA

LL.B, DISA, MIMA, IP

Income Tax- Notice u/s 148 Page 1

S. NO CONTENT PAGE NO.

1 Statutory Summary 2

2 Non-Service of Notice u/s 148 2

3 Barred by Limitations 4

4 Audit Objection 8

5 Reopening on the Basis of Valuation Report 10

6 Satisfaction by the Competent Authority (Fit Case) 11

7 Non-Application of Mind 13

8 Reasons not Recorded / Supplied or Invalid Reasons 17

9 Change of Opinion 23

10 Reassessment in pursuance of Order / Direction 25

11 Reason to Believe – Subsequent Years 25

12 Disposal of Objections raised by Assessee 26

13 Non–Service of Notice u/s 143(2) 26

14 Scope of Powers 29

15 Other Pronouncements 31

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STATUTORY SUMMARY

1. According to the provisions of section 148 of the Income Tax Act, 196 before making

assessment, reassessment or recomputation under section 147, the Assessing Officer has to

serve on the assessee a notice requiring him to furnish within such period, as may be specified

in the notice, a return of his income where the income has escaped assessment provided that

the Assessing Officer shall, before issuing any notice under this section, record his reasons for

doing so.

2. The reasons recorded by the Assessing Officer should by satisfied by the Principal Chief

Commissioner or the Principal Commissioner or the Chief Commissioner or the Joint

Commissioner the Commissioner, depending on the case, about the fitness of the case for

issuing notice under section 148 of the Income Tax Act, 1961.

3. Time limit for notice to be issued u/s148 is provided under section 149, which is as under:

a) Up to 4 years from the end of the relevant assessment year, unless the case falls in (b) or (c)

below

b) Exceeding 4 years but up to 6 years from the end of the relevant assessment year, if the

escaped income amounts to or is likely to amount to Rs. 1 Lakh or more for that year

c) Exceeding 4 years but up to up to 16 years from the end of the relevant assessment year, if

the income in relation to any asset (including financial interest in any entity) located outside

India, chargeable to tax, has escaped assessment.

Non - Service of Notice u/s 148

Notice u/s 148 of the Income Tax Act should be issued within the prescribed limit, if the notice is

not issued \ served to the appellant then the reassessment proceedings u/s 148 would be considered

invalid. Some of the judicial pronouncements are as follows:

1. Hon’ble Supreme Court in Y. Narayan Chetty vs. ITO (1959) 35 ITR 388 (SC); CIT vs.

Thayaballi Mulla Jeevaji Kapasi (1967) 66 ITR 147 (SC); and CIT vs. Kurban Hussain

Ibrahimji Mithiborwala (1971) 82 ITR 821 (SC) has held that the notice prescribed by

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section 148 cannot be regarded as a mere procedural requirement. It is only if the said

notice is served on the assessee that the ITO would be justified in taking proceedings

against the assessee. If no notice is issued or if the notice issued is shown to be invalid,

then the proceedings taken by the ITO would be illegal and void.

2. Hon’ble Delhi High Court in case of CIT vs. Hotline International Pvt. Ltd. (296 ITR

0333) has held that in the absence of a valid service of notice u/s 148 on the assessee, the

reassessment proceedings are bad in law.

3. Hon’ble Delhi High Court in case of CIT (Central)-I vs. Chetan Gupta ITA No.

1891/del/2012 dated 15.09.2015; 382 ITR 613 has held that no reassessment can take place

without service of notice being affected on the assessee or his authorized representative.

4. Hon’ble Punjab & Haryana High Court in case of CIT vs. Ceban India Ltd. ITA No. 85 of

2009, Jul 7, 2009 has held that in absence of notice being served, the AO had no

jurisdiction to make assessment.

5. Hon’ble Delhi High Court in case of CIT vs. Mani Kakkar (2009) 18 DTR (Del) 145 has

held that no notice u/s. 148 having been served on the assessee prior to re-opening of

assessment, assessment made u/s. 147 was bad in law; argument based on S. 292BB was

not sustainable on the facts of the case.

6. In Hon’ble Delhi High Court in CIT vs. Lunar Diamonds Ltd. ITA No. 62 of 2015; DHC

281 ITR 1 notice u/s. 148 of the Act was not received by the Assessee and the same was

sent on the wrong address and no attempt was made to serve the assessee at the correct

address. However, the correct address was mentioned in the income tax return, which was

not mentioned while sending the notice u/s. 148 of the Act, as a result thereof, the

reassessment proceedings and notice u/s. 147 r.w.s. 148 is illegal, bad in law, without

jurisdiction and time barred

7. Delhi ITAT Bench in case of DCIT vs. Mascomptel (India) Ltd., ITA No. 4672/Del/2009

held that in view of the facts above and the categorical stand of the assessee supported by

an affidavit that he did not receive any notice, the burden was on the AO to prove that it

was dispatched to the correct address. In this case, it was not even doing something out of

the ordinary, a mere glance at the address on the return or last years record or a little

https://indiankanoon.org/doc/301546/

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presence of mind when the assessee responded to a TDS verification notice could have

sorted the issued.

8. ITAT Delhi Bench “G”, in the case of Somlata Gahalaut, Noida Vs ITO, Ward-9(1), New

Delhi in ITA No. 413/Del/2013 has held that if notice is not issued by AO before

completion of reassessment, then reassessment order would be unsustainable.

9. Hon’ble Allahabad High Court in case of Universal Subscription Agency (P) Ltd vs.

JCIT (2007) 293 ITR 244 (All) has held that AO having accepted the claims of the

assessee for deduction u/s. 80-O on the basis of details furnished by the assessee, it cannot

be said that the assessee had not made full and true disclosure of all material facts for

claiming deduction and therefore notice u/s. 148 issued after expiry of 4 years from the end

of relevant assessment years were wholly illegal and without jurisdiction

10. Hon’ble Delhi High Court in case of CIT vs. Harish J. Punjabi (2008) 297 ITR 424 (Del.)

held that where notice was not sent by registered post nor served upon assessee in any other

manner whatsoever, proceedings for assessment were void.

11. Delhi ITAT Bench in case of ITO vs. Hepta Developers Pvt. Ltd. ITA No. 3608/ 2014 has

held that the notice u/s 148 and subsequent notices, were issued at a wrong address, due to

the mistake attributable to the Assessing Officer, in making due diligence of issuing the

notice at the correct address given in the return of income itself. The latest address of the

assessee was also available with the AO as return of income for assessment year 2010-11

and 2011-2012 also show the latest address. As the notice u/s 148 which is foundation of

the reassessment proceeding, was not served upon the assessee, the whole proceedings are

held as void- ab –initio. Under the circumstances, the action of the AO of making Best

Judgment assessment u/s 144, in respect of which evidently no material was gathered by

the AO, is not sustainable. In view of this, the additions made by the AO are not sustainable.

Barred by Limitations

As the issuance of the s. 148 notice has to be within the time limits of s. 149. If the same is not

done, then the notice u/s148 is invalid. Also, where there is no failure on the part of assessee to

disclose fully and truly all material facts necessary for assessment, reopening of assessment is

barred by limitation. Some of the case laws on the same are as follows:

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Some of the judicial pronouncements are as follows:

1. Hon’ble High Court of Punjab and Haryana in the case of Mohinder Singh Malik vs. CIT

& ORS., (2003) 71 CCH 0239 PHHC dated Mar 11, 2003; 267 ITR 0716 has held that

since the reasons recorded by the AO under s. 148 could not lead to the conclusion that the

escaped income was likely to be more than Rs. 1 lac, the impugned notice under s. 148

issued after expiry of four years from the end of the relevant assessment year could not be

sustained in view of bar of limitation under s. 149, irrespective of the fact that sanction was

obtained under s. 151.

2. Hon’ble Delhi High Court in case of Haryana Acrylic Manufacturing Co. vs.

Commissioner of Income Tax & ANR., Writ Petn. No. 4074 of 2007, Nov 3, 2008 (308

ITR 0038) it was held that AO while making assessment under s. 143(3) having made

specific queries with regard to share application money in response to which assessee

furnished all relevant documents and after considering this material, AO having completed

the assessment, it could not be said that income escaped assessment on account of failure

on the part of assessee to disclose fully and truly all material facts necessary for assessment,

hence reopening of assessment after expiry of four years from the end of the relevant

assessment year was invalid. There being no whisper in the reasons supplied to assessee

that income escaped assessment by reason of assessee’s failure to make a full and true

disclosure of all material facts necessary for assessment, notice u/s. 148 issued beyond four

years from the end of relevant asst. year was barred by limitation under proviso to S. 147,

hence without jurisdiction.

3. Hon’ble High Court of Bombay in case of Hindustan Lever ltd. Vs. R.B. Wadkar (writ

petn. No. 1505 of 2003) dated Feb 25, 2004; 268 ITR 0332 has held that reasons recorded

by AO nowhere stating that there was failure on the part of assessee to disclose fully and

truly all material facts necessary for assessment, reopening of assessment made under s.

143(3) after expiry of four years from the end of the relevant assessment year was invalid.

4. Hon’ble Supreme Court of India in case of New Delhi Television Ltd. Vs. DCIT, Civil

Appeal no. 1008 of 202, Apr 3, 2020 has held that the revenue cannot take benefit of the

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extended period of limitation of 6 years if it is found that the assessee had fully and truly

disclosed all material facts necessary for its assessment.

5. Hon’ble Bombay High Court in case of Bhor Industries Ltd. Vs. ACIT & ORS., Writ Petn.

No. 1909 of 2002, Feb 26, 2003 (264 ITR 0180) has held that assessee having filed its

annual report before the AO indicating spread over of the expenditure incurred on

voluntary retirement scheme over a period of 60 months and the AO having granted

deduction to the extent of amount written off during the relevant year acting on that report,

there was no failure on the part of the assessee to disclose fully and truly the material facts

and, therefore, reopening of assessment after expiry of four years was not valid.

6. Hon’ble High Court of Calcutta in case of Amiya Sales &Industries & ANR. vs. ACIT &

ORS., Writ Petn. No. 291 of 2000, Sep 14, 2004; 274 ITR 0025 has held that in the absence

of any omission or failure on the part of the assessee to disclose fully and truly all material

facts, AO could not assume jurisdiction to reopen the assessment after expiry of four years

from the end of relevant assessment years merely on the basis of incorrect interpretation of

accounts by him at the time of original assessment under s. 143(3).

7. Hon’ble High Court of Madras in case of CIT vs. Elgi Finance Ltd., (Appeal) Nos. 65 &

66 of 2003, Mar 14, 2006; 286 ITR 0674 has held that assessee-company having fully and

truly disclosed all material facts necessary for working out the quantum of depreciation,

notices under s. 148 issued after expiry of four years from the end of the relevant

assessment years to withdraw the excess depreciation allowed to the assessee were barred

by limitation and illegal.

8. Delhi ITAT Bench in case of Richa Industries Ltd. Vs. ACIT, ITA No. 1476/Del/2014,

Mar 14, 2017 has held that reassessment proceedings u/s 147 r.w.s 148 of the Act cannot

be initiated after expiry of 4 years from end of relevant assessment year unless there is

failure on part of assessee to disclose fully and truly all material facts.

9. ITAT Delhi bench in Sh. Balwant Rai Wadhwa vs. ITO [2011-ITRV-ITAT-DEL-024}

ITA No. 4806/Del/10 pronounced on 14th January 2011 discussing Haryana Acrylic case

has held that despite service of s. 148 Notice in time, non-supply of ‘Reasons for

Reopening’ within time renders the reopening void. A notice u/s 148 without the

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communication of the reasons therefore is meaningless inasmuch as the AO is bound to

furnish the reasons within a reasonable time. Where the notice has been issued within the

said period of six years but the reasons have not been furnished within that period is hit by

the bar of limitation because the issuance of the notice and the communication and

furnishing of reasons go hand-in-hand.

10. Hon’ble Delhi High Court in case of Wel Intertrade (P) Ltd. & Anr. vs. ITO (2009) 308

ITR 22 it was held that assessee having fully and truly disclosed all the material facts

necessary for the assessment as required by the AO the precondition for invoking the

proviso to S. 147 was not satisfied and therefore AO acted wholly without jurisdiction in

issuing notice u/s. 148 beyond four years period mentioned in S. 147.

11. Hon’ble Delhi High Court in case of CIT vs. Kapil Dev (2009) 177 Taxman 6 (Del) has

held that Tribunal having concluded that all the material facts were fully and truly disclosed

by the assessee at the time of original assessment, invocation of provisions of S. 147 after

the expiry of four years from the end of the relevant asst. year was not valid.

12. Hon’ble Delhi High Court in case of Sita World Travels (India) Ltd vs. CIT (2005) 274

ITR 186 (Del) has held that AO who allowed assessee is claim for deduction under S.

80HHD was well above of the primary facts and therefore assessments could not be

reopened after the expiry of four years on the ground that income had escaped assessment

on account of excessive relief u/s. 80HHD.

13. Hon’ble Gujarat High Court in case of Gujarat Fluorochemicals Ltd. vs. DCIT (2008) 15

DTR (Guj) has held that assessee having made full disclosure of material facts in the return

which was accompanied by several enclosures, assessment could not be reopened beyond

four years from the end of the relevant asst. year for the reason that certain income has

been wrongly assessed under the head ‘Capital gains’ instead of ‘Profits and gains’ of

business or profession.

14. Hon’ble Allahabad High Court in case of Universal Subscription Agency (P) Ltd. vs. JCIT

(2007) 293 ITR 244 (All) has held that A.O. having accepted the claim of the assessee for

deduction u/s. 80-O on the basis of details furnished by the assessee it cannot be said that

the assessee had not made full and true disclosures of all material facts for claiming

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deduction and therefore, notices u/s. 148 issued after expiry of 4 years from the end of

relevant asst. year were wholly illegal and without jurisdiction.

15. In CIT vs. Tirathram Ahuja (HUF) (2008) 6 DTR (Del) 335 has held that there was no

failure on the part of assessee to disclose a material fact where rateable value of the property

was enhanced by the Municipal Corporation after assessment for assessment year 1991–

92 to 1993-94 had been computed, hence reopening of assessment after expiry of four years

from the end of relevant assessment year was barred by the proviso to S. 147.

16. Hon’ble Bombay High Court in the case of Smt. Mira Ananta Naik (2009) 183 Taxman

40 (Bom.) has held that merely because block assessment is time barred, the department

cannot have reasons to believe that income has escaped assessment and assessment for a

particular year cannot be re-opened on that ground.

17. Hon’ble Delhi High Court in case of Techspan India (P) Ltd & Anr vs. ITO (2006) 283

ITR 212 (Del) has held that an assessment order passed after detailed discussion cannot be

reopened within a period of 4 years unless the AO has reason to believe due to some

inherent defect in the assessment.

18. - German Remedies Ltd vs. DCIT & Ors. (2006) 285 ITR 26 (Bom)

- Techspan India (P) Ltd & Anr vs. ITO (2006) 283 ITR 212 (Del)

In both of the above cases it was held that an assessment order passed after detailed

discussion cannot be reopened within a period of 4 years unless the AO has reason to

believe due to some inherent defect in the assessment.

Audit Objection

Re-opening on the basis of audit objection is invalid. Some of the case laws on the same are as

follows:

1. Hon’ble Gujarat High Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. vs.

ACIT (2006) 284 ITR 593 (Guj) has held that AO having reopened the assessment at the

benefit of the Audit department while disagreeing with the later objection and without

entertaining his own belief that the income of the assessee had escaped assessment on the

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ground that assessee had claimed loss on the basis of erroneous computation as indicated

by the audit party reopening is not sustainable, notice u/s. 148 quashed.

2. Hon’ble Bombay High Court in the case of Asian Cerc Information Services (P) Ltd vs.

ITO (2007) 293 ITR 271 (Bom) has held that A.O. having communicated to the auditor

that a certain decision of a High Court did not apply to the facts of the petitioner case but

later rejected the objections raised by the petitioner to the notice u/s. 148 taking a contrary

view without giving any reasons as to why he has departed from the earlier view that the

decision was not applicable there was total non-application of mind on the part of the AO,

impugned communication is set aside and the matter is remanded back to the AO for de

nevo consideration.

3. Hon’ble Gujarat High Court in the case of Adani Exports vs. DCIT (1999) 240 ITR 224

(Guj) has held that reassessment was not valid as the AO held no belief on his own at any

point of time that income of assessee had escaped assessment on account of erroneous

computation of benefit u/s 80HHC and was constrained to issue notice only on the basis of

audit objection.

4. Hon’ble Supreme Court in the case of Indian & Eastern Newspaper Society vs. CIT

(1979) 119 ITR 996 (SC) has held that Audit Objection cannot be the basis for reopening

of assessment to income tax by the revenue.

5. Hon’ble Supreme Court in CIT vs. Lucas T.V.S. Ltd. (2001) 249 ITR 306 (SC) has held

that Rectification and reassessment due to audit objection on interpretation law, cannot be

the basis for reopening of assessment.

6. Hon’ble Bombay High Court in the case of IL & FS Investment Managers Ltd. vs. ITO

& Ors (2008) 298 ITR 32 (Bom); Vijaykumar M. Hirakhanwala (HUF) vs. ITO &

Ors (2006) 287 ITR 443 (Bom) has held that AO having allowed assessee’s claim for

depreciation in the regular assessment and reopened the assessment pursuant to audit

objection, it cannot be said that he had formed his own opinion that the income had escaped

assessment, and the reopening being based on mere change of opinion, same was not valid.

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Re-opening on basis of Valuation Report

Re-opening on the basis of Valuation Report is invalid. Some of the case laws on the same are as

follows:

1. Hon’ble Supreme Court of India in ACIT vs. Dhariya Construction Co., Feb 16, 2010 47

DTR 0288; (2010) 236 CTR 0226; (2010) 328 ITR 0515 has held that opinion of District

Valuation Officer (DVO) per se is not an information for purposes of reopening of an

assessment under section 147; Assessing Officer has to apply his mind to information, if

any, collected and must form a belief thereon.

2. Hon’ble Madhya Pradesh High Court in the case of Prakash Chand vs. Dy. CIT & Ors

(2004) 269 ITR 260 (MP) has held that AO had no jurisdiction to reopen the concluded

assessments on the strength of valuation report of valuation officer obtained subsequently

and that too not in exercise of powers u/s. 55A impugned notices under S. 148 quashed.

3. Hon’ble Allahabad High Court in the case of Girdhar Gopal Gulati vs. UOI (2004) 269

ITR 45 (All) has held that Assessing Authority having made a detailed enquiry before

making the assessment of the petitioner u/s. 143(3) the impugned notice u/s. 148 was issued

only on the basis of change of opinion and was therefore, invalid, notice was also illegal

on the ground that it was based on the valuation report of cost of construction.

4. Hon’ble Rajasthan High Court in the case of CIT vs. Smt. Meena Devi Mansinghka (2008)

303 ITR 351 has held that mere DVO’s report cannot constitute reason to believe that

income has escaped assessment for the purpose of initiating reassessment and therefore

Tribunal was justified on holding that the reassessment proceedings initiated on the basis

of DVO’s report were invalid ab initio, more so when it has found that the DVO’s report

suffers from various defects and mistakes.

5. Hon’ble Gujarat High Court in the case of Manjusha Estate Pvt. Ltd. v ITO (2009) 314

ITR 263 (Guj) has held that reference to the valuation officer only in the course of the

assessment. Reopening on the basis of valuation report not valid.

6. Hon’ble Calcutta High Court in the case of ITO vs. Santosh Kumar Dalmia (1994) 208

ITR 337 (Cal.)has held that where apart from the valuation report which was relied upon

by the ITO there was no material before him to come to the prima facie conclusion that the

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assessee had received the higher consideration than what had been stated in the sale deed,

reassessment would not be justified.

7. Hon’ble Bombay High Court in the case of Western Outdoor Interactive (P) Ltd. vs. A.K.

Phute, ITO & Ors (2006) 286 ITR 620 (Bom) has held that Dept. having taken one of the

two possible views in the matter of calculation of deduction u/s. 10B and 80HHE

assessment cannot be reopened by taking the other view more so when the CIT(A) has

already quashed the rectification u/s. 154 which was made on the very same ground.

8. Hon’ble Allahabad High Court in the case of Smt. Jamila Ansari vs. ITO & Anr (1997)

225 ITR 490 (All) held that allowance u/s. 80HHC having been granted by the ITO in

rectification proceedings the remedy against lay with the dept. either u/s. 154 or S. 263 and

not S. 147 further reassessment having been made on a date earlier than fixed same was

bad. Alternative remedy was no bar for the maintainability of writ in such circumstances.

Satisfaction by the Competent Authority (Fit Case)

Notice u/s 148 of the Income Tax Act can be issued only after the CCIT or CIT, as the case may

be, has recorded his satisfaction with the reasons recorded by the AO of the rank of an ITO or the

ACIT or the DCIT that it is a fit case for reopening. Some of the case laws on the same are as

follows:

1. Hon’ble Delhi High Court in case of CIT vs. GEE KAY Finance & Leasing Co. Ltd. ITA

935/2009, Feb 8, 2018 (401 ITR 0472) has held that after expiry of 4 years from end of

relevant assessment year, scrutiny assessment could be re-opened only with approval of

Chief Commissioner or Commissioner.

2. ITAT Delhi in case of Tara Alloys Ltd. vs. ITO, ITA No. 2421/Del/2017 dated Mar 1,

2018 (63 ITR (Trib) 0484) held that 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

section 151 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.

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Therefore 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.

3. Hon’ble Calcutta High Court in case of East India Hotels Ltd. Vs. DCIT & ORS., Matter

No. Nil of 1991 dated Feb 13, 1992 (204 ITR 0435) has held that where notice is issued

after the expiry of four years after the end of the relevant assessment year under s. 148,

Chief CIT or the CIT must be satisfied with the reasons recorded by the AO of the rank of

an ITO or the Asstt. CIT or the Dy. CIT that it is a fit case for reopening. Satisfaction of

CIT is a sine qua non, therefore, notice issued under s. 148 beyond four years after the end

of the relevant assessment year is bad in law in as much as the sanction of the Chief CIT

or the CIT was not obtained before issuance of the notice.

4. Hon’ble High Court of Allahabad in case of Dr. Shashi Kant Garg vs. CIT & ORS., Civil

Misc. Writ Petn. Nos. 533, 534, 539 & 540 of 2002 dated Aug 10, 2005; 285 ITR 0158

has held that if the assessment has been made under sub-s. (3) of s. 143 or s. 147 and the

proceedings for reassessment are to be initiated after the period of four years, then the

notice can be issued only after the Chief CIT or CIT, as the case may be, has recorded his

satisfaction for issuance of notice as provided under the proviso to sub-s. (1) of s. 151;

impugned notice under s. 148 issued after the expiry of four years from the end of the

relevant assessment year without obtaining the prior sanction of the Chief CIT or the CIT

was invalid and entire proceedings taken in pursuance of said notice are set aside.

5. Hon’ble High Court of Rajasthan in case of CIT vs. Shree Rajasthan Syntex Ltd. (2009)

212 Taxation 275 (Raj.) held that reopening is not permissible on borrowed satisfaction of

another Assessing Officer.

6. Hon’ble Delhi High Court in case of CIT vs. Gee Kay Finance & Leasing Co. Ltd. ITA

935/2009, Feb 8, 2018; 401 ITR 0472 has held that after expiry of 4 years from end of

relevant assessment year, scrutiny assessment could be re-opened only with approval of

Chief Commissioner or Commissioner.

7. Hon’ble High Court of Delhi in the case of United Electrical Company (P) Ltd. vs. CIT &

ORS., Civil writ petn. no. 5746 & CM No. 9769 of 2002, Oct 10, 2002 (258 ITR 0317)

held that as per under s. 147 was being initiated after the expiry of four years from the end

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of the relevant assessment year. The legislature has provided certain safeguards to prevent

arbitrary exercise of powers by an AO, particularly after a lapse of substantial time from

completion of assessment. The power vested in the CIT to grant or not to grant approval is

coupled with a duty. The CIT is required to apply his mind to the proposal put up to him

for approval in the light of the material relied upon by the AO. The said power cannot be

exercised casually and in a routine manner. We are constrained to observe that in the

present case, there has been no application of mind by the Addl. CIT before granting the

approval.

Non-Application of Mind

According to section 148 reopening is bad in law, where there is non-application of mind by

Assessing Officer. Some of the judicial pronouncements on the same is as follows:

1. Hon’ble High Court of Delhi in case of Best Cybercity (India) Pvt. Ltd. vs. ITO & ANR.,

dated May 21, 2019; 178 DTR 0409 (Del); (2019) 414 ITR 0385 held that there was no

fresh tangible material on the basis of which the AO could have formed an opinion about

any taxable having escaped assessment during the AY in question. Also, the reasons

recorded by the AO for re-opening the assessment do not refer to the said facts. It merely

repeats the language of Section 147 that there was a failure by the assessee to disclose fully

and truly all material facts necessary for the assessment. The Court is, therefore, satisfied

that the jurisdictional requirement of the first proviso to Section 147 proviso has not been

satisfied in the present case.

2. Hon’ble Delhi High Court in case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. ITA

692/2016 dated May 26, 2017, (2017) 99CCH 0028 DelHC; 395 ITR 677; 154 DTR 0100

(Del); (2017) 395 ITR 0677 (Delhi)) has held that there is no independent application of

mind by the AO to the tangible material which forms the basis of the reasons to believe

that income has escaped assessment. The conclusions of the AO are at best a reproduction

of the conclusion in the investigation report. Indeed, it is a 'borrowed satisfaction'. The

reasons fail to demonstrate the link between the tangible material and the formation of the

reason to believe that income has escaped assessment.

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3. In Delhi High Court in case of Agya Ram vs. CIT ITA No. 290/2004(2016) 386 ITR 0545

(Delhi) dated 01.08.2016 it was emphasized that the reasons to believe "should have a link

with an objective fact in the form of information or materials on record…" It was further

emphasized that “mere allegation in reasons cannot be treated equivalent to material in

eyes of law. Mere receipt of information from any source would not by itself tantamount to

reason to believe that income chargeable to tax has escaped assessments.”

4. Kolkata ITAT bench ‘SMC’ in Subodh Chandra Das vs. ITO, ITA no. 2246 &

2247/Kol/2019, Mar 4, 2020 has held that reopening is bad in law, where there is non-

application of mind by Assessing Officer to information received from investigation wing.

5. Delhi ITAT bench ‘SMC’ in Goel was (P) Ltd. vs. ITO, ITA no. 2075/del/2018, Jan 7,

2020 has held that mere information received from DDIT(Inv) cannot constitute valid

reasons for initiating reassessment proceedings in the absence of anything to show that AO

had independently applied his mind to arrive at a belief that the income had escaped

assessment.

6. The Hon’ble Delhi High in case of Yum Restaurants Asia Pte. Ltd. vs. Deputy Director

Income Tax, W.P.(C) 614/2014, Aug 31, 2017; 397 ITR 0665 (Delhi), has held that where

authorities appeared to have concurred with reasons for reopening assessment without

applying their mind, reopening of assessment would be invalid

7. Hon’ble High Court of Delhi in case of CIT vs. Batra Bhatta Company, IT appeal no. 109

of 2008, Aug 8,2008; 13 DTR 0115; (2008) 220 CTR 0531; (2010) 321 ITR 0526 has held

that mere belief of the AO that certain issue requires ‘much deeper scrutiny’, in the absence

of any material or reason for such belief, is not enough for invoking S. 147.

8. Hon’ble High Court of Delhi in case of CIT Vs. Insecticides (India) Ltd., ITAS 608/2012

& 609/2012 dated May 20, 2013; 357 ITR 0330 has held that reasons recorded by AO do

not disclose AO’s mind as to what was nature and amount of entries, which had been given

or taken by assessee in relevant year. The reasons recorded by the AO for initiating

proceedings u/s 147 of the Act are to be examined for sustaining or setting aside a notice

issued u/s 148. Reasons are required to be read as they are recorded by AO. No substitution

or deletion is permissible.

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9. The Hon’ble Delhi High Court in case of Sabh Infrastructure Ltd. vs. ACIT, W.P.(C)

1357/2016 Sep 25,2017; 398 ITR 0198 (Delhi), has held that where assessee could not be

said to have failed to disclose fully and truly all material facts then assumption of

jurisdiction under Sections 147 and 148 of the Act was erroneous and notice issued for

reassessment should be quashed.

10. Hon’ble Delhi High Court in the case of PCIT vs. G&G Pharma India Ltd I.T.A.

No.545/2015 (2016) 384 ITR 0147 (Delhi) dated 8th October 2015, has held that when

basic requirement that AO must apply his mind to materials on record in order to have

reasons to believe that income of the assessee escaped assessment was missing, reopening

of assessment not justified.

11. Delhi High Court in the case of Signature Hotels (P) Ltd. vs. ITO dated 21.07.2011 [2011]

338 ITR 51 (Del.); 60 DTR 0030 has held that it was apparent that the Assessing Officer

did not apply his own mind to the information and examine the basis and material of the

information. The Assessing Officer accepted the plea on the basis of vague information in

a mechanical manner. The Commissioner also acted on the same basis by mechanically

giving his approval. Therefore, the proceedings under section 148 were to be quashed.

12. Hon’ble High Court of Delhi in CIT vs. SFIL Stock Broking Ltd., appeal no. 1056 of

2009, Apr 27, 2010; (2010) 325 ITR 285 (Del) has held that mere information received

from the Dy. Director of IT (Inv.) and directions of the said officer and the Addl. CIT to

initiate proceedings under s. 147 cannot constitute valid reasons for initiating reassessment

proceedings in the absence of anything to show that the AO has independently applied his

mind to arrive at a belief that income has escaped assessment.

13. Hon’ble High Court of Bombay in Asian Cerc Information Services (P) Ltd vs. ITO

(2007) 293 ITR 271 (Bom) has held that AO having communicated to the auditor that a

certain decision of a HC did not apply to the facts of the petitioners case but later rejected

the objections raised by the petitioner to the notice u/s. 148 taking a contrary view without

giving any reason as to why he has departed from the earlier view that the decision was not

applicable, there was total non-application of mind on the part of AO; matter remanded

back to AO for de novo consideration.

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14. Hon’ble High Court of Delhi in case of Sarthak Securities Co. (P) Ltd. Vs. ITO, writ petn.

No. 6087 of 2010, Oct 18, 2010; 47 DTR 0201; (2010) 236 CTR 0362; (2010) 329 ITR

0110 has held that where the identity of the companies who had invested in the shares of

petitioner-company was not disputed and neither the reasons in the initial notice nor the

communication providing reasons remotely indicated independent application of mind by

AO, reassessment proceedings were unwarranted and notice issued under s. 148 was liable

to be quashed. Before the Income Tax Officer can assume jurisdiction to issue notice u/s

147(a), two distinct conditions must be satisfied. First, he must have reason to believe that

the income of the assessee has escaped assessment and secondly, he must have reason

to believe that such escapement is by reason of the omission or failure on the part of the

assessee to disclose fully and truly all material facts necessary for his assessment. Held

that neither of the two conditions necessary for attracting the applicability of s. 147 (a) was

satisfied in the present case and the notice issued by the ITO must be held to be without

jurisdiction.

15. Hon’ble Supreme Court of India in case of Chhugamal Rajpal vs. S.P. Chaliha &ORS.179

ITR 603(SC), Jan 21, 1971 has held that notice under s. 148 to initiate proceeding for

reassessment was to be quashed as it was issued mechanically without satisfying the

requirements of s. 147 and s. 151.

16. Hon’ble ITAT Agra in case of Deepraj Hospital vs. ITO, 41/Agra/2017, dated 01.06.2018;

65 ITR (Trib) 0663 (Agra) has held that if the reopening is based on information received

from the investigation dept, the reasons must show that the AO independently applied his

mind to the information and formed his own opinion. If the reopening is done

mechanically, it is void. Also, if the reasons refer to any document, a copy should be

provided to the assessee. Failure to do so results in breach of natural justice and renders

the reopening void.

17. Delhi ITAT in case of ACIT vs. M/s. Pankaj Gas Cylinders Ltd. ITA No.

5273/del/2013dated 3rd May 2016 has held that the AO has not applied his mind so as to

come to an independent conclusion that he has reason to believe that income has escaped

during the year, hence the order deserves to be quashed.



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Reasons not Recorded/ Supplied or Invalid Reasons

Furnishing the reasons recorded for reopening of the assessment is mandatory condition. If no

reasons have been supplied by the Ld. AO to the appellant, the whole reassessment proceedings

u/s 147 was invalid. Further the reasons recorded could be invalid for opening the proceedings u/s

147. Some of the judicial pronouncements on the same are as follows:

1. Hon’ble Karnataka High Court in case of Kothari Metals (writ appeal no.218/2015, order

dated 14th August 2015 377 ITR 0581 has held that the question of non-furnishing the

‘Reasons’ for reopening an already concluded assessment goes to very root of the matter,

and that the assessee is entitled to be furnished the ‘Reasons’ for such reopening and that

if ‘Reasons’ are not furnished to the assessee, then the proceedings for the reassessment

cannot be taken any further, and reopening of the assessment would be bad in law.

2. Hon’ble Bombay High Court in case of CIT v. Videsh Sanchar Nigam Ltd. 340 ITR 66,

order dated 20th July, 2011 has held that in case reasons are not furnished by the AO to

the assessee, before completion of reassessment proceedings, reassessment order cannot

be upheld. It is further noted that SLP filed by the Revenue against the order of Hon’ble

Bombay High court, has been rejected by Hon’ble Supreme Court.

3. Hon’ble High Court of Delhi in case of Pr. CIT Vs. Jagat Talkies Distributors order dated

Aug 29, 2017; 398 ITR 0013 has held that where AO has failed to furnish reasons for

reopening of assessment u/s 148 to assessee, reassessment proceedings is not justified.

4. The Hon’ble Delhi High Court in the case of Pr CIT v. RMG Polyvinyl (I) Ltd. ITA29/2017

& CM No. 10/09/2017; 396 ITR 0005 (Delhi), has held that the Court is unable to discern

the link between the tangible material and the formation of the reasons to believe that

income had escaped assessment. In the present case too, the information received from the

Investigation Wing cannot be said to be tangible material per se without a further inquiry

being undertaken by the AO. In the present case the AO deprived himself of that

opportunity by proceeding on the erroneous premise that Assessee had not filed a return

when in fact it had.

5. Hon’ble Punjab & Haryana High Court in CIT vs. Rajindra Rosin & Turpentine

Industries. (2008) 305 ITR 161 (Punj. & Har.) has held that recording of reasons is a

condition precedent to invoke jurisdiction under section 147/148

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6. Hon’ble Gujarat High Court in Rajoo Engineers vs. Dy. CIT (2008) 218 CTR (Guj.) 53

has held that language of section 148(2) does not permit recording of reasons between date

of issuance of notice and service of notice, words used by provisions in no uncertain terms

require recording of reasons before issuing any notice.

7. Hon’ble High Court of Delhi in case of CIT vs. Atul Jain299 ITR 383 (Del.) IT Appeal

No. 1384 of 2006, May 23, 2007 (299 ITR 0383) held that mere statement of facts in the

form of report is no substitute for reasons that are required to be recorded before issuing

notice under s. 148. In the absence of reasons recorded mere writing of "yes" by the CIT

in the appropriate column would not save the proceedings from being vitiated. AO has not

even recorded his satisfaction about the correctness or otherwise of the vague or scanty

information or his satisfaction that a case is made out for issuing notice under s. 148.

Reopening and the consequential assessment rightly quashed

8. ITAT Pune in case of M/s Gangabisan Muralidhar Maniyar vs. ITO, ITA No.

2340/Pun/2017, dated 18.03.2019 has held that recorded reasons as laid down by the Apex

Court must be furnished to the assessee when sought for so as to enable the assessee to

object to the same before the AO. It has further held that the recording of reasons and

furnishing of the same has to be strictly complied with as it is a jurisdictional issue and in

the absence of reasons being furnished when sought for would make an order passed on

reassessment bad in law.

9. ITAT Chennai in case of Shri Janak Shantilal Mehta Vs. Asstt. CIT, ITA no.

1372/Mds/2017, dated 10.01.2018 has held that the reasons recorded having not been given

to the assessee before the completion of the assessment, the re-assessment is invalid and

liable to be annulled.

10. ITAT Mumbai in case of Tata International Ltd. Vs. DCIT [2012] 52 SOT 465 (Mum)

order dated Jun,29,2012 has held that Assessing Officer has failed to furnish the reasons

recorded for reopening of the assessment within the reasonable time and rather prior to the

completion of assessment, than the reassessment order passed without supply of reasons as

recorded for reopening of the assessment, is invalid and cannot sustain. Accordingly, we

set aside the reassessments for all 3 years under consideration being invalid.

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11. Hon’ble ITAT Delhi Bench in case of DCIT & ANR. Vs. Tupperware India Pvt. Ltd. &

ANR., ITA No. 2140/Del/2011 & 1323/Del/2012, C.O. No.191/Del/2011 & 168/Del/2012

dated Aug 29, 2014 has held that where there is no fresh material in possession of

Assessing Officer, reassessment proceedings are not valid. Assessing Officer had formed

an opinion regarding escapement of income on basis of audit report which was a part of

return and which was already available with Assessing Officer. Thus, reassessment

proceedings were not legally initiated and, therefore, assessment order passed in

consequence thereof is liable to be quashed.

12. Hon’ble ITAT Kolkata Bench ‘C’ in case of Classic Flour & Food Processing Vs. CIT,

ITA Nos.764 to 766/Kol/2014, Apr 5, 2017 has held that it is for the AO to disclose and

open his mind through reasons recorded by him. He has to speak through his reasons. It is

for the AO to reach to the conclusion as to whether there was failure on the part of the

assessee to disclose fully and truly all material facts hence initiation of reassessment

proceedings u/s 147 r/w/s 148 without satisfying mandatory requirements of s. 147 but

merely for the purpose of verification and examination which is not the scope of re-

assessment proceedings, is invalid and thus, liable to be quashed.

13. Hon’ble Bombay High Court in case of PCIT vs. M/s Shodiman Investments Private

Limited, ITA no. 1297/2015, dated 16.04.2018; 167 DTR 0290 (Bom) has held that if

material is not linked by any reason to come to conclusion that assessee has indulged in

any activity which can give rise to reason to believe on part of AO that income chargeable

to tax had escaped Assessment, then re-opening of assessment is not sustainable in law and

should not be allowed.

14. ITAT Kolkata in case of Sri Bikramjit Paul Vs. DCIT, ITA no. 1466/kol/2016, order dated

01.03.2017 has held that as the reasons for reopening of assessment have not been

furnished by the assessee despite request for the same, the assessment order passed under

section 148 read with section 143(3) is quashed as illegal.

15. Hon’ble Bombay High Court in case of Pr.CIT Vs. Shodiman Investments (P) Ltd. (2018)

93 order Apr,16, 2018; 167 DTR 0290 has held that that at the time of re-opening of the

Assessment, the Assessing Officer did not provide the reasons recorded in support of the

re-opening notice in its entirety, to the Respondent-Assessee. The entire objects of reasons

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for reopening notice as recorded being made available to an Assessee, is to enable the

Assessing Officer to have a second look at his reasons recorded before he proceeds to

assess the income, which according to him, has escaped Assessment. In fact, non-

furnishing of reasons would make an Assessment Order bad as held by this Court in CIT

v. Videsh Sanchar Nigam Ltd. [2012] 21 taxmann.com 53, 340 ITR 66. In fact, partial

furnishing of reasons will also necessarily meet the same fate i.e. render the Assessment

Order on reopening notice bad. Therefore, on the aboveground itself, the question as

proposed does not give rise to any substantial question of law as it is covered by the

decision of this Court in Videsh Sanchar Nigam Ltd.’s case (supra) against the Revenue in

the present facts.

16. Hon’ble High Court of Bombay in case of CIT vs. Trend Electronics, ITA No. 1867 of

2013 order dated Sep 16, 2015 (379 ITR 0456) has held that where assessee had sought

for reasons for reopening notice from the AO but reasons were not furnished to the assessee

before the completion of the reassessment proceedings then the reassessment proceedings

were bad in law.

17. Hon’ble Supreme Court in Raymond Woollen Mills Ltd. vs. ITO & Ors (1999) 236 ITR

34 (S.C.) held that in determining whether commencement of reassessment proceedings

was valid it has only to be seen whether there was prima facie some material on the basis

of which the department could reopen the case. The sufficiency or correctness of the

material is not a thing to be considered at this stage.

18. ITAT Hyderabad in case of Jasti Rama Rao Vs. Income Tax Officer, ITA No.

630/HYD/2007; Asst. yr. 2000-01 dated Jan 29, 2010 has held that reasons not disclosing

by what process of reasoning the AO held a belief that income has escaped assessment,

AO having not complied with the mandatory requirement of recording the reasons before

issue of notice under s. 148, reassessment is invalid. Reasons recorded by the AO must

disclose prima facie facts which would justify the issuance of the notice and reasons should

be obvious as to how the mind of the AO worked when he issued notice for reopening of

assessment. Reasons do not indicate any material on record which lead to believe that the

assessee had any income from the crusher unit which escaped assessment. Reassessment

based on such notice is invalid.



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19. Hon’ble Calcutta High Court in Indra Co. Ltd. v. ITO (1971) 80 ITR 559 (Cal.) has held

that the ITO cannot seek to reopen an assessment under section 147 on the basis of the

Supreme Court decision in a case where assessee had disclosed all material facts.

20. Hon’ble Bombay High Court in Dr. H. Habicht v. Makhija (1985) 154 ITR 552 (Bom.)

has held that the mere fact that the ITO was not aware of the circular of the board is not

sufficient to reopen the assessment.

21. Hon’ble Guwahati High Court in Assam Co. Ltd vs. UOI & Ors (2005) 275 ITR 609 (Gau)

has held that reopening of assessment on the basis of wrong interpretation of High Court

decision was invalid.

22. Hon’ble Calcutta High Court in S.P. Agarwalla Alias Sukhdeo Prasad Agarwalla vs. ITO

(1983) 140 ITR 1010 (Cal) held that Statements by the third party cannot form the basis. A

mere confessional statement by the third party (who is the lender of the assessee) that he

was the mere name lender and that all his transactions of loans were bogus, without naming

the assessee as one who had obtained bogus loans, would not be sufficient to hold that the

assessee’s income had escaped assessment

23. Hon’ble Supreme Court in S. Narayanappa vs. CIT (1967) 63 ITR 219 (SC) and in

Discount Co. vs. ITO (1961) 59 (SC) 41 ITR 191 has held that information for

reassessment should be based upon good faith and not mere pretense or purely subjective

satisfaction

24. Hon’ble Bombay High Court in Western Outdoor Interactive (P) Ltd. vs. ITO (2006)

286 ITR 620 (Bom) has held that Dept. having taken one of the two possible views in the

matter of calculation of deduction u/ss. 10B and 80HHE assessment cannot be reopened

by taking the other view, more so when the CIT(A) has already quashed the rectification

u/s. 154 which was made on the very same ground.

25. Hon’ble Gujarat High Court in Praful Chunilal Patel vs. M.J. Makwana, ACIT (1999)

236 ITR 832 (Guj); and JCIT & Ors vs. George Williamson (Aassam) Ltd. (2002) 258

ITR 126 (Guj) has held that in the absence of any material before the AO a statement by

an unconnected person did not constitute reason to believe that assessee income had

escaped assessment especially when the assessee had produced all the material and relevant

facts and therefore the reassessment proceedings could not be sustained.

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26. Hon’ble Gujarat High Court in Bakulbhai Ramanlal Patel v. ITO (2011) 56 DTR (Guj.)

212, has held that wherein Division Bench of this Court observed that the assessment

cannot be reopened to verify whether any income chargeable to tax has escaped assessment

and further that reopening of assessment cannot be permitted on vague and nonexistent

reasons for a mere fishing inquiry.

27. Delhi ITAT bench ‘SMC’ in Giggle infotech pvt. Ltd. Vs. ITO, ITA no. 1284/DEL/2018,

Jan 1, 2020 has held that when AO has initiated re-assessment proceeding, merely

recording certain unsubstantiated allegations on the basis of some information received,

same is non-est in law and without jurisdiction.

28. Hon’ble Gujarat High Court in Hotel Oasis (Surat) (P) LTD. v. DCIT (2011) 57 DTR

(Guj) 378, has held that that assessment cannot be reopened merely to make inquiries.

29. Hon’ble High Court of Gujarat in case of Bakulbhai Ramanlal Patel Vs. ITO (2011) 56

DTR 0212, Special Civil Appln. No. 12853 of 2010, Mar 4, 2011 has held that where the

reasons recorded reflect that the matter requires detailed investigation and further

verification, the AO has reason to suspect and not reason to believe that income chargeable

to tax has escaped assessment and therefore, the assumption of jurisdiction by the AO is

invalid and as such, the impugned notice under s. 148 is not sustainable and is quashed.

30. Hon’ble Delhi High Court in Northern Exim (P) Ltd. v. DCIT [2013] 357 ITR 586 (Del)

has held that they have to spell out that (i) there was a failure of the Assessee to disclose

fully and truly all the material facts necessary for the assessment and (ii) the reasons must

provide a live link to the formation of the belief that income had escaped assessment. These

reasons cannot be supplied subsequent to the recording of such reasons either in the form

of an order rejecting the objections or an affidavit filed by the Revenue

31. Hon’ble Delhi High Court in Gulati Fabrication 217 CTR 494 (Del.) has held that re-

assessment proceedings are not permissible in a case where third party admitting to be an

entry operator do not specifically named assessee. He submitted that reasons will clearly

tell that none of the so-called entry operator has mentioned the name of the assessee in any

of the investigation or statement by the Department

32. Hon’ble Calcutta High Court in Berger Paints India Ltd vs. ACIT & Ors (2004) 266 ITR

462 (Cal) held that the assessee is entitled to be supplied with the reasons in the event he

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challenges the notice for reassessment; assessee is not estopped from challenging the

impugned notice after having submitted to the jurisdiction of the officer by filing returns.

33. Hon’ble Supreme Court in ITO, & Ors v. Lakhmani Mewal DAS (1976) 103 ITR 437(SC),

held that wherein it was observed that for reopening of assessment, there must be a rational

connection or relevant bearing on the formation of belief that income chargeable to tax has

escaped assessment.

34. Hon’ble High Court of Bombay in case of Prashant S. Joshi v. ITO & Anrs (2010) 324

ITR 154(Bom) held that while examining the validity of reassessment proceedings, reasons

recorded by the Assessing Officer alone would be relevant and such reasons could not be

supplemented by affidavit.

Change of Opinion

Where during assessment proceedings issue was raised and is decided in favour of the assessee,

reassessment proceedings u/s 147 will be hit by the principle of change in opinion. Some of the

judicial pronouncements on the same are as follows:

1. Hon’ble Delhi High Court in the case of CIT vs Usha International Ltd [TS-29-HC-

2012(DEL) dated 21.08.2012 has observed that the reassessment proceedings in case the

assessment order itself records that the issue was raised and is decided in favour of the

assessee. Reassessment proceedings will be hit by the principle of change in opinion. And

Reassessment shall also be invalid in case of an issue or query is raised and answered by

the assessee in the original assessment proceedings but thereafter the AO doesn’t make any

addition in the assessment order. In such a situation, it should be accepted that the issue

was examined but the AO didn’t find any ground or reason to make additions or reject the

stand of the assessee. He forms as opinion the reassessment will be invalid because the AO

had formed an opinion in the original assessment, though he had not recorded the reasons.

2. Hon’ble Delhi High Court in the case of CIT vs. Kelvinator of India Ltd. (2002) 256

ITR 1 (Del) (FB) has held that amendment as per Direct Tax Laws (Amendment) Act,

1989 w.e.f. April 1, 1989 as also of sec. 148 to 152 have been elaborated in Circular No.

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549, dated October 31, 1989. A perusal of clause 7.2 of the said circular makes it clear that

the amendments had been carried out only with a view to allay fears that the omission of

the expression reason to believe from sec. 147 would give arbitrary power to AO to reopen

past assessments on a mere change of opinion i.e. a mere change of opinion cannot form

basis for reopening a completed assessment.

3. Hon’ble Delhi High Court in the case of Jagdish Prashad Gupta vs. JCIT & Anr. (2006)

283 ITR 585 (Del) has held that Assessee having already filed his objections to the

impugned notice u/s. 148 contending that it is a case of change of opinion and the issuance

of notice was not justified, without making out a case of lack of jurisdiction the objections

are to be considered by the competent authority and not in writ proceeding.

4. Hon’ble Bombay High Court in the case of M.J. Pharmaceuticals Ltd. vs. CIT (2008)

297 ITR 119 (Bom) has held that issue regarding addition of amount of deferred taxation

for computing book profits u/s. 115JB having been raised by the AO at the time of original

assessment u/s. 143(3) and no addition having been made by AO on the account on being

satisfied with the explanation of the assessee reopening of assessment on the very same

issue suffered from change of opinion in the absence of any fresh material hence invalid.

5. Hon’ble Bombay High Court in the case of Yuvraj vs. Union of India (Bom.) (2009) 315

ITR 84 has held that points not decided while passing assessment order under section

143(3) is not a case of change of opinion. Assessment reopened validly.

6. Hon’ble Madras High Court in the case of Apollo Hospital Enterprises Ltd. vs. ACIT

(2006) 287 ITR 25 (Mad.) has held that AO having granted benefit of S. 72A to the

assessee in respect of unabsorbed depreciation of the amalgamating company after the

assessee had furnished the relevant particulars and the AO was satisfied about the eligibility

of the assessee for the benefit of S. 72A are not applicable to the facts of the case amounted

to a case of change of opinion and, therefore, reassessment proceedings cannot be

sustained.

7. Hon’ble Supreme Court in the case of CIT vs. Former Finance (2003) 264 ITR 566 (SC)

has held that Change of opinion is bad in law.

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Reassessment in Pursuance of an Order/Direction

Where reassessment proceedings are opened in pursuance of an order or direction, the re-opening

is invalid. Some of the judicial pronouncements on the same are as follows:

1. Hon’ble Bombay High Court in the case of CIT vs. Moduri Rajaiah Gari Kishtaiah (1980)

123 ITR 494 (AP) has held that the assessment or reassessment made by virtue of an order

has to be confined to item in respect of which such finding or direction is given, it is not

open to the AO to deal with other item of escaped income.

2. Hon’ble Supreme Court in the case of K.M. Sharma vs. ITO (2002) 254 ITR (SC) has held

that direction to make an assessment or reassessment which has become time barred is not

valid.

3. Hon’ble Bombay High Court in the case of Lotus Investments Ltd. vs. Asst. CIT (2007)

288 ITR 459 (Bom) has held that remarks that reassessment proceedings could be taken.

Not a finding or direction within meaning of section 150. Approval of Commissioner not

obtained before issue of notice of reassessment - notice not valid.

Reason to Believe – Subsequent Years

Where reassessment proceedings are opened in pursuance some material from subsequent years,

the same cannot form the basis of a valid re-opening. Some of the judicial pronouncements on the

same are as follows:

1. Hon’ble Delhi High Court in the case of CIT vs. Gupta Abhushan (P) Ltd. (2008) 16 DTR

(Del) 76 has held that detection of excess stock or unaccounted expenditure as renovation

of business premises at the time of survey u/s. 133A in a subsequent year, could not

constitute reason to believe that such discrepancies existed in earlier years also and,

therefore, reopening of assessments for those years on the basis of aforesaid reason to

believe was not valid.

2. Hon’ble Bombay High Court in the case of Multiscreen Media Private Limited v. UOI &

Anrs (2010) 324 ITR 54(Bom.), has held that on the basis of additional material in form

of subsequent assessment year, if the Assessing Officer issued notice on the ground of

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reason to believe that income chargeable to tax has escaped assessment, such notice cannot

be stated to be invalid. The Court relied on the decision of the Apex Court in case of Ess

Ess Kay Engineering Co. P. Ltd. v. CIT reported in (2001) 247 ITR 818 (SC).

3. Hon’ble Allahabad High Court in the case of Dass Friends Builders P. Ltd. v. DCIT

(2006) 280 ITR 77(All), held that to contend that reopening of assessment would not be

permissible on the basis of findings of earlier assessment years.

Disposal of the Objection Raised by Assessee

Reassessment framed by the assessing officer without disposing of the primary objection raised

by the assessee to the issue of reassessment notice issued by him was liable to be quashed. The

same was held in various cases including:

1. GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC)

2. Paresh Kumar Jain Vs. ITO, ITA No. 477/JP/2019 dated Mar 20, 2020.

3. MCM Exports vs. DY CIT (2010) 323 ITR 331 (Guj).

4. Premier Ltd vs. Dy CIT WPN o 2340 dt 22-10-2008 (Bom).

Non-Service of Notice u/s 143(2)

If the AO fails to issue the notice under Section 143(2) of the Income Tax Act, it would result in

the entire proceedings, including any order of assessment, to be quashed. Some of the judicial

pronouncements on what constitutes non service of notice u/s 143(2) are as follows:

1. Hon’ble Supreme Court in case of ACIT & Anr. Vs. Hotel Blue Moon, civil appeal no.

1198 of 2010 Feb 2, 2010 has held that if the AO, for any reason, repudiates the return

filed by the assessee in response to a notice under s. 158BC(a), he must necessarily issue

notice under s. 143(2) within the time prescribed in the proviso to s. 143(2); omission on

the part of the assessing authority to issue notice under s. 143(2) cannot be a mere

procedural irregularity and the same is not curable.

2. Hon'ble Delhi High Court in the case of PCIT vs. Jai Shiv Shankar Traders Pvt. Ltd.

(2016) 383 ITR 448 (Del) has held that failure by the Assessing Officer to issue a notice

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to the assessee u/s 143(2) of the Act subsequent to 16th December, 2010 when the assessee

made a statement before the Assessing Officer to the effect that the original return filed

should be treated as a return pursuant to a notice u/s 148 of the Act is fatal to the order of

the reassessment.

3. ITAT Bangalore Bench in ITO & ANR. Vs. P.N. Krishnamurthy & ANR., ITA no.

1590/bang/2018 (co no. 41/bang/2019), Apr 27, 2020 has held that before framing any

assessment, there should be valid notice u/s 143(2).

4. Delhi ITAT in case of Rishav Prakash Jain Vs. ITO, New Delhi, ITA no. 2061/Del/2012,

dated 18.02.2019 has held that since, in the instant case, admittedly, no notice u/s 143(2)

of the Act was issued and served on the assessee after the return in response to notice u/s

148 of the Act was filed by stating that the original return filed may be treated as return

filed in response to notice u/s 148, therefore, the reassessment order passed by the

Assessing Officer is not sustainable in law.

5. Hon’ble Allahabad High Court in the case of ACIT v. Greater Noida Industrial

Development Authority 379 ITR 14 has held that it is mandatory requirement for initiation

of assessment proceedings to issue notice u/s. 143(2) of the Act and in the absence of issue

of notice u/s.143(2) the assessment made u/s. 143(3) r.w.s. 147 is invalid and void ab-initio.

6. Hon'ble Calcutta High Court in Principal CIT vs. Oberoi Hotels Pvt. Ltd., ITA no.152 of

2015 & GA no. 3671 of 2015, Jun 22, 2018 has held that issuance of notice u/s 143(2) of

Act is mandatory if AO seek not to accept any part of return as furnished by assessee or

make assessment order contrary thereto.

7. ITAT Vishakapatnam in ACIT & ANR. Vs. Ande Sri Rama Murthy & ANR. ITA No.

237/Viz/2019 (Cross Objection no. 70/Viz/2019), Dec 31, 2019 has held that Section

292BB comes to the rescue of the department only after issue of notice u/s 143(2).

8. Hon'ble Delhi High Court in the case of KLM Royal Dutch Airlines vs. ACIT (2007) 292

ITR 49 (Del) has held that proceeding u/s. 147 cannot be initiated once return is filed by

the assessee and no assessment is finalized by AO; since inquiries had been initiated u/s.

143(2) it became mandatory that they should have culminated in an order u/s. 143(3).

9. Hon'ble Madras High Court in the case of Bapalal & Co. Exports vs. JCIT (2007) 289

ITR 37 (Mad) has held that notice u/s. 143(2) cannot be issued after the expiry of 12 months

CA. PRAMOD JAIN




from the end of the month in which the return was furnished reopening of assessment

without any fresh material and without assigning any reason cannot be sustained.

10. Kolkata ITAT in case of DCIT Vs. M/s Sutco Bearings India Pvt. Ltd., ITA no.

1253/Kol/2015, dated 22.09.2017 has held that there was no valid service of notice

u/s.143(2) by way of affixation. Since in the instant case, the department has not been able

to demonstrate that notice u/s.143(2) was served within the statutory time limit, the

assessment made on the basis of such invalid notice could not be treated to be valid

assessment and, hence, such assessment order deserves to be treated as null and void and

liable to be quashed.

11. Hon'ble Madras High Court in the case of CIT vs. C. Palaniappan, (appeal) nos. 1143 to

1146 of 2005, Feb 11, 2006 held that completion of reassessment without issue of notice

under s. 143(2) within twelve months is not valid.

12. Hon'ble Delhi High Court in the case of Principal CIT v. Silver Line in ITA.No.578 to

581,585, 587 and 588/2015 dated 04.11.2015 has held that decision of the ITAT in holding

that the re-assessment order cannot be passed without complying with the mandatory

requirement of notice being issued by the Assessing Officer to the assessee u/s. 143(2) of

the Act and therefore the re-assessment order was legally unsustainable.

13. Hon’ble Bombay High Court in the case of ACIT v. Geno Pharmaceuticals Ltd [214

Taxmann 83] dated Feb 14, 2013 held that notice u/s. 143(2) is mandatory and in absence

of service of such notice Assessing Officer cannot proceed to make an inquiry on return

filed in compliance with notice issued u/s. 148 of the Act.

14. ITAT Mumbai in case of Ramesh Salecha HUF, ITA no. 3312/Mum/2015. Dated

25.10.2017 has held that since the Revenue could not produce before us any evidence to

show that notice u/s. 143(2) has been issued or served to the assessee the re-assessment

made u/s. 143(3) r.w.s. 147 is void ab-initio in view of the above decisions of the Hon'ble

Allahabad High Court in the case of ACIT v. Greater Noida Industrial Development

Authority (supra) and the Hon'ble Delhi High Court in the case of ACIT v. Geno

Pharmaceuticals (supra). Thus, respectfully following the said decisions we hold that the

re-assessment made u/s. 143(3) r.w.s. 147 of the Act is legally unsustainable. Thus, quash

CA. PRAMOD JAIN




the re-assessment order passed by the Assessing Officer u/s. 143(3) r.w.s. 147 of the Act

dated 31.01.2014 for the Assessment Year 2011-12 under appeal.

15. Kolkata ITAT in case of DCIT Vs. M/s Sutco Bearings India Pvt. Ltd., ITA no.

1253/Kol/2015, dated 22.09.2017 held that there was no valid service of notice u/s.143(2)

by way of affixation. Since in the instant case, the department has not been able to

demonstrate that notice u/s.143(2) was served within the statutory time limit, the

assessment made on the basis of such invalid notice could not be treated to be valid

assessment and, hence, such assessment order deserves to be treated as null and void and

liable to be quashed.

16. Hon’ble Delhi High Court in the case of DIT Vs Society for Worldwide Inter Bank

Financial Telecommunications (2010) 323 ITR 249 has held that in the memorandum of

appeal, the Revenue had stated that the return was filed by the assessee on March 27, 2000

and the notice under section 143(2) was served upon the authorized representative of the

assessee by hand when the authorized representative of the assessee came and filed return

and that the date of the notice was mistakenly mentioned as March 23,2000. Even if it was

true, the notice was served on the authorized representative simultaneously on his filing

the return which clearly indicated that the notice was ready even prior to the filing of the

return. The provisions of section 143(2) make it clear that the notice could only be served

after the Assessing Officer had examined the return filed by the assessee. Thus, even if the

statement of the Assessing Officer was taken at face value, it would amount to gross

violation of the scheme of section 143(2) of the Act.

Scope of Powers

1. Hon’ble Supreme Court in CIT vs. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297

(SC) held that since the proceedings under section 147 are for the benefit of the revenue

and are aimed at gathering the escaped income of the revenue, the same cannot be allowed

to be converted as revisional or review proceedings at the instance of the assessee, thereby

making the machinery workable.

CA. PRAMOD JAIN




2. Hon’ble Bombay High Court in K Sudhakar S. Shanbhag vs. ITO (2000) 241 ITR 865

(Bom.) held that proceeding under section 147 are for the benefit of the revenue and not

the assessee and hence the assessee cannot form the be permitted to convert the

reassessment proceedings as his appeal or revision in disguise and seek relief in respect of

items earlier rejected, or claim relief in respect of items not claimed in the original

assessment proceedings unless relatable to the escaped income and reagitate concluded

matters. Allowance of such a claim in respect of escaped assessment in the case of

reassessment has to be limited to the extent to which they reduce the income to that

originally assessed. Income for the purpose of reassessment cannot be reduced beyond the

income originally assessed.

3. Hon’ble Delhi High Court in Vipin Khanna vs. CIT (2001) 251 ITR 782 (Del.) has held

that Assessing Officer cannot launch an inquiry on grounds not covered in reassessment

notice. Where the Assessing Officer initiated proceedings for reassessment on the only

ground that the assessee had claimed excess depreciation by adopting a higher rate as

against the normal rate, he would not be justified in launching inquiry into issues which

were not connected with the claim for depreciation. A letter issued to the assessee requiring

the assessee to furnish information on issues in respect of which there was no allegation of

any escapement or under assessment of income either in the reasons recorded or during the

course of proceedings under the section would tantamount to reviewing the whole

assessment which is not permissible. The letter was therefore vacated.

4. Hon’ble Bombay High Court in CIT vs. P. Munercherjii and Co. (1987) 167 ITR 671

(Bom.) held that dealing with the powers of 263, the court held that when the

Commissioner (A) passes the order the entire order of AO, merges with the order of CIT

(A), hence 263 cannot be initiated in respect of any other issue. The same principle will

apply to reassessment under section 147 of the Act.

CA. PRAMOD JAIN




Other Pronouncements

a. Enhancement in Appeal

• Hon’ble Supreme Court in CIT vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC)

has held that in appeal against the order under section 147, the Deputy Commissioner

(Appeals) cannot enhance the assessment by adding new items of escaped income.

b. Order set aside by the Commissioner

• Hon’ble Bombay High Court in Ador Technopark Ltd. vs. DCIT (2004) 271 ITR 50

(Bom.) has held that when the assessment is set aside by the commissioner under

section 263, no fresh order was passed, issue cannot be said to be escaped assessment,

hence the reassessment notice held to be bad in law, void ab initio and illegal.

c. Disclosure in balance sheet

• Hon’ble Supreme Court in CIT vs. Corporation Bank Ltd. (2002) 254 ITR 791 (SC)

has held that disclosure in balance sheet also amounts to disclosure.

d. Direction of the Higher Authorities

• N. Seetharaman vs. CIT (2008) 298 ITR 210 (Mad) held that Revisional authority

having directed the AO to adjudicate specific issues which were addressed and

examined by him, assessment made by the AO on a higher total income by assuming

more powers than that of the revisional authority is patently illegal and without

jurisdiction.

• CIT vs. Greenworld Corporation (2009) 314 ITR 81 (SC). held that the assessing

officer for the assessment year 2000-01 recorded a specific note in the assessment order

which indicated that the assessment order was passed under the dictates of the

Commissioner. The Supreme Court in the challenge to the reopening for the same

assessment year held that the assessment order passed on the dictates of the higher

authority being wholly without jurisdiction, was a nullity. Therefore, with a view to

complete the justice to the parties, the Supreme Court directed that the assessment

proceedings should be gone through again.

e. AO should be same

CA. PRAMOD JAIN




• Hon’ble Gujarat High Court in Hyoup Food and Oil Industries Ltd. vs. ACIT (2008)

307 ITR 115 (Guj.) held that Assessing officer recording reasons for assessment and

assessing officer issuing notice under section 148 must be the same person. Successor

assessing officer cannot issue notice under section 148 on the basis of reasons recorded

by predecessor assessing officer. Notice issued invalid and deserves to be quashed.

I thank Ms. Princy Sharma and Adv. Mukul Gupta in helping me to compile this document. I hope

this document would be of use to you.

Best Regards

CA. Pramod Jain

[email protected]

+91 9811073867

(Disclaimer: Though full efforts have been made to state the interpretations and case laws

correctly, yet the author is not responsible / liable for any loss or damage caused to anyone due to

any mistake / error / omissions)

ABOUT CA. PRAMOD JAIN

He is a commerce graduate [B. Com (H)] from Shri Ram College of Commerce (SRCC). He is a

fellow member of the Institute of Chartered Accountants of India (FCA). He is a fellow member

of the Institute of Companies Secretaries of India (FCS). He is a fellow member of the Institute of

Cost Accountants of India (FCMA). He is a Bachelor of Law (LL.B). He has qualified Information

System Auditor [DISA (ICAI)]. He is also a member of All India Management Association

(MIMA). He is also an Insolvency Professional (IP). He has also passed the Proficiency Self-

Assessment Test for Independent Director’s Databank. He has passed certification course NCFM

of National Stock Exchange of India (NSE). He has also done certification course CAAT of ICAI.

He has also done post qualification certificate course on Valuation of ICAI.

He has been elected as Central Council Member of ICAI for the period 2019 – 2021. Apart from

being member in more than 25 committees / groups / directorates of ICAI, he is Chairman of

mailto:[email protected]

CA. PRAMOD JAIN




Valuation standards Board and CSR Committee of ICAI for year 2020-21, member of ICAI

Disciplinary Committee Bench 1 for year 2020-21 and Vice Chairman of Direct Tax Committee

for year 2019-20 and 2020-21. He has been nominated as member of Quality Review Board (QRB)

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He is the conceptualizer of the portal www.expertspanel.in which is a one stop solution for all

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He is delivered more than 1000 lectures and articles on various topics of Income Tax, Corporate

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Notice u/s 148 of income tax act 1961 - Lunawat

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