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Monday, 23 May 2016 15:55

Notice u/s 148 for Reassessment - Fresh Tangible Material Not Required When the Initial Return was Processed u/s 143(1) - Delhi High Court

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Notice u/s 148 Notice u/s 148

Notice of Reopening u/s 148 where the initial Return is Processed u/s 143(1) 

In a case where the initial return is processed under Section 143 (1) of the Act and an intimation is sent to the Assessee, the reopening of such assessment no doubt requires the AO to form reasons to believe that income has escaped assessment, but such reasons do not require any fresh tangible material


1. The challenge in this writ petition under Article 226 of the Constitution of India is to the impugned notice dated 25th June/6th July 2001 issued by the Deputy Commissioner of Income Tax Circle 16 (2), New Delhi (Respondent herein) under Section 148

2. A further challenge was also laid to the consequent notice dated 26th November 2001 issued by the Income Tax Officer, Ward – 36(2), New Delhi under Section 143(2)/142(1)

3. By an order dated 26th November 2002, the Delhi High Court directed that the proceedings in terms of the abovesaid notice under Section 148 of the Act may continue before the Assessing Officer („AO‟) but no final order shall be passed during the pendency of the writ petition

4. The Petitioner was earlier a partner of M/s. Rangwala Enterprises. The other partner was Ms. Ritu Rangwala

5. The business of the firm was taken over by the Petitioner as a sole proprietor on 1st December 1998 as a going concern with all its assets and liabilities

6. On 1st December 1998 the Petitioner wrote to the AO regarding retirement of the other partner, Ms. Ritu Rangwala, from the partnership firm. It is stated that from that date the firm was converted into a proprietorship with the Petitioner as sole proprietor

7. For the AY 1999-2000 the Petitioner filed her return on 21st December 1999 indicating that there was a net loss of Rs. 2,17,100. The Petitioner claimed refund of Rs. 1,82,706. The audited accounts and statement of total income and tax audit report of the Chartered Accountant („CA‟) under Rule 6G (1) (b) in Form 3CB was furnished with the return

8. Simultaneously, a separate return was filed by the firm M/s. Rangwala Enterprises on 21st December 1999 for the period 1st April 1998 to 30th November 1998 relating to AY 1999-2000 showing a loss of Rs. 6,25,770. The said return was filed along with the statement of accounts, audit report etc

9. The Petitioner‟s return was processed under Section 143 (1) of the Act by an order dated 29th May 2001 by the AO, Circle 16 (2), New Delhi. In the said order/intimation, the loss declared by the Petitioner in the return along with its statement of accounts, computation sheet, audit report etc. was accepted and the amount as claimed by the Petitioner was refunded to the Petitioner

10. As far as the firm‟s return was concerned, it was processed by the Deputy Commissioner of Income Tax (DCIT), Circle 16 (2). An order/intimation dated 29th May 2001 was sent accepting the return. The Petitioner states that since she had a half share in the profits and losses of the said firm, the Petitioner‟s share of loss worked out to Rs. 3,12,885

11. On 26th June 2001, the DCIT, Circle 16 (2) issued the impugned notice to the Petitioner under Section 148 of the Act stating that he had reasons to believe that the Petitioner‟s income chargeable to tax for the AY in question has escaped assessment and that he proposed to reassess the income

12. The Petitioner stated that she received the said notice on 10th July 2001 and filed a return on 31 st July 2001 under protest. Along with the return, the Petitioner sent a letter dated 31st July 2001 to the AO, i.e., DCIT, Circle 16 (2) challenging the initiation of the proceeding under Section 147/148 of the Act as being without jurisdiction and bad in law. The AO was also requested to supply a copy of the reasons under Section 148 (2) of the Act for reopening the assessment

13. The Petitioner states that her authorized representative („AR‟), i.e., Mr. Sanjeev Gupta, CA visited the office of the AO, i.e., DCIT on several dates beginning with 11th October 2001 up to 20th December 2001 for procuring copy of the reasons recorded by the AO for issuance of the notice under Section 148 of the Act. However, the request was not acceded to. The Petitioner states that she had also sent reminders on 19th November 2001 and 10th December 2001 for supply of reasons recorded but the reasons were not supplied

14. On 20th December 2001 the Petitioner‟s AR was orally instructed by the AO to make an application to inspect the file. On inspecting the file, the AR noted the reasons for reopening the assessment

15. In response to the letter dated 10th December 2001 of the Petitioner challenging the re-opening of assessment under Section 148 of the Act, the Income Tax Officer („ITO‟) Ward 36 (2) wrote a letter dated 21st December 2001 to the Petitioner setting out the reasons considered by the AO and thereby rejecting the challenge

16. The letter further stated that from the details furnished by the Assessee in the final account for the two periods, it was seen that for the period 1st April 1998 to 30th November 1998 there was a loss of Rs. 3,12,885 which was wrongly claimed as a deduction from the property income in view of Section 10 (2A) of the Act

17. It is submitted by Mr. Prem Nath Monga, learned counsel appearing for the Petitioner that Section 148 was not a substitute for Section 143 (2) of the Act in terms of which a return had to be scrutinized and a decision given thereon by the AO within one year from the end of the month in which the return was filed under Section 139 or pursuant to the notice under Section 142 (1) of the Act. It is further submitted that no reasons were recorded before issue of notice on 26th June 2001. The reasons were recorded on 6th July 2001. According to the Petitioner, this is a mandatory requirement of Section 148 (2) of the Act and failure to do so rendered the entire proceedings invalid and void ab initio

18. Mr. Monga submitted that the intimation under Section 143 (1) of the Act was as much an assessment as regular assessment of a return that has been picked up for scrutiny under Section 143 (3) of the Act. It is further submitted by Mr Monga that there was no tangible material that the AO came across to justify forming 'reasons to believe' that income had escaped assessment. The only material referred to were the statement of accounts, balance sheet, audited report etc. which in any way were available with the AO in respect of both the Petitioner and the firm for the AY in question at the time of issuance of the order/ intimation under Section 143 (1) of the Act. The reasons recorded were therefore at best a change of opinion based on suspicion and surmises

19. It is further submitted by Mr Monga that the notice under Section 148 of the Act cannot be issued for the purpose of verification of the material already available with the authorities

20. Countering the above submissions it is pointed by Mr. Dileep Shivpuri, learned counsel for the Revenue that the recent decision of the Supreme Court in Deputy Commissioner of Income-tax v. Zuari Estate Development & Investment Co. Ltd. (2015) 373 ITR 661 (SC) settled the legal position that where the return had been processed under Section 143 (1) of the Act, there was no „assessment‟ as such and therefore, the question of change of opinion did not arise

21. After hearing both parties Honb. High Court dismissed the writ petition and decided the issue in favour of Revenue 


In light of the above legal position, when the case at hand is examined, it is seen that the return filed having been processed under Section 143 (1) of the Act, there was no occasion for the AO to form an opinion on whether that was any escapement of income to begin with. A perusal of reasons to believe reveals that the AO on going through the return subsequently found that the Assessee had showed a loss of the firm, M/s. Rangwala Enterprises at Rs. 3,12,885. A loss of Rs. 12,94,055 of the firm was converted into a loss of the proprietary concern. Thus it was after comparing the profit and loss account for the two periods, i.e., prior to the Assessee taking over the partnership firm and thereafter it was noticed that the Assessee had wrongly claimed share of loss from the firm which was impermissible in terms of Section 10 (2A) of the Act. The AO was of the view that the Assessee had 'artificially and with an ulterior motive' reduced the income from the property by setting off loss accruing to the firm. Apart from this the P&L account of the Assessee showed that she has claimed a loss on account of the bad debt of the firm.

The central submission of Mr. Monga, learned counsel for the Assessee that the above reason to believe had to be based on some new tangible material cannot be accepted in light of the legal position explained hereinbefore. At the same time, the Court does not consider to express any opinion at this stage on the AO's reason to believe except to hold that it cannot be said to have been based on a mere "change of opinion‟. The other objections of the Assessee to the reopening are left open to be urged before the AO in the assessment proceedings in accordance with law.

Cases Referred to

1. CIT v. Kelvinator of India Limited (2010) 187 Taxman 312 (SC)

2. CIT v. Orient Craft Limited (2013) 354 ITR 536 (Del)

3. Mohan Gupta (HUF) v. CIT (2014) 366 ITR 115 (Del)

4. CIT v. Batra Bhatta Company (2010) 321 ITR 526 (Del)

5. CIT-V v. Times Business Solution Ltd. (2013) 354 ITR 25 (Del)

6. Asia Satellite Telecommunications Co. Ltd. v. ADIT, International Taxation (2013) 29 Taxmann.com 317 (Del)

7. DCIT v. Zuari Estate Development & Investment Co. Ltd. (2015) 373 ITR 661 (SC)

8. ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 (SC)

9. Adani Export v. ACIT (1999) 240 ITR 224 (Guj)

10. Apogee International Limited v. Union of India (1996) 220 ITR 248 (Del)

11. A.N. Lakshman Shenoy v. ITO (1958) 34 ITR 275 (SC)

12. S. Narayanappa v. CIT (1967) 63 ITR 219 (SC)

13. Sheo Nath Singh v. Appellate Assistant CIT (1971) 82 ITR 147 (SC)

14. ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)

15. CIT v. Atul Kumar Swami (2014) 52 Taxmann.com 47 (Del)

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