Reopening of IT assessment by officer having No Jurisdiction: Madras HC invalidates proceedings

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The Madras High Court invalidated the reassessment procedures on the basis that the reopening of the income tax assessment was conducted by an officer without jurisdiction.

The division bench of Justice R. Mahadevan and Justice J.Sathya Narayana Prasad has observed that the ACIT Mumbai, who recorded the reasons for reopening the assessment, has no jurisdiction over the appellant, to issue a notice dated March 23, 2018. Though the files pertaining to the reassessment proceedings of the appellant were transferred, the ACIT Chennai has no authority to continue the reassessment proceedings. Hence, the notice issued by him was also held to be invalid.

The appellant was an assessee on the file of the ACIT at Chennai. For the assessment year 2011-2012, the assessee filed her return of income on April 19, 2012, admitting an income of Rs.11,60,000/-, which was processed by the Assessing Officer under Section 143 (1) of the Income Tax Act, 1961.

After a period of five years, the assessee received a notice dated March 28, 2018 issued by the ACIT Mumbai under Section 148 purportedly to re-assess the income tax return submitted by her for the assessment year 2011-2012.

In response, the assessee submitted a reply dated April 26, 2018, stating that the ACIT Mumbai has no jurisdiction to issue a reassessment notice. Therefore, the assessee requested to drop the reassessment proceedings. Subsequently, the ACIT Mumbai transferred the files pertaining to the appellant to the ACIT Chennai.

The ACIT Chennai continued the reassessment proceedings by issuing a notice dated December 12, 2018 directing the appellant to appear and file a return of income along with supportive documents.

The assessee was aggrieved by the notices and filed the appeal.

The department contended that the appellant had received an amount towards her share in respect of the property in Mumbai from a developer within the jurisdiction of the ACIT Mumbai. Therefore, a notice under section 148 of the Act was issued by the ACIT Mumbai. When the appellant raised an issue of jurisdiction, the entire materials collected by the ACIT Mumbai were sent to the ACIT Chennai for continuing the reassessment proceedings. Accordingly, the ACIT Chennai seized of the reassessment proceedings within whose jurisdiction the appellant resides.

The single judge observed that the notice initially issued by the ACIT Mumbai against the appellant through improper, need not be set aside. The proceedings were subsequently transferred to the Income Tax Authorities at Chennai; the commencement of the proceedings by issuing a notice dated December 14, 2018 in no way prejudiced the appellant. The appellant was at liberty to file her objections and avail herself of an opportunity of hearing. The court dismissed the writ petition.

The appellant challenged the order of the single judge bench.

The appellant contended that the ACIT Mumbai lacked jurisdiction to begin reassessment proceedings by issuing the notice dated March 28, 2018. The ACIT Mumbai was aware that the appellant was not residing within the jurisdiction of the ACIT Mumbai. After a period of five years from the completion of the original assessment for the assessment year 2011-2012, the reassessment proceedings were initiated. It alleged that some of the income was not disclosed by the appellant truly and fully. However, there was no income omitted to be included by the appellant for assessment during the assessment year in question. Therefore, the reassessment proceedings ought not to have been initiated by the ACIT Mumbai against the appellant.

The court held that the notice issued by the ACIT Mumbai under section 148 as well as the consequential notice issued by the ACIT Chennai cannot be allowed to be sustained.

The court held that the single judge bench erred in directing the ACIT Chennai to continue the reassessment proceedings.

“In such circumstances, there is no requirement for this court to go into the other issue based on the factual matrix projected by the appellant, i.e., whether the appellant has disclosed fully and truly all the material particulars that are necessary for assessment for the relevant assessment year,” the court said.

Case Title: Charu K. Bagadia Versus Assistant Commissioner of Income Tax-23(2), Mumbai

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