By TIOL News Service

CHENNAI, OCT 12, 2018: THE ISSUE BEFORE THE BENCH IS - Whether since issuance of the notice u/s 148 is only initiation of proceedings for reopening of the assessment already finalised, and not the final order, mere non quoting of the reasons formed by the AO in such notice will not vitiate entire proceedings. AND THE VERDICT IS YES.

Facts of the case

THE grievance of the assessee was that the returns filed by it had been assessed initially u/s 143(1) and again as a special case u/s 143(3) by way of complete scrutiny of accounts. Therefore, according to the assessee, under those circumstances, the completed assessments were sought to be reopened after a lapse of six years without any basis or reasons by the AO.

The reasons stated by the AO to initiate reopening of assessment was that the assessee had received money from South Asia Entertainment Holdings Ltd in the name of share subscription along with share premium of Rs.203.98 Cr. According to the AO, since the chairman and founder of the Sun Group, Mr Kalanithi Maran and his wife, Mrs.Kaveri Kalanithi Maran were allotted shares only at Rs.10 per share without any premium, the share premium invested by M/s.South Asia Entertainment Holding Ltd was clearly excess value received and had to be treated as income of the Assessee and the same should be brought to tax. It was also contended that such high value of share premium was not a genuine transaction details of which was not fully disclosed by the assessee and therefore, such transaction was required to be assessed to tax u/s 68.

However, the contention of the assessee was that the AO had not disclosed the details from where share premium details were derived from. Therefore, according to the assessee, such non-disclosure of the source would clearly establish the fact that, such details were readily available in the financials and formed part of records during the course of original assessment and there were no new materials which came to the possession of the AO after completing and accepting the assessment. According to the assessee, the reason for reopening of the assessment was nothing but mere 'change of opinion' without any new material factors.

The High Court held that,

++ the issuance of the notice under Section 148 of the Act is nothing but initiation of the proceedings for reopening of the assessment already finalised. Undoubtedly, such reopenings are to be done cautiously and the reasons for reopening is also mandatory. In the absence of any substantial reason, the Assessing Officer cannot reopen the assessment which was closed long back. Mere issuance of notice cannot be construed as a final order. Initiation of the proceedings are to be construed as informations to the Assessee and can never be concluded as a final proceedings. Thus, the issuance of notice is an information provided to the Assessee, enabling him to avail of all further opportunities contemplated under the Statutes. Thus, the Court cannot come to the conclusion that non quoting of the reasons formed by the Assessing Officer in the notice will vitiate the entire proceedings. If such a proposition is adopted, then it would be certainly difficult for the Executives to reopen the cases as per the provisions of the Act. The procedures are contemplated under the Act, enabling the Assessee to avail the opportunity and defend their case in accordance with law;

++ the purpose of the Income Tax Act, more specifically, Sections 147 and 148 of the Act, is to ensure that the Assessees, who have suppressed the fact at the time of filing of their income tax returns or if the Department is in possession of certain new materials in respect of the assessment of a particular year, then the Assessee must be informed about the decision to reopen the assessment and after such information is provided, the procedures must be followed for the purpose of concluding the reassessment. In the present cases on hand, the proceedings have not reached its finality. It is only an initiation of proceedings under Sections 147 and 148 of the Act. The very initiation cannot be interfered with by the Courts in a routine manner. Judicial review against such initiations under the provisions of the Act, is certainly limited. The Court cannot intervene on such initiations in a routine manner in the absence of any valid and acceptable legal grounds. Thus, the exercise of judicial review in such matters regarding the initiation of the proceedings are to be exercised cautiously;

++ the assessee has to exhaust the remedy provided under the Act, this Court cannot entertain the writ petition, when there is a remedy available to the aggrieved person under the Statute. The High Court cannot usurp the power of the Appellate Authorities in respect of the adjudication of the merits and the demerits of the matter. The High Court cannot appreciate the mixed question of law and facts, at the initial stage, when a notice under Section 148 of the Income Tax Act, 1961 was issued to the Assessee for reopening the assessment. Such complex facts and circumstances are to be adjudicated by producing documents and by adducing evidences by the parties concerned. Such an exercise can never be done by the High Courts under Article 226 of the Constitution of India. Thus, entertaining a writ petition at the notice stage, must be sparingly and cautiously done. The High Courts must be restrained from entertaining such writ petitions when the very notice itself is under challenge.

(See 2018-TIOL-2144-HC-MAD-IT)