ITAT Cuttack Invalidates Reassessment Under Section 148 When Original Grounds for Reopening Not Pursued – Analysis of Arpita Jena Case
Overview of the Tribunal Decision
The Income Tax Appellate Tribunal, Cuttack Bench, delivered a significant ruling in the matter of Arpita Jena Vs ITO, pertaining to Assessment Year 2016-17, wherein the entire reassessment proceedings initiated under Section 147/Section 148 of the Income Tax Act 1961 were set aside. The Tribunal held that when the Assessing Officer fails to make any addition based on the specific reasons that formed the foundation for reopening the case, the reassessment proceedings cannot be sustained and must be declared invalid.
Factual Matrix of the Case
The assessee in this matter had undertaken a property transaction during the financial year 2015-16. The property was acquired by the assessee in September 2015 for a total consideration of Rs.79,00,000 and subsequently disposed of on 7th December 2015 for Rs.75,00,000. The transaction resulted in a short-term capital loss of Rs.4,00,000 for the assessee.
Since the assessee's total income for the relevant assessment year did not exceed the basic exemption threshold, no return of income was filed by the assessee for Assessment Year 2016-17.
Notice Under Section 148A(b)
The Income Tax Officer, Ward 3(1), Bhubaneswar, issued a notice dated 09/03/2023 under clause (b) of section 148A of the Income-tax Act,1961, bearing DIN & Notice No: ITBA/AST/F/148A(SCN)/2022-23/1050561078(1). The notice was addressed to the assessee requiring her to show cause as to why a notice under Section 148 should not be issued.
Grounds Stated in the Annexure
The annexure attached to the show-cause notice specified that according to information available with the department, the assessee had sold immovable property for Rs.75,00,000 during Financial Year 2015-16 relevant to Assessment Year 2016-17. However, the assessee had not filed the Income Tax Return for the said assessment year. The notice explicitly mentioned that since the matter was time-barring, no further opportunities would be provided.
Response Filed by the Assessee
The assessee submitted a detailed response dated 17/03/2023 to the Income Tax Officer addressing the show-cause notice. The response contained several substantive submissions:
Submission Regarding Income Below Exemption Limit
The assessee clarified that for Assessment Year 2016-17, her total income did not exceed the exemption limit prescribed under the Income Tax Act 1961, which is why no return of income was filed. The assessee provided complete details of the property transaction, explaining that the property purchased for Rs.79.00 lakhs had been sold for Rs.75.00 lakhs, resulting in a short-term capital loss of Rs.4.00 lakhs.
Legal Objection to Procedural Compliance
The assessee raised a fundamental objection regarding compliance with the provisions of section 148A. It was contended that before issuing notice under section 148A(b), the Assessing Officer must conduct an enquiry with prior approval of the specified authority to ascertain the correctness of the information in his possession. The assessee argued that nothing in the impugned notice indicated that such enquiry with prior approval had been conducted, making the notice legally unsustainable.
Absence of Escapement of Income
The assessee submitted that the facts stated in the notice under section 148A(b) did not establish any escapement of income that would empower the Assessing Officer to initiate reassessment proceedings. Documentary evidence in the form of both sale deeds was enclosed demonstrating that the property transaction resulted in a short-term capital loss, not any capital gain.
Computation of Total Income
The assessee provided a computation of total income establishing that the taxable income did not exceed the maximum exempted amount of Rs.2,50,000, which made filing of return of income non-mandatory. It was argued that mere non-filing of return cannot constitute grounds for reopening assessment when there is no taxable income.
Jurisdictional Challenge Under Faceless Assessment Scheme
Without prejudice to other submissions, the assessee raised a jurisdictional challenge based on the Faceless Reassessment Scheme notified by CBDT vide notification no. 18/2022 dated 29th March 2022. The assessee contended that post 29th March 2022, show-cause notice under section 148A(b) should only be issued by the National Faceless Assessment Centre (NFAC) and not by the Jurisdictional Assessing Officer. Reliance was placed on the decision of the Ahmedabad Tribunal in ACTT vs. Resham Petrotech Ltd (2021) (21 com161), which held that notice under Section 148 issued by an officer without jurisdiction would be invalid and vitiate the entire proceedings.
Completion of Reassessment Proceedings
Despite the detailed response submitted by the assessee, the Assessing Officer proceeded to reopen the assessment and completed reassessment proceedings. Significantly, during the reassessment proceedings, the Assessing Officer did not make any addition on account of the alleged sale consideration or the escapement of income that formed the basis for initiating reopening.
Addition Beyond Recorded Reasons
Instead of pursuing the original ground mentioned in the reasons recorded, the Assessing Officer travelled beyond those reasons and made additions concerning the source for purchase of the property. This was not the basis on which the reassessment was initiated. The addition related to an entirely different matter that did not form part of the recorded reasons for reopening.