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III. Direct Taxes Case Laws:
1. CIT Vs. Chetan Gupta, I.T.A. No. 72 of 2014, Date of Order: 15.09.2015, High Court of Delhi
Whether
the ITAT was correct in holding that since notice under Section 148 of
the Income Tax Act (the Act) was not served on the Assessee in
accordance with law, the re-assessment made consequent thereto was
without jurisdiction and liable to be quashed?
Held Yes
(i)
Under Section 148 of the Act, the issue of notice to the Assessee and
service of such notice upon the Assessee are jurisdictional requirements
that must be mandatorily complied with. They are not mere procedural
requirements.
(ii)
For the AO to exercise jurisdiction to reopen an assessment, notice
under Section 148 (1) has to be mandatorily issued to the Assessee.
Further the AO cannot complete the reassessment without service of the
notice so issued upon the Assessee in accordance with Section 282 (1) of
the Act read with Order V Rule 12 CPC and Order III Rule 6 CPC.
(iii)
Although there is change in the scheme of Sections 147, 148 and 149 of
the Act from the corresponding Section 34 of the 1922 Act, the legal
requirement of service of notice upon the Assessee in terms of Section
148 read with Section 282 (1) and Section 153 (2) of the Act is a
jurisdictional pre-condition to finalizing the reassessment.
(iv)
The onus is on the Revenue to show that proper service of notice has
been effected under Section 148 of the Act on the Assessee or an agent
duly empowered by him to accept notices on his behalf. In the present
case, the Revenue has failed to discharge that onus.
(v)
The mere fact that an Assessee or some other person on his behalf not
duly authorised participated in the reassessment proceedings after
coming to know of it will not constitute a waiver of the requirement of
effecting proper service of notice on the Assessee under Section 148 of
the Act.
(vi)
Reassessment proceedings finalised by an AO without effecting proper
service of notice on the Assessee under Section 148 (1) of the Act are
invalid and liable to be quashed.
(vii)
Section 292 BB is prospective. In any event the Assessee in the present
case, having raised an objection regarding the failure by the Revenue
to effect service of notice upon him, the main part of Section 292 BB is
not attracted.
On the
facts of the present case, the Court finds that the ITAT was right in
its conclusion that since no proper service of notice had been effected
under Section 148 (1) of the Act on the Assessee, the reassessment
proceedings were liable to be quashed. Consequently, the question framed
is answered in the affirmative, i.e., in favour of the Assessee and
against the Revenue.
(Please click here for judgment)
2. Oriental Insurance Company Vs. CIT, I.T.A. No. 174 of 2013, Date of Order: 15.09.2015, High Court of Delhi
Whether
the AO would have jurisdiction to examine the question as to the
taxability of the profits and gains from sale of securities as it is
contended that the AO had already expressed his opinion in that regard
in the initial assessment.
Held No.
The
Assessee claimed that the profits on sale/redemption of investments
amounting to `505.33 crores for the year ending 31.03.2004, were exempt
from tax in view of the omission of clause (b) of Rule 5 of the First
Schedule of Income Tax Act w.e.f. 01.04.1989 and in terms of the CBDT
Circular No. 528 dated 16 December, 1988, providing explanatory notes to
Finance Act, 1988. As per the said Circular, Rule 5 of the First
Schedule of the Act was amended to provide tax exemption in respect of
profits earned by General Insurance Companies on sale of investments.
The provisions of clause (b) to Rule 5 were re-instated by virtue of the
Finance (No.2) Act, 2009 w.e.f. 01-04-2011. Insurance Companies are
required to include income from sale of investments directly in their
Profit & Loss Account and, therefore, provisions of Rule 5 were
amended so as to tax this income. The Assessee urged that this amendment
was not retrospective and, therefore, the income from sale/redemption
of investments during the Previous Year 2003-04 was not taxable. The AO
rejected the above contention of the Assessee and held that the
intention of the Legislature in deleting clause (b) of Rule 5 of the
First Schedule of the Act was to exempt all types of gains on
investments whether by way of appreciation or by way of realization and
simultaneously to disallow all types of losses on investments whether by
way of depreciation or by way of realization.
It is
at once clear from the above that the AO had expressed its firm opinion
that profits and gains on realization of investments were exemp from
taxation. It is also not disputed that the Assessee had appended a note
expressly explaining that a sum of `5,05,33,63,209/- had been deducted
from the taxable income. In the above circumstances, it cannot be
disputed that the exemption claimed by the AO in respect of the profit
on sale/redemption of investments was duly disclosed and the AO had also
opined on the merits of the taxability of profits on sale/redemption of
investments. The income from profit on sale/redemption of investments
is now sought to be taxed as income which had escaped assessment. This,
in our view, clearly represents a change in the opinion with regard to
the taxability of the income in question. It is well settled that the
power under Section 147 of the Act is not a power of review but a power
to reassess.
(Please click here for judgment)
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