JAYESH CHANDULAL PRAJAPATI vs. DEPUTY COMMISSIONER OF INCOME TAX

Facts

The assessee, Jayesh Chandulal Prajapati, challenged a notice dated March 30, 2018, issued under Section 148 of the Income Tax Act, 1961, by the Deputy Commissioner of Income Tax. This notice initiated reassessment proceedings. The assessee had previously undergone search proceedings under Section 132 in 2012, leading to an assessment under Section 143(3) read with Section 153A on March 18, 2015. An addition of Rs. 56,45,000/- under Section 69 regarding an investment in a flat was deleted by the CIT(Appeals) on August 10, 2017. The revenue's appeal against this deletion was pending before the ITAT. The reassessment notice alleged escaped income of Rs. 7.10 lakh towards undisclosed investment in the same flat, based on information from a search on J.P. Iscon group. The assessee's objections to the reopening were rejected by the respondent on August 20, 2018.

Held

The High Court held that the impugned notice issued under Section 148 of the Income Tax Act, 1961, is not sustainable in law. The Court noted that the income sought to be reassessed was already assessed and was the subject matter of appeal before the CIT(Appeals), with the matter then pending before the ITAT. This situation triggers the principle of merger, meaning the original assessment order merges with the appellate order. The third proviso to Section 147 of the Act explicitly states that the Assessing Officer may assess or reassess income other than income involving matters that are the subject matter of any appeal, reference, or revision. Therefore, reopening the assessment on an issue that was already under appeal before the CIT(Appeals) is barred by this proviso. The Court relied on its own decisions in Radhawami Salt Works vs. Asst. Commissioner of Income Tax and Jhankit Chandulal Prajapati vs. Dy. Commissioner of Income Tax, which dealt with similar situations involving the principle of merger and the third proviso to Section 147. The petition was allowed, and the impugned notice was quashed and set aside.

Key Issues

1. Whether the notice dated March 30, 2018, issued under Section 148 of the Income Tax Act, 1961, for reassessment is sustainable in law, considering the principle of merger where the subject matter of reassessment was already subject to appeal before the CIT(Appeals) and is now pending before the ITAT? Assessee's Contentions: - The reassessment proceedings are without jurisdiction and not tenable due to the principle of merger, as the income sought to be reassessed was already assessed and was the subject matter of appeal before the CIT(Appeals), which had adjudicated upon it. - The reopening is bad in law in the absence of a reasoned sanction under Section 151 of the Income Tax Act, 1961, for invoking jurisdiction under Section 147/148. Revenue's Contentions: - The judgment does not record specific contentions from the revenue regarding the sustainability of the notice or the principle of merger. The revenue was represented by learned standing counsel.