Landmark Cases on Assessment Procedure

The National Faceless Assessment Centre (NaFAC) does not have the power to issue notices under Section 148 or 148A of the Income Tax Act. Its jurisdiction for assessment or reassessment begins only from the stage of issuing notices under Section 142(1) or 143(2).

The Commissioner (Appeals) cannot enhance an assessee's income or make additions unless such issues were part of the original assessment proceedings before the Assessing Officer.

Assessed income can be lower than returned income, even if the assessee voluntarily made a disallowance. This is permissible if the assessee has disclosed income not legally required to be disclosed.

The Supreme Court holds that Section 133(6) of the Income Tax Act grants income tax authorities the power to issue notices for general inquiries to identify persons likely to have taxable income and ensure compliance, even when no specific proceedings are pending. This power, however, must be exercised only after obtaining prior approval from the Director or Commissioner.

Beneficial circulars issued under income-tax law must be applied retrospectively, whereas circulars that impose a burden or are oppressive must be applied prospectively only.

A court's order is not binding if it has not applied its mind to the specific facts and decided the issues involved.

An assessment order must be passed by the jurisdictional Assessing Officer. Mere participation in assessment proceedings or acquiescence does not confer jurisdiction on an Assessing Officer who inherently lacks it. Waiver relates to rights or privileges, not the conferment of jurisdiction.

A defect in serving a notice under section 148 of the Income Tax Act is a mere procedural defect or curable mistake under section 292B of the Act, particularly when the assessee has appeared and participated in the reassessment proceedings.

The requirement to pass a draft assessment order under Section 144C of the Act is mandatory. A final assessment order issued without such a draft order is a nullity, constituting an incurable jurisdictional error that cannot be saved by Section 292B, even in set-aside proceedings following an ITAT remand.

A Special Bench decision of the ITAT, as reported in 135 ITD 165, must be followed by lower benches and appellate authorities due to judicial discipline.

Reopening an assessment is unsustainable if the reasons provided are based on a mistaken belief about the applicability of a legal provision to the assessment year in question.

A satisfaction note recorded for assessment proceedings under Section 153C is bad in law if it is general, vague, and casual, lacking particulars of income escapement, quantification, or linkage to a specific assessment year, indicating a lack of proper application of mind. Such a flawed satisfaction note invalidates the consequent assessment proceedings.

The Tribunal is bound by its own previous decision for a prior assessment year, especially when no contrary decision exists, and should follow consistent pronouncements of other High Courts and Tribunals.

Low profits alone, or minor defects such as the non-maintenance of a stock register, do not justify the rejection of regularly maintained books of account under Section 145, nor do they permit additions to income without proving specific errors.

The assessee must first raise any objection to the Assessing Officer's assumption of jurisdiction or the validity of assessment proceedings before the AO; failure to do so results in forfeiture of the right to object at later stages, such as before the CIT(A).

The court that accepts a compromise is the only court competent to examine challenges to that compromise.

The Assessing Officer has the authority to collect information in any manner and utilize it for framing an assessment, provided there is material on record to substantiate any addition made.

When an assessee's return is not accepted on its face, the Assessing Officer must issue a notice under Section 143(2) of the Income-tax Act, 1961 before proceeding with assessment. The AO cannot directly reject the return under Section 144 and conduct a best judgment assessment without first issuing a mandatory Section 143(2) notice.

An Association of Persons (AOP) is formed when two or more persons voluntarily join for a common purpose to produce income, profits, or gains, and it is the AOP itself that is taxed.

The exercise of a power must be referable to a jurisdiction that validates it, not one that would render it nugatory. Provisions concerning the machinery for assessment must be interpreted to make the tax charge effective.

Each income tax assessment year is a self-contained period, and the rule of res judicata does not apply, meaning decisions from one assessment year are not binding on subsequent assessment years.

The filing of an audit report along with the return of income is directory and not mandatory, meaning non-compliance does not automatically invalidate the return.

Income tax authorities are obligated to assist assessees who are over-assessed due to mistake, misconception, or lack of proper instruction, ensuring only legitimate taxes are collected.

Section 282 of the Income Tax Act, 1961 specifies the modes for serving notices, including by post or summons under the Code of Civil Procedure. A valid service of notice is essential for assessment or reassessment proceedings, and its absence renders such proceedings bad in law.

The scope of proceedings before the Income-tax Settlement Commission under Chapter XIX-A is sui generis, primarily for disclosure and akin to arbitration, and not an appellate forum to examine complex legal disputes.

The Income Tax Appellate Tribunal has the power to remand a matter back to the assessing authorities for a fresh adjudication in accordance with law, under Section 254(1) of the Income Tax Act, 1961.

Where the shares of beneficiaries in a trust are determinate, trustees must be assessed separately for each beneficiary's share, treating each beneficiary as an individual. The income is then taxed at the marginal rate applicable to individuals, not at the maximum rate for an association of persons.

The restriction under Section 124(3) of the Income-tax Act on an assessee to object to an Assessing Officer's jurisdiction is triggered only when the dispute concerns the territorial jurisdiction vested under Section 120(1) or (2).

An assessment notice issued under section 143(2) is invalid if it is not issued by the Income Tax Officer (ITO) as per CBDT Instruction No. 1/2011, even if issued by an Assistant Commissioner of Income Tax (ACIT). Such an invalid notice renders the subsequent assessment void.

Adjustments to opening stock are not permissible when applying Section 145A, as this would retroactively disturb finalized profit figures of earlier assessment years. MODVAT credit balance in closing stock should be added to income, but corresponding adjustments to opening stock are not allowed.

The time limit for objecting to an Assessing Officer's territorial jurisdiction under Section 124(3) does not apply when an assessee claims the officer acted wholly without jurisdiction or outside the authority of law. Objections to jurisdiction not relating to territorial matters are not subject to these time limits.

When a statutory provision is unambiguous and capable of only one meaning, it must be given effect in its own terms, and nothing should be added to or taken away from the plain language of the Act by way of interpretation.

An assessee has no fundamental right to be assessed by a particular Assessing Officer or at a specific place. Orders transferring a case are administrative, for better revenue administration, and are not justiciable unless mala fides or clear prejudice is proven, with inconvenience not being a valid ground.

Previous approval of the Additional CIT is required to pass an assessment order under Chapter XIV-B of the Income Tax Act. The Additional CIT is a competent authority to grant this approval.

A coordinate bench of the Tribunal, in the case of ACIT Vs JSW Steel Limited, has inter alia made observations that are being relied upon by subsequent benches in their decisions.

Reasons recorded for initiating an assessment or other statutory action cannot be supplemented by subsequent explanations or affidavits; only the reasons existing at the time of recording are valid and can be considered.

The Allahabad High Court in Pr. CIT v. Mehndipur Balaji (2022) has taken a contrary view to the Gujarat High Court's decision in Saumya Construction regarding the interpretation of Section 153A of the Income Tax Act, 1961.

A higher authority's approval for an income tax proposal must reflect an application of mind to the facts and cannot be deemed from a mere nomination. An assessment made without providing reasonable opportunity to the assessee violates principles of natural justice and is therefore invalid.

Limitation for assessment proceedings is to be counted from the end of the financial year in which the assessment order is passed, not from the date of lifting prohibitory orders.

An assessment order is not void ab initio due to the absence of approval under section 274(2). The Assessing Officer can obtain the necessary approval retrospectively and decide the matter afresh.

Cases cited together with Arun Kumar Maheshwari v. ITO, including Dharam Pal Singh Rao v. ITO and Smt. Maya Rastogi v. CIT, are used to support a finding that there is no merit in an appeal, indicating a consistent legal position across multiple High Court judgments.

An assessee can file a revised computation of income during ongoing assessment proceedings, even after the time limit for filing a revised return under section 139(5) has expired. This revised computation can be submitted without filing a revised return.

An adjustment under section 143(1)(a)(ii) or (v) of the Income-tax Act cannot be made without affording the assessee an opportunity to explain their case, as considerations like Section 80AC(ii) do not fall within the scope of adjustments permissible at the section 143(1) stage.

An assessment order must be passed within the prescribed limitation period, but the demand notice and the assessment order itself do not necessarily need to be issued within that same period.

Failure to issue a notice under Section 143(2) within the prescribed time or after the time for completing reassessment under Section 153(2) has expired renders the entire assessment proceedings invalid. Section 292BB does not waive the requirement for such statutorily mandated notices.

A procedural irregularity that occurs at a later stage of assessment proceedings, and does not involve an inherent lack of jurisdiction, is a curable defect and does not lead to the nullity of the assessment order.

Combined approvals under Section 153D vitiate assessment proceedings as they are contrary to specific statutory requirements.