2011 (12) TMI 297 - HC - Income Tax

Unaccounted Cash seized - Notice under 142(1) - Held That - Section 175 read with Section 174(3) of the Act cannot be sustained on account of there being no prima facie consideration or satisfaction of the assessing officer that the assessee is likely to transfer property to avoid tax; which is a pre-requisite to create the charge of income tax on the income of the current year as provided under Section 175 and also for the absence of any notice under Section 174(4); as again specifically provided under Section 175. In the circumstances Exhibit P4 revisional order as well as Exhibit P1 assessment order are set aside. Decided in favour of assessee.

Summary

Issues involved:
Challenge to assessment order under Income Tax Act - Invocation of Sections 175 and 174 - Prima facie satisfaction of assessing officer - Validity of assessment completed under Section 175 - Notice under Section 142(1) - Disentitlement from pursuing appellate remedies.

Analysis:
1. The petitioner challenged the assessment order under the Income Tax Act, contending that the assessment was completed under Section 175 read with Section 174(3) without proper notice under Section 174(4). The petitioner was found with unaccounted cash, leading to assessment proceedings. The petitioner argued that the notice under Section 142(1) cannot lead to an assessment under Section 174(4), which would prevent pursuing appellate remedies.

2. The counsel for the Revenue argued that the assessment was validly completed under Section 175, not Section 174, as proper notice was issued. Section 174 is specifically for individuals leaving India to evade tax, creating a charge of income tax for the current assessment year. The assessment order was defended as per the provisions of Section 175, which allows assessment in cases where individuals may transfer property to evade tax.

3. The court analyzed the contentions and provisions of Sections 174 and 175. It was noted that Section 174 deals with individuals leaving India to evade tax during the current assessment year, requiring a notice under sub-section (4) before assessment. On the other hand, Section 175 deals with alienation of assets to evade tax, applying provisions of Section 174. The court emphasized the importance of prima facie satisfaction of the assessing officer under Section 175 before invoking special assessment powers.

4. The court found that the assessment order in question under Section 175 read with Section 174(3) lacked prima facie consideration or satisfaction by the assessing officer regarding the petitioner's intention to transfer property to avoid tax. As a result, the assessment order was deemed unsustainable due to the absence of a notice under Section 174(4) as required by Section 175.

5. Consequently, the revisional order and assessment order were set aside. The court directed the assessment to proceed based on the notice issued under Section 142(1) for the previous year, ensuring completion within three months. The petitioner was instructed to cooperate with the assessment proceedings, failing which the previous assessment order would stand revived.

In conclusion, the court allowed the writ petition, highlighting the importance of following proper procedures and satisfying statutory requirements for assessments under the Income Tax Act.