2013 (8) TMI 371 - HC - Income Tax

Reason to believe for income escaping assessment under section 147 of the Income Tax Act, 1961 Held that - It is also not for this court to examine those reasons from the stand point whether the material on which they are found conclusively proved the escapement of income as formation of such belief by the assessing officer is in the realm of the subjective satisfaction. Moreover, in this case, the assessing officer has not proceeded merely on the basis of report of the Valuer but also considered that such valuation was got done by a third party i.e. the ICICI Bank, which has advanced loan of Rs.1.25 crore to the petitioner on the land being valued by their valuer at Rs.3,53,29,230/- as against Rs.1.20 crores - The reasons were such which would impel an ordinary person of reasonable prudence to hold that the income escaped assessment. Those reasons do not fall merely within the realm of mere suspicion so to say. There does exist some material with the assessing officer for issuance of notice under Section 147 read with Section 148 of the Act of 1961 for formation of requisite belief as to the escapement of income Decided against the Assessee.

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961.
2. Legitimacy of reasons for reopening the case under Section 147 of the Income Tax Act, 1961.
3. Adequacy of evidence for reassessment.
4. Applicability of Section 50C of the Income Tax Act, 1961.
5. Jurisdiction of the High Court under Article 226 of the Constitution of India in tax reassessment matters.

Issue-wise Detailed Analysis:

1. Validity of notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner, Shree Om Builders and Colonizers, challenged the notice issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961. The petitioner argued that the notice for initiating reassessment proceedings was based on mere surmises and conjectures. They contended that the notice was issued on the suspicion that the sale consideration mentioned in the registered sale-deed was less than the actual sale consideration, which lacked any material evidence. The court, however, found that the notice was valid as it was based on reasonable grounds and not merely on suspicion.

2. Legitimacy of reasons for reopening the case under Section 147 of the Income Tax Act, 1961:
The petitioner argued that the reasons for reopening the case under Section 147 were not based on 'reasons to believe' but on 'mere suspicion,' which is not sufficient for issuing a notice under Section 148. They pointed out that the properties compared were not in close vicinity and had significant differences in their characteristics. The court held that the reasons recorded by the assessing officer were in consonance with the statutory provisions of Section 147 and were based on substantial material, such as the valuation report from ICICI Bank and the similarity in transactions of nearby properties.

3. Adequacy of evidence for reassessment:
The petitioner contended that no material evidence was found during the search proceedings or post-search assessment proceedings to support the belief that the transaction was entered at a higher amount than shown in the registered sale deed. The court noted that the assessing officer had sufficient evidence, including the valuation report from ICICI Bank, which valued the property at Rs. 3,53,29,230/- as against Rs. 1.20 crores claimed by the petitioner. The court found that there was reasonable ground for the assessing officer to form the belief about the escapement of income.

4. Applicability of Section 50C of the Income Tax Act, 1961:
The petitioner argued that the allegation of showing a lower sale consideration could not be justified as Section 50C of the Act covers such cases of understatement of sale consideration. They contended that the stamp valuation adopted by the Stamp Registering Authority should be considered for tax purposes. The court found this argument irrelevant as the transaction in question was a business transaction, and Section 50C was not applicable.

5. Jurisdiction of the High Court under Article 226 of the Constitution of India in tax reassessment matters:
The petitioner argued that the writ petition was the only effective remedy as the assessing officer had already formed an opinion about the escapement of income. The respondent contended that the writ petition should not be entertained as it was filed against a show-cause notice at a preliminary stage. The court agreed with the respondent, stating that disputed questions of facts could not be appropriately addressed in writ jurisdiction under Article 226. The court emphasized that the sufficiency of reasons for forming the belief of income escapement is not a matter for judicial scrutiny at the notice stage.

Conclusion:
The court dismissed the writ petition, holding that the reasons for reopening the case were based on substantial material and not merely on suspicion. The assessing officer had sufficient evidence to form the belief that income had escaped assessment. The court found no merit in the petitioner's arguments and upheld the validity of the notice issued under Section 148 and the reasons for reopening the case under Section 147 of the Income Tax Act, 1961.

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