2014 (5) TMI 227 - HC - Income Tax

Validity of notice u/s 147/148 of the Act Held that - The considerable latitude given to the revenue to reopen a settled assessment is premised on the entertainment of the Assessing Officer s opinion ( reasons to believe ), based on objective materials, which he is subsequently made aware of, which can possibly lead to conclusion that income had escaped assessment, due to non-disclosure of material facts by the assessee Relying upon Commissioner of Income Tax v Kelvinator India Ltd 2010 (1) TMI 11 - SUPREME COURT OF INDIA - the allegations of ownership stood rebutted through the sworn deposition of Shri Khanna and the documents, which unequivocally showed his ownership and not that of the assessee, whose connection with it was as a tenant for about two years - the assessee had a telephone installed in the premises during that period - he disclosed his address as the New Friends Colony property is but natural, because he lived there at that time the court can only surmise that either the AO is driven by fear, or is party to what the complainant ultimately wishes- in either case, his persistence with reassessment proceedings being devoid of any legal sanction - Such insistence - one may even add obdurate insistence- is the hallmark of whimsicality and a far cry from the reasonable basis for exercise of power u/s 147/148 which the court would be bound to uphold. All the facts were revealed to the AO - He made no attempt to say that the materials revealed were false, or incomplete, there was no material, save an unsubstantiated allegation by the complainant that the assessee had acquired the property and concealed all facts relating to it, during the assessment year thus, the AO had acted unreasonably in persisting with the reassessment notice, which also could not be said to have been based on tangible material, given the statement of Shri Khanna and lack of any tangible material supporting the allegations - Sustaining the notice and reassessment proceedings would amount to condoning what is clearly oppression and harassment the notice for reassessment and proceedings are set aside Decided in favour of Assessee.

Summary

Issues Involved:
1. Legitimacy of the notice under Section 147/148 of the Income Tax Act.
2. Alleged non-disclosure of investment in immovable property (New Friends Colony property).
3. Alleged non-disclosure of investment in the construction of a bungalow (Green Woods property, Greater Noida).

Detailed Analysis:

1. Legitimacy of the Notice under Section 147/148:
The petitioner challenged the notice issued by the revenue on 26.03.2012 under Section 147/148 of the Income Tax Act, asserting that the notice was based on a Tax Evasion Petition driven by personal vendetta and lacked fresh or tangible admissible evidence. The court noted that the power to reopen a settled assessment must be based on objective materials, which can lead to a conclusion that income had escaped assessment due to the non-disclosure of material facts by the assessee. The court emphasized that the reasons to believe must be based on some fresh or tangible material and not merely on suspicion or unsubstantiated allegations.

2. Alleged Non-Disclosure of Investment in New Friends Colony Property:
The petitioner argued that the allegations regarding the New Friends Colony property were baseless. The property was owned by Mr. K.K. Khanna, and the petitioner was merely a lessee paying a monthly rent of Rs. 33,000. The court noted that the statement of Mr. Khanna, recorded on oath, confirmed his ownership and the petitioner's status as a tenant. The court found that the revenue's persistence in pursuing reassessment despite clear evidence rebutting the allegations was unreasonable and whimsical. The court concluded that the reassessment proceedings based on these allegations lacked legal sanction and were driven by either fear or ulterior motives.

3. Alleged Non-Disclosure of Investment in Green Woods Property, Greater Noida:
The petitioner contended that the construction of the Green Woods property was completed only in 2008, not during the relevant assessment year. The investment in the property was partly funded by the petitioner's provident fund and partly through a loan arranged by the society from HDFC. The court observed that the petitioner had provided all necessary documents and explanations, which were not refuted by the revenue. The court found that there was no material evidence to support the allegation that the petitioner had concealed income related to the construction of the property during the assessment year in question.

Conclusion:
The court held that the reassessment notice and subsequent proceedings were without legal authority. The court emphasized that the Assessing Officer acted unreasonably in persisting with the reassessment notice despite clear evidence and explanations provided by the petitioner. The reassessment proceedings were deemed to be oppressive and harassing. Consequently, the impugned reassessment notice dated 26.03.2012 and all further proceedings thereto were quashed. The petition was allowed, and no costs were awarded.