2017 (4) TMI 1151 - HC - Income Tax

Reopening of assessment - unexplained source of income for purchasing the property in question - Held that - It is required to be noted that in the original assessment the return was processed under section 143(1) of the Act and there was no detailed scrutiny to the return filed by the assessee. However, subsequently, on the basis of the returned filed by one Mr.Bhavin Patel for A.Y. 2014-15 and the statement of said Mr.Bhavin Patel, from whom the petitioner assessee and one another co-owner has purchased the property in cash total amounting to ₹ 5,29,76,600/- and considering the fact that in the earlier assessment years, the assessee had shown cash on hand a very meager amount i.e. the assessee had shown cash in hand in return of income for A.Y. 2012-13 ₹ 0/- and therefore, the A.O. had noted that the Company had no cash balance in the last year for the purchase of property in cash as well as the Company cannot take unsecured loan or advance from customer in cash. Therefore, the A.O. has reopened the assessment for A.Y. 2014-15 in which the petitioner has purchased the property by paying ₹ 2,64,88,300/- in cash. Under the circumstances, it cannot be said that there was no tangible material with the A.O. to form an opinion that income chargeable to tax has escaped assessment for the A.Y. 2014-15 within the meaning of section 147 of the Act. - Decided against assessee

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act for reopening assessment for A.Y. 2014-15.

Analysis:
The petitioner filed a return of income for A.Y. 2014-15 declaring a loss, which was accepted under section 143(1) of the Act. Subsequently, the Assessing Officer (A.O.) sought to reopen the assessment based on the ground that income chargeable to tax had escaped assessment. The reasons for reopening included large investments in property compared to total income, with specific reference to transactions involving companies and cash payments. The petitioner objected to the reopening, citing the utilization of cash advances for property purchase. However, the A.O. upheld the reopening decision, leading to the present challenge under Article 226 of the Constitution.

The petitioner contended that the notice under section 148 was illegal and lacked jurisdiction, as there was insufficient tangible material to justify reopening. The petitioner argued that the references to other individuals and transactions did not establish that taxable income had escaped assessment. Additionally, it was argued that a reassessment for verification of income sources was unwarranted, as it should be addressed through regular account verification procedures.

The Court noted that the original assessment did not involve detailed scrutiny, and the decision to reopen was based on information from related transactions and individuals, indicating potential tax evasion. The A.O. had highlighted discrepancies in cash balances and transactions, justifying the need for reassessment. The Court found that there was tangible material supporting the reopening, and the notice under section 148 was valid and legal. The Court dismissed the petitioner's reliance on previous judgments, as the present case had distinct factual circumstances and valid grounds for reassessment.

In conclusion, the Court upheld the decision to reopen the assessment for A.Y. 2014-15, dismissing the petitioner's challenge. The petition was dismissed with no costs incurred.