2022 (5) TMI 628 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - Assessee was engaged in sale of immovable property with a capital gain was occurred, as per insight verification details - HELD THAT - It is wholly undisputed that reasons to believe recorded by the Assessing Authority for assuming jurisdiction under Section 148 of the Act, 1961 by issuing impugned notice, was totally unfounded and non existent. The Assessing Authority formed the reasons to believe on the ground that petitioner Assessee has sold an immovable property and gained the capital gain during the F.Y. 2012-13 relevant to A.Y. 2013-14 but has not shown the same in his return of income, which was totally unfounded and not bonafide. In the case of Radha Krishna Industries vs. State of H.P. 2021 (4) TMI 837 - SUPREME COURT Hon ble Supreme Court reiterated the law laid down in its earlier judgments in the case of Kelvinator of India Limited. 2010 (1) TMI 11 - SUPREME COURT and TechSpan India (P.) Ltd. 2018 (4) TMI 1376 - SUPREME COURT and held that the power to reopen an assessment must be conditioned on the existence of tangible material and that reasons must have a live link with the formation of the belief . Since the impugned notice under Section 148 of the Act, 1961 is a jurisdictional notice and the reasons to believe recorded by the Assessing Authority was totally unfounded and not bonafide, therefore, the notice itself was without jurisdiction and the Assessing Authority could not have assumed jurisdiction to issue notice under Section 148 of the Act, 1961. Therefore, the impugned notice under Section 148 of the Act, 1961 issued by the Assessing Authority can not be sustained and deserves to be quashed. Consequently, the impugned reassessment order can also not stand and, therefore, it also deserves to be quashed. WP Allowed.

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Validity of the reassessment order under Section 147 read with Sections 144 and 144B of the Income Tax Act, 1961.
3. Alleged arbitrary and unauthorized exercise of powers by the Income Tax Authorities.

Issue-Wise Detailed Analysis:

1. Validity of the Notice under Section 148 of the Income Tax Act, 1961:

The petitioner challenged the notice dated 30.03.2021 issued under Section 148 of the Income Tax Act, 1961. The primary contention was that the "reasons to believe" recorded by the Assessing Authority were unfounded and non-existent. The notice was based on alleged information that the petitioner had gained a capital gain of Rs. 26,02,150/- from the sale of an immovable property during the assessment year 2013-14, which was not disclosed in the income tax return. However, the petitioner contended that no such property was sold during the relevant period.

The court examined the "reasons to believe" and found them to be arbitrary and without any factual foundation. The Assessing Authority had relied on information from the INSIGHT portal without verifying its accuracy or relevance to the petitioner. The court emphasized that the "reasons to believe" must be based on concrete and relevant material, not on vague or arbitrary grounds. The court cited several Supreme Court judgments, including State of Uttar Pradesh & Others vs. Aryaverth Chawal Udyog & Others and The Commissioner of Sales-Tax U.P. vs. M/s. Bhagwan Industries (P) Ltd., Lucknow, to highlight the requirement of a rational basis for forming a belief that income has escaped assessment.

The court concluded that the "reasons to believe" recorded by the Assessing Authority were not bonafide and lacked the necessary factual foundation, rendering the notice under Section 148 invalid and without jurisdiction.

2. Validity of the Reassessment Order under Section 147 read with Sections 144 and 144B of the Income Tax Act, 1961:

The petitioner also challenged the reassessment order dated 12.03.2022, which was based on the same unfounded "reasons to believe." The court noted that the reassessment order took a new stand, alleging that the petitioner had purchased an immovable property for Rs. 10,00,000/- and added the differential amount of Rs. 9,17,990/- to the petitioner's income under Section 69 of the Act. This new stand was inconsistent with the original "reasons to believe" and further evidenced the arbitrary and unauthorized exercise of powers by the Assessing Authority.

The court reiterated that the reassessment proceedings must be based on valid and bonafide reasons to believe that income has escaped assessment. Since the impugned notice under Section 148 was found to be without jurisdiction, the reassessment order based on such notice was also invalid and could not be sustained.

3. Alleged Arbitrary and Unauthorized Exercise of Powers by the Income Tax Authorities:

The court observed that the present case was an example of illegal, arbitrary, and unauthorized exercise of powers by the Income Tax Authorities, including the officers at the National Faceless Assessment Centre. The court highlighted that several cases had come before it challenging notices under Section 148, indicating a pattern of arbitrary exercise of powers and harassment of assessees by the Income Tax Authorities.

The court emphasized the need for higher authorities to check such practices and ensure that the exercise of powers under the Income Tax Act is fair, reasonable, and within the bounds of jurisdiction. The court directed the respondents to file a counter affidavit detailing the actions and measures proposed by the Government to address the issue of arbitrary exercise of powers by the Income Tax Authorities.

Conclusion:

The court allowed the writ petition, quashing the impugned notice under Section 148 and the reassessment order under Section 147 read with Sections 144 and 144B of the Income Tax Act, 1961. The court's decision was based on the finding that the "reasons to believe" recorded by the Assessing Authority were unfounded, non-existent, and not bonafide, rendering the notice and the reassessment order without jurisdiction.

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