2023 (2) TMI 358 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe - objections submitted by the petitioner against the reasons to believe and reopening of proceedings were turned down - unexplained investment in property - HELD THAT - Petitioner had not procured any property at Delhi with the description C-152, Nirman Vihar, Delhi during the financial year 2016-2017. It was emphatically mentioned in this letter that the assessee had rather purchased land located at plot No.A-4, Nextgen Textile Park, Sardarsamand Road, Pali from M/s. Nextgen Textile Park, Private Limited having its registered office at C-152, Nirman Vihar, Delhi. This transaction was duly disclosed in the audited financial statement, i.e. balance-sheet and fixed asset chart as well as the return of income filed by the petitioner for the Assessment Year 2016-17. It was asserted that the reasons formed by the A.O. were based merely on suspicion, assumptions and conjectures and there was nothing in the communication dated 28.06.2021, which could suggest that there was any material to support the allegation/assumption of non-disclosure of land transaction. As from reasons for reopening the assessment it becomes clear that the same are founded on a non-existent transaction of purchase of immovable property situated at C-152, Nirman Vihar, Delhi. In spite of the petitioner elaborating in its reply as well as objections that it had never entered into any such transaction, the respondent authorities made no effort whatsoever to rectify the blatant blunder and instead they have tried to justify the fundamentally flawed reopening proceedings on entirely a new ground that the petitioner did not upload the financial statement with the return and that the details of the land transaction were not mentioned in the Schedule 6 of the balance sheet. This observation of the authority is also incorrect on the face of record because the balance-sheet was admittedly uploaded with the return filed by the petitioner pursuant to receiving the notice under Section 148 of the Income Tax Act. In Schedule 6 of the balance sheet, transaction pertaining to procurement of immovable property is clearly stated. The very foundation of the impugned notice, the reasons to believe and the order turning down objections is non-existent. All the three proceedings are based sheerly on conjectures and surmises. A.O. had no tangible evidence to initiate the re-assessment proceedings against the petitioner and the impugned action is based sheerly on borrowed satisfaction. Even if it is assumed for argument's sake that the transaction made by the petitioner for acquisition of immovable property at Pali may be read in place of Delhi, then also, the said transaction is duly mentioned in the return filed by the petitioner for the relevant financial year and is supported by the audited balance-sheet, which was accepted by the Assessing Officer. Hence, there is no escape from the conclusion that no tangible material was available with the Assessing Authority so as to initiate the re-assessment proceedings against the petitioner by taking recourse to the provisions under Section 148 and 143 (2) of the Income Tax Act. Decided in favour of assessee.

Issues Involved:
1. Legality and validity of the re-assessment notice dated 31.03.2021 under Section 148 of the Income Tax Act, 1961.
2. Validity of the order dated 13.09.2021 disposing of the objections submitted by the petitioner against the re-opening of the assessment for the Assessment Year 2017-18.
3. Whether the Assessing Officer had tangible evidence to initiate re-assessment proceedings.
4. Whether the re-assessment proceedings were based on borrowed satisfaction and non-existent facts.

Detailed Analysis:

1. Legality and validity of the re-assessment notice dated 31.03.2021 under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the re-assessment notice issued under Section 148 of the Income Tax Act, 1961, arguing that it was based on incorrect facts. The notice alleged that the petitioner had invested Rs. 1,21,40,000 in a property located at C-152, Nirman Vihar, Delhi, which was not disclosed in the return of income. However, the petitioner clarified that the investment was in a property at plot No.A-4, Nextgen Textile Park, Sardarsamand Road, Pali, and this transaction was disclosed in the financial statements. The court found that the re-assessment notice was based on a non-existent transaction and thus lacked a valid foundation.

2. Validity of the order dated 13.09.2021 disposing of the objections submitted by the petitioner against the re-opening of the assessment for the Assessment Year 2017-18:
The petitioner's objections to the re-assessment were dismissed by the Assessing Officer on 13.09.2021. The court examined whether the Assessing Officer had a bona fide belief about the escapement of income. The court observed that the objections were dismissed without proper consideration of the facts, particularly the incorrect reference to the property in Delhi. The court concluded that the order disposing of the objections was erroneous and based on incorrect assumptions.

3. Whether the Assessing Officer had tangible evidence to initiate re-assessment proceedings:
The court scrutinized whether there was any tangible evidence to support the re-assessment proceedings. It found that the proceedings were initiated based on incorrect information supplied by the investigating wing and without independent verification by the Assessing Officer. The court emphasized that there must be some material on record to justify the formation of a belief about the escapement of income. In this case, the court found no such material, rendering the re-assessment proceedings invalid.

4. Whether the re-assessment proceedings were based on borrowed satisfaction and non-existent facts:
The petitioner argued that the re-assessment was based on borrowed satisfaction from the investigating wing's information, without independent application of mind by the Assessing Officer. The court agreed, noting that the proceedings were initiated in haste and based on incorrect facts. The court highlighted that the property transaction mentioned in the notice did not exist and that the correct transaction was already disclosed in the petitioner's financial statements. Thus, the court concluded that the re-assessment proceedings were based on borrowed satisfaction and non-existent facts.

Conclusion:
The court quashed and struck down the re-assessment notice dated 31.03.2021, the reasons to believe conveyed in the notice dated 28.06.2021, the order dated 13.09.2021 disposing of the petitioner's objections, and all consequential proceedings. The court found that the re-assessment proceedings were initiated without tangible evidence, based on incorrect facts, and constituted borrowed satisfaction. The writ petition was allowed with no order as to costs.

← Previous Next →