2023 (3) TMI 1112 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - unexplained purchase of flat - HELD THAT - AO has failed to take into account the material on record, i.e., the objections filed by the petitioner and the response given by him to the notice dated 24.09.2019 issued under Section 133(6) of the Act. The petitioner not only explained the source of his income but also adverted to the periodicity of the instalments remitted towards purchasing the Flat. AO, for some unknown reason, has dealt with these assertions, which were backed by facts and figures, cursorily, to say the least. The petitioner had claimed that he had consistently disclosed the Flat as an asset and, accordingly, claimed depreciation qua the same; an aspect for some inexplicable reasons, the AO failed to notice and deal with. The injury to the respondent is compounded by the fact that respondent no. 2 while sanctioning the commencement of reassessment proceedings, has simply rubber-stamped the proposal We are inclined to accept the submissions made by Mr Syali that this was not a fit case for triggering reassessment proceedings, contrary to what has been held by respondent no.2. More so, the material placed on record by the petitioner had, in our opinion, failed to establish a nexus with the belief formed by respondent no. 1, that the income chargeable to tax in the relevant AY, i.e., AY 2016-17, had escaped assessment. Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Jurisdictional flaws in the reassessment proceedings.
3. Adequacy of the reasons to believe that income had escaped assessment.
4. Proper application of mind by the sanctioning authority.
5. Legitimacy of treating stamp duty as unexplained expenditure.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued 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, concerning Assessment Year (AY) 2016-2017. The core argument was that the reassessment proceedings were initiated without proper basis and were jurisdictionally flawed.

2. Jurisdictional Flaws in the Reassessment Proceedings:
The petitioner argued that the reassessment proceedings were jurisdictionally flawed for several reasons. The reasons to believe that income chargeable to tax had escaped assessment had no link with the material on record. The order disposing of the objections was a non-speaking order, and the sanctioning authority did not apply his mind to the relevant facets, including the timing of the transactions. The court found that the payments for the Flat were made in Financial Year (FY) 2013-14 and 2014-15, and not in the assessment year in question (AY 2016-17), thus invalidating the reassessment proceedings for AY 2016-2017.

3. Adequacy of the Reasons to Believe that Income Had Escaped Assessment:
The court noted that the Assessing Officer (AO) failed to consider the material on record, including the petitioner's objections and responses. The petitioner had consistently disclosed the Flat as an asset and claimed depreciation accordingly. The AO did not adequately address these assertions, which were backed by facts and figures. The court emphasized that the factual ingredients for the assumption of jurisdiction in AY 2016-17 were missing, as the payments for the Flat were made in earlier financial years.

4. Proper Application of Mind by the Sanctioning Authority:
The court was critical of the sanctioning authority's approach, noting that the sanction for triggering reassessment proceedings was granted without proper application of mind. The authority merely rubber-stamped the proposal with the endorsement, "Yes, I am satisfied that this is a fit case for action under Section 147 of I.T. Act." The court cited previous judgments to highlight that such mechanical approvals are insufficient and do not meet the legal requirements for initiating reassessment proceedings.

5. Legitimacy of Treating Stamp Duty as Unexplained Expenditure:
The petitioner contended that the amount paid towards stamp duty could not be construed as unexplained expenditure and brought to tax under Section 69C of the Act. The court did not find sufficient grounds to treat the stamp duty payment as unexplained expenditure, aligning with the petitioner's argument.

Conclusion:
The court quashed the impugned notice dated 30.03.2021, concluding that the reassessment proceedings were not justified. The writ petition was disposed of, and the pending application was closed. The court emphasized the need for proper application of mind and adequate reasoning in the approval process for reassessment proceedings.

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