2023 (8) TMI 522 - HC - Income Tax

Reopening of assessment u/s 147 - mandation of disposal of objection against reopening - reason to believe - HELD THAT - If the order deciding the objections is perused, the same does not state that the facts mentioned by the petitioner were incorrect. In fact, no reasons whatsoever have been assigned and it is reiterated that the petitioner failed to declare any profit/ loss in the income tax return and hence the amount was treated as profit on the sale of shares. As stated above, despite specific objection that the said amount had been debited in the bank account of the petitioner and it pertained to the losses sustained in commodity trading having been shown in the accounts for the Financial Year 2011-12, Assessment Year 2012-13, it becomes clear that the objections have been decided without due application of mind. As held by the Hon ble Supreme Court in GKN Driveshafts (India) Ltd 2002 (11) TMI 7 - SUPREME COURT the objections as raised have to be disposed of by a speaking order that could indicate due application of mind. As stated above, there are no reasons whatsoever assigned for turning down the objections and the facts stated in the notice dated 24/3/2020 are reiterated. It is seen that alongwith the objections dated 13/9/2021 copy of the account statement for the Financial Year 2011-12 was also attached. Same has not even been referred to while disposing of the objections on 17/9/2021. In M/s. Shodiman Investments Pvt. Ltd 2018 (4) TMI 1287 - BOMBAY HIGH COURT it is held that application of mind has to be indicated while forming reasons to believe that income chargeable to tax has escaped assessment. It is also to be noted that by issuing subsequent notice, the ITO has sought further information from the petitioner which information does not form the basis of the reasons assigned for re-opening the proceedings. The notice dated 24/3/2020 issued u/s 148 seeking reopening of the assessment is based on incorrect facts. The objections raised by the petitioner pointing out the relevant facts including the proper Assessment Year to which the said transaction pertained being Assessment Year 2012-13 coupled with the fact that the amount of Rs. 9,90,314/- that was stated to be the amount being profit from the sale of shares having been explained to be the amount of loss, the objections having been decided without any speaking order and not dealing with the undisputed factual aspects leads to the conclusion that the re-opening of the assessment is without there being any reason to believe that the income has escaped assessment. In these facts, the notice dated 24/3/2020 suffers from fundamental factual errors. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the assessment order dated 29/9/2021.
3. Maintainability of the Writ Petition given the availability of an alternate remedy.

Summary:

1. Legality of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 24/3/2020 issued by the Income Tax Officer (ITO) under Section 148 of the Income Tax Act, 1961, on the grounds that it was based on incorrect facts. The notice stated that the petitioner had earned a profit of Rs. 9,90,314/- from the sale of shares, which was not offered for taxation. However, the petitioner contended that this amount was actually a loss incurred in commodity trading for the Assessment Year 2012-13, not 2013-14, as mentioned in the notice. The Court found that the notice was based on incorrect facts and that the objections raised by the petitioner were not addressed in a speaking order, as required by the Supreme Court's decision in GKN Driveshafts (India) Ltd. [(2003) 1 SCC 72]. Consequently, the notice under Section 148 was quashed.

2. Validity of the Assessment Order Dated 29/9/2021:
The assessment order dated 29/9/2021, which assessed the petitioner's income at Rs. 1,55,30,950/-, was also challenged. The Court noted that the assessment was based on the flawed notice under Section 148 and thus could not stand. The objections raised by the petitioner were not properly considered, and the ITO did not provide any reasons for rejecting the objections. The Court held that the assessment order was invalid due to the procedural lapses and incorrect factual basis for reopening the assessment.

3. Maintainability of the Writ Petition Given the Availability of an Alternate Remedy:
The respondents argued that the Writ Petition should not be entertained as the petitioner had an alternate remedy of filing a statutory appeal. However, the Court held that the availability of an alternate remedy does not bar the maintainability of a Writ Petition, especially when the challenge is to the jurisdictional validity of the notice under Section 148. The Court cited various decisions, including M/s Godrej Sara Lee Ltd. and M/s Magadh Sugar & Energy Ltd., to support the view that a Writ Petition can be entertained in cases involving jurisdictional errors or when the proceedings are based on incorrect facts.

Conclusion:
The Court quashed the notice dated 24/3/2020 issued under Section 148 of the Income Tax Act, 1961, and set aside all consequential actions, including the assessment order dated 29/9/2021. The Writ Petition was found to be maintainable despite the availability of an alternate remedy, given the jurisdictional errors and incorrect factual basis for reopening the assessment.