2023 (11) TMI 708 - HC - Income Tax

Reassessment proceedings u/s 147/148 - Reason to believe - increase in the source of funds from the previous AY in the form of share capital, security premium, share application money, and long-term unsecured loans without corroborating evidence - HELD THAT - As because AO realized that the information received by him from ITO (Nahan) via letter dated 12.03.2018 concerned the preceding period, he attempted to commence reassessment proceedings under Section 147/148 of the Act by simply comparing the source of funds reflected under various heads in the balance sheets for the preceding AY and the AY in issue. Furthermore, that there was a gap in the enquiry is evident from the following. First, the respondent/revenue emphasized the fact that information was sought from the petitioner/assessee via notice dated 20.03.2018 before it issued the impugned notice on 31.03.2018. The notice dated 20.03.2018 could not have reached the petitioner/assessee and nothing to the contrary has been placed on record by the respondent/revenue as concededly, it did not bear the complete address of the petitioner/assessee. Second, the AO did not even have the list of shareholders of the petitioner/assessee, as indicated in the reason to believe . AO did not have the tangible material on record that could have persuaded him to form a belief that income, otherwise chargeable to tax, had escaped assessment. The AO did not carry forward the enquiry process once he had received communication from ITO (Nahan). As noticed above, the AO did not furnish either the letter dated 12.03.2018 received from ITO (Nahan) or the relevant intimation received from the ADIT(Inv)/Unit-4(2) New Delhi, along with the document containing reason to believe. Had the AO furnished the documents, he would have been able to reach a firmer conclusion that crossed the threshold of suspicion and conjecture. Thus we are inclined to quash the impugned notice issued to the petitioner/assessee u/s 148 - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961.
2. Adequacy of the material and information furnished by the Assessing Officer (AO) to the petitioner/assessee.
3. Validity of the AO's "reason to believe" that income chargeable to tax had escaped assessment.

Summary:

Legality of the Reassessment Proceedings:
The writ petition challenges the reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961, for Assessment Year (AY) 2011-12 via notice dated 31.03.2018. The AO initiated these proceedings based on the belief that income chargeable to tax had escaped assessment.

Adequacy of Material and Information Furnished:
The petitioner/assessee argued that the AO did not furnish the material and information, such as the communication dated 12.03.2018 from the Income Tax Officer (Nahan) and an FIR and chargesheet filed by the Central Bureau of Investigation (CBI), which formed the basis for the reassessment. The AO provided the document containing the 'reason to believe' only after multiple requests and reminders. The petitioner/assessee highlighted that the AO's belief was based on "borrowed satisfaction" and lacked independent verification.

Validity of "Reason to Believe":
The petitioner/assessee contended that the facts recorded in the document containing 'reason to believe' did not have a nexus with AY 2011-12. The AO's observations included periods from Financial Year (FY) 2009-10, which were not relevant to the period in question. Additionally, the AO's reasoning appeared to be based on suspicion rather than tangible evidence, as evidenced by phrases like "may be in the guise of Share Capital, including Share Premium, bogus sales to M/s Para Impex Chem, or Long term loans or all."

The respondent/revenue argued that the reassessment proceedings were aligned with the provisions of Sections 147 and 148 of the Act and that the petitioner/assessee had received substantial amounts in its bank accounts, which warranted further investigation.

Analysis and Reasons:
The court observed that the AO failed to furnish the necessary material and information to the petitioner/assessee, which is a fundamental requirement. The AO's reliance on information concerning periods outside the relevant FY 2010-11 (AY 2011-12) and the lack of tangible evidence to form a belief that income had escaped assessment were significant issues. The court noted that the AO's approach was based on suspicion and conjecture, which is not sufficient to trigger reassessment proceedings.

Conclusion:
For the foregoing reasons, the court quashed the impugned notice issued under Section 148 of the Act. The writ petition was disposed of accordingly, with each party bearing their respective costs.