2024 (4) TMI 202 - HC - Income Tax

Validity of Reopening proceedings - jurisdiction to issue the notice u/s 148A(b) - Petitioner has been filing returns as a Non-resident - notice was issued by Respondent No. 1, Assistant Commissioner of Income Tax, Circle-32(1), Mumbai - information relies on the statement recorded during the course of search and seizure action conducted u/s 132 in the case of one Ashwin Kumar Mali - Assessee allegedly had entered into fictitious loan transactions with SEPL, which provides accommodation entries, which suggest income chargeable to tax has escaped assessment HELD THAT - Petitioner replied by a letter in which Petitioner denied having any financial transaction. Petitioner explained that he had only taken loanwhich has also been repaid during the next financial year and since the amount was below Rs. 50,00,000/- and the assessment was being reopened after the expiry of three years from the end of relevant assessment year, under the provisions of Section 149(1)(d) of the Act no notice under Section 148 of Act could be issued. Petitioner also brought to the notice of Assessing Officer ( AO ), i.e., Respondent No. 1 that Petitioner has been an NRI since last six years and has been filing his Income Tax Returns as NRI and even the e-filing portal shows Petitioner s residential status as Non-resident . Hence, the jurisdiction would lie with Income Tax Officer (International Taxation), Ward-3(2)(1). In effect Assessee/Petitioner informed Respondent No. 1 that he had no jurisdiction to issue the notice under Section 148A(b) of the Act. AO has, in our view, taken an unacceptable stand that Assessee has not proved with substantial evidence and documents and has not been able substantiate his claim as an NRI. We also fail to understand what evidence Assessee has to show when Assessee makes the statement that in the income tax returns filed by him, his residential status appears as Non-resident . So also, in the income tax portal, his residential status shown as Non-resident . In fact the intimation under Section 143(1) of the Act issued to Assessee for AYs 2019-2020, 2021-2022, 2022-2023 and 2023-2024, all show the residential status of Petitioner as Non-resident . Therefore, we would not hesitate to observe that the stand taken by the AO is a dishonest stand. Respondent No. 1 thereafter passed the impugned order u/s 148A(d) in which, according to us, the AO has accepted that he had no jurisdiction, but because there was no time to mitigate the PAN at the stage it was, he went ahead and has issued the reassessment notice. Since in the affidavit-in-reply a stand is taken that the file can be transferred now to the AO who had jurisdiction over Petitioner, Dr. Shivram submitted, relying on Commissioner of Income Tax v. M.I. Builders (P.) Limited 2013 (7) TMI 654 - ALLAHABAD HIGH COURT that the notice issued by Non-jurisdictional Assessing Officer is invalid, no records can be transferred when the proceedings were invalid ab-initio and such transfer cannot validate any proceedings taken in continuation thereof. This Court in Pavan Morarka 2022 (2) TMI 1094 - BOMBAY HIGH COURT has held that a notice issued by an officer who did not have jurisdiction over Assessee, would be invalid. The fact that Petitioner has been filing returns as a Non-resident, cannot be disputed. The fact that the Income Tax Officer (International Taxation) would be the AO who had jurisdiction over Petitioner, cannot be disputed. Respondent No. 1 has also in effect admitted that he has no jurisdiction over Assessee, but he issued the notice because the information and PAN of Assessee were transferred to the charge of Respondent No. 1 at the fag end of March 2023 for issuing notice under Section 148A(b) of the Act and it was getting time barred by limitation on 31st March 2023 - We are not satisfied with the explanation offered of shortage of time and that still cannot give jurisdiction to the AO, who did not have jurisdiction. Reassessment proceedings set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued u/s 148A(b) of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer (AO) in issuing the notice.
3. Treatment of loan transactions as income.

Summary:

1. Validity of the Notice Issued u/s 148A(b):
The Petitioner, an NRI, received a notice dated 25th March 2023 u/s 148A(b) of the Income Tax Act, 1961, alleging escaped income for AY 2016-2017 based on information from a search action u/s 132 involving fictitious loan transactions with Secure Exim Pvt. Ltd. The Petitioner denied these allegations and claimed only a Rs. 40,00,000/- loan, repaid in the next financial year, arguing that the notice was invalid as it was issued beyond the three-year limit specified u/s 149(1)(d).

2. Jurisdiction of the Assessing Officer:
The Petitioner contended that the notice was issued by an officer without jurisdiction, as he had been an NRI for six years, and jurisdiction lay with the Income Tax Officer (International Taxation), Ward-3(2)(1). The AO admitted the lack of jurisdiction but proceeded due to time constraints, which the Court found unacceptable and dishonest. The Court referenced the case of M.I. Builders (P.) Limited, holding that a notice issued by a non-jurisdictional officer is invalid and subsequent proceedings cannot validate it.

3. Treatment of Loan Transactions as Income:
The AO failed to explain how a Rs. 40,00,000/- loan could be treated as income or how payments totaling Rs. 1,30,66,755/- could be considered income in the hands of the Assessee. The Court found no substantial evidence to support the AO's claims and deemed the AO's stand dishonest.

Conclusion:
The Court ruled in favor of the Petitioner, making the rule absolute in terms of prayer clause (a), which quashed the notices and orders issued u/s 148, 148A(d), and 148A(b) of the Act. The Court dismissed the petition with no order as to costs and allowed the Revenue to take steps in accordance with the law.