2024 (10) TMI 489 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - AO has formed the reason to believe only on the basis of the information available with him with regard to the transactions carried out by the assessee - HELD THAT - It appears that the information available with AO has been denied by the petitioner and the same has only been brushed aside by AO while rejecting the objections filed by the petitioner without considering the same in detail. AO has only referred to such details by stating that the transactions disclosed by the petitioner are not reflected in the Demat account and the AO had material in his possession to form a reasonable belief that the income has escaped assessment. Except such vague observations, AO has not dealt with the details submitted by the petitioner in the objections. We are of the opinion that the impugned notice issued u/s 148 is not tenable as the AO has failed to form a reason to believe that income has escaped assessment without considering the objections raised by the petitioner. Decided in favour of assessee.

Issues Involved:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Adequacy of reasons to believe that income has escaped assessment.
3. Consideration of objections raised by the petitioner against the reopening of assessment.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:

The petitioner challenged the validity and legality of the notice issued under Section 148 for the Assessment Year 2013-14. The notice was based on information that the petitioner had engaged in transactions on the National Spot Exchange Limited (NSEL) through a broker, which allegedly led to tax evasion and money laundering. The court examined whether the notice was validly issued, considering the procedural requirements under the Act.

2. Adequacy of Reasons to Believe that Income has Escaped Assessment:

The core issue was whether the Assessing Officer (AO) had adequate reasons to believe that the petitioner's income had escaped assessment. The AO relied on information from the Directorate of Income Tax (Investigation) suggesting large-scale tax evasion through NSEL. The AO noted a discrepancy between the petitioner's declared income and the turnover reported on NSEL. However, the petitioner contested the factual basis of these reasons, asserting that the transactions were not conducted through the broker mentioned by the AO. The court found that the AO's belief was based on incorrect factual assumptions, as the petitioner provided evidence of transactions with different brokers, which were part of her financial records and tax returns.

3. Consideration of Objections Raised by the Petitioner:

The petitioner filed objections against the reopening of the assessment, arguing that the reasons recorded were factually incorrect. The objections highlighted that the petitioner did not trade with the broker mentioned by the AO. The court observed that the AO failed to adequately consider these objections and merely dismissed them without a detailed examination. The court emphasized the importance of the AO's duty to consider objections meaningfully, as established in the precedent set by Kapadia Money Changers Private Limited versus Assistant Commissioner of Income Tax, where it was held that dealing with objections is not a mere formality.

Conclusion:

The court concluded that the impugned notice under Section 148 was not tenable as the AO did not form a reason to believe that income had escaped assessment without properly considering the objections raised by the petitioner. The AO's approach was deemed to be a non-application of mind, as the objections were dismissed without addressing the petitioner's explanations and evidence. Consequently, the court quashed and set aside the notice issued under Section 148, allowing the petition. The rule was made absolute to the extent of quashing the notice, with no orders as to cost.

← Previous Next →