2024 (11) TMI 90 - HC - Income Tax

Reassessment proceedings - validity and jurisdiction of the notice issued u/s 148 - Borrowed satisfaction v/s independent application of mind - validity of reasons to believe - HELD THAT - It is not in dispute that during the course of the assessment proceedings, there is no failure on the part of the assessee to disclose fully and truly all material facts inasmuch as pursuant to the notice issued u/s 142 (1) of the Act, the petitioner has filed a detailed reply on 08.12.2015 providing details with regard to purchase of immovable property and payment of advance to the Om Land Reality Pvt. Ltd. AO after considering the details, has accepted the return income and passed the order u/s 143 (3) of the Act. On perusal of the reasons recorded it clearly reflects wrong figure in relation to the immovable property transaction carried out by the petitioner on 07.03.2013. This fact is further fortified by the Assessing Officer in the communication dated 22.09.2021 as well as show-cause notice issued on the same date for proposed addition in the re-assessment proceedings. It is therefore, apparent that the respondent-Assessing Officer has issued the impugned notice under section 148 of the Act only on the basis of the borrowed satisfaction without having any live nexus with the facts on record, more particularly, when the transactions in question are duly reflected in the books of accounts in form of audited balance-sheet as well as in reply to the notice 142 (1) of the Act during the course of the regular scrutiny assessment. We are therefore of the opinion that as there is no failure on the part of the petitioner to disclose truly and fully all material facts during the regular assessment and admittedly, the impugned notice is issued beyond the period of four years, as per proviso of 147 of the Act, the same would be without jurisdiction. The impugned notice is therefore quashed and set aside - Decided in favour of assessee.

Summary

Issues:
Validity and jurisdiction of notice under section 148 of the Income Tax Act, 1961 for Assessment Year 2013-14.

Analysis:
The petitioner challenged the validity and jurisdiction of the notice dated 23.03.2020 issued under section 148 of the Income Tax Act, 1961 for the Assessment Year 2013-14. The petitioner had filed the return of income on 27.09.2013, which was accepted after scrutiny assessment under section 143(3) of the Act on 27.01.2016. The notice under section 148 was issued based on new information received about an immovable property transaction amounting to Rs. 1,85,81,151 on 07.03.2013. The Assessing Officer believed that income chargeable to tax had escaped assessment. The petitioner objected, stating the notice was beyond the four-year limit and that the property purchased was of a lesser amount, duly reflected in the audited balance-sheet. The respondent-Assessing Officer did not dispose of the objections initially, leading the petitioner to approach the Court. After directions from the Court, the Assessing Officer re-examined the objections and concluded there was an escapement of Rs. 1,85,81,151. The petitioner contended that there was no failure to disclose material facts and that the notice was based on incorrect information. The Assessing Officer later accepted the transaction of Rs. 1,65,10,000. The Court found that the notice was issued without jurisdiction, as there was no failure to disclose material facts during the regular assessment, and the notice was beyond the four-year limit, quashing it accordingly.

The petitioner argued that there was no failure to disclose fully and truly all material facts during the regular assessment, as evidenced by the detailed reply provided in response to the notice under section 142(1) of the Act regarding the purchase of immovable property. The Assessing Officer had accepted the return income after considering the details and passing the order under section 143(3) of the Act. The reasons recorded for the notice under section 148 contained an incorrect figure in relation to the immovable property transaction, which was later corrected to Rs. 1,65,10,000. The Court found that the notice was issued on borrowed satisfaction without a live nexus with the facts on record, especially when the transactions were duly reflected in the books of accounts and during the regular scrutiny assessment. As there was no failure on the part of the petitioner to disclose all material facts and the notice was issued beyond the statutory limit, it was deemed without jurisdiction and subsequently quashed.

The respondent-Assessing Officer argued that the notice under section 148 was issued based on new tangible material gathered, forming a belief of income escapement. However, the Court found that the notice lacked a live nexus with the facts on record, as the transactions were properly accounted for in the books of accounts and disclosed during the regular assessment. The Court held that the notice was issued without jurisdiction, being beyond the statutory limit of four years and without any failure on the part of the petitioner to disclose material facts. The notice was quashed, ruling in favor of the petitioner.