2025 (4) TMI 287 - AT - Income Tax

Reopening of assessment u/s 147 - notice beyond three years from the end of the relevant assessment year even though the income escaped assessment does not exceed Rs. 50 lakhs or more - HELD THAT - AO has passed order u/s.148A(d) of the Act on the basis of non-existent information which is evidenced from the final assessment order passed by the AO. Therefore in our considered view if the AO is allowed to reopen the assessment on the basis of information which is not at all available in the file then the AO can reopen the assessment by referring some irrelevant information and stated that income escaped assessment exceeds Rs. 50 lakhs or more and the case is fit for issue of notice u/s. 148 of the Act beyond three years and up to ten years is contrary to the law provided u/s. 148 of the Act. This is because for this reason alone provision has been made to issue notice u/s. 148A(b) of the Act for causing enquiries by calling replies from the assessee to ascertain the correct facts with regard to the escapement of income and for issue of notice under the relevant provisions of the Act. AO assumed jurisdiction by passing order u/s. 148A(d) of the Act on the basis of incorrect information and issued notice beyond three years from the end of the relevant assessment year even though the income escaped assessment does not exceed Rs. 50 lakhs or more. Thus we are of the considered view that the notice issued by the AO u/s. 148 is illegal void-ab-initio and consequently the assessment order passed by the AO u/s. 143(3) r.w.s 147 is liable to be quashed. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the notice issued under Section 148 of the Income Tax Act, 1961, was valid given the amount of income allegedly escaped assessment.
Whether the Assessing Officer (AO) had jurisdiction to issue the notice under Section 148 based on the information available at the time.
Whether the assessment order passed under Section 143(3) read with Section 147 was sustainable, given the alleged procedural and jurisdictional errors.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Notice under Section 148

Relevant legal framework and precedents: The issuance of a notice under Section 148 is governed by Section 149 of the Income Tax Act, which stipulates that no notice shall be issued if three years have elapsed from the end of the relevant assessment year unless the income escaped assessment amounts to or is likely to amount to Rs. 50 lakhs or more.

Court's interpretation and reasoning: The Tribunal noted that the AO initially issued the notice under Section 148 on the assumption that the income escaped assessment exceeded Rs. 50 lakhs. However, the final assessment concluded that the income escaped assessment was only Rs. 17,24,023/-, which is below the Rs. 50 lakh threshold.

Key evidence and findings: The AO's assumption was based on incorrect information regarding deposits, which were later found not to exist. The bank confirmed that the account was closed and no such deposits were made.

Application of law to facts: Since the escaped income was below Rs. 50 lakhs, the notice should have been issued within three years, making the notice issued beyond this period invalid.

Treatment of competing arguments: The Department argued that the AO could issue the notice based on prima facie information. However, the Tribunal held that the information must be accurate and relevant at the time of issuing the notice.

Conclusions: The Tribunal concluded that the notice under Section 148 was invalid as it was based on non-existent information and issued beyond the permissible period.

2. Jurisdiction of the Assessing Officer

Relevant legal framework and precedents: Jurisdiction under Section 148 is contingent upon the AO having valid reasons to believe that income has escaped assessment.

Court's interpretation and reasoning: The Tribunal observed that the AO's jurisdiction was improperly assumed based on incorrect and non-existent information.

Key evidence and findings: The AO's decision to issue the notice was influenced by erroneous data regarding cash and time deposits, which were not substantiated by the bank's response.

Application of law to facts: The Tribunal found that the AO's jurisdiction was improperly exercised as the foundational facts for reopening the assessment were incorrect.

Treatment of competing arguments: The Department's argument that the AO acted on available information was dismissed due to the lack of verifiable evidence supporting the AO's initial assumptions.

Conclusions: The Tribunal determined that the AO lacked jurisdiction to issue the notice under Section 148, rendering the subsequent assessment order unsustainable.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The AO assumed jurisdiction by passing order u/s. 148A(d) of the Act on the basis of incorrect information and issued notice beyond three years from the end of the relevant assessment year even though the income escaped assessment does not exceed Rs. 50 lakhs or more."

Core principles established: The Tribunal emphasized that notices under Section 148 must be based on accurate and existing information, and the jurisdiction must be exercised within the statutory limitations.

Final determinations on each issue: The Tribunal quashed the assessment order, holding that the notice under Section 148 was illegal and void-ab-initio due to the lack of jurisdiction and incorrect foundational facts.

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