2018 (2) TMI 1093 - HC - Income Tax

Validity of reopening of assessment - notice against non existent entity - eligibility of reasons to believe - notice not addressed in the correct name - Held that - When notice is issued under Section 147/148 of the Act, firm and conclusive findings are not required for merits would be examined and thereafter final finding recorded in the assessment order. As long as, there is honest and reasonable opinion formed by the Assessing Officer and the reasons to believe are not mere reasons to suspect , the courts should not interject to stop the adjudication process and scrutiny on merits. Absolute certainty is not required at the time of issue of notice and at the same time, reasons to believe must not be based on mere suspicion, gossip or rumour. The said test and criteria, we have no hesitation in holding, is satisfied in the present case. There is evidence and material on record to justify issue of notice under Section 147/148 of the Act. There was no doubt and debate that the notice was meant for the petitioner and no one else. Legal error and mistake was made in addressing the notice. Noticeably, the appellant having received the said notice, had filed without prejudice reply/letter dated 11.04.2017. They had objected to the notice being issued in the name of the Company, which had ceased to exist. However, the reading of the said letter indicates that they had understood and were aware, that the notice was for them. It was replied and dealt with by them. The fact that notice was addressed to M/s Sky Light Hospitality Pvt. Ltd., a company which had been dissolved, was an error and technical lapse on the part of the respondent. No prejudice was caused. Notice under Section 147/148 of the Act was issued at the end of the limitation period. Noticeably, Assessment Order for the assessment year 2013-2014 was passed on 31.03.2016, one year earlier. Second lapse is also apparent. Despite correctly noting the background, notice under Section 147/148 of the Act was not addressed in the correct name and even the PAN Number mentioned was incorrect. Nevertheless, human errors and mistakes cannot and should not nullify proceedings which are otherwise valid and no prejudice had been caused. This is the effect and mandate of Section 292B of the Act. Writ petition dismissed.

Summary

Issues Involved:
1. Validity of notice issued under Section 147/148 of the Income Tax Act to a dissolved entity.
2. Applicability of Section 292B of the Income Tax Act.
3. Establishment of "reasons to believe" for income escaping assessment.

Detailed Analysis:

1. Validity of Notice Issued to a Dissolved Entity:
The petitioner, Sky Light Hospitality LLP, contested the validity of the notice dated 30.03.2017 issued under Section 147/148 of the Income Tax Act, 1961, which was addressed to M/s Sky Light Hospitality Pvt. Ltd., a company that had ceased to exist upon conversion into an LLP on 13.05.2016. The petitioner argued that the notice issued to a non-existent entity was invalid and void in the eyes of the law. The respondent contended that the error in addressing the notice was a procedural lapse and not a jurisdictional error, and thus Section 292B of the Act should apply to rectify this mistake.

2. Applicability of Section 292B:
The court examined whether the procedural lapse of issuing the notice to the dissolved entity could be cured under Section 292B of the Income Tax Act. The provision states that a notice shall not be invalid merely by reason of any mistake, defect, or omission if it is in substance and effect in conformity with the intent and purpose of the Act. The court referred to previous judgments, including Commissioner of Income Tax Vs. M/s Jagat Novel Exhibitors Pvt. Ltd., which emphasized that technical errors should not invalidate proceedings if no prejudice or confusion was caused to the assessee. The court held that the petitioner was aware of the notice and its intent, as evidenced by their response, and thus no prejudice was caused. Therefore, the error was a technical lapse protected under Section 292B.

3. Establishment of "Reasons to Believe":
The court analyzed the "reasons to believe" recorded by the Assessing Officer for issuing the notice under Section 147/148. The reasons included a detailed Tax Evasion Petition and specific transactions indicating that income had escaped assessment. The court noted that the reasons were elaborate and showed a live link between the material on record and the inference that income had escaped assessment. The court emphasized that at the stage of issuing the notice, firm and conclusive findings were not required, and as long as there was an honest and reasonable opinion formed by the Assessing Officer, the courts should not interfere. The court concluded that the "reasons to believe" were not mere suspicions but were based on substantial evidence, satisfying the legal requirements for issuing the notice.

Conclusion:
The court dismissed the writ petition, holding that the notice issued under Section 147/148 of the Income Tax Act, despite being addressed to a dissolved entity, was a procedural lapse cured under Section 292B. The "reasons to believe" for income escaping assessment were found to be valid and based on substantial evidence. The petitioner was directed to appear before the Assessing Officer for further proceedings on the merits of the case.