2020 (2) TMI 996 - HC - Income Tax

Reopening of assessment - unexplained deposits in bank account - HELD THAT - Interference at the notice stage is possible only in exceptional cases, this Court is of the view that it is quite open for the Appellant-Assessee to raise all the challenges, both legal and factual, by availing the statutory remedy. As pointed out already, the notice/proceedings under challenge in the writ petition have culminated in re-assessment order passed by the AO; which admittedly has been challenged by filing statutory appeal and is pending consideration. This being the position, this Court is of the firm view that, it is not a fit case to call for interference at this stage. There is a contention for the learned counsel for the Petitioner that though the actual grievance of the Petitioner has been correctly taken note of in paragraph 16 of the judgment passed by the learned Single Judge, there is some observation in the following paragraphs as to the scope of the proceedings and the mandate of statutory requirements. According to the learned counsel, some of such observations are quite detrimental to the rights and interest of the Appellant, and though appeal has already been preferred against the assessment order, it may not be possible for the appellate authority to consider and give an independent finding with regard to the scope of the provisions in view of the observations already made by the learned Single Judge. This will make the appellate remedy illusive. It has been made clear in 'paragraph 28' of the judgment passed by the learned Single Judge that no opinion was being expressed on merits. The apprehension expressed by the Appellant, though not correct or sustainable in view of the clear observation in view of paragraph 28 of the judgment, to rule out any possibility of a finding to the contrary, we make it clear that the observations made by the learned Single Judge in the judgment under challenge will stand only confined to consideration of the question whether interference was to be made by this Court at the notice stage or not. Appeal is not liable to be entertained.

Issues Involved:
1. Validity of the re-assessment notice issued under Section 148(2) of the Income Tax Act, 1961.
2. Consideration of objections raised by the petitioner regarding the reassessment under Section 147 of the Act.
3. Applicability of the proviso to Section 147 concerning the time limit for reassessment.
4. Whether the reassessment was based on new information or tangible material.
5. Adequacy and validity of the reasons to believe for income escaping assessment.
6. The maintainability of the appeal against the notice when reassessment proceedings are pending before the appellate authority.

Issue-wise Detailed Analysis:

1. Validity of the Re-assessment Notice:
The primary challenge raised was against the re-assessment notice issued under Section 148(2) of the Income Tax Act, 1961. The learned Single Judge upheld the validity of the notice, stating that the statutory requirements for issuing the re-assessment notice were satisfied. The Petitioner contended that the notice was invalid as it was the second reassessment after the initial scrutiny assessment under Section 143(3) and a subsequent reassessment. The court, however, found that the AO had sufficient "reason to believe" that income had escaped assessment, thus justifying the issuance of the notice.

2. Consideration of Objections:
The Petitioner filed objections to the reassessment, which were rejected by the AO. The Single Judge found that the AO had duly considered and rejected the objections, and the requirements under Section 147 were met. The Petitioner argued that the learned Single Judge did not fully assess whether the conditions for reassessment were satisfied, particularly the non-disclosure of material facts by the Petitioner.

3. Applicability of the Proviso to Section 147:
The Petitioner argued that the reassessment notice was beyond the four-year period and within six years, thus invoking the proviso to Section 147, which requires non-disclosure of material facts by the Assessee. The court noted that the AO's "reason to believe" must be based on non-disclosure of facts by the Assessee. The Petitioner claimed that all deposits were disclosed in the books of accounts, and there was no new material to justify the reassessment.

4. New Information or Tangible Material:
The Petitioner contended that the deposit of ?1.53 crores in the bank account over a period was not new information or tangible material to justify reassessment. The court observed that the AO had reason to believe based on the information that income had escaped assessment. The Single Judge noted that the AO's belief was not vague or indefinite, and the reassessment was not based on mere suspicion.

5. Adequacy and Validity of Reasons to Believe:
The Petitioner argued that the AO's reasons for reassessment were not adequate and were based on suspicion. The court held that the sufficiency of the reasons is not to be judged at the notice stage. The AO's belief that income had escaped assessment was found to be reasonable and based on material facts. The court referenced several judgments, including those of the Supreme Court, to support the principle that the adequacy of reasons is not to be scrutinized at this stage.

6. Maintainability of the Appeal:
The Respondent argued that the appeal was not maintainable as the reassessment proceedings were already finalized, and the Petitioner had filed an appeal before the appellate authority. The court agreed, stating that interference at the notice stage is only warranted in exceptional cases. Since the reassessment order was already under challenge before the appellate authority, the court found no reason to interfere at this stage.

Conclusion:
The court dismissed the appeal, emphasizing that the observations made by the learned Single Judge were limited to the consideration of whether interference was warranted at the notice stage. It clarified that these observations would not preclude the appellate authority from independently considering the merits of the appeal, including both legal and factual aspects. The Petitioner was allowed to pursue the statutory remedy before the appellate authority without being affected by the Single Judge's observations.

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