2021 (2) TMI 105 - HC - Income Tax

Reopening of assessment u/s 147 - partnership firm failed to file its return of income for the relevant year - Purchase of immovable property - HELD THAT - In the instant case, originally, the assessee filed his return in Form ITR-4 wherein the disclosure of investment is not requires to be disclosed as writ applicant had disclosed his income on presumptive basis under Section 44AD of the Act and his assessment was completed accordingly for the relevant assessment year. We are of the view that the writ applicant was was not obliged to furnish any information as regards the partnership firm or the investment if any in the partnership firm. This issue, according to us, is not, at all, germane for the purpose of Section 148 of the Act. The observations made by the Supreme Court 1969 (2) TMI 16 - SUPREME COURT clearly make out that while filing a return an assessee is not bound or obliged to disclose any information in relation to any fact other than what is required to be supplied and furnished by him in the various columns of the prescribed form of return of income or which he is bound under the provisions of the Act to furnish even though that fact may otherwise be relevant for the purpose of his assessment. For the simple reason that such information has not been furnished in the return it would not mean that the assessee had failed or omitted to disclose fully and truly all material facts which are necessary for the purpose of his assessment. There is no escapement of income chargeable to tax. The conditions precedent for resorting to reassessment under Section 147 of the Act are not satisfied in the present case. Just because the partnership firm failed to file its return of income for the relevant year, by itself, will not confer jurisdiction upon the authority concerned to issue notice against the individual partners of the firm with respect to their individual return of income for the relevant year in consideration. Reassessment permissible under sub-section (1) of section 150 - The entire object of Section 150 (2) is to bar the proceedings under Sub-Section (1) in the matter of assessment/re-assessment or re-computation, which has become the subject matter of the reference or revision by reason of any other provisions limiting the time limit. Section 150 (1) provides that the power to issue notice under Section 148 in consequence of or giving effect to any finding or direction of the Appellate/Revisional Authority or the Court, is subject to the provision contained in Section 150(2), which provides that directions under Section 150(1) cannot be given by the Appellate/Revisional Authority or the Court if on the date on which the order impugned in the appeal/revision was passed, the re-assessment proceedings had become time barred. As per section 150(2), the Appellate Authority could give directions for the re-assessment only in respect of an assessment year, which was within the limitation stipulated under Section 148 in respect of which re-assessment proceedings could be initiated on the date of passing of order under appeal. The argument canvassed on behalf of the Revenue that this Court may permit the Department to invoke Section 150 of the Act for the purpose of proceeding against the partnership firm for the relevant year is not at all palatable or rather sustainable in law.

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act.
2. Applicability of Section 150 of the Income Tax Act.

Detailed Analysis:

1. Validity of the Notice Under Section 148 of the Income Tax Act:
The writ applicant, a partner in the firm "M/s. Shree Khodiyar Developers," challenged the notice issued under Section 148 for the Assessment Year 2012-13, seeking to reopen the assessment on the grounds that the income chargeable to tax had escaped assessment.

Key Points:
- The firm purchased two properties, and the writ applicant, in his individual capacity, was issued a notice for unexplained investment of ?14,68,843/-.
- The applicant argued that the properties were purchased by the firm, not by him individually, and the firm paid the sale consideration.
- The applicant had filed objections stating the properties were bought by the firm, and the investment was not unexplained in his individual return.
- The objections were overruled by the Assessing Officer (AO), who stated that since the firm did not file its return, the investment remains unexplained.

Court’s Analysis:
- The court emphasized that the validity of reopening an assessment under Section 147 must be determined with reference to the reasons recorded for reopening.
- The AO must have a "reason to believe" that income has escaped assessment, which should be based on tangible material.
- The court noted that the writ applicant had disclosed his income on a presumptive basis under Section 44AD in Form ITR-4, which did not require disclosure of investments.
- The court found that the writ applicant was not obliged to disclose the investment in the partnership firm in his individual return, as the investment was made by the firm, not by him individually.
- The court concluded that the conditions precedent for resorting to reassessment under Section 147 were not satisfied, as there was no escapement of income chargeable to tax in the hands of the writ applicant.

2. Applicability of Section 150 of the Income Tax Act:
The Revenue argued that if the court found the reopening under Section 148 unsustainable, the Department should be allowed to invoke Section 150 to proceed against the partnership firm.

Key Points:
- Section 150 allows reopening of assessment without the limitation period if it is to give effect to any finding or direction in an order passed by any authority or court.
- The court noted that Section 150(1) is an exception to the limitation period prescribed under Section 149, but it is subject to Section 150(2), which bars reopening if the limitation period has already expired at the time of the order.

Court’s Analysis:
- The court referred to the Supreme Court's decision in Commissioner of Income-Tax, Shimla vs. The Green World Corporation, which clarified that Section 150(1) does not permit reopening at any time and must comply with the limitation period.
- The court found that the argument to invoke Section 150 was not sustainable, as it would not apply if the period of limitation had already expired.

Conclusion:
The court held that the notice issued under Section 148 was not sustainable in law, as the writ applicant was not required to disclose the investment made by the partnership firm in his individual return. The court also rejected the applicability of Section 150 to proceed against the partnership firm. Consequently, the writ application was allowed, and the impugned notice was quashed and set aside.