2022 (4) TMI 344 - HC - Income Tax

Reopening of assessment u/s 147 - Whether provisions u/s 56(2)(vii)(c)(ii) will not be attracted, in the fact of the case? - HELD THAT - Provisions under Section 56 would reflect that Section 56 mentions about the income from other sources. Section 56(vii) talks about the income received by an individual or a Hindu undivided family in any previous year. Petitioner is a company and in view of specific provision under Section 56(2)(vii) relied by the AO for issuance of notice will not be applicable to the petitioner who is a company. For issuance of notice u/s 148 there should be tangible material and mandatory compliance of Section 147 - Proceedings of reassessment has been initiated against company after lapse of 4 years of submission of return, which is not in dispute. Under first proviso to Section 147 of the I.T. Act, for starting the reassessment proceedings after lapse of 4 years, AO has to record his conclusion that there was failure on the part of assessee in not disclosing fully and truly all material facts necessary for assessment of that particular assessment year, which is not appearing from the reading of the Annexure i.e. reasons for issuance of notice. Reason assigned for issuance of notice and provisions mentioned therein, in the opinion of this Court, there was no reason/ground available with Assessing Officer to issue notice under Section 148 of the I.T. Act. Issuance of notice under Section 148 to petitioner is not in accordance with the first proviso to Section 147 of the I.T. Act, therefore, it is not sustainable, which is liable to be quashed and it is hereby quashed. - Decided in favour of assessee.

Summary

Issues involved:
Challenge to notice under Section 148 of the Income Tax Act, 1961 based on the applicability of Section 56(2)(vii)(c)(ii) of the Act to a private limited company.

Detailed Analysis:

1. Challenge to Notice under Section 148:
- The petitioner, a private limited company, challenged the notice issued under Section 148 of the Income Tax Act, 1961, seeking to quash the notice and drop the proceedings under Section 147.
- The petitioner contended that the notice was issued after a lapse of 4 years, even though all transactions, including the sale of shares, were disclosed, and the reasons for transferring shares at face value were explained to the Assessing Officer.
- The petitioner argued that the provision relied upon for issuing the notice, Section 56(2)(vii)(c)(ii) of the Act, is applicable to individuals and Hindu undivided families, not to companies.

2. Arguments by Petitioner and Respondents:
- The petitioner's counsel argued that there was no valid ground for the notice under Section 148, as all material facts were disclosed, and the reason for transferring shares was explained.
- The respondents' counsel opposed the petitioner's submissions but did not dispute the applicability of Section 56 of the Act.

3. Analysis of Section 56(2)(vii)(c)(ii):
- The court analyzed Section 56 of the Income Tax Act, particularly Section 56(2)(vii)(c)(ii), which pertains to the receipt of property for a consideration less than the fair market value by individuals or Hindu undivided families.
- The court noted that the specific provision under Section 56(2)(vii) of the Act, relied upon for issuing the notice, does not apply to companies like the petitioner.

4. Validity of Notice and Compliance with Section 147:
- The court emphasized that for issuing a notice under Section 148 of the Income Tax Act, tangible material and compliance with Section 147 are mandatory.
- Reassessment proceedings initiated after a lapse of 4 years require the Assessing Officer to record a conclusion of failure on the part of the assessee in disclosing all material facts, which was not evident from the reasons for the notice in this case.

5. Court's Decision and Conclusion:
- After considering the provisions of Section 56, the lack of valid grounds for the notice, and the absence of compliance with Section 147, the court concluded that the notice under Section 148 was not sustainable.
- The court quashed the notice issued to the petitioner, a private limited company, as it did not meet the requirements under the first proviso to Section 147 of the Income Tax Act.

6. Final Order:
- The court allowed the writ petition, thereby granting relief to the petitioner and quashing the notice issued under Section 148 of the Income Tax Act, 1961.