2017 (9) TMI 483 - HC - Income Tax

Court quashes Income Tax Act Section 148 notices for AY 2009-10

Juhi Dixit Versus Deputy Commissioner of Income Tax & Others And Vijay Laxmi Agarwal, Rajiv Agarwal Versus Assistant Commissioner of Income Tax & Others

The Court quashed the notices issued by the Assessing Officer under Section 148 of the Income Tax Act for reopening assessments for AY 2009-10. It found ... Reopening of assessment on the basis of complaint - seeking quashing of notice u/s 148 - - Erstwhile auditor of SHPL addressing false and malicious communications about petitioners for several years - reasons to believe - Held That:- Indeed, the reasons to believe appear to be a mere reproduction of the complaint itself. The Revenue failed to show the nexus between the material, if any, and the formation of belief. Importantly, the disposal of the objections did not address any of the issues raised by the Petitioner. As per report of District Valuation Officer (DVO) no construction or renovation is incurred. - CIT(A) allowed appeal of assessee. Here again, the purpose of providing a forum to the Petitioners to object to the reopening of the assessment and dealing the objections by a reasoned order, has been rendered meaningless by the AO. In all three matters, the fact of the proceedings having been initiated at the instance of Respondent No. 2 who himself is facing disciplinary proceedings, has not been addressed. - Writ petition are allowed. - Notice quashed - Decided in favor of assessee. Issues Involved:1. Validity of reopening assessments under Section 148 of the Income Tax Act, 1961.2. Adequacy of reasons to believe income had escaped assessment.3. Role and impact of Tax Evasion Petition (TEP) and disciplinary proceedings against Respondent No. 2.4. Treatment of keyman insurance policy and deemed dividend under Section 2(22)(e) of the Act.5. Proper addressing of objections by the Assessing Officer (AO).Detailed Analysis:1. Validity of Reopening Assessments under Section 148:The petitions sought the quashing of notices issued by the AO under Section 148 of the Income Tax Act, 1961, for reopening assessments for AY 2009-10. The Court found that the reopening was based on inadequate and unverified information, primarily from a Tax Evasion Petition (TEP) and disciplinary proceedings against the former auditor of SHPL, Respondent No. 2.2. Adequacy of Reasons to Believe Income Had Escaped Assessment:The Court noted that the reasons provided by the AO for reopening the assessments were insufficient and lacked tangible material. For instance, in the case of Juhi Dixit, the AO's reasons were merely a reproduction of the complaint without any independent verification or application of mind. Similarly, for Rajiv Agarwal and Vijay Laxmi Agarwal, the reasons did not adequately address their explanations regarding property transactions and deemed dividends.3. Role and Impact of Tax Evasion Petition (TEP) and Disciplinary Proceedings Against Respondent No. 2:The Petitioners contended that the TEP and false communications by Respondent No. 2, who was facing disciplinary proceedings, led to high-pitched assessments. The Court observed that the AO failed to provide the TEP to the Petitioners and did not demonstrate any nexus between the TEP and the reasons to believe income had escaped assessment. The Court emphasized that the TEP alone could not constitute tangible material for reopening assessments.4. Treatment of Keyman Insurance Policy and Deemed Dividend Under Section 2(22)(e):The Court referred to its earlier decision in CIT v. Rajan Nanda (2012) 349 ITR 008, which held that keyman insurance policy proceeds were non-taxable. It also noted the CBDT clarification that income from such policies would be taxable only from AY 2012-13. The AO's failure to consider these precedents while reopening assessments for AY 2009-10 was a significant oversight. Additionally, the Court found that the issue of deemed dividend under Section 2(22)(e) had already been addressed in favor of the Petitioners in earlier proceedings.5. Proper Addressing of Objections by the Assessing Officer (AO):The Petitioners' objections to the reopening of assessments were not adequately addressed by the AO. For instance, in the case of Juhi Dixit, the AO did not deal with the principal objection regarding the non-taxability of keyman insurance policy proceeds. Similarly, for Rajiv Agarwal and Vijay Laxmi Agarwal, the AO did not address their explanations about property transactions and deemed dividends. The Court found that the AO's disposal of objections lacked reasoning and failed to fulfill the jurisdictional requirements under Section 148(1) of the Act.Conclusion:The Court concluded that there was no valid justification for the AO to issue the impugned notices for reopening assessments. Consequently, the notices and all proceedings consequent thereto, including the orders rejecting the Petitioners' objections, were quashed. The writ petitions were allowed in these terms.