2021 (5) TMI 30 - HC - Income Tax

Court emphasizes strict interpretation of legal provisions in assessing undisclosed investments. Interim stay granted on notice.

Manisha Construction Company Versus Union Of India And Another

The court found that the notice issued under section 153A of the Income Tax Act lacked tangible evidence of undisclosed investments in the petitioner's ... Assessment u/s 153A - No speaking order passed by the said respondent rejecting the request of the petitioner to drop the proceedings initiated under section 153A of the Act and directing the petitioner to file return of income for the assessment year 2011-2012 in accordance with the provisions of section 153A - HELD THAT:- If we examine the impugned speaking order prima facie, there is no indication about any tangible evidence showing undisclosed investment in the assets of the petitioner. In paragraph no.5 of the aforesaid order, we find that according to respondent no.2, there is a bogus liability which has resulted into emergence of asset on the other side. Respondent no.2 has not mentioned about any tangible evidence wherefrom it can be deduced about undisclosed investments in any asset of the petitioner. This is a case where a concluded assessment is sought to be reopened beyond the six assessment years and therefore, in such a case provisions of the fourth proviso to section 153A is required to be interpreted strictly. That being the position and considering the long line of judicial precedents starting from Calcutta Discount Co. Ltd Vs ITO, [1960 (11) TMI 8 - SUPREME COURT] we are of the view that the matter would require further deliberation by the Court and considering the jurisdictional issue involved it would not be just and proper to relegate the petitioner to face the assessment proceedings and the consequential remedy of appeal, if the occasion so arises. Issue notice, returnable after four weeks. Issues:Challenge to notice under section 153A of the Income Tax Act, 1961 and rejection of request to drop proceedings for assessment year 2011-2012.Detailed Analysis:Issue 1: Challenge to Notice under Section 153A:The petitioner challenged the notice dated 13.01.2021 issued under section 153A of the Income Tax Act, 1961. The petitioner contended that the jurisdiction under section 153A requires tangible evidence of undisclosed investment in any asset, which was allegedly missing in this case. The petitioner argued that the revenue's contention of inflation of expenses and reduction of profit did not prove undisclosed investments, as all investments were disclosed in the balance sheet. The petitioner emphasized the importance of tangible evidence for invoking jurisdiction under section 153A.Issue 2: Rejection of Request to Drop Proceedings:The speaking order dated 03.02.2021, rejecting the petitioner's request to drop the proceedings initiated under section 153A for the assessment year 2011-2012, was also challenged. The respondent, on the other hand, argued that reasons were recorded for invoking the fourth proviso to section 153A and reopening the assessment. The respondent contended that the writ petition was premature, as the petitioner could present its case during assessment proceedings and in appellate forums if necessary. The respondent cited Supreme Court decisions to support the argument that the court should not intervene at this stage.Analysis of Legal Provisions:Section 153A deals with assessment in case of search or requisition, allowing the assessing officer to issue notices for furnishing returns of income for preceding assessment years. The fourth proviso to section 153A, inserted by the Finance Act, 2017, sets conditions for issuing notices for assessment or reassessment, requiring tangible evidence of undisclosed investments in assets amounting to a specified threshold. The explanation to the proviso clarifies the definitions of relevant assessment year and asset. The Finance Bill 2017 and circular no. 2/2018 provide further clarification on the amendment to section 153A.Court's Decision:The court, after considering the legal parameters and precedents, found that the speaking order did not indicate tangible evidence of undisclosed investments in the petitioner's assets. The court noted that the assessment was sought to be reopened beyond the six assessment years, necessitating strict interpretation of the fourth proviso to section 153A. Citing judicial precedents, the court decided that further deliberation was required on the jurisdictional issue, and it would not be just to relegate the petitioner to face assessment proceedings and subsequent appeals. As an interim measure, the court directed a stay of the impugned notice dated 13.01.2021 until further orders.In conclusion, the court issued notice for a future hearing, emphasizing the importance of tangible evidence for invoking jurisdiction under section 153A and the need for strict interpretation of legal provisions in assessment proceedings.