2021 (10) TMI 427 - HC - Income Tax

Invalid Income Tax Notices Quashed, Emphasis on Tangible Material

Smt. Nirupa Udhav Pawar, Uddhav Mahadev Pawar, Versus The Assistant Commissioner Of Income Tax, Circle 1 (1), Panaji Goa., The Commissioner Of Income Tax, Panaji Goa., The Assistant Commissioner Of Income Tax/Income, Tax Officer, Ward (1) (4), Panaji Goa.

The court quashed the notices issued under Section 148 of the Income Tax Act, ruling that they were based on incorrect assumptions and lacked ... Reopening of assessment u/s 147 - power to review v/s power to reassess - reasons recorded by the assessment officer are based on the alleged receipt of sale consideration by the assessees in terms of the sale deed - HELD THAT:- There was no omission on the part of the assessees to disclose fully or truly all the material facts necessary for the assessment Year 2010-11. There is no dispute that the assessees had purchased the property in question for ₹ 1.36 crores or thereabouts in the year 2006. Even in terms of the reasons furnished by the assessing officer the indexed cost for the Assessment Year 2010-11 came to ₹ 1.66 crores or thereabouts. From the material relied upon by the respondents, only an amount of ₹ 1 crore was actually received by the assessees during the Assessment Year 2010-11. Thus, for the said assessment year, there was no question of any capital gains and consequently, no question of any income escaping assessment. Only material relied upon by the assessing officer, in this case, is the material supplied by the assessees themselves along with their return for the Assessment Year 2015- 16. There is nothing in this material that could constitute a ground for a reason to believe that there was a failure to disclose a material fact and further, that an income had escaped assessment for the Assessment Year 2010-11. The reasons stated by the assessing officer speak about the receipt of ₹ 3 crores by the assessees during the Assessment Year 2010-11. However, based on the very material relied upon by the assessing officer, this contention was virtually given up and a new reason about “accrual” was sought to be put forward. The decision in Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT] assists the case of the petitioners because this decision holds that the assessing officer has the power to reopen the assessment provided there is tangible material to conclude that there is escapement of income from assessment and further, the reasons must have a live link with the formation of the belief. A mere change in opinion cannot be a reason to reopen. This decision holds that there is a conceptual difference between power to review and power to reassess and that the assessing officer has no power to simply review. - Decided in favour of assessee. Issues Involved:1. Validity of notices issued under Section 148 of the Income Tax Act for reopening the assessment for the Assessment Year 2010-2011.2. Compliance with the procedure prescribed by the Supreme Court in G.K.N. Driveshaft (India) Limited v. Income Tax Officer.3. Jurisdictional parameters for invoking powers under Section 147/148 of the Income Tax Act.4. Disclosure of material facts by the assessees.5. Basis for reopening the assessment: receipt vs. accrual of income.6. Tangible material and cogent facts for the reason to believe income has escaped assessment.Detailed Analysis:1. Validity of Notices Issued Under Section 148:The primary issue in this case was the validity of the notices dated 24.03.2017 and 31.03.2017 issued under Section 148 of the Income Tax Act, which sought to reopen the assessment for the Assessment Year 2010-2011. The petitioners challenged these notices on the grounds that they were based on the incorrect assumption that the petitioners had received a sale consideration of Rs. 3 crores during the relevant assessment year.2. Compliance with G.K.N. Driveshaft Procedure:Ms. Razaq argued that the petition was premature concerning petitioner no.2 as the procedure prescribed in G.K.N. Driveshaft (India) Limited v. Income Tax Officer was not followed. However, the court found that there was no difference in the legal and factual positions of the two petitioners and that the fate of petitioner no.2's case depended on petitioner no.1's case. Therefore, it was unnecessary to bifurcate the matter and relegate petitioner no.2 to follow the prescribed procedure at this stage.3. Jurisdictional Parameters for Invoking Section 147/148:Mr. Naik contended that the jurisdictional parameters necessary for invoking powers under Section 147/148 did not exist in this case. He argued that there was no basis to hold that any material fact had not been disclosed by the assessees in the relevant assessment year, especially since the entire income was disclosed in the Assessment Year 2015-2016 and tax was paid and accepted by the Department without any dispute.4. Disclosure of Material Facts by the Assessees:The court noted that the assessees had disclosed the entire consideration of Rs. 5.36 crores received by them in their return of income for the Assessment Year 2015-2016, and this return was accepted by the Department. The court found no omission on the part of the assessees to disclose fully or truly all material facts necessary for the Assessment Year 2010-11.5. Basis for Reopening the Assessment: Receipt vs. Accrual of Income:The reasons recorded by the assessment officer for reopening the assessment were based on the alleged receipt of Rs. 3 crores by the assessees in terms of the sale deed dated 02.02.2010. The court found that the reasons were based on the actual receipt of this consideration and not on the accrual of this consideration. The court held that the reasons recorded at the time of issuing the notice cannot be supplemented by new reasons or additional material.6. Tangible Material and Cogent Facts for Reason to Believe:The court emphasized that the reason to believe must be based on tangible material and cogent facts. It held that the powers under Section 147 of the Income Tax Act can only be invoked where the assessing officer has a reason to believe that income chargeable to tax has escaped assessment. The court found that the reasons recorded by the assessment officer were based on an erroneous assumption of fact and lacked a direct nexus with the formation of the belief that taxable income had escaped assessment.Conclusion:The court quashed the impugned notices under Section 148 of the Income Tax Act, holding that they were based on incorrect assumptions and lacked the necessary jurisdictional parameters. The court emphasized that the reasons recorded at the time of issuing the notice cannot be supplemented by new reasons or additional material, and the reason to believe must be based on tangible material and cogent facts.