Court upholds Income Tax Act notice validity, stresses procedural compliance, rejects challenge on natural justice, source of funds.

The court dismissed the petition challenging a notice issued under Section 148 of the Income Tax Act, emphasizing the proper procedure followed by the revenue department in reopening/reassessment. The court held that there was no violation of natural justice principles and no grounds for interference at that stage. The petitioner's arguments regarding the source of funds and interest expenses were not accepted, with the court highlighting the need to utilize statutory remedies instead of writ jurisdiction.

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Issues:
Challenge to notice under Section 148 of the Income Tax Act.

Analysis:
The petitioner challenged a notice issued under Section 148 of the Income Tax Act, dated 28.03.2017. The petitioner had filed a return of income for the assessment year 2010-11, showing income of Rs.5,94,850. The petitioner received a notice under Section 133 (6) dated 20.02.2017, followed by a reminder on 02.03.2017. The petitioner responded partially on 06.03.2017 and further on 21.03.2017, denying disallowance of interest paid to Sh.Gaurav. The Assessing Officer provided reasons on 09.08.2017, and objections filed on 05.10.2017 were disposed of on 30.10.2017. The petitioner argued that complete material was not supplied, and proper opportunity was not given before passing the order.

The petitioner contended that the funds given to his son came from his mother's account, totaling Rs.1,14,80,076, and he had contributed Rs. 39,96,043 against his capital of Rs. 3,04,14,983 as of 31.03.2010. The petitioner cited the Supreme Court's decision in M/s Hero Cycle Pvt. Ltd vs. C.I.T., 379 ITR 347, to support his claim that no interest can be disallowed if the capital exceeds ten times the interest-free loans to the son. The department alleged that the petitioner paid Rs.1.5 crores for his son's property and manipulated interest expenses to evade taxes.

The department argued that the petitioner failed to comply with the notice under Section 133 (6) and objected to the disallowance of interest expenses on purported business loans transferred to his son without commercial justification. The department claimed that the petitioner did not provide proof that the funds belonged to his mother or that they were the source of the transferred sums. The department also highlighted the petitioner's rental income and alleged siphoning of funds to evade taxes.

The court noted that the notice under Section 148 was issued after obtaining sanction, and objections were duly disposed of by the Assessing Officer. The court emphasized the need for the petitioner to utilize statutory remedies rather than resorting to writ jurisdiction. It was held that there was sufficient material for reopening/reassessment, and the revenue department followed the prescribed procedure. The court dismissed the petition, stating that there was no violation of natural justice principles and no grounds for interference at that stage.

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