2022 (7) TMI 292 - HC - Income Tax

Court rules in favor of appellant due to lack of 'reasons to believe' in reassessment proceedings under Income Tax Act.

MR. WILFRED D'SOUZA Versus THE INCOME TAX OFFICER

The court found in favor of the appellant, highlighting the lack of 'reasons to believe' for initiating reassessment proceedings under Section 148 of the ... Reopening of assessment u/s 148 - Eligibility of Reason to believe - capital gains is chargeable to tax for the Assessment Year 2008-09 and not Assessment Year 2009-10 - HELD THAT:- Except stating that assessee had received Rs.30 Lakhs in the financial year 2007-08 from Rohan Monteiro, the ITO has not recorded any reasons much less, 'reasons to believe' while issuing notice under Section 148 of the Act. Shri. Shankar is right in his submission that payment received in every transaction cannot be construed as Income, but the ITO in this case, has issued notice only on the premise that assessee had received Rs.30 Lakhs in financial year 2007-08. Such notice is not sustainable in law. It is also relevant to note that on completion of transaction, the assessee has filed his return for the financial year 2008-09 and the same is not disputed. Appeal allowed. Issues Involved:1. Jurisdiction under Section 148 of the Income Tax Act, 1961.2. Chargeability of capital gains tax for Assessment Year 2008-09 versus 2009-10.3. Determination of transfer under Section 2(47)(ii) and Section 2(47)(v) of the Act.4. Levy of interest under Section 234C of the Act.Issue-wise Detailed Analysis:1. Jurisdiction under Section 148 of the Income Tax Act, 1961:The primary contention was whether the Tribunal failed to appreciate that the Commissioner of Income Tax (Appeals) erred in not holding that the mandatory conditions for assuming jurisdiction under Section 148 were not complied with, making the reassessment proceedings invalid. The appellant argued that the Assessing Officer did not have 'reason to believe' but only 'reason to suspect', which is insufficient for reopening an assessment. The Tribunal and lower authorities were criticized for holding that the Assessing Officer had 'reasons to believe' that income had escaped assessment. The court emphasized that 'reasons to believe' must be recorded and not based on suspicion, assumption, or surmise. The court referred to several precedents, including Ganga Saran & Sons (P) Ltd. v. Income-tax Officer and Chhugamal Rajpal v. S.P. Chaliha, to reinforce that 'reason to believe' is a sine qua non for issuing a notice under Section 148.2. Chargeability of Capital Gains Tax for Assessment Year 2008-09 versus 2009-10:The Tribunal's decision to charge capital gains tax for the Assessment Year 2008-09 instead of 2009-10 was challenged. The appellant argued that the transaction was completed upon receipt of the balance sum on April 30, 2008, and thus, the capital gains should be chargeable for the Assessment Year 2009-10. The court noted the transaction details and the timing of the payments and concluded that the Tribunal's decision was perverse given the facts and circumstances of the case.3. Determination of Transfer under Section 2(47)(ii) and Section 2(47)(v) of the Act:The Tribunal's determination that there was a transfer under Section 2(47)(ii) but not under Section 2(47)(v) was contested. The appellant argued that the receipt of any amount is a transaction and not income, and the actual transfer should be considered based on the completion of the transaction. The court examined the MOU and the sequence of events, concluding that the Tribunal erred in its interpretation and application of the relevant sections of the Act.4. Levy of Interest under Section 234C of the Act:The Tribunal was also criticized for not adjudicating the issue of levy of interest under Section 234C. The appellant highlighted that the interest levy was not appropriately addressed, adding to the procedural lapses in the reassessment proceedings.Conclusion:The court found merit in the appellant's arguments, particularly regarding the lack of 'reasons to believe' for issuing the notice under Section 148. The court held that the notice was unsustainable in law and that the appellant had filed returns for the financial year 2008-09, which was not disputed. Consequently, the appeal was allowed, the substantial questions of law were answered in favor of the assessee, and the order dated 22.08.2014 by the ITAT was set aside.