2024 (3) TMI 1472 - HC - Income Tax

Reopening of assessment under Section 148 quashed for acting beyond scope and incorrect facts on land purchase

Shri Veer Teja Real Estate And Developers Pvt. Versus Income Tax Officer, Ward 7 (2), Jaipur; Principal Commissioner of Income Tax-3, Jaipur & Union Of India, Through Finance Secretary, New Delhi

Shri Veer Teja Real Estate And Developers Pvt. Versus Income Tax Officer, Ward 7 (2), Jaipur; Principal Commissioner of Income Tax-3, Jaipur & Union Of ... 1. ISSUES PRESENTED and CONSIDERED Whether the issuance of notice under Section 148A(b) of the Income Tax Act, 1961, based on information of alleged sale of immovable property, was valid when the factual position was that the transaction was a purchase, not a sale. Whether the order passed under Section 148A(d) of the Act, initiating reassessment proceedings under Section 148, can be sustained when it is founded on incorrect factual assumptions. Whether the Income Tax authorities acted within the scope and limitations prescribed under Sections 148, 148A(b), and 148A(d) of the Act in initiating reassessment proceedings. Whether the petitioner's explanation regarding the nature of the transaction (purchase vs. sale) was properly considered and if failure to accept the explanation amounts to jurisdictional error or abuse of power. Whether the reassessment proceedings initiated on the basis of incorrect facts constitute harassment and are liable to be quashed. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Notice under Section 148A(b) based on alleged sale of property Relevant legal framework and precedents: Section 148A(b) mandates that a notice for reassessment can be issued only if the Assessing Officer has 'information or material' indicating that income chargeable to tax has escaped assessment. The notice must disclose the basis of such information or material. Court's interpretation and reasoning: The notice issued to the petitioner stated that the petitioner had sold immovable property for Rs. 2.84 crore and failed to disclose capital gains arising from the sale. However, the petitioner contended that the transaction was a purchase, not a sale. The Court observed that the authorities issued the notice without verifying the factual correctness of the transaction's nature. Key evidence and findings: Annexure-A attached to the notice explicitly mentioned a sale transaction, whereas the petitioner's reply clarified that it was a purchase. The authorities failed to verify this before issuing the notice. Application of law to facts: Since the notice was predicated on an incorrect factual premise (sale instead of purchase), the foundational requirement under Section 148A(b) - that there be credible information of escaped income - was not met. Treatment of competing arguments: The Revenue argued that a high-value purchase warranted verification and thus justified the notice. The Court rejected this as insufficient to sustain the notice when the stated reason was a sale and capital gains escapement. Conclusion: The notice under Section 148A(b) was invalid as it was issued on a wrong factual basis without proper verification, failing to meet statutory requirements. Issue 2: Validity of order under Section 148A(d) initiating reassessment under Section 148 Relevant legal framework and precedents: Section 148A(d) requires the Assessing Officer to record satisfaction that income chargeable to tax has escaped assessment before issuing a notice under Section 148. This satisfaction must be based on verified and credible information. Court's interpretation and reasoning: The order under Section 148A(d) was passed ignoring the petitioner's response that the transaction was a purchase. The authorities concluded that the petitioner's explanation was unsatisfactory solely because the petitioner was engaged in real estate business, without any independent verification of facts. Key evidence and findings: The impugned order relied on the petitioner's business profile rather than concrete evidence of escaped income. The Court found that the order was based on erroneous facts and did not comply with the statutory mandate of forming satisfaction on verified information. Application of law to facts: The Court held that the order under Section 148A(d) was passed 'de hors the Act,' meaning outside the scope of lawful authority, as it was founded on incorrect facts and failed to properly consider the petitioner's explanation. Treatment of competing arguments: The Revenue's reliance on the petitioner's involvement in real estate business as a ground for dissatisfaction was rejected as insufficient and arbitrary. Conclusion: The order under Section 148A(d) initiating reassessment was invalid and unsustainable. Issue 3: Scope and limitations of reassessment proceedings under Sections 148, 148A(b), and 148A(d) Relevant legal framework and precedents: Reassessment proceedings under Section 148 can only be initiated if the Assessing Officer has tangible and credible information that income has escaped assessment. Sections 148A(b) and 148A(d) provide procedural safeguards requiring disclosure of information and recording of satisfaction before reassessment. Court's interpretation and reasoning: The Court emphasized that reassessment proceedings cannot be initiated on mere suspicion or incorrect facts. The authorities must act within the bounds of the Act and ensure that the information relied upon is accurate and verified. Key evidence and findings: In this case, the authorities failed to verify whether the transaction was a sale or purchase before initiating reassessment, thus exceeding their jurisdiction. Application of law to facts: The Court found that the reassessment proceedings were initiated without meeting the statutory preconditions, rendering the entire process invalid. Treatment of competing arguments: The Revenue's argument that high-value transactions require scrutiny was acknowledged but held insufficient to override statutory safeguards. Conclusion: The reassessment proceedings initiated were beyond the scope and limitations prescribed by the Income Tax Act. Issue 4: Consideration of petitioner's explanation and consequences of ignoring it Relevant legal framework and precedents: The Assessing Officer is required to consider the assessee's explanation before forming satisfaction under Section 148A(d). Ignoring a plausible explanation without valid reasons amounts to jurisdictional error. Court's interpretation and reasoning: The petitioner's explanation that the transaction was a purchase and not a sale was ignored by the authorities. The Court held that such disregard without independent verification or cogent reasons is impermissible. Key evidence and findings: The petitioner submitted written submissions clarifying the nature of the transaction, which were not properly considered. Application of law to facts: The Court concluded that the failure to consider the petitioner's explanation vitiated the impugned order and notice. Treatment of competing arguments: The Revenue's view that the petitioner's explanation was unsatisfactory was not supported by any material evidence. Conclusion: Ignoring the petitioner's explanation rendered the reassessment proceedings unlawful. Issue 5: Whether reassessment proceedings based on incorrect facts constitute harassment and are liable to be quashed Relevant legal framework and precedents: Reassessment proceedings initiated without proper basis and on incorrect facts can amount to abuse of process and harassment, justifying judicial intervention. Court's interpretation and reasoning: The Court recognized that the petitioner was subjected to unwarranted proceedings based on erroneous assumptions, causing harassment. Key evidence and findings: The impugned order and notice were based on a fundamental factual error (sale vs. purchase), and the petitioner's legitimate explanation was disregarded. Application of law to facts: The Court exercised its writ jurisdiction to quash the impugned order and notice to prevent abuse of power and harassment. Treatment of competing arguments: The Revenue's justification based on verification needs was insufficient to justify the harassment caused. Conclusion: The reassessment proceedings were quashed as they were founded on incorrect facts and constituted harassment.