2024 (10) TMI 543 - HC - Income Tax

Section 148A notices issued to dissolved firm after dissolution held invalid and non-tenable

Nathalal Hemabhai Patel (Proprietor of M/s Patel Govindbhai Somabhai And Co.) Versus Income Tax Officer, Ward 1, Mehsana

The Gujarat HC quashed reassessment proceedings initiated against a dissolved firm. The court held that notices issued in the name of a non-existent ... Validity of reassessment proceedings against dissolved firm - notice issued against non-existent entity - HELD THAT:- In view of the undisputed fact about the dissolution of firm and the issuance of notice in name of the dissolved firm, the impugned notice and the order would not be tenable more particularly, when the petitioner has in reply to the notice issued u/s 148A (b) of the Act has drawn the attention of the respondent-Assessing Officer about such fact. In view of the settled legal position as held by the Hon’ble Apex Court in case of Maruti Suzuki India Limited [2019 (7) TMI 1449 - SUPREME COURT] the impugned notice and the order are required to be quashed and set aside. Assessee appeal allowed. Issues:1. Validity of notice issued under Section 148A of the Income Tax Act, 1961.2. Escapement of income and assessment proceedings against a dissolved partnership firm.3. Interpretation of legal provisions regarding assessment and reopening of cases.Analysis:Issue 1: Validity of notice under Section 148AThe petitioner received a notice under Section 148A (a) of the Income Tax Act, 1961, which was followed by another notice under Section 148A (b) based on cash withdrawals by a partnership firm. The petitioner, now a proprietor after the dissolution of the firm, contended that the notice was incorrectly issued in the name of the dissolved firm. The respondent, however, proceeded with the assessment without considering this contention. The High Court held that the notice and order issued against the dissolved firm were not tenable, especially when the petitioner had informed the Assessing Officer about the dissolution. The Court relied on the legal principle established in the case of Maruti Suzuki Limited to quash the notice and order.Issue 2: Escapement of income and assessment proceedingsThe respondent argued that the petitioner failed to respond to the initial notice and did not inform the Department about the firm's dissolution. The petitioner, on the other hand, maintained that the cash withdrawals were for legitimate purposes and were duly reflected in the accounts and tax returns. The Court found that the Assessing Officer's decision to reopen the assessment based on unexplained cash withdrawals was not justified, especially considering the dissolution of the firm and the petitioner's explanations regarding the transactions. The Court emphasized the need for proper justification before initiating reassessment proceedings.Issue 3: Interpretation of legal provisionsThe judgment highlighted the importance of adherence to legal procedures and the necessity for Assessing Officers to consider all relevant facts before initiating reassessment proceedings. It underscored the significance of providing accurate information and responding to notices promptly to avoid unnecessary litigation. The Court's decision to quash the notice and order while allowing the Department to proceed lawfully emphasized the balance between taxpayer rights and the Department's authority to ensure tax compliance.In conclusion, the High Court's judgment focused on upholding the principles of natural justice, proper assessment procedures, and the need for clarity and accuracy in tax proceedings. The decision provided a balanced approach by setting aside the invalid notice and order while allowing the Department to take appropriate actions in accordance with the law.