2024 (12) TMI 652 - HC - Income Tax

Reassessment notice quashed as taxpayer had no obligation to disclose remittances not directly received under Section 148

Subhash Chander Dabas Versus Assistant Commissioner Of Income Tax

Delhi HC quashed reassessment notice under Section 148, holding that formation of opinion under Section 147 cannot be of changing nature. Court found that ... Reopening of assessment - reason to believe - receipt by the petitioner from the DSNE CGHS - HELD THAT:- We had in ATS Infrastructure Limited [2024 (7) TMI 1441 - DELHI HIGH COURT] held that the formation opinion under Section 147 and the reasons which are taken into consideration for initiating action of reassessment cannot waiver or be one of changing hues. A reassessment action would have been permissible, provided it were established that the petitioner had failed to make a “full and true disclosure” of all material facts. Obviously, and once it is conceded by the respondents themselves that the petitioner had not directly received any remittances from the DSNE CGHS, there would have been no occasion for the petitioner to have made a disclosure in its Return of Income. Accordingly, and for all the aforesaid reasons, we find ourselves unable to sustain the invocation of Section 148. Writ petition is, accordingly, allowed. The impugned notice under Section 148 is hereby quashed. We, however, leave it open to the respondents to initiate proceedings afresh, if otherwise permissible in law. Issues Involved:1. Legality of the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961 for Assessment Year 2012-13.2. Validity of the reasons recorded for the reassessment and whether they constitute a 'reason to believe' that income had escaped assessment.3. Compliance with the Proviso to Section 147 regarding the failure to disclose material facts fully and truly.4. Impact of the disconnect between the reasons for reassessment and the final assessment order.Detailed Analysis:1. Legality of the Reassessment Proceedings:The writ petitioner challenged the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2012-13. The proceedings were initiated before the procedure for reassessment was modified by the Finance Act, 2021, thus the procedure prevalent at the time was applied. The petitioner had filed a Return of Income on 30 September 2012, which was assessed under Section 143(3) on 26 March 2015. The impugned notice under Section 148 was issued on 31 March 2019, alleging that income had escaped assessment.2. Validity of the Reasons Recorded:The reasons for reopening the assessment were based on information received from the Joint Director of Income Tax (Investigation), indicating that the petitioner, through his proprietary concern, had received significant amounts from the Delhi States Newspaper Employee Cooperative Group Housing Society (DSNE CGHS) which were not disclosed as income. The Assessing Officer (AO) formed the opinion that the petitioner failed to disclose fully and truly all material facts, thus fulfilling the Proviso to Section 147.The Court noted that the reasons originally recorded for initiating reassessment must be the basis for evaluating the validity of the proceedings. It was found that the respondents themselves admitted that no amounts were directly received by the petitioner from DSNE CGHS. Instead, the funds were routed through a company in which the petitioner held a majority shareholding. This admission contradicted the original reasons recorded for reassessment, leading the Court to conclude that the Section 148 proceedings could not be sustained.3. Compliance with the Proviso to Section 147:The Proviso to Section 147 requires that for reassessment to be initiated after four years from the end of the relevant assessment year, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Since the petitioner was originally assessed under Section 143(3), this proviso was applicable. The Court observed that the petitioner had not directly received any remittances from DSNE CGHS, and thus there was no failure to disclose such receipts in the Return of Income. Consequently, the invocation of Section 148 was deemed unsustainable.4. Disconnect Between Reasons for Reassessment and Final Assessment Order:The Court highlighted the disconnect between the reasons recorded for reassessment and the disclosures made in the final assessment order. Initially, the reassessment was based on the alleged receipt of INR 24,80,29,000/- by the petitioner from DSNE CGHS. However, the final assessment order treated the receipt in the hands of M/s Tirupati Construction as deemed dividend, taxable in the hands of the petitioner. This shift in reasoning was found impermissible, as the validity of reassessment must be judged based on the original reasons recorded.Conclusion:The Court quashed the impugned notice under Section 148 dated 31 March 2019, allowing the writ petition. It left open the possibility for the respondents to initiate proceedings afresh if permissible by law. The final order of assessment dated 31 December 2019, being contingent on the invalid Section 148 notice, was also set aside.