Income Tax Reassessment Notice Issued After 4 Years Without Valid Reasons: Chhattisgarh High Court Quashes Notice

The petitioner has challenged the notice under Section 148 of the Income Tax Act. According to Section 148 of the Income Tax Act, any income tax computation that has not been recomputed or reassessed will receive a notice from the Income Tax department.

The petitioner/assessee, a private limited company, is in the business of manufacturing and selling M.S. ingots and re-rolled products. During Assessment Year 2014–15, the petitioner's company issued 25,000 shares in the names of Amarnath Agrawal and Smt. Ramadevi Agrawal at a face value of Rs. 100 per share.

The sale of shares has been disclosed in the return. After receiving notice under Section 142(1) of the Income Tax Act, the petitioner has submitted details as required to be submitted by the petitioner under the notice. The petitioner has mentioned that due to losses suffered by the steel industry and no buyers in the market, the company was facing a paucity of funds and, therefore, shares have been allotted at their face value.

After considering the reply to notice, the final assessment order under Section 143(3) of the Income Tax Act has been passed.

The petitioner contended that the notice issued under Section 148 of the Income Tax Act was after a lapse of 4 years and once the petitioner had disclosed all the transactions, particularly the sale of shares, and also explained to the authorities the reason for the transfer of shares on the face value, which was accepted by the Assessing Officer, there was no ground available for the respondents to issue a notice under Section 148 of the Income Tax Act as there was no failure on the part of the assessee to make a return and disclose all the material facts fully and truly.

The petitioner submitted that the notice issued under Section 148 of the Income Tax Act was not sustainable because the reason assigned for the issuance of the notice was the transfer of shares, attracting the provisions of Section 56 (2) (vii) (c) (ii) of the Income Tax Act.

Section 56 mentions income from other sources. Section 56(vii) states that the income received by an individual or a Hindu undivided family in any previous year.

The petitioner contended that the provision relied on for forming reason to believe is for the "individual and Hindu undivided family". The notice issued to the petitioner be quashed because there was no valid reason/ground for its issuance under Section 148 of the Income Tax Act.

The respondent/department contended that a notice under Section 148 of the Income Tax Act has been issued after following due procedure as provided under the Income Tax Act. The reason and grounds for issuing the notice have been stated explicitly.

The court held that for the issuance of a notice under Section 148 of the Income Tax Act, there should be tangible material and mandatory compliance with Section 147 of the Income Tax Act. Proceedings of reassessment have been initiated against the company after the lapse of 4 years from the submission of its return. Under the first proviso to Section 147 of the Income Tax Act, for starting the reassessment proceedings after a lapse of 4 years, the Assessing Officer has to record his conclusion that there was a failure on the part of the assessee in not disclosing fully and truly all material facts necessary for assessment in that particular assessment year, which did not appear from the reading of the reasons for issuance of the notice.

The court observed that there was no reason or ground available to the Assessing Officer to issue a notice under Section 148 of the Income Tax Act.

Case Title: Hariom Ingots and Power Pvt. Ltd. Versus The Principal Commissioner of Income Tax | WPT No. 56 of 2022

Citation: 2022 LiveLaw (Chh) 25

Dated: 22.03.2022

Counsel For Petitioner: Advocate Mool Chand Jain

Counsel For Respondent: Advocate Amit Chaudhari

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