Section 148: Concrete Proof Is Needed for AO’s Belief, Not Just Conjecture
Fact and issue of the case
This writ petition is directed against proceedings triggered qua the petitioner/assessee under Section 148 of the Income-tax Act, 1961 [hereafter referred to as “the Act”].
The record shows that the Assessing Officer (AO) initiated assessment/reassessment proceedings vis-à-vis the petitioner/assessee concerning Assessment Year (AY) 2011-12 via notice dated 31.03.2018, issued under Section 148 of the Act [hereafter referred to as the “impugned notice”].
For adjudication of the instant writ action, the following broad facts are required to be noticed.
The petitioner/assessee filed its Return on Income (ROI) concerning the AY mentioned above on 01.07.2011. This ROI was processed under Section 143(1) of the Act.
Six years and nine months after the ROI for AY 2011-12 was filed, the petitioner/assessee was, as indicated above, served with the impugned notice by the AO. The impugned notice was premised on the Assessing Officer’s (AO) belief, based on the reasons he recorded [although not communicated with the said notice], that income, otherwise chargeable to tax in AY 2011- 12, had escaped assessment.
The petitioner/assessee was, thus, via the impugned notice, called upon to file an ROI in the prescribed form for the AY in issue within thirty (30) days.
The petitioner/assessee complied with the direction issued to it and, accordingly, filed the ROI on 05.04.2018, which declared the same income that had been disclosed while filing the original ROI on 01.07.2011.
Since the AO had failed to furnish the document containing “reason to believe”, which formed the basis for triggering reassessment proceedings against the petitioner/assessee, a request in that regard was made on 05.04.2018. The request made by the petitioner/assessee was followed by two reminders dated 01.06.2018 and 15.06.2018.
The AO, on 26.06.2018, finally responded to the request made and furnished a copy of the document in which “reason to believe” had been recorded.
This propelled the petitioner/assessee to file its objections dated 09.2018.
The AO disposed of the objections on 24.09.2018. The dismissal of the objections via order dated 24.09.2018 constrained the petitioner/assessee to take recourse to the instant writ action.
Notice in the writ petition was issued on 09.10.2018. While issuing notice in this writ petition, the court restrained the respondent/revenue from passing final orders in the reassessment proceedings during the pendency of the writ petition.
The said interim order was made absolute, albeit during the pendency of the writ petition, on 08.02.2023.
Observation of the court
In our view, the AO did not employ diligence while triggering the reassessment proceedings against the petitioner/assessee. It appears that because AO realized that the information received by him from ITO (Nahan) via letter dated 12.03.2018 concerned the preceding period, he attempted to commence reassessment proceedings under Section 147/148 of the Act by simply comparing the “source of funds” reflected under various heads in the balance sheets for the preceding AY and the AY in issue. Furthermore, that there was a gap in the enquiry is evident from the following. First, the respondent/revenue emphasized the fact that information was sought from the petitioner/assessee via notice dated 20.03.2018 before it issued the impugned notice on 31 .03.2018. The notice dated 20.03.2018 could not have reached the petitioner/assessee [and nothing to the contrary has been placed on record by the respondent /revenue] as concededly, it did not bear the complete address of the petitioner/assessee. Second, the AO did not even have the list of shareholders of the petitioner/assessee, as indicated in the “reason to believe”.
We are of the opinion that the AO did not have the tangible material on record that could have persuaded him to form a belief that income, otherwise chargeable to tax, had escaped assessment. The AO did not carry forward the enquiry process once he had received communication from ITO (Nahan). As noticed above, the AO did not furnish either the letter dated 12.03.2018 received from ITO (Nahan) or the relevant intimation received from the ADIT(Inv)/Unit-4(2) New Delhi, along with the document containing “reason to believe.” Had the AO furnished the documents, he would have been able to reach a firmer conclusion that crossed the threshold of suspicion and conjecture.
Thus, for the foregoing reasons, we are inclined to quash the impugned notice issued to the petitioner/assessee under Section 148 of the Act.
It is ordered accordingly.
The writ petition is disposed of in the aforesaid terms.
Parties will, however, bear their respective costs.
Read the full order from hereSaraswati-Petrochem-Pvt.-Ltd.-Vs-ITO-Delhi-High-Court2-1