Merely Because New AO Isn’t Happy With Manner In Which Assessment Was Done Earlier, It Can’t Be Reason To Review It: Punjab & Haryana HC
|The Punjab and Haryana High Court held that merely because a new Assessing Officer (AO) is not happy with the manner in which assessment was done earlier, it cannot be a reason to review assessment.
The Court held thus in a writ petition seeking quashing of notice issued under Section 148 of the Income Tax Act, 1961 (IT Act), draft assessment order under Section 144 read with Section 147 of the Act, and the order by which the objections of the assessee were rejected.
A Division Bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth observed, “We respectfully follow and hold the action to be arbitrary exercise of power by the assessing officer. … No document has been produced by the respondents to show that they had any new information or documentary evidence for reopening of the case while the power is available with them. The same has to be exercised carefully and sanctity of assessments already done should be maintained. Merely because a new assessing officer may not be happy with the manner in which assessment was done earlier, cannot be a reason to review assessment.”
The Bench added that the power available is of reassessment and not of review of earlier assessment.
Senior Advocate Radhika Suri represented the petitioner while Senior Standing Counsel (SSC) Saurabh Kapoor represented the respondents.
Factual Background -
The writ petition came up for hearing when the respondents’ counsel stated that the final assessment order was passed whereafter the High Court allowed the petitioner to amend his writ petition and also challenge the final assessment order. However, when the case was taken up in the Court, since on that day the statement was found to be false as the final order of assessment had not been passed, an affidavit was also filed seeking apology by the Revenue. The petitioner had purchased 92 kanals 2 marlas of agricultural land from three brothers in 2012 and he further transferred the same to a company. As the land was an agricultural land, it was not eligible to tax as it was not a capital asset, therefore, no income was taxable either in the hands of the seller or with the petitioner. The fact that the land was agricultural was verified by the ITO Intelligence, Karnal in a verification report, which was forwarded to the Director of Income Tax, Intelligence and Criminal Investigation.
The petitioner’s assessment proceedings were completed and finalized for the year 2013-14 and no additions were made on account of any undisclosed income of capital gain. The petitioner was served with a notice stating that the income chargeable had escaped assessment under Section 147 of IT Act. The assessee failed to submit the supporting evidence as to whether this investment is from disclosed sources of income and accordingly, draft assessment order was prepared rounding off the total income of the petitioner as Rs. 24,69,09,300/- by adding the short-term capital gain of Rs. 15,58,35,000/- and Rs.3,75,75,000/- as unexplained investment. Assailing the proceedings, the writ petition was filed.
The High Court after hearing the contentions of the counsel, noted, “We also noticed that the petitioner had challenged the order and notice dated 20.03.2020 as well as show cause notice dated 23.09.2021 along with the draft assessment order before this Court. When the case came up before the Court, it was informed that the Revenue has passed the final assessment order which actually had not been passed. By that time when the case was taken up, the apology was accepted by the High Court of giving a wrong statement in the Court, however, the petitioner was allowed to challenge the final assessment order dated 29.09.2021.”
The Court said that there is no show cause notice issued to the petitioner alleging that the income of Rs.19,34,100,00/- was acquired as ‘adventure in the nature of business’.
“Such change of reasons for reassessment and treating the income to be under the heading of ‘adventure in the nature of business’, is clearly based on surmises of the assessing officer”, it added.
Furthermore, the Court elucidated when an authority is empowered to exercise and pass orders in terms of the Act, it has to remain within the four corners of the manner in which the said power is required to be exercised.
“We find that the Income Tax Officer or the Assessing Officer open any assessment already done by him if he finds that there has been any relevant material which is disclosed subsequently relating to the said year or assessment and of such a nature which would reflect that such non-disclosure has resulted in an under assessment he can issue notice under Section 148 of the Act and proceed accordingly”, it remarked.
The Court emphasised that the ITO cannot be allowed to merely reopen the assessments already finalized based on his opinion that the earlier assessment was wrongful or that he has a reason to suspect that the assessment was done wrongfully.
Accordingly, the High Court allowed the writ petition and quashed the notice and impugned orders.
Cause Title- Dinesh Singla v. Assistant Commissioner of Income Tax and another (Neutral Citation: 2024:PHHC:113336-DB)
Appearance:
Petitioner: Senior Advocate Radhika Suri, Advocates Parnika Singla, and Abhinav Narang.
Respondents: SSC Saurabh Kapoor