2024 (2) TMI 546 - HC - Income Tax

Validity of reopening proceedings - assessing authority not considering the reply-cum-objection filed by the petitioner - Period of limitation where monetary limit is below threshold of Rs. 50 lakhs - HELD THAT - As in terms of Section 148A(c) AO is mandatorily required to consider the reply/objections furnished by the Assessee. Non consideration of reply or objection furnished by the Assessee not only amounts to violation of principles of natural justice but is also contravention of mandatory modalities which are to be followed during the course of enquiry proceedings u/s 148A of the Act. In the instant case, the Respondents have not disputed the fact that the Petitioner has not filed any reply, but have categorically accepted the fact that the reply-cum-objection furnished by the Petitioner has not been considered by the concerned Respondent. It is rather immaterial for whatever reason the reply-cum-objection furnished by the Petitioner has not been considered. AO ought to have considered the objections raised by the Petitioner and should have disposed the same in terms of judgment rendered by the Hon ble Apex Court in the matter of GKN Driveshafts (India) Limited v. ITO 2002 (11) TMI 7 - SUPREME COURT wherein as laid down an elaborate procedure as to the manner of dealing with objections raised against a notice u/s 148 and clarified that when a notice under section-148 of the Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. Section 148A which was inserted by the Finance Act, 2021 reiterates the procedure to be followed by the Assessment Officer upon receiving such information, including conducting any inquiry regarding the information received, providing an opportunity of being heard to the Assessee through serving of notice to show cause within the prescribed time in the notice (which must not be less than 7 days and not more than 30 days on the date of serving the notice or the time period till which time extension was received by the Assessee), considering the reply given by the assessee and deciding on the basis of the material that is present, including the reply, about whether the case is fit for passing a notice under Section 148 through passing an order within 1 month from the reply. Period of limitation - Apart from the codification of Sections 148 and 148A, Section 149 was further modified by the Finance Act, 2021 to the effect that any case can be reopened within three years from the time of end of relevant assessment year as under clause (a) of Section 149(1), if there is information with the Assessing Officer that suggests that there is escapement of income as provided under Explanation 1 to Section 148, and upto 10 years as provided in Clause (b) of Section 149(1) in certain exceptional cases, defined as circumstances where income chargeable to tax, within the meaning of asset that has escaped assessment amounts to or is likely to amount to fifty lakh rupees (50,00,000/-) or more in that year. In the instant case, the property under consideration has been obtained by the Petitioner and his brother by the law of inheritance and succession, that too, after the demise of their father. A perusal of the deed would transpire that the Petitioner and his brother upon demise of their father became joint owners of the property under consideration with respective share of 50% each and both being joint vendors in the said transaction are entitled to equal share of the consideration amount, viz., 32,68,000/- each. Since, the income escaping assessment is less than 50 lakhs, Section 149(1)(b) could not have been invoked. The said contention of the Petitioner has also been backed up by the Respondents which is a specific admission by the Respondents that only one half of the consideration is chargeable to tax in the instant case i.e., 32,68,000/- which is certainly less than the monetary limit of Rs, 50,00,000/- as prescribed in Section 149(1)(b) of the Act and the said fact was not available by the AO. At this stage, it is also profitable to refer Section 26 of the Income Tax Act, 1961 which provides that where a property is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an Association of Persons, but the share of each person in income of the property shall be included in his total income. As in the instant case the deed (Annexure-1) would transpire that the Petitioner and his brother upon demise of their father became joint owners of the property under consideration with respective share of 50% each and both being joint vendors in the said transaction are entitled to equal share of the consideration amount, viz., 32,68,000/- each; since the income escaping assessment is less than 50 lakhs, Section 149(1)(b) of the Act could not have been invoked. Accordingly, one of the contentions of the Revenue that the petitioner can very well explain the facts in the Assessment proceedings and the writ application is not maintainable; does not appear to be impressive as we are of the view that directing the petitioner to explain the facts before the AO will be a futile exercise by the Assessee in view of the specific provision enshrined u/s 149(1)(b) of the Act since the income escaping assessment is less than 50 lakhs, and Section 149(1)(b) of the Act could not have been invoked. It can be construed that the assessment proceeding initiated by the Department is barred by limitation, as also, is beyond jurisdiction. Hence, the entire enquiry proceeding along with impugned order u/s 148A(d) of the Act along with Notice issued u/s 148 of the Act deserves to be quashed.

Summary

Issues Involved:
1. Non-consideration of the petitioner's reply under Section 148A.
2. Jurisdictional and time-barred nature of proceedings under Section 148 and 149.

Summary:

Issue 1: Non-consideration of the petitioner's reply under Section 148A

The petitioner sought to quash the assessment proceedings, arguing they were void ab initio due to non-compliance with Section 148A. The petitioner received notices under Section 148A(a) and 148A(b) but contended that their reply was not considered, violating principles of natural justice. The respondents admitted that the petitioner's reply was not considered due to a technical issue, thus violating mandatory procedures under Section 148A. The court emphasized that the Assessing Officer must consider objections as per the Supreme Court's judgment in GKN Driveshafts (India) Limited v. ITO, which mandates a specific procedure for handling objections to notices under Section 148.

Issue 2: Jurisdictional and time-barred nature of proceedings under Section 148 and 149

The petitioner argued that the proceedings were beyond jurisdiction and time-barred under Section 149, as the income escaping assessment was less than Rs. 50 lakhs. The property was jointly owned by the petitioner and his brother, with each having a 50% share, making the petitioner's share Rs. 32,68,000, which is below the Rs. 50 lakhs threshold. The respondents admitted this fact, acknowledging that only half of the consideration was chargeable to tax. The court noted that Section 149(1)(b) could not be invoked as the income escaping assessment was less than Rs. 50 lakhs, rendering the proceedings barred by limitation and beyond jurisdiction. The court also referenced Section 26 of the Income Tax Act, which supports the petitioner's claim of a definite and ascertainable share in the property.

Conclusion:

The court concluded that the assessment proceedings were barred by limitation and beyond jurisdiction. Consequently, the entire enquiry proceedings, the order under Section 148A(d), and the notices issued under Sections 148A(a), 148A(b), and 148 were quashed and set aside. The application was allowed, and any pending interlocutory applications were closed.