2025 (7) TMI 762 - HC - Income Tax

Reopening of assessment u/s 147 - investment towards purchase of the property - reasons to believe or review - violation of the principles of natural justice - HELD THAT - As reply of the petitioner was considered and upon consideration of their reply the authority has drawn an inference that the matter requires consideration as the explanation submitted by the petitioner was not found acceptable at that stage. In sum and substance the petitioner s case that a part of source of fund towards purchase of property was provided by the mother itself is under doubt. The order shows that the authority doubted the source of fund available in the hands of the mother. The purpose and object of proceedings u/s 148A of the Act of 1961 is not to make assessment but to reopen assessment upon fulfillment of certain conditions which have been incorporated in the provisions contained therein. The exercise which is required to be undertaken at this stage is limited and cannot be equated with a deeper exercise required to be undertaken towards assessment in assessment proceedings. In a petition under Article 226 of the Constitution of India as is well-settled the Writ Court will not assume the role of Appellate Authority to sit over a finding of fact even if it suffers from a mere error of fact. The consideration would be whether the order is against the provisions of law or violates the principles of natural justice or is so patently outrageous and arbitrary that interference under Article 226 of the Constitution of India would be warranted. We need not burden our decision with the authorities in support of settled proposition of law that in writ proceedings it is not the decision itself but the decision making process which falls for scrutiny. In the present case a detailed order has been passed by the authority and for the limited purpose of arriving at a conclusion as to whether a case of reopening assessment is made out or not material on record was examined. There is no violation of the principles of natural justice. It is not even a case where the order has been passed without jurisdiction by the authority who is not competent. There is no case of violation of any statutory provisions as such. Applicability of various provisions of the Act would essentially depend upon conclusion of facts on the basis of the materials placed on record. The applicability of provisions contained in Section 149 of the Act of 1961 will depend upon assessment and finding that may have been recorded by the Assessment Authority during the assessment. This deeper examination would be required to be done by the Assessing Officer and not by the Writ Court. Therefore in our opinion no case is made out for interference in exercise of writ jurisdiction under Article 226 of the Constitution of India. We leave the petitioner to submit all explanations which have been given before this Court before the Assessing Officer to satisfy his case that it does not require any addition of income chargeable to tax. WP dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the order passed under Section 148A(d) of the Income Tax Act, 1961, reopening the assessment proceedings for the Assessment Year 2016-17, was legally sustainable, particularly in light of the petitioner's reply.

- Whether the Assessing Officer properly considered the explanations and evidences submitted by the petitioner regarding the source of funds for the transaction amounting to Rs. 87,44,278/-, especially the purchase of immovable property partly funded by the petitioner's mother.

- Whether the reopening of the assessment was justified on the basis of the material and explanations provided, or whether it was arbitrary, illegal, or violative of principles of natural justice.

- The scope and limitations of judicial review under Article 226 of the Constitution of India in the context of orders passed under Section 148A of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality and sustainability of the order passed under Section 148A(d) of the Income Tax Act, 1961

The relevant legal framework is Section 148A of the Income Tax Act, which governs the procedure for reopening assessments. The provision mandates that before reopening an assessment, the Assessing Officer must consider the explanation of the assessee and satisfy himself that there is sufficient reason to believe that income chargeable to tax has escaped assessment.

The Court observed that earlier, an order under Section 148A(d) was passed without considering the petitioner's reply, which was set aside by the High Court. The department was directed to consider the reply filed by the petitioner and pass a fresh order.

Upon reconsideration, the Assessing Officer passed the impugned order after examining the petitioner's explanations. The Court noted that the authority drew an inference that the explanation was not fully acceptable and that further verification was required concerning the source of funds.

The Court emphasized that the purpose of Section 148A proceedings is limited to deciding whether reopening is justified and is not an assessment itself. The Court held that the order did not violate statutory provisions or principles of natural justice, and the Assessing Officer had jurisdiction and competence to pass the order.

Therefore, the reopening order was found legally sustainable as it was based on examination of material and explanations, and the limited scope of inquiry under Section 148A was respected.

Issue 2: Consideration of petitioner's explanation regarding source of funds, particularly the contribution of petitioner's mother towards purchase of immovable property

The petitioner contended that although no return was filed for AY 2016-17, he had explained the source of funds for the transaction of Rs. 87,44,278/-, including the purchase of immovable property. He claimed that part of the investment was made by his mother and thus only his share required explanation.

The Assessing Officer's order reflected that while the petitioner claimed joint ownership with his mother, he failed to produce documentary evidence such as the mother's bank statements or any indication in the purchase deed about joint ownership. The authority noted the absence of evidence to substantiate the mother's contribution and thus held that Rs. 58,00,000/- of the property transaction remained unexplained.

The Court found that the authority had duly considered the petitioner's reply and rejected the explanation due to lack of documentary proof. The inference drawn was that the source of funds was doubtful and required further verification.

The Court held that the Assessing Officer's approach was consistent with the legal framework, which requires proper documentary evidence to justify the source of funds. The petitioner's failure to produce such evidence justified the reopening.

Issue 3: Scope of judicial review under Article 226 in writ proceedings challenging orders under Section 148A

The Court reiterated the settled legal principle that writ courts do not act as appellate authorities in matters involving factual determinations. The role of the writ court is limited to examining whether the order is contrary to law, violates principles of natural justice, or is so arbitrary or patently illegal as to warrant interference.

In the present case, the Court found no such violation. The order was detailed, considered material on record, and was passed by a competent authority after considering the petitioner's explanations.

The Court distinguished a prior decision relied upon by the petitioner, noting that the facts there were different and that case involved no material to support reopening. Here, the authority had material to justify the reopening.

Thus, the Court declined to interfere, emphasizing that the deeper factual inquiry is reserved for the Assessing Officer during assessment proceedings and not for the writ court.

3. SIGNIFICANT HOLDINGS

- "The purpose and object of proceedings under Section 148A of the Act of 1961 is not to make assessment but to reopen assessment upon fulfillment of certain conditions which have been incorporated in the provisions contained therein."

- "In a petition under Article 226 of the Constitution of India, as is well-settled, the Writ Court will not assume the role of Appellate Authority to sit over a finding of fact even if it suffers from a mere error of fact."

- "There is no violation of the principles of natural justice. It is not even a case where the order has been passed without jurisdiction by the authority who is not competent. There is no case of violation of any statutory provisions, as such."

- The Court concluded that the Assessing Officer had properly considered the petitioner's reply and evidence, and the reopening order was based on a reasoned inference that the source of funds was not satisfactorily explained, justifying further examination.

- The writ petition challenging the order under Section 148A(d) was dismissed, affirming the limited scope of judicial review and the legality of the reopening proceedings.