Learning from a case of un-necessary litigation by assessee- just to challenge, in any how and any way manner validity of notice is not proper

[CA DEV KUMAR KOTHARI]

Case before the Supreme Court:

Mona Mahesh Bhojani Versus Income Tax Officer Ward 5 (3) (4) Ahmedabad 2017 (9) TMI 828 - SUPREME COURT

Related judgment of High court:

Mona Mahesh Bhojani Versus Income Tax Officer - 2017 (7) TMI 462 - GUJARAT HIGH COURT

Related provisions and other references:

Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited - 2007 (5) TMI 197 - SUPREME Court

INDUCTOTHERM (INDIA) PVT. LTD. Versus M. GOPALAN, DY. COMMISSIONER OF INCOME-TAX - 2012 (9) TMI 16 - Gujarat High Court.

Case of Mona Mahesh Bhojani:

She was a joint holder of property which was sold. The AO got information and document, which showed that she has sold her half share in property and received half of total consideration. This information was gathered while the other co-owner was assessed. The information was also available from records of registrar.

Therefore, the Assessing Officer was having new tangible material based on which he had validly recorded reasons and issued notice to assess the assessee.

The assessee not having declared any income or loss by filing a return of income /loss for relevant year, should not have challenged issuance of notice u/s 148.

The assessee had not filed return of income at all. Hence there was no self- assessment, intimation or summary assessment and regular assessment. When no return was filed, means assessee had not at all disclosed her income for relevant year. She had also not provided any information about non-taxability of income to her AO.

 Therefore, it was proper for her to file a return including income or loss from sale of property and all other incomes, if any.

Instead of filing a return assessee challenged notice before the High Court at Ahmedabad and failing in that petition challenged judgment of High Court before the Supreme Court.

The Supreme Court confirmed judgment of High Court as the AO was having tangible material and the assessee had not even filed return of income.

Plea before High Court:

Before the High Court, plea was raised that assessee had no taxable income therefore, filing of return was not necessary. Plea about excess valuation by sub registrar was also raised. However, High Court observed and held on the following lines:   

• At this stage, it is neither possible nor necessary for us to enter into arena of what would be the outcome of the proposed assessment which is initiated by the Assessing Officer by issuing impugned notice.
• Going by the primary facts, we cannot come to the conclusion that the reasons recorded by the Assessing Officer lacked validity so as to prevent even the assessment to be made.
• As is well settled, as long as the Assessing Officer has tangible material at his command to form a bonafide belief that income chargeable to tax has escaped assessment, the Court would not interfere with the formation of such belief unless it is shown to be wholly perverse.
• The primary facts which we have noticed are that even as per the assessee, the property in question was sold for a consideration of ₹ 2.37 crores and the assessee would receive 50% share out of such sale proceed.
• The other connected fact is that adopting valuation for the purpose of stamp duty upon presentation of the document for registration, in case of co-owner, the assessing authority has assessed the sale consideration for the purpose of capital gain to ₹ 3.37 crores.

Learning from the case:

In this case proper course for assessee was to file a return of income or loss truly disclosing income including sale consideration, valuation by stamp authority, and computation of income or loss as the case may be.

May be assessee had meagre taxable income even after having received substantial sale proceeds for her 50% stake in the property sold. This could be due to several reasons like high cost or acquisition / fair market value as on cut-off date and increase with cost inflation index, investment in any capital gain tax saving schemes or residential house property or deposit of money in capital gains schemes or any other loss to be set off.

If assessee had already filed return of income / loss disclosing all such aspects, then only it could be proper for her to challenge notice issued by AO. 

Even where such disclosures have already been made, it is generally advisable to proceed with to comply with legal requirement and proceed from lower level of authorities instead of challenging notice itself. If assessee had filed return and faced assessment or reassessment she could have raised all contentions. Even when notice was received and she found that no return was filed, she could have filed return with all her claims and contentions. Now all these she will have to do as the Supreme Court has held the notice valid.