The Bombay High Court ruled that It is unjustifiable to send a notice without citing the legal justification for doing so under sections 147 and 148 of the Income Tax Act 1961.
Facts
By the writ petition invoking the jurisdiction under Article 226 of the Constitution of India, the Petitioner impugned the Notice issued by the Respondent Deputy Commissioner of Income Tax, Mumbai, under Section 148 of the Income Tax Act, 1961 alongwith order dismissing the Petitioner’s objections to reopening of assessment for the Assessment Year 1997-98.
Submission
Advocate Ajaykumar R. Singh, appearing for the Petitioner, submitted that the petitioner filed its return of income for the previous year ended 31.03.1997 relevant to the Assessment Year 1997-98 on 01.12.1997, in which it disclosed two transactions with M/s. Gremach CNC Limited and M/s. Technology Plastics Limited, being sale and lease back transactions of machinery, on which it had claimed depreciation @ 100%, alongwith lease rental income on such assets from these two entities.
He contended that after the return was processed under Section 143(1)(a) of the Act, the case was taken up for scrutiny by the revenue by issuing notice under Section 143(2) of the Act.
He further contended that thereafter in 2004, the revenue issued a notice under Section 148 of the Act, claiming that some income of the Petitioner had escaped assessment and called upon the Petitioner to file a return, which the Petitioner did in 1998 without prejudice to its contention that reopening of assessment was impermissible.
Advocate Akhileshwar Sharma, appearing for the Respondents, supported the impugned order and argued that the material relied upon by the Assessing Officer to invoke Section 147 of the Act, was justified as the material relied upon had not been previously disclosed by the Petitioner in earlier assessments for the relevant years, and hence, reopening of assessment was justified.
Decision
The division bench of Justice Valmiki Sa Menezes and Justice Dhiraj Singh Thakur observed that the parties with whom the sale and lease back transactions were entered into by the Petitioner for the year 1996-97, were clearly different from the ones with whom similar transactions were entered into for the Assessment Year 1997-98, in which depreciation allowance was granted after detailed scrutiny.
The bench concluded that the Petitioner had disclosed all material facts for the Assessment Year 1997-98 including the transactions now referred to in the impugned notice under Section 148 of the Act.
It was stated by the court that the notice must stipulate that there was a failure on the part of the assessee to disclose fully and truly material facts necessary for its assessment and discovery of such new material, details of which are required to set out in the notice could be the only material to form the basis for assuming jurisdiction under Section 147 of the Act.
“There is clearly a failure on the part of the Assessing Officer to set out such material that provided the basis for assumption of jurisdiction under Sections 147 and 148 of the Act. Such material not being available in the notice, the impugned notice dated 22.03.2004 is clearly without jurisdiction and the same is unsustainable. Consequently, the order dated 04.03.2005 rejecting the objections of the Petitioner is also unsustainable”, the court held.
Case title: Milton Plastics Limited v/s Mudit Nagpal
Citation: Writ Petition No. 735 of 2005
