Where required notice for reassessment had been sent to Assessee, further, reasons for issuance of notice/initiation of proceeding had also been disclosed to aseesseee, in such situation, Court could not entertain writ petition for quashing notice issued under Section 148.

Petitioner has approached this Court seeking following reliefs:-

i) A writ, order or direction in the nature of certiorari quashing the impugned notice u/s 148 of the Income Tax Act, 1961 dated 31.03.2016 issued by the respondent, proposing to reassess the income for the year A.Y. 2009-10 and pursuant reassessment proceedings (Annexure-1).

ii) A writ, order or direction in the nature of mandamus directing the respondent restraining them from proceeding any further in pursuance of notice u/s 148 of the Income Tax Act, 1961 dated 31.03.2016 (Annexure-1).

2. Brief facts of the case, as necessary in the writ petition are, that the petitioner/assessee is Principal Member of the AOP (Association of Persons) namely Maruti Sah & Brothers – PAN AABAM0677P and during his relevant year i.e. AY 2009-10 derived his income from profit from the aforesaid AOP, profit from sale of immovable property and bank interest. On 31.08.2015 the respondent issued a query letter with regard to cash deposit, income from property and liquor purchase/sale relating to Assessment Year (AY) 2009-10. The petitioner/assessee vide reply dated 16.10.2015 answered the queries in light of the fact that the queries made from the petitioner relate to the activities of the aforementioned AOP and the fact that the department is already seized of the duly Audited Report and Audited Final Accounts submitted, in compliance of section 44AB of the Act, by the petitioner/assessee. Thereafter, the petitioner/assessee received a letter dated 27.05.2016 and annexed thereto was notice u/s 148 of the Income Tax Act, 1961 (for short, the Act) dated 31.03.2016. The petitioner alleges that vide letter dated 27.05.2016, the petitioner/assessee was made aware of the notice dated 31.03.2016 issued u/s 148 of the Act for the first time. The petitioner/assessee vide reply dated 06.06.2016 acknowledged receipt of letter dated 27.05.2016 and enquired as to the reasons for reopening the Assessment with respect to AY 2009-10 008-09). The respondent vide letter dated 07.06.2016 supplied to the petitioner/assessee the reasons recorded for reopening the assessment u/s 147 of the Act in pursuance of notice u/s 148 dated 31.03.2016 of the Act, and further issued notices u/s 142(1) and 143(2) of the Act. Against the said reasons given by the respondent and the notice issued u/s 142(1) of the Act, the petitioner/assessee, preferred objections dated 20.06.2016 and brought on record the following:-

a) During the relevant year, the Assessee being a member of the AOP (Association of Persons) namely Maruti Sah & Brothers – PAN AABAM06779 which was into the retail trade of liquor and the petitioner/assessee being the Principal Member routed few of its sales and purchases through his bank account which were disclosed in the Audited Books of Accounts of the AOP and were accordingly assessed.

b) During the relevant year, the petitioner/assessee sold the land situated at Haldwani vide two registered sale deeds of Rs.75,00,000/- and Rs.2,25,00,000/- (total Rs.3,00,00,000/-) jointly with his father in law on 08.08.2008 and 11.07.2008 respectively. Therefore, the figure of Rs.66,76,000/-, alleged to have escaped assessment, is unfounded and factually wrong and is not related to any land sale made by the petitioner/assessee and therefore this information is wrong.

c) The petitioner/assessee submitted his return of income disclosing the income of Rs.13,12,594/- from the AOP and half share in the land sale i.e. Rs.1.50 Crores and accordingly paid the tax on that.

d) That, for the relevant year, a notice u/s 142(1) of the Income Tax Act, 1957 No.150/746 dated 26.8.2011 was also issued to the Assessee.

It is the case of the petitioner that the petitioner/assessee had also brought to the notice of the respondent that apart from completely erroneous appreciation of the factual position, the Department had initiated proceedings for the relevant year vide notice no.150/746 dated 26.8.2011 issued u/s 142(1) of the Act which ought to have concluded on or before of 31.3.2012 in view of section 153 of the Act and this fact does not find place in the reasons recorded by the Assessing Officer and approved by the Principal Commissioner therefore the reassessment proceedings initiated vide notice u/s 148 of the Act are ultra vires the Act. The petitioner further states that in spite of being seized of the aforesaid objections dated 20.6.2016, the respondent issued a fresh notice dated 25.07.2016 u/s 142(1) without serving upon the petitioner/assessee the notice u/s 148 within the stipulated time frame and as such the notice issued u/s 142(1) dated 07.06.2016 and 25.07.2016 is against the letter and spirit of the Income Tax Act, 1961. According to the petitioner, the reasoning of the respondent Department is purely hypothetical inasmuch as the allegation of escapement of Rs.75,00,000/- worth of property sold on 11.07.2008 is not only wrong but made out of misleading objective of initiating proceedings u/s 147/148 of the Act. This fact was very well disclosed by the petitioner before the Assessing Officer in the Income Tax Return for A.Y. 2009-10, submitted online within stipulated time on 17.03.2011. The sales of the property (jointly held with father in law) were effected by two separate sale deeds, vide sale deed dated 08.08.2008 amount to Rs.75,00,000/- and sale deed dated 11.07.2008 amounting to Rs.2,25,00,000/-. Out of the aforesaid properties, the petitioner/assessee had one half share i.e. Rs.1,50,00,000/- which was offered for tax and tax thereon was paid. Thus, it is clear that alleged sales of Rs.75,00,000/- dated 08.08.2008 was fully disclosed and there was no escapement, as alleged by the Assessing Officer, while giving reasons for initiating proceedings u/s 148 of the Act. There was no other sale except for the above sale of property, vide sale deed dated 08.08.2008 and 11.7.2008. Hence, there was no ground for reassessment u/s 148 of the Act. According to the petitioner/assessee, the respondent has not recorded cogent reasons and per se the reasons recorded suggests that the Assessing Officer has assumed jurisdiction to initiate re-assessment proceedings on its mere ipse dixit therefore it is ex-facie clear from the reasons recorded that the very purpose of initiation of re-assessment proceedings is not to verify certain documents and transactions but it was an attempt by the Assessing Officer to transgress its powers u/s 147 of the Act and thus it appears that the Assessing Officer has neither the reason to suspect nor the reason to believe that income chargeable to tax has escaped assessment. It is also the case of the petitioner that he has already been assessed and taxed in his capacity of the Principal Member of the AOP. The petitioner/assessee had placed on record the duly Audited Report and Audited Final Accounts submitted u/s 44AB of the Act and the same were perused and Assessment completed u/s 143 for the A.Y. 2009-10. It is alleged that the respondent, as an afterthought, sought to reopen the case by issuing a notice u/s 148 of the Act for which service on the petitioner/assessee ought to have been effected on or before 31.03.2016.

According to the petitioner, in the instant case, the first notice u/s 148 dated 31.3.2016 was served upon the petitioner/assessee vide letter dated 27.5.2016 which was time barred and not maintainable in the eyes of law and as such the subsequent notice u/s 142(1) alongwith letter dated 7.6.2016 is patently illegal. Service of valid notice is a condition precedent for re- assessment u/s 148 of the Act which has not been done in the present case since the service is beyond the period of limitation and that too alongwith a letter dated 27.05.2016 which ostensibly is a cover up at the hands of the department. It is also the case of the petitioner that the respondent has issued a time barred notice u/s 148 of the Act dated 31.3.2016 (served upon the petitioner/assessee vide letter dated 27.05.2016) on the basis of incorrect appreciation of facts, irrelevant to the petitioner/assessee and has proceeded in furtherance of the aforesaid time barred notice u/s 148 by issuing the notice u/s 142(1) of the Act dated 07.06.2016 while concealing the fact that notice u/s 142(1) of the Act, for the relevant year, had been issued earlier to the petitioner on 26.8.2011 and thereby has prevented himself from recording the same in the reasons for reopening the assessment for the relevant year u/s 147 as also has successfully prevented the Principal Chief Commissioner from appreciating the true and complete position in order to grant his approval on the aforesaid reasons.

3. Counter affidavit has been filed by the respondent. Few paragraphs, which are relevant, are as follows:

“3. That the assessee Shri Maruti Nandan Sah filed his ITR for A.Y. on 12.03.2011 declaring total taxable income at Rs.18,68,110/- the said return was processed u/s 143(1) of the I.T. Act, 1961 accepting the return income.

4. That this office received online PAN based AIR information regarding following transactions in respect of Shri Maruti Nandan Sah for A.Y. 2008- 09.

i) Deposited cash of Rs.10 lakh or more in a saving bank account and sold immovable property valued at Rs.30 lakh or more aggregating total cash deposit in saving bank account to Rs. 1,74,76,000/-. The details of transactions are as follows:-

S.No. Nature of transaction

Date of transaction Amount

1. Cash deposit 31.03.2009 33,00,000/-

2. Sold immovable property 08.08.2008 75,00,000/-

3. Sold immovable property 11.07.2008 66,76,000/-

Aggregate total 1,74,76,000/-

5. That a query letter regarding above transactions was issued to the Assessee by his office on 20.10.2015 giving him compliance date for 04.11.2015. This letter was duly received by the assessee on 21.10.2015. In response, the assessee submitted his written reply which was received in this office on 11.03.2016.

6. That as per assessee’s written submission, he is claiming that above transactions are relating to the AOP (M/s Maruti Sah & Brothers) PAN AABAM0677P.

7. That the above submission of the assessee is not justified, since the aggregate cash deposit amounting to Rs.1,74,76,000/- should have been deposited to AOP’s account if the transaction belonged to the AOP.

8. That the assessee’s statement/written view is contradictory itself because in the computation of income for A.Y. 2009-10 given by the assessee reflected Short Term Capital Gain which he paid on the transaction of sale of immovable property on 11.07.2008.

9. That it is evident from his written submission that he had knowingly left two transaction namely cash deposit amounting to Rs.33,00,000/- and sold of immovable property to Rs.75,00,000/- in his computation of income for A.Y. 2009-10.

10. That on the basis of above, it becomes a reason to believe that the income amounting to Rs.33,00,000/- + Rs.75,00,000/- = Rs.1,08,00,000/- has escaped assessment for A.Y.2009-10.

11. That accordingly a proposal for initiating proceedings u/s 148 of the I.T. Act, 1961 was put up before the Ld. Pr. Commissioner of Income Tax, Haldwani quoting the reason as per point No.7 and 8 above.

12. That after receiving approval of Ld. Pr. Commissioner of Income Tax, Haldwani, a notice u/s 148 issued to the assessee on 31.03.2016 which was duly served upon on 31.03.2016.

13. That further to proceeding u/s 148, a letter regarding requiring assessee to file return of income for A.Y. 2009-10, fixing date of compliance on 19.05.2016. In response the A.R. representative of assessee Shri Pawan Kumar Nath, FCA attended and furnished that return filed on 17.03.2011 may be treated a return filed in response to above notice. Assessee also requested to provide with him the reasons for re- opening the case which have been duly served to the assessee.

17. That in reply to the facts mentioned in Para No.6 of the affidavit it is submitted that the assessee reply was not found suitable since the assessee submitted in his reply that the queried transactions are related to the AOP M/s Maruti Sah & Bros, PAN AABAM0677P whereas the AIR information particularly pertains to the personal saving bank account of the assessee.

18. That in reply to the facts mentioned in para no.7 & 8 of the affidavit it is submitted that the assessee was given notice u/s 148 of the I.T. Act, 1961 dated 31.03.2016 which was duly received by the assessee representative Shri Nirmal Kumar on 31.03.2016 itself. The approval from the competent authority has been duly taken before issuing the above notice. The ITR for A.Y. 2009-10 in the respect of the assessee was processed u/s 143(1) of the I.T. Act, 1961 accepting the return of income. On perusal of ITS details available on departmental system for the first time, it became necessary to verify the transactions made by the assessee so query letter issued accordingly. On receiving copy of ITR and computation of income for A.Y. 2009-10, it came to notice that the assessee has willingly concealed the true details of his accounts in his return for A.Y. 2009-10.

21. That in reply to the facts mentioned in Para No. 11 (a,b & c) of the affidavit it is submitted that as per assessee written submission regarding “notes on accounts & significant account policies” of the AOP, M/s Maruti Sah & Bros does not own any bank account so in view of this submission of the assessee it is concluded that the entire banking transactions of the AOP are routed through the personal bank account of the assessee, Shri Maruti Nandan Sah. As per the AIR information the assessee has sold immovable properties for Rs. 75,00,000/- on 08.08.2008 & for Rs. 67,76,000/- on 11.07.2008 respectively.

The assessee has willfully concealed the information regarding sale of immovable property on 08.08.2008 though he has paid taxes on short term capital gain on account of sale of immovable property on 11.07.2008 only i.e. for Rs. 67,76,000/-. The assessee’s version that “amount of Rs. 67,76,000/-, alleged to have escaped assessment, if unfounded & factually wrong and is not related to land sale made by him and his information is wrong” is contradictory itself since he has paid taxes on short term capital gain for A.Y. 2009-10.

25. That in reply to the facts mentioned in Para No. 15 of the affidavit it is submitted that the reason recorded for initiating proceeding u/s 148 are based on the documentary evidence. Assessee has willingly concealed the sale of immovable property for Rs. 75,00,000/- on 08.08.2008. Further the assessee claim that he has disclosed this transaction in his return of income is false since it is crystal clear from his computation of income for A.Y. 2009-10 that sale proceeds on 11.07.2008 i.e. for Rs. 67,76,000/- is only shown his return on income.

27. That in reply to the facts mentioned in Para 17 of the affidavit it is submitted that according to the Section 149(1)(b) of the I.T. Act, 1961, the notice u/s 148 of the I.T. Act, 1961 for A.Y. 2009- 10 is barred by limit on 31.03.2016. In this case the said notice was issued on 31.03.2016 and served physically to the assessee representative Shri Nirmal Kumar on 31.03.2016 itself. The receiving of the said notice has been duly acknowledged by the recipient.

4. Learned counsel for the petitioner submits that the petitioner/assessee had filed his return for the relevant Assessment Year 2009-10, online within stipulated time on 17.03.2011. The Department initiated scrutiny assessment proceedings by way of issuance of notice u/s 142(1) dated 26.08.2011. The respondent Department on the basis of AIR information available with the Department issued a query letter dated 31.08.2015 to Maruti Nandan Sah in his capacity as an individual assessee, inasmuch as the Assessee is identified by his PAN BBXPS5336N in the said query letter and sought explanation to the amount of Rs.1,74,76000/- and Rs.2,05,23,993/- for the Financial Year 2008-09. He further submits that the Respondent issued notice u/s 148 dated 31.03.2016 which was served upon the Assessee for the first time vide letter dated 27.05.2016. Further, the Respondent Department claims to have served the notice u/s 148 dated 31.3.2016 on 31.03.2016 itself upon one Nirmal Kumar, who is neither the Assessee nor his Authorized Representative, whereas the Department is required by law to serve the notice upon the petitioner/assessee or upon his duly authorized representative.

5. Learned counsel further submits that though the query letter dated 31.08.2015 specifically mentioned two distinct sets of amount, however, the reasons for initiating proceedings u/s 148 dated 07.06.2016 provided explanation for only for Rs.1,74,76,000/- i.e. one of the sets of amount in the query letter. He further submits that the petitioner/assessee filed objections in response to the reasons recorded for initiating proceedings u/s 148 dated 07.06.2016 stating therein that the Assessee being the Principal Member routed few of its sales and purchases through his bank account which were disclosed in the book of accounts of the AOP, therefore the deposits of Rs.33,00,000/- stands explained at the time of enquiry proceedings relevant to the AIR and there was no escapement of income on this count.

6. Learned counsel for the petitioner further submits that the reason that the property sold on 08.08.2008 for Rs.75,00,000/- is escaped from tax is false and incorrect because the assessee has disclosed the true and correct sale proceed Rs.1.50 Crores (half share in the sale proceed of Rs.3.00 Crores) in its return for income for the relevant year. The finding that the assessee has calculated the capital gain on the property sold on 11.07.2008 and offered to tax as STCG (Short Term Capital Gain) is also false and baseless. Therefore, the reopening proceedings consequent to the above reason is also, incorrect, illegal and unlawful therefore is liable to be cancelled.

7. Learned counsel for the petitioner further contends that in spite of having issued notice dated 26.08.2011 u/s 142(1) earlier, the Department issued a fresh notice u/s 142(1) in pursuance of notice issued u/s 148 dated 31.03.2016 which is ultra vires the Act, and the department could not have initiated proceedings u/s 147/148 after 31.03.2014 i.e. after expiry of four years from the end relevant Assessment Year AY 2009-10. He further contends that the proceedings initiated vide notice u/s 142(1) dated 26.08.2011 ought to have been completed in terms of Section 153 of the Income Tax Act, 1962 and ought to have culminated into an assessment order u/s 143(3)/144 of the Act.

8. In support of his submissions, learned counsel for the petitioner has placed reliance upon the judgment of Hon’ble Apex Court passed in the case of Auto & Metal Engineers v. Union of India (UoI), 1997 (7) SCC 734. Para-7 of the judgment is relevant, which is reproduced below:

“7. In the Act the provisions regarding procedure for assessment are contained in Chapter XIV (Sections 139 to 158). Under the said provisions the process of assessment involves (i) filing of the return of income under Section 139 or under Section 142 in response to a notice issued under Section 142(1); (ii) inquiry by the Assessing Officer in accordance with the provisions of Sections 142 and 143; (iii) making of the order of assessment by the Assessing Officer under Section 143(3) or Section 144; and (iv) issuing of the notice of demand under Section 156 on the basis of the order of assessment. The process of assessment thus commences with the filing of the return or when the return is not filed by the issuance by the Assessing Officer of the notice to file the return under Section 142(1) and it culminates with the issuance of the notice of demand under Section 156. The making of the order of assessment is, therefore, an integral part of the process of assessment. Having regard to the fact that the object underlying the explanation is to extend the period prescribed for making the order of assessment, the expression "assessment proceeding" in the explanation must be construed to comprehend the entire process of assessment starting from the stage of filing of the return under Section 139 or issuance of notice under Section 142(1) till the making of the order of assessment under Section 143(3) or Section 144. Since the making of the order of assessment under Section 143(3) or Section 144 of the Act is an integral part of the assessment proceeding, it is not possible to split the assessment proceeding and confine it up to the stage of inquiry under Sections 142 and 143 and exclude the making of the order of assessment from its ambit....”

9. Per contra, learned counsel for the respondent reiterates his case what is said in the counter affidavit and submits that the notice dated 31.03.2016 was served in the premises of the assessee and the authorized representative, available on the premises of the assessee, received the said notice and as per the Judgment of Hon’ble Apex Court in the case of GKN Drive Shafts (India) Ltd. vs. Income Tax Officer 2003(1) SCC 72, the Income Tax Department is duty bound to give the opportunity of the hearing to the petitioner. In the present case, in compliance to notice, the assessee himself represented his case through his authorized representative, filing the objection against the said notice before the Assessing Officer and he never raised this plea at any point of time.

10. Learned counsel for the respondent further contends that so far as the argument of the learned counsel for the petitioner that once the notice u/s 142 was issued to the petitioner on 26.08.2011 the said proceedings must be completed after passing the assessment order either u/s 143(3) or u/s 144 of the Act is concerned, it is an admitted case of the petitioner that no notice u/s 143(2) was issued to the petitioner by the Department in pursuance to the notice issued on 26.08.2011, which is a mandatory requirement to pass the order either u/s 143(3) of section 144 of the Act and as such it cannot be said that the Assessing Officer has ever passed any assessment order u/s 143(3) or u/s 144 of the Act in the case of the assessee.

11. So far as the argument of learned counsel for the petitioner that department could not have initiated proceedings u/s 147/148 after 31.03.2014 i.e. after expiry of four years from the end relevant Assessment Year AY 2009-10 is concerned, learned counsel for the respondent submits that in the present case the Assessing Officer neither passed any order in case of the petitioner u/s 143(3) of the Income Tax Act nor issued any notice u/s 143(2) as per the mandatory requirement, and as such the petitioner cannot claims the benefit of Proviso to Section 147 of the Act, and further that before 31.03.2016, no notice was ever issued to the petitioner u/s 148 of the Act. Besides this, learned counsel also points out that the proviso to Section 147 gives power to the Income Tax Authority for issuance of the notice if the Assessing Officer finds, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure. The said proviso further gives power to the Income Tax Authority for issuance of notice, where the department finds the escaped assessment in case. He further submits that in the present case the notice was issued to the petitioner on the basis of AIR Information received and reason thereof has been recorded by the Income Tax Officer. He further submits that as per section 149(1)(b) of the Act if more than four years have been elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year, then in that condition time limit to give notice is six years. He submits that in the present case the notice u/s 148 was issued to the petitioner after expiry of four years but within six years and for that the Income Tax Officer before issuing notice to the petitioner got the prior approval from the Principal Commissioner of Income Tax, Haldwani and as such notice issued to the petitioner is perfect and as per law. In support of his case, learned counsel has also placed reliance upon paragraph 18 of the judgment rendered by Hon’ble Apex Court in the case of ACIT vs. Rajesh Jhavari Stock Brokers Pvt. Ltd. AIR 2007 SC 2163, and submitted that issuance of notice to the petitioner is in accordance with law. Paragraph 18 of the judgment is reproduced below:

“18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.”

12. I have considered the submissions of learned counsel for the parties. The petitioner has raised many points for the consideration of the Court to entertain the writ petition and to quash the notice issued under Section 148 of the Act. Section 148 of the Act provides for issuance of notice in respect of those cases where income has escaped assessment. Section 147 of the Act provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings. Power of assessment/reassessment is subject to certain conditions.

13. Machinery has been provided by the Act for assessment/reassessment. Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer should serve on the assessee a notice requiring him to furnish a return of income within such period as may be specified in the notice. But, before issuing a notice, the Assessing Officer is required to record reasons for doing so. In the present case, I find that required notice has been sent to the petitioner. Further, reasons for issuance of notice/initiation of proceeding have also been disclosed to the petitioner. Required sanction was also obtained from competent authority. In such situation, the Court is not inclined to entertain the writ petition for quashing the notice issued under Section 148 of the Act. Rather, it will be appropriate for the petitioner to approach the Assessing Officer and reply the notice. It is always open for the petitioner to take all the pleas before the Assessing Officer which he has taken before the Court. It is not the case of the petitioner that the Authority has not proceeded as per relevant provisions of the Act or is proceeding in the mater in defiance of the fundamental principles of judicial procedure, or has not/is not providing proper opportunity of hearing to the petitioner.

14. In view of the above, the Court is not inclined to grant any relief to the petitioner. The writ petition is, accordingly, dismissed.

15. No order as to cost.

16. It is made clear that this court has not given its view about the merit of the case or on any ground which has been taken by the petitioner. The Assessing Officer will consider the reply of the petitioner, independently in accordance with law.

(V.K. Bist, J.)

Rajni 26.12.2016