Reassessment After Three Years Not Sustainable In Absence Of Tangible Material On Record Reflecting That Income Escaping Assessment Is Amounting To Rs. 50 Lacs Or More- Abdul Majeed Son Of Shri Ali Mohammed V. Income Tax Officer:

Introduction:

Section 149(1) of the Income Tax Act, 1961 (hereinafter referred as the Act) provides time limits for issuance of notice under Section 148 of the Act.

As per clause (a) of Section 149(1) of the Act, no notice u/s 148 of the Act can be issued, if three years have elapsed from the end of the relevant assessment year, unless case falls in clause (b) of Section 149(1) of the Act.

As per clause (b) of Section 149(1) of the Act, notice u/s 148 of the Act can be issued after lapse of three years but before a lapse of ten years from the end of the relevant assessment year, only if

(a) AO is in possession of books of account or other documents or evidence which reveal that income chargeable to tax has escaped assessment.
(b) Such escaped income is Rs. 50 lakhs or more for that year.
(c) Such escaped income has to be in the form of-

i. an asset;
ii. expenditure in respect of a transaction or in relation to
iii. an event or occasion; or

In a recent judgment of Rajasthan High Court in which it was held that in order to initiate reassessment proceedings after 3 years from the end of the relevant assessment year, the Assessing Officer has to not only prove that income chargeable to tax has escaped assessment but he also need to prove that income chargeable to tax which has escaped assessment is amounting to Rs.50 lakh or more.

Abdul Majeed Son of Shri Ali Mohammed v. Income Tax Officer: D. B. Civil Write Petition No. 7583/2022:
Facts of the case:

• Assessing Officer issued notice under section 148A(b) of the Act, on ground that assessee made undisclosed cash deposits amounting to Rs. 52 lakhs in his bank account during the Assessment Year 2015-16.

• On 15-3-2022, the AO issued notice under clause (b) of section 148A of the Act on the basis of certain information which suggested that income chargeable to tax for the assessment year 2015-2016 has escaped assessment within the meaning of section 147 of the Act.

• Replying to the said notice, the petitioner-assessee stated that the initiation of proceedings on the basis that the cash deposits during the relevant financial year are Rs. 52,75,000/- is factually incorrect and according to the petitioner-assessee, the total amount of cash deposit in his bank account in the Corporation Bank was only Rs. 19,39,000/-.

• The material available on record before the authority did not disclose any cash deposit or any other transactions which can be said to have escaped assessment, which was more than Rs. 50,00,000/-. At the most, the exercise could justify the conclusion that the prima-facie, cash transactions and deposits of Rs. 19,39,000/- have escaped assessment.

• The competent authority, however, proceeded to pass an order for issuance of notice under section 148 of the Act on 29-3-2022. A notice under section 148 of the Act has been issued to the petitioner-assessee.

• The validity of the order dated 29-3-2022 passed under section 149A(d) of the Act as well as of the notice under section 148 of the Act have been challenged in this petition.

Held:

• An order under section 148A of the Act deciding to issue notice under section 148 of the Act can be based only on the basis of material available on record.

• The words 'material available on record', in its just, fair and logical interpretation would only mean a tangible material and cannot be interpreted to mean remote likelihood of availability of material.

• While passing an order under section 148A of the Act beyond 3 years from the end of the relevant assessment year, the Assessing Officer is not only required to prove that there is material available on record which shows that income chargeable to tax has escaped assessment but he is also required to prove that there exists material available on record which shows that income chargeable to tax which has escaped assessment is amounting to Rs.50 lakh or more.

• In the given case, the Assessing Officer sought to initiate reassessment proceedings under section 149(1)(b) of the Income-tax Act, 1961 i.e. after 3 years from the end of the relevant assessment year not on the basis of any material available on record but only with the help of a surmise that the assessee may have some more accounts.

• The initiation of reassessment proceedings on the basis of the said surmise was not sustainable.

• The interpretation of expression 'material available on record' includes possibility of collection of any relevant or tangible material for opening of proceedings under section 148A of the Act is not sustainable.

• The impugned order and the proceedings are unsustainable in law. The impugned order and the notices are quashed and set aside.

18 thoughts on “Reassessment After Three Years Not Sustainable In Absence Of Tangible Material On Record Reflecting That Income Escaping Assessment Is Amounting To Rs. 50 Lacs Or More- Abdul Majeed Son Of Shri Ali Mohammed V. Income Tax Officer:”

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