Facts of the Case

The present writ petition pertains to Assessment Year (AY) 2016–17. The petitioner was issued a notice dated 04.03.2023 under Section 148A(b) of the Income Tax Act alleging that the source of funds amounting to ₹1,90,00,000/- could not be ascertained.

The allegation was based on information derived from TDS statements reflecting consideration received on sale of immovable property and investment in bonds/debentures. The petitioner had received ₹1,55,00,000/- from sale of property and invested ₹35,00,000/- in bonds.

The petitioner submitted a reply explaining that the transaction related to the preceding Assessment Year 2015–16 and not AY 2016–17. It was also highlighted that an error had occurred as the buyer deposited tax in the wrong assessment year, which was later rectified through an order passed under Section 154 read with Section 143(1), reducing the demand for AY 2015–16 to nil.

Despite this, the Assessing Officer proceeded to pass the impugned order dated 13.04.2023 under Section 148A(d), followed by a notice under Section 148.

Issues Involved

  1. Whether reassessment proceedings under Section 148A were valid when the transaction pertained to a different assessment year.
  2. Whether the Assessing Officer failed to consider the petitioner’s reply before passing the impugned order.
  3. Whether reassessment can be sustained when the underlying tax entry was already rectified under Section 154.

Petitioner’s Arguments

  • The petitioner contended that the entire transaction relating to sale of immovable property was concluded in AY 2015–16 and not in AY 2016–17.
  • It was submitted that the TDS entry reflecting in AY 2016–17 was due to an error committed by the buyer.
  • The error was subsequently corrected by passing an order under Section 154 read with Section 143(1), which reduced the demand for AY 2015–16 to nil.
  • The petitioner argued that the Assessing Officer failed to properly consider the reply dated 11.04.2023, which explained all relevant facts.
  • Therefore, the impugned order was passed without due application of mind and was liable to be set aside.

Respondent’s Arguments

  • The Revenue acknowledged that the record indicated that the transaction relating to immovable property occurred in AY 2015–16.
  • It was also accepted that tax had already been deducted at source in relation to the transaction.
  • The Revenue suggested that the impugned order could be set aside with liberty to the Assessing Officer to re-examine the matter afresh.

Court’s Findings / Order

  • The Delhi High Court set aside the impugned order dated 13.04.2023 passed under Section 148A(d).
  • Consequently, the notice dated 14.04.2023 issued under Section 148 was also quashed.
  • The Court granted liberty to the Assessing Officer to recommence proceedings, if required, in accordance with law.
  • It was directed that:
    • A fresh notice must be issued to the petitioner.
    • The petitioner must be granted a personal hearing.
    • A speaking order must be passed after considering all submissions.

Important Clarification by Court

  • The Court emphasized that reassessment proceedings must be conducted after proper consideration of the assessee’s reply.
  • It reaffirmed the requirement of adherence to principles of natural justice, including granting an opportunity of personal hearing.
  • The Court clarified that procedural fairness and application of mind are essential before invoking reassessment provisions under Section 148A.

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/RAS01062023CW80502023_175511.pdf

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