Challenge to Reopening of Assessment for AY 2015-16 Based on Incorrect Grounds and Non-Application of Mind.


12 March 2024 Civil Appeals >> Civil & Consumer Law   |   Income Tax >> Tax Laws  

In Feng Shui Realtors Pvt. Ltd. v/s Income Tax Officer, Ward 12(2)(1), Mumbai & Others., the petitioner, a company engaged in real estate and steel trading, filed its income tax return for the Assessment Year (AY) 2015-16, declaring a total income of Rs. 12,74,850. The Income Tax Department initiated a scrutiny assessment under Section 143(2) of the Income Tax Act, 1961 (the Act), and completed the assessment on 29th December 2017 under Section 143(3).

However, on 31st March 2021, the petitioner received a notice under Section 148 of the Act, indicating that the Assessing Officer (AO) had reasons to believe that the petitioner's income for AY 2015-16 had escaped assessment. The AO cited investigations into two companies, M/s. Meher and M/s. Nyles Sales Agencies Pvt. Ltd., which were found to be involved in fraudulent transactions. The petitioner allegedly transacted Rs. 3,39,00,000 with M/s. Nyles Sales Agencies Pvt. Ltd., which was flagged during the investigation.


 

 
 
 

The petitioner filed objections, arguing that the reopening was based on incorrect facts, including a statement that no regular assessment had been conducted, despite the 2017 assessment. The objections were rejected, and the reassessment order was passed on 23rd March 2022, which the petitioner challenged in the High Court.

The petitioner argued that the reopening was flawed due to non-application of mind by the AO, Range Head, and Principal Commissioner of Income Tax (PCIT), who failed to verify key facts before granting approval. They also contended that the AO had not properly examined the facts of the case and relied solely on the information received from investigations, without considering the full details disclosed by the petitioner, such as the loan from M/s. Nyles Sales Agencies Pvt. Ltd., which was reported in the return.

The court agreed with the petitioner, ruling that the reopening notice and subsequent orders were unsustainable due to incorrect statements in the reasons for reopening, failure to examine facts, and lack of proper verification before issuing the notice. The court quashed the notice, objections order, reassessment order, demand notice, and show-cause notice for penalty.


Section 143, Income Tax Act - 1961  

Income Tax Act, 1961