Case Note & Summary
The petitioner, Shri Dilip Laximan Powar, a paralyzed individual represented by his wife, runs a hardware and paint retail business as a proprietorship firm named Dilip Traders. He filed his income tax return for Assessment Year 2017-18 declaring total income of Rs.11,04,870/-. The case was selected for scrutiny through CASS, and after due verification, the Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961 on 31.12.2019, accepting the returned income. Subsequently, on 13.03.2021, the Internal Audit Party raised an objection that the assessee had a cash balance of Rs.6,30,856/- as on 08.11.2016 but had deposited cash of Rs.71,81,000/- in Specified Bank Notes (SBNs) during the demonetization period, and that the assessee's business was not among those permitted to receive SBNs after 08.11.2016. Based on this audit objection, the Assessing Officer issued a notice dated 19.03.2024 under Section 148-A(b) of the Act, asking the petitioner to show cause why a notice under Section 148 should not be issued for reopening the assessment. The petitioner replied on 21.03.2024, contending that the notice was beyond the three-year period from the end of the relevant assessment year and that the audit objection constituted a mere change of opinion. Despite the reply, the respondent continued investigation, leading the petitioner to file a writ petition under Articles 226 and 227 of the Constitution challenging the notice. The respondent argued that the audit objection falls within 'information' under Explanation 1(ii) of Section 148, and since the income escaping assessment exceeded Rs.50 lakhs, the notice was valid under Section 149(1)(b). The court examined Section 148 and relied on the Supreme Court's decision in Mangalam Publications v. CIT (2024), which held that a mere change of opinion cannot be a reason to reopen assessment. The court noted that the issue of SBN deposits was already examined by the Assessing Officer during the original scrutiny assessment, and the audit objection did not bring any new material or information. Therefore, the notice under Section 148-A(b) was based on a change of opinion and was without jurisdiction. The court quashed the notice dated 19.03.2024 and the subsequent order under Section 148-A(d) dated 27.03.2024, allowing the writ petition.
Headnote
A) Income Tax - Reassessment - Section 148 - Information - Internal Audit Objection - The court considered whether an internal audit objection that the assessee had deposited Specified Bank Notes during demonetization beyond its cash balance constitutes 'information' under Explanation 1(ii) of Section 148 of the Income Tax Act, 1961, to reopen assessment beyond three years. The court held that since the Assessing Officer had already examined the same issue during scrutiny assessment under Section 143(3) and accepted the return, the audit objection is merely a change of opinion and cannot be treated as 'information' to justify reopening. The notice under Section 148-A(b) was quashed. (Paras 14-18) B) Income Tax - Reassessment - Change of Opinion - Section 147 - The court applied the principle from Mangalam Publications v. CIT (2024) that a mere change of opinion cannot be a reason to reopen assessment. The court found that the internal audit objection did not bring any new material or information that was not already considered during the original assessment, and therefore the reassessment proceedings were without jurisdiction. (Paras 15-18) C) Constitutional Law - Writ Jurisdiction - Article 226 - Alternate Remedy - The court rejected the respondent's objection that the petitioner had an alternate remedy, holding that when a notice is issued without jurisdiction, a writ petition under Article 226 of the Constitution of India is maintainable. (Paras 11-12)
Issue of Consideration
Whether a notice under Section 148-A(b) of the Income Tax Act, 1961, based on an internal audit objection that the assessee deposited Specified Bank Notes during demonetization in excess of cash balance, is valid when the same issue was already examined and accepted in the original scrutiny assessment under Section 143(3).
Final Decision
The court allowed the writ petition and quashed the notice dated 19.03.2024 under Section 148-A(b) and the order under Section 148-A(d) dated 27.03.2024, holding that the notice was based on a mere change of opinion and was without jurisdiction.
Law Points
- Reassessment notice based on internal audit objection is invalid if it is a mere change of opinion
- Internal audit objection does not constitute 'information' under Section 148 Explanation 1(ii) if the same facts were already examined during scrutiny assessment
- Section 148 notice beyond three years requires income escaping assessment exceeding Rs.50 lakhs and 'information' as defined
- Writ petition under Article 226 maintainable despite alternate remedy if notice is without jurisdiction
