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 assessment was completed under Section 143(3) of the Income Tax Act, 1961 on 31.12.2019, accepting the returned income. Subsequently, an internal audit party raised an objection on 13.03.2021 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 his business was not among those permitted to receive SBNs after 08.11.2016. Based on this audit objection, the Assessing Officer issued a notice under Section 148-A(b) on 19.03.2024, 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 and that the audit objection constituted a 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 qualifies as 'information' under Explanation 1(ii) of Section 148, and since the alleged escaped income of Rs.66,49,144/- exceeds 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, which held that reopening based on a mere change of opinion is not permissible. The court found that the issue of SBN deposits was already examined by the Assessing Officer during the original assessment, and the audit objection did not bring any new material; it was merely a different view of the same facts. Therefore, the notice under Section 148-A(b) was based on a change of opinion and was invalid. The court quashed the notice and the subsequent order under Section 148-A(d), allowing the petition.
Headnote
A) Income Tax - Reassessment - Change of Opinion - Section 148, 148-A, 149, Explanation 1(ii) of Income Tax Act, 1961 - Notice under Section 148-A(b) issued beyond three years based on internal audit objection regarding cash deposits during demonetization - The issue of specified bank notes deposits was already examined and accepted in the original assessment under Section 143(3) - Held that reopening on same issue without new material amounts to change of opinion and is not permissible (Paras 16-18). B) Income Tax - Reassessment - Time Limit - Section 149(1)(b) of Income Tax Act, 1961 - Notice under Section 148 issued after three years requires income escaping assessment to be Rs.50 lakhs or more - In this case, the alleged escaped income was Rs.66,49,144/- which exceeds Rs.50 lakhs - However, the notice was still invalid due to change of opinion (Para 10). C) Income Tax - Reassessment - Audit Objection - Explanation 1(ii) of Section 148 of Income Tax Act, 1961 - Audit objection constitutes 'information' for reopening - But such information must not be a mere change of opinion - If the assessing officer had already considered the issue during scrutiny, an audit objection cannot be the sole basis for reopening (Paras 14-16).
Issue of Consideration
Whether a notice under Section 148-A(b) of the Income Tax Act, 1961 issued beyond three years from the end of the relevant assessment year, based solely on an internal audit objection, is valid when the issue was already examined during the original assessment.
Final Decision
The court allowed the writ petition and quashed the notice dated 19.03.2024 under Section 148-A(b) and the subsequent order under Section 148-A(d) of the Income Tax Act, 1961.
Law Points
- Reassessment notice based on internal audit objection without new material constitutes change of opinion
- Section 148 notice beyond three years requires income escaping assessment exceeding Rs.50 lakhs
- Information under Explanation 1(ii) of Section 148 includes audit objection but must not be mere change of opinion
