Short Note
In a recent judgment[1], the Delhi High Court provided a remedy to the assessee that should have ordinarily not required judicial intervention. The High Court reminded the Revenue that the assessee had purchased and not sold the immovable property, eliminating the question of assessee declaring any capital gains for the transaction.
The assessee was first issued a notice under Section 133(6), IT Act, 1961 on 25.03.2021 and thereafter under Section 148A(b) on 19.05.2022. In both notices, the assessee was required to explain why the capital gains on sale of immovable property was not disclosed. In reply to each of the notices, the assessee had furnished information that it had not sold the immovable property in question but had purchased it.
AO passed an order on 28.07.2022 inter alia alleging that the assessee had not disclosed the acquisition of property and thorugh unexplained sources. The Bombay High Court agreed with the assessee that the order suffered from lack of application of mind by the assessee and relevant materials were not considered by the AO before passing the order.
Adjudicating on the issue, the Bombay High Court concluded that:
Having regard to the aspects noted hereinabove, we are of the view, that if at all, the AO deems it fit to carry out a fresh exercise, it would be from the stage prior to the issuance of notice under Section 148A(b) of the Act. Clearly, the AO has missed the most crucial part of the transaction, that it was a purchase and not a sale transaction. (para 16)
The Bombay High Court set aside the order passed on 28.07.2022 in pursuance of the notice issued on 19.05.2022. Though the High Court did not set aside the notice issued on 19.05.2022, the paragraph cited above does mandate the AO to re-start the proceedings from the stage prior to issuance of such notice.
The judgment, while not a landmark or major development under IT Act, 1961 indicates the approach of certain assessing officers (‘AO’). To begin with, the Bombay High Court remarked, it is indeed surprising that while the assessee on 22.04.2021 disclosed information to the Revenue – in response to the first notice issued under Section 133(6) – about purchase of the immovable property, the AO issued a notice on 19.05.2022 under Section 148A(B), IT Act, 1961 alleging that the assessee had sold the property and not disclosed capital gains. Further, once the AO realised it had mistook purchase for sale, an order was issued against the assessee alleging assessee’s failure to disclose the purchase of property, which also proved false. Instead of acknowledging the initial mistake, the order issued by the AO alleged assessee’s failure to meet various statutory obligations was an attempt to justify the initial issue of notice. In this case, the Revenue and more specifically the AO in question did not acknowledge its initial mistake, which are unavoidable during the scrutiny process, instead it doubled down on its mistake. Consequently, we have a situation where refusal and disinclination to admit a mistake led to unnecessary litigation and required the Court to remind the Revenue to adopt a more prudent approach in such situations.
[1] Krishna Diagnostic Private Limited v Income Tax Office Ward 143 Delhi TS-353-HC-2023 (DEL).