Assessing Officer Not Deemed to Have Noticed Facts Disclosed in Wealth Tax Return: Gujarat High Court

The Gujarat High Court has recently held that an Assessing Officer is not deemed to have noticed facts disclosed in a wealth tax return while examining an income tax return.

It refused to interfere with reassessment proceedings initiated against a Hindu Undivided Family (HUF) over an unexplained cash payment of more than ₹1.02 crore towards the purchase of immovable property.

A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati dismissed the writ petition filed by Virendra Naginbhai Patel (HUF), which challenged the reassessment notice issued for Assessment Year 2012-13.

The court observed, "The Assessing Officer is not deemed to have noticed the facts disclosed in a wealth tax return, and the onus lies on the petitioner-assessee to disclose all material facts such as the source of funds and the true nature of the transaction in its return of income."

The HUF filed its return of income for AY 2012-13, which was processed under Section 143(1) without scrutiny. It also filed a wealth tax return for the same assessment year.

Later, the Assessing Officer examined information available in the Income Tax Department's Individual Transaction Statement (ITS). The officer noticed that the HUF had purchased immovable property worth about ₹2.22 crore. The records also showed a cash payment of more than ₹1.02 crore towards the purchase. The HUF had disclosed income of about ₹5 lakh during the relevant assessment year.

The Assessing Officer then issued a reassessment notice. The officer formed a belief that income chargeable to tax had escaped assessment after noticing the investment in the property and the unexplained source of the cash payment made towards the purchase.

The HUF argued that Form ITR-3 did not require disclosure of the property purchase. It submitted that the acquisition had already been disclosed in its wealth tax return. The HUF also contended that the approval granted for reopening the assessment under Section 151 was not supported by a reasoned sanction.

The Income Tax Department argued that the reassessment was not initiated merely because the property had been purchased. According to the department, the HUF had failed to explain the source of the cash payment exceeding ₹1.02 crore.

It also submitted that disclosure in a wealth tax return could not be treated as disclosure for income tax purposes. Since the original return had only been processed under Section 143(1), the department argued that Explanation 2(b) to Section 147 applied.

Accepting the revenue's submissions, the court held that Explanation 2(b) applied to the case. It noted that the reassessment had been initiated within the prescribed limitation period. The court also noted that the HUF had not produced the ledger account or the cash book of Everest Construction, in which the petitioner's family was a partner, to explain the source of the cash payment.

Relying on the Supreme Court's decision in Sanand Properties Pvt. Ltd. v. Joint Commissioner of Income Tax, the court reiterated that reassessment is permissible where the Assessing Officer has reason to believe, based on tangible material, that income has escaped assessment, even if the original return was only processed under Section 143(1).

The court further observed, "In the present case, the ingredients of Section 147 of the Act get fulfilled, and the re-assessment cannot be closed at this stage in light of the aforesaid facts. We have also noticed that the Principal CIT Vadodara, granting approval for issuance of Notice under Section 148 of the Act has also recorded satisfaction on the reasons recorded by the Assessing Officer, and it is opined that 'In view of the material placed on record as per AO's report, the case is found fit for issue of notice u/s 148'. In our opinion this is sufficient compliance of the provisions of Section 151 of the Act."

Holding that the statutory conditions for reopening the assessment had been satisfied, the court declined to interfere with the reassessment proceedings. It dismissed the writ petition.

For Petitioner: Advocate Darshan R. Patel, 

For Respondent: Chirag Virani for Rutvij R. Patel