2022 (5) TMI 1016 - HC - Income Tax

Court quashes order & notice, remands for fresh determination. Assessing Officer to issue reasoned order.

The Court quashed the impugned order and notice under Section 148A(d) and 148, remanding the matter to the Assessing Officer for fresh determination. The ... Reopening of assessment u/s 147 - validity of the notice u/s 148A(b) on the ground that there was no information that suggested that income had escaped assessment - HELD THAT:- In the present case, this Court finds that the impugned notice dated 17th March, 2022 as well as the order dated 4th April, 2022 are cryptic as is evident from the fact that information culled out from Petitioner’s own return and records (namely Form 10DB, GST return, Form 26AS) have been used to issue notice u/s 148A(b) of the Act without mentioning as to what is wrong in these transactions, what are the apprehensions of the Assessing Officer and what are the points on which clarification is required. It is not understood as to how expenditure incurred by the Petitioner on salaries, payment of professional fees and purchases can amount to income having escaped assessment without there being any allegation that the employees/professionals to whom salaries and fees had been paid are dummies or fictitious entities. Perusal of the impugned notice suggests that reassessment in the present case was sought to be initiated merely for verification. This Court is of the view that even if the re-assessment was being done for verification in accordance with Explanation 1 to Section 148, nothing prevented the Assessing Officer from conducting an enquiry with respect to the said information in accordance with Section 148A(a) of the Act. In any event, it was all the more necessary in the present case for the Assessing Officer to thoroughly scrutinise the contentions and submissions advanced by the petitioner-assessee before passing an order under Section 148A(d) of the Act. Denial of effective opportunity to file a reply - This Court further finds that the information/material stated in the impugned show cause notice dated 17th March, 2022 issued under Section 148A(b) of the Act have not been shared with the Petitioner, despite specific request made by the Petitioner vide letter dated 24th March, 2022, thereby denying the Petitioner an effective opportunity to file a response/reply. The non-sharing of the information is violative of the rationale behind the judgment of this Court in Sabh Infrastructure Ltd [2017 (9) TMI 1589 - DELHI HIGH COURT] Reasonable time to file a reply - It is pertinent to mention that Section 148A(b) permits the Assessing Officer to suo moto provide up to thirty days period to an assessee to respond to the show cause notice issued under Section 148A(b), which period may in fact be further extended upon an application made by the Assessee in this behalf, and such period given to the assessee is excluded in computing the period of limitation for issuance of notice under Section 148 of the Act in terms of the third proviso to Section 149 of the Act. Order passed without considering detailed reply file by petitioner - Order u/s 148A(d) of the Act had been passed on 04th April, 2022 i.e. after receipt of the detailed reply by the Petitioner dated 31st March, 2022, the Assessing Officer should have considered the same as it was available on record. By not considering the reply of the Petitioner dated 31st March, 2022, the mandate of Section 148A(c) has been violated as it casts a duty on the Assessing Officer, by using the expression ‘shall’, to consider the reply of the Petitioner/assessee in response to notice under Section 148A(b) before making an order under Section 148A(d) of the Act. In fact, this Court in Fena Pvt. Ltd. [2022 (5) TMI 892 - DELHI HIGH COURT] had quashed the order passed under Section 148A(d) of the Act in similar circumstances i.e. where Assessing Officer had not taken into consideration the replies along with the documents/evidences filed by the assessee before passing the order under Section 148A(d). Significance of issuance of a show cause notice at a stage prior to issuance of a reassessment notice under Section 148 - This Court is of the opinion that significance of issuance of a show cause notice at a stage prior to issuance of a reassessment notice under Section 148 of the Act has been lost on the Respondents. This Court takes judicial notice that in a majority of reassessment cases post 1st April, 2021, the orders under Section 148A(d) of the Act use a template / general reason to reject the defence of the assessee on merits, namely, “found devoid of any merit because the assessee company has failed to produce the relevant documents in respect of transactions mentioned in show cause notice it is established that the assessee has no proper explanation ” Consequently, this Court is of the opinion that a progressive as well as futuristic scheme of re-assessment whose intent is laudatory has in its implementation not only been rendered nugatory but has also had an unintended opposite result. Thus the impugned order dated 04th April, 2022 issued under Section 148A(d) of the Act and the notice dated 04th April, 2022 issued under Section 148 of the Act are quashed and the matter is remanded back to the Assessing Officer for a fresh determination. The Assessing Officer is directed to pass a fresh reasoned order under Section 148A(d) of the Act after considering the Petitioner’s detailed reply. Issues Involved:1. Validity of the Notice issued under Section 148A(b) of the Income Tax Act, 1961.2. Consideration of the Petitioner's replies by the Assessing Officer.3. Nature and specifics of transactions alleged to have escaped assessment.4. Adequacy of time provided to the Petitioner to respond.5. Compliance with the mandate of Section 148A(c) of the Act.Detailed Analysis:1. Validity of the Notice issued under Section 148A(b) of the Income Tax Act, 1961:The Petitioner challenged the Notice dated 17th March, 2022, issued under Section 148A(b) and the subsequent Order dated 4th April, 2022, under Section 148A(d). The Petitioner argued that the notice lacked specific information suggesting that income had escaped assessment. The Court observed that the new re-assessment scheme under the Finance Act, 2021, aimed to reduce litigation and promote ease of doing business. The term 'information' in Explanation 1 to Section 148 should not be used lightly to re-open assessments. The Court found the notice and order cryptic, as they used information from the Petitioner's own returns without specifying what was wrong with the transactions.2. Consideration of the Petitioner's replies by the Assessing Officer:The Petitioner contended that the Assessing Officer did not consider their detailed replies dated 24th March and 31st March, 2022. The Court noted that the Assessing Officer should have considered the reply dated 31st March, 2022, which was available on record before passing the order under Section 148A(d). The failure to consider this reply violated the mandate of Section 148A(c), which requires the Assessing Officer to consider the Petitioner's response before making an order.3. Nature and specifics of transactions alleged to have escaped assessment:The Petitioner argued that the transactions listed in the impugned order were routine business transactions duly accounted for in their profit and loss account and returns. The Court noted that the notice and order did not provide any specific allegations or comments on what was wrong with the transactions. The Court found that the reassessment was sought merely for verification, and the Assessing Officer should have conducted an enquiry under Section 148A(a) if verification was needed.4. Adequacy of time provided to the Petitioner to respond:The Petitioner argued that they were not given reasonable time to file a detailed reply. The Court observed that the impugned order was passed in haste, violating the principles of natural justice. The Court emphasized that the Petitioner should have been granted an extension of time to file a detailed reply, especially given the substantial amount alleged to have escaped assessment.5. Compliance with the mandate of Section 148A(c) of the Act:The Court found that the Assessing Officer violated Section 148A(c) by not considering the Petitioner's detailed reply dated 31st March, 2022. The Court highlighted that the significance of issuing a show-cause notice before a reassessment notice under Section 148 was lost on the Respondents. The Court noted that the orders under Section 148A(d) often used a template reason to reject the Petitioner's defense, rendering the re-assessment scheme ineffective.Relief:The Court quashed the impugned order dated 4th April, 2022, under Section 148A(d) and the notice dated 4th April, 2022, under Section 148. The matter was remanded back to the Assessing Officer for fresh determination. The Assessing Officer was directed to pass a fresh reasoned order under Section 148A(d) after considering the Petitioner's detailed reply dated 31st March, 2022, within eight weeks. The Assessing Officer was also permitted to issue a supplementary notice if further clarifications were needed. The writ petition and pending application were disposed of with these directions. The Respondent's counsel was directed to forward a copy of the order to the CBDT for necessary action.