Reopening under s.147/s.148 invalid where notice under s.148A(b) issued without proper verification of "information" in Explanation 1

HC held the reopening under s.147/s.148 invalid where the AO issued notice under s.148A(b) without proper verification of available information. The court found the term "information" in Explanation 1 to s.148 was misapplied and could not be lightly used to confer unchecked power on revenue. The AO had accepted the assessee's explanations on the original allegation but proceeded on a fresh, unrelated ground, depriving the assessee of a proper opportunity. The reassessment order was set aside in its entirety and the assessee's appeal allowed.

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Issues:
1. Validity of the order passed under Section 148A(d) of the Income Tax Act, 1961.
2. Justifiability of remanding the matter back to the assessing officer.
3. Compliance with CBDT Circular regarding verification of information before initiating proceedings under Section 148/147.
4. Interpretation of the term "information" in Explanation-1 under Section 148 for reassessment purposes.

Analysis:

1. Validity of the Order under Section 148A(d): The High Court examined the order dated 7th April, 2022, passed under Section 148A(d) of the Income Tax Act, which was challenged by the appellant. The Court found that the assessing officer's order was based on a different ground than the one for which the notice was issued. The order alleged an accommodation entry by the appellant, contradicting the initial allegation of fictitious derivative transactions. Consequently, the Court deemed the order as illegal and unsustainable, leading to the setting aside of the order.

2. Remand by the Single Bench: The Court deliberated on the direction issued by the Single Bench to remand the matter back to the assessing officer. The appellant contested the necessity of such remand, arguing that the assessing officer's order was flawed and did not warrant further consideration. The Court agreed with the appellant, emphasizing that the remand was not justified in the given circumstances. Consequently, the direction to remand the matter was set aside.

3. Compliance with CBDT Circular: The Court considered a Circular issued by the Central Board of Direct Taxes (CBDT) emphasizing the verification of information before initiating proceedings under Section 148/147. The Court noted that proper verification was not conducted by the assessing officer, leading to the erroneous order dated 7th April, 2022. The Court highlighted the importance of due diligence and verification as per the CBDT Circular to avoid incorrect assessments.

4. Interpretation of "Information" for Reassessment: Referring to a previous decision, the Court analyzed the term "information" in Explanation-1 under Section 148 concerning reassessment. The Court stressed that this term should not be lightly used to reopen assessments and cannot grant unrestricted power to the revenue authority. In the present case, the Court noted that the assessing officer's reliance on information was inadequate, leading to a flawed order. The Court emphasized the need for a strong basis, such as escapement of income chargeable to tax, before invoking reassessment powers.

In conclusion, the High Court allowed the appeal, setting aside the order under Section 148A and the remand direction. The Court emphasized the importance of accurate information, proper verification, and a strong basis for reassessment to ensure fair and lawful proceedings in tax matters.

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