2022 (9) TMI 310 - HC - Income Tax

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

Excel Commodity And Derivative Pvt. Ltd. Versus Union Of India And Ors.

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 ... Reopening of assessment u/s 147 - issuance of notice u/s 148A(b) - Non verification was not done on the information which was available with the AO at the time of issuance of notice u/s 148A(b) - HELD THAT:- As come to the notice of CBDT that in several cases information made available/data uploaded by the reporting entries are not fully accurate due to error of human nature, technical nature etc.The department was advised to effect due verification and opportunity of being heard given to the tax payers before initiating proceedings u/s 148/147 - In the preceding paragraph we have pointed out the factual position in the case on hand and it appears that proper verification was not done on the information which was available with the AO at the time of issuance of notice u/s 148A(b) of the Act which has led to an erroneous order being passed. The term “information” in Explanation-1 u/s 148 cannot be lightly resorted to so as to reopen assessment and this information cannot be a ground to give unbridled power to the revenue. In the case on hand, the information has been lightly used which resulted in issuance of notice. As pointed out earlier, the assessee had submitted the explanation to the notice along with documents in support of their claim. AO has given up the said allegation which formed the basis of the notice and proceeded on a fresh ground for alleging that the transaction with some other company was an accommodation entry. Therefore, on that score also the order is liable to be set aside in its entirety without giving any opportunity to reopen the matter on a different issue. Assessee appeal allowed. 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.