2023 (1) TMI 282 - HC - Income Tax

Writ petition succeeds: Section 148 notice and reassessment quashed due to violation of natural justice principles.

Micro Marbles Private Limited Versus Office of the Income Tax Officer Ward-1, Chittorgarh, Rajasthan.

The HC allowed the writ petition, quashing the notice under Section 148 of the Income Tax Act, the order dismissing objections, and the reassessment order ... Reopening of assessment u/s 147 - Whether petitioner has a statutory remedy of appeal under the Act? - HELD THAT:- As we are of the firm opinion that the writ petition as filed by the petitioner cannot be thrown out on the ground that the petitioner has a statutory remedy against the re-assessment order ignoring the fact that against the notice issued u/s 148 of the Act and the order deciding objections to it, there is no remedy available to it other than the writ jurisdiction. Leaving aside the re-assessment order, as there is no remedy available to the petitioner against the notice under Section 148 of the Act or the order disposing of the objections thereto, the writ petition to the extent of challenging the same is maintainable. The successful challenge to the said notice and the order being germane to the re-assessment order would automatically result in nullifying the same. Accordingly, the preliminary objection as raised by the Revenue is not tenable and stand rejected. Reason to believe OR reason to suspect - reason to believe that income has escaped assessment is a mandatory condition for reopening the assessment by notice under Section 148 - Reason to believe supplied to the petitioner refers to information received from the Deputy Director of Income Tax, Investigation as also to the statement of Deepak Jain recorded u/s 132 (4) during the course of the investigation pursuant to the search and seizure carried out at his premises as also the entries in the form of bogus loan/purchase/sale appearing in the books of M/s Sanmatri Gems Pvt. Ltd. for the Assessment Year 2017-18. Neither of the above documents have allegedly been supplied to the petitioner. The petitioner in the grounds to the petition has taken a categorical stand that the respondents failed to furnish the information which formed the basis for reopening the assessment. It was not even provided with the statement of Deepak Jain, on which heavy reliance was being placed. There is no averment in the reply of the respondents anywhere that any such information or a copy of the statement was supplied to the petitioner along with the reasons to believe. The reasons to believe, as supplied to the petitioner, on the face of it are incomplete and do not afford the petitioner due and proper opportunity to file objections against such reassessment. The non-supply of the above material is within the teeth of the directions of the Division Bench of the Delhi [2017 (9) TMI 1589 - DELHI HIGH COURT] and Bombay High Courts [2022 (2) TMI 1093 - BOMBAY HIGH COURT] The submission of Shri Bissa that reasons to believe cannot be equated with the final conclusion and as long as the Assessing Officer has sufficient material to demonstrate that he had bonafidely formed the opinion that the income chargeable to tax has escaped assessment, the requirement of law stands satisfied is of no avail as there are no two opinions on the above aspect. Sufficiency of material is one thing and supply of the same is another, which is mandatory in nature. Therefore, the non-supply of the material referred to in the reasons to believe would be enough to render the proceedings bad, even though the material for forming the opinion may be sufficient. The argument of Shri Bissa is that information furnished by the Deputy Director of Income Tax, Investigation, by itself is sufficient for reopening the proceedings, more particularly when the said information was confirmed from other sources. Again the sufficiency of the information is not in question, nor its confirmation. What is questionable is the effect of its non-supply, to which there is no answer. The non-supply of the material, especially the documents of entry in the books of M/s Sanmatri Gems Pvt. Ltd. and the statement of Deepak Jain recorded under Section 132 (4) of the Act, is sufficient to vitiate the proceedings. As noted that the statement recorded under Section 132 (4) of the Act can be used in evidence for making the assessment only if such statement is made in context with other evidence, or material discovered during search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger the assessment. We are of the opinion that shorn of all other technical aspects which may have been raised before us, the very fact that the material referred to in the “reasons to believe” was not supplied to the petitioner, the entire proceedings for the reopening of the assessment and leading to the consequential assessment stand vitiated in law. Accordingly, the impugned notice and the order ismissing the objections of the petitioner are hereby quashed - Decided in favour of assesee. Issues Involved:1. Maintainability of the writ petition.2. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.3. Non-supply of material forming the basis for reopening the assessment.4. Legal implications of the reassessment order based on the impugned notice.Issue-wise Detailed Analysis:1. Maintainability of the writ petition:The petitioner challenged the notice issued under Section 148 of the Income Tax Act and the subsequent reassessment order. The revenue raised a preliminary objection, arguing that the petitioner has a statutory remedy of appeal under the Act, citing the Supreme Court decision in Commissioner of Income Tax & Ors. vs. Chhabil Dass Agarwal. The court acknowledged that while statutory remedies should be exhausted, the writ petition is maintainable in this case because there is no remedy under the Act for challenging the notice and the order disposing of objections. The court emphasized that if the notice under Section 148 and the order disposing of objections are quashed, the reassessment order would automatically fall. Thus, the preliminary objection was rejected.2. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:The petitioner argued that the notice under Section 148 was issued based on 'reason to suspect' rather than 'reason to believe,' which is a mandatory condition for reopening the assessment. The court noted that the reasons to believe, supplied to the petitioner, referred to information from the Deputy Director of Income Tax, Investigation, and the statement of Deepak Jain recorded under Section 132(4) of the Act. However, the petitioner was not provided with these documents, which are crucial for filing a proper and effective reply. The court highlighted that the supply of material forming the basis for reopening the assessment is essential for ensuring natural justice and enabling the petitioner to respond effectively.3. Non-supply of material forming the basis for reopening the assessment:The court referred to the decisions of the Delhi High Court in SABH Infrastructure Ltd. and the Bombay High Court in Tata Capital Financial Services Limited, which mandate the supply of documents referred to in the reasons to believe. The court held that the non-supply of the statement of Deepak Jain and the entries in the books of M/s Sanmatri Gems Pvt. Ltd. to the petitioner was a violation of the principles of natural justice. The court emphasized that sufficiency of material is one thing, but its supply is mandatory. The non-supply of the material rendered the proceedings bad in law.4. Legal implications of the reassessment order based on the impugned notice:The court concluded that the material referred to in the reasons to believe was not supplied to the petitioner, which vitiated the entire proceedings for reopening the assessment and the consequential reassessment order. The court quashed the impugned notice dated 30.03.2021 and the order dated 18.08.2021 dismissing the petitioner's objections. Consequently, all proceedings, including the reassessment order dated 29.03.2022, were declared illegal, null, and void. The court granted liberty to the respondents to undertake a fresh reassessment exercise, if necessary, in accordance with the law.Conclusion:The writ petition was allowed, and the impugned notice, the order dismissing objections, and the reassessment order were quashed due to the non-supply of material forming the basis for reopening the assessment, which violated the principles of natural justice. The court provided liberty to the revenue to initiate fresh reassessment proceedings if required.