2024 (2) TMI 753 - HC - Income Tax

Income Tax reopening order quashed for failing to follow Section 148A procedures and ignoring assessee's reply

R.K. Buildcreations Private Limited Versus The Income Tax Officer, Ward 1 (2), Jaipur

The Rajasthan HC quashed an order under Section 148A of the Income Tax Act for failing to follow prescribed procedures. The Assessing Officer did not ... Validity of reopening of assessment - grievance raised that the objections raised were not specifically dealt - procedure prescribed u/s 148A followed or not? - whether A.O. while passing the impugned order has considered the material on record, the replies filed and passed a speaking order? HELD THAT:- From the language of Section 148A and the guidelines, it is clear that before initiating the proceedings u/s 148 with prior approval of the specified authority, the A.O. if so, required may conduct an enquiry with regard to the information suggesting escaped assessment. The assessee is to be provided an opportunity of hearing by issuing notice specifying the date of not less than 7 days but not exceeding 30 days, which may be extended on application. The information relied upon for reassessment and outcome of enquiry if conducted any, is to be supplied. In case of information having been received from investigating wing or other agency, brief summary of information along with relevant portion of report and details of documents relied upon is to be supplied. The decision as to if it is a fit case for issuance of notice u/s 148 is to be taken with prior approval of the specified authority, on the basis of material available on record and considering the reply filed by the assessee. The order is to be passed within one month from ending of the month when reply was filed and in case no reply was filed within one month from end of month when time to file reply expires. The proviso to Section 148A of the Act provides exception to the applicability of Section 148A of the Act. Addition on cash loan and the interest received - In the survey conducted documents were seized indicating that petitioner had advanced cash loan and interest was received by petitioner. The statement of Shri Ram Gopal Sukhal was also to this effect. On issuance of notice, the petitioner filed replies demanding copy of the material relied upon and raising objections. In the impugned order the reply was reproduced and it was concluded that the petitioner had not made argument on merits of the case hence, had nothing to explain about the cash loan and the interest received. It is mandatory for A.O. to pass speaking order, taking into consideration not only the material on record but also the reply filed. The additional reply was not considered, consequently there was no occasion to deal with the objections raised therein. The impugned order is not as per the procedure prescribed under Section 148A of the Act and cannot stand judicial scrutiny. The impugned order passed u/s 148A(d) is unsustainable, therefore, the other contention raised by the counsel for the petitioner needs no dilation. Scope of alternative remedy - There cannot be quibble with the proposition that if an Act mandates, a particular thing to be done in the manner, it has to be done in that way. The provisions of Section 148A of the Act and the guidelines issued by the CBDT provides for passing a speaking order after considering the reply and the material on record. The impugned order is not in consonance with the procedure prescribed and issue goes to the root of the jurisdiction for initiating the proceedings under Section 148 of the Act. The case falls within the exception to the self-imposed restriction of not entertaining the writ where alternative remedy is available. Reference be made to Whirlpool Corporation Vs. Registrar of Trade Marks [1998 (10) TMI 510 - SUPREME COURT] wherein the Supreme Court provided at least three contingencies where the writ petition can be entertained in spite of alternative remedy. (i) Where it is a case of enforcement of fundamental rights, (ii) Where it is the case of violation of principle of natural justice and lastly, (iii) Where the proceedings are without jurisdiction or vires are challenged. The reliance placed by the counsel for the respondent on the decisions of Bhagchand Dinga and Ram Kishore Kadal [2023 (4) TMI 1299 - RAJASTHAN HIGH COURT] is of no avail. The writ petitions were filed in those cases after passing of the reassessment order or just a day before when it was passed and the petitioner participated in proceedings. In the present case, the challenge to the initiation of proceedings was subjudice before this Court and during the pendency, the order under Section 147 of the Act was passed. The impugned order is quashed, resultantly, the consequential proceedings. The core legal questions considered in this judgment revolve around the validity and procedural correctness of the issuance of a notice under Section 148 of the Income Tax Act, 1961, and the associated order under Section 148A(d). Specifically, the issues include:(1) Whether the reassessment proceedings initiated by the Assessing Officer (AO) were within the prescribed limitation period under the Act;(2) Whether the procedure mandated under Section 148A of the Income Tax Act, 1961, was duly followed before issuing the notice under Section 148;(3) Whether the Assessing Officer considered the objections and replies filed by the petitioner in a speaking order as required by law;(4) Whether the information and material relied upon by the AO for reopening the assessment pertained to the petitioner and was adequately disclosed;(5) The applicability of the proviso to Section 148A relating to exceptions where the procedure under Section 148A is not mandatory;(6) The availability of alternative remedies and the scope of judicial interference by way of writ petition challenging the initiation of reassessment proceedings.Issue-wise Detailed Analysis1. Limitation for Reassessment ProceedingsThe relevant legal framework is Section 149 of the Income Tax Act, which prescribes the limitation period for issuance of notice under Section 148. Post the Finance Act, 2021 amendments, the limitation is generally three years from the end of the relevant assessment year, extendable to ten years in exceptional cases with prior approval of higher authorities.The respondent contended that the reassessment was based on information indicating escaped income of Rs. 2.8 crores, thus within limitation. The petitioner argued the proceedings were time-barred as initiated beyond three years and the material did not relate to it.The Court observed that the survey of M/S Om Sokhal Builders and Construction Private Limited, conducted prior to 1 April 2021, revealed documents indicating the petitioner had advanced a cash loan of Rs. 2.5 crores and received interest of Rs. 30 lakhs during AY 2015-16. This formed the basis for reassessment proceedings within limitation. Hence, the limitation objection was not upheld.2. Compliance with Section 148A ProcedureSection 148A, inserted by the Finance Act, 2021, prescribes a mandatory procedural framework before issuing a notice under Section 148. It requires the AO to:Conduct any necessary enquiry with prior approval of specified authority;Issue a show-cause notice under Section 148A(b) providing the assessee an opportunity to be heard with at least 7 days' notice;Disclose the information and documents relied upon;Consider the assessee's reply;Pass a speaking order under Section 148A(d) with prior approval of specified authority deciding whether to issue notice under Section 148.The Supreme Court in Union of India Vs. Ashish Agarwal emphasized that Section 148A is a 'game changer' introducing safeguards and streamlining reassessment procedure.The CBDT guidelines dated 01/08/2022 further elaborate the process, including timelines, the necessity of speaking orders, and disclosure of material in the show-cause notice (Annexure A1).The Court analyzed the impugned order dated 26.07.2022 passed under Section 148A(d). It noted that while the AO reproduced the petitioner's reply dated 11.06.2022, the additional reply dated 14.06.2022 containing objections was not considered. The AO concluded that the petitioner had no explanation on merits, which the Court found to be an inadequate and non-speaking order.The Court held that the AO failed to comply with the mandatory procedure under Section 148A by not considering all replies and objections in a speaking order. This procedural lapse vitiated the reassessment initiation.3. Disclosure of Material and Reliance on InformationThe petitioner contended that the material on which the reassessment was based was not provided along with the notice, and the information did not pertain to it.The Court observed that the information and annexure 'A-1' were supplied on 27.06.2022, which included details of loans advanced and interest received. The petitioner's demand for material was thus met, but the AO did not duly consider the petitioner's objections to this material.The Court emphasized that proper disclosure of information and documents is crucial for compliance with principles of natural justice and the statutory scheme under Section 148A.4. Applicability of Exceptions under Section 148AThe proviso to Section 148A exempts the procedure under Section 148A in certain cases such as where a search under Section 132 or requisition under Section 132A has been conducted on or after 1 April 2021.The respondent argued that since the survey was conducted prior to 1 April 2021 and material seized related to the petitioner, the exception applied.The Court found that the survey was prior to 1 April 2021, so the proviso exceptions did not apply, and the full procedure under Section 148A was mandatory.5. Alternative Remedy and Scope of Judicial ReviewThe respondent argued that since the petitioner had filed an appeal against the reassessment order, the writ petition was not maintainable.The Court referred to the Supreme Court's ruling in Whirlpool Corporation, which allows writ petitions despite alternative remedies in three contingencies: enforcement of fundamental rights, violation of natural justice, and challenge to jurisdiction or vires of proceedings.The Court held that failure to comply with the mandatory procedure under Section 148A, including passing a speaking order and considering objections, amounts to violation of natural justice and jurisdictional error. Hence, the writ petition was maintainable despite the existence of alternative remedies.The Court distinguished the cited Division Bench decisions where writ petitions were entertained post-passing of reassessment orders and where the petitioner participated in proceedings. Here, the challenge was to the initiation itself and was pending when the reassessment order was passed.Significant HoldingsThe Court succinctly stated:'By Finance Act, 2021, Sections 147 to 151 of the Act were substituted. Section 148A of the Act was inserted streamlining the procedure for initiation of proceedings under Section 148 of the Act... The AO shall mandatorily pass a speaking order under Section 148A(d) in all cases with the prior approval of the specified authority, considering the reply of the assessee and material on record.''The impugned order is not as per the procedure prescribed under Section 148A of the Act and cannot stand judicial scrutiny.''There cannot be quibble with the proposition that if an Act mandates, a particular thing to be done in the manner, it has to be done in that way... The impugned order is not in consonance with the procedure prescribed and issue goes to the root of the jurisdiction for initiating the proceedings under Section 148 of the Act.'The Court concluded by quashing the impugned order dated 26.07.2022 passed under Section 148A(d) and the consequential proceedings initiated thereunder. It directed that the matter be remitted back to the respondent to proceed afresh in accordance with law, including issuance of notice under Section 148A(b) with proper compliance of procedural safeguards.