Tax officer cannot reopen assessment without concrete information showing income escapement under Section 148

The Karnataka HC quashed reassessment notices issued under Section 148 and orders under Section 148A of the Income Tax Act, 1961. The court held that post-amendment, concrete information suggesting income escapement is a prerequisite for reopening assessment, not merely the assessing officer's subjective belief. The court found jurisdictional facts lacking as the information required under Explanation 1 to Section 148 was absent. The assessing officer failed to consider petitioners' objections, violating natural justice principles. The court ruled that allowing reassessment based solely on returns already filed by assessees would bypass regular assessment procedures and render limitation provisions meaningless, contrary to the legislative intent of the 2021 amendments.

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Issues Involved:
1. Validity of reopening assessments under Sections 147 and 148 of the Income Tax Act, 1961.
2. Compliance with Section 148A requirements.
3. Jurisdictional facts and the nature of information required for reopening assessments.

Summary:

I. FOUNDATIONAL FACTS OF THE CASES:
The petitioners, an octogenarian couple, acquired shares in MEMGIPL and were later allotted shares in MISPL and Quess Corp. due to demerger schemes approved by the NCLT. They sold these shares in 2018 and filed their Returns of Income for AY 2018-19. Notices under Section 148A(b) were issued to them on grounds of taxable demerger arrangements and non-disclosure of sold shares. Their objections were overruled, leading to the issuance of notices under Section 148, which are now being challenged.

II. AS TO WHAT THE ASSESSEES HAVE ARGUED:
(a) The primary condition for reopening assessments, i.e., escapement of income, is absent, making the action without jurisdiction.
(b) The order under Section 148A(d) exceeded the scope of the show cause notice and did not consider the petitioners' replies.
(c) The reasons recorded in the show cause notices should not be traversed beyond by the Assessing Officer.
(d) The NCLT-approved scheme cannot be questioned by the Income Tax authorities.

III. AS TO WHAT THE REVENUE CONTENDED:
(a) The decision to reopen assessments under Section 148A(d) is tentative and subject to further consideration during the assessment.
(b) The issues raised involve disputed facts that merit adjudication by the Assessing Officer.
(c) The prima facie opinion of escapement of income is based on material available on record, making the challenge premature.
(d) Transactions indicated round-trip financing lacking commercial substance, justifying the notice for escaped assessment.
(e) Section 49 is not applicable, and the holding period should be considered only in MISPL, resulting in short-term capital gains.

IV. JUDGMENT DETAILS:
(A) The scope and invocability of Sections 147 and 148, post-amendment, require concrete information suggesting escapement of income. The Assessing Officer must have objective information as defined in Explanation 1 to Section 148.
(B) The term "information" must be concrete and suggestive of income escaping assessment, not merely a change of opinion.
(C) Compliance with Section 148A is mandatory, requiring an opportunity for the assessee to respond before issuing a notice under Section 148.
(D) The impugned orders and notices lacked jurisdictional facts and did not consider the petitioners' replies, violating principles of natural justice.
(E) The notices under Section 148A(b) were cryptic and did not adequately address the petitioners' contentions, making the orders beyond the scope of the proposal notice.
(F) The court found the notices and orders unsustainable due to lack of jurisdictional facts and non-compliance with Section 148A requirements.

Conclusion:
The writ petitions were allowed, quashing the impugned orders and notices dated 31.3.2022 under Sections 148A and 148 of the Income Tax Act, 1961. The court emphasized the need for concrete information suggesting escapement of income and adherence to procedural requirements under Section 148A.

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