2024 (3) TMI 431 - HC - Income Tax

Rajasthan HC upholds Section 147 assessment reopening based on accommodation entries information from investigation wing

The Rajasthan HC dismissed a writ petition challenging reopening of assessment under Section 147. The petitioner contested the Section 148A(b) notice ... Reopening of assessment u/s 147 - initiating notice u/s 148A(b) - alleged information received from DDIT (Inv.), Mumbai that the petitioner opted accommodation entries - allegation of non-affording of opportunity of oral hearing and also non-supply of certain documents - HELD THAT:- Basis of initiating notice u/s 148A(b) was information regarding transaction between the petitioner and Allbright Electricals Pvt. Ltd. Section 148A(a) provides that the AO shall, before issuing any notice u/s 148, conduct an enquiry, if required, with the prior approval of the specified authority, with respect to the information which suggests that income chargeable to tax has escaped assessment. AO initiated enquiry with regard to the information, as contained in the annexure appended to the notice, and elaborately dealt with, which is referred to herein above. The information, in our opinion, taken as it is, definitely suggests that the income chargeable to tax has escaped assessment. Use of the word “suggest” denote the legislative intent that that no conclusion at that stage is required to be arrived at but only a prima facie consideration is necessary to initiate proceedings u/s 148A. The materials, which have been disclosed, can neither be said to be patently false, much less irrelevant or extraneous to the relevant assessment year and the transactions made by the petitioner. The petitioner was given an opportunity of being heard. Though number of grounds were urged by the petitioner, apart from his demand for supply of various documents and material from which the information was collected and shared with the petitioner, they are more in the nature of explaining the transaction to say that the transaction amount of Rs. 50,00,000/-was not taxable. However, this is not the stage where assessment has to be carried out. The Assessing Authority, at this stage of making enquiry u/s 148A, does not make any assessment but the purpose of enquiry is to find out whether any income chargeable to tax has escaped assessment. Clause (d) of Section 148A clearly reveals that after receipt of reply in response to the notice under Clause (b), the Assessing Officer is required to decide, on the basis of material available on record, including the reply of the assessee, whether or not it is a fit case to issue notice u/s 148. Therefore, the enquiry u/s 148A is intended to decide whether a case of reopening of assessment is made out or not. Therefore, from the very nature of the enquiry contemplated u/s 148A, it cannot be said that a detailed enquiry and minute examination and scrutiny of each and every material on record and hearing to the assessee is necessary at this stage. Once the information which suggests that income chargeable to tax has escaped assessment, a case for reopening of the assessment is made out. Once it is admitted that heavy transaction has been made between the petitioner and Allbright Electricals Pvt. Ltd. and the same having not been disclosed in the return of income/audit, it is clear that the aforesaid transaction amounts to escaped income for the relevant assessment year. Therefore, in our opinion, admission of the petitioner himself makes out a case for reopening of the assessment u/s 148. Though the reasons which have been assigned by the AO in the order impugned are brief in nature, it cannot be said that the order is non-speaking or mechanical in nature. Non-disclosure of heavy transaction by the petitioner with Allbright Electricals Pvt. Ltd., in the ITR/Audit and the same having been made a basis to reopen assessment by issuing notice u/s 148, cannot be termed as arbitrary, whimsical or perverse, so as to warrant interference by this Court in exercise of jurisdiction under Article 226 of the Constitution of India. The decisions, which have been cited by the petitioner, are distinguishable on facts. Present is a case where party had accepted that certain transactions had escaped assessment. In case of serious dispute with regard to the information or transaction having escaped assessment, non-affording of opportunity of hearing or non-supplying documents, was held to be unfair, arbitrary and unsustainable in law and relief was provided. The judgments cited at the bar by the petitioner are, therefore, distinguishable on facts. No case is made out for interference at this stage. WP dismissed. Issues Involved:1. Procedural impropriety and error of law in reopening assessment.2. Non-supply of documents and denial of personal hearing.3. Mechanical and non-speaking order by the ITO.4. Jurisdictional challenge to the reopening of assessment.Issue-wise Summary:1. Procedural Impropriety and Error of Law:The petitioner challenged the reopening of the assessment for the assessment year 2019-20 under Section 148A(d) of the Income Tax Act, 1961. The petitioner argued that the order impugned suffers from procedural impropriety and errors of law and fact. The court noted that the basis for issuing the notice was the information received from DDIT (Inv.), Mumbai, regarding a heavy transaction between the petitioner and Allbright Electricals Pvt. Ltd., which was not reflected in the petitioner's income tax return.2. Non-supply of Documents and Denial of Personal Hearing:The petitioner contended that the documents and material records from which the information was extracted were not supplied, violating the mandate of the circular dated 01.08.2022. Additionally, the petitioner was not afforded a personal hearing despite a specific request. The court observed that the petitioner was given an opportunity of being heard and that the purpose of the enquiry under Section 148A is to find out whether any income chargeable to tax has escaped assessment, not to conduct a detailed enquiry.3. Mechanical and Non-speaking Order by the ITO:The petitioner argued that the impugned order was mechanical, non-speaking, and did not consider the material objections raised. The court found that the Assessing Officer had prima facie opined that the transaction remained unexplained from the ITR and other financial statements filed by the petitioner. The court held that the reasons assigned by the Assessing Officer, though brief, were sufficient to justify the reopening of the assessment.4. Jurisdictional Challenge to the Reopening of Assessment:The petitioner admitted that the transaction in dispute was not reflected in the ITR/audit, which the court found sufficient to make out a case for reopening the assessment under Section 148. The court referred to various judgments, including those of the Supreme Court and High Courts, which held that the writ court should not interfere at a premature stage when the statutory authority has not concluded the proceedings.Conclusion:The court dismissed the petition, stating that no case was made out for interference at this stage. The petitioner was given the liberty to raise all submissions regarding the nature of the transactions during the reassessment proceedings, where the Assessing Officer would be duty-bound to address them. The court emphasized that it had not commented on the merits of the assessment and that the petitioner could seek the necessary documents during the reassessment process.