2024 (3) TMI 885 - HC - Income Tax

Prima facie basis to reopen assessment under s.148 over undisclosed share transfer gains; s.144C draft set aside, AO remanded

HC held there was prima facie basis to reopen assessment under s.148 based on information about share transfers to a foreign entity suggesting undisclosed ... Re-opening of assessment under Section 148 - Obligation to consider objections and pass a speaking order - Remand for fresh consideration - Dispute Resolution Panel jurisdiction under Section 144CRe-opening of assessment under Section 148 - Capital gains escaping assessment - Validity of re-opening the assessment and issuance of notice under Section 148 on the basis of information gathered in assessment of Info-Drive India Ltd. - HELD THAT: - The Court found that the Assessing Officer decided to re-open the petitioner's assessment on the basis of information gathered while undertaking assessment in respect of Info-Drive India Ltd. The annexure to the notice indicated share transfers during financial year 2015-2016, showing that shares initially transferred by the petitioner to Mr. V.N. Seshagiri Rao were eventually acquired by Infodrive Mauritius and that the transaction was not disclosed in the petitioner's return. On this basis the Court concluded there was some foundation for believing that capital gains may have escaped assessment, thereby providing a prima facie basis for initiating reassessment proceedings under Section 148. [Paras 7]There was some basis for reopening the assessment under Section 148 on the material before the Assessing Officer.Obligation to consider objections and pass a speaking order - Remand for fresh consideration - Dispute Resolution Panel jurisdiction under Section 144C - Whether the Assessing Officer complied with the obligation to consider the petitioner's objections and to pass a speaking order, and the appropriate remedy where material is placed on record indicating an earlier tax period. - HELD THAT: - The petitioner relied on the Supreme Court's dictum that objections to a notice under Section 148 must be considered and a speaking order passed. The Court noted that the petitioner produced documents suggesting the share transfer to Mr. V.N. Seshagiri Rao occurred on 12.02.2015 (financial year 2014-15) rather than in 2015-2016, which, if verified, would materially affect the reassessment. In view of this potentially determinative material and the need for the Assessing Officer to consider the petitioner's objections and supporting documents before finalising the draft assessment order under Section 144C, the Court concluded that the draft order should be set aside and the matter remanded for reconsideration from the stage of issuing a speaking order. The Court also observed that the petitioner may avail the procedure before the Dispute Resolution Panel under Section 144C, but remanded the matter to ensure the Assessing Officer first considers the objections and documents. [Paras 8, 9]The draft assessment order is set aside and the matter is remanded to the Assessing Officer to consider the petitioner's objections and documents and to issue a fresh speaking draft assessment order.Final Conclusion: The draft assessment order under Section 144C is set aside and the matter remanded to the Assessing Officer; the petitioner may file fresh objections and annex relevant documents within two weeks of service of this order, and the Assessing Officer shall issue a fresh draft assessment order within two months of receipt of those objections. Issues involved:The challenge to the notice under Section 148 of the Income Tax Act and the draft assessment order issued under Section 144C(1) thereof.Summary:Issue 1: Notice under Section 148 of the Income Tax ActThe petitioner received a notice under Section 148 followed by notices under Section 142(1) regarding the transfer of shares. The petitioner objected to the notice citing non-compliance with Section 127 procedure. The petitioner raised objections based on the GKN Driveshafts judgment and a Draft Assessment Order was issued under Section 144C after objections were lodged. The petitioner contended that the share transfer did not occur during the relevant financial year as claimed by the Assessing Officer.Issue 2: Compliance with ObjectionsThe petitioner argued that the Assessing Officer failed to consider the objections raised and did not pass a speaking order as required. The petitioner provided documents showing the share transfer to another individual in a different financial year with a different consideration amount, which could impact the assessment proceedings.Issue 3: Dispute Resolution PanelThe Respondent's counsel argued that the petitioner admitted to the share transfer and could raise objections before the Dispute Resolution Panel. However, the petitioner's counsel contended that the Panel's jurisdiction is limited under Section 144C, emphasizing the need to set aside the draft assessment order for reconsideration based on the objections raised.Judgment:Upon examining the documents and contentions, it was found that the share transfer might have occurred in a different financial year than claimed by the Assessing Officer. The petitioner was directed to submit additional documents for verification, and the draft assessment order was set aside for reconsideration. The Assessing Officer was instructed to issue a fresh draft assessment order after considering the petitioner's objections and relevant documents within a specified timeframe.Conclusion:The draft assessment order was set aside, and the matter was remanded to the Assessing Officer for further consideration. The petitioner was given an opportunity to submit fresh objections and relevant documents within a specified period, with directions for the issuance of a new draft assessment order thereafter. The case was disposed of with no costs incurred.