2024 (3) TMI 887 - HC - Income Tax

Reassessment proceedings quashed due to erroneous factual foundation and improper approval under Section 148A(d) and Section 151(ii)

The Madras HC quashed reassessment proceedings under Section 148A(d) and Section 148 notices for multiple assessment years. The petitioner failed to ... Validity of Reopening of assessment - objective satisfaction of the officer on the basis of tangible materials - petitioner had failed to deduct withholding tax on the assumption that the AAR would issue a favourable ruling - petitioner had filed AAR before the Authority for Advance Ruling (Income tax) seeking a ruling on whether payments received by Fives France would be subject to withholding tax u/s 195. which was declined to be answered - HELD THAT:- As principles laid down in the judgment of Rajiv Agarwal [2016 (3) TMI 972 - DELHI HIGH COURT] are clearly applicable to this case wherein as concluded therein that the assessing officer had ignored the objections of the assessee and failed to apply his mind to the material presented by the assessee. Likewise, in Chhugamal Rajpal [1971 (1) TMI 9 - SUPREME COURT] the Supreme Court concluded that approval under Section 148 should be provided after examining the material on record and not in mechanical fashion. Both on account of the reasons for reopening being based on a grossly erroneous factual foundation and by also taking into account that the petitioner actually withheld and remitted taxes in respect of transactions with Fives France that formed the subject of the application before the AAR, the impugned order under Section 148A(d) of the I-T Act and the notice under Section 148 thereof are vitiated. All that remains is to briefly consider the other ground of challenge. Plea of limitation - By referring to the letter of approval with regard to AYs 2016- 2017 and 2017-2018 petitioner pointed out that such approval was granted by the Chief Commissioner of Income Tax. In clauses (i) and (ii) of Section 151 of the I-T Act, the specified authorities for purposes of issuing notice under Section 148 are prescribed. The rank of the specified authority changes depending on the amount of time which has elapsed from the end of the relevant assessment year. If less than 3 years have elapsed, clause (i) is applicable; otherwise, clause (ii) applies. As regards each Relevant AY, even the first notice under Section 148 was issued in June 2021. Thus, more than 3 years had lapsed. For AYs 2014-2015 and 2015-2016, the approval was granted by the Principal Chief Commissioner of Income Tax, who is a specified authority under clause (ii), but the approval for AYs 2016-2017 and 2017-2018 was granted by the Chief Commissioner of Income Tax, who was not a specified authority under clause (ii) of Section 151 at the relevant time unless there was no Principal Chief Commissioner or Principal Director General. The admitted position is that there was a Principal Chief Commissioner. Therefore, the reassessment proceedings in respect of AY 2016-2017 and 2017-2018 are vitiated on this count too. For reasons adverted to above, the impugned order under Section 148A(d) and the notice under Section 148 are quashed. Decided in favour of assessee. Issues:The judgment involves challenging the order under Section 148 A(d) of the Income-tax Act, 1961, subsequent notice under Section 148, and a later show cause notice for four assessment years from AY 2014-2015 to AY 2017-2018.Summary:Assistance Service Agreement and AAR Application:The petitioner sought a ruling from the Authority for Advance Ruling (AAR) regarding payments to Fives France under the Assistance Service Agreement. The AAR declined to answer the questions raised by the petitioner. Subsequently, notices alleging income escapement were successfully challenged based on changed legal regime for reassessment.Challenges to Orders under Section 148A(d):The petitioner challenged the orders under Section 148A(d) on various grounds, including factual errors in the reopening assessment reasons and lack of proper approval from the Chief Commissioner of Income Tax. Legal precedents were cited to support the contentions.Withholding Tax and Reassessment Proceedings:The petitioner contended that withholding tax was deducted for transactions with Fives France, contrary to assumptions made by the respondents. The impugned order and notice were argued to violate Section 148 r/w Section 151 of the I-T Act and lacked merit.Response by Senior Standing Counsel:The Senior Standing Counsel argued that the reassessment proceedings were justified due to income escapement reasons supported by tangible material. Approval for reassessment was detailed for different assessment years, highlighting the role of specified authorities under Section 151 of the I-T Act.Judicial Analysis and Decision:The Court examined the factual errors in the reopening assessments, emphasizing the need for objective satisfaction of the assessing officer. The impugned order under Section 148A(d) and notice under Section 148 were found to be flawed and were quashed. The approval authority for reassessment for certain assessment years was also found to be incorrect, leading to the vitiation of reassessment proceedings for those years. Consequently, the impugned order, notice, and subsequent assessment orders were quashed, and the writ petitions were allowed.Conclusion:The judgment addressed challenges to the reassessment proceedings, highlighting errors in factual foundations and approval processes. The Court ruled in favor of the petitioner, quashing the impugned order and notice, leading to the closure of the connected miscellaneous petitions without costs.