2024 (3) TMI 1019 - HC - Income Tax

Reassessment under section 147 upheld where email investigation report on NSE client-code modification justified reassessment; minor wording differences immaterial

HC upheld reassessment notice under section 147, finding the AO had bona fide reasons based on an email report from the Ahmedabad Investigation ... Reopening of assessment u/s 147 - Reasons to believe - as alleged there is net reduction of income through misuse of CCM - reliance on information recieved from Ahmedabad Investigation Directorate [Directorate] - Assessee pointed difference and disparity between the information provided to the petitioner and the reasons as existing on the record of the responde - HELD THAT:- Information which triggered the initiation of action was based upon an information received via email from the Ahmedabad Investigation Directorate [Directorate]. The aforesaid report alluded to certain conclusions prima facie arrived at by that Directorate on analysis of data received from the National Stock Exchange, and on the basis whereof the Directorate opined that the Client Code Modification [CCM] system had been used as a tool for tax evasion. Upon receipt of the aforesaid report, the AO while apprising the petitioner of the reasons which warranted re-assessment being undertaken, referred to the report of the Directorate and alluded to an ‘orchestrated misuse’ of CCM with a motive to evade tax. It also referred to a coordinated limited purpose survey undertaken under Section 133A of the Act at the premises of twelve brokers as well as their clients across India in March 2015. The recordal of facts and reasons in the proforma would clearly indicate that information was identically transcribed on the record of the respondent as well. In our considered opinion, the minor discrepancies in the language employed by the respondent, and as it stands reflected in the reasons provided to the petitioner, and that which exists on the record, would clearly not justify us interfering with the impugned notice and the order impugned for reasons which follow. As would be evident from a perusal of the reasons which were supplied to the petitioner, there is a clear and unequivocal expression of opinion of the AO with respect to the material on the basis of which reassessment was sought to be commenced. The proforma also alludes to the same material and record. There is thus no variation or difference in the foundational material on the basis of which the AO came to form the opinion that income has likely to have escaped assessment. What needs to be emphasized while dealing with challenges like the present is that we would not countenance two separate and distinct set of reasons being maintained by the respondent for commencement of reassessment. The reasons which are conveyed to the assessee must be the same as those which exist on the record. A minor variation in the language in which that information is conveyed to the assessee would not constitute a justifiable ground to interfere with the reassessment power. Decided against assessee. Issues Involved:1. Quashing of proceedings for re-assessment u/s 148 of the Income Tax Act, 1961.2. Validity of the notice dated 31 March 2016 issued u/s 148.3. Validity of the order dated 25 July 2016.4. Validity of the notice dated 10 June 2016 issued u/s 143(2).5. Validity of the notice dated 01 August 2016 issued u/s 142(1).Summary:1. Quashing of proceedings for re-assessment u/s 148 of the Income Tax Act, 1961:The petitioner sought to quash the re-assessment proceedings initiated u/s 148 of the Income Tax Act, 1961, challenging the notice dated 31 March 2016 and subsequent orders and notices issued by the respondent. The Court noted that the reasons for initiating re-assessment proceedings were based on information received from the Ahmedabad Investigation Directorate regarding Client Code Modification (CCM) used for tax evasion. The Court observed that the reasons recorded in the proforma and those provided to the petitioner were substantially similar, with only minor discrepancies in language, which did not justify interference with the re-assessment proceedings.2. Validity of the notice dated 31 March 2016 issued u/s 148:The Court found that the notice dated 31 March 2016 was based on the AO's belief that income had escaped assessment due to the misuse of CCM. The reasons provided to the petitioner and those recorded in the proforma were consistent, and the minor differences in language did not affect the validity of the notice. The Court held that the notice was valid and did not warrant quashing.3. Validity of the order dated 25 July 2016:The order dated 25 July 2016, which was issued following the notice u/s 148, was also challenged by the petitioner. The Court, however, found no merit in the challenge, as the reasons for re-assessment were adequately recorded and communicated to the petitioner. The order was upheld as valid.4. Validity of the notice dated 10 June 2016 issued u/s 143(2):The petitioner challenged the notice dated 10 June 2016 issued u/s 143(2) of the Act. The Court, however, did not find any substantial grounds to interfere with the notice, as it was part of the procedural steps following the initiation of re-assessment proceedings.5. Validity of the notice dated 01 August 2016 issued u/s 142(1):The notice dated 01 August 2016 issued u/s 142(1) was also contested by the petitioner. The Court held that this notice was a procedural requirement in the re-assessment process and found no reason to quash it.Conclusion:The Court dismissed the writ petition, finding no merit in the challenges raised against the re-assessment proceedings, notices, and orders. The Section 148 notice dated 31 March 2016, the order dated 25 July 2016, the Section 143(2) notice dated 10 June 2016, and the Section 142(1) notice dated 01 August 2016 were upheld. The petitioner's contentions on merits were kept open to be urged during the assessment proceedings.