2024 (3) TMI 1456 - HC - Income Tax

Reopening assessment under section 148 invalid due to inadequate recording of reasons by Assessing Officer

Gujarat HC held that reopening of assessment under section 148 was invalid due to inadequate recording of reasons by the Assessing Officer. The court ... Validity of Reopening of assessment - eligibility of reasons to believe - whether notice u/s 148 can be said to be legal? - HELD THAT:- As relying on Bharatkumar Nihalchand Shah [2023 (3) TMI 1415 - GUJARAT HIGH COURT] in the entire recording of reason, the Assessing Officer has not revealed with regard to the nature of transaction, date of transaction and name of party with whom such transaction has been entered into. When the concluded assessment is to be revisited with by the Assessing Officer, recording of reasons for exercise of such powers has to be viewed as vested rights for the assessee. While exercising powers under the Act to reopen the assessment, the Assessing Officer would harbour reasons to believe that on particular set of facts the income had escaped assessment and tax was not paid for the year under consideration. However, in the present case, as stated hereinabove, recording of reasons are cryptic and scanty and thereby, exercise of powers u/s148 of the Act cannot be said to be legal. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter were:(a) Whether the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the Assessment Year 2017-18 was valid and legalRs.(b) Whether the reasons recorded by the Assessing Officer for reopening the assessment were adequate, clear, and specific enough to justify the reopening under the statutory frameworkRs.(c) Whether the reopening was based on a bona fide reason to believe that income chargeable to tax had escaped assessment, or whether it was a case of fishing and roving inquiryRs.(d) Whether the petitioner had alternative efficacious remedies available, and if so, whether the writ petition was premature and maintainableRs.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Validity and adequacy of reasons recorded for reopening under Section 148Relevant legal framework and precedents: Section 148 of the Income Tax Act empowers the Assessing Officer to reopen an assessment if he has 'reason to believe' that income chargeable to tax has escaped assessment. The law mandates that such reasons must be recorded in writing and must be clear, specific, and based on credible material. The Supreme Court and High Courts have consistently emphasized that reasons are the 'heartbeat' of the order and must not be vague, cryptic, or non-speaking. They must disclose the nature of the transaction, the date, the parties involved, and the basis of the belief that income has escaped assessment. The reasons must not be a mere 'rubber stamp' or pretense but must reflect a bona fide and considered opinion.Court's interpretation and reasoning: The Court examined the reasons recorded by the Assessing Officer which were based on information received from the Directorate General of Income Tax (Investigation) and the Directorate of Intelligence & Criminal Investigation. The reasons stated that a search under Section 132 was conducted in the Kaushal Group, incriminating documents were seized, and that multiple companies under the group were allegedly involved in providing bogus accommodation entries such as bogus long-term and short-term capital gains, unsecured loans, share premium, bogus gains, and contrived losses. It was further stated that the petitioner was one of the beneficiaries of accommodation entries amounting to Rs. 91,29,362/-.However, the Court noted that the reasons did not specify the nature of the transactions, dates, or the parties involved in the alleged accommodation entries. The reasons were found to be vague, cryptic, and non-speaking, lacking the requisite clarity and specificity necessary to justify reopening. The Court relied on a coordinate Bench decision which summarized the importance of reasons, emphasizing that reasons must be cogent, clear, and succinct to ensure transparency, accountability, and facilitate judicial review.Key evidence and findings: The Assessing Officer's reasons relied on information from credible sources and investigation wings, but failed to disclose detailed particulars of transactions or how the petitioner's income escaped assessment. The petitioner had earlier furnished all required details during scrutiny, and the original assessment was completed without disturbance.Application of law to facts: Given that the reasons recorded were vague and did not disclose specific facts or material particulars, the Court held that the Assessing Officer did not have a valid 'reason to believe' as required under Section 148. The reopening was thus not based on a bona fide and considered opinion but was a mere assertion without adequate foundation.Treatment of competing arguments: The Revenue argued that the reopening was justified based on information from credible investigation agencies indicating bogus accommodation entries and suspicious transactions involving the petitioner. It contended that the Assessing Officer rightly exercised powers under Section 147 and 148. The petitioner countered that the reasons recorded were insufficient and amounted to borrowed satisfaction, making the reopening illegal.The Court found the petitioner's submissions persuasive, emphasizing that mere receipt of information without clear and specific reasons cannot sustain reopening. The Court rejected the Revenue's reliance on broad and general allegations without detailed disclosure.Conclusions: The notice under Section 148 was held to be illegal and unsustainable due to the inadequacy and vagueness of the reasons recorded. The Court quashed and set aside the reopening notice on this ground alone.Issue (c): Whether reopening was a fishing and roving inquiryRelevant legal framework and precedents: The law prohibits reopening assessments for the purpose of fishing or roving inquiries. Reopening must be based on tangible and credible material indicating escapement of income. The Assessing Officer must have a genuine reason to believe, supported by material, that income has escaped assessment.Court's interpretation and reasoning: The Court observed that the reasons recorded did not disclose any concrete details about the nature of transactions or the basis of belief that income had escaped assessment. This absence of specificity suggested that the reopening was an attempt at a fishing inquiry rather than a bona fide exercise of power.Key evidence and findings: The reasons relied on general information about the Kaushal Group and broad allegations of bogus entries without linking them specifically to the petitioner's case in a detailed manner.Application of law to facts: The Court held that reopening based on such vague and general information amounts to fishing inquiry, which is impermissible under the law.Treatment of competing arguments: The Revenue argued that information from investigation wings constituted credible material. The Court distinguished that credible information must translate into specific reasons recorded with clarity, which was lacking here.Conclusions: The reopening was not justified and amounted to an impermissible fishing and roving inquiry.Issue (d): Availability of alternative remedies and maintainability of writ petitionRelevant legal framework and precedents: Generally, alternative remedies such as appeals to the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal are available against assessment orders. Courts often hold that writ petitions under Article 226 challenging assessment notices are premature if alternative efficacious remedies exist.Court's interpretation and reasoning: The Revenue contended that the writ petition was premature and should be dismissed on this ground. However, the Court noted that the challenge was to the validity of the reopening notice itself, which is a jurisdictional and preliminary issue. The Court held that such challenge is maintainable in writ jurisdiction since the reopening notice is a quasi-judicial order affecting the petitioner's rights and requires judicial scrutiny before the assessment proceeds.Key evidence and findings: The petitioner had raised objections to reopening before the Assessing Officer and challenged the notice before the High Court.Application of law to facts: The Court found the writ petition maintainable to examine the legality of the reopening notice on the ground of inadequate reasons.Conclusions: The writ petition was maintainable and not premature.3. SIGNIFICANT HOLDINGSThe Court held:'Reasons are of paramount importance. 'Reasons' are heartbeat of every conclusion. It introduces clarity in any order. Without the reasons, the order is lifeless.''It is only clarity of thoughts that leads to proper reasoning, which becomes a foundation of a just and fair decision.''Insistence for recording of reasons is intended to subserve the wider principle that justice must not only be done but it must also seen to have been done. The reasons are requirement for ensuring judicial accountability.''Reasons in support of decisions must be cogent, clear and succinct. A pretense of reasons or 'rubber-stamp reasons' cannot be equated with a valid decision-making process.'Applying these principles, the Court concluded that the reasons recorded by the Assessing Officer were vague, non-speaking, and insufficient to justify reopening under Section 148. The reopening notice was therefore quashed and set aside.The Court also established that reopening based on broad and general information without specific disclosure of the nature, date, and parties to the transactions constitutes an impermissible fishing inquiry.Finally, the Court affirmed the maintainability of a writ petition challenging the reopening notice on jurisdictional grounds despite the existence of alternative remedies.