2024 (6) TMI 1499 - HC - Income Tax

Reassessment upheld after AO considered RTGS credits; Section 142(1) notice and 17.03.2022 reasons cure non-receipt; appeal allowed

Devendran Coal International Private Limited, Rep. by its Managing Director R. Rathnamala, D/o. Rajavel Versus Assessment Unit, The Deputy Commissioner of Income Tax, The Principal Commissioner of Income Tax-1, Coimbatore

Madras HC upheld the reassessment, finding the assessing officer considered the petitioner's materials and recorded findings on RTGS credits; no ... Reopening of assessment - reassessment was based on credits made through RTGS in the bank account of the petitioner - HELD THAT:- On closely examining the impugned assessment order, it cannot be concluded that materials placed on record by the petitioner were not taken into consideration. Upon appraisal of such materials, findings were recorded by the assessing officer. On prima facie consideration of the material documents, it cannot be concluded that the appraisal of evidence was perverse. Any reappraisal of such evidence would be squarely within the province of the appellate forum. As regards the objection that the notice under Section 148 of the Income Tax Act was not received, it is noticeable that multiple notices under Section 142(1) were issued thereafter and the reasons for reopening the assessment were communicated to the petitioner on 17.03.2022. In these circumstances, on the allegation that the procedure prescribed in GKN Driveshafts [2002 (11) TMI 7 - SUPREME COURT] was not followed by the respondents, I am not inclined to interfere with the impugned order. Therefore, this is not an appropriate case for exercising jurisdiction under Article 226. The impugned assessment order was issued on 19.05.2024 and the affidavit in support of the writ petition was affirmed on 29.05.2024. In these circumstances, it is just and appropriate that the petitioner be permitted to prosecute a statutory appeal. ISSUES PRESENTED AND CONSIDERED 1. Whether the reassessment under Section 148 was valid where the original assessment (Section 143(3)) had been completed and reasons for reopening relied on credits in the assessee's bank account. 2. Whether failure to comply with the procedural safeguards established in GKN Driveshafts (predecessor principles to Section 148A) - specifically non-receipt of the Section 148 notice - vitiates the reassessment when subsequent notices under Section 142(1) and communication of reasons were issued. 3. Whether the assessing officer's addition of credited amounts to income was unsustainable where the assessee produced evidence that certain credits were refunded or later paid to the Department and where the officer recorded that the assessee did not inform the Department earlier. 4. Whether appellate interference under Article 226 is appropriate where the impugned assessment involved evaluation of evidentiary material and findings that could be reappraised on appeal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of Reopening under Section 148 Based on Bank Credits Legal framework: Reopening of assessment under Section 148 requires existence of reasons indicating escaped assessment; reasons must be communicated and procedural requirements observed. Precedent treatment: The Court considered the principles in GKN Driveshafts regarding procedural fairness in reopening assessments (not overruled but applied in context of subsequent statutory changes like Section 148A). Interpretation and reasoning: The record contained a notice under Section 148, communication of reasons dated 17.03.2022, and subsequent statutory notices. The Court examined the impugned order and found that the assessing officer recorded the four credited amounts as escaped income at internal pages of the order and dealt with the petitioner's submissions. The officer's findings were based on appraisal of the material on record, including the petitioner's explanations and documentary evidence (refund record and demand draft). Ratio vs. Obiter: Ratio - Reopening under Section 148 was not vitiated merely because credits existed; validity turns on adequacy of reasons communicated and consideration of materials. Obiter - Reference to legislative evolution (Section 148A) as context. Conclusions: The reopening under Section 148 was held valid on the record; procedural requirements were satisfied by issuance of notice, reasons for reopening, and subsequent statutory interactions. Issue 2 - Effect of Alleged Non-Receipt of Section 148 Notice and Compliance with GKN Driveshafts Legal framework: Principles of natural justice require that reasons for reopening and opportunity to be heard be afforded. GKN Driveshafts requires strict adherence to procedure for reopening (pre-Section 148A jurisprudence), though statutory amendments and subsequent notices may bear on sufficiency of procedure. Precedent treatment: GKN Driveshafts' procedural protections were invoked by the petitioner; the Court considered them but did not find non-compliance sufficient to quash the reassessment in the factual matrix. Interpretation and reasoning: Although the petitioner alleged non-receipt of the Section 148 notice, the issuance of multiple Section 142(1) notices thereafter and the communication of reasons on 17.03.2022 meant the assessee had notice of the grounds and an opportunity to respond. The Court declined to apply GKN as a bar where subsequent procedural steps afforded the assessee the chance to present objections and evidence. Ratio vs. Obiter: Ratio - Non-receipt of an initial Section 148 notice does not automatically vitiate reassessment where reasons are later communicated and the assessee is given further procedural opportunities (e.g., Section 142(1) notices, show cause notice). Obiter - The remark that Section 148A's introduction affects procedural analysis. Conclusions: The objection based on non-receipt of the Section 148 notice and reliance on GKN was rejected; the Court found no ground for interference on procedural grounds in this case. Issue 3 - Appraisal of Evidence and Addition of Credited Amounts to Income Legal framework: Additions in assessment must rest on relevant material; assessing officer must consider explanations and documentary evidence, and findings of fact are subject to appellate reappraisal but not to being overturned on writ where not perverse. Precedent treatment: Standard administrative law principles governing evaluation of evidence and scope of writ jurisdiction (interference only where findings are perverse or no application of mind) were applied. Interpretation and reasoning: The petitioner produced evidence that (a) a large credit was refunded in March 2017 and (b) another sum was paid to the Department by demand draft in March 2020 pursuant to an order received in November 2019. The assessing officer considered these facts but recorded that the assessee had not informed the Department upon receipt and had not lodged complaints or blocked RTGS transactions. The Court reviewed the impugned order and concluded the officer did consider the petitioner's materials and reached fact-based conclusions. The Court noted that any reappraisal of such evidence is for the appellate forum and that no perversity in appraisal was shown on prima facie review. Ratio vs. Obiter: Ratio - Where the assessing officer has considered the assessee's explanations and documentary evidence and recorded findings of fact, a writ court will not substitute its view absent perversity; reappraisal is for appeal. Obiter - The Court observed specifics of the assessee's conduct (no complaint/RTGS block) as relevant to the officer's credibility assessment. Conclusions: The additions were not struck down on writ; the Court found the assessing officer's appraisal within permissible bounds and committed further factual reexamination to the appellate process. Issue 4 - Appropriateness of Writ Intervention vs. Statutory Appeal Legal framework: Constitutional writ jurisdiction under Article 226 is discretionary and not a substitute for statutory appeal where issues are primarily factual or involve reappraisal of evidence; relief by way of writ is appropriate where there is legal or jurisdictional infirmity. Precedent treatment: The Court applied the principle that appellate remedies should be availed where re-evaluation of evidence is called for. Interpretation and reasoning: Given the assessing officer's factual findings and the presence of a statutory appeal route, the Court declined to interfere under Article 226. As a matter of administrative fairness, the Court permitted the assessee to file a statutory appeal within a limited period and directed the appellate authority to admit and decide it on merits without raising limitation issues. Ratio vs. Obiter: Ratio - Writ relief refused where the matter involves evaluation of evidence and findings of fact that are reviewable in appeal; equitable directions to enable statutory appeal (extension/condonation of limitation) can be granted. Obiter - None significant beyond application of established principle. Conclusions: Writ relief was denied; the petitioner was permitted to file a statutory appeal within 15 days from receipt of the order and the appellate authority was directed to decide the appeal on merits, ignoring limitation objections.