2024 (10) TMI 710 - HC - Income Tax

Income Tax Officer cannot issue Section 148A(b) notice for verification without conducting proper inquiry under clause (a) first

Gujarat HC quashed notice under Section 148A(b) for reassessment proceedings. Court held that AO incorrectly issued notice under clause (b) for ... Reopening of assessment u/s 147 - Validity of the notice issued u/s 148A(b) - notice is issued for calling upon the petitioner to submit various details for verification of the data. HELD THAT:- On perusal of the above provisions, it appears that the AO before issuing the notice u/s 148 of the Act has to conduct the inquiry with prior approval of the specified authority with respect to the information which suggest that the income chargeable to tax has escaped the assessment and after such inquiry, issued the notice u/s 148A (b) of the Act to provide an opportunity of being heard to the assessee by serving a show-cause notice. However, in the facts of the case, the respondent has issued the notice under clause (b) of the Section 148A as if the inquiry is to be conducted under clause (a) of Section 148A of the Act and therefore, the impugned notice cannot be commensurate the requirement of clause (b) of Section 148A of the Act as such notice could have been issued only after conducting the inquiry on part of the respondent-AO. We are of the opinion that the impugned notice issued u/s 148A (b) of the Act could not have been issued for verification on the part of AO and therefore, the same would fail and accordingly, the petition succeeds and the impugned notice dated 05.03.2024 and the consequential order u/s 148A (d) of the Act and the notice under Section 148 are hereby quashed and set aside. We make it clear that if the respondent wishes to re-initiate the proceedings under the provisions of the law, this order would not come in way and the respondent would be at liberty to initiate such proceedings as per the provisions of the Act. Rule is made absolute to the aforesaid extent. No orders as to cost. Issues Involved:1. Validity of the notice issued under Section 148A(b) of the Income Tax Act, 1961.2. Whether the impugned order under Section 148A(d) was passed on a different basis than the notice under Section 148A(b).3. Procedural compliance with Section 148A of the Income Tax Act.Issue-wise Detailed Analysis:1. Validity of the Notice under Section 148A(b):The petitioner challenged the notice dated 05.03.2024 issued under Section 148A(b) of the Income Tax Act, arguing that it was fundamentally flawed. The petitioner contended that the notice did not disclose any information suggesting that income had escaped assessment, and was instead an inquiry that should have been conducted under Section 148A(a). The petitioner further argued that the notice was not issued in accordance with the statutory provisions, as it improperly called for verification information, which is not required under Section 148A(b). The court found that the notice was indeed issued for inquiry purposes, which is contemplated under Section 148A(a), and therefore, the notice failed to meet the requirements of Section 148A(b). Consequently, the notice was deemed invalid.2. Impugned Order under Section 148A(d):The petitioner argued that the impugned order dated 24th March, 2024, passed under Section 148A(d), was based on a different issue than what was specified in the notice under Section 148A(b). The order was passed on the basis that the loan obtained by the petitioner was not used for business purposes, which was not the subject of the initial notice. The court observed that the order was not aligned with the notice, as it was based on a different tangent, thereby rendering the order unsustainable.3. Procedural Compliance with Section 148A:The court examined whether the procedural requirements under Section 148A were followed. It was noted that the Assessing Officer is required to conduct an inquiry with prior approval of the specified authority before issuing a notice under Section 148A(b). In this case, the notice was issued as if the inquiry was to be conducted under Section 148A(a), without prior inquiry, which is a prerequisite for issuing a notice under Section 148A(b). The court referred to the precedent set in the case of Safal Constructions India, where a similar procedural error was identified. The court concluded that there was a gross procedural error from the inception of the procedure, rendering the notice and subsequent order invalid.Conclusion:The court quashed the impugned notice dated 05.03.2024, the order under Section 148A(d), and the notice under Section 148, due to non-compliance with the procedural requirements of Section 148A. The court clarified that the respondent is at liberty to re-initiate proceedings in accordance with the law, should they choose to do so. The rule was made absolute to the specified extent, with no orders as to cost.