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 verification purposes when inquiry should have been conducted under clause (a) first. The notice failed to meet statutory requirements as clause (b) notice can only be issued after conducting proper inquiry. Consequential orders under Section 148A(d) and Section 148 notice were also set aside. AO remains free to re-initiate proceedings following proper statutory procedure.

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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.

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