2024 (10) TMI 1152 - HC - Income Tax

AO cannot issue reassessment notice under Section 148 based solely on sales tax survey without independent verification

Delhi HC upheld ITAT's decision setting aside reassessment notice u/s 148. AO issued notice based solely on sales tax survey findings without independent ... Validity of Reopening of assessment - suppression of turnover as unearthed during the survey conducted by the Enforcement branch of Trade & Taxes - ITAT set aside reopening as was without application of mind - HELD THAT:- When the notice u/s 148 had come to be issued, there were no outstanding demands or orders of assessment on the basis of the survey which had been originally conducted. In fact, and as the Tribunal records, on 30 December 2010 the original order of assessment had itself come to be set aside by the appellate authority and the matter remitted to the AO under the Sales Tax enactment for making a fresh assessment. We are informed that till dateno fresh assessment under the aforesaid Act has come to be either framed or drawn. This thus constituted material which was squarely relevant and pertinent for the purposes of formation of opinion u/s148. However, and as would be manifest from the reading of the reasons recorded by the AO, it had proceeded solely on the basis of what had come to be recorded in the course of the Sales Tax survey. It becomes evident that the AO not only failed to independently examine those allegations, it also abjectly failed to enquire and ascertain the status of the proceedings under the Sales Tax statute. If that had been done, it would have found that there existed no demand or assessment against the assessee on the relevant date. CIT (A) while dealing with the aforesaid and while negating the objections relating to the assumption of jurisdiction u/s 148 had chosen to rest its view on a ‘prima facie’ formation of opinion. The said decision is thus clearly rendered untenable and unsustainable on this ground alone. As correctly decided by ITAT impugned information regarding survey by Sales Tax Department has been solely used by the Assessing Officer in letter and spirit for formation of belief of escapement of income without making any enquiry or application of mind, particularly when subsequent proceedings before various authorities of Sales Tax Department were available before issuance of notice u/s. 148 and were got acknowledged to the AO before passing the reassessment order. In presence of these facts, the reasons recorded by the AO cannot, in any way, be said to be proper to form a belief of escapement of income, as the information so received was neither found well founded nor the AO made any efforts to make any verification or application of his mind on the same. The provisions of Section 147 do not give unfettered powers to reopen the assessment and the AO is required to satisfy the pre-conditions as given in the said section, which is lacking in the present case - Decided against revenue. Issues:1. Legality of reopening assessment by the Assessing Officer based on credible facts of suppression of turnover.2. Validity of assumption of jurisdiction under Section 148.3. Consideration of material facts and events in Sales Tax and Income Tax proceedings for reassessment.Analysis:Issue 1: Legality of Reopening AssessmentThe High Court considered the legality of reopening the assessment by the Assessing Officer based on credible facts of suppression of turnover. The AO initiated proceedings under Section 147 based on information from the Investigation Wing of the Sales Tax Department and a survey conducted by that Department. The AO found that the assessee had suppressed turnover by maintaining duplicate books. The Court noted discrepancies in turnover figures for the relevant financial years and upheld the reopening of assessment as the assessee had not fully disclosed material facts necessary for assessment.Issue 2: Validity of Assumption of Jurisdiction under Section 148The CIT(A) rejected objections to the assumption of jurisdiction under Section 148, stating that the AO had new material from the Trade and Tax Authorities justifying the reopening. The CIT(A) held that the AO had not formed an opinion during the original assessment, and the new information constituted valid grounds for reassessment. The Court found no legal infirmity in the reassessment proceedings and upheld the order based on the guidelines laid out by the Supreme Court.Issue 3: Consideration of Material Facts in Sales Tax and Income Tax ProceedingsThe Tribunal analyzed the chronology of events in Sales Tax and Income Tax proceedings, highlighting discrepancies in demands and assessments made by different authorities. The Tribunal noted that the AO solely relied on the Sales Tax survey report without independent examination or verification. It found that the AO failed to satisfy the pre-conditions for reopening under Section 147, as no efforts were made to verify the information received. Ultimately, the Tribunal held that the reassessment under Section 147 was not valid due to the lack of proper grounds and verification by the AO.In conclusion, the High Court and Tribunal emphasized the importance of proper grounds and verification for reopening assessments under Section 147, highlighting the need for independent examination of facts and compliance with legal pre-conditions.