2025 (8) TMI 1321 - HC - Income Tax

Reassessment upheld; authorities correctly disposed and supplied original documents, petition dismissed; company must press claims before authority per directions

Sandeep Stocks Pvt. Ltd., Versus Assistant Commissioner Of Income Tax, Circle 6, Jaipur, Deputy Commissioner Of Income Tax, Central Circle-4, Jaipur.

HC refused to interfere with the reassessment decision, holding that authorities did not err in disposing of and supplying the original documents relied ... Validity of reopening of assessment - Reasons to believe - disposal of the objections - whether the income chargeable to tax has escaped assessment, since the objection of the petitioner-Company was that the material has not been found to it which was the basis of arriving to the satisfaction and the Court allowed to raise the said objection? - HELD THAT:- Authorities cannot be said to find out any error in disposing of the original documents made by it on 02.02.2017 and also supplying it with the said disposal order, the material which was relied upon for the purposes of arriving to the satisfaction of the escapement of income of the assessee. The assessee, therefore, cannot be allowed to state now that the details have been provided to it only alongwith the order passed. The order, therefore, does not warrant any interference by this Court. No reason to interfere with the order passed by the respondents and leave the petitioner-Company in terms of the directions of the Supreme Court in Sandeep Stocks Pvt. Ltd. [2025 (4) TMI 1680 - SC ORDER] to canvass all its arguments before the authority concerned. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer's issuance of notice under Section 148 of the Income Tax Act, 1961 was justified on the basis of information arising from bogus share-loss transactions, recorded statements under Section 132(4), and search/survey material. 2. Whether the disposal of the objections to the Section 148 notice (including the timing and extent of production of material relied upon by the Department) was legally infirm where the assessee contended that material evidence linking it to entry operators was not produced prior to or at the time of forming satisfaction. 3. Whether directions given in an earlier order remitting the matter for reconsideration (including grant of personal hearing and consideration of GKN Driveshafts jurisprudence) were complied with and whether subsequent disposal forecloses renewed writ challenge. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of satisfaction to issue notice under Section 148 (legal framework) Legal framework: Section 148 permits issue of notice where the Assessing Officer has information suggesting income chargeable to tax has escaped assessment; issuance is subject to prior approval of specified authority and the explanations defining 'information' (including information from searches/surveys and related material) are part of the statutory scheme. Precedent treatment: The Court directed earlier consideration of the Supreme Court's decision in GKN Driveshafts (treatise on scope of reopening and the requirement for fresh satisfaction) in remand directions; the present order treats that jurisprudence as the applicable law to be followed by the authority on reconsideration (followed insofar as compliance with principles governing formation of satisfaction and personal hearing are concerned). Interpretation and reasoning: The Court examined whether, at the initial and reconsideration stages, there was material constituting 'information' under Section 148 (including recorded statements of promoters/directors under Section 132(4) and search/survey results). It found that the Assessing Officer had information suggesting escapement of income (bogus share transactions and related accommodation entries producing long-term capital gain) and that statutory requirements for issuing a notice under Section 148 were engaged. The Court emphasized that the core enquiry at the judicial review stage is limited to whether information suggesting escapement of income existed and whether requisite procedural steps (prior approval, disposal of objections) were followed. Ratio vs. Obiter: Ratio - where contemporaneous material (such as recorded statements and search/survey inputs) suggests escapement of income, issuance of a Section 148 notice is sustainable at the stage of challenge to the notice, subject to statutory safeguards. Obiter - peripheral remarks about the nature of the bogus share transactions and the Department's investigation tactics. Conclusion: The formation of satisfaction for issuance of notice under Section 148 was not shown to be legally flawed on the material before the authority; judicial interference was not warranted on this ground. Issue 2 - Adequacy and timing of production of material relied upon, and correctness of disposal of objections Legal framework: The statutory scheme contemplates that objections to a Section 148 notice may be filed by the assessee; the scope of review of the objection disposal by courts is constrained to procedural legality and sufficiency of the basis for the AO's satisfaction. There is no free-standing obligation to furnish all underlying material prior to issuing a notice, and the Act provides for specified authorities and procedural stages (including, post-amendment, protections under Section 148A). Precedent treatment: The Court required consideration of GKN Driveshafts principles (on reopening) during remand; however, it held that providing documentation at the time of disposal of objections satisfied the remand direction, and that late provision of documents does not automatically invalidate the formation of satisfaction unless material demonstrates mala fides or absence of any information suggesting escapement. Interpretation and reasoning: The Court rejected the contention that the assessee was entitled to all documentary material before the Department could validly dispose of objections or form satisfaction. It noted that the assessee had been supplied with the disposal order and later provided available material; the Court treated the assessee's further challenge as delay-oriented and not demonstrating that the respondents failed to consider material or record reasons for reopening. The Court also observed that the earlier remand directed personal hearing and application of GKN; the respondents conducted a disposal dated 02.02.2017 and supplied material thereafter, which the Court found to comply with directions. Ratio vs. Obiter: Ratio - mere production of material contemporaneously with or subsequent to the disposal of objections does not, without more, invalidate the disclosure of reasons for reopening where the statutory threshold of 'information' suggesting escapement existed and procedural steps were complied with. Obiter - observations implying that an assessee cannot indefinitely avoid proceedings by insisting on pre-issuance disclosure of every investigative document. Conclusion: The disposal of the objections and the timing of production of supporting material were not shown to be legally defective so as to warrant interference; the assessee's challenge based on non-production of material was rejected. Issue 3 - Effect of earlier remand/directions and the scope for renewed writ after compliance; interplay with higher court orders Legal framework: When a matter is remitted by a Court for reconsideration in accordance with specified legal principles (including application of precedents and grant of personal hearing), the authority's compliance can be tested only to the extent of whether the directions were followed and whether the reconsideration was in accordance with law. Precedent treatment: The earlier remand incorporated application of Supreme Court authority (GKN Driveshafts) and personal hearing. The present Court found that the authority reconsidered objections, disposed of them, and furnished available material. A subsequent Special Leave Petition to the Supreme Court against the earlier High Court order was dismissed on merits (no interference), with liberty to raise all questions of law including limitation before the authority concerned; that dismissal was treated as reinforcing the correctness of the authority's action and limiting scope for further collateral attack in writ jurisdiction. Interpretation and reasoning: The Court assessed whether the authority had complied with the remand directions. Finding that personal hearing was granted and materials were furnished, the Court concluded that the petitioner's renewed writ was an attempt to delay proceedings rather than a bona fide challenge to non-compliance. The Court also took into account the Supreme Court's dismissal of the SLP (keeping questions open for administrative adjudication), interpreting that outcome as a signal that judicial interference was not warranted at that stage. Ratio vs. Obiter: Ratio - once a remand direction is complied with by reconsideration (personal hearing and consideration of relevant precedent) and relevant documents are furnished, a fresh writ challenging the same disposal will not ordinarily be entertained absent demonstrable illegality. Obiter - comments preserving the assessee's administrative remedies (e.g., raising limitation or other legal issues before the authority as kept open by the Supreme Court). Conclusion: Directions of the remand were satisfied by the authority's disposal and production of material; the writ petition was dismissed as the petitioner failed to establish non-compliance or compelling legal error. The petitioner retains the right to canvass legal questions (including limitation) before the authority in accordance with the Supreme Court's order. Cross-references - Issue 1 and Issue 2 are interlinked: the sufficiency of 'information' under Section 148 (Issue 1) depends on the nature of investigative material and its role in forming satisfaction (Issue 2). - Issue 3 intersects with Issues 1-2 because the remand required reconsideration of the propriety of reopening in light of governing precedent (GKN) and due process (personal hearing); compliance with those directions was central to rejecting renewed collateral challenge.