2025 (10) TMI 590 - HC - Income Tax

Order set aside; matter remanded to AO for fresh consideration under sections 148A(1) and 148A(3); issue prior notice.

HC set aside the order and notice dated 30.06.2025 and remanded the matter to the AO for fresh consideration. The petitioner has agreed not to contend ... Reopening of assessment u/s 147 - invocation of provisions of Section 149(1) (b) - HELD THAT:- We by taking on record the submission made by Mr. Sawhney that the petitioner shall not plead that the passing of the order u/s 148A (3) of the Act is beyond the period of limitation, and also his plea that he is not pressing the plea of legality of the notice u/s 148A (1) of the Act, set aside the order and notice dated 30.06.2025 and remand the matter back to the AO for a fresh consideration. AO shall consider the documents as stated above and also considering any other document and reply (if any) which he deem it appropriate to call from the petitioner after giving a prior notice to the petitioner with sufficient time, pass a reasoned and speaking order. ISSUES PRESENTED AND CONSIDERED 1. Whether the notice issued under Section 148A(1) of the Income Tax Act and the order under Section 148A(3) authorising issuance of a notice under Section 148 are legally sustainable insofar as they proceed from information of a financial transaction (share sale) in respect of which no return was filed. 2. Whether, before issuing a notice under Section 148A(1) or proceeding under Section 148A(3), the Assessing Officer is required to record that the amount of income likely to have escaped assessment exceeds Rs. 50 lakhs (i.e., express finding that threshold in Section 149(1)(b) is met). 3. Whether an Assessing Officer, in issuing or sustaining reassessment proceedings based on a detected transaction, must consider and deal with documentary/material replies (e.g., computation of capital gains/losses, share-purchase agreement, TRC, bank statements, forex reconciliation and cost records) filed by the assessee before passing the Section 148A(3) order. 4. Whether the appropriate remedy when the Assessing Officer has not considered the assessee's detailed replies and supporting documents is judicial quashal of the notices/orders or remand for de novo consideration with directions to consider materials and pass a reasoned order within a time limit. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of Section 148A(1) notice and Section 148A(3) order issued on information of a single financial transaction where no return was filed Legal framework: Section 148A(1) permits issuance of a notice where the Assessing Officer has information that income chargeable to tax has escaped assessment; Section 148A(3) requires consideration of the assessee's reply and, if satisfied, issuance of notice under Section 148 for reassessment. Precedent treatment: The petitioner relied on authorities addressing the requirement of specificity in the officer's satisfaction and threshold findings (earlier decisions cited before the Court). The Court did not adjudicate on those precedents because the petitioner expressly refrained from pressing the legality plea in relation to the Section 148A(1) notice and waived the limitation plea. Interpretation and reasoning: The Court observed that the Assessing Officer proceeded on information of a Rs. 7,43,27,348 share transaction and issued Section 148A(1) notice because the taxpayer had not filed a return for the year. The Assessing Officer's Section 148A(3) order did not appear to engage with the detailed replies and computations submitted by the taxpayer. Given the lapse in considering the material put forth, the Court concluded that remand for fresh consideration was the appropriate course rather than quashal on substantive validity grounds which the petitioner did not press. Ratio vs. Obiter: Ratio - where the Assessing Officer has not considered or dealt with the assessee's detailed replies and supporting documents in issuing a Section 148A(3) order, remedial direction for fresh consideration is appropriate. Obiter - no determination was made on whether a solitary transaction alone suffices for initiation of reassessment when a return is not filed, because the petitioner did not press that challenge. Conclusion: The Court set aside the impugned order and notice dated 30.06.2025 and remanded the matter for fresh consideration; it did not decide the substantive legality of the Section 148A(1) notice. Issue 2 - Requirement to record that escaped income exceeds Rs. 50 lakhs before initiating reassessment under Section 149(1)(b) Legal framework: Section 149(1)(b) prescribes conditions for situations where reassessment is permissible; the argument raised related to whether the Assessing Officer must first express satisfaction that the amount escaping assessment exceeds the statutory monetary threshold before invoking reassessment machinery. Precedent treatment: Counsel relied on multiple authorities holding that thresholds and requisite expressions of satisfaction must be indicated; however, the Court expressly did not decide the controversy because the petitioner withdrew that legal challenge in the course of proceedings. Interpretation and reasoning: The Court recorded the contention that the Assessing Officer ought to have expressed that the escaped income exceeded Rs. 50 lakhs. But since the petitioner declined to press that ground and undertook not to urge a limitation objection, the Court refrained from adjudicating the threshold requirement issue and instead directed fresh consideration of the materials. Ratio vs. Obiter: Obiter - no judicial determination on the need for a pre-expressed finding that escaped income exceeds Rs. 50 lakhs was made. Conclusion: The issue remained undecided; the remand preserves the assessee's opportunity to place documents and for the Assessing Officer to form and record views (including if relevant, on any threshold under Section 149(1)(b)). Issue 3 - Obligation to consider documentary evidence and the assessee's computation before passing an order under Section 148A(3) Legal framework: Section 148A(3) requires the Assessing Officer to consider the assessee's reply to the Section 148A(1) notice before forming a view on issuance of a notice under Section 148; administrative fairness and statutory mandate demand that material relied upon by the assessee be considered and reasons recorded when proceeding to reassessment. Precedent treatment: Authorities on statutory requirement to consider replies and produce reasoned orders were referred to in submissions; the Court's directions align with settled administrative-law principles that a assessing officer must give reasons and deal with material placed before it. Interpretation and reasoning: The taxpayer submitted detailed computations showing capital loss and gain components, and offered to produce share purchase agreement (if any), TRC, bank statements and full reconciliation of forex and cost. The Assessing Officer's order, as challenged, did not expressly deal with those materials. The Court concluded that the Assessing Officer must be given an opportunity to consider the materials and pass a reasoned, speaking order after giving prior notice with sufficient time for compliance. Ratio vs. Obiter: Ratio - an order under Section 148A(3) that does not consider or address the assessee's detailed replies and supporting documents is susceptible to being set aside and remanded for fresh, reasoned consideration. The direction that the AO consider all documents, give prior notice, and pass a speaking order within a fixed period is a binding remedial direction in the particular case. Conclusion: The matter was remitted to the Assessing Officer to consider the documents proffered and any other documents he deems appropriate, to give prior notice and sufficient time, and to pass a reasoned and speaking order within 12 weeks. Issue 4 - Appropriate remedy: quash vs. remand when AO fails to consider material - and limits on adjudication by the Court Legal framework: Judicial review empowers courts to quash administrative action where illegal or tainted by failure to follow statutory procedure; but when the primary defect is failure to consider material, remand for fresh decision is a recognized and appropriate remedy, subject to waiver by parties of certain pleas. Precedent treatment: While earlier cases were cited concerning requirements of satisfaction and recording reasons, the Court emphasized that the petitioner had chosen not to press certain legal objections and had offered to supply additional material, making remand an equitable and efficient remedy. Interpretation and reasoning: The Court balanced the issues: the petitioner tendered to supply documents and explicitly did not press the legality and limitation pleas; the Assessing Officer had not considered the submitted computations. Given those circumstances, the Court determined that remand with clear directions for reasoned decision-making and a strict outer time limit was preferable to outright quashal or immediate adjudication on contested legal points which the petitioner had waived. Ratio vs. Obiter: Ratio - where the assessee both offers to supply necessary supporting documents and refrains from pressing certain legal objections, the Court may set aside the impugned order and remand for fresh consideration rather than decide raised legal questions; the Tribunal must consider the new material and pass a reasoned order within a specified timeframe. Obiter - no ruling on substantive merits of the reassessment is undertaken. Conclusion: The Court set aside the impugned order and notice dated 30.06.2025 and remanded the matter to the Assessing Officer with directions to consider the documents (including TRC, bank statements, forex reconciliation and cost records), to give prior notice with sufficient time, and to pass a reasoned and speaking order within 12 weeks; other pending applications were rendered infructuous.