2025 (10) TMI 1237 - HC - Income Tax

Reopening invalid where AO relied solely on 'High Risk CRIU/VRU' portal data without s.148A(a) inquiries and s.148A(b) reasons

HC held that reopening was invalid where the AO treated portal 'High Risk CRIU/VRU' data as sufficient without first conducting inquiries under s.148A(a) ... Reopening of assessment - Validity of reasons to believe - credit in the bank account of late mother of the petitioner on the ground that the same was not fully disclosed in her return of income resulting into suppression of income - HELD THAT:- It is true that any information which is available on the portal under the head “High Risk CRIU/VRU Cases”, the Assessing Officer is to make inquiries and thereafter on basis of the information which comes in the possession of the Assessing Officer, the Assessing Officer is required to issue notice under section 148A(b) of the Act. The legislature has made ample safeguards to strike a balance between the powers to be exercised by the Assessing Officer for reopening as well as the Assessee subjected to reopening of the assessment, by inserting clause (a) to section 148A of the Act which permits the Assessing Officer to make inquiry with regard to the information which is made available to the Assessing Officer after obtaining sanction from the competent authority and thereafter, on the basis of such explanation which may be sought by the Assessing Officer under sub-clause (a) of section 148A of the Act, the Assessing Officer deems fit that the income chargeable to tax has escaped assessment, then notice under section 148A(b) of the Act is required to be issued to provide an opportunity of hearing to the assessee. AO is required to provide the reasons and the information suggesting that income has escaped assessment for the year under consideration so as to provide an opportunity to the assessee to explain the same and not to call for any further information. In the facts of the present case, it seems that the Assessing Officer has not understood the purport and the purpose of insertion of section 148A of the Act and the provision of clause (a) and clause (b) are mixed up in the notice issued under section 148A(b) of the Act resulting into such notices being bad in law from the inception. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice issued purportedly under section 148A(b) of the Income Tax Act that in substance calls for documents and verification amounts to an inquiry under section 148A(a) and is therefore bad in law. 2. Whether an Assessing Officer, having issued a show-cause notice under section 148A(b), must consider the assessee's reply under section 148A(c) before passing an order under section 148A(d), and whether failure to do so vitiates the order under section 148A(d) and any consequential notice under section 148. 3. Whether the existence of partial or purportedly incomplete documentary material furnished by the assessee justifies formation of a prima facie opinion that income chargeable to tax has escaped assessment so as to sustain reopening under section 148 read with section 148A. 4. Whether extraordinary writ jurisdiction should be exercised to quash notices/orders under sections 148A(b), 148A(d) and 148 where an alternative remedy of appeal against reassessment is available. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of a notice issued under section 148A(b) which in substance conducts inquiry under section 148A(a) Legal framework: Section 148A (as in force at the relevant time) prescribes a two-stage process before issuing a notice under section 148: (a) the Assessing Officer may, with prior approval, conduct enquiry into information suggesting escapement of income; and (b) the Assessing Officer must provide a show-cause opportunity to the assessee (not less than seven and not exceeding thirty days) specifying the information which suggests escapement, and thereafter consider the reply (clause (c)) and decide within the specified time (clause (d)). The contours separate an inquiry function (clause (a)) from the show-cause/hearing function (clause (b)). Precedent treatment: The Court relied on earlier authoritative guidance that the pre-existing requirement of providing reasons and opportunity before reopening is now statutorily embodied in section 148A; prior higher-court directions to supply reasons are absorbed into this statutory scheme. The Court also referred to earlier High Court decisions which held that notices which, though labelled under clause (b), in substance call for verification/inquiry are procedurally defective. Interpretation and reasoning: The Court held that a notice under section 148A(b) must communicate the information that suggests escapement and afford an opportunity to explain that information; it must not be used as a device to initiate the inquiry contemplated by clause (a). Where the notice's content is essentially a questionnaire or a call to produce documents to verify transactions (i.e., the material the AO should have obtained in an inquiry under clause (a)), the notice conflates clause (a) and (b). Such conflation frustrates the statutory scheme because clause (b) contemplates an opportunity to be heard on information already in possession of the AO post-inquiry; it does not contemplate calling for fresh inquiry through the show-cause notice itself. Ratio vs. Obiter: Ratio - a notice under s.148A(b) that is in substance an inquiry under s.148A(a) is procedurally invalid ab initio. Obiter - comments on the legislative purpose of s.148A and comparative reference to pre-amendment jurisprudence. Conclusion: A notice issued as s.148A(b) but seeking documentary verification and functioning as an inquiry under s.148A(a) is bad in law and liable to be quashed. Issue 2: Necessity to consider assessee's reply under section 148A(c) before passing order under section 148A(d) Legal framework: Section 148A(c) mandates consideration of any reply furnished in response to the show-cause notice issued under clause (b). Section 148A(d) requires the AO to decide, on available material including the assessee's reply, whether it is a fit case to issue a section 148 notice, with prescribed time limits and prior approval where required. Precedent treatment: High Court authorities have held that the AO's decision under s.148A(d) must be based on material on record and the reply; mere restatement of information in a suspicious transaction report without reasoning does not meet statutory requirement. Interpretation and reasoning: The Court observed that the statutory scheme requires the Assessing Officer to record an opinion based on available information and on the assessee's response. If the AO fails to consider the assessee's detailed explanation and proceeds to treat the matter as an escapement based merely on unexplained totals or unsupported findings, the decision-making requirement of s.148A(d) remains unmet. The AO must demonstrate a prima facie conclusion, grounded in material and consideration of the reply, that income chargeable to tax has escaped assessment. Ratio vs. Obiter: Ratio - failure to consider the assessee's reply as required by s.148A(c) renders the order under s.148A(d) unsustainable. Obiter - observations on sufficiency of reasons and the nature of material required for a prima facie opinion. Conclusion: Where the AO has not properly considered the assessee's reply and has not recorded a reasoned prima facie opinion based on material on record, the order under s.148A(d) is invalid and any consequent notice under s.148 must be quashed. Issue 3: Sufficiency of partial documentary material to form a prima facie opinion of escapement Legal framework: The trigger for reopening under section 148 (post s.148A procedure) is information suggesting that income chargeable to tax has escaped assessment; s.148A requires inquiry and opportunity to explain before forming such an opinion. Precedent treatment: Courts have drawn a distinction between genuine inability to produce full corroboration and mere failure to satisfy the AO's inquisitorial demand; formation of opinion must be supported by cogent information or material, not merely the fact that some documents are not supplied. Interpretation and reasoning: The Court recognized that incomplete documentary support for asserted credits may be legitimate on facts (e.g., loans between family members) and that the AO cannot treat non-production of all possible corroboration in a perfunctory way as sufficient to conclude escapement. The AO must have antecedent information or material that, when weighed with the assessee's reply, objectively suggests escapement. Merely tabulating documents not furnished and computing an unexplained balance does not automatically convert credits into escapement without a reasoned nexus. Ratio vs. Obiter: Predominantly ratio - AO cannot base reopening on unexplained ledger totals alone without a reasoned prima facie opinion grounded in material; obiter remarks on examples of acceptable corroboration and practical difficulties in documentary production. Conclusion: Partial or unmet documentary demands do not ipso facto sustain a reasoned opinion of escapement; the AO must have and record adequate material and reasoning to justify reopening. Issue 4: Appropriateness of invoking writ jurisdiction despite alternate remedy Legal framework: Judicial practice generally disfavors writs where an efficacious alternative remedy (appeal/rectification) is available, but will intervene where the impugned action is tainted by a fundamental jurisdictional or procedural infirmity making subsequent proceedings a nullity. Precedent treatment: Courts have entertained writ petitions to quash notices that are void ab initio for jurisdictional defect or serious procedural illegality even if remedies against assessment exist, where the initial step itself is unlawful. Interpretation and reasoning: The Court found the impugned notice under s.148A(b) to be invalid for crossing into inquiry territory; such a defect is jurisdictional and foundational. Given that the show-cause notice itself was legally infirm, subsequent orders and consequential notices could not stand, and allowing reassessment to run its course would be to validate an illegality. Hence extraordinary jurisdiction was appropriately exercised to quash the notices and order despite the theoretical availability of appeal against reassessment. Ratio vs. Obiter: Ratio - writ relief is appropriate where the foundational notice/order is void ab initio for procedural/ jurisdictional error. Obiter - guidance that the revenue remains free to initiate proceedings in accordance with law. Conclusion: Writ jurisdiction may be exercised to quash notices/orders under s.148A(b)/148A(d)/148 when the procedural scheme of s.148A is subverted at the outset; such quashing does not preclude lawful re-initiation of proceedings by the revenue. Overall Disposition The Court concluded that the notice issued under section 148A(b) was in substance an inquiry under section 148A(a) and thus invalid; the consequent order under section 148A(d) and the notice under section 148 were vitiated and therefore quashed. The Court left open the respondent's liberty to proceed afresh in compliance with statutory requirements.