Reopening of assessments cannot rely solely on Insight Portal; AO must verify data and obtain prior approval under Section 148A(1)

HC upheld that respondents' corrective steps during litigation were adequate and directed that reopening of assessments cannot be based solely on Insight Portal data. The court held the Jurisdictional Assessing Officer must verify portal information and, if necessary, conduct an inquiry with prior approval of the specified authority before invoking Section 148A(1) to issue a notice. The AO must provide the assessed an opportunity to be heard under the statutory scheme, and portal information cannot be treated as conclusive proof of bogus input tax credit without such verification.

---

---

ISSUES PRESENTED AND CONSIDERED

1. Whether the Income Tax Department may initiate reassessment proceedings against third-party taxpayers solely on the basis of information uploaded on the departmental "Insight Portal" derived from DGGI/GST data, without independent verification with the assessee by the Jurisdictional Assessing Officer.

2. What is the assessing officer's duty under Section 148A (as amended w.e.f. 1 Sept. 2024) and, insofar as relevant, the prior clauses of Section 148A (notably clause (a) and clause (b) as earlier framed) in relation to verifying information suggesting escapement of income before issuing notice under Section 148.

3. Whether remedial administrative steps (withdrawal/inactivation of Insight Portal entries, communication of clarificatory DGGI material to JAOs/FAOs and removal from RMS cycles) adequately address the prejudice caused by dissemination of incorrect information on the Portal.

ISSUE-WISE DETAILED ANALYSIS - Issue 1: Reliance on Insight Portal information to reopen assessments

Legal framework: The statutory scheme requires that where information suggests escapement of income, the Assessing Officer must follow Section 148A procedures prior to issuing a notice under Section 148; the Insight Portal is an internal information-sharing mechanism, not a substitute for statutory enquiry or satisfaction.

Precedent Treatment: No judicial precedents were cited or applied by the Court in the judgment; therefore no precedent was followed, distinguished or overruled.

Interpretation and reasoning: The Court observed that the Investigating Wing generated reports on the Insight Portal based on GSTR-1/Form GSTR data and that Jurisdictional Assessing Officers in many cases initiated reassessment merely because the Portal report labelled the supplier as non-genuine. The Court characterized such mechanistic treatment of Portal entries-without independent verification-as "shocking" and legally unsound. The Portal material, being information, must be verified by the AO before it is treated as conclusive and relied upon to reopen assessments of third parties.

Ratio vs. Obiter: Ratio - Portal information alone is insufficient to justify reopening; an AO must verify the information before issuing notice under Section 148.

Conclusion: The Court held that Assessing Officers cannot treat Insight Portal entries as conclusive and must verify such information (including by conducting enquiries, if necessary) before invoking reassessment machinery against taxpayers who transacted with the allegedly bogus entity.

ISSUE-WISE DETAILED ANALYSIS - Issue 2: Obligation under Section 148A(1) and the earlier Section 148A(a)/(b)

Legal framework: Section 148A(1) (post-amendment) requires that where AO has information suggesting escapement of income, the AO shall, before issuing any notice under Section 148, serve a show-cause notice accompanied by the information suggesting escapement and afford an opportunity to be heard. Prior to amendment, Section 148A contained a clause (a) requiring enquiry, if required, with prior approval of specified authority, and clause (b) requiring a show-cause opportunity linked to results of enquiry.

Precedent Treatment: None stated in the judgment.

Interpretation and reasoning: The Court noted that amendment to Section 148A removed the express prior clause requiring enquiry with specified-authority approval, aligning the statutory wording with the earlier clause (b). Despite the textual change, the Court reasoned that it remains the responsibility and liability of the Jurisdictional Assessing Officer to verify information on the Insight Portal before issuing a Section 148A(1) show-cause notice. Where verification shows necessity, the AO must, if appropriate, conduct inquiry (and obtain prior approval where that procedural safeguard remains relevant in practice or departmental instruction) before proceeding to issue a notice under Section 148. The Court emphasized that the statutory scheme and procedural safeguards are intended to prevent automatic re-opening based solely on unverified database entries.

Ratio vs. Obiter: Ratio - The statutory obligation to provide a show-cause accompanied by supporting information does not absolve the AO of the duty to verify portal information; verification (and inquiry where warranted) is a precondition for valid issuance of Section 148 notices.

Conclusion: The Court ruled that Section 148A(1) must be read and applied so that the AO verifies Insight Portal information (and conducts enquiry where necessary) before invoking Section 148; mechanistic reliance on portal reports without verification is impermissible.

ISSUE-WISE DETAILED ANALYSIS - Issue 3: Adequacy and legal effect of remedial administrative steps taken by the Department

Legal framework: Administrative remedial measures (inactivation/withdrawal of Portal entries, circulation of DGGI clarificatory material, exclusion from RMS cycles, communication to JAOs/FAOs) do not substitute for judicial relief but form part of compliance/curative action by the Department to prevent further prejudice.

Precedent Treatment: None stated.

Interpretation and reasoning: The Court recorded and examined detailed affidavits showing that clarificatory DGGI communications were forwarded to relevant Commissioners and JAOs, that Portal entries were inactivated for certain years, that additional DGGI material was uploaded for FAOs, that e-mails were sent to JAOs and NaFAC, and that certain reassessment proceedings were dropped. The Court observed that these remedial steps, taken during the petition's pendency, ameliorated the immediate prejudice (including cessation of transactions by third parties due to erroneous labels). Nonetheless, the Court stressed that administrative corrections cannot cure the underlying legal requirement: Assessing Officers must verify information before initiating reassessment.

Ratio vs. Obiter: Obiter (practical observations supporting the Court's direction). The Court accepted the remedial steps as appropriate and noted positive outcomes (many reopened cases yielded no additions; many proceedings were dropped), but these findings were fact-specific and not laid down as binding legal precedent beyond the matter.

Conclusion: The remedial administrative measures taken were recorded and regarded as satisfactory to mitigate the immediate consequences in many cases; however, the Court imposed the legal obligation (supra) on Assessing Officers to prevent recurrence.

FINAL CONCLUSIONS AND DIRECTIONS (RATIO SUMMARIZED)

The Court concluded that: (i) information on the Insight Portal, including material received from DGGI/GST sources, cannot by itself justify reopening of assessments of third parties; (ii) the Jurisdictional Assessing Officer must verify such information and, where necessary, conduct enquiries (and obtain any requisite approvals) before issuing notices under Section 148; and (iii) administrative corrective steps taken by the Department in the instant matter are noted and recorded, but compliance with the statutory verification requirement must be followed going forward to avoid wrongful reassessments and prejudice to taxpayers.

---