2025 (10) TMI 1242 - HC - Income Tax

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

Vasuki Global Industrial Limited (Formerly Vasuki Tradelink Private Limited) Versus Principal Chief Commissioner Of Income Tax & Ors.

HC upheld that respondents' corrective steps during litigation were adequate and directed that reopening of assessments cannot be based solely on Insight ... Reopening of assessment proceedings as relying on information available on the departmental 'Insight Portal' received from the GST Department - petitioner was found to be availing or passing on fraudulent Input Tax Credit on fake invoices of the ferrous waste and scrap, soya beans and coal and that DGGI, Ahmedabad had registered a case against various entities including the petitioner and such case would establish that the petitioner is formed just to pass fake Input Tax credit. HELD THAT:- Affidavit-in-reply was filed by the respondents regarding reopening of the cases which were brought to notice by the petitioner explaining the prompt actions which were being taken by the respondent-Authorities. The petitioner filed the affidavit-in-rejoinder affirmed on 14th April, 2024 bringing on record continuation of the proceedings on the basis of the information relating to the petitioner in case of the various assesses. The respondent, thereafter, filed three further affidavit-in-replies affirmed placing on record the corrective actions which were taken by the respondents in relation to the grievance raised by the petitioner during the hearing conducted before this Court. Considering the above facts to the effect that the respondents have taken the corrective steps during the pendency of this petition, we are having a ray of hope that in future, no such action will be taken by the respondent-Authorities on the basis of the information made available on the Insight Portal without verification by the Jurisdictional AO by considering such information as the correct information. The Scheme of the Act is well designed to take care of the information which is available on the Insight Portal by providing a mechanism in Section 148A of the Act by issuing notice to the assessed by the Jurisdictional AO to verify the information as per clause (a) to Section 148A of the Act as was existent prior to 1st September, 2024. Section 148A(a) the conducting of inquiry, if required, with prior approval of the specified authority with respect to the information which suggest that the income chargeable to tax has escaped the assessment, has been done away after the amendment of Section 148A of the Act with effect from 1st September, 2024. Section 148A(1) therefore is now similar to Section 148A(b) of the Act which was applicable up to 1st September, 2024, which reads as under : “148A(b)-provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a).” However, we are of the opinion that before issuance of the notice under Section 148A(1) of the Act, it is the responsibility and liability of the Jurisdictional Assessing Officer to verify the information made available on the Insight Portal which suggests that the income chargeable to tax has escaped assessment in case of the assessee for the relevant Assessment Year and if necessary, the Assessing Officer must conduct inquiry with prior approval of the specified authority with respect to such information and only after verification of the information made available to the Assessing Officer, the provisions of Section 148A(1) of the Act shall be invoked. 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.