2025 (11) TMI 420 - HC - Income Tax

S.148A reopening set aside; matter remanded for fresh consideration in light of GST order dated July 11, 2025

HC set aside the impugned reopening order under s.148A (as amended, effective 1 Sept 2024) and remanded the matter for fresh consideration in light of the ... Reopening of assessment based on GST proceeding regarding fraudulent ITC - Income Tax Department received certain intelligence from the Directorate General of GST Intelligence, in respect of wrongful availment of Input tax credit without actual receipt of goods at the declared place of business of the Petitioner - HELD THAT:- Present case is governed by the provisions of Section 148A as amended and brought into effect from 1st September, 2024. Notably, the impugned order was passed prior to the GST order, and thus, obviously the said order of the GST department, could not have been taken into consideration by the concerned officer. Closing of the proceedings by the GST Department would have an impact and bearing on the Section 148A proceedings and, therefore, this Court is of the opinion that the impugned order deserves to be set aside, and the matter deserves to be remanded for reconsideration, in view of the GST order dated 11th July, 2025. Accordingly, the impugned order is set aside. The matter is remanded for being considered afresh, after bearing in mind the GST order dated 11th July 2025.Insofar as the legality and validity the impugned notice is concerned, the submission made on behalf of the Petitioner, that there has to be independent reasoning given by the Income Tax Department and hence the said notice is itself unsustainable, is left open at this stage, for being canvassed at a later stage, if the need so arises. Additionally, the Petitioner may place the GST order before the concerned authority i.e., the Assistant Commissioner of Income Tax Circle 25(1), along with a short note of submissions which it relies upon. Let the same be filed within four weeks. ISSUES PRESENTED AND CONSIDERED 1. Whether an order under Section 148A(3) concluding that income has escaped assessment (and directing issuance of notice under Section 148) is sustainable where it is based on an investigation report alleging wrongful availment of Input Tax Credit (ITC), and where subsequent GST proceedings have closed the ITC issues in favour of the assessee. 2. Whether the amended scheme of Section 148A (in force from 1 September 2024) imposes any specific requirement of independent reasoning or examination by the Income Tax authority before issuing a notice under Section 148A(1), and if so, whether the impugned notice/order complied with that requirement. 3. The impact of subsequent administrative adjudication (GST order closing proceedings) on the validity and continuance of reassessment proceedings initiated under Section 148A/Section 148 where the reassessment conclusion predates the GST order. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainability of Section 148A(3) order directing reassessment where GST proceedings later close ITC allegations Legal framework: Section 148A (as amended effective 1 September 2024) prescribes the procedure for initiating reassessment proceedings where information suggests income has escaped assessment; Section 148 provides for issuance of notice if income has escaped assessment beyond prescribed thresholds. Precedent treatment: The petition referenced a Coordinate Bench decision addressing requirements for issuance of reassessment notices under the earlier statutory regime; the Court noted distinctions between earlier sub-provisions and the amended scheme but did not overrule or apply that precedent to negate the present order. Interpretation and reasoning: The Court observed that the impugned Section 148A(3) order was passed prior to the GST order which closed the ITC issue, and therefore the GST order could not have been considered by the officer at the time the impugned order was made. Nevertheless, because the GST order bears directly on the core factual basis (alleged wrongful availment of ITC) relied upon in the Section 148A proceedings, it has a material bearing on whether income 'has escaped assessment' within the meaning of the statute. The Court held that where a subsequent authoritative administrative determination disposes of the foundational allegation relied upon to conclude escapement of income, fairness and correctness require reconsideration. Ratio vs. Obiter: Ratio - the Court concluded that a Section 148A(3) order founded on facts subsequently adjudicated in a related statutory forum (closing the impugned transactions) should be set aside and remanded for fresh consideration in light of that subsequent administrative determination. This holding governs the disposition of the impugned order. Conclusions: The impugned Section 148A(3) order was set aside and the matter remanded to the Income Tax authority to reconsider the position afresh after taking into account the GST order dated 11 July 2025; the authority was directed to pass a reasoned order within three months after giving the assessee opportunity to place submissions and the GST order. Issue 2 - Requirement of independent reasoning/examination by the Income Tax authority under the amended Section 148A before issuing notice Legal framework: The amended Section 148A changed procedural obligations of the income tax authority when proposing reassessment; earlier judicial pronouncements emphasized non-mechanical issuance and the need for independent examination. Precedent treatment: The petitioner relied on earlier decisions (including a Coordinate Bench decision) emphasizing independent reasoning and non-mechanical approach in reassessment initiation under the prior statutory scheme. The Respondent submitted that the present case is governed by the post-amendment Section 148A and distinctions exist between earlier sub-provisions and current clauses. Interpretation and reasoning: The Court acknowledged the petitioner's contention that there must be independent reasoning by the Income Tax Department and that notices cannot be issued mechanically. However, the Court expressly left open the broader question of the precise legal standard and sufficiency of reasoning required under the amended Section 148A, declining to adjudicate the legality and validity of the impugned notice at this stage. The Court limited its decision to remand for fresh consideration in light of the GST order, permitting the petitioner to raise the reasoning/validity contentions subsequently if needed. Ratio vs. Obiter: Obiter - the recognition of the requirement for independent reasoning is noted but not finally adjudicated; the Court's explicit statement leaving the question open is non-decisory regarding the substantive standard under the amended provision. Conclusions: The issue of whether the impugned notice was issued without requisite independent reasoning is not decided; the petitioner may raise that submission afresh before the assessing authority or at a later adjudicatory stage. The authority must pass a reasoned order on remand, thereby creating an opportunity to address reasoning sufficiency. Issue 3 - Effect of temporal sequencing: when reassessment order predates a subsequent GST closure order Legal framework: Principles of administrative law and tax procedure govern how later authoritative findings by other statutory authorities (here, GST adjudication) affect pending or completed actions by the Income Tax Department. Precedent treatment: No binding decision was applied to hold that a prior income-tax order remains immune from reconsideration because it preceded the subsequent administrative outcome; instead, the Court treated the later GST order as material evidence affecting the factual matrix of the reassessment decision. Interpretation and reasoning: The Court reasoned that temporal priority of the impugned order does not preclude its reconsideration where a later authoritative administrative determination addresses the same factual core (wrongful availment of ITC). The Court emphasized that the assessing officer could not have considered the later GST order when passing the Section 148A(3) order, and therefore remand is appropriate so that the assessing officer may re-evaluate the escapement conclusion in light of the GST order and any submissions by the assessee. Ratio vs. Obiter: Ratio - a subsequent administrative adjudication closing the foundational factual issue which formed the basis of a reassessment order is material and warrants remand for fresh consideration even if the reassessment order predates that adjudication. Conclusions: The impugned order was set aside and remanded; the assessee directed to place the GST order and submissions before the assessing officer within a specified time; the authority may seek clarifications and must pass a reasoned order within three months thereafter. Rights and contentions of the parties remain open for further adjudication.