2025 (12) TMI 928 - HC - Income Tax

Reassessment notice u/s 148(1) upheld; live nexus shown, no change of opinion, Section 148A(a) inapplicable

HC upheld the validity of the reassessment proceedings initiated against the assessee. It held that the reasons to believe, based on information regarding ... Validity of reopening of assessment - reasons to believe - two different sets of ‘reasons to believe’ have been furnished by way of notice - live nexus between the ‘Information’ and ‘Escapement of Income’ - income chargeable to tax has escaped assessment “as per risk management strategy” and alleged that various dummy/shell entities/companies and bank accounts were associated with the petitioner. HELD THAT:- As considered the contentions of parties and have also considered the judgment in Rajnish Puri [2022 (8) TMI 1600 - DELHI HIGH COURT] reveals that in the said case, notice u/s 148A(b) of the Act and the dissemination of Information Note supplied to the petitioner, the allegation was of a ‘fictitious Note’ and not of ‘fictitious long term capital gain’ as claimed by Revenue. In view of this contradiction, Revenue himself stated that they had no objection if the impugned order and notice u/s 148 of the Act are set aside and matter is remanded back to the AO for fresh consideration. However, these facts are not appearing in the present case. The facts have been clearly stated in the notice and there is no ambiguity causing any prejudice to the petitioner to put forward his defense. In our opinion it is not a case of change of opinion. Nothing has been shown by the petitioner to show that the Assessing Officer has no jurisdiction to issue notice u/s 148(1) of the Act or the notice suffers from any inherent defect. Petitioner with regard to holding prior inquiry, if required, u/s 148A(a) of the Act is concerned, the requirement of conducting an inquiry prior to issuing any notice was envisaged in pre amendment provision. Perusal of both the sections show that Section 148A(a) does not exist anymore and is not applicable to the present case. No substance in the argument that first the Revenue should have withdrawn the notice dated 29.03.2025 and only thereafter the notice dated 13.06.2025 could have been issued. Perusal of the record shows that the notice dated 13.06.2025 was issued u/s 148A(1) of the Act requiring the petitioner to show cause as to why a notice u/s 148 of the Act should not be issued. Through this notice, the respondent was also requested to submit his reply along with supporting documents. The prior notice was also issued u/s 148A(1) of the Act with the same contents. However, as the fresh notice was issued with the same contents, the previous notice automatically becomes infructuous. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the reassessment proceedings and notice under Section 148 for the relevant assessment year were vitiated on account of alleged contradictory or multiple 'reasons to believe' and vague/incorrect allegations in the notices under Section 148A(1). 1.2 Whether, after the amendment by Finance Act, 2022, the Assessing Officer was mandatorily required to conduct an inquiry under the erstwhile Section 148A(a) before issuing a notice under Section 148A(1), and whether failure to do so rendered the proceedings invalid. 1.3 Whether issuance of a second notice under Section 148A(1) without formally withdrawing the earlier notice under Section 148A(1) created a jurisdictional defect invalidating the subsequent order under Section 148A(3) and the notice under Section 148. 1.4 Whether any jurisdictional or inherent defect existed in the assumption of jurisdiction by the Assessing Officer to issue notice under Section 148(1) for the relevant assessment year. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Alleged multiple / contradictory 'reasons to believe' and vagueness of allegations in notices under Section 148A(1) (a) Legal framework (as discussed) The Court considered the scheme of Sections 147, 148, and 148A, and applied the principle that reassessment must be founded on 'reasons to believe' and that the allegations in a notice under Section 148A(b) must be sufficiently precise to afford a fair opportunity to the assessee, as recognised in the cited decision in Rajnish Puri. The Court also noted that, as per judicial precedents referred to by the Assessing Officer (including decisions holding that validity of reassessment is to be judged on originally recorded reasons), subsequent materials or communications can corroborate but not change or substitute the original reasons. (b) Interpretation and reasoning The Court distinguished the cited decision in Rajnish Puri on facts. In that case, the allegation in the notice and the information supplied were inconsistent ('fictitious Note' vs 'fictitious long term capital gain'), leading Revenue itself to concede a remand. In the present matter, the Court found that: * The facts and allegations in the notices and materials supplied were clearly stated and there was no ambiguity or contradiction of the kind that would prejudice the petitioner's ability to put forward a defence. * The core foundation for reopening lay in intelligence received regarding transactions with dummy entities of a specified amount, and subsequent GST data analysis and bank record verification only corroborated and strengthened the initial information; they did not introduce new or inconsistent grounds. * The contention that two different and inconsistent sets of 'reasons to believe' had been furnished was rejected as both factually incorrect and legally misconceived; there was no change of opinion or substitution of reasons. * Nothing was shown to the Court to indicate that the Assessing Officer had exceeded jurisdiction or that the notice suffered from any inherent legal defect on account of the manner in which 'reasons to believe' were formulated or communicated. (c) Conclusions The Court held that the reassessment proceedings were not vitiated on the ground of multiple or contradictory 'reasons to believe' or on the ground that the allegations in the notices were vague or imprecise. The assessee was not prejudiced in presenting his defence, and it was not a case of change of opinion. 2.2 Requirement of prior inquiry under Section 148A(a) post Finance Act, 2022 (a) Legal framework (as discussed) The Court extracted and compared the pre-amendment and post-amendment text of Section 148A: * Pre-amendment Section 148A(a) (requiring the Assessing Officer to 'conduct any enquiry, if required, with the prior approval of specified authority' before issuing notice under Section 148). * Amended Section 148A (effective 01.04.2022) titled 'Procedure before issuance of notice under section 148', which now requires that where the Assessing Officer has information suggesting escapement of income, he shall, before issuing notice under Section 148, provide an opportunity of being heard by serving a show cause notice accompanied by such information. (b) Interpretation and reasoning The Court observed that after the Finance Act, 2022, the statutory text of Section 148A no longer contains clause (a) in the earlier form. The structure of the amended provision focuses on supplying information and granting an opportunity of being heard before issuance of a Section 148 notice, without mandating a prior independent inquiry of the type earlier contemplated under Section 148A(a). On this basis, the Court held that the petitioner's argument, premised on a continuing obligation to conduct an inquiry under the old Section 148A(a), was misconceived because that clause no longer exists in the statute. (c) Conclusions The Court concluded that there was no statutory requirement, under the post-amendment Section 148A applicable to the case, for the Assessing Officer to conduct an inquiry under clause (a) prior to issuing notice under Section 148A(1). Accordingly, the contention that failure to conduct such prior inquiry rendered the notices and orders invalid was rejected. 2.3 Effect of issuing a second notice under Section 148A(1) without formal withdrawal of the earlier notice (a) Legal framework (as discussed) The Court examined the nature of a notice under Section 148A(1) as a show cause notice affording an opportunity of being heard before issuance of a notice under Section 148, and considered whether multiple such notices, without formal withdrawal of the first, affect jurisdiction or validity of the subsequent proceedings. (b) Interpretation and reasoning The Court noted that: * Both the earlier notice dated 29.03.2025 and the subsequent notice dated 13.06.2025 were issued under Section 148A(1). * The subsequent notice was issued with the 'same contents' as the earlier one and again called upon the petitioner to show cause why a notice under Section 148 should not be issued and to submit reply and supporting documents. * In such circumstances, the fresh notice effectively superseded the earlier notice; the earlier notice, by reason of the later notice on identical subject-matter and contents, became infructuous. * No statutory requirement was shown that the Revenue must first formally withdraw the earlier Section 148A(1) notice as a condition precedent to issuing a fresh Section 148A(1) notice on the same material and contents. (c) Conclusions The Court held that the issuance of the second notice under Section 148A(1) without a prior formal withdrawal of the first did not create any jurisdictional defect. The earlier notice was rendered infructuous once the fresh notice with the same contents was issued. The challenge on this ground was rejected. 2.4 Existence of jurisdictional or inherent defect in assumption of jurisdiction under Section 148 (a) Legal framework (as discussed) Within the overall scheme of Sections 147, 148, and 148A, the Court examined whether the conditions precedent to assumption of jurisdiction for reassessment (existence of information suggesting escapement of income; issuance of proper notice; opportunity of being heard) were satisfied, and whether any jurisdictional infirmity was demonstrated by the petitioner. (b) Interpretation and reasoning The Court found that: * The Assessing Officer had information suggesting escapement of income, based on intelligence relating to transactions with dummy entities, supported by further analysis of bank and GST data. * Notices under Section 148A(1) were issued and opportunity to respond, including with documents, was granted and availed by the petitioner. * The order under Section 148A(3) dealt with the petitioner's replies and objections in detail and explained the factual basis for connecting the petitioner with the disputed entities and bank accounts, as well as the GST discrepancies allegedly indicating manipulation of invoice values. * Allegations that someone else might have used the petitioner's email ID or address in bank accounts, or that GST jurisdiction lies with GST authorities, did not displace the statutory jurisdiction of the Income Tax Authority to act on information suggesting income escapement for income-tax purposes. * The petitioner failed to demonstrate any legal bar, lack of authority, or inherent defect in the issuance of the notice under Section 148(1) by the Assessing Officer for the relevant assessment year. (c) Conclusions The Court held that no jurisdictional issue arose on the facts of the case. The Assessing Officer had the jurisdiction to issue notice under Section 148(1), and the statutory preconditions were met. Consequently, the writ petition lacked merit and was dismissed.