TaxTMI 
TaxTMI 
2026 (2) TMI 884
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....d vide the impugned notice dated 31.03.2023 u/s 148 of the Act." 2. The petition relates to the Assessment Year (AY) 2016-17, for which an order under Section 148A(d) of the Income Tax Act, 1961 ('the Act') and a notice under Section 148 of the Act, both dated 31.03.2023 were issued by the respondent no. 1, on the information available with him whereby he has called for the filing of the return of income (ITR) by the petitioner herein, within thirty days. FACTUAL BACKGROUND 3. At the outset, we may provide a brief factual background of the controversy. The petitioner herein, is a company incorporated under the Companies Act, 1956 and is regularly assessed to income tax at Delhi. For the AY concerned i.e. 2016-17, the petitioner filed its ITR on 08.10.2016, declaring loss of Rs. 10,24,33,542/-. The petitioner's case was picked up for scrutiny assessment, pursuant to a notice under Section 143(2) being issued. Thereafter, upon conducting the proceedings, the Assessing Officer passed the assessment order under Section 143(3) of the Act, on 09.12.2018, assessing the income at Rs. 14,56,05,630/-. The assessing officer by this order made an addition of Rs. 24,80,39,169/-, on acc....
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....applying the method prescribed under Rule 11UA of IT Rules. The assessment of M/s. Gamma Pizzakraft (overseas) Private Ltd for AY 2016-17 the assessment "was completed after scrutiny u/s 143(3) in December 2018 at an income of Rs. 14,56,05,630. The assessee issued 54,33,548 equity shares of face value of Rs. 10 each to a company at the rate of Rs. 65.65 (total consideration of Rs. 35,67,12,426) thereby getting premium of Rs. 30,23,74,146 at the rate of Rs. 55.65 per share. Assessing Officer attracted the provisions of Section 56(2)(viib) and worked out the fair market value, in accordance the provisions of Rule 11UA, as Rs. 10 per share i.e. equal to the face value of the share. As such, no premium was allowable on the equity shares to assessee. However, the AO disallowed premium only of Rs. 24,80,39,169 in the assessment order by adding it to the income of the assessee, and allowed premium Rs. 5,43,34,977 on equity shares to assessee. Thus, incorrect allowance of share premium on transfer of equity shares, having market value equal to face value (Rs. 10), resulted in under assessment of Rs. 5,43,34,977 having tax effect of Rs.2,50,09,650 as computed below: ....
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....5,43,34,977/- plus Rs. 9,80,81,200/-.) was held to be disallowed and added back to the total income of the petitioner. 9. On the basis of the petitioner's reply to this notice, the assessing officer dropped the issue raised by the first audit objection and held that there was no escapement of income in relation to the said share premium issue. However, in the second audit objection, it mentioned that two payments made to Mr. Amar Singh (MD & shareholder) and to Mr. Sandeep Kohli (shareholder) constituted 93% of expenses debited to Profit & Loss Account (P&L Account) and that there was no justification available in the file as to why the huge bonus was paid to the MD/shareholder in the very first year when the turnover of the company was negligible. The Audit Party then concluded that the expenses were not allowable as these were not incurred for business purposes. The Audit Party also concluded that the bonus and legal and professional expenses were otherwise payable as profit or dividend to them. Based on this, the Audit Party held that the incorrect allowance from expenses has resulted in under assessment of income amounting to Rs. 9,80,81,200/-. Hence, it is the second audit ....
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....copy of the Financial Statement of the Company for FY 2015-16 as also the copy of the Employment Agreement which formed part of the original assessment proceedings. (v) The petitioner was asked to submit the relevant details in response to a questionnaire attached to the notice under Section 142(1) of the Act, dated 11.09.2018 in which the following details were sought:- "14. Please provide details of salary and wages amounting to Rs. 8,92,60,513/- such as name of the employee, PAN, address, designation, TDS details etc. 15. You have shown 8,90,00,000/- as director remuneration. Please provide details of director whom payment is being made and his return of income. xxx xxx xxx 17. Please provide details of legal & professional expenses of Rs. 1,24,44,134/- such as name of the person, PAN, bills raised by the persons/parties, payment invoices, brief details of nature of the legal work, TDS details etc." (vi) By reply dated 31.10.2018, the petitioner complied with this questionnaire. The petitioner enclosed with its reply, a copy of the Employment Agreement with Amar Raj Singh and the Consulting Agreement with Sandeep Kohli. ....
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....n 41 (Delhi), h. Deepak Kapoor v. CIT, 2022 SCC Online Del 3724, i. Tata Sons Ltd. v. Deputy Commissioner of Income Tax, [2022] 137 taxmann.com 414 (Bombay) j. Springer Healthcare Ltd. v. ACIT, W.P.(C) 336/2025 (DHC) 15. He stated that the assessing officer passed the order under Section 148A(d) of the Act after due examination, wherein, he agreed with the petitioner's submissions made by it in its reply, that there was income which has escaped assessment on the issue of incorrect allowance of share premium of Rs. 5,43,34,977/-. However, the submissions with respect to incorrect allowance of expenditure of Rs. 9,80,81,200/- were rejected summarily as having no merit. 16. It is also his submission that the Audit para was issued without receiving a reply from the assessing officer on factual aspects. Had the assessing officer given his reply to the audit para, the objections might have been duly dropped as the assessing officer had already examined the said issue in the course of original assessment proceedings under Section 143(3) of the Act vide points no. 14, 15 and 17 of the questionnaire (reproduced above herein) attached to the notice under Sect....
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.... examined by the assessing officer during scrutiny assessment. Hence, reopening of assessment cannot be done on mere change of opinion. 22. Another argument raised by Mr. Shivakumar is that the impugned order and notice are barred by limitation prescribed under Section 149 (1)(b) of the Act, as the assessing officer did not have any documents/evidence in his possession which revealed any escapement of income represented in the form of any expenditure in respect of a transaction. The impugned order and notice are also without jurisdiction, having been issued beyond the period of three years from the end of AY 2016-17 without satisfying the conditions imposed by clause (b) of Section 149(1) of the Act. 23. According to him, this is a clear case of change of opinion. In the garb of reassessment, the assessing officer is attempting to review his own order in the absence of any fresh information/material available with him. The assessing officer had already allowed the subject expenses debited to the P&L account after viewing all the relevant facts, and is now only trying to re-appreciate the same. Reliance was placed by him on the judgment in the case of CIT v. Kelvinator of Indi....
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.... 148A(b) of the Act. The assessing officer should have considered the reply and then proceeded to pass the impugned order. The purpose of Section 148A is to give opportunity is to the assessee to justify and present arguments to the assessing officer to prevent the reopening of a completed assessment. The provision is an important safeguard introduced through the Finance Act, 2021 against the arbitrary and opaque process of reopening assessments. However, it has been reduced to a mere mechanical formality by the assessing officer who has simply dismissed the objection with a cryptic observation -"no merit". Reliance is placed on the judgment of in the case of Surender Kumar Jain v. Principal Commissioner Delhi, North Zone and Anr., W.P.(C) 17700/Del/2020. 29. Reliance is also placed by him on the case of M/s. Triveni Rubber & Plastics v. Collector of Central Excise, Cochin, AIR 1994 SC 1341, wherein the Supreme Court held that the order impugned therein suffers from perversity inasmuch as some relevant evidence had not been considered or that certain inadmissible material had been taken into consideration or where it could be said that the findings of the authorities were based ....
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....this petition is premature. As per the law laid down by the Supreme Court and various High Courts, unless there is an absolute lack of jurisdiction, a writ petition against a show cause notice is not maintainable. Reliance was placed on the judgments in the cases of Than Singh Nathmal v. Superintendent of Taxes, 1964 (6) SCR 654; Titaghur Paper Mills v. State of Orissa, 1983(2) SCC 743; and Raj Kumar Shivhare v. Asst. Director, Enforcement Directorate, 2010 (4) SCC 772. 34. He stated that the objections of the assessee were duly considered and disposed of and only then was the order under Section 148A(d) of the Act passed. As per the information with the assessing officer, the transaction amounting to Rs. 9,80,81,200/- relatable to AY 2016-17 was beyond 3 years but not beyond 6 years. The income chargeable to tax in this case was more than threshold limit i.e. Rs. 50,00,000/- as prescribed in Act and such income is represented in the form of an expenditure in respect of transaction. Therefore, the notice issued under Section 148 of the Act is in compliance with the first proviso to Section 149(1)(b) of the Act. Hence, the contention of the assessee is incorrect. 35. As per Se....
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....ot allowed. 39. He has referred to Explanation 1 to Section 148, which describes income chargeable to tax being escaped to mean: "(ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act;" 40. Thus, the contention of the assessee is false and invalid as the proceedings under Section 148 were initiated considering and analysing the facts highlighted in the audit objections, with proper application of mind and therefore, the notice under Section 148 was issued. 41. The information received by the assessing officer was according to the risk management strategy formulated by the Board as per which income had allegedly escaped assessment. Mr. Maratha reiterated that the assessing officer before initiating proceedings under Section 148A of the Act, provided sufficient opportunity to the assessee and examined its reply. The assessment was reopened after due application of mind by the assessing officer. The material available with the assessing officer which arose from the audit objections raised by the audit team is tangible and significant and w....
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....nal Investigation. c. Cases from Non-Filer Management System (NMS) & other cases as flagged by the Directorate of Income-tax (System) as per risk profiling;" 43. He further stated that as per the Revenue Audit Manual Direct Taxes issued by Office of Comptroller and Auditor General of India, whereby in the last line it is stated "unless there is clear evidence of misuse." Therefore, it is possible for the Audit Party to question the order of the assessing officer when there is clear evidence that there was some income that escaped assessment, on the basis of which reassessment proceedings can be initiated. 44. He stated that the cases relied upon by the petitioner are distinguishable on facts from the present case. Merely stating the law does not justify how the same has been violated in the case of the petitioner. Concluding his submissions, he reiterated that the assessment proceedings in the case of the petitioner are under progress/pending, and in light of the same, the petition being immature, needs to be dismissed. 45. Mr. Maratha stated that the contention of the assessee that the petitioner was not given any opportunity pursuant to the notice, and the order....
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....he assessing officer to the petitioner regarding the aforesaid amount, which according to the assessee consists of Rs. 8,90,00,000/- paid to the MD and Rs. 90,81,200/- paid to the shareholder as joining bonus and legal & professional expense respectively. The queries as put by the assessing officer were answered by the petitioner by submitting the Employment Agreement with the MD Amar Raj Singh and the Consulting Agreement with the shareholder Sandeep Kohli. The case of the petitioner is that, as the assessing officer had all the information relating to the said expenditure/amounts at the time of assessment, the Revenue cannot initiate reassessment citing the same issue, even pursuant to audit objections. 50. Mr. Maratha has relied upon the judgment in Commissioner of Income Tax v. PVS Beedies (P) Limited, [1999] 237 ITR 13 (SC) to contend that an Audit Party is entitled to point out a factual error or omission in the assessment, and reopening of the case on the basis of such factual error pointed out by the Audit Party is permissible under law. 51. No doubt, the notice under Section 148A(b) was issued on the basis of the audit objection. Now the question is, whether the issu....
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....the assessment order, resulting in a subsequent audit objection. The latter cannot be subject matter of reassessment, as it shall have the effect of reconsidering the same material to arrive at a different conclusion, which cannot be permitted. The attempt of the Revenue to now hold that the amounts are chargeable to tax certainly amounts to a change of opinion, which cannot be sustained. 56. It is trite law that the Revenue can reopen assessments based on audit objections to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of the Act. In fact, Clause (ii) to Explanation 1 of Section 148 of the Act, which was incorporated into the Act by virtue of the Finance Act, 2022 empowers the assessing officer to issue notice reopening the assessment when audit objections suggests that income has escaped assessment. However, the first proviso to Section 148 states that no notice shall be issued under the provision, unless the assessing officer has information with him which suggests that income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year. ....
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.... 148 of the Act and in particular the Explanation 1 to Section 148 of the Act, as was in force at the material time (that is, prior to the amendment by Finance Act, 2023). The relevant extract of said section is set out below:- "148. Issue of notice where income has escaped assessment.- Before making the assessment, reassessment or recomputation under Section 147, and subject to the provisions of Section 148-A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of Section 148-A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139: Provided that no notice under this section shall be issued unless there is informati....
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....e assessee has escaped assessment. The proviso to Section 148 of the Act is couched in the negative. Whilst, the AO is proscribed from issuance of the notice under Section 148 of the Act, unless it has the "information" that suggests that the assessee's income has escaped assessment, it is not mandatory for the AO to issue such a notice, or to review the assessment order merely because issues were flagged in an audit objection. The AO is required to apply its mind to the audit objection and form an independent, informed view. 28. The provisions of Section 148A of the Act are also required to be construed by imputing the meaning of the term "information" as provided under Explanation I to Section 148 of the Act. Section 148A of the Act prescribes the procedure to be followed prior to issuance of notice under Section 148 of the Act. Section 148A as was in in force prior to Amendment Act 15 of 2024, is reproduced below:- "148-A. Conducting inquiry, providing opportunity before issue of notice under Section 148.-The Assessing Officer shall, before issuing any notice under Section 148,- (a) conduct any enquiry, if required, with the prior approval of specified....
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....ained therein, relate to, the assessee; or (d) the Assessing Officer has received any information under the scheme notified under Section 135-A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee. Explanation.-For the purposes of this section, specified authority means the specified authority referred to in Section 151." 29. It is apparent from the above, the term "information" is used in clause (a), clause (b) of Section 148A of the Act and proviso (c) of the said Section. Clause (a) of Section 148A of the Act requires the AO to conduct the enquiry, if necessary, with respect to the information which suggests the income chargeable to tax has escaped assessment. Accordingly, when an audit objection is raised, the AO would have such information in respect of which an enquiry may be conducted under clause (a) of Section 148A of the Act, if required. However, this does not mandate that the AO proceeds to issue a notice under Section 148A of the Act merely on the basis of the audit objection. Clause (b) of Section 148A of the Act requires the AO to provide the assessee with the basis of the informatio....
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....e assessment proceedings. As such, the impugned action of the respondents is unsustainable. 59. At this stage, we may also refer to the plea of Mr. Shivakumar that the assessing officer has not referred to any transaction, which has resulted in escapement of income represented in the form of expenditure. This plea is unmerited as there are transactions in the nature of the payments to the MD Mr. Amar Singh for Rs 8.90 crore and Rs 90.81 lakh to the shareholder Mr. Sandeep Kohli on account of joining bonus and legal & professional expenses. However, the stand of the Revenue that these payments have escaped assessment in the nature of expenditure also cannot be accepted in view of our findings above. 60. Now we shall come to the plea advanced by Mr. Shivakumar that the notice under Section 148 of the Act is barred by time under Section 149(1) of the Act. Mr. Maratha had submitted that the transactions to the tune of Rs. 9,80,81,200/- relatable to AY 2016-17 was beyond four years, but not beyond the period of six/ten years, as provided by the Act, and are therefore within limitation. 61. It is apposite to note that the first proviso to Section 149(1) of the Act expressly prov....
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.... A reading of Section 149(1) of the Act as it existed prior to 2021 would reveal that no notice under Section 148 of the Act shall be issued if four years, but not more than six years have elapsed from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment amounts to or is likely to amount to 1 lakh rupees or more for that year. 63. Now we shall examine Section 147 of the Act, as it existed during the relevant time. The same is reproduced as under: "Income escaping assessment. 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an....
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.... (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; [(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;] (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under ....
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....e here that the plea is devoid of merit, as this Court has in a catena of judgments, including in TKS Builders Ltd. v. Income Tax Officer, (2024) 167 taxmann.com 759 (Delhi), categorically held that both the jurisdictional and the faceless assessing officers shall have concurrent jurisdiction to issue notices under Section 148 of the Act, at least insofar as the jurisdiction of Delhi is concerned. We must state, the judgment in TKS Builders (supra) has been taken in appeal, along with judgments of this Court and other High Courts and the issue is pending consideration before the Supreme Court. Therefore, the said plea of Mr. Kumar does not impress upon us. 67. Though Mr. Maratha had drawn our attention to the judgment in PVS Beedis (supra) to contend that objections raised by the audit party can be grounds to reopen assessment under law. While we have no cavil with the judgment, it is quite distinguishable on facts. The reopening in that case was done because in the original assessment, donations made to a body known as P.V.S. Memorial Charitable Trust was held by the Income-tax officer to be eligible for deduction under Section 80G of the Act. But subsequently, it was pointed o....