TaxTMI 
TaxTMI 
2026 (9) TMI 1333
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....being the same, we proceed to decide them by this Common Order. 3. For convenience, the facts in Writ Petition No.30560 of 2025 are discussed hereunder. 4. The Writ Petition under Article 226 of the Constitution of India has been filed by the petitioner assailing the order dated 27.06.2025, passed by respondent No.1 with the approval of respondent No.2 under Section 148A(3) of the Income Tax Act, 1961 (for short the 'Act') initiating reassessment proceedings on the petitioner for the assessment year 2019-20 and the report compiled by respondent No.3 based on proceedings conducted under Section 131(1A) of the Act which was approved by respondent No.4. 5. Vide the impugned order dated 27.06.2025, respondent No.1 initiated assessment proceedings against the petitioner under Section 148A(3) of the Act for the assessment year 2019-20. 6. The facts of the case are that the petitioner was an autonomous public charitable trust, registered in the year 1998 and registered under the Indian Trusts Act, 1882 with its primary object directed towards the economic development of the marginalised, underserved, and underprivileged communities, and its activities principally carried on in....
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....ills / invoices against expenses and the list of volunteers / community activists to whom honorarium was paid and that the petitioner was unable to substantiate with satisfactory documentary evidence, the nature of utilisation of funds received from KC MET and others during financial year 201819, financial year 2019-20 and financial year 2020-21, on which basis respondent No.3 concluded that the expenses claimed by the petitioner were not in line with its aims and objects. On this basis, respondent No.3 alleged that amounts of Rs.94,23,73,869/- Rs.92,91,09,404/- and Rs.90,79,12,093/-, representing expenses incurred by the petitioner for the financial years 2018-19, 2019-20 and 2020-21 respectively, represented undisclosed income for the respective assessment years, and accordingly sought the approval of respondent No.4 to upload the said information on the Insight Portal. 10. The conclusions reached by respondent No.3 in the Impugned Report were, according to the petitioner, founded purely on conjectures and surmises, unsupported by any tangible information or material suggesting that the donations, grants, or funds received by the petitioner had not been applied towards its sta....
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....for the financial year 2018-19, excluding finance cost, other expenses, and depreciation) had escaped assessment for the said assessment year, being unexplained. 12. In response to Notice 1, the petitioner vide response dated 26.03.2025, furnished the documents including its audited financial statements for the financial year 2018-19, its return of income for the assessment year 2019-20, and a statement capturing a summary of credits and debits across its various bank accounts, together with bank ledgers and bank statements for the financial year 2018-19, so as to demonstrate the receipt and utilisation of funds by the petitioner. Thereafter, respondent No.1 issued a further notice dated 31.03.2025 (hereinafter referred to as "Notice 2") stating that further information had been received indicating the petitioner's involvement in additional transactions during the financial year 2018-19 and calling upon the petitioner to show cause why a notice under Section 148 ought not to be issued on the basis that income chargeable to tax amounting to Rs.125.43 crores (inclusive of the amount referred to in Notice 1) had escaped assessment for the assessment year 2019-20. 13. Vide notice....
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....e. 16. It was the petitioner's case that the impugned order and the consequential impugned reassessment notice were illegal and bad in law, inasmuch as no income of the petitioner for the assessment year 2019-20 had, in fact, escaped assessment and the proceedings having been initiated on an arbitrary basis are devoid of any tangible information suggesting that income chargeable to tax had escaped assessment in the petitioner's case for the said assessment year and in these circumstances the petitioner was left with no alternative but to invoke the extraordinary writ jurisdiction of this Hon'ble Court under Article 226 of the Constitution of India for quashing the impugned order passed under Section 148A(3) of the Act and the consequential impugned reassessment notice issued under Section 148 of the Act, as being arbitrary, illegal, without jurisdiction, and contrary to the statutory scheme mandated under the Act. 17. Learned Senior Counsel appearing for the petitioner submitted that the initiation of proceedings under Section 148 of the Act is without jurisdiction, inasmuch as there is no valid information suggesting escapement of income and none was provided to the petition....
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....n. It was argued that the reassessment proceedings initiated under Section 147 of the Act are bad in law and lack the foundational pre-requisite for assuming jurisdiction. Issuance of notices under Section 148A(1) of the Act, the impugned order passed under section 148A(3) of the Act and the subsequent impugned reassessment notice issued under section 148 of the Act, are predicated on a mere suspicion and a desire to conduct a verification or "roving inquiry" into the petitioner's books and activities without a mandatory "reason to believe" that income has escaped assessment. 21. Learned Senior Counsel for the petitioner also relied upon the guidelines issued by CBDT vide letter F.No.299/10/2022-Dir (Inv. III)/1522, dated 28.06.2024, which provided for the procedure which an Assessing Officer should follow before issuing a notice under Section 148 of the Act and pass order under Section 148A of the Act. At para 2.1 (xiv) of the said letter, the CBDT had stated that an Assessing Officer has to mandatorily pass a speaking order under Section 148A(d) (which is pari materia to Section 148A(3) of the Act. The relevant extract of the said letter relied upon by the learned Senior Couns....
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....ere being routed and transferred through multiple bank accounts maintained by the Trust. However, though the expenses were recorded in the books of account, no supporting deed or documentary evidence was furnished to substantiate such expenditure and the bank transactions furnished were not reconciled with corresponding documentary evidence substantiating actual expenditure. 25. Learned counsel for the respondents further contended that though the Assessing Officer initiated proceedings under Section 148A of the Act based on the information uploaded from the verification report, the petitioner was provided with further opportunity to furnish the requisite information as called for. This, however, does not detract from the fact that the petitioner failed to provide satisfactory documentary evidence pertaining to the expenditure claimed for assessment years 2019-20, 2020-21 and 202122 during the proceedings under Section 131(1A) of the Act. Therefore, the conclusions recorded by respondent No.3 are solely premised on the material furnished by the petitioner during the course of enquiry. 26. Learned counsel for the respondents also contended that Section 131(1A) of the Act expre....
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....ncome chargeable to tax has escaped assessment in his case for the relevant assessment year. (2) On receipt of the notice under sub-section (1), the assessee may furnish his reply within such period, as may be specified in the notice. (3) The Assessing Officer shall, on the basis of material available on record and taking into account the reply of the assessee furnished under sub-section (2), if any, pass an order with the prior approval of the specified authority determining whether or not it is a fit case to issue notice under section 148." Upon a bare perusal of the Section 148A of the Act it is evidently clear that it casts a twofold obligation on the Assessing Officer before a notice under Section 148 can be issued. The Assessing Officer must issue a show cause notice and that notice must be accompanied by the information which suggests that income chargeable to tax has escaped assessment. This twin requirement was explained by the Hon'ble Supreme Court in the case of Ashish Agarwal (supra) and reiterated in the case of Rajeev Bansal (supra) wherein it was held that mere issuance of a show cause notice without supply of the material forming its foundation ....
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....ied upon by the Revenue within thirty days from the date of the judgment. Thus, during the period between the issuance of the deemed notices and the date of judgment in Union of India v. Ashish Agarwal [(2022) 444 ITR 1 (SC); (2023) 1 SCC 617.], the Assessing Officers were deemed to have been prohibited from proceeding with the reassessment proceedings." 33. The Hon'ble Supreme Court in the case of Chhugamal Rajpal (supra) has held as under: "5. In his report the Income Tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under Section 148. The material that he had before him for issuing notice under Section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the CIT, Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications "it appears that these persons (alleged creditors) are name lenders and the transactions are bogus". He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague....
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....tion 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under Section 148. To Question 8 in the report which reads "whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148", he just noted the word "yes" and affixed his signatures thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under Section 148. The important safeguards provided in Sections 147 and 151 were lightly treated by the Income Tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under those provisions as of little importance. They have substituted the form for the substance." 34. Lastly, in the case of Lakhmani Mewal Das (supra) the Hon'ble Supreme Court has held as under: "11. As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational co....
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....arding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs." 35. The requirement of "information suggesting escapement of income" cannot be equated with a mere suspicion or a desire to verify. In the case of Chhugamal Rajpal (supra) the Hon'ble Supreme Court held that an Officer who merely records that a matter requires investigation has not formed the belief contemplated by law. A conclusion that transactions need further scrutiny is a conclusion in favour of inquiry and not a conclusion that income has in fact escaped assessment. Similarly, in the ca....
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....ation of funds strictly for its charitable objects. The petitioner also explained, with reference to the accepted treatment for the assessment year 201718, the rationale for its practice of routing funds through separate receipt and utilisation accounts. 39. The impugned order does not deal with any of this material. It records no finding that the explanation offered is false or that any specific sum remains unaccounted. It proceeds solely on the premise that the transactions are voluminous and require further in-depth scrutiny. Such reasoning reflects a decision to verify rather than a determination that income has escaped assessment and stands squarely within the mischief identified in Chhugamal Rajpal (supra) and Lakhmani Mewal Das (supra). 40. It also falls short of the mandate under Section 148A(3), which requires the Assessing Officer to pass an order having regard to the material on record and the reply furnished by the assessee, a requirement that presupposes actual consideration of that reply and not its bare acknowledgment. The CBDT guidelines, dated 28.06.2024, which require a speaking order under Section 148A(3) reinforce rather than dilute this statutory obligati....