2023 (4) TMI 199 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - whether there was tangible material available with the A.O. for formation of his reason to believe that the income had escaped assessment? - HELD THAT - Only if reasons had been furnished to the Petitioner that one could ascertain whether there was tangible material available with the A.O. for formation of his reason to believe that the income had escaped assessment. In the absence of any new tangible material and assuming that there was any material with the A.O. though not disclosed, in the absence of and on account of the failure of the A.O. establishing a live link with such a tangible material, it cannot be said that the jurisdictional condition had been satisfied by the A.O. while proceeding to issue a notice u/s 148 - issuance of a notice u/s 148 in the absence of any new tangible material was nothing but an attempt to review the earlier order of assessment passed by the A.O. Alternate remedy available to the Petitioner under the Act - The exceptions to the rule of alternate remedy where a writ Court may exercise its jurisdiction under Article 226 of the Constitution of India, are cases where statutory authority has not acted in accordance with the provisions of an enactment in question, or has acted in defence of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in violation of the principles of natural justice. Reference in this regard can be made to CIT others V/s. Chhabil Dass Agarwal 2013 (8) TMI 458 - SUPREME COURT In the present case, we do not wish to relegate the Petitioner to the alternate remedy as provided under the Income Tax Act for the simple reason that not only had the A.O. failed to satisfy the jurisdictional conditions for invoking its power under Sections 147/ 148 of the Act, but had also failed to comply with the directions of GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT - the petition is allowed. The notice for reopening are hereby set aside.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with the procedure prescribed by the Apex Court in GKN Driveshafts (India) Ltd. V/s. Income Tax Officer.
3. Validity of the assessment order under Section 147 r/w Section 144B.
4. Initiation of penalty proceedings under Section 271D.

Summary:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961:
The Petitioner sought the quashing of the notice issued under Section 148 dated 31st March, 2021, arguing that it was issued contrary to the procedure prescribed under the Act and the judgment in GKN Driveshafts (India) Ltd. V/s. Income Tax Officer. The court noted that the power to reopen an assessment under Section 147 requires a 'reason to believe' that income has escaped assessment, which must be based on tangible material. The notice under Section 148 was found to lack such tangible material, rendering it unsustainable.

2. Compliance with the procedure prescribed by the Apex Court in GKN Driveshafts (India) Ltd. V/s. Income Tax Officer:
The Petitioner argued that the Assessing Officer (A.O.) failed to furnish reasons for reopening the assessment, as mandated by the Apex Court in GKN Driveshafts. The court observed that the A.O. recorded the reasons for reopening as 'null', indicating an absence of reasons. This failure to provide reasons violated the procedural requirements, making the reopening of the assessment arbitrary and without jurisdiction.

3. Validity of the assessment order under Section 147 r/w Section 144B:
The assessment order dated 28th March, 2022, was challenged on the grounds that it was passed without furnishing the reasons for reopening the assessment. The court held that the absence of reasons and tangible material invalidated the jurisdictional foundation for the assessment order, leading to its quashing.

4. Initiation of penalty proceedings under Section 271D:
The Petitioner contended that the penalty proceedings initiated under Section 271D for allegedly accepting a cash loan of Rs. 85 lakhs were unsustainable, as the reopening of the assessment itself was invalid. The court agreed, stating that if the reopening was unsustainable, the consequent penalty proceedings were also unsustainable in law.

Conclusion:
The court concluded that the A.O. failed to satisfy the jurisdictional conditions for invoking powers under Sections 147/148 and did not comply with the procedural requirements set by the Apex Court. Consequently, the notice under Section 148, the assessment order, and the penalty notice were set aside. The writ petition was allowed, and no order as to costs was made.