2023 (10) TMI 1320 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - scope of amended law - accommodation entry receipts - As per assessee no reassessment proceedings may have been initiated against the petitioner after 31.3.2017 if the component of income alleged to have escaped assessment was less than 50 Lakhs - HELD THAT - Neither under the unamended law nor under the amended law, it was ever obligatory on the assessing authority to proceed to make assessment of component of escaped income with respect to entire 'information/reason to believe' that may have given rise to reassessment proceedings. That satisfaction/reason to believe has always been relevant only for the purpose of assumption of jurisdiction. Once jurisdiction was validly assumed by recording appropriate 'reason to believe', issuance of the notice thereafter, threw open entire assessment of the subject assessee. It enabled the assessing authority to pass a reassessment order both with respect to information that may have given rise to 'reason to believe', as also on other issues that may arise during the course of reassessment proceedings. Similarly, AO was not bound in law to bring to tax all income commensurate to the information/'reason to believe', recorded by him, to assume jurisdiction. It was always open in law (for the assessing authority), to drop whole or any part of such allegations of escapement of income (drawn at the initial stage). Even under the amended law, no change has been brought as may compel the assessing authority to subject an assessee to tax on entire information giving rise to reassessment proceedings. In short, even after the amendment made to the Act, the issue as to assumption of jurisdiction and passing of assessment order in exercise of that order remain two separate and largely independent exercise. While no reassessment order may be passed unless jurisdiction is shown to have been validly assumed, reassessment order giving rise to tax liability is not sine qua non of valid assumption of jurisdiction. The fact that in the present case, the assessing authority has reconsidered his position and now reached a conclusion that there exists only one accommodation entry of Rs. 27 lakhs and not two such entries, may only impact the quantum of reassessment order to be made. The effect of section 149 has to be seen in the context of facts that obtained at the stage of initiation of reassessment proceedings. Insofar as at that stage the quantum of income alleged to have escaped assessment was quantified at Rs. 54 lakhs, allowed the assessing authority of the petitioner to take benefit of Section 149(b) of the Act, at that stage. Almost one year has passed since then, before present challenge has arisen. At present, even the reassessment order has come into existence. There is no reason available to this Court to infer, there is no escapement of income of Rs. 27 lakhs (arising from the other accommodation entry). Subsequent development emerging in the course of reassessment proceedings wherein a fact conclusion may be drawn by the assessing authority indicating escapement of income below 50 lakhs cannot relate back to have any material bearing on the initiation of the reassessment proceedings and it cannot undo that initiation of proceeding. There is no principle of law (statutory or otherwise) to reach that conclusion. Plainly, in the facts as noted above, no sanction was required to be obtained at the stage of initiation of reassessment proceedings. Therefore, initiation of reassessment proceeding was well founded on satisfaction as to escapement of income, from tax. The fact that some part of the allegation of escapement is being dropped or not pursued at the stage of quantification of income, may not nullify the assumption of jurisdiction, by now invoking section 149. Accordingly, we refuse to exercise jurisdiction under Article 226 of the Constitution of India. Writ petition is dismissed

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings under Section 148 of the Income Tax Act, 1961.
2. Compliance with procedural requirements under Section 148A of the Act.
3. Relevance of quantum of alleged escaped income in the context of Section 149.
4. Jurisdictional aspects concerning reassessment proceedings.

Summary:

1. Validity of Initiation of Reassessment Proceedings:
The petitioner challenged the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, arguing that the reassessment was based on non-existent material. The petitioner contended that the alleged second transaction of Rs. 27 lakhs did not exist, and thus the total alleged escaped income was below the statutory limit of Rs. 50 lakhs, making the reassessment invalid.

2. Compliance with Procedural Requirements:
The court examined whether the assessing authority followed the amended procedural requirements under Section 148A. It was noted that the assessing authority had issued the notice, invited objections, and passed an order under Section 148A(d) before issuing the reassessment notice. The court found that procedural compliance was met, as the assessing authority had recorded satisfaction based on the information available at the time.

3. Relevance of Quantum of Alleged Escaped Income:
The petitioner argued that since the reassessment proceedings were based on an incorrect assumption of two transactions of Rs. 27 lakhs each, the quantum of escaped income should be considered below Rs. 50 lakhs. The court held that the quantum of alleged escaped income at the initiation stage was Rs. 54 lakhs, which justified the reassessment under Section 149(b). The subsequent reduction to one transaction of Rs. 27 lakhs did not invalidate the initiation of proceedings.

4. Jurisdictional Aspects:
The court emphasized that the satisfaction/reason to believe in the existence of escaped income was relevant only for assuming jurisdiction. Once jurisdiction was validly assumed, the assessing authority could proceed with the reassessment irrespective of the final quantum of escaped income. The court found no material basis to conclude that there was no information regarding the second transaction at the initiation stage.

Conclusion:
The court refused to exercise its discretionary equitable jurisdiction under Article 226 of the Constitution of India to quash the reassessment proceedings. The reassessment proceedings were found to be procedurally compliant and based on valid jurisdictional assumptions. The writ petition was dismissed, with the court noting that any observations made would not prejudice the assessee in the outcome of the reassessment proceedings on merit issues.