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2024 (2) TMI 793 - HC - Income TaxReopening of assessment u/s 147 - reason to believe - new regime u/s 148A - availability of the information which suggests that there is an escapement of income is a pre- requisite for issuing notice u/s 148 - scope invocability inter alia of sections 147 148 of the 1961 Act which have been recast under the Finance Act, 2021 - HELD THAT - On a conjoint reading of section 147 and section 148 of the Act, it is clear that the escapement of income is a sine qua non for initiating proceedings u/s 147. Therefore, availability of the information which suggests that there is an escapement of income is a pre- requisite for issuing notice under section 148. The argument that omission of phrase reason to believe has gotten away and has given way to information with the assessing officer which suggests that the income chargeable to tax has escaped assessment would mean that there should be no need for any reason seems incorrect. The phraseology of amended Section 148 makes in unmistakable terms clear that there should be a concrete information as defined in Explanation 1 to Section 148. Such information should be suggestive of income escaping assessment and such information should be objective in nature. In other words, the arguable subjectivity in the pre-amendment provision is given a go- by. For conducting assessment under section 147, there should be not only escapement but also the reason to believe that there is such escapement, the reason being the information itself. Hence, a plausible view could be taken that post-amendment of the provision, the escapement has to be established with concrete information. Section 148A would only assist the AO in coming to a conclusion whether such information is good enough to allow a notice to be issued u/s 148. The new provisions should be interpreted so as to make them workable in accord with the intent to achieve the purpose for which statutory change was brought about. To permit the AO to state that income has escaped assessment and re-open the same based on the very Return filed by the Assessee who has already disclosed the transaction, would enable him to by-pass the regular assessment procedures; that would virtually render Section 147 to be an enabling provision to make second assessment where the AO has missed the bus u/s 143. Such a course of action cannot be permitted as that would go against the very spirit of these sections and the time limits specified in Section 153. That would militate against the statutory scheme brought about by the amendment of sections 147 148; further, that would render the provisions prescribing limitation period u/s153 for assessment/re-assessment, otiose. We are therefore of the opinion that the jurisdictional facts in terms of information as defined under Explanation I to Section 148 which suggests that some income chargeable to tax has escaped assessment itself, were apparently lacking. This threshold having not been met, issuing a notice under Section 148A(b) and passing order under (d) of Section 148A are liable to be voided. Whether the ingredients of Section 148A have been scrupulously followed by the AO Revenue keeping in mind the objectives of the legislative scheme, that has been re-framed w.e.f. 1.4.2021? - The impugned orders passed by the AO u/s 148A(d) of the Act are bad because, Petitioners Objections have not been considered. Thus, apart from being in violation of principles of natural justice, the assumption of jurisdiction under Sec. 148 is perverse and unsustainable. Content and compliances of impugned notices - It is true that the Statements of Objections have been filed in these petitions and they are supported by affidavits. Several contentions have been taken up by the respondents supportive of the impugned notices orders. However, that would not come to their rescue. It hardly needs to be reiterated that the validity of the orders made by the statutory authorities has to be adjudged on the basis of the reasons contained in the womb of these orders; such reasons cannot be supplemented by way of affidavit or otherwise. As to whether matter merits remand or closure here itself? - There is no need for this court to undertake a deeper examination of the aspects argued at the Bar namely whether the transactions in question amounted to transfer at all in view of section 47(vid) of the 1961 Act which enacts a fiction as to what is not a transfer which otherwise in common parlance would have amounted to. Similarly, it was also debated at the Bar that as to whether the transactions in question were chargeable to income tax under the head income from other sources under section 56(2). In addition, it was also fiercely argued as to whether the subject transactions amounted to short term or long term capital gains. All the above aspects do not merit consideration in view of this court specifically faltering the impugned notices orders, inter alia on the ground of lack of jurisdictional facts. For the same reason, the matter does not warrant remand; the lis should attain finality at the hands of this court itself, all contentions having been argued at the Bar, have duly been considered on merits. Even otherwise, the remand would prove futile. In the above circumstances, these Writ Petitions having been allowed, Writ of Certiorari issues quashing the impugned orders both u/s 148A and also the two impugned notices issued by the answering respondent under Section 148 of the Income Tax Act, 1961.
Issues Involved:
1. Validity of reopening assessments under Sections 147 and 148 of the Income Tax Act, 1961. 2. Compliance with Section 148A requirements. 3. Jurisdictional facts and the nature of information required for reopening assessments. Summary: I. FOUNDATIONAL FACTS OF THE CASES: The petitioners, an octogenarian couple, acquired shares in MEMGIPL and were later allotted shares in MISPL and Quess Corp. due to demerger schemes approved by the NCLT. They sold these shares in 2018 and filed their Returns of Income for AY 2018-19. Notices under Section 148A(b) were issued to them on grounds of taxable demerger arrangements and non-disclosure of sold shares. Their objections were overruled, leading to the issuance of notices under Section 148, which are now being challenged. II. AS TO WHAT THE ASSESSEES HAVE ARGUED: (a) The primary condition for reopening assessments, i.e., escapement of income, is absent, making the action without jurisdiction. (b) The order under Section 148A(d) exceeded the scope of the show cause notice and did not consider the petitioners' replies. (c) The reasons recorded in the show cause notices should not be traversed beyond by the Assessing Officer. (d) The NCLT-approved scheme cannot be questioned by the Income Tax authorities. III. AS TO WHAT THE REVENUE CONTENDED: (a) The decision to reopen assessments under Section 148A(d) is tentative and subject to further consideration during the assessment. (b) The issues raised involve disputed facts that merit adjudication by the Assessing Officer. (c) The prima facie opinion of escapement of income is based on material available on record, making the challenge premature. (d) Transactions indicated round-trip financing lacking commercial substance, justifying the notice for escaped assessment. (e) Section 49 is not applicable, and the holding period should be considered only in MISPL, resulting in short-term capital gains. IV. JUDGMENT DETAILS: (A) The scope and invocability of Sections 147 and 148, post-amendment, require concrete information suggesting escapement of income. The Assessing Officer must have objective information as defined in Explanation 1 to Section 148. (B) The term "information" must be concrete and suggestive of income escaping assessment, not merely a change of opinion. (C) Compliance with Section 148A is mandatory, requiring an opportunity for the assessee to respond before issuing a notice under Section 148. (D) The impugned orders and notices lacked jurisdictional facts and did not consider the petitioners' replies, violating principles of natural justice. (E) The notices under Section 148A(b) were cryptic and did not adequately address the petitioners' contentions, making the orders beyond the scope of the proposal notice. (F) The court found the notices and orders unsustainable due to lack of jurisdictional facts and non-compliance with Section 148A requirements. Conclusion: The writ petitions were allowed, quashing the impugned orders and notices dated 31.3.2022 under Sections 148A and 148 of the Income Tax Act, 1961. The court emphasized the need for concrete information suggesting escapement of income and adherence to procedural requirements under Section 148A.
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