2024 (5) TMI 1460 - HC - Income Tax

Reopening of assessment - funds which were essentially meant to carry out activities in relation to a trust Legal Initiative for Forest and Environment were diverted to the account of the petitioner and that no professional services were either rendered or details thereof furnished - HELD THAT - We find no justification to entertain the challenge at this stage bearing in mind the conclusions which stand incorporated in the order passed under Section 148A(d) and which have been extracted hereinabove. Quite apart from the issue of Section 68 which may arise, we are concerned with the allegation of diversion of income. We also bear in mind that at the stage of initiation of action for reassessment, the writ court would only consider whether the AO had duly applied its mind with respect to aspects pertaining to escapement of income. As is evident on a consideration of the conclusions tentatively arrived at by that authority and which constitutes its prima facie opinion, it cannot be said that the authority has failed to bear in consideration the principles that govern the commencement of action under Section 148 or that the opinion formed is wholly untenable or perverse. Writ petitions shall consequently stand dismissed.

Summary

Issues:
1. Challenge to reassessment action for AY 2017-18 and AY 2020-21 under Section 148 of the Income Tax Act, 1961.
2. Allegation of diversion of funds received from Earth Justice for legal services.
3. Dispute over the authenticity of services rendered and expenses claimed.
4. Interpretation of Section 147 pre-amendment and post-amendment in Finance Act, 2021.
5. Consideration of principles governing initiation of reassessment action under Section 148.
6. Dismissal of writ petitions and preservation of petitioner's rights for ongoing reassessment proceedings.

Analysis:

1. The writ petitions challenged the reassessment actions for AY 2017-18 and AY 2020-21 initiated under Section 148 of the Income Tax Act, 1961. The dispute primarily revolved around funds received from Earth Justice, allegedly diverted for activities unrelated to legal services for the trust "Legal Initiative for Forest and Environment."

2. The core issue was the diversion of funds meant for specific activities to the petitioner's account, with allegations of no professional services rendered or documented. The respondent's observations highlighted the lack of supporting documents to substantiate the services claimed, leading to the initiation of reassessment under Section 148.

3. The respondent's objections emphasized the absence of proof regarding the actual services provided, agreements with Earth Justice, and the authenticity of claimed expenses. The conclusion pointed towards funds being utilized for activities beyond professional services, indicating a diversion of funds without proper documentation or agreements.

4. The petitioner argued that the income in question had already been taxed and included in the Return of Income, citing the Explanation to Section 147 pre-amendment. Reference was made to a previous interim order to support the contention that there was no escapement of income.

5. The court, after hearing both parties, found no justification to entertain the challenge at that stage, considering the conclusions under Section 148A(d). The court highlighted the limited scope of review at the initiation stage of reassessment, focusing on whether the Assessing Officer applied the relevant principles regarding income escapement.

6. Despite addressing the Section 68 issue and the allegation of income diversion, the court dismissed the writ petitions. However, the order preserved the petitioner's rights for ongoing reassessment proceedings, ensuring that the dismissal did not prejudice the petitioner's contentions during the reassessment process. The dismissal was based on the assessment of the Assessing Officer's prima facie opinion and the principles governing reassessment initiation under Section 148.