2024 (5) TMI 106 - HC - Income Tax

Validity of reopening of assessment - Validity of grant the approval by the PCIT - relevancy of information reported by Insight portal - reason to believe - AO proceeds on the basis that on a search conducted under Section 132 on one Prathamesh Constructions,as subcontracting its jobs to various subcontractors and Petitioner was one of such sub-contractors - as submitted AO is a mere post office, who finds materials and then forwards it to the Faceless Assessing Officer ( FAO ) and the FAO will go into the details to decide whether there is any escapement of income - HELD THAT - Admittedly, in the notice issued under Section 148A (b) of the Act, certain allegations have been made to which reply has been filed and the AO has accepted that the information is accounted for by the assessee. AO, wanted to verify the genuineness of the contract work done by Petitioner or whether any accommodation entry was provided to Prathamesh Constructions. It is necessary to note that, first of all, in re-assessment proceedings, the law is clear. An Assessing Officer cannot indulge in a fishing enquiry. In this case, the AO has accepted the contention of the assessee and held that the information report by the Insight portal is accounted for by the assessee in his books and income arising out of those transactions is duly offered for taxation. Therefore, the impugned order dated 21st April 2023 under Section 148A (d) of the Act cannot be sustained. At the same time if the AO wishes to, he could issue a fresh notice under Section 148A (b) of the Act if, that is permitted in law. We are expressing no opinion. In the circumstances, the AO having accepted the explanation of Petitioner, he could not have gone ahead and recommended that it was a fit case where income chargeable to tax has escaped assessment. We would add that the approval granted by the PCIT is also without application of mind. In the approval, it is stated I have perused the facts of the case vis-a-vis information/material available on record and found the case to be fit case for issue of notice u/s 148 of the I.T. Act, 1961. Accordingly, the draft order u/s 148A (d) of the I.T. Act submitted by the AO is approved. If only the PCIT had read the impugned order and the notice issued under Section 148A (b) of the Act, he would have refused to grant the approval. The PCIT seems to have done nothing and it is clear that he has mechanically signed the approval. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the impugned order dated 21st April 2023 passed u/s 148A(d) of the Income Tax Act, 1961.
2. Validity of the notice dated 21st April 2023 issued u/s 148 of the Income Tax Act, 1961.
3. Application of mind by the Principal Commissioner of Income Tax (PCIT) in granting approval.

Summary:

1. Validity of the impugned order dated 21st April 2023 passed u/s 148A(d):
The Petitioner, a partnership firm engaged in government contracts, filed a return of income (ROI) for AY 2019-20 disclosing an income of Rs. 1,45,78,825/-. The Petitioner received a notice dated 23rd March 2023 u/s 148A(b) of the Income Tax Act, 1961, alleging that income chargeable to tax had escaped assessment. The Petitioner responded, providing details of the transactions and confirming that the income from these transactions was duly offered for taxation. Despite this, the impugned order dated 21st April 2023 was issued, stating that the genuineness of subcontracting work with M/s Prathmesh Constructions needed verification. The High Court held that the Assessing Officer (AO) cannot indulge in a fishing enquiry and that the reasons mentioned in the impugned order were based on suspicion, not relevant material.

2. Validity of the notice dated 21st April 2023 issued u/s 148:
The High Court noted that the AO had accepted in the impugned order that the information reported by the Insight portal was accounted for by the Petitioner and the income arising from those transactions was offered for taxation. The Court referenced the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited, stating that at the stage of issuing a notice, there must be relevant material for forming a belief of income escapement. The Court also cited Commissioner of Income Tax v. Jet Airways, emphasizing that if the AO accepts the assessee's contention that no income has escaped assessment, it is not open to independently assess other income without issuing a fresh notice. Therefore, the impugned order and notice dated 21st April 2023 were deemed unsustainable.

3. Application of mind by the Principal Commissioner of Income Tax (PCIT) in granting approval:
The High Court criticized the PCIT for granting approval without applying his mind. The approval merely stated that the case was fit for issuing a notice u/s 148, without addressing the specifics of the case. The Court concluded that the PCIT had mechanically signed the approval, indicating a lack of due diligence.

Conclusion:
The High Court allowed the Petition, quashing the impugned order dated 21st April 2023 passed u/s 148A(d) and the notice dated 21st April 2023 issued u/s 148 of the Income Tax Act, 1961. The Court made the rule absolute and disposed of the Petition accordingly.