2024 (7) TMI 1489 - HC - Income Tax

Validity of initiation of reassessment proceedings - reason to believe - petitioner had reiterated the contention that it had no transaction with Fortune Graphics Limited and that the entries as appearing in GSTR-1 were made unilaterally - HELD THAT - As submissions do not appear to raise a substantial jurisdictional challenge and pertain principally to allegations of fact. The petitioner has failed to provide any plausible explanation for the transaction which stood reflected in the GSTR-1 forms. As is evident from a reading of the order issued u/s 148A(d) AO has taken into consideration facts which would clearly be germane for the purposes of examining whether there was material to suggest that income of the petitioner had escaped assessment. We take note of the principles which would govern a challenge to the initiation of reassessment proceedings in Article 226 of the Constitution as laid down in Experion Developers P. Ltd 2020 (2) TMI 1061 - DELHI HIGH COURT and Synfonia Tradelinks Pvt. Ltd 2021 (3) TMI 1177 - DELHI HIGH COURT held that the expression reason in section 147 of the Act means a cause or justification . The Assessing Officer can be said to have reason to believe that income has escaped assessment, if he has a cause or justification to know, or suppose, that income has escaped assessment.the reasons for the formation of opinion should have a rational connection with the formation of the belief that there has been an escapement of income chargeable to tax. WP dismissed.

Summary

Issues:
1. Challenge to initiation of proceedings under Section 148 of the Income Tax Act, 1961.
2. Consideration of objections raised by the Assessing Officer.
3. Substantial jurisdictional challenge and factual allegations.
4. Examination of whether income of the petitioner had escaped assessment.
5. Principles governing a challenge to the initiation of reassessment proceedings.
6. Legal principles enunciated by the courts regarding initiation of proceedings under Section 147 of the Act.

Detailed Analysis:
1. The petitioner challenged the initiation of proceedings under Section 148 of the Income Tax Act, 1961, based on a Show Cause Notice dated 04 March 2023. The reassessment proceedings were initiated due to alleged misuse of firms for generating false invoices to avail Input Tax Credit.

2. The Assessing Officer considered the objections raised by the assessee, where the petitioner denied transactions with certain entities but failed to provide supporting documents. The officer found discrepancies in the balance sheet and lack of sales, indicating possible bogus transactions, leading to an income chargeable to tax of Rs. 48,80,48,040.

3. During the writ petition, the petitioner reiterated no transactions with certain entities and willingness to reverse entries. However, the court found these submissions lacking a substantial jurisdictional challenge and mainly addressing factual allegations without providing a plausible explanation for the transactions in question.

4. The court observed that the Assessing Officer considered relevant facts to determine if the petitioner's income had escaped assessment, emphasizing the importance of material gathered to support such a belief.

5. Legal principles from previous judgments were cited, emphasizing the need for recorded reasons to be based on tangible material and have a rational connection to the belief of income escapement. The court highlighted the distinction between "reason to believe" and "reason to suspect," stressing the mandatory recording of reasons before issuing notices under Section 148.

6. The court referred to established principles regarding initiation of proceedings under Section 147 of the Act, including the necessity of a rational connection between reasons and belief of income escapement, the relevance and cogency of material, and the obligation to record reasons before issuing notices. The judgment dismissed the writ petition based on these principles.