2024 (8) TMI 53 - HC - Income Tax

Reopening of assessment u/s 147 - information derived under the faceless scheme notified u/s 135A namely from the mechanism of faceless collection of information - HELD THAT - We thus find substance in the contentions as urged on behalf of the Petitioner that merely because a faceless collection of information is provided u/s 148A of the Act, and the entire information is electronically generated on the electronic portal being required to be answered by the assessee, as in the present case, the operation of such electronic regime cannot create arbitrary consequences. To prevent such situation, the department needs to have a mechanism of having some safeguards. To presume that the scheme of Section 148 r.w.s.148A and Section 135A of the Act in all cases would operate on defect-free information cannot be accepted, even when information u/s 135A of the Act is available and the electronic mechanism requiring it to be processed further, for any action to be taken u/s 148 of the Act. It is difficult to accept that in every case any information which is derived from Section 135A of the Act would be sacrosanct and/or would be free of defects. Hence, once a defect is pointed out on such information as available on the portal, it would be certainly the duty of the AO to examine whether the version of the assessee in pointing out that the information is not correct, would require due consideration for any further action to be taken to issue notice u/s 148 of the Act. We find that in the present case, the assessee in fact had pointed out in her remarks that what has been disclosed by the assessee in the return of income was the correct income derived by the Petitioner in regard to the interest earned by the petitioner on deposits with the Canara Bank. Thus, such remarks or explanation as offered by the assessee necessarily was required to be considered, before the AO could proceed to obtain approval from the Commissioner of Income-tax and for the purpose of issuance of impugned notice u/s 148 of the Act. It is only after the Petitioner knocked the doors of the Court in the present proceedings, the AO has come across such information which indicates that what has been disclosed by the Petitioner in her return of income was the correct figure of income derived by the Petitioner as interest income received from the Canara Bank. Thus, in the present case, in our opinion, an exercise for verification of the correctness of the electronic information with the other information furnished by the assessee, was required to be undertaken by the AO before issuance of notice under Section 148 and not after the Petitioner was put to an ordeal of facing a notice and on being required to approach this Court, to seek redressal of her grievances and protection of her rights guaranteed under Article 14 read with Article 300A of the Constitution of India. We find merit in the Petitioner s case that such actions could have been avoided by the AO if an application of mind to this effect was to be shown on the earlier occasion. We would, therefore, certainly accept the Petitioner s contention that the impugned notice issued u/s 148 is arbitrary and vitiated by non-application of mind and consequently it being required to be quashed and set aside. AO needs to bear in mind that when the AO intends to resort to an action u/s 148 of the Act on the basis of information, which is derived u/s 135A of the Act, that is in the electronic form, unless the AO has verified such other relevant materials gathered either form the assessee or otherwise available, he ought not to proceed to issue a notice u/s 148 of the Act, without undertaking an exercise of appropriate verification of such materials so as to form an opinion, that it would be permissible in a given case to dispense with the procedure under Section 148A to be followed, for issuance of a notice u/s 148 of the Act. The impugned notice issued u/s 148 of the Act is quashed and set aside. Assessee appeal allowed.

Summary

Issues Involved:
1. Challenge to the notice issued under Section 148 of the Income Tax Act, 1961.
2. Non-compliance with Section 148A of the Act.
3. Constitutional validity of clause (d) of the proviso to Section 148A.
4. Application of faceless collection of information under Section 135A.
5. Verification of electronic data and its accuracy.

Issue-wise Detailed Analysis:

1. Challenge to the Notice Issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 26th March 2024 issued under Section 148 of the Income Tax Act, 1961, claiming it was issued without following the due process under Section 148A. The notice was based on information received under the faceless collection of information scheme notified under Section 135A. The court observed that the notice was issued without verifying the accuracy of the information, which was later found to be incorrect. The court held that the notice was arbitrary and vitiated by non-application of mind, thus quashing and setting it aside.

2. Non-compliance with Section 148A of the Act:
The petitioner contended that the mandatory requirements of Section 148A were not complied with, as the notice was issued without conducting an inquiry or providing an opportunity to be heard. The court noted that the Assessing Officer should have verified the information against the materials furnished by the assessee before issuing the notice. The court emphasized the necessity of applying mind to the information and ensuring its accuracy before taking action under Section 148, especially when dispensing with Section 148A.

3. Constitutional Validity of Clause (d) of the Proviso to Section 148A:
The petitioner also challenged the constitutional validity of clause (d) of the proviso to Section 148A, arguing that it conferred unfettered powers on the authorities to dispense with the procedure under Section 148A. The court, however, did not delve into this issue, stating that it was disposing of the petition on the limited issue of the validity of the notice under Section 148. The court kept open the contentions regarding the constitutional validity to be agitated in appropriate proceedings at the appropriate time.

4. Application of Faceless Collection of Information under Section 135A:
The court examined the application of the faceless collection of information under Section 135A, which was the basis for issuing the impugned notice. It was observed that the information received under this scheme was found to be incorrect, leading to the issuance of an erroneous notice. The court highlighted the importance of verifying electronic information against other available materials before taking action, to prevent arbitrary consequences and undue prejudice to the assessee.

5. Verification of Electronic Data and Its Accuracy:
The court stressed the necessity of verifying the accuracy of electronic data before issuing notices under Section 148. It was noted that the information available in the electronic system might not always be free from errors, and the Assessing Officer must ensure its correctness by cross-checking with the materials provided by the assessee. The court found that the failure to verify the information led to an arbitrary action against the petitioner, emphasizing the duty of the Assessing Officer to prevent such situations.

Conclusion:
The court quashed and set aside the impugned notice dated 26th March 2024 issued under Section 148 of the Income Tax Act, 1961, due to non-application of mind and reliance on incorrect information. The court emphasized the necessity of verifying electronic information and applying mind before taking action under Section 148, especially when dispensing with the procedure under Section 148A. The constitutional validity of clause (d) of the proviso to Section 148A was not examined, keeping the contentions open for future proceedings.