2025 (1) TMI 391 - HC - Income Tax

Validity of reassessment proceedings - order is at variance with the allegations that were made in the impugned notice issued u/s 148A (b) - HELD THAT - We find merit in the contention that the allegations made in the impugned order u/s 148A (d) of the Act is at variance with that as was set out in the impugned notice issued u/s 148A (b) of the Act. The very purpose of issuing a notice is to enable the assessee to explain the information available with the AO and to establish that the said information does not indicate that the petitioner s income has escaped the assessment. Since, the allegations made in the impugned notice issued under Section 148A (b) is at variance with the grounds raised in the impugned order passed u/s148A (d) of the Act, the petitioner did not have any effective opportunity to further explain that the said information did not indicate that its income had escaped assessment. AO has not considered the petitioner s claim that its income that is alleged to have escaped assessment, is a part of the income as was disclosed in its books of account and was also subject matter of the assessment. We consider it apposite to set aside the impugned notice as well as the impugned order. It is so directed.

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses the following core legal questions:

Whether the notice issued under Section 148A(b) of the Income Tax Act, 1961, and the subsequent order under Section 148A(d), are valid when there is a variance between the allegations in the notice and the order.
Whether the petitioner was given an effective opportunity to explain the alleged unexplained income of Rs. 79,17,086/-.
Whether the Assessing Officer (AO) duly considered the petitioner's claim that the income in question was already disclosed in its books and assessed previously.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Notice and Order under Sections 148A(b) and 148A(d)

Relevant Legal Framework and Precedents: The Income Tax Act, 1961, particularly Section 148A, outlines the procedure for issuing notices when income is believed to have escaped assessment. The purpose of such notices is to provide the assessee an opportunity to explain and address the information leading to such belief.
Court's Interpretation and Reasoning: The court noted that there was a discrepancy between the notice issued under Section 148A(b) and the subsequent order under Section 148A(d). The notice alleged unexplained expenditure, while the order treated the amount as unexplained income.
Key Evidence and Findings: The petitioner contended that the amount in question was not an expenditure but income, which had been duly recorded and taxed. The AO's order did not align with the initial notice, leading to confusion and a lack of clarity for the petitioner.
Application of Law to Facts: The court applied the principles of procedural fairness, emphasizing that the petitioner must be given a clear and consistent basis for the allegations to effectively respond.
Treatment of Competing Arguments: The Revenue could not effectively counter the petitioner's argument regarding the inconsistency between the notice and the order.
Conclusions: The court concluded that the variance deprived the petitioner of a fair opportunity to address the allegations, rendering the notice and order unsustainable.

Issue 2: Opportunity to Explain Alleged Unexplained Income

Relevant Legal Framework and Precedents: The principles of natural justice require that an assessee be given a fair chance to present their case, especially when their income is alleged to have escaped assessment.
Court's Interpretation and Reasoning: The court found that the petitioner was not given an effective opportunity to explain the discrepancy due to the inconsistency in the notice and order.
Key Evidence and Findings: The petitioner's claim that the income was already assessed was not considered by the AO in the impugned order.
Application of Law to Facts: The court emphasized the need for the AO to consider the petitioner's explanations and evidence presented regarding the alleged unexplained income.
Treatment of Competing Arguments: The Revenue did not adequately address why the petitioner's explanation was disregarded.
Conclusions: The court held that the petitioner was not afforded a fair opportunity to explain, warranting the setting aside of the impugned notice and order.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The very purpose of issuing a notice is to enable the assessee to explain the information available with the AO and to establish that the said information does not indicate that the petitioner's income has escaped the assessment."
Core Principles Established: The judgment reinforces the importance of consistency between the notice and the order in tax proceedings and the necessity of providing the assessee a fair opportunity to respond to allegations.
Final Determinations on Each Issue: The court set aside the impugned notice and order due to the procedural irregularity and lack of opportunity for the petitioner to effectively respond. However, it allowed for the possibility of issuing a fresh notice if legally permissible.

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