2025 (1) TMI 708 - HC - Income Tax

Reopening of assessment u/s 147 - period of limitation as specified u/s 149 (1) (a) - as argued value of the transactions identified by AO as suggestive of the petitioner s income escaping assessment is less than Rs. 50,00,000/- Whether on the basis of material available on record, the AO could have concluded that the income chargeable to tax amounting to Rs. 50,00,000/- or more which had escaped assessment? - HELD THAT - In terms of Section 148A(c) of the Act, the AO was required to take an informed decision after considering the petitioner s response to the impugned notice issued u/s 148A(b) of the Act. Petitioner had asserted that the amount received from one of the entities (GMZ Commodities Pvt. Ltd.) was on account of profit on sale of shares, which had been surrendered to tax. In the present case, the Revenue has been unable to show any documents that would establish that the petitioner had received any amount in its books of account or otherwise, which was in excess of the amount as claimed by the petitioner in its response dated 31.05.2022. The contention that the AO is not required to form an opinion as to the correctness of the information available with it, is erroneous. AO is required to form an opinion as to whether there is any credible information to substantiate that the petitioner s assertion that the aggregate value of the transactions in question is less than Rs. 50,00,000/-, is incorrect. Clearly, at the stage of passing an order u/s 148A (d) AO was not required to form any conclusive view as to whether the entries in question represented income that had escaped assessment. The question whether the said entities are accommodation entries may be a contentious issue. The fundamental facts that the petitioner had transactions with the named companies of an aggregate value of Rs. 66,44,134/- was required to be determined on the basis of the record. Whilst, the petitioner had produced ledger accounts, the AO did not have any material to substantiate that deposits aggregating Rs. 66,44,134/- were made in the petitioner s bank account to contradict the same. The fundamental basis on which the petitioner s assessment is sought to be reopened is that it had entered into the transactions of a value of Rs. 66,44,134/- during the FY 2014-15. Clearly, the AO is required to be satisfied that such entries exists particularly where the petitioner had produced its accounts to show that the value of transactions is not as stated in the notice under Section 148A(b) of the Act. The present petition is allowed and the impugned order and the impugned notice are set aside.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Assessing Officer (AO) had jurisdiction to issue the notice under Section 148 of the Income Tax Act, 1961, for the Assessment Year (AY) 2015-16.
Whether the AO's decision to issue the notice was based on credible information suggesting that the petitioner's income had escaped assessment.
Whether the impugned notice was issued beyond the period of limitation as specified under Section 149(1)(a) of the Act.
Whether the AO's decision was influenced by the superior authority without proper application of mind.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of AO to Issue Notice under Section 148

Relevant legal framework and precedents: Section 148 of the Income Tax Act allows the AO to issue a notice if there is reason to believe that income chargeable to tax has escaped assessment. The procedural requirements under Section 148A, including providing an opportunity to the assessee to respond, are critical.
Court's interpretation and reasoning: The court analyzed whether the AO had credible information to justify the reopening of the assessment. The court emphasized the need for the AO to form an opinion based on material evidence rather than mere suspicion.
Key evidence and findings: The AO's decision was based on information from the Insight Portal suggesting the petitioner was involved in accommodation entries exceeding Rs. 50,00,000/-. However, the petitioner provided evidence showing the transactions were below this threshold.
Application of law to facts: The court found that the AO did not have sufficient evidence to support the claim that the petitioner's income had escaped assessment. The AO's reliance on the information from the Insight Portal without corroborating evidence was insufficient.
Treatment of competing arguments: The petitioner argued that the transactions were below the Rs. 50,00,000/- threshold and that the AO did not provide the necessary material to justify reopening the assessment. The Revenue contended that the information suggested income had escaped assessment, warranting the notice.
Conclusions: The court concluded that the AO lacked jurisdiction to issue the notice under Section 148 as the necessary threshold of credible information was not met.

Issue 2: Period of Limitation under Section 149(1)(a)

Relevant legal framework and precedents: Section 149(1)(a) stipulates that no notice under Section 148 can be issued if three years have elapsed since the end of the relevant assessment year unless the income chargeable to tax escaping assessment amounts to Rs. 50,00,000/- or more.
Court's interpretation and reasoning: The court assessed whether the transactions exceeded the Rs. 50,00,000/- threshold, which would permit reopening the assessment beyond three years.
Key evidence and findings: The petitioner provided ledger accounts showing transactions totaling Rs. 47,39,128/-, below the Rs. 50,00,000/- threshold.
Application of law to facts: The court found that the AO did not have evidence to contradict the petitioner's claim that the transactions were below the threshold.
Treatment of competing arguments: The petitioner argued that the notice was time-barred as the transactions were below the threshold. The Revenue failed to provide evidence to the contrary.
Conclusions: The court concluded that the notice was issued beyond the permissible period, as the transactions did not meet the Rs. 50,00,000/- threshold.

Issue 3: Influence of Superior Authority

Relevant legal framework and precedents: The decision to issue a notice under Section 148 must be made independently by the AO based on credible information.
Court's interpretation and reasoning: The court examined whether the AO's decision was influenced by the Principal Chief Commissioner, who disagreed with the AO's initial finding that it was not a fit case for issuance of the notice.
Key evidence and findings: The AO initially found it was not a fit case for issuance of notice, but the Principal Chief Commissioner overruled this decision.
Application of law to facts: The court found that the AO's decision was improperly influenced by the superior authority without proper application of mind.
Treatment of competing arguments: The petitioner argued that the AO's decision was not independent. The Revenue did not adequately counter this claim.
Conclusions: The court found the AO's decision was improperly influenced, rendering the notice invalid.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The AO is required to form an opinion as to whether there is any credible information to substantiate that the petitioner's assertion that the aggregate value of the transactions in question is less than Rs. 50,00,000/-, is incorrect."
Core principles established: The AO must independently verify information suggesting income has escaped assessment and cannot rely solely on uncorroborated information. The period of limitation under Section 149(1)(a) is strictly enforced, requiring credible evidence to justify reopening assessments beyond three years.
Final determinations on each issue: The court set aside the impugned order and notice, concluding that the AO lacked jurisdiction, the notice was time-barred, and the decision was improperly influenced by a superior authority.

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