2025 (4) TMI 1493 - HC - Income Tax

Reopening of assessment u/s 147 - petitioner had not furnished confirmation from the shareholders subscribing the capital in the ongoing assessment - HELD THAT - The assessment of the petitioner was finalized u/s 143 (3). Thereafter the petitioner filed revised return correcting the clerical error in claiming the depreciation. On the basis of the revised return the assessment proceedings were initiated but dropped on 19.03.2015 considering that there cannot be two assessment for an assessment year and the issues on merit were not gone into. The objection that while dropping the assessment proceedings vide order dated 19.03.2015 the AO had not taken cognizance of the information given by DGIT was rightly rejected. There was no occasion for AO to go into any other issue after holding that the proceedings cannot continue in view of assessment having already been completed. The contention that the proceedings were initiated merely on receipt of information from the investigation wing and without application of mind lacks merit. On receipt of material from the investigation wing a preliminary enquiry was held by the AO. Issuance of notice under Section 133 (6) revealed that the transaction pertained to Assessment Year 2012-13 and not to 2013-14. There is a tangible material available with the AO to make basis for having reasons to believe that there is escaped assessment. The AO is not required to finally concluded on the relevancy of the material and to hold that it is sufficient and ultimately would result in making an addition. In case of Micro Marbles Private Limited 2023 (1) TMI 282 - RAJASTHAN HIGH COURT the notice under Section 148 and the proceedings consequent thereto were quashed for failure of the department to supply the information received from the investigation wing and documents being relied upon. In case of Kohinoor Hatcheries Pvt. Ltd 2016 (9) TMI 208 - ANDHRA PRADESH HIGH COURT from the questionnaire issued during the assessment proceedings it was evident that there was full and true disclosure of the material facts by the assessee. In the case in hand the claim of the petitioner that during assessment the confirmation from the shareholder and subscribers was produced and considered has been factually found wrong. Decided against assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

(a) Whether the reopening of assessment under Section 148 of the Income Tax Act, 1961, was valid and sustainable, particularly in light of the petitioner's claim of full and true disclosure of material facts and the limitation period.

(b) Whether the show cause notice (SCN) dated 24.10.2019 and the reassessment order dated 11.11.2019 were liable to be quashed on grounds of lack of tangible material, reliance solely on third-party information, or being time-barred.

(c) Whether the objections filed against the reopening of assessment were properly considered and decided in accordance with law.

(d) Whether the writ petitions challenging the reopening and reassessment orders were maintainable, given the availability of alternative statutory remedies such as appeals.

(e) The applicability and interpretation of relevant Supreme Court precedents regarding the threshold for reopening assessments and the scope of judicial interference at the stage of objections to reopening.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of reopening under Section 148 and time bar challenge

The petitioner's assessment for AY 2012-13 was initially finalized under Section 143(3) declaring nil income. Subsequently, a revised return was filed to correct a clerical error in depreciation claim, and proceedings initiated on that basis were dropped considering the assessment was complete. The Revenue issued notice under Section 148 on 29.03.2019, based on information received from the Director General of Income Tax (Investigation) Mumbai (DGIT), alleging accommodation entries of Rs. 95 lakhs from a shell company.

The petitioner contended that the reopening was barred by limitation since the assessment had been finalized more than four years prior, and that there was full and true disclosure of material facts, including details of share capital additions and confirmations from shareholders. The petitioner argued that the reopening was based solely on third-party information, without tangible material or application of mind, and thus unsustainable.

The Court examined the statutory framework under Section 147 and the procedural safeguards introduced by Section 148-A, which require reasons for reopening to be communicated and objections to be considered by passing a speaking order. The Court relied on authoritative precedents including the Supreme Court's decisions in GKN Driveshafts (2003), Rajesh Jhaveri Stock Brokers (2007), and Raymond Woolen Mills (1999), which establish that the Assessing Officer need only have a prima facie reason to believe that income has escaped assessment, based on cause or justification rather than conclusive proof.

The Court emphasized that the sufficiency or correctness of the material is not to be examined at the stage of objections to reopening, and that the writ jurisdiction is limited to a prima facie satisfaction of basis for reopening. It was noted that the petitioner had not produced confirmation from shareholders during assessment proceedings, contrary to its claim, and that the AO had conducted a preliminary enquiry on receipt of information from DGIT before issuing the reopening notice.

The Court rejected the contention that the reopening was time barred, holding that whether there was full and true disclosure is a mixed question of fact and law requiring deeper probe during reassessment. The Court distinguished the petitioner's case from precedents relied upon by it, such as A. Raman & Co., Micro Marbles Pvt. Ltd., and Kohinoor Hatcheries Pvt. Ltd., on factual grounds - particularly the absence of confirmation from shareholders and the existence of tangible material from DGIT.

Issue (c): Consideration of objections to reopening

The objections raised by the petitioner included claims of full disclosure, non-application of mind by AO, and non-cognizance of DGIT information during earlier proceedings. The Court found that the AO had dealt with objections in detail and passed a speaking order, as mandated by GKN Driveshafts and codified in Section 148-A. It was held that the AO was not required to finally conclude on the relevance or sufficiency of material at this stage, and that the objections challenging reopening on factual grounds cannot be decided at threshold by the writ court.

The Court further observed that the petitioner had ample opportunity to challenge the findings during reassessment and appellate proceedings, consistent with the principle that writ jurisdiction is not a substitute for statutory remedies.

Issue (d): Maintainability of writ petitions in presence of alternative remedies

The Court noted that the petitioner had filed appeals against the reassessment order, and that the availability of efficacious statutory remedies ordinarily precludes writ jurisdiction except in exceptional circumstances. Reliance was placed on decisions of the Delhi High Court in Gulmuhar Silk Pvt. Ltd. and Punjab and Haryana High Court in Sumit Passi and Anshul Jain, as well as the Supreme Court's dismissal of Special Leave Petition against Anshul Jain, which collectively establish that writ petitions challenging reopening notices or reassessment orders are not maintainable at interim stages when alternative remedies exist and proceedings have not concluded.

The Court held that the petitioner cannot pursue parallel remedies simultaneously, and since the objections to reopening were upheld, no exceptional grounds existed to entertain the writ petitions.

Issue (e): Interpretation of precedents on reopening and judicial interference

The Court extensively analyzed the precedents cited by both parties. It reiterated the principle from Rajesh Jhaveri Stock Brokers that "reason to believe" is a prima facie satisfaction and does not require conclusive proof. The Court emphasized the procedural safeguards under Section 148-A, which were designed to prevent arbitrary reopening. It also underscored that writ courts should refrain from delving into merits or factual correctness at the stage of objections to reopening, and that factual disputes are to be resolved during reassessment or appellate proceedings.

The Court distinguished cases where reopening was quashed due to failure to supply reasons or reliance on stale or insufficient material, holding that in the present case, the AO had tangible material from DGIT and had complied with procedural requirements.

3. SIGNIFICANT HOLDINGS

"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion."

"The sufficiency or correctness of the material is not to be considered at this stage. The court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous."

"Though it is the petitioner's case that the impugned order is erroneous on facts, yet this Court is of the opinion that the petitioner would have ample opportunity during the course of proceedings before different statutory forums to show that the finding of fact arrived at was erroneous."

"Where the proceedings have not even been concluded by the statutory authority, the writ court should not interfere at such a premature stage."

"The petitioner cannot be allowed to avail two parallel remedies simultaneously."

The Court concluded that the reopening notice and reassessment order were issued and passed in accordance with law, based on tangible material received from the investigation wing, and after due consideration of objections. The writ petitions challenging these orders were dismissed, with liberty granted to the petitioner to pursue statutory appeals and raise all contentions therein.