2022 (5) TMI 528 - HC - Income Tax

Reopening of assessment u/s 147 - Scope of new regime of Section 148A - Conducting inquiry, providing opportunity before issue of notice under section 148 - Non consideration of objection against reopening - AO wants to reopen the assessment for the relevant year 2018-19 is that the writ applicant assessee had not shown the transactions with respect to the Social Cooperative Bank Limited - HELD THAT -Nothing of what was pointed by the writ applicant assessee in his objections could be said to have been taken into consideration by the Assessing Officer in its true sense. When the assessee offers his reply by way of objections, then there is a staturoy obligation on the part of the Assessing Officer to consider the objections and deal with those in accordance with the true spirit and intent of the provisions of Section 148A The plain reading of clause (d) of Section 148A referred to above would indicate that the Assessing Officer is obliged in law to decide on the basis of the materials available on record including the reply of the assessee, whether or not it is a fit case to issue a notice under Section 148 by passing an order with the prior approval of the specified authority within one month from the end of the month in which the reply is received by him. Thus, there is an obligation cast upon the Assessing Officer in accordance with clause (d) of Section 148A of the Act, 1961 to consider the case not only on the basis of the materials available on record, but also the reply of the assessee. If the reply of the assessee has not been considered, then passing of the order under clause (d) of Section 148A could be said to be an empty formality. The new regime of Section 148A should be strictly followed so as to make it meaningful. The principle of law, as explained by the Supreme Court, in the case of GKN Driveshaft (India) Ltd 2002 (11) TMI 7 - SUPREME COURT , is now a statutory provision in the form of new Section 148A of the Act. We are of the view that we should quash and set aside the order passed under clause (d) of Section 148A as well as the notice issued under Section 148 of the Act, 1961 and remit the matter to the Assessing Officer for fresh consideration of the objections filed by the writ applicant. This writ application succeeds in part. The impugned order dated 7th April 2022 passed by the Assessing Officer and the notice issued under Section 148 of the Act, 1961 are hereby quashed and set aside. The matter is remitted to the Assessing Officer for fresh consideration of all the objections raised by the writ applicant. This time the Assessing Officer shall apply his mind and pass an appropriate order under clause (d) of Section 148A dealing with all the objections in its true sense.

Summary

Issues Involved:
1. Validity of reopening assessment under Section 148A of the Income Tax Act, 1961.
2. Consideration of objections raised by the assessee against the reopening notice.
3. Compliance with procedural requirements under Section 148A.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 148A:
The writ applicant sought to quash the impugned notices and orders under Section 148A of the Income Tax Act, 1961, arguing that the transactions in question were either already disclosed or pertained to a separate entity, the HUF. The court noted that the Assessing Officer (AO) issued the notice under Section 148A based on undisclosed transactions in the Social Cooperative Bank Ltd. accounts, which suggested an income escapement of Rs.1,80,41,71,133/- for the Assessment Year 2018-19. The AO's decision to reopen the assessment was based on the belief that these transactions were not reflected in the assessee’s return of income.

2. Consideration of Objections Raised by the Assessee:
The assessee filed detailed objections under Section 148A(b), asserting that all transactions, except those related to the HUF, were recorded in the audited books of accounts and reflected in the return of income. The AO, however, dismissed these objections, stating that the documentary evidence provided by the assessee was insufficient to explain the transactions and the related income. The court found that the AO did not properly consider the objections raised by the assessee, which is a statutory obligation under Section 148A(c).

3. Compliance with Procedural Requirements under Section 148A:
The court emphasized the procedural requirements under Section 148A, which mandates the AO to consider the assessee’s reply and decide whether it is a fit case to issue a notice under Section 148. The court noted that the AO failed to apply his mind to the objections raised by the assessee, rendering the order under Section 148A(d) an empty formality. The court referenced its previous decision in Divya Jyoti Diamonds (P) Ltd. vs. Income Tax Officer, highlighting that the AO must deal with each objection and provide proper reasons, reflecting a meaningful application of mind.

Judgment:
The court quashed and set aside the order passed under Section 148A(d) and the notice issued under Section 148, remitting the matter to the AO for fresh consideration of the objections. The AO was directed to apply his mind and pass an appropriate order under Section 148A(d), dealing with all objections in its true sense. This exercise was to be completed within three months from the receipt of the court's order. The writ application was thus disposed of, with the court emphasizing the need for strict adherence to the procedural requirements under the new regime of Section 148A to ensure it is meaningful.