2022 (7) TMI 285 - HC - Income Tax

Reopening of assessment - validity of notice issued u/s 148-A - seven days clear notice issued or not? - petitioner submits that in the present case notice was issued on 22/03/2022 and in the notice, the petitioner was directed to respond by 28/03/2022, thus, according to the petitioner the same was not a seven days clear notice - HELD THAT - The contention of learned counsel for the petitioner is that since show cause notice issued under Section 148A(b) fell shot by the mandated minimum period of seven days, the entire exercise thereafter has vitiated is considered to be rejected at the very outset. Reason being that though the requirement of affording seven days clear notice to the assessee is couched in mandatory language but in a given case where despite show cause notice having been issued affording less than seven days for assessee to respond, the assessee yet responds to the same within the deficient period, in an elaborate manner without objecting to the very maintainable of such show cause notice, the assessee would be deemed to have waived his right to assail a notice solely on the ground of deficient notice period. The scheme of Income Tax Act and the object behind its promulgation is to ensure maximum collection of tax by the State. Income Tax Act is more Revenue Centric than Assessee-Centric, thus, in case of any ambiguity or gray area while interpreting of any provision of Income Tax Act can be resolved by taking que from the object and intent behind enactment of Income Tax Act. As such in the present case, where a detailed reply on merit was submitted by the petitioner to the show cause notice which afforded six days instead of prescribed seven days to submit reply, the petitioner is estopped from raising any objection to the said show cause notice merely on the aforesaid ground. The authority upon taking into consideration the detailed reply of the petitioner, has taken a decision to issue notice under Section 148 of the Income Tax Act on the basis of material available on record including reply of the petitioner. Thus, this decision in our considered opinion cannot be gone into inasmuch as it is for the authority to act in accordance with Section 148-A of the Income Tax Act, at which stage. In our considered opinion, the authority is only required to form a prima facie opinion of any income having escaped assessment and thereafter proceed under Section 148 of the Income Tax Act. The concept of free play in the joints should be made available to the authority which is empowered to take a decision under Section 148-A of Income Tax Act. The decision under Section 148-A of the Income Tax perse does not fasten any kind of liability or penalty upon the assessee. On the contrary, the decision which is taken under Section 148-A of the Income Tax is followed by a notice under Section 148 of the Income Tax Act where another opportunity of being heard is afforded. Thus, in our considered view, we do not find any illegality in the order impugned dated 31/03/2022 (Annexure P/7) as well as the notice impugned 31/03/2022

Issues Involved:
1. Validity of the order dated 31/03/2022 issued under Section 148-A of the Income Tax Act, 1961.
2. Validity of the show cause notice dated 31/03/2022 issued under Section 148 of the Income Tax Act, 1961.
3. Adherence to the principle of natural justice and statutory provisions under Section 148-A of the Income Tax Act, 1961.
4. Sufficiency of material and application of mind by the Assessing Officer.
5. Prematurity of the challenge to the order impugned.

Issue-wise Detailed Analysis:

1. Validity of the order dated 31/03/2022 issued under Section 148-A of the Income Tax Act, 1961:
The petitioner, a private company, challenged the order dated 31/03/2022 issued under Section 148-A of the Income Tax Act. The petitioner contended that the inquiry under Section 148-A is quasi-judicial and requires adherence to natural justice principles. The petitioner argued that the notice issued on 22/03/2022 did not provide a clear seven-day period to respond, as mandated by Section 148-A(b). The court, however, noted that the petitioner responded to the notice within four days without any objection, thereby waiving the right to challenge the notice on the grounds of insufficient notice period. The court emphasized that the petitioner’s detailed reply on merits indicated a waiver of the objection regarding the seven-day notice requirement.

2. Validity of the show cause notice dated 31/03/2022 issued under Section 148 of the Income Tax Act, 1961:
The petitioner also challenged the show cause notice dated 31/03/2022 issued under Section 148 of the Income Tax Act. The court observed that the petitioner, after receiving the notice, submitted a detailed reply disclosing the source of funds and other relevant information. The respondents considered this reply and decided to issue the notice under Section 148, finding that the petitioner’s company was a beneficiary of Rs.19,20,000/- received through an intermediary company. The court held that the decision to issue the notice under Section 148 was based on the material available on record, including the petitioner’s reply, and thus, the notice was valid.

3. Adherence to the principle of natural justice and statutory provisions under Section 148-A of the Income Tax Act, 1961:
The petitioner argued that the process under Section 148-A was not followed properly as the notice did not provide the mandatory seven-day period to respond. The court rejected this argument, stating that the petitioner responded to the notice without raising any objection and provided a detailed reply. The court held that the petitioner, by responding to the notice, waived the right to challenge the notice on the grounds of insufficient notice period. The court emphasized that the Income Tax Act is revenue-centric and any ambiguity should be resolved in favor of the objective of tax collection.

4. Sufficiency of material and application of mind by the Assessing Officer:
The petitioner contended that the respondents did not consider the reply in a meaningful manner and passed the order mechanically. The court, however, found that the respondents considered the petitioner’s reply and the material on record before issuing the notice under Section 148. The court held that the authority is required to form a prima facie opinion of income having escaped assessment and proceed accordingly. The court emphasized that the decision under Section 148-A does not impose any liability or penalty on the assessee but is a preliminary step to further inquiry.

5. Prematurity of the challenge to the order impugned:
The respondent argued that the challenge to the order was premature as the notice under Section 148 had just been issued and the proceedings were yet to be completed. The court agreed, stating that the petitioner should have awaited the completion of the proceedings initiated under Section 148. The court held that the petitioner’s challenge was premature and dismissed the writ petition.

Conclusion:
The court dismissed the writ petition, upholding the validity of the order dated 31/03/2022 and the show cause notice dated 31/03/2022 issued under Sections 148-A and 148 of the Income Tax Act, respectively. The court emphasized that the petitioner waived the right to challenge the notice period by responding without objection and that the decision to issue the notice was based on sufficient material and proper application of mind by the Assessing Officer.

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