2023 (2) TMI 211 - HC - Income Tax

Reopening of assessment u/s 147 - rejecting the objections raised by the petitioner against issuance of notice u/s 148A(b) - addition u/s 68 - sham sale and purchase of penny stocks - HELD THAT - As in terms of Section 148A(c) of the Act, order was passed u/s 148A(d) and a notice under Section 148 of the Act was issued calling upon the petitioner to file his return on the prescribed form for the assessment year 2015-16. It is the aforesaid show cause notice which is under challenge in the present petition. The order under Section 148(d) of the Act as annexed with the aforesaid notice specifically refers to the audit objection as the information on the basis of which proceedings were initiated. The information is specific. From the information it was evident that the petitioner was indulging in Hawala activities/transactions. As specifically mentioned that the material as referred to in the audit objection was not considered at the time of initial assessment. The petitioner had not explained the entries as put to him in the show cause notice issued u/s 148(b) of the Act. His reply was based only on technicalities. The unverified and unexplained transactions are to the tune of ₹156,45,19,154/-. Assessment framed u/s 153A - Second proviso to Section 153A of the Act will not come to the rescue of the petitioner for the reason that in terms thereof assessment or re-assessment pending for the assessment years in question on the date of initiation of search u/s 132 or making requisition u/s 132A of the Act shall abate. Admittedly, in the case in hand present re-assessment proceedings were not pending on the date when search was carried out at the premises of the petitioner. Notice in the case in hand for initiating re-assessment proceeding was issued on April 24, 2022 whereas search was carried out on August 31, 2015. As to whether an audit objection can constitute information on the basis of which re-assessment proceeding can be initiated, reference can be made to Explanation 1, Clause (ii) to second proviso of Section 148 of the Act. The aforesaid provision clearly provides that any audit objection to the effect that assessment in case of assessee for the relevant assessment year has not been made in accordance with the provisions of the Act is included in the term information regarding escaped assessment . In the case in hand, it is not a matter of dispute that there is an audit objection raised that the assessment of assessee has not been framed properly in accordance with the provisions of the Act. It is a case where petitioner was indulging in providing accommodation entries. The text messages recovered from his mobile phone clearly corroborated the modus operandi adopted by the petitioner. Merely because at one stage the AO had answered to the queries raised by the Auditor regarding the assessment being in accordance with the provisions of the Act and there being no illegality therein, will not mean that the information in the form of audit objection could not be relied upon to opine that the income chargeable to tax had escaped assessment. Existence or non-existence of information can be subject matter of litigation but not the sufficiency thereof. Similar issue came up for consideration before Gujarat High Court in Krishna Developers and Company 2017 (8) TMI 241 - GUJARAT HIGH COURT wherein the Court considered a case where original assessment of the assessee was set aside on technical ground that notice under Section 143(2) of the Act was not served. The argument raised by assessee was that original assessment having failed on the ground of nonissuance of mandatory notice for scrutiny, initiation of proceedings under Section 147/148 was illegal as object was only to cure the defect. The said contention was rejected and the petition was dismissed by the Division Bench of the Gujarat High Court observing that merely on the ground that the reasons recorded by the Assessing Officer were same on the basis of which Assessing Officer has initially decided to make addition but failed as the order was set aside on technical ground would not preclude him from carrying out the exercise of reopening of assessment. It is the settled position of law that prima facie availability of material is sufficient for reopening of the reassessment proceedings and the sufficiency and correctness of the material is not to be considered at that stage. In the case of Raymond Woollen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT even though it was a case where reasons were required to be recorded in writing, Hon ble the Supreme Court opined that only prima facie material has to be seen on the basis of which the Department could reopen the case. Sufficiency or correctness of the material is not to be considered. The present case cannot be said to be a case of change of opinion for the reason that there is no finding recorded in the earlier assessment order passed under Section 153A of the Act, which was set aside on technical ground of non approval of the competent authority in terms of Section 153D of the Act.

Summary

Issues Involved:
1. Quashing of notices issued under Sections 148A(b) and 148 of the Income Tax Act, 1961.
2. Validity of re-assessment proceedings initiated under Section 148 of the Act.
3. Relevance of audit objections as information for escaped assessment.
4. Applicability of Section 153A and its provisos regarding pending proceedings.
5. Examination of the scheme of Income Tax Act for reassessment before and after April 1, 2021.

Issue-wise Detailed Analysis:

1. Quashing of Notices Issued Under Sections 148A(b) and 148 of the Income Tax Act, 1961:
The petitioner sought the quashing of notices dated March 28, 2022, and April 24, 2022, issued under Sections 148A(b) and 148 of the Act, respectively. It was argued that the assessment had already been framed under Section 153A, and thus, re-assessment for the same year could not be initiated under Section 148. The court examined the scheme of the Act and noted that the notices were based on audit objections, which constituted valid information for escaped assessment.

2. Validity of Re-assessment Proceedings Initiated Under Section 148 of the Act:
The petitioner contended that the re-assessment proceedings were invalid as they were based on audit objections, which amounted to a change of opinion. The court referred to the amended provisions of the Act, specifically Clause (ii) to the second proviso of Explanation 1 of Section 148, which includes audit objections as valid information for escaped assessment. The court held that the initiation of re-assessment proceedings based on audit objections was valid and not merely a change of opinion.

3. Relevance of Audit Objections as Information for Escaped Assessment:
The court discussed the amendments to the Act effective from April 1, 2022, which explicitly included audit objections as valid information for escaped assessment. The court cited various judgments, including those of the Gujarat High Court and the Supreme Court, to support the view that audit objections could form the basis for re-assessment proceedings. The court concluded that the audit objections in the present case provided sufficient information to initiate re-assessment proceedings.

4. Applicability of Section 153A and its Provisos Regarding Pending Proceedings:
The petitioner argued that the assessment under Section 153A had already been framed, and thus, no further proceedings could be initiated under Section 148. The court clarified that the second proviso to Section 153A only abates pending proceedings and does not preclude the initiation of new proceedings under Section 148. The court also noted that the earlier assessment was set aside on technical grounds, and the audit objections had not been examined during the initial assessment.

5. Examination of the Scheme of Income Tax Act for Reassessment Before and After April 1, 2021:
The court provided a detailed analysis of the changes in the reassessment scheme of the Act effective from April 1, 2021. The amendments shifted the basis for reassessment from "reasons to believe" to "information suggesting" escaped assessment. The court highlighted that the amended provisions included audit objections as valid information for initiating reassessment. The court emphasized that the sufficiency or correctness of the material was not to be considered at the initiation stage, and the issues could be examined in detail during the assessment proceedings.

Conclusion:
The court dismissed the petition, holding that the notices issued under Sections 148A(b) and 148 were valid and based on sufficient information in the form of audit objections. The court affirmed that the initiation of re-assessment proceedings was permissible under the amended provisions of the Act, and the petitioner would have the opportunity to raise objections during the assessment proceedings.