2023 (2) TMI 1119 - HC - Income Tax

Reopening of assessment - validity of order passed u/s 148A(d) - Second round of litigation - non independent application of AO's mind to the information furnished by the DDIT - HELD THAT - If the assessing office fails to obey the directions issued by the Court, stringent action should be taken and it is not clear as to whether the Principal Commissioner of Income Tax is aware that in his field formations, such officers are functioning. These are all sufficient grounds to quash the order dated 25th August, 2022. But, however, this being a second round of litigation, we are constrained to go a step further to consider as to whether there was any justification for reopening the assessment. Reopening of the assessment is alleged to have been based upon an information given by the Deputy Director of Income Tax (Inv.) Unit-2(4), Kolkata. From the information, it is not clear as to how reopening of the assessment could have been resorted to. The report is as vague as possible as it states that possible financial transactions could be deduced and decoded from hard copies obtained from DDIT. Further, it says there is potential cash borrowed from various lenders and the probable names of the group have been mentioned and set out without any particulars. Assuming that material was available as annexures to the said report of the DDIT, such documents should have been made known to the assessee so as to enable them to give an effective reply. The only conclusion that can be arrived at is to hold that the reopening of the assessment was bad as it was based on certain alleged potential cash borrowings and certain alleged possible financial transactions. That apart, the assessing officer did not independently apply its mind to the information furnished by the DDIT which he is required to do while exercising the power to reopen an assessment. We are of the considered view that the entire reopening proceedings commencing from issuance of the notice under Section 148A(b) and culminating in the order under Section 148A(d) is a clear abuse of the process of law. - Decided in favour of assessee.

Summary

Issues:
Challenging order under Section 148A(d) of the Income Tax Act, 1961; Dismissal of writ petition by Single Bench; Appellant's appeal against order; Assessing Officer's discretion in fixing notice period; Opportunity of being heard to the assessee; Compliance with principles of natural justice; Remand of the matter back to the Assessing Officer; Fresh reply submission by the appellant; Non-speaking order by the assessing officer; Violation of directions issued by Division Bench; Justification for reopening the assessment; Lack of clarity in the information provided; Use of words "potential" and "probable"; Tax levied on actual income; Reopening proceedings based on assumptions and presumptions; Abuse of the process of law.

Detailed Analysis:

The High Court of Calcutta heard an intra Court appeal challenging an order under Section 148A(d) of the Income Tax Act, 1961. The appellant had previously filed a writ petition which was dismissed by the Single Bench. The Division Bench, in an earlier judgment, emphasized the importance of providing the assessee with a reasonable opportunity to be heard in compliance with natural justice principles. The Court remanded the matter back to the Assessing Officer for fresh consideration, directing the appellant to submit a fresh reply within two weeks. However, the assessing officer failed to comply with the directions and passed a non-speaking order, leading to a violation of the Court's directives and potential contempt of court proceedings.

The Court scrutinized the justification for reopening the assessment, which was allegedly based on vague information from the Deputy Director of Income Tax. The report contained unclear references to potential financial transactions and lacked specific details necessary for the assessee to respond effectively. The Court highlighted the significance of taxing actual income rather than potential future advantages, citing relevant legal precedents. It concluded that the entire reopening process, from the issuance of the notice to the final order, constituted an abuse of the legal process due to the lack of independent assessment by the assessing officer and reliance on assumptions and presumptions.

In light of these findings, the Court allowed the appeal, set aside the order passed in the writ petition, and quashed the entire reopening proceedings. The Registry was directed to communicate the judgment to the Principal Commissioner of Income Tax for necessary action. No costs were awarded in the matter, and urgent copies of the order were to be provided to the parties upon completion of legal formalities.

This detailed analysis covers the issues involved in the legal judgment, including challenges to the order under Section 148A(d), compliance with natural justice principles, the assessing officer's actions, justification for reopening the assessment, and the Court's decision to quash the proceedings as an abuse of the legal process.