2023 (3) TMI 428 - HC - Income Tax

Validity of order passed u/s 148A(d) and the consequential notice u/s 148 - main allegation against the petitioner is that it has wrongly claimed long term capital gain concerning sale of shares of an entity - reassessment proceedings were triggered on account of an audit objection - HELD THAT - Briefly, in the order passed in the said writ petition, we have taken note of the fact that the expression any audit objection was introduced only via Finance Act, 2022 albeit w.e.f. 01.04.2022. Prior to the said amendment, the expression which obtained in Explanation 1(ii) appended to Section 148 of the Act adverted to the Comptroller and Auditor General of India . We are, prima facie, also of the view that if the AO, according to the respondents/revenue, had committed an error in law, perhaps, they could have taken recourse, at the appropriate time, to the provision of Section 263. We are of the view that the matter requires examination. Issue notice.Mr Agarwal accepts notice on behalf of the respondents/revenue. Counter-affidavit will be filed within four weeks. Rejoinder thereto, if any, will be filed before the next date of hearing. List the matter on 12.09.2023.

Summary

Issues:
Challenge to notices and order under Income Tax Act, 1961 for Assessment Year 2015-16 regarding long term capital gain on sale of shares, validity of deduction claimed under Section 54F, reassessment proceedings triggered based on audit objection, fulfillment of conditions under Section 149(1)(b) not met.

Analysis:
The writ petition challenges notices issued under the Income Tax Act, 1961 for Assessment Year 2015-16 regarding long term capital gain on the sale of shares of a company. The petitioner claimed to have sold shares to another entity and also claimed a deduction under Section 54F of the Act. The revenue authorities concluded that the petitioner earned short term capital gain and that the deduction under Section 54F was wrongly claimed, leading to reassessment proceedings. The petitioner's representative argued that the transaction had already been scrutinized in a previous assessment under Section 143(3) of the Act, and reassessment should not have been initiated solely based on the deduction issue.

The Assessing Officer (AO) determined an escaped income amount, and the petitioner's representative contended that the conditions under Section 149(1)(b) of the Act were not fulfilled. The respondents stated that the reassessment was triggered due to an audit objection, supported by an internal communication from the Tax Recovery Officer. However, it was noted that the audit objection was raised internally and not by the Comptroller and Auditor General of India, as required by the previous version of the Act. The court acknowledged the change in the provision post Finance Act, 2022, which broadened the scope of triggering reassessment based on "any audit objection." The court deemed the matter in need of further examination and issued notice to the parties.

The court directed the filing of counter-affidavits and set a date for the next hearing. Pending further directions, the operation of the impugned order and notice was stayed. The judgment reflects a detailed consideration of the legal issues surrounding the validity of the reassessment proceedings and the fulfillment of statutory conditions under the Income Tax Act, emphasizing the importance of procedural compliance and substantive grounds for reassessment.