2024 (12) TMI 1391 - HC - Income Tax

Reopening of assessment - petitioner had wrongly given the details of short term capital gain and had admitted to loss - HELD THAT - Admittedly, the petitioner has admitted to the wrong return of Income that was filed on 12.04.2017 in its communication dated 24.06.2022. Since the return was also not e-verified, the reasons were not furnished to the petitioner which entitled the petitioner to request for a speaking order. Short term capital gains there were also loss from the sale of derivatives which has been denied merely on the ground that the return that was filed on 09.07.2021, could not be allowed as the returns were not e-verified - As per the decision in the case of Goetze (India) Ltd 2006 (3) TMI 75 - SUPREME COURT a claim which was not made in the Return cannot be allowed by the AO. The Return that was filed by the petitioner on 09.07.2021 even though it was not e-verified, was admittedly substituted by another return on 11.03.2022. It cannot be said that the petitioner did not file the return to claim set off/deduction for the alleged/purported loss or loss from the sale of derivatives as has been observed in the impugned order. To balance the interest of both the petitioner and the Income Tax Department, the impugned order can be set aside and the case can be remitted back to the respondents to re-examine whether the claim of the petitioner on the alleged loss incurred from the sale of derivatives can be allowed or not, as invocation of Section 144 of the Act, for assessment by best judgment method in impugned Assessment Order is not justified. The impugned order is quashed and the case is remitted back to the respondents to pass a fresh order on merits and in accordance with law. It is made clear that invocation of machinery u/s 148 of the Act for the purpose of 147 of the Act, cannot be the subject matter of fresh dispute in the denovo proceedings.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the invocation of proceedings under Section 147 of the Income Tax Act, 1961, leading to the issuance of a notice under Section 148, was justified in the given circumstances.
Whether the petitioner was entitled to receive reasons for the re-opening of the assessment, given the procedural requirements under the Income Tax Act and relevant case law.
Whether the assessment order was valid, considering the petitioner's claims of losses from the sale of derivatives and the procedural issues surrounding the filing and verification of returns.
Whether the assessment order should be set aside and the case remitted for reconsideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for invoking Section 147 and issuing notice under Section 148

Legal Framework and Precedents: Section 147 allows for reassessment if income has escaped assessment, while Section 148 pertains to the issuance of notice for reassessment. The Supreme Court's decision in GKN Driveshafts (India) Ltd. provides guidelines for furnishing reasons for reopening assessments.
Court's Interpretation and Reasoning: The court found that the invocation of proceedings under Section 147 and the issuance of notice under Section 148 were not questionable, given the circumstances of the case.
Key Evidence and Findings: The petitioner admitted to inaccuracies in the original return filed on 12.04.2017, which justified the reopening of the assessment.
Application of Law to Facts: The court determined that the procedural steps taken by the Department were in line with the statutory provisions, despite the petitioner's procedural objections.
Treatment of Competing Arguments: The petitioner's argument regarding non-receipt of reasons due to non-e-verification was considered but did not outweigh the Department's procedural compliance.
Conclusions: The court upheld the issuance of the notice under Section 148 as procedurally justified.

Issue 2: Entitlement to reasons for reopening the assessment

Legal Framework and Precedents: The GKN Driveshafts case mandates that reasons for reopening must be furnished to the assessee.
Court's Interpretation and Reasoning: The court noted that the reasons were not initially provided due to the lack of e-verification of the return, which was a procedural requirement.
Key Evidence and Findings: The petitioner failed to e-verify the return filed on 09.07.2021, which led to the non-furnishing of reasons.
Application of Law to Facts: The court acknowledged the procedural lapse but emphasized the petitioner's responsibility to comply with e-verification requirements.
Treatment of Competing Arguments: The petitioner's technical glitch explanation was noted but did not justify non-compliance with statutory requirements.
Conclusions: The court found no fault with the Department's actions, given the petitioner's non-compliance.

Issue 3: Validity of the assessment order

Legal Framework and Precedents: Section 144B pertains to faceless assessment procedures, and the Supreme Court's decision in Goetze (India) Ltd. limits claims not made in the original return.
Court's Interpretation and Reasoning: The court found the assessment order flawed due to procedural irregularities and the petitioner's subsequent filing of a revised return.
Key Evidence and Findings: The petitioner's revised return on 11.03.2022 included claims of derivative losses, which were not initially considered.
Application of Law to Facts: The court determined that the assessment order did not adequately address the petitioner's claims and procedural rights.
Treatment of Competing Arguments: The Department's argument of inflated acquisition costs was noted but did not justify the procedural deficiencies.
Conclusions: The court quashed the assessment order and remitted the case for reconsideration.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes: "The invocation of proceedings under Section 147 of the Income Tax Act, 1961 to the issuance of Notice under Section 148 of the Income Tax Act, 1961 in the given facts and circumstances of the case cannot be questioned."
Core Principles Established: Procedural compliance, including e-verification, is crucial for the validity of tax assessments. The Department must adhere to statutory requirements, but procedural lapses by the taxpayer can impact their rights.
Final Determinations on Each Issue: The court upheld the procedural validity of the notice under Section 148 but quashed the assessment order due to procedural deficiencies, remitting the case for fresh consideration.

The judgment emphasizes the importance of procedural compliance by both the taxpayer and the tax authorities, ensuring that statutory requirements are met to uphold the validity of tax assessments.

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