2025 (1) TMI 758 - AT - Income Tax

Validity of Reassessment proceedings initiated u/s 148 - Difference between the reasons communicated in the notice u/s 148A(b) and the subsequent order u/s 148A(d) - HELD THAT - We find that undisputedly the notice u/s 148A(b) of the Act has been issued by the AO on the ground that transactions worth ₹ 50,00,000/- with M/s Savitri Ispat India Pvt. Ltd. were made which were alleged to be bogus, therefore, order u/s 148A(d) paased but addition was made of ₹ 9,68,45,467/- in respect of purchases made from non-filing of IT return. The very initiation of proceedings u/s 148A of the Act are itself flawed and full of infirmities and the issue for which the notice was issued were not carried into the order passed u/s 148A(d) of the Act on 31st.03.2022. We note that in order issued u/s 148A(d) AO noted that the assessee has taken accommodation entry for bogus billing and accordingly, the income has escaped assessment. In our opinion, the casualness in issuance of notice u/s 148A(b) of the Act and then passing the order u/s 148A(d) of the Act is apparent from the above. Therefore, re-assessment proceeding is flawed and cannot be stayed. The case of the assessee find force from the decision of Banyan Real Estate Fund Mauritius 2024 (8) TMI 371 - DELHI HIGH COURT wherein similar issue has been decided in favour of the assessee. Thus, we quash the notices issued re-assessment proceedings as well as the consequent order passed. The appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the reassessment proceedings initiated under Section 148 of the Income Tax Act were valid and legally sustainable.
• Whether there was a discrepancy between the reasons communicated in the notice under Section 148A(b) and the subsequent order under Section 148A(d), and if such discrepancy invalidates the reassessment proceedings.
• Whether the reassessment order under Section 147, which resulted in the addition of certain amounts to the assessee's income, was justified given the procedural and substantive discrepancies alleged by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings

• Relevant Legal Framework and Precedents: The reassessment proceedings are governed by Sections 147 and 148 of the Income Tax Act, which allow the reopening of assessments if income has escaped assessment. The process involves issuing a notice under Section 148A(b) and passing an order under Section 148A(d) before proceeding with reassessment.
• Court's Interpretation and Reasoning: The court examined whether the reasons provided in the notice under Section 148A(b) were consistent with the subsequent order under Section 148A(d). The court noted discrepancies in the issues identified in these documents.
• Key Evidence and Findings: The notice under Section 148A(b) alleged that the assessee engaged in transactions with Savitri Ispat India Pvt. Ltd., which were considered bogus. However, the order under Section 148A(d) cited different transactions and amounts as the basis for reassessment.
• Application of Law to Facts: The court applied the principles of natural justice and procedural fairness, emphasizing that the reasons for reassessment must be consistent and clearly communicated to the assessee.
• Treatment of Competing Arguments: The assessee argued that the reassessment proceedings were invalid due to the discrepancies between the notices and orders. The revenue contended that the procedural errors were inadvertent and did not affect the validity of the reassessment.
• Conclusions: The court concluded that the discrepancies in the notices and orders rendered the reassessment proceedings invalid, as they violated the principles of natural justice and procedural fairness.

Issue 2: Justification of Additions Made in Reassessment

• Relevant Legal Framework and Precedents: The additions were made under Section 69C of the Income Tax Act, which deals with unexplained expenditure. The court referred to precedents emphasizing the need for a clear and consistent basis for such additions.
• Court's Interpretation and Reasoning: The court scrutinized whether the additions were based on consistent and reliable evidence, given the procedural flaws identified in the reassessment process.
• Key Evidence and Findings: The court noted that the assessee had provided substantial documentation supporting its transactions, which were not adequately addressed in the reassessment order.
• Application of Law to Facts: The court applied the principles of evidentiary consistency and fairness, finding that the additions lacked a reliable basis due to the flawed reassessment process.
• Treatment of Competing Arguments: The revenue argued that the additions were justified based on the information available. The assessee countered that the procedural flaws undermined the credibility of the additions.
• Conclusions: The court concluded that the additions were unjustified due to the procedural and substantive inconsistencies in the reassessment process.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "In our view, the very initiation of proceedings u/s 148B of the Act are itself flawed and full of infirmities and the issue for which the notice was issued were not carried into the order passed u/s 148A(d) of the Act."
• Core Principles Established: The judgment reinforces the principle that reassessment proceedings must adhere strictly to procedural fairness and consistency, ensuring that the reasons for reassessment are clearly communicated and substantiated.
• Final Determinations on Each Issue: The court quashed the reassessment proceedings and the consequent orders, allowing the appeals of the assessee for both the assessment years in question.

The judgment underscores the importance of procedural integrity in reassessment processes under the Income Tax Act, emphasizing that any discrepancies or procedural lapses can render such proceedings invalid.