2025 (2) TMI 711 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - reasons to believe - what income as escaped assessment for the relevant year - transaction pertaining to immovable property - HELD THAT - Reasons for the formation of opinion cannot be of changing hues. We find ourselves unable to sustain the commencement of reassessment action for AY 2019-20 in light of the abject failure on the part of the AO even at this stage and before us to have placed any material which may have even remotely indicated or sustained the formation of belief that income pertaining to AY 2019-20 had escaped assessment. While the AO does appear to have also doubted the acquisition of various other assets in the previous years that surely would not sustain or commend to us as constituting material that would be pertinent or relevant to AY 2019-20. While the other material which has now come or fallen into the hands of the AO may hypothetically speaking constitute information which may warrant examination as to whether a concluded assessment for any previous AY is liable to be reopened surely that material which was wholly unconnected with AY 2019-20 would not sustain the invocation of Section 148 for that year. Thus allow the instant writ petition and quash the order u/s 148A (d) as well as the notice under Section 148 of the Act.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether the initiation of reassessment proceedings for the Assessment Year (AY) 2019-20 under Section 148A of the Income Tax Act, 1961, was valid. This involved examining whether there was a legitimate basis for the belief that income had escaped assessment for the relevant year.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The reassessment proceedings were initiated under Section 148A of the Income Tax Act, 1961. This provision allows the Assessing Officer (AO) to issue a notice for reassessment if there is reason to believe that income chargeable to tax has escaped assessment. The validity of such proceedings is contingent upon the existence of tangible material that justifies the formation of such a belief.

Precedents considered include decisions from the Delhi High Court and the Supreme Court, which emphasize that the reasons for reopening an assessment must be based on tangible material and cannot be supplemented or changed after the issuance of the notice. The Court referred to cases such as ATS Infrastructure Ltd. vs. ACIT and Indivest Pe. Ltd. v. Additional Director of Income-tax, which highlight that the reasons for reopening must be clear and cannot be based on a mere change of opinion.

Court's interpretation and reasoning:

The Court scrutinized the reasons provided for the reassessment, which were based on alleged unexplained investments in immovable property and luxury cars. The Court noted that the initial notice under Section 148A(b) only mentioned unexplained investments in immovable property, and subsequent allegations about luxury cars and other assets were not part of the original notice. This inconsistency was critical in the Court's reasoning.

The Court emphasized that the reasons for the formation of belief must be consistent and based on tangible material available at the time of issuing the notice. The introduction of new allegations not mentioned in the original notice was deemed impermissible.

Key evidence and findings:

The evidence presented included information from the Insight Portal, which suggested unexplained investments. However, the petitioner denied any transactions in immovable property for AY 2019-20 and provided explanations for the assets in question. The AO's failure to provide concrete evidence supporting the allegations for the specific assessment year was a significant factor in the Court's decision.

Application of law to facts:

The Court applied the legal principles regarding reassessment proceedings, emphasizing the need for tangible material and consistency in the reasons for reopening an assessment. The Court found that the AO did not have adequate material to substantiate the belief that income had escaped assessment for AY 2019-20.

Treatment of competing arguments:

The petitioner's argument centered on the lack of any transaction in immovable property during AY 2019-20 and the absence of evidence supporting the AO's claims. The AO's argument relied on information from the Insight Portal and subsequent allegations. The Court found the petitioner's arguments more compelling due to the lack of consistent and tangible evidence from the AO.

Conclusions:

The Court concluded that the reassessment proceedings for AY 2019-20 were not sustainable due to the absence of tangible material supporting the belief that income had escaped assessment. The introduction of new allegations not mentioned in the original notice further weakened the AO's position.

SIGNIFICANT HOLDINGS

The Court held that the reassessment proceedings initiated for AY 2019-20 were invalid due to the lack of tangible material supporting the belief that income had escaped assessment. The Court emphasized the principle that reasons for reopening an assessment must be based on existing information and cannot be supplemented with new allegations post issuance of the notice.

Preserve verbatim quotes of crucial legal reasoning:

The Court quoted previous decisions, emphasizing that "additional reasons cannot be provided or recorded by the Assessing Officer subsequent to the issuance of a notice under Section 148 of the Act." The Court reiterated that "the validity of the proceedings initiated upon a notice under Section 148 of the Act would have to be adjudged from the standpoint of the reasons which formed the basis for the formation of opinion with respect to escapement of income."

Core principles established:

The judgment reinforced the principle that reassessment proceedings must be based on tangible material and consistent reasons. The introduction of new allegations after the issuance of the notice is impermissible and undermines the validity of the proceedings.

Final determinations on each issue:

The Court quashed the order under Section 148A(d) and the notice under Section 148 of the Act, both dated 26 April 2023, for AY 2019-20. However, the Court clarified that this decision does not preclude the AO from initiating reassessment proceedings for other assessment years if appropriate and permissible by law.