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2023 (11) TMI 1367 - HC - Income TaxReopening of assessment u/s 147 - limitation period - procedural requirements mandated under the newly introduced Section 148A - HELD THAT - In normal cases no notice shall be issued if three years have elapsed from the end of the relevant assessment year. Notice beyond the period of three years from the end of the relevant assessment year can be issued where the AO would not be in possession of books of accounts or other documents or evidence which would reveal that the income chargeable to tax represented in the form of asset which has escaped assessment amounts to or is likely to amount to fifty lacs rupees or more for that year. In such cases notice can be issued beyond the period of three years but not beyond the period of 10 years from the end of the relevant assessment year. Notice under Section 148 of the Act can be issued when there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of an assessee for the relevant assessment year. The specified authority for approving inquiries providing an opportunity for passing orders under Section 148 of the Act and for issuance of notice u/s 148 of the Act is the Principal Commissioner or Principal Director or Commissioner or Director if three years or less than three years have elapsed from the end of the relevant assessment year or Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General if more than three years have elapsed from the end of the relevant assessment year. The object behind Section 148A as is evident from the findings in the fountainhead decision of GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT is to enable the assessee to be informed of the reasons and information suggesting that income chargeable to tax has escaped assessment and therefore in turn to empower the assessee to prepare and file an effective reply and thereafter the Assessing Officer to pass an order under Section 148A(d) followed by issuance of notice under Section 148 of IT Act. Considering the aforesaid normally the writ Court should not interfere at such premature stage when the proceedings initiated against the assessee are yet to be concluded by the statutory authorities. This Court refrains to interfere with the order(s)/notice impugned. Pertinently the question of going into the veracity and genuineness of the material/evidence forming the opinion of the Assessing Officer suggesting that income of petitioner/assessee has escaped assessment ought not to be gone into while exercising writ jurisdiction under Article 226 or supervisory jurisdiction under Article 227 of the Constitution of India.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are: (a) Whether the order passed under Section 148A(d) of the Income Tax Act, 1961 and the subsequent notice issued under Section 148 for reopening the assessment for the Assessment Year 2018-19 are legal, valid, and within jurisdiction. (b) Whether the Assessing Officer complied with the procedural requirements mandated under the newly introduced Section 148A of the Income Tax Act before issuing the notice under Section 148. (c) Whether the petitioner was afforded adequate opportunity of hearing and whether principles of natural justice were observed before passing the order and issuing the notice. (d) Whether the writ petition challenging the show-cause notice issued under Section 148 is maintainable at this premature stage or whether the petitioner should exhaust statutory remedies available under the Income Tax Act. (e) The applicability and interpretation of the amendments introduced by the Finance Act, 2021, particularly the introduction of Sections 147 to 151 and the procedural safeguards under Section 148A. (f) The effect and relevance of binding precedents, including judgments of the Apex Court and various High Courts, on the procedure and maintainability of challenges to reopening notices under the amended provisions. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) & (b): Legality, Validity, and Procedural Compliance of Section 148A(d) Order and Section 148 Notice The Court examined the procedural framework introduced by Section 148A of the Income Tax Act, effective from 01.04.2021, which mandates a four-step process before issuing a notice under Section 148:
The Court found that the Assessing Officer had followed this procedure prior to issuing the impugned order under Section 148A(d) and the subsequent notice under Section 148. The Court emphasized that Section 148A was introduced to prevent arbitrary or casual reopening of assessments and to ensure that the assessee is informed of the reasons and material suggesting escaped income, thereby enabling an effective reply. The Court rejected the petitioner's contention that the order and notice were passed without jurisdiction or were arbitrary, noting that the Assessing Officer's opinion that income chargeable to tax had escaped assessment was based on material and evidence, which cannot be questioned at this stage under writ jurisdiction. Issue (c): Opportunity of Hearing and Principles of Natural Justice The petitioner argued that no proper opportunity of hearing was afforded before passing the order under Section 148A(d). The Court analyzed the procedural safeguards under Section 148A(b), which requires the Assessing Officer to issue a show-cause notice and provide a reasonable time (7 to 30 days) for the assessee to reply. The Court noted that the Assessing Officer complied with these requirements and considered the petitioner's reply before passing the order. It further observed that the inquiry under Section 148A is not intended to be a detailed adjudication but a preliminary process to determine if reopening is justified. The Court held that the principles of natural justice were not violated and that the petitioner had been given adequate opportunity to be heard in accordance with the statutory scheme. Issue (d): Maintainability of Writ Petition Challenging Show-Cause Notice at Premature Stage The respondents contended that the writ petition was not maintainable as the proceedings were at a preliminary stage, and the petitioner had alternative statutory remedies under the Income Tax Act, including appeals under Section 246. The Court concurred with this position, relying on precedents that discourage interference by writ courts at the initial stages of assessment or reassessment proceedings. It emphasized that the correctness of the Assessing Officer's opinion or the validity of the notice can be examined in appeal or other statutory forums. The Court referred to the judgment in Union of India vs. Kunishetty Satyanarayan, which underscores the principle that writ jurisdiction should not be exercised where an efficacious alternative remedy is available. Issue (e): Interpretation and Application of Amendments by Finance Act, 2021 The Court carefully examined the impact of the Finance Act, 2021, which introduced Sections 147 to 151 and Section 148A, to regulate the reopening of assessments more stringently. It relied heavily on the Apex Court's ruling in Union of India & Ors. vs. Ashish Agarwal, which clarified that notices issued under the unamended Section 148 should be deemed to be issued under Section 148A and treated as show-cause notices, with the Assessing Officer required to provide the material relied upon to the assessee. The Court noted that the Apex Court had dispensed with the requirement of prior approval for inquiries as a one-time measure for notices issued from 01.04.2021 onwards and mandated that the Assessing Officer follow the procedure under Section 148A(b) to (d) before issuing a Section 148 notice. The Court found that the impugned order and notice complied with these procedural safeguards and were consistent with the modified directions of the Apex Court. Issue (f): Treatment of Precedents and Competing Arguments The petitioner relied on judgments including Ashish Agarwal, Red Chilli International Sales, and decisions of the Madhya Pradesh High Court to argue that the notices and orders were illegal and violated natural justice. The respondents countered by citing the Apex Court's clarifications in Ashish Agarwal, which effectively modified earlier High Court rulings and emphasized that reopening notices under the amended provisions must be treated as show-cause notices with procedural safeguards. The Court also referred to Punjab and Haryana High Court decisions, affirmed by the Apex Court, which held that writ jurisdiction should not be exercised prematurely and that factual disputes regarding jurisdictional errors should be addressed through statutory remedies. The Court distinguished between jurisdictional errors, which may warrant writ intervention, and errors within jurisdiction, which must be corrected through statutory appeals. 3. SIGNIFICANT HOLDINGS "The procedure to be followed by the Assessing Officer (AO) before issuance of notice of Income escaping assessment under Section 148A is as follows: (a) Conduct enquiry with respect to the income which has escaped assessment (prior approval of specified authorities might be required in some cases [Section 148A(a)]. (b) Issue a show cause notice to the taxpayer and provide reasonable opportunity of being heard within in the time specified in notice (7 to 30 days) and may be extended from time to time. [Section 148A(b)]. (c) Consider the reply of the taxpayer furnished in response to Point (b). [Section148A(c)]. (d) Decide whether it is a fit case for issue of notice under Section 148 by passing an order with the prior approval of specified authority based on the evidence available and reply furnished by the taxpayer). [Section 148A(d)]." "Section 148A has been introduced in the Income Tax Act with effect from 01.04.2021. This Section provides that before issuing notice, the Assessing Officer shall conduct an inquiry and provide an opportunity of being heard to the assessee. After taking into consideration the reply filed by the assessee, the Assessing Officer shall decide by passing an order, whether the case is fit for issuance of notice under Section 148 of the Act." "The object behind insertion of Section 148A by the Legislature w.e.f. 01.04.2021 inter alia appears as follows: (a) to prevent rampant and casual issuance of notice u/S. 148 by the Revenue; (b) to save unnecessary harassment to the assessee of being subjected to reopening a case under Section 148; (c) to save the Revenue of the time and energy which may be vested pursuing frivolous and fruitless proceedings u/S 148." "The question of going into the veracity and genuineness of the material/evidence forming the opinion of the Assessing Officer suggesting that income of petitioner/assessee has escaped assessment ought not to be gone into while exercising writ jurisdiction under Article 226 or supervisory jurisdiction under Article 227 of the Constitution of India." "The writ Court should not interfere at such premature stage when the proceedings initiated against the assessee are yet to be concluded by the statutory authorities." "Where the proceedings have not even been concluded by the statutory authority, the writ Court should not interfere at such premature stage. There is a vexed distinction between jurisdictional error and error of law/fact within the jurisdiction and for rectification or errors statutory remedy has been provided." "The impugned common judgments and orders passed by the High Court of Judicature at Allahabad... shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and treated to be show cause notices in terms of section 148A(b). The assessing officer shall, within thirty days... provide to the respective assessees information and material relied upon by the Revenue, so that the assessees can reply to the show cause notices within two weeks thereafter." The Court concluded that the impugned order under Section 148A(d) and the notice under Section 148 were passed in accordance with the statutory scheme and procedural safeguards introduced by the Finance Act, 2021. The writ petition challenging these at a premature stage was not maintainable, especially when alternative statutory remedies were available. The Court refrained from delving into the merits of the Assessing Officer's opinion or the material relied upon, as such examination is beyond the scope of writ jurisdiction.
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