2025 (7) TMI 322 - HC - Income Tax

Reopening of assessment - reasons to believe - credible information which suggests that the petitioner s income has escaped assessment for the relevant assessment year - inward and outward foreign remittance transactions remain unexplained - HELD THAT - Notice issued u/s 148A(b) did not contain any allegation regarding income escaping assessment. The only information which according to the AO suggested that the petitioner s income for AY 2017-18 has escaped assessment was information to the effect that the Assessee had made foreign remittances. It is apparent that the impugned order has thus travelled beyond the scope of the notice under Section 148A(b) of the Act. The impugned order cannot be sustained. It is also clear that there is also a question as to the credibility of the information as set out in the notice issued under Section 148A(b) of the Act considering that the petitioner has obtained confirmation from the J K Bank regarding the remittances made by it. However in our view the impugned order cannot be sustained on the ground that it travels beyond the scope of the notice issued under Section 148A(b) of the Act. It is thus not necessary to examine the other issues as raised in the present petition.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Assessing Officer (AO) was justified in issuing a notice under Section 148 of the Income Tax Act, 1961, based on the information received under Section 148A(b) alleging escapement of income by the petitioner for Assessment Year (AY) 2017-18.

- Whether the impugned order dated 08.04.2024 passed under Section 148A(d) of the Act is sustainable, particularly when the AO's order expanded the scope of the notice issued under Section 148A(b).

- Whether the information relied upon by the AO, including foreign remittance data obtained from a survey under Section 133A at J&K Bank, is credible and sufficient to justify reopening of assessment.

- Whether the petitioner's response, including confirmation from J&K Bank disputing the remittance data, was adequately considered by the AO before passing the impugned order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for issuance of notice under Section 148 based on Section 148A(b) information

Relevant legal framework and precedents: The reopening of assessment under Section 148 of the Income Tax Act requires credible information indicating escapement of income. Section 148A(b) mandates that the AO shall provide the assessee an opportunity to respond to the information before issuing a notice under Section 148.

Court's interpretation and reasoning: The AO issued a notice under Section 148A(b) on 26.03.2024, alleging that foreign remittances amounting to Rs. 6,50,84,454/- made by the petitioner during AY 2017-18 did not tally with bank statements, suggesting escapement of income. The petitioner responded on 02.04.2024, disputing the quantum and furnishing a confirmation from J&K Bank that the remittance data did not pertain to it.

Key evidence and findings: The AO's initial information was based on a survey under Section 133A at J&K Bank, which collected inward and outward remittance data. The petitioner's bank statements and confirmation from J&K Bank contradicted the AO's information.

Application of law to facts: The AO was required to consider the petitioner's reply and documentary evidence before proceeding. The petitioner's response challenged the credibility and applicability of the information, which was not adequately addressed.

Treatment of competing arguments: The petitioner argued that the remittance data was inaccurate and unrelated, supported by bank confirmation. The AO disregarded this and proceeded to issue a notice under Section 148, relying on an increased amount of Rs. 11,37,67,029/- not mentioned in the original Section 148A(b) notice.

Conclusions: The issuance of the Section 148 notice was not justified on the basis of the information in the Section 148A(b) notice, which only referred to Rs. 6,50,84,454/-. The AO's reliance on a higher amount without issuing a fresh notice or opportunity to the petitioner was improper.

Issue 2: Validity of the impugned order dated 08.04.2024 under Section 148A(d)

Relevant legal framework and precedents: Section 148A(d) requires that the AO shall record reasons and pass an order after considering the assessee's response to the notice under Section 148A(b). The order must be confined to the scope of the information provided in the Section 148A(b) notice.

Court's interpretation and reasoning: The impugned order expanded the scope beyond the original information of Rs. 6,50,84,454/- to Rs. 11,37,67,029/- based on additional data from Form 15CC, 15CA, and 15CB without issuing a fresh Section 148A(b) notice or providing the petitioner an opportunity to respond to the increased amount.

Key evidence and findings: The AO's order relied on remittance amounts derived from various forms and bank statements but failed to correlate these with the original information or the petitioner's submissions.

Application of law to facts: The AO's action of traveling beyond the scope of the original notice under Section 148A(b) violates the procedural safeguards intended to protect the assessee from arbitrary reopening.

Treatment of competing arguments: The petitioner contended that the AO's order was beyond the scope of the notice and thus invalid. The AO did not issue a fresh notice or provide an opportunity to address the additional allegations.

Conclusions: The impugned order is unsustainable as it exceeds the scope of the Section 148A(b) notice and violates principles of natural justice.

Issue 3: Credibility of information obtained from J&K Bank survey and remittance data

Relevant legal framework and precedents: Information obtained from third parties or surveys must be credible and verifiable before it can form the basis for reopening assessment. The assessee must be given an opportunity to rebut such information.

Court's interpretation and reasoning: The petitioner furnished a confirmation from J&K Bank stating that the remittance data did not pertain to it, challenging the credibility of the AO's information. The AO did not adequately address this rebuttal before proceeding.

Key evidence and findings: The confirmation from J&K Bank serves as prima facie evidence disputing the AO's information.

Application of law to facts: The AO was obligated to verify the credibility of the information and consider the petitioner's rebuttal before issuing a notice or passing an order.

Treatment of competing arguments: The AO ignored the petitioner's confirmation and proceeded on the basis of unverified data.

Conclusions: The credibility of the information is questionable, and the AO's failure to consider the petitioner's rebuttal undermines the validity of the reopening proceedings.

3. SIGNIFICANT HOLDINGS

- "It is apparent that the impugned order has thus, travelled beyond the scope of the notice under Section 148A(b) of the Act."

- "The impugned order cannot be sustained on the ground that it travels beyond the scope of the notice issued under Section 148A(b) of the Act."

- "In the event that the AO has any credible information which suggests that the petitioner's income has escaped assessment for the relevant assessment year, the AO is not precluded from issuing a fresh notice albeit in accordance with law."

Core principles established include the necessity for the AO to confine the reopening proceedings to the scope of the information provided in the Section 148A(b) notice and to afford the assessee a fair opportunity to respond. The reopening cannot be based on expanded or new information without issuing a fresh notice. The credibility of information obtained from third-party surveys must be verified and rebuttals from the assessee must be duly considered.

Final determinations:

- The impugned order under Section 148A(d) dated 08.04.2024 is set aside for exceeding the scope of the Section 148A(b) notice.

- The AO's issuance of the notice under Section 148 based on information not included in the Section 148A(b) notice is invalid.

- The petitioner's challenge to the credibility of the information remains unanswered but is not necessary to decide given the order's invalidity on procedural grounds.

- The AO is free to initiate fresh proceedings if credible information is available, following due process under the Act.