2025 (7) TMI 974 - HC - Income Tax

Reopening of assessment u/s 147 - domain of authority under the National Faceless Assessment Centre (NFAC) in terms of Section 151A - escapement of income from assessment being quantified at less than Rs. 50, 00, 000/- in view of interdiction contained in Section 149(1) - Scope of term proceeding - prior approval of the Joint Commissioner of Income Tax Rourkela Range Rourkela as required under Section 148A(3) - HELD THAT - Conjoint reading of Order under Section 148A and the Notice under Section 148 both dated 29.04.2025 clarifies that the ITO requires further reply from the assessee who is competent to adjudicate not only the factual position whether the escaped assessment amounts to or likely to amount to Rs. 50, 00, 000/- or more so as to proceed with the matter pursuant to Notice dated 29.04.2025. As seen that in the case of Anshul 2022 (6) TMI 1310 - PUNJAB AND HARYANA HIGH COURT the grievance of the petitioner was that his objection raised against Notice u/s 148A was not taken care of. Yet the Hon ble Supreme Court did not interfere with the order of dismissal of writ petition by the High Court of Punjab Haryana. Per advocate for the petitioner similar stance is taken in the instant case. Therefore this Court finds that no case is made out by the petitioner to interfere with the issue of Notice under Section 148 by the AO after taking decision to initiate proceeding on passing order under Section 148A(d)/Section 148(3) of said Act. The tenor or pith and substance of provisions of Section 148A(d) pre-amendment and Section 148A(3) post-amendment being identical and both of them lead to proceeding under Section 148 of the IT Act this Court does not feel it expedient to show indulgence in the present matter. Interference in writ jurisdiction at the stage of Notice for assessment/reassessment - As required under Section 148A of the IT Act the Assessing Officer having obtained prior approval of the competent authority issued Notice dated 29.04.2025 after complying with the direction of this Court in the first writ petition. Therefore meddling at this stage by this Court would be premature and entertainment of writ petition by exercise of power under Article 226 of the Constitution of India would run contrary to settled principles. Lack of jurisdiction strikes at the very root of the action/act and want of jurisdiction might vitiate proceedings rendering the orders passed and exercise thereof a nullity. But a mere error in exercise of jurisdiction would not vitiate the legality and validity of the proceedings and the said order was valid unless set aside in the manner known to law by laying a challenge subject to law of limitation. Vide Budhia Swain Vrs. Gopinath Dev 1999 (5) TMI 596 - SUPREME COURT Since the ITO-Assessing Officer has taken a decision upon affording opportunity to the petitioner in course of proceeding under Section 148A and proceeded to issue Notice under Section 148 as a sequel thereof the petitioner would have ample opportunity to agitate issues before the Assessing Officer. Therefore this Court holds entertainment of the writ petition at the stage of notice would be premature. Doing otherwise would frustrate the tax administration and adjudication process. This Court is alive to the fact that the statute under consideration viz. the IT Act and rules framed thereunder provides sufficient safeguard for the assessee-petitioner more so when against the final orders of adjudication appeal lies. Conclusion - Given the perspective of legal position and the facts on record it is apparent that the Notice dated 29.04.2025 has been issued for alleged transactions of purchases effected from M/s. Madhumita Steel Industries Pvt. Ltd. under Section 148 contemplating initiation of proceeding for assessment upon being satisfied by virtue of Order dated 29.04.2025 passed u/s 148A of the IT Act in compliance of direction contained in the Order 2024 (4) TMI 1289 - ORISSA HIGH COURT Availability of information which suggests that there is an escapement of income is a prerequisite for issue of notice under Section 148. Record reveals bogus purchase to the tune of Rs. 34, 99, 247/- but the income generated out of it requiring thorough examination of books of account or other documents that may be made available during the course of assessment may shoot up beyond the specified pecuniary limit under Section 148. It is reiterated that it is for the adjudicating authority to consider on the basis of material placed and explanation proffered before him during the course of proceeding for assessment. The contention of the petitioner that no Notice under Section 148 could be issued by the ITO for alleged escapement of income on account of purchases to the tune of Rs. 34, 99, 247/- may be attractive but careful consideration of the same suggests rejection of such contention bearing in mind the effect of income generated out of such purchases that got escaped from being assessed. Another angle of consideration of the case at hand is on account of remand Order passed in 2024 (4) TMI 1289 - ORISSA HIGH COURT made under Section 148A(d) of the IT Act as it existed prior to amendment along with consequential Notice under Section 148 there is no ambiguity that the matter to proceed further from the stage of Notice under Section 148A(b). Thus the AO cannot be faulted with in passing Order dated 29.04.2025 (Annexure-3) after affording opportunity of hearing to the petitioner and issue of Notice under Section 148 (Annexure-1). On consideration of discussions on the facts and with the conspectus of law taken note of supra in the result this Court does not find merit in challenge as to Notice issued under Section 148 of the IT Act by the Income Tax Officer Ward-3 Rourkela. WP dismissed.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the Income Tax Officer (ITO) was competent to issue the Notice under Section 148 of the Income Tax Act, 1961 (IT Act) for reopening assessment when the alleged escaped income was quantified at less than Rs. 50,00,000/-;

2. Whether the issuance of the Notice under Section 148 and the Order under Section 148A(3) complied with the procedural requirements, including the opportunity of hearing to the petitioner, especially in light of the prior quashing of an earlier order under Section 148A(d);

3. The scope and effect of the statutory provisions relating to reopening of assessment under Sections 147, 148, 148A, and 149 of the IT Act, both pre- and post-amendment by the Finance (No. 2) Act, 2024;

4. The extent to which the Court should interfere by exercising writ jurisdiction under Articles 226 and 227 of the Constitution of India at the stage of issuance of Notice under Section 148;

5. The interpretation of the terms "information which suggests that income chargeable to tax has escaped assessment" and "initiation of proceeding" in the context of reopening assessments;

6. The applicability and effect of principles of natural justice and procedural fairness in the issuance of notices and orders under the IT Act;

7. Whether the petitioner had alternative efficacious remedies and whether the writ petition was maintainable or premature.

Issue-wise Detailed Analysis:

Issue 1: Competency of ITO to issue Notice under Section 148 when escaped income is less than Rs. 50,00,000/-

Legal Framework and Precedents: Section 149 of the IT Act prescribes time limits for issuance of notice under Section 148. The amended provision effective from 01.09.2024 stipulates that no notice under Section 148 shall be issued after three years and three months from the end of the relevant assessment year unless the escaped income is Rs. 50 lakh or more, supported by evidence or books of account. The Court referred to the statutory language pre- and post-amendment.

Court's Interpretation and Reasoning: The Court noted that the escaped income was quantified at Rs. 34,99,247/- which is below the Rs. 50 lakh threshold. However, the Court observed that the amount of escaped income is subject to further examination during assessment and may exceed the threshold. The Court emphasized that the adjudicating authority (Assessing Officer) is competent to determine the actual quantum of escaped income during the assessment proceedings.

Application of Law to Facts: The Court found that the Notice and Order dated 29.04.2025 were issued after affording opportunity and in compliance with statutory provisions. The Court held that the petitioner's contention that the Notice under Section 148 was invalid for escaped income below Rs. 50 lakh was not sustainable at this stage.

Conclusion: The ITO was competent to issue the Notice under Section 148, and the matter of escaped income quantum is to be adjudicated during the assessment process.

Issue 2: Compliance with procedural requirements and opportunity of hearing

Legal Framework and Precedents: Section 148A mandates conducting an inquiry and providing an opportunity of hearing before issuing a Notice under Section 148. The Court relied on the prior order dated 15.04.2024 wherein the earlier Section 148A(d) Order and Notice were quashed for failure to afford hearing, and the matter was remitted to the Assessing Officer to hear afresh.

Court's Interpretation and Reasoning: The Court observed that the Assessing Officer issued a fresh Notice dated 20.03.2025 under Section 148A(1) and passed an Order dated 29.04.2025 under Section 148A(3) after considering the petitioner's reply and obtaining prior approval. The Court found that the Assessing Officer complied with the direction to afford opportunity of hearing and passed a reasoned order.

Application of Law to Facts: The Court noted that the petitioner participated in the proceedings post-remand and was given the opportunity to be heard. The Court rejected the petitioner's argument that the Notice and Order issued post-remand were invalid.

Conclusion: The procedural requirements under Section 148A were complied with, and the petitioner was afforded a fair hearing.

Issue 3: Interpretation of "information which suggests that income chargeable to tax has escaped assessment" and "initiation of proceeding"

Legal Framework and Precedents: The Court referred extensively to the Supreme Court's decision in Larsen & Toubro Ltd. which clarified that "information" includes facts or knowledge from external sources or discovery of new facts, and a mere change of opinion on the same facts does not constitute new information. The Court also examined dictionary meanings of "suggest" and "proceeding," emphasizing that "proceeding" is a comprehensive term including all steps in a legal action.

Court's Interpretation and Reasoning: The Court held that the Assessing Officer had "information" in the form of alleged bogus purchases, which triggered the reopening process. The Court also clarified that "initiation of proceeding" involves application of mind by the authority and taking steps such as issuing notices after considering the material.

Application of Law to Facts: The Court found that the Assessing Officer had sufficient information to justify issuance of the Notice under Section 148 and that the proceedings were validly initiated and continued post-remand.

Conclusion: The Assessing Officer's satisfaction on the existence of information suggesting escapement of income was justified, and the reopening proceedings were properly initiated.

Issue 4: Scope of writ jurisdiction at the stage of issuance of Notice under Section 148

Legal Framework and Precedents: The Court extensively reviewed Supreme Court precedents emphasizing self-imposed restrictions on writ jurisdiction at the stage of show cause notices or reopening notices, including decisions in Income Tax Officer, Calcutta v. Selected Dalurband Coal Co., Anshul Jain, Union of India v. Coastal Container Transporters Association, and others. It was reiterated that writ jurisdiction is discretionary and should not ordinarily be exercised where alternative statutory remedies exist and the matter is yet to be adjudicated.

Court's Interpretation and Reasoning: The Court held that interference at the stage of Notice under Section 148 would be premature and contrary to settled principles. The petitioner has alternative remedies and full opportunity to raise factual and legal issues during assessment proceedings.

Application of Law to Facts: The Court found no lack of jurisdiction or violation of natural justice in issuance of the Notice and Order. The petitioner's challenge at this stage was premature and not maintainable.

Treatment of Competing Arguments: The petitioner argued invalidity of Notice due to escaped income below threshold and procedural irregularities; the Court rejected these, emphasizing compliance with statutory procedure and the need to allow assessment process to conclude.

Conclusion: The writ petition challenging the Notice and Order at this stage was dismissed as premature.

Issue 5: Effect of remand order and continuation of proceedings

Legal Framework and Precedents: The Court referred to principles that when an order is set aside for procedural defects, the matter is remitted for fresh consideration, and the authority can continue proceedings from the point of vitiation (Shri Anant R. Kulkarni, Anantdeep Singh).

Court's Interpretation and Reasoning: The Court observed that the first writ petition quashed the Order dated 23.03.2024 under Section 148A(d) for lack of hearing but did not quash the entire proceeding. The Assessing Officer was directed to hear afresh and pass appropriate order, which was complied with by issuing fresh notices and orders.

Application of Law to Facts: The Court held that the Assessing Officer acted within jurisdiction and in compliance with the remand order. The continuation of proceedings and issuance of fresh Notice under Section 148 was valid.

Conclusion: The Assessing Officer's actions post-remand were lawful and proper.

Issue 6: Interpretation of the statutory provisions pre- and post-amendment

Legal Framework and Precedents: The Court analyzed the provisions of Sections 148, 148A, and 149 before and after the amendment by the Finance (No. 2) Act, 2024, highlighting the procedural safeguards introduced, including prior approval, opportunity of hearing, and time limits for issuance of notices.

Court's Interpretation and Reasoning: The Court noted that the amendments codify procedural safeguards but do not alter the fundamental principle that reopening requires information suggesting escapement of income. The Court found that the Assessing Officer complied with all procedural requirements under the amended law.

Application of Law to Facts: The Court found no procedural irregularity or jurisdictional defect in the issuance of Notice and Order under the amended provisions.

Conclusion: The statutory provisions were properly interpreted and applied by the Assessing Officer.

Issue 7: Availability of alternative remedies and maintainability of writ petition

Legal Framework and Precedents: The Court emphasized the principle that where efficacious alternative remedies exist, writ jurisdiction should be exercised sparingly. It relied on numerous Supreme Court decisions holding that writ petitions challenging assessment proceedings or notices are generally premature and alternative statutory remedies must be exhausted.

Court's Interpretation and Reasoning: The Court held that the petitioner had full opportunity to participate in assessment proceedings and to raise all factual and legal issues before the Assessing Officer and appellate authorities. The writ petition was premature and not maintainable.

Application of Law to Facts: The Court noted that the petitioner had not raised all issues before the Assessing Officer and could do so in the ongoing proceedings.

Conclusion: The writ petition was dismissed on the ground of prematurity and availability of alternative remedies.

Significant Holdings:

"The expression 'information' means instruction or knowledge derived from an external source concerning facts or parties or as to law relating to and/or having a bearing on the assessment. We agree that a mere change of opinion or having second thought about it by the competent authority on the same set of facts and materials on the record does not constitute 'information' for the purposes of the State Act. But the word 'information' used in the aforesaid Section is of the widest amplitude and should not be construed narrowly."

"Where the conclusion is drawn is based on irrelevant matter, it is said that the authority would be deemed not to have applied its mind or it did not honestly form its opinion. The existence of circumstances is a condition precedent to form an opinion. The Court can inquire whether the facts and circumstances so found to exist have a reasonable nexus with the purpose for which the power is to be exercised."

"At the stage of the issuance of the notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Since we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid."

"The remedy of writ is absolutely discretionary in character. If the High Court is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere, it can refuse to exercise its jurisdiction. The Court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of the principles of natural justice or the procedure required for decision has not been adopted."

"Where hierarchy of appeals is provided by the statute, the party must exhaust the statutory remedies before resorting to writ jurisdiction."

"All irregular or erroneous or even illegal orders cannot be held to be null and void as there is a fine distinction between the orders which are null and void and orders which are irregular, wrong or illegal. Where an authority making order lacks inherent jurisdiction, such order would be without jurisdiction, null, non est and void ab initio as defect of jurisdiction of an authority goes to the root of the matter and strikes at its very authority to pass any order and such a defect cannot be cured even by consent of the parties. However, exercise of jurisdiction in a wrongful manner cannot result in a nullity- it is an illegality, capable of being cured in a duly constituted legal proceedings."

"The Court held that interference at the stage of Notice under Section 148 would be premature and contrary to settled principles. The petitioner has alternative remedies and full opportunity to raise factual and legal issues during assessment proceedings."

Final determinations on each issue are:

- The Notice under Section 148 and Order under Section 148A(3) were validly issued and passed after affording opportunity of hearing in compliance with statutory provisions and the remand order of the Court.

- The Assessing Officer was competent to issue Notice under Section 148 despite the alleged escaped income being below Rs. 50 lakh, as the actual escaped income is subject to determination during assessment.

- The reopening proceedings were properly initiated based on sufficient "information" as defined in law.

- The writ petition challenging the Notice and Order at this stage was premature, and the petitioner has alternative remedies to raise all issues during assessment and appellate proceedings.

- There was no violation of principles of natural justice or jurisdictional defect warranting interference under Articles 226 and 227 of the Constitution of India.