2025 (7) TMI 254 - HC - Income Tax

Validity of reopening of assessment u/s 147 - as argued AO had not considered the petitioner s response to the show cause notice this court found the same to be merited - HELD THAT - AO had not dealt with the specific response of the petitioner that his income which was mentioned in the notice issued under Section 148A(b) of the Act was declared in his return of income. Accordingly this court set aside the order dated 31.08.2024 passed under Section 148A(d) of the Act and remanded the matter to the AO for the consideration afresh. AO jurisdiction to initiate the proceedings - One of the allegations is that the purchases reflected by the petitioner in his books are bogus as the same were made from non-existent/accommodation entry providers - Although the petitioner reiterated that the purchases were genuine the AO found that the same required verification and the petitioner had not produced sufficient material to establish the movements of goods. AO also noted that one entity M/s Ridhi Sidhi Polymers was involved in the practice of availing/issuing bogus sales/purchase bills and the said entity had made purchases from non-filers and/or filers declaring negligible incomes. Out of these bogus purchases sales were made to the beneficiaries including the assessee i.e. the petitioner in the present case. We are not persuaded to accept that the order dated 11.11.2024 passed u/s 148A(d) of the Act warrants any interference by this court in these proceedings. AO has at the threshold stage examined the response furnished by the petitioner and has found it a fit case to continue with the re-assessment proceedings. It is material to note that at the stage of issuance of notice u/s 148 of the Act the AO is not required to conclusively determine the income that escaped assessment. AO is required to be satisfied that there are reasons that indicate that the assessee s income has escaped assessment. Assessee is required to be given full opportunity to establish the genuineness of his return in the re-assessment proceedings and nothing stated in the orders passed under Section 148A(d) precludes the assessee from doing so.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

• Whether the Assessing Officer (AO) erred in issuing the order under Section 148A(d) of the Income Tax Act, 1961 without considering the petitioner's response to the notice issued under Section 148A(b).
• Whether the AO had jurisdiction to initiate reassessment proceedings under Section 148 of the Income Tax Act, 1961, especially in light of the Central Board of Direct Taxes (CBDT) notification dated 29.03.2022 directing faceless reassessments.
• Whether the AO's satisfaction regarding escapement of income was valid at the stage of issuance of notice under Section 148.
• Whether the petitioner's purchases, alleged to be bogus and made from non-existent or accommodation entry providers, justified initiation of reassessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Consideration of the Petitioner's Response to Notice under Section 148A(b)

Relevant legal framework and precedents: Section 148A of the Income Tax Act mandates that before issuing a notice under Section 148, the AO must issue a notice under Section 148A(b) and consider the assessee's response before passing an order under Section 148A(d). The procedural safeguards ensure that reassessment proceedings are not initiated arbitrarily.

Court's interpretation and reasoning: The Court found merit in the petitioner's contention that the AO failed to consider the response submitted on 23.08.2024, which clarified that the income mentioned in the Section 148A(b) notice was already declared in the return. The Court emphasized that the AO must deal with the assessee's submissions specifically and cannot ignore them.

Key evidence and findings: The petitioner's response clearly stated that the income allegedly escaping assessment was declared in the return. The AO's order dated 31.08.2024 under Section 148A(d) did not address this contention.

Application of law to facts: The Court set aside the AO's order dated 31.08.2024 and remanded the matter for fresh consideration, directing the AO to examine the petitioner's response afresh in compliance with Section 148A.

Treatment of competing arguments: The AO's failure to consider the petitioner's response was held to be a procedural irregularity. The Court did not accept the AO's order as valid without such consideration.

Conclusions: The AO must consider the assessee's response before passing an order under Section 148A(d); failure to do so vitiates the order.

Issue 2: Jurisdiction of AO to Initiate Reassessment Proceedings Post CBDT Notification

Relevant legal framework and precedents: The CBDT notification dated 29.03.2022 mandates faceless reassessment proceedings, raising questions about the AO's jurisdiction to initiate reassessment in a non-faceless manner. The Court referred to a batch of pending matters and a recent decision in T.K.S. Builders Pvt. Ltd. v. Income Tax Officer, which conclusively addressed the jurisdictional issue.

Court's interpretation and reasoning: The Court noted that the issue was pending before it but was subsequently decided in the referenced case, which concluded the jurisdictional question. The present matter would abide by that decision.

Key evidence and findings: The Court relied on the precedent decision, which clarified the AO's jurisdiction in the context of faceless reassessment directives.

Application of law to facts: Since the jurisdictional issue was conclusively decided, the Court did not interfere with the reassessment proceedings on this ground.

Treatment of competing arguments: The petitioner's argument that the AO lacked jurisdiction was noted but held to be resolved by binding precedent.

Conclusions: The AO's jurisdiction to initiate reassessment proceedings stands affirmed in light of the authoritative decision.

Issue 3: Validity of AO's Satisfaction Regarding Escapement of Income at Notice Stage

Relevant legal framework and precedents: At the stage of issuing notice under Section 148, the AO is required only to have "reasons to believe" that income has escaped assessment, not to conclusively determine the escaped income. This principle is well-established to prevent premature adjudication.

Court's interpretation and reasoning: The Court reiterated that the AO's satisfaction at the notice stage is a prima facie satisfaction based on available information. The AO is not required to conclusively prove escapement at this stage.

Key evidence and findings: The AO found unexplained information and prima facie reasons to proceed with reassessment, including allegations of bogus purchases.

Application of law to facts: The Court held that the AO's satisfaction was valid and did not warrant interference, as the petitioner would have full opportunity to prove the genuineness of his return during reassessment.

Treatment of competing arguments: The petitioner's contention that income was declared was considered but held insufficient to quash the notice at the threshold stage.

Conclusions: The AO's prima facie satisfaction to issue notice under Section 148 is sufficient; detailed adjudication occurs during reassessment.

Issue 4: Allegations of Bogus Purchases and Their Impact on Reassessment

Relevant legal framework and precedents: The Income Tax Act empowers the AO to reassess income where evidence suggests transactions are sham or fabricated, including bogus purchases from non-existent or accommodation entry providers.

Court's interpretation and reasoning: The AO found that the petitioner's purchases required verification due to allegations of involvement with entities engaged in bogus sales/purchase bills, such as M/s Ridhi Sidhi Polymers. The AO noted insufficient material from the petitioner to establish the genuineness of goods movement.

Key evidence and findings: The AO's investigation revealed that the entity involved had made purchases from non-filers or filers declaring negligible incomes, indicating a pattern of bogus transactions.

Application of law to facts: The Court accepted the AO's finding that the matter warranted reassessment to verify the genuineness of the transactions.

Treatment of competing arguments: The petitioner's assertion of genuine purchases was noted but deemed insufficient at the notice stage without supporting material.

Conclusions: The AO's decision to proceed with reassessment based on prima facie evidence of bogus purchases was upheld.

3. SIGNIFICANT HOLDINGS

"At the stage of issuance of notice under Section 148 of the Act, the AO is not required to conclusively determine the income that escaped assessment. The AO is required to be satisfied that there are reasons that indicate that the assessee's income has escaped assessment."

"The assessee is required to be given full opportunity to establish the genuineness of his return in the re-assessment proceedings and nothing stated in the orders passed under Section 148A(d) precludes the assessee from doing so."

"Failure of the Assessing Officer to consider the assessee's response to the notice issued under Section 148A(b) of the Income Tax Act vitiates the order passed under Section 148A(d) and necessitates remand for fresh consideration."

"The jurisdiction of the Assessing Officer to initiate reassessment proceedings post the CBDT notification directing faceless reassessments has been conclusively decided by this Court in the batch of matters including T.K.S. Builders Pvt. Ltd., and the present proceedings shall abide by that decision."

The Court ultimately dismissed the petition, holding that the AO's order dated 11.11.2024 under Section 148A(d) of the Income Tax Act did not warrant interference, as the AO had duly considered the petitioner's response on remand and found sufficient unexplained information to justify reassessment proceedings.