TMI Blog2024 (2) TMI 793X X X X Extracts X X X X X X X X Extracts X X X X ..... n way to information with the assessing officer which suggests that the income chargeable to tax has escaped assessment would mean that there should be no need for any reason seems incorrect. The phraseology of amended Section 148 makes in unmistakable terms clear that there should be a concrete information as defined in Explanation 1 to Section 148. Such information should be suggestive of income escaping assessment and such information should be objective in nature. In other words, the arguable subjectivity in the pre-amendment provision is given a go- by. For conducting assessment under section 147, there should be not only escapement but also the reason to believe that there is such escapement, the reason being the information itself. Hence, a plausible view could be taken that post-amendment of the provision, the escapement has to be established with concrete information. Section 148A would only assist the AO in coming to a conclusion whether such information is good enough to allow a notice to be issued u/s 148. The new provisions should be interpreted so as to make them workable in accord with the intent to achieve the purpose for which statutory change was brought about. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vid) of the 1961 Act which enacts a fiction as to what is not a transfer which otherwise in common parlance would have amounted to. Similarly, it was also debated at the Bar that as to whether the transactions in question were chargeable to income tax under the head income from other sources under section 56(2). In addition, it was also fiercely argued as to whether the subject transactions amounted to short term or long term capital gains. All the above aspects do not merit consideration in view of this court specifically faltering the impugned notices orders, inter alia on the ground of lack of jurisdictional facts. For the same reason, the matter does not warrant remand; the lis should attain finality at the hands of this court itself, all contentions having been argued at the Bar, have duly been considered on merits. Even otherwise, the remand would prove futile. In the above circumstances, these Writ Petitions having been allowed, Writ of Certiorari issues quashing the impugned orders both u/s 148A and also the two impugned notices issued by the answering respondent under Section 148 of the Income Tax Act, 1961. - HON'BLE MR JUSTICE KRISHNA S DIXIT For the Petitioner (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the petitioners having sold the shares of Quess Corp before March 2018 ought to have offered the same to tax. Petitioners sent their replies dated 28.3.2022 to the subject Show Cause Notices taking up certain objections and requested for dropping of the proposed action. However, the Assessing Officer vide orders dated 31.3.2022 passed u/s 148A(d), overruled the objections and issued notices u/s 148 of the Act for the Assessment Year 2018-19. These orders and notices are the subject matter of challenge in these petitions. (c) After service of notice, the Assessing Officer having entered appearance through their Panel Counsel, resisted the Writ Petitions by filing individual Statement of Objections. The learned Additional Solicitor General of India appearing for the Assessing Officer made his submission in justification of the impugned action and the reasons on which the same has been founded. Both the Assessing Officer and the Assessees have filed their Written Submissions as well. Certain rulings have been cited in support of their respective cases. II. AS TO WHAT THE ASSESSEES HAVE ARGUED: (a) The primary condition for reopening assessments envisages escapement of income whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 12 months resulting in short term capital gains. IV. Having heard the learned counsel for the parties and having perused the Petition Papers, I am inclined to grant indulgence in the matter as under and for the following reasons: (A) On the basis of pleadings coupled with submissions at the Bar, what needs to be essentially examined is the scope invocability inter alia of sections 147 148 of the 1961 Act which have been recast under the Finance Act, 2021, the subject notices having been issued post-amendment. The statutory scheme envisaged under Chapter XIV has the following salient features: (i) Section 147 provides for the assessment or reassessment of escaped income, subject to complying with the provisions of sections 148 to 153 of the Act. The Explanation to the said section allows assessment or reassessment of any other income which is chargeable to tax but has escaped assessment and comes to his notice during the course of assessment/reassessment even if provisions of Section 148A have not been complied with subject. Therefore, it is clear that for doing an assessment/reassessment for escaped income, ingredients of Sections 148 to 153 should be satisfied in the initial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) Post amendment w.e.f 01.04.2021, it reads: If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). (b) Let me undertake the comparative examination of the old provision in Section 147 with the new: under the old section, the opening words were If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year . As against that, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year has not been made in accordance with the provisions of this Act; or (iii) any information received under an agreement referred to in section 90 or section 90A of the Act; or (iv) any information made available to the Assessing Officer under the scheme notified under section 135A; or (v) any information which requires action in consequence of the order of a Tribunal or a Court. (C) CBDT has issued Instruction dated 10.12.2021 vide F.No. 225/135/2021/ITA-II indicating as to what is information and how it would be collected. The relevant portion of the instructions is reproduced for ready reference: 2. As per the amended provisions of the section 148 of the Income-tax Act, 1961 ('the Act'), the information which has escaped assessment has been defined to include the two categories of information, i.e., (i) the information which is flagged in accordance with the risk management strategy formulated by the Board; and (ii) final audit objection raised by the C AG. 3. For effective implementation of risk management strategy, the Central Board of Direct Taxes (Board), in exercise of its powers under section 119 of the Act, directs that the Assessing Officers shall ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to section 149 of the Act, the term asset shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account. (D) MEANING OF WORDS: SUGGEST AND INFORMATION EMPLOYED IN THE SUBJECT PROVISIONS: (a) The word suggest is not defined in the 1961 Act and therefore, one has to ascertain its meaning from other sources. As per Advanced Law Lexicon The word suggest , either in its meaning as ordinarily employed or as affected by the context of the will, that can be regarded as expressive of confidence, or belief, or desire, or hope, or will, or as the equivalent of a word of entreaty or recommendation: is in fact, and a precatory word at all, in the ordinary sense. As per Black s Law Dictionary - To introduce indirectly to the thought; to propose with difference or modesty; to hint; to intimate. As per Merriam-Webster - to call to mind by thought or association . (b) Information : The expression information in the context in which it occurs must, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment vide: CIT vs A. RAMAN CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. (ii) ACIT vs ICICI SECURITIES PRIMARY DEALERSHIP LTD., (2012) 13 SCC 514: In this case, the assessee had filed Return of Income declaring income from shares and the assessment was concluded based on the said Return of Income. However, after 4 years of time, the revenue sought to reopen the assessment on the ground that there is loss incurred by the assessee on trading of shares and such loss is a speculative loss. The Hon ble Supreme Court held that once the assessment is finalised based on details furnished in Return, reopening of assessment is not permissible due to change of opinion of Assessing Officer. (iii) INCOME-TAX OFFICER v. LAKHMANIMEWAL DAS [1976] 103 ITR 437 (SC): In this case, the assessee was assessed for AY 1958-59 and one of the expenses that was allowed was Rs. 10,494 by way of interest paid. However, in 1967, the ITO issued notice under section 148 for reassessment on the belief that loans shown and the interest paid were not genuine. The credits were in the name of persons known to the name-lenders. The Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r income escaping assessment in a large number of cases come to the notice of the Income Tax Authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. (iv) JINDAL PHOTO FILMS LTD vs DCIT 1998 SCC OnLine DEL 401: In this case, the assessee had claimed investment allowance under section 32A of the IT Act, 1961. The said claim was disallowed by the AO who passed an order making additions. The assessee filed an appeal against the order of the AO, wherein the CIT (A) observed that no deduction under section 32A is permissible but the assessee is free to claim deduction under section 80I. The assessee claimed the deduction under section 80I including for the subsequent years. However, the AO issued notice under Section 147/148 proposing to reopen the assessments on the grounds of the income having escaped assessment. The High Court set aside the reassessment notice by holding that tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a notice under section 148A(b) was issued on the ground that the total receipt was to be treated as an income of the assessee as per Section 164 as the assessee was not registered under section 12AA. The High Court observed as under: The Act does not contemplate any detailed adjudication on the merits of information available with the Assessing Officer at the stage of passing order under section 148A(d). There is a specific purpose for not introducing any further enquiry or adjudication in the statute, on the correctness or otherwise of the information, at this stage. The reason for it is obvious. Under the scheme of the Act a detailed procedure has been provided under Section 148 for issuance of notice whereafter the Assessing Authority has to determine, in the manner specified, whether income has escaped assessment and the defence of assessee, on all permissible grounds, remains open to be pressed at such stage. The ultimate determination made by the Assessing Authority under Section 147 for reassessment is otherwise subject to appeal under Section 246-A. Merits of the information referable to Section 148A thus remains subject to the reassessment proceedings initiated vide notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice was issued under section 148A(b). The reasons for issuance of notice under section 148A(b) were based on the audit objection. The High Court, after analyzing the provisions of both pre-amendment and post-amendment of section 147, held that w.e.f. 01.04.2022, clause (ii) of Explanation 1 provides the condition that information includes information in the form of audit objection. It was further held that prima facie availability of material is sufficient for reopening of the reassessment proceedings and the sufficiency and correctness of the material is not to be considered at that stage. (iv) IDFC LTD vs DCIT [2023] 155 taxmann.com 602 (Madras): In this case, the return filed by the assessee was scrutinized and an order under section 143(3) was passed. Assessee had also filed an appeal before CIT (A) on such an order of assessment. Later, the AO issued notice under section 148 stating that he had reason to believe that income had escaped assessment as regards disallowance of unrealised loss on foreign exchange. The High Court quashed the notices under section 148 on the ground that there exists no material to show that there was escapement of assessment as the information w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he argument that omission of phrase reason to believe has gotten away and has given way to information with the assessing officer which suggests that the income chargeable to tax has escaped assessment would mean that there should be no need for any reason seems incorrect. The phraseology of amended Section 148 makes in unmistakable terms clear that there should be a concrete information as defined in Explanation 1 to Section 148. Such information should be suggestive of income escaping assessment and such information should be objective in nature. In other words, the arguable subjectivity in the pre-amendment provision is given a go- by. For conducting assessment under section 147, there should be not only escapement but also the reason to believe that there is such escapement, the reason being the information itself. Hence, a plausible view could be taken that post-amendment of the provision, the escapement has to be established with concrete information. Section 148A would only assist the Assessing Officer in coming to a conclusion whether such information is good enough to allow a notice to be issued under Section 148. This is how, to my mind, the new provisions should be inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed exempt income of Rs. 298,96,71,235/- as Long Term Capital Gain from sale of shares. In the similar notice issued to another petitioner, everything is verbatim except the amounts involved. The first sentence in the said paragraph that the Assessee has not disclosed the transactions in question for the Assessment Year 2018-19, is falsified by the second sentence which states that the Assessee has claimed exempt income as long term capital gain from the sale of shares, which manifests the contradiction. Nothing more is necessary to specify as the matter is as apparent as can be. Therefore, this is a clear case of issuing notices based on disclosure in the existing Return of Income filed by the Assessee but on incorrect premise of nondisclosure. There was no new information whatsoever that has come into his domain suggestive of escapement of income. (c) It is pertinent to mention that the definition of information given under Explanation I to Section 148 is a means definition as distinguished from means and includes definition . This Explanation enumerates only two [upto 31.3.2022] and five [from 1.4.2022] categories and the information even if it be true, unless is the one r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ously followed by the Assessing Officer Revenue keeping in mind the objectives of the legislative scheme, that has been re-framed w.e.f. 1.4.2021. This is done by the Parliament with the accumulated experience gained in the working of the statute in question with intent to reduce unending litigation that obtained under the erstwhile scheme of Section 147/148. What the Apex Court in GKN DRIVESHAFTS INDIA LTD v. ITO (2003) 259 ITR 19 had observed assumes relevance: we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years. The safeguards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof. It would involve submission of explanation and clarification which may be required by the special auditor on various issues with relevant data, document etc., which, in the normal course, an assessee is required to explain before the Assessing Officer. Therefore, special audit is more or less in the nature of an investigation and in some cases may even turn out to be stigmatic. We are, therefore, of the view that even after the obligation to pay auditor's fees and incidental expenses has been taken over by the Central Government, civil consequences would still ensure on the passing of an order for special audit. The impugned orders dated 31.03.2022 passed by the Assessing Officer under Sec. 148A(d) of the Act are bad because, Petitioners Objections have not been considered. Thus, apart from being in violation of principles of natural justice, the assumption of jurisdiction under Sec. 148 is perverse and unsustainable. H. AS TO CONTENT AND COMPLIANCES OF THE IMPUGNED NOTICES: (i) The subject notices issued u/s. 148A(b) of the Act have three paragraphs, and of them only one sets out the reasons for re-opening: It says that as per the information available with the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependently verified to be nothing but round trip financing lacking commercial substance and not for bonafide purposes . This finding is clearly well beyond what is contained in the notice issued under Section 148A(b) and could not have been rendered without giving the petitioners adequate opportunity to rebut the assertion. In fact, coming to a definitive conclusion that there is avoidance of tax liability through independent verification but not disclosing the reasons or materials based on which such findings could be rendered and without giving an opportunity to the petitioners to put their case clearly. Thus, there is a gross violation of the principles of natural justice. (iv) It hardly needs to be stated that the order to be passed under Section 148A(d) cannot transcend the scope of proposal notice under Section 148A(b) inasmuch as such a notice happens to be the foundation on the basis of which such an order can be passed, and not otherwise. That is how the statutory scheme is devised. Definitive conclusions as to grounds that are not indicated in the proposal notice cannot be said to be in line with the scheme and purpose of Section 148A. This apart, non-consideration of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the language used in the order itself. Referring to said decision, Krishna Iyer J., in MOHINDER GILL supra, has wittily observed: Orders are not like old wine becoming better as they grow older. (I) AS TO WHETHER MATTER MERITS REMAND OR CLOSURE HERE ITSELF: (i) Both the sides having argued at length have also filed the Written Submissions touching merits of the matter that would belong to the domain of Assessing Officer. There is no need for this court to undertake a deeper examination of the aspects argued at the Bar namely whether the transactions in question amounted to transfer at all in view of section 47(vid) of the 1961 Act which enacts a fiction as to what is not a transfer which otherwise in common parlance would have amounted to. Similarly, it was also debated at the Bar that as to whether the transactions in question were chargeable to income tax under the head income from other sources under section 56(2). In addition, it was also fiercely argued as to whether the subject transactions amounted to short term or long term capital gains. (ii) All the above aspects do not merit consideration in view of this court specifically faltering the impugned notices orders, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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