The Hon'ble High Court of Allahabad in Rahul Sachan v. Income-tax Officer [WRIT TAX NO. 799 OF 2024 MAY 15, 2024] held that where a reopening notice was issued upon an assessee on the ground that as per information flagged under the risk management strategy (RMS) formulated by the CBDT, the revenue had noticed that the assessee had supplied goods/services to a company which was not doing any actual business activities and was involved in receiving and giving bogus contracts/sub-contracts and raising invoices without delivery of any actual goods/services, the impugned reopening on the basis of said information was justified.
Facts of the Case:
The Assessing Officer issued a show cause notice (SCN) dated February 19, 2024, under Section 148A(b) of the Income Tax Act, 1961, to the Petitioner, proposing to initiate reassessment proceedings for the Assessment Year 2020-21.
The SCN alleged that as per information flagged under the Risk Management Strategy (RMS) formulated by the Central Board of Direct Taxes (CBDT), the Petitioner had supplied goods/services worth Rs. 7,39,68,000 to M/s Everett Infra and Engineering Equipments Private Limited (the purchaser) during the financial year 2019-20.
The SCN further alleged that the purchaser was not doing any actual business activities and was involved in providing accommodation entries by receiving and giving bogus contracts/sub-contracts and raising invoices without delivery of actual goods/services. The purchaser was merely working as an entry/exit provider.
The Petitioner submitted a detailed reply dated March 18, 2024, referring to entries in his books of accounts and other materials to assert that he had actually sold goods to the purchaser. The Petitioner also referred to the statement of profit and loss account of the purchaser to assert that the purchaser had disclosed its revenue receipts in excess of Rs. 290 crores for the Assessment Year 2020-21.
Thereafter, the Assessing Officer passed the impugned order dated March 27, 2024, under Section 148A(d) of the Act, rejecting the Petitioner's objections.
The Assessing Officer relied on oral statements of certain entities recorded during the course of other/search proceedings (not involving the Petitioner or the purchaser), as well as reports of the Inspector of Income Tax, Central Circle-19, New Delhi, received by the Assessing Officer.
The Assessing Officer also noted that notices/summons issued to the purchaser arising from the information received from the Inspector of Income Tax had remained unresponded.
The Petitioner filed this writ petition aggrieved by the impugned order dated March 27, 2024, passed under Section 148A(d) of the Act.
Issue:
Whether, on the facts, the impugned reopening of assessment was justified.
Held by the Court:
I. The Hon'ble High Court held that the pre-existing rule to record 'reason to believe' does not exist under the amended provisions of the Income Tax Act.
ii. The court observed that the new statutory test under Section 148A requires the existence of 'information'/objective material that 'suggests' escapement of income, and a 'decision' by the Assessing Officer, based on the material and the assessee's reply, that it is a 'fit case' to initiate reassessment proceedings.
iii. The court held that the Assessing Officer is not obligated to record specific/objective reasons to deal with each objection raised by the assessee. The statute only requires an overall or broad consideration of the assessee's reply to reach a 'decision' that it is a 'fit case' to initiate reassessment proceedings.
iv. The court noted that in the present case, the 'decision' of the Assessing Officer to initiate reassessment proceedings had arisen on the 'information' received that the 'purchaser' did not exist, as contained in the reports of the Income Tax Officer regarding the four addresses of the 'purchaser'.
v. The court observed that the 'suggestion' as to the escapement of income concerning sales made to the (non-existing) 'purchaser' inhered in the said information, making the 'information' relevant to the 'suggestion' of 'escapement of income' at the hands of the Petitioner.
vi. The court further noted that the Assessing Officer's satisfaction regarding the non-existence of the 'purchaser' also arose from the conduct of the purchaser in not responding to any notices or summons issued to it.
vii. The court held that the Assessing Officer's subjective 'decision' that it was a 'fit case' to initiate reassessment proceedings, notwithstanding the objection raised by the Petitioner, could not be faulted.
viii. The court dismissed the writ petition but clarified that all merit objections/defenses remained open to the Petitioner in the reassessment proceedings.
Relevant Sections:
Section 148A of the Income-tax Act, 1961
148A. The Assessing Officer shall, before issuing any notice under section 148,—
(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
(b) provide an opportunity of being heard to the assessee, 23[***] by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);
(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:
Section 69A, read with sections 148A and 148, of the Income-tax Act, 1961
"69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."
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