Income Tax Act Provisions Being Used As A Weapon, Re-Assessment Proceedings Classic Case Of Abuse Of Power: Newslaundry To Delhi High Court

The Delhi High Court has sought response on a petition filed by the news portal Newslaundry against the re-assessment notices issued to it under the Income Tax Act for the financial years 2017-2018 and 2019-2020 on the ground that the income chargeable to taxation had escaped assessment in those years.

The two impugned notices dated April 4 and April 29 were issued under Section 148 of the Income Tax Act. Under the Act, the Income Tax Department has the power to reassess previously filed income tax returns. A notice can thereafter be sent under Section 148 on the ground that an income chargeable to tax might have escaped assessment.

On October 17, a division bench of Justice Manmohan and Justice Manpreet Pritam Singh Arora asked the Director General and Deputy Commissioner of Income Tax, New Delhi to respond to the petition.

"Learned counsel for the respondents prays for and is permitted to file the counter affidavits within a further period of four weeks. Rejoinder affidavits, if any, be filed before the next date of hearing," the bench said while listing the matter for hearing on May 2, 2023.

In the plea moved through Advocate Nipun Katyal, Newslaundry has stated that the impugned notices have been issued without any basis and that there is no rational nexus to the belief of "escapement of income" as no fresh material was on record to initiate the re-assessment proceedings.

"The notices have been issued on the strength of the survey conducted under Section 133A of the IT Act. Not only are the notices vague, but these are also contrary to the constitutional principles of reasonableness, and nonarbitrariness," the news portal has argued.

The survey was conducted by the Income Tax Department officials at the premises of Newslaundry's office on September 10 last year.

"As such, the Respondents have abused discretion vested by virtue of the amended Section 147 of the IT Act, in as much as, merely because the phrase 'reason to believe' has been removed from the said provision pursuant to the Finance Bill, 2021; the Respondents have failed to appreciate that the larger constitutional safeguards of reasonableness and non-arbitrariness will be applicable vis-à-vis all actions of the Respondents," the plea states.

The petition also challenges the constitutional validity of the sub clause (ii) of the second explanation as mentioned in the amended section 148A of the Act read with Section 148A(a). When a survey is conducted under Section 133A, the assessing officer as per the explanation is "deemed to have information which suggests" that the income chargeable has escaped assessment.

Newslaundry has argued that the said provision creates a legal fiction, whereby once a survey is conducted by the Income Tax authorities, the same ipso-facto becomes "information" thereby suggesting that the income chargeable to tax has escaped assessment, "pursuant to which the assessee [is] subjected to the stringent and stigmatic re-assessment process under the IT Act."

"That the Respondents undertook repeated surveys under Section 133A of the IT Act, followed by the notices and orders issued under Section 148A and 148 of the IT Act. Only and solely on the strength of the survey, the Respondents issued the Show Cause Notices under Section 148A, in view of the sub clause (ii) of the Second Explanation of the amended Section 148 of the IT Act," the plea adds.

According to the petition, the amendment is conspicuously silent on what is meant by the term 'suggests' in the sub clause (ii) of the Second Explanation of the amended Section 148 of the IT Act.

"Information suggesting that income has escaped assessment cannot be construed to mean that the AO has 'reason to believe' that the income has escaped assessment. 'Reason to believe' has judicial and constitutional acceptance and acts as a safeguard against arbitrary action by the Respondent authorities," the plea argues.

The news portal has also contended the removal of the phrase 'reason to believe' and putting of 'suggests' in its place has made the AO entitled to issue notices under Section 148A in all such cases where a survey under Section 133A is conducted.

"In fact, the AO does not need any tangible material to come to the conclusion that there is escapement of income from assessment, neither does he have to furnish reasons which have a live link with the formation of belief. All that the AO needs is a surmise, a mere suggestion, a minor hint or rather just an insinuation to initiate the proceedings under Section 148A against the assessee. Thus, the Finance Act, 2021 in this regard, is essentially a giant leap backwards," argues the plea.

Terming the proceedings against it a classic case of abuse of powers, Newslaundry has argued that the re-assessment was initiated only and solely on the strength of the survey conducted under Section 133A.

"This unbridled power given to the Respondents, in the absence of any mechanism or guidelines to check whether income has escaped assessment or not, before issuing a notice under Section 148A(a), is inherently unconstitutional, apart from being arbitrary and unreasonable," it has contended.

Newslaundry in the plea has also alleged that a roving and fishing enquiry was being conducted against it.

"The consistent theme of the actions of the Respondents, it emerges is the incessant and repeated intimidation of the Petitioner. Since each survey led to nothing incriminating, the Respondents conducted further rounds of survey, needlessly putting the Petitioner and its employees and management through harassment using the provisions of law as a weapon, which were followed by notices / orders for re-assessment, leading to the present petition," the news portal has told the court.

The news portal had approached the High Court in September 2021 also seeking directions on the Income Tax authorities to not take any action pursuant to the survey and also not to disclose any material seized during the same.

An undertaking was thereafter given by the authorities that the seized material was in safe custody of the Income Tax Department and that the same shall be used for the purposes of investigation and in accordance with law.

It was also undertaken that the seized material will not be leaked and that the principle of confidentiality under Section 138 of the Act shall be followed.

Thereafter, the impugned notices were issued by the authorities.

Title: M/S NEWSLAUNDRY MEDIA PVT. LTD. v. DIRECTOR GENERAL, INCOME TAX (INVESTIGATIONS) & ANR.