[Income Tax Act] Proceedings U/S 148A Summary In Nature, Assessing Authority To Only See If It Is “Fit Case” For Reassessment: Allahabad HC

The Allahabad High Court has held that proceedings under Section 148A of the Income tax Act, 1961 are summary in nature. The Court held that at the stage of passing order under Section 148A(d), the Assessing Authority has to only see if it is a “fit case” for initiation of reassessment proceedings or not.

The Court held that the Assessing Authority need not go into the correctness of the material but only record its satisfaction as to the relevancy of the material for assuming jurisdiction for initiating reassessment proceedings under Section 148 of the Act.

Section 148A of the Income Tax Act, 1961 relates to procedure of inquiry to be followed by an Assessing Officer prior to issuance of notice under Section 148 of the Act for income that may have escaped assessment. Section 148A(b) provides an opportunity of hearing to the assesee before deciding whether a case for reassessment of tax returns can be made against an assessee by an assessing officer by giving him a period of not less than 7 days but not more than 30 days to appear/reply.

Section 148A(c) provides that an assessing officer shall “consider” the reply of assesee, if any, furnished in response to notice under Section 148A(b). Thereafter, the Assessing Authority shall pass an order under Section 148A(d) based on material on record, including the reply of the assesee, if any, deciding if it is a “fit case” for issuance of notice under Section 148.

Referring to the amendment to proceedings under Section 148 introduced by the Finance Act 2021, where the words “reason to believe” have been omitted, the Court held that at the stage of passing order under Section 148A(d) “the Assessing Officer is not required to record any "reason to believe". He may only consider the material and the reply filed by the assessee to the notice issued under Section 148A(b) containing the proposal to reassess the petitioner and decide if it was a "fit case" to reassess an assessee for income that may have escaped assessment.”

The Court held that after amendment, Assessing Authority must only see if “fit case” for initiation of reassessment proceedings and need not go into a detailed consideration of the correctness of the material available with him.

The bench comprising of Justice Saumitra Dayal Singh and Justice Donadi Ramesh held that

“the fact that the Assessing Authority has been drawn into the discussion to deal with the replies filed by the petitioner may not alter the status of the proceedings as a summary proceedings as may only give rise to jurisdiction to reassess. At this stage, no detailed finding is either required or permissible in law. The Assessing Authority may have done well to pass a short order to briefly deal with the objections raised to disclose his decision - that it was a "fit case" to initiate reassessment proceedings.”

Factual Background

Petitioner challenged the proceedings under Section 148 read with Section 147 and the order passed under Section 148A(d) passed by the Assessing Authority on grounds that there was no relevant material which may give rise to the initiation of reassessment proceedings.

It was submitted that M/s Omaxe Limited, a third party, was searched where certain material was found, however, no search was conducted on the petitioner. It was submitted that the information collected during the search does not indicate how petitioner's income had escaped assessment. Further, it was submitted that since the information was regarding amount not exceeding Rs. 10,00,000/-, no proceedings could be initiated by virtue of Section 149(1)(b) of the Act.

Counsel for petitioner also submitted that minimum period of 7 days is to be granted to the petitioner to furnish reply under Section 148A(b) of the Act, however, the petitioner was only granted 6 days' time to file reply.

Section 149(1)(b) provides that no notice under section 148 shall be issued for the relevant assessment year after a lapse of 3 years but not more than 10 years from the relevant AY, when alleged escaped income chargeable to tax in form of asset, entries on books of accounts or expenditure in respect of a transaction or in relation to an event or occasion exceeds Rs. 50 lakhs.

Counsel for respondent argued that at the stage of proceedings under Section 148A, the relevancy of the material available depends upon the subjective opinion of the Assessing Authority who need not scrutinize in detail the correctness of material available with him. It was argued that manipulation of the electronic records recovered from M/s Omaxe Limited could be gone into at the stage of reassessment.

Referring on the manipulation of records, it was submitted that the limitation of 10years applied in this case as records had been backdated and divided into 100 parts. Lastly, it was submitted that the time granted was sufficient as petitioner had submitted two replies on different days.

High Court Verdict

The Court held that pursuant to removal of the words “reason to believe” vide Finance Act 2021, there is no statutory limitation on powers of the Assessing Authorities to reassess has been lifted.

“Under the amended law, under Section 147 of the Act, the Assessing Officer may, subject to the provisions of Section 148 - 153 of the Act, reassess an assessee where income has escaped assessment for any assessment year. Under Section 148A (d) of the Act, the statutory requirement that now exists is - the Assessing Officer may, on the basis of material available to him, 'decide' whether it is a "fit case" to issue notice under Section 148 of the Act and thus reassess an assessee for income that may have escaped assessment.”

The Court held that the words “reasons to believe” were intentionally removed by the legislature to widen the scope of assumption of jurisdiction for initiating reassessment proceedings under Section 148.

The Court observed that other than deny the transactions, the petitioner had neither denied that information was available with the Assessing Authority nor denied the ownership of the properties. In presence of such information, the Court held that it was not required to see if the information available was correct, but only to see “if the decision of the Assessing Authority to reassess the petitioner would satisfy the test of it being a "fit case"”.

Regarding limitation, the Court held that petitioner's case fell under Section 149(1)(b) as the Assessment Year was 2017-18 and the period could be 6 years or 10 years (as alleged by the department) which made no difference.

Noting that the petitioner had filed two replies, the Court observed that the petitioner had not desired to file any further reply. The Court held that even though the Assessing Authorities ought to follow the timelines of 7 to 30 days as provided in Section 148A(b), the time granted by the authority must not be an empty formality. The Court held that once the opportunity to file reply was reasonably availed by the petitioner, the technicality can be ignored.

The Court held that even if detailed consideration was given to the reply filed by the petitioner, the Assessing Authority only had to see if it was a “fit case” for initiation of reassessment proceedings.

Accordingly, the writ petition was dismissed.

Case Title: Ravindra Pratap Shahi v. Union Of India And 2 Others [WRIT TAX No. - 479 of 2024]

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