After Amendment Mere Reason To Believe Can't Be Ground For Carrying Out Reassessment: Karnataka High Court

The Karnataka High Court has held that the Assessing Officer has to be prima facie satisfied that there is “escapement of income”, unlike earlier law which permitted action based on mere reason to believe. Now mere reason to believe, cannot be a ground for carrying out assessment under section 147 of the Income Tax Act.

The bench of Justice Krishna S Dixit has observed that 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, in the amended section, the opening words are: “If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year”. So, what is conspicuously missing from the new section is the term “reason to believe”.

In the year 2010 and up to the year 2016, petitioner, Dr.Ramdas Madhava Pai acquired certain shares in Manipal Education and Medical Group India Private Limited (MEMGIPL). In March 2017, his son Dr.Ranjan Pai gifted shares held in MEMGIPL to petitioner-Dr.Ramdas Madhava Pai. Likewise, his daughter-in-law gifted shares to petitioner-Smt.Vasanthi Pai. On 16.11.2017, the National Company Law Tribunal (NCLT) approved the scheme of demerger of the property management business of MEMGIPL into another company namely Manipal Integrated Services Private Limited (MISPL). By way of consideration, 10,87,97,101 shares of MISPL were allotted to the shareholders of MEMGIPL. The appointed day of demerger was denoted as 30.11.2016.

The petitioner-Dr.Ramdas Pai and petitioner-Vasanthi Pai got to hold 5537216 and 5359885 shares respectively in MISPL. Another order dated 30.11.2017 came to be passed by the NCLT approving the demerger of facility management services of MISPL into Quess Corp. Ltd. In consideration of this demerger, the two writ petitioners were allotted shares in Quess Corp. The appointed date for this demerger was 1.12.2016. In February and March 2018, the petitioners are said to have sold the shares in Quess Corp.

Both Petitioners filed their Returns of Income for the Assessment Year 2018-19 u/s 139 of the Act. On 11.03.2022, notices under section 148A(b) of the Act were issued to them.

The petitioners replied to the Show Cause Notices taking up certain objections and requested for dropping of the proposed action. However, the Assessing Officer overruled the objections and issued notices under section 148 for the Assessment Year 2018-19.

The assessee contended that the primary condition for reopening assessments envisages escapement of income which is absent in the case at hands and thus, the action is without jurisdiction; in any circumstance, it is sans jurisdictional fact. The order passed under Section 148A(d) has gone well beyond the show cause notice and touched matters not even alleged and the reply of the petitioners have not been considered. The reasons recorded in the show cause notices issued under Section 148A(b) constitute the foundation for the case and it is impermissible for the Assessing Officer to travel beyond the grounds and traverse new grounds.

The department contended that for reopening assessment, what one needs to see is, only a prima facie case of escapement of income. That the prima facie opinion formed u/s.148A(d) is based on material available on record. Therefore, at this stage, the challenge is premature.

The court held that section 147 of the Act can be invoked only if any income chargeable to tax has “escaped assessment”.

The court quashed the reassessment notices and allowed the petition.

Counsel For Petitioner: Ajay Vohra

Counsel For Respondent: N Venkataraman

Case Title: Smt. Vasanthi Ramdas Pai Versus Income Tax Officer

Case No.: Writ Petition No. 8797 Of 2022 (T-IT) C/W Writ Petition No.8815 Of 2022 (T-IT)

Citation No: 2024 LiveLaw (Kar) 83

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