Income Tax Act | Non-Disclosure Of Heavy Transaction & Its Admission By Assessee Makes Out A Case For Reassessment U/S 148: Rajasthan High Court

Rajasthan High Court has recently clarified that once the assessee admits the existence of a heavy transaction between him and another entity that is not disclosed in the ITR form, such admission makes out a case for the reopening of assessment under Section 148.

The Division Bench of Chief Justice Manindra Mohan Shrivastava and Justice Munnuri Laxman further noted that such admitted non-disclosure in 2019-20 denotes that the transactional amount in dispute is effectively income that has escaped assessment in the relevant year.

“…Non-disclosure of heavy transaction by the petitioner with Allbright Electricals Pvt. Ltd., in the ITR/Audit and the same having been made a basis to reopen assessment by issuing notice under Section 148, cannot be termed as arbitrary, whimsical or perverse, so as to warrant interference by this Court in exercise of jurisdiction under Article 226 of the Constitution of India”, the bench sitting at Jodhpur observed in the order.

The writ petition was filed challenging the order issued under Section 148A(d) of the Act and the consequential notice under Section 148A(b). At the time of hearing the writ, the petitioner's counsel had submitted that no adequate evidence, documentary or otherwise, allegedly based on which the assessment proceedings were reopened, was supplied by the Income Tax Department to the petitioner assessee.

According to the petitioner, he had argued that the bank details already disclosed the nature of the transaction between the petitioner and Allbright Electricals. According to the petitioners, Allbright Electricals is a licensed NBFC and not a share company. The petitioner has not opted for accommodation entries amounting to Rs 50 lakhs; it was merely an advance made available by the petitioner to Allbright Electricals Pvt. Ltd which was later repaid in instalments.

According to the counsel for the Income Tax Department, there is no requirement to determine the taxability of the contentious amount before reopening the assessment for escaped income. Taxability of the amount can only be determined at the stage of reassessment proceedings before the assessing authority, it was argued on behalf of the officer.

The Division Bench, after analysing the submissions made by both parties, pointed out that the aggrieved party has accepted that certain transactions escaped assessment. In such a scenario, the high court cannot comment on the merits of the assessment or interfere with the reassessment proceedings at this stage, the court concluded.

“…All the submissions which have been made by the petitioner before this Court to submit that transacted amount of Rs.65,00,000/- is not taxable in nature, would be open to be raised by the petitioner at the appropriate stage in the reassessment proceedings…”, the court underscored.

The court acknowledged that Section 148 requires the assessing officer to conduct an enquiry about the information received on the income that could have escaped assessment, prior to the issuance of notice. Referring to the case at hand, the court opined that the information cannot be considered as patently false, irrelevant or extraneous to the applicable assessment year. The purpose of Section 148A of the Act is to find out whether a case for reassessment is made out or not; it would not include the consideration of whether any stated amount is liable to tax or not, the court laid down in unequivocal terms.

“…The information, in our opinion, taken as it is, definitely suggests that the income chargeable to tax has escaped assessment. Use of the word “suggest” denote the legislative intent that that no conclusion at that stage is required to be arrived at but only a prima facie consideration is necessary to initiate proceedings under Section 148A…”, the court further added.

On the aspect of not supplying the documents relied upon by the officer, the court has directed the respondent to furnish the same to the petitioner assessee so that the latter can satisfactorily defend himself during the reassessment proceedings.

Advocates Aditya Vijay and Pankaj Arora appeared for the petitioner. Advocate K.K. Bissa represented the respondent.

Case Title: Mahaveer Jain v. Income Tax Officer

Case No: D.B. Civil Writ Petition No. 10306/2023

Citation: 2024 LiveLaw (Raj) 32

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