AO not obliged to decided pointwise objection of assessee in response to notice u/s 148A(b)
In a recent judgment, the Hon’ble Allahabad High Court has held that all merit objections raised by the assessee in response to a notice issued under Section 148A(b) of the Act are not required to be decided pointwise, at the stage of assumption of jurisdiction i.e. at the stage of order under Section 148A(d) of the Income Tax Act, 1961 (the Act).
ABCAUS Case Law Citation:
ABCAUS 4060 (2024) (05) HC
In the instant case, the Petitioner assessee had challenged the order passed under Section 148A(d) of the Act and the consequential notice issued under Section 148 of the Act.
As per the show cause notice u/s 148A(b) of the Act issued to the Petitioner, the main reason proposing to initiate reassessment proceeding was that the assessee supplied goods to the entities who were not doing any actual business activities and involved in providing accommodation entries.
However, the Assessing Authority passed the impugned order under section 148A(d) of the Act after rejecting the petitioner’s objection after relying on oral statements of certain entities, recorded during the course of other/search proceedings (not involving the petitioner).
Before the Hon’ble High Court, the Petitioner submitted that his objections had not been considered. After taking note of those objections raised, the Assessing Authority merely proceeded to reject the same, without giving even minimal reasons to reject the objections.
It was contended that the due exercise as to whether it was a ‘fit case’ to initiate reassessment proceedings was not done. The order passed under Section 148A(d) of the Act was wholly non-speaking and passed in a perfunctory manner with a pre-conceived notion. Therefore, the same may never be sustained as jurisdiction has not arisen to reassess the petitioner.
The Division Bench of the Hon’ble Allahabad High Court explained the new provisions of reassessment as contained in section 148A of the Act as under:
Pre-condition to initiate reassessment proceedings
The Hon’ble High Court opined that undet the newly introduced section 148A what is now required by way of a pre-condition to initiate reassessment proceedings is : the information/objective material that ‘suggests’ escapement of income; the conduct of an ‘enquiry’, if required, with respect to that; issue of a show cause notice to grant the assessee an opportunity to respond to the information/objective material that income chargeable to tax had escaped assessment in his case; a ‘decision’ of the assessing officer (on the basis of that material and the reply furnished by the assessee), that the material that may have come to the hands of the assessing authority ‘suggests’, it is a ‘fit case’ to initiate reassessment proceedings under Section 148 of the Act.
Reason to believe substituted by subjective decision of a ‘fit case’
The Hon’ble High Court observed that the legislature has carefully departed from the strict test of recording of ‘reason to believe‘ and substituted the same with a lighter and more subjective ‘decision’ of the assessing officer that it is a ‘fit case’ to reassess the assessee, based on the ‘suggestion’ (emerging from perusal of the ‘information’ i.e. objective/relevant material), that income had escaped assessment at the hands of the assessee.
The Hon’ble High Court further observed that now, in reaching such ‘decision’, the assessing authority is obligated to consider only that material that may be relevant (and not extraneous) and the reply that may have been furnished by the assessee, at the same time, it is not the statutory law that he must record specific/objective reasons to deal with each and every objection, that may be raised. The statute only requires an overall or broad consideration of the reply furnished by the assessee, to reach a ‘decision’ that it is ‘fit case’ to initiate reassessment proceedings. To read-recording of exact reasons (to reject any objection), into the language of Section 148A of the Act would be to indirectly reintroduce the requirement to record “reasons to believe”, as a precondition to initiate reassessment proceedings. That requirement of law has been specifically and completely, done away.
Assessing Officer not obliged to specifically deal with the individual objections, pointwise, or to record detailed reasons
The Hon’ble High Court further observed that read in conjunction, Section 148A(b), (c) and (d) would require that assessing authority may not act whimsically or capriciously or on extraneous material or in ignorance of the reply that may have been furnished by the assessee (to the show cause notice issued under Section 148A(b) of the Act), at the same time, that provision does not obligate the assessing authority to specifically deal with the individual objections, pointwise, or to record detailed reasons while making the ‘decision’ that it is a ‘fit case’ to initiate reassessment proceedings, in the case of an assessee
Merit issues/defences may remain open to consideration in the reassessment proceedings.
The Hon’ble High Court stated that the new statutory test laid down under Section 148A requires-in essence, the concern voiced by the assessee [in his reply to notice under Section 148A(b)], either as to absence of ‘information’/relevant material or as to lack of bonafide/prudent ‘suggestion’ arising therefrom, has to be addressed, upon requisite application of mind, seen to exist on a plain reading of the ‘decision’ [contained in the order passed under Section 148A(d) of the Act, that it is a ‘fit case’ to initiate reassessment proceedings, for reason of ‘suggestion’ arising therefrom, that income had escaped assessment. Thereafter, as before, all merit issues/defences may remain open to consideration in the reassessment proceedings. The ‘decision’ that it is a ‘fit case’, to initiate reassessment proceedings is-as the language plainly suggests a reflection of desirability perception/evaluation of the assessing authority-to initiate reassessment proceeding. To that extent it is a provision to arm the revenue authority, to expose an assessee to a proceeding to reassess him.
Conditions precedent to a minute/detailed examination of decision
The Hon’ble High Court further observed that so long as that exercise is bona fide and not mindless, perverse or patently contrary to the law etc., and so long as that ‘decision’ made by the assessing authority-to initiate such reassessment proceedings is not unconnected/disjuncted or contrary to the ‘suggestion’ directly arising from the ‘information’/relevant material received by him-that income has escaped assessment, no minute/detailed examination of that ‘decision’ is required to be made.
The Hon’ble High Court observed that in the present facts, the ‘decision’ of the assessing authority to initiate reassessment proceedings in the case of the petitioner had arisen on the ‘information’ received that the ‘purchaser’ does not exist. That is contained in the reports of the Income Tax Officer with respect to the four addresses of the ‘purchaser’. No direct evidence was disclosed by the petitioner in his reply to doubt the existence of that ‘information’. The ‘suggestion’ as to escapement of income qua sales made to the (non-existing) ‘purchaser’, inheres in it. Thus, the ‘information’ is relevant to the ‘suggestion’ as to ‘escapement of income’ at the hands of the petitioner.
Further, as to the non-existence of the ‘purchaser’, that satisfaction further appears to have arisen on the conduct of the purchaser in not responding to any of the notices and summons issued. Third, the assessing officer has taken note, during the course of a search proceedings and upon recording of statement of a third party, it was also suggested that the ‘purchaser’ did not exist. Such facts had been clearly noted in the impugned order passed under Section 148A(d) of the Act.
The Hon’ble High Court observed that though the assessing authority had not recorded any reason to squarely deal with the further objection raised by the petitioner that there existed details of activity and income of the purchaser as was available on the website of the Registrar of Companies. In that regard, the petitioner had also pointed out that the purchaser company continues to exist and it was active on the MCA portal. That was not a mandatory condition to be fulfilled, at this stage. Also, in absence of any obligation in law, to record a categorical finding to reject any particular objection (at this preliminary stage), no fault exists in the initiation of reassessment proceedings occasioned by an over all consideration of the ‘information’/relevant material. As noted above, the ‘suggestion’ is clearly seen to have arisen on the own strength of the ‘information’/relevant material. Thus, the subjective ‘decision’ that it is a ‘fit case’ to initiate reassessment proceedings, (notwithstanding the objection raised by the petitioner), may not be faulted.
The Hon’ble High Court stated that all merit objections that may be raised and the manner in which they may be raised by the assessee in response to a notice issued under Section 148A(b) of the Act are not required to be decided pointwise, at the stage of assumption of jurisdiction i.e. at the stage of order under Section 148A(d) of the Act. Strictly speaking that requirement of law did not exist even under the unamended law. Even then, the strict test of ‘reason to believe’ having been done away and replaced with the more subjective and lighter test of ‘suggestion’ arising from the ‘information’ received by an assessing officer-that income may have escaped assessment.
Accordingly, the Hon’ble High Court declined to lay down a stricter test to be satisfied by the assessing authorities while making a subjective ‘decision’, to initiate the reassessment.
Accordingly, the writ petition was dismissed.
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