Notice u/s 148 – at this stage what is required is a reason to believe and not to establish fact of escapement of income – Supreme Court upholds High Courts order
ABCAUS Case Law Citation
ABCAUS 3600 (2022) (06) SC
Important case law relied referred:
Alliance Filaments Ltd. v. The Assistant Commissioner of Income Tax
Prashant S. Joshi v. Income-Tax Officer (2)(4), [2010] 189 Taxman 1 (Bombay)
Gujarat Lease Financing Ltd. v. Deputy Commissioner of Income-Tax [2013] 36 Taxmann.com 359
Krishna Metal Industries v. H. M. Algotar, [1997] 225ITR 853
Assistant Commissioner of Income-Tax v. L.B.M. World Trade Corpn., [1995] 216 ITR
Hindustan Lever Ltd. v. R. B. Wadkar, [2004] 137 Taxman 479 (Bombay)
ITO v. LakhmaniMewal Das [(1976) 103 ITR 437: 1976 (3) SCC 757]
Ess Kay Engineering Co. (P) Ltd. v. Commissioner of Income Tax, 247 ITR 818 (SC)
In the instant case, the Assessee had challenged the order passed by the Hon’ble High Court which upheld the validity of notice u/s 148 for escapement of income.
The return of income of the assessee was scrutinised and order was passed u/s 143 of the Income Tax Act, 1961 (the Act). Later on the basis of the information received by the Investigation Wing, notice u/s 148 of the Act was issued by the Department after recording reasons to believe that the income chargeable to tax had escaped assessment within the meaning of section 147 of the Act.
As per the reasons supplied to the assessee, the case was reopened on the count that the assessee was the beneficiary of the accommodation entries in the guise of sales made.
The objection of the assessee against reopening were disposed inter alia holding that the reopening was justified and valid.
Being aggrieved, the assessee approached the High Court by way of a Writ petition u/s 226 of the Constitution seeking to quash and set aside the Notice issued under section 148 of the Act
The contention of the assessee was that whatever the transactions made by the entry provider may be, but the assessee had not availed any benefit from it. Not only that, but all the receipts, sales, purchases, profit etc. were shown to the Assessing Officer while framing assessment under section 143(3) of the Act and all the details necessary for the assessment had been truly and fully disclosed by the petitioner.
Further, it was contended that the assessee had furnished various details including the acknowledgment of E-TCS returns (quarter-wise) along with transaction register which included details as to sales made to the alleged entry provider and after threadbare examination, the AO consciously chose not to disturb the sales declared and hence, the notice being nothing but a mere change of opinion.
It was further submitted that the Assessing Officer inasmuch as the notice under section 148 of the Act can be issued only if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment and for such formation of belief, there should be some tangible material and act, which are lacking in the case on hand.
The Hon’ble High Court observed that the term “reason to believe”, however, is not defined in the Act but it can be gathered and available from the information, leading the Assessing Officer to reopen the assessment. The term itself is suggestive of its prima facie characteristics and not established or conclusive facts or information. Meaning thereby, it is the Assessing Officer’s prima facie belief, of course, derived from the some material/information, etc. leading him to reopen the assessment.
The Hon’ble High Court observed that the Apex Court held that, “the reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section.
Further the Hon’ble High Court noted that the Hon’ble Supreme Court had held that Assessing Officer is not precluded from reopening the assessment of an earlier year on the basis of fresh material discovered subsequently during the course of assessment of next assessment year.
The Hon’ble High Court stated that the function of the assessing authority at the stage of issue of notice u/s 148 is to administer the statute and what is required is a reason to believe and not to establish fact of escapement of income and therefore, looking to the scope of Section 147 as also sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen the assessment.
Accordingly, the Hon’ble High had Court dismissed the Writ.
Aggrieved by the order of the High Court, the assessee had preferred a Special Leave Petition (SLP) before the Hon’ble Supreme Court which was dismissed by their Lordships.
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