Income Tax Act | HC Quashes Reopening Notice

The Delhi High Court has held that the issuance of Show Cause Notice under Section 148-A(b) of the Income Tax Act that income chargeable to tax has escaped assessment on the same set of reasons without any change in facts and figures for re-initiation of reassessment proceeding is invalid and void ab initio.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that the assessment proceedings were already concluded on 30.03.2022 and reassessment action was re-initiated on the same set of reasons under Section 148-A(b) leading to passing of an order Section 148-A(d) and notice under Section 148 of the Income Tax Act dated 19.07.2022. In view of the position of law as enunciated in the case of Anindita Sengupta, there was no justification for the respondent-department to issue notices afresh seeking to reopen the proceedings which had been concluded prior to the judgement passed in Ashish Agarwal. The judgement passed in Ashish Agarwal does not mandate the completed assessment being reopened.

Background

On the basis of an information received from the Investigation Wing, Mumbai that the petitioner/assessee was the beneficiary of Rs. 3.07 crores through misusing the platform of NSEL Exchange by unscrupulous broker during the year under consideration, the case was reopened under Section 147 after obtaining the necessary approval from the concerned authority.

The reassessment notice under Section 148 of the Income Tax Act was issued on 31.03.2021 for the AY 2014-15 after recording the reasons that the income chargeable to tax has escaped assessment as per the provisions of Income Tax Act as they stood before 01.04.2021. The reassessment proceedings were concluded by computing the total assessed income as Rs. 5,43,20,297 by making addition of the taxable income of Rs. 3,13,39,557.

The assessee challenged the reassessment order before CIT (Appeals), which is pending adjudication.

Yet another Show Cause Notice came to be issued proposing additions of income, based upon the same reason that petitioner is the beneficiary of Rs. 3.07 crores through misusing the platform of NSEL by an unscrupulous broker.

The petitioner while responding to it, raised various objections including that of limitation and asserting that the notice is void ab initio as the previous notice dated 31.03.2021 was served on 01.04.2021 which was not challenged before any Court. However, the objections came to be negated and final order under Section 148A(d) of the Income Tax Act came to be passed on 19.07.2022 and a notice under Section 148 of the Income Tax Act was issued on 19.07.2022, which is the subject matter of challenge in the petition.

Order under Section 148A(d) of the Income Tax Act for the AY 2014-15 and the notice under Section 148 of the Act for the AY 2014- 15 dated 19.07.2022 are based on identical facts as posed in the earlier reassessment and which had preceded proposed action for reassessment.

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The right of the respondents to reopen the concluded assessment was ostensibly based on a perceived reading of the decision of the Supreme Court in Union of India vs. Ashish Agarwal. In this case, the Supreme Court held that a notice issued under Section 148 during the period beginning on 01.04.2021 and ending 30.06.2021 to be considered as a Show Cause Notice under Section 148A(b) of the Income Tax Act. The Apex Court had held that the reassessment notice under Section 148 under the old law shall be deemed to be a Show Cause Notice under Clause (b) of Section 148-A of the new law substituted w.e.f. 01.04.2021.

Arguments – Whether SCN Alleging Escaped Assessment Issued Without Any Change In Facts And Figures Is Void Or Valid?

The department contended that even though the assessment had already been made before 31.03.2022, notice issued under Section 148 was served upon the assessee from the system of the department on 01.04.2021. Relying on the decision of Ashish Agarwal, it is thus submitted that notice under Section 148-A(b) dated 02.06.2022, order under Section 148-A(d) and notice under Section 148 of the Act dated 19.07.2022 were in compliance with the orders of the Supreme Court.

The assessee contended that formation of belief that income chargeable to tax has escaped assessment of Rs. 3.07 crores has attained finality by virtue of an order dated 30.03.2022 under Section 147 read with Section 144B of the Act and therefore the formation of belief for issuance of SCN under Section 148-A(b) of the Act that income chargeable to tax has escaped assessment on the same set of reasons without any change in facts and figures for re-initiation of reassessment proceeding vide impugned notice dated 19.07.2022 is invalid and void ab initio.

The assessee argued that initiation of reassessment proceedings will tantamount to double addition which is not permissible under the law. It has been further submitted that if the respondents had treated notice under Section 148 as served on 01.04.2021 and the reassessment proceedings were still pending, only in that eventuality, the present case would have got covered by the judgement of the Apex Court.