ORDER
Bhargav D. Karia, J. – Heard learned advocate Mr. Manish J. Shah for the petitioner and learned advocate Mr. Rutvij Patel for the respondent.
2. Rule returnable forthwith. Learned advocate Mr. Rutvij Patel for the respondent waives service of notice of rule.
3. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 17.03.2023 issued under section 148A(b) of the Income Tax Act,1961 [for short ‘the Act’] as well as notice dated 31.03.2023 under section 148 of the Act and the order dated 31.03.2023 under section 148A(d) of the Act.
4. Brief facts of the case are that:
4.1 The petitioner is the son of late Ms. Mrudula Gandhi. A notice dated 17.03.2023 under section 148A(b) of the Act was issued in name of late Ms. Mrudula Gandhi to explain the source of credit amounting to Rs. 1,23,70,612/- appearing in her bank accounts for the Financial Year 2018-19 relevant to Assessment Year 2019-20.
4.2 On perusal of the show-cause notice under section 148A(b) of the Act, it appears that the respondent raised the issue regarding credit in the bank account of late mother of the petitioner on the ground that the same was not fully disclosed in her return of income resulting into suppression of income. Para 4 of the notice under section 148A(b) reads as under:
“In view of the facts narrated hereinabove, an opportunity of being heard is being provided to you as per requirement of section 148A(b) of the Income Tax Act, 1961.
(i) The source of credits amount to Rs. 1,23,70,612/- appearing in your bank account as discussed above along with documentary evidence i.e. respective ledgers, bills, books of accounts, bank account highlighting the transactions and explain the source of said credits.
(ii) Any other documentary evidences you rely in support of your claim.
(iii) Further, it is also show caused as to whey a notice under section 148 should not be issued on the basis of the information in possession which suggests that income chargeable to tax has escaped assessment in this case for the relevant assessment year.”
4.3 The petitioner filed reply on 23.03.2023 explaining in detail the credit entries in the bank account of his late mother for the year under consideration and also submitted the return of income filed by late Ms. Mrudula Gandhi after considering all the transactions reflected in the bank accounts maintained with Equitas Small Finance Bank and Kotak Mahindra Bank Limited. It was contended in the reply that respondent does not have any material to come to a prima facie conclusion that it is a fit case to reopen the assessment as there is no escaped income from the information in possession of the respondent.
4.4 However, the respondent passed the impugned order under section 148A(d) of the Act on 31.03.2023 on the ground that there was an escaped income of Rs. 92,00,592/- which has remained unexplained as per the reply filed by the petitioner comprising of credit entries of loan reflected in the bank account of late Ms. Murdula Gandhi.
Being aggrieved, this petition is filed.
5. Learned advocate Mr. Manish Shah for the petitioner submitted that the respondent has issued the notice under section 148A(b) of the Act to furnish the information as stated in Para 4 of the impugned notice. It was submitted that as per the provision of section 148A(b) of the Act, the respondent is not supposed to call for any information as the same would be covered by the provision of section 148A(a) of the Act. It was submitted that the notice is required to be quashed only on this ground.
5.1 It was further submitted that the petitioner had filed a detailed reply explaining each entry of the bank account on his Late mother. However, the respondent-Assessing Officer, though observed that the credit entries are taken into consideration while computing the income of late Ms. Mrudula Gandhi, has failed to consider the detailed reply filed by the petitioner and only on the ground that the genuineness of the transactions and creditworthiness of the lender is not established from the reply, it was held to be a fit case to reopen the assessment.
5.2 It was therefore, submitted that the entire notice under section 148A(b) read with order under section 148A(d) of the Act are without jurisdiction as there is no information available with the respondent to show that there is an escapement of income except the total of the credit side of the bank account which is sought to be added on the ground that the same is not explained. In support of his submissions, learned advocate Mr. Shah referred to and relied upon the decision of this Court in case of Onir Infraspace (P.) Ltd. v. Income-tax Officer (Gujarat), to submit that this Court, in similar facts, held that when notice under section 148A(b) of the Act is issued calling for the information from the assessee would amount to gross procedural error from very inception rendering such notice as bad in law.
6. On the other hand, learned advocate Mr. Rutvij Patel for the respondent submitted that the petitioner has failed to give explanation about the credit entries in the bank account of late mother of the petitioner for the year under consideration and no details are provided. It was further submitted that as per the affidavit-in-reply filed on behalf of the respondent, it is clear that the petitioner has not submitted the details with regard to the loan received by late mother from the petitioner as such entries are not reflected in the bank account of the petitioner. Reliance was placed on the following averments made in the affidavit-in-reply filed on behalf of the respondent:
“10. In furtherance to the above, a tabular chart depicting absence of documentary evidences to explain the transactions is as under:
| Sr.No | Name of the Lender | Details submitted by assessee | Details not submitted |
| 1 | Alpa N Gandhi | 1. Confirmation Ledger Account | | 1. | | Copy of ITR of the lender |
| 2. | | Bank account statement of the lender |
|
| 2 | C N Gandhi (HUF) | | 1. | | Confirmation Ledger Account |
| 2. | | Bank account statement of the lender |
| | 1. | | Copy of ITR of the lender |
|
| 3 | Chetak K. Gandhi | | 1. | | Confirmation ledger Account |
| 2. | | Partial Bank account statement of the lender |
| | 1. | | Copy of the ITR of the lender |
| 2. | | Bank account statement of the lender for the period 23.01.2019 to 27.01.2019 reflecting the transaction of Rs. 9,50,000/- dated 23.01.2019 and Rs. 1,00,000/- dated 24.01.2019 was not submitted |
|
| 4 | Tejal Gandhi | | 1. | | Confirmation Ledger Account |
| 2. | | Bank account statement of the lender |
| Copy of ITR of the lender |
| 5 | Sulabh Construction | No Details Submitted | Copy of Confirmation Ledger Account, Copy of ITR of the lender, Bank account statement of the lender not submitted. |
| 6 | Cash deposit | No supporting documents | |
11. In absence of complete documentary evidences to establish genuineness of claim of credit entries amounting to Rs. 1,23,70,612/- the AO held that income to the tune of Rs. 92,00,592/- (1,23,70,61231,70,020) has escaped assessment and hence, issued notice u/s, 148 of the Act. I submit that there is an information which suggests that income chargeable to tax has escaped assessment.
12. With reference to para No. 3(2) the petitioner has contended that reopening of assessment is initiated in the case of the petitioner only for the purpose of making fishing and roving inquiry.
The aforesaid allegation is baseless and denied. Under the new regime, the assessing officer can reopen assessment only if there is an information which suggests that income chargeable to tax has escaped assessment. As submitted hereinabove, the assessee has submitted partial documentary evidences and could not explain credit entries. I submit that there is an information which suggests that income chargeable to tax has escaped assessment. I submit that the impugned notice is legal and valid.
13. With reference to para 3(2.1), it is submitted that assessee was given an opportunity vide notice u/s. 148A(b) of the Act to explain the source and nature of credit entries in the bank account. However, the assessee could only explain credit entries partially. The assessing officer after considering the information as well as the reply of assessee has passed impugned order u/s 148A(d) of the Act.”
6.1 Referring to the above averments it was submitted that, no interference be made in this petition while exercising extraordinary jurisdiction as the petitioner has an alternative efficacious remedy to prefer an appeal if any addition is made in the reassessment proceedings.
7. Having heard learned advocates for the respective parties and considering the facts of the case, it would be germane to refer to the provision of section 148A of the Act which existed at the relevant point of time, reads as under:
“148A:-Conducting inquiry, providing opportunity before issue of notice under section 148- The Assessing Officer shall, before issuing any notice under section 148,—
(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
(b) provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);
(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:
Provided that the provisions of this section shall not apply in a case where,—
(a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or
(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee; or
(d) the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.
Explanation.—For the purposes of this section, specified authority means the specified authority referred to in section 151.]”
8. On perusal of the above provision, it is clear that the Assessing Officer can call for the details to verify the information in his possession as per provision of clause (a) of section 148A of the Act and on the basis of such explanation co-related with the information, the Assessing Officer can issue notice under clause (b) of section 148A of the Act so as to give an opportunity to the assessee to explain with regard to information which is disclosed in the notice to enable the Assessing Officer to come to a prima facie conclusion as to whether it is a fit case to reopen the assessment as such information would amount to income which has escaped the assessment for the year under consideration.
9. In the facts of the present case and on perusal of the Para 4 of the impugned notice issued under section 148A(b) of the Act, it is apparent that the Assessing Officer has called upon the assessee to furnish the details so as to explain the credits in the bank accounts which is reflected in the notice and which is made available to the Assessing Officer from the Risk Management Portal, Income Tax department.
10. It is true that any information which is available on the portal under the head “High Risk CRIU/VRU Cases”, the Assessing Officer is to make inquiries and thereafter on basis of the information which comes in the possession of the Assessing Officer, the Assessing Officer is required to issue notice under section 148A(b) of the Act. The legislature has made ample safeguards to strike a balance between the powers to be exercised by the the Assessing Officer for reopening as well as the Assessee subjected to reopening of the assessment, by inserting clause (a) to section 148A of the Act which permits the Assessing Officer to make inquiry with regard to the information which is made available to the Assessing Officer after obtaining sanction from the competent authority and thereafter, on the basis of such explanation which may be sought by the Assessing Officer under sub-clause (a) of section 148A of the Act, the Assessing Officer deems fit that the income chargeable to tax has escaped assessment, then notice under section 148A(b) of the Act is required to be issued to provide an opportunity of hearing to the assessee. Earlier, in view of the decision of the Hon’ble Apex Court in case of GKN Driveshafts (India) Ltd. v. ITO [2003] 179 CTR 11/259 ITR 19/ (SC), the procedure was followed by providing an opportunity to the assessee on supply of the reasons recorded by the Assessing Officer prior to 01.04.2021. With the amendment and insertion of section 148A of the Act, the directives of the Hon’ble Apex Court to provide an opportunity of hearing is now part of the statutory procedure for reopening of assessment. In such circumstances, the Assessing Officer is required to provide the reasons and the information suggesting that income has escaped assessment for the year under consideration so as to provide an opportunity to the assessee to explain the same and not to call for any further information.
11. However, in the facts of the present case, it seems that the Assessing Officer has not understood the purport and the purpose of insertion of section 148A of the Act and the provision of clause (a) and clause (b) are mixed up in the notice issued under section 148A(b) of the Act resulting into such notices being bad in law from the inception.
12. This Court in case of Onir Infraspace (P.) Ltd. (supra), in similar facts, has held as under:
“7. Considering the submissions made by learned advocates for the respective parties and on perusal of the impugned notice issued under Section 148A(b) of the Act, it is not in dispute that the said notice is issued for calling upon the petitioner to submit various details for verification of the data which leads to the only conclusion that the notice is issued for inquiry as contemplated under Section 148A(a) of the Act. The relevant portion of the said notice is reproduced hereinbelow:
“As per the above report, the assessee has introduced long term borrowings of Rs.61,00,00,000/- just after the incorporation of the assessee company and the source, genuineness and creditworthiness of the person from whom loan received by the assessee has to be verified.
1) With respect to the long term borrowings of Rs.61,00,00,000/- taken during the Financial year, kindly submit the below specified details:
| (a) | | Name and address of the lenders of the loan. |
| (c) | | Amount of loan accepted during the year. |
| (d) | | Amount of loan repaid during the year (squared up loan). |
| (e) | | Quantum of interest paid and rate of interest. |
| (f) | | Business purpose for which the loan was taken and income earned by utilisation of funds. |
2) Provide documentary evidence to substantiate the identity of the lenders and ITR of last 3 years of the lenders to substantiate the creditworthiness of the lenders.
3) Kindly provide documentary evidence to substantiate the genuineness of the above specified transaction. In case of failure to furnish the above details, it may be treated that the income to the tune of Rs.61,00,00,000/-has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment year 2020-21 within the meaning of section 147 of the Income Tax Act. On verification of the information flagged in the case of the assessee, it appears that income chargeable to tax has escaped assessment and therefore, before forming the opinion for issuing the notice under section 148, an opportunity of being beard is required to be provided to the assessee as per provisions of section 148A(b) of the Act. Therefore, it is proposed to issue a letter as per provisions of section 148(b) of the Act, requesting the assessee to show cause as to why a notice under section 148 should not be issued on the basis of the information which suggest that income chargeable to tax has escaped assessment for the assessment year under consideration.”
8. On perusal of the above details called for by the respondent in the notice issued under Section 148A(b) of the Act, it would be germane to refer to Section 148A(b) of the Act, which reads as under:
“Section 148A(b): provide opportunity of being heard to the assessee, [***] by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a).”
9. On perusal of the above provisions, it appears that the Assessing Officer before issuing the notice under Section 148 of the Act has to conduct the inquiry with prior approval of the specified authority with respect to the information which suggest that the income chargeable to tax has escaped the assessment and after such inquiry, issued the notice under Section 148A(b) of the Act to provide an opportunity of being heard to the assessee by serving a showcause notice. However, in the facts of the case, the respondent has issued the notice under clause (b) of the Section 148A of the Act as if the inquiry is to be conducted under clause (a) of Section 148A of the Act and therefore, the impugned notice cannot be commensurate the requirement of clause (b) of Section 148A of the Act as such notice could have been issued only after conducting the inquiry on part of the respondent-Assessing Officer.
10. In case of Safal Constructions India (supra), this Court in similar facts, has held as under:
“[36] Considering the above facts, notice dated 28th March 2023 along with the Annexures issued under Section 148A(b) of the Act cannot be said to be the notice requiring the assessee to provide an opportunity of hearing to show cause as to why the notice under Section 148 of the Act should not be issued on the basis of the information which suggests that the income chargeable is escaped assessment. The notice is only in the nature of inquiry as contemplated under Section 148A(a) of the Act, which provides that before issuance of any notice under Section 148 of the Act, the Assessing Officer shall conduct an inquiry, if required, with prior approval of the specified authority with respect to the information which states that the income chargeable is escaped assessment. Therefore, though the notice was issued under the provisions of Section 148A(b) of the Act, in fact, such notice is under Section 148A(a) of the Act as the ingredients of notice which requires as per the statutory provisions of Section 148A(b) are not mentioned. The Assessing Officer has not provided any details with regard to income which has escaped assessment, but has called for the details for the period from the Financial Year 2014-15 to 2015-16 without mentioning the income as escaped assessment for the relevant Assessment Year 2016-17.
[37] The Assessing Officer, for the first time, in the order passed under Section 148A(d) of the Act has mentioned about bifurcation of the total transaction of Rs.791.22 Crores out of which credit entries amounting to Rs.86,63,62,755/- was mentioned pertaining to the period from 1st April 2015 to 27th April 2015 in the Suspicious Transaction Report.
[38] On perusal of the impugned order under Section 148A(d) of the Act, the Assessing Officer did not consider any of the contentions raised on behalf of the assessee on merits and reiterated only extract from the Suspicious Transaction Report in para 6.2 of the order. The assessee has been given the entire details of transaction in reply along with the annexures, however, the Assessing Officer did not consider the same and only observed that the assessee did not adduce any supporting document establishing the identity of the parties, genuineness of transaction and creditworthiness of the counter parties justifying the bank account transactions carried out are related to the business parties of the assessee. On perusal of the record, it appears that the petitioner – assessee has submitted all the details along with reply filed on 9th May 2023,. In such circumstances, in view of the above facts, the impugned assessment order under Section 148A(d) of the Act is not sustainable as the Assessing Officer has failed to set out any opinion on the basis of the available information and material on record to arrive at the finding that it is a fit case to reopen the assessment under Clause (b) of Section 148A of the Act. In the case on hand, we are not required to examine the correctness of the contentions qua the facts of the case as raised on behalf of the petitioner as it would be premature as the case of the petitioner is based upon the legal contentions that the notice under Section 148A(b) of the Act is in the nature of notice under Section 148A(a) of the Act and that the notice issued under Section 148A(b) is without considering the contentions raised by the assessee in the reply to the notice under Section 148A(b) of the Act as per Clause (c) of Section 148A of the Act. On perusal of the notice under Section 148A(b) of the Act, it is clearly seen that the annexures do not contain any information, it is a questionnaire requiring the petitioner to provide details as sought for and therefore, it was an intention of the Assessing Officer who was to conduct an inquiry after receiving information from the assessee and therefore, notice is deemed to be the notice under Section 148A(a) of the Act. Thus, there is a gross procedural error from the very inception of the procedure rendering the same is bad in law. [39] For the reasons recorded as above, as the notice dated 28th March 2023, though stated to be issued under Clause (b) of Section 148A of the Act, the same is, in fact, a notice under Clause (a) of Section 148A of the Act can be treated as such. As the time to issue notice under Section 148A(b) of the Act has already expired, no purpose would be served by issuing direction to the Assessing Officer to conduct an inquiry considering the reply of the assessee as to whether to issue notice under Section 148A(b) of the Act or not.”
11. In view of the above, we are of the opinion that the impugned notice issued under Section 148A(b) of the Act could not have been issued for verification on the part of the respondentAssessing Officer and therefore, the same would fail and accordingly, the petition succeeds and the impugned notice dated 05.03.2024 and the consequential order under Section 148A(d) of the Act and the notice under Section 148 are hereby quashed and set aside. However, we make it clear that if the respondent wishes to re-initiate the proceedings under the provisions of the law, this order would not come in way and the respondent would be at liberty to initiate such proceedings as per the provisions of the Act. Rule is made absolute to the aforesaid extent. No orders as to cost.”
13. Therefore, without going into further facts of the case, when the impugned notice issued under section 148A(b) is bad in law, the order under section 148A(d) would not survive and consequently, both the notices and order under section 148 of the Act are liable to be quashed and set aside.
14. In view of the foregoing reasons, the petition succeeds. The impugned notices dated 17.03.2023 issued under section 148A(b) of the Act as well as notice dated 31.03.2023 under section 148 of the Act and the order dated 31.03.2023 under section 148A(d) of the Act are hereby quashed and set aside. Rule is made absolute. No order as to costs.