ARB HOTELS RESORTS PRIVATE LIMITED V. PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX AND 2 OTHERS

WTAX/720/2023

AI Insights

The case involves Arb Hotels Resorts Private Limited challenging the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2013-2014. The petitioner argued that the reassessment was invalid as the income alleged to have escaped assessment was below the statutory limit of Rs. 50 lakhs. The revenue contended that the initiation was based on credible information at the time, and the reassessment order could be adjusted later. The court examined the procedural compliance with the amended Section 148A and found that the reassessment was validly initiated, leading to the dismissal of the writ petition.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 671939 (HC-ALLAHABAD)
• Appeal Type: Others
• Pronouncement Date: 26-05-2023
• Assessment Year: misc
• Other Referred Cases: GKN Driveshafts (India) Ltd Vs. Income Tax Officer, 259 ITR 19 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: GAURAV MAHAJAN; MANU GHILDAYAL
• Assessee Lawyers: ASHISH BANSAL
• Keywords: Accommodation entry; Escapement of income; Income Tax; Jurisdictional notice; Reassessment proceedings
• Section: 147; 148; 149; 148A

Judgement Text

"Neutral Citation No. - 2023:AHC:117976-DB Court No. - 42 Case :- WRIT TAX No. - 720 of 2023 Petitioner :- Arb Hotels Resorts Private Limited Respondent :- Principal Chief Commissioner Of Income Tax And 2 Others Counsel for Petitioner :- Ashish Bansal Counsel for Respondent :- Gaurav Mahajan Hon'ble Saumitra Dayal Singh,J. Hon'ble Chandra Kumar Rai,J. 1. Heard Sri Ashish Bansal learned counsel for the petitioner and Sri Manu Ghildayal learned counsel for the revenue. 2. Present writ petition has been filed by the assessee to question the reassessment proceedings initiated in its case under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') pursuant to the earlier order passed under Section 148A(d) of the Act, dated 31.7.2022 and the consequent notice issued on that date. 3. Submission of learned counsel for the petitioner is, the very initiation of the reassessment proceedings was bad. The Assessment Year in question is 2013- 2014. Three years from the end of that Assessment Year expired on 31.3.2017. By virtue of mandatory provisions of Section 149 of the Act read with relevant Circular of the CBDT, no reassessment proceedings may have been initiated against the petitioner after 31.3.2017 if the component of income alleged to have escaped assessment was less than 50 Lakhs. 4. In the present case, relying on the view now expressed by the assessing authority contained in its final show cause notice dated 12.5.2023, it has been vehemently urged, the objection raised by the petitioner at the initial stage that there was no second transaction of Rs. 27 lakhs and that there was only one transaction of Rs.27 lakhs alleged to have escaped assessment has been found true. The reassessment proceedings may not have been initiated at all since the quantum of escapement was only Rs. 27 lakhs i.e. well below the statutory limit of Rs. 50 lakhs. 5. To bolster his submission, learned counsel for the petitioner has referred to the original notice issued under Section 148A(b), dated 25.5.2022; reply furnished by the assessee thereto dated 11.6.2022 and; the order passed by the assessing authority under Section 148(b), dated 31.7.2022. Thus, it has been elaborated, at the stage of assuming jurisdiction, the assessing authority wrongly brushed aside the specific objection of the petitioner as to absence of second transaction of Rs. 27 lakhs. The recital in that order that accommodation entry had been provided to the petitioner in an unaccounted bank account from another unaccounted bank account of M/s Jar Metal Industries Pvt. Ltd. was nothing but a figment of imagination. 6. Thus, it has been submitted, reassessment proceedings have been initiated against the petitioner on non existent material. If the non existent transaction of Rs. 27 lakhs is ignored, then by virtue of the mandatory language of Section 149, no reassessment proceedings could ever have been initiated. It has been further submitted, reassessment order has been passed in the present case on 25.5.2023. 7. On the other hand, learned counsel for the revenue would submit, there is no material to reach any conclusion at this preliminary stage that the information pertaining to the second transaction of Rs. 27 lakhs was non-existent. The fact that such information has not been found credible enough to include that amount in the component of escapement of income may not prejudice the initiation of reassessment proceedings. At the stage of initiation of the proceedings, only a satisfaction was required to be drawn on the strength of information then available. At that stage, in the present facts, the assessing authority felt satisfied that there were two accommodation entries of 27 lakhs each, obtained by the assessee from M/s Jar Metal Industries. However, it may be true, during the course of reassessment proceedings and upon consideration of the replies furnished by the assessee, the assessing authority is now proposing to take a different view by ignoring one alleged accommodation entry of Rs. 27 lakhs. That course is stated to be wholly permissible in law and in the interest of assessee itself. 8. Then, it has been submitted, at present, there is no material to reach any conclusion that the other accommodation entry of Rs. 27 lakhs relied against the petitioner was either non-existent or that explanation furnished by the assessee is wholly acceptable. On the strength of this submission, it has been asserted the Court may not interfere in exercise of its discretionary equitable jurisdiction under Article 226 of the Constitution of India as prima facie, information and satisfaction (arising therefrom), of escapement of income exists with respect to that amount. 9. Having heard learned counsel for parties and having perused the record, in the first place, under the amended law, the assessing authority draws power to reassess the assessee, from Section 147 of the Act, if any income chargeable to tax in the case of that assessee escapes assessment. That power has been made subject to provisions of Section 148 to 153 of the Act. By virtue of Section 148 of the amended law, reassessment notice may be issued under that provision subject to compliance of Section 148A of the Act, whereafter he may serve the jurisdictional notice. 10. Section 148A is a new provision. Earlier, under the unamended law, by virtue of decision of the Supreme Court in GKN Driveshafts (India) Ltd Vs. Income Tax Officer, 259 ITR 19 (SC), it had been made obligatory on part of the assessing authority to consider the objections to jurisdictional notices issued under Section 148, before proceeding with the reassessment proceedings. While that was the scheme under the unamended law, upon amendments made by the Finance Act, 1921, new provision Section 148A has been introduced. That not only gives statutory right to the assessee to object to proceeding under Section 148 rather, it prescribes the manner in which such objection may be invited and dealt with. 11. Thus, before issuing a reassessment notice, on any information that may have been received by the assessing authority, presently, the assessing authority has been obligated to first conduct an enquiry with respect to information that may suggest to him that any income chargeable to tax had escaped assessment. This is provided under Section 148A(a) of the Act. Then, by virtue of sub clause (b) of Section 148A, the assessing authority has to give to the assessee an opportunity of being heard by serving on him a prior notice, to show cause why proceedings under Section 148 may not be initiated in his case. Upon statement and reply filed by the assessee under Section 148A(c), the assessing authority is then obligated to decide, on the basis of material available on record (that may necessarily include the reply furnished by the assessee), whether it is a 'fit case', to issue notice under Section 148. That decision is to be in the shape of an order to be passed with prior approval of specified authority, where required. 12. Examined in that light, it is seen, procedurally the assessing authority had followed the amended law inasmuch as he first issued the notice dated 25.5.2022 inviting objections from the petitioner on the information received by him. The petitioner did file objections thereto on 11.6.2022. There upon an order was passed by the assessing authority on 31.7.2022. At that stage, the assessing authority recorded its satisfaction thus:- \"6.4 From audited financial statement of JAR Metal Industries Pvt. Ltd., Rs.27,00,000/- mentioned in annexure A on account of investment as at 31st March, 2013 and same amount mentioned in the statement of bank account and audit report of the assessee. The another entry of Rs. 27,00,000/- has not mentioned in the aforesaid accounts. As per information, during the course of search, Shri Pradeep Kumar Jindal had confirmed the two entry of Rs. 27,00,000/- dated 10.04.2012 and Rs. 27,00,000/- dated 04.10.2012 were provided to the assessee company through JAR Metal Industries Pvt. Ltd. It is appear that the another receipt amount of Rs.27,00,000/- dated 10.04.2012 was received in unaccounted bank account and M/S JAR Metal Industries Pvt. Ltd also transfer this amount from unaccounted bank account. Therefore, in this regard, necessary verification is to be need and it should be investigated during the course of assessment proceedings u/s 147 of the Act. 6.5 Bank statement of JAR Metal Industries Pvt. Ltd has not enclosed with this information as the various numbers of entities involved in this matter and it is not possible to each & every entity's bank statement enclosed with the information. 6.6 As per information, value of the total accommodation entries were Rs 54,00,000/ and the escaped amount is above Rs. 50,00,000/-. As per as per Instruction No. 01/2022 dated 11.05.2022 of CBDT, this case is not time barred. 6.7 As per material which provided to the assessee, two entry of Rs. 27,00,000/- dated 10.04.2012 and Rs. 27,00,000/- dated 04.10.2012 are mentioned in its and assessee company has confirmed this in its reply. In this regard, without complete inquiry form the concerned parties, it cannot be accepted that only Rs. 27,00,000/- was credited in the bank account of the assessee company.\" 13. Thereafter, the reassessment notice dated 31.7.2022 appears to have been issued to the assessee. The assessee filed further replies and the proceedings have been conducted and now concluded after almost one year. At this stage, on 12.5.2023 the final show cause notice appears to have been issued to the assessee, to submit any other reply that it may seek to submit. At this stage, perusal of that notice, does appear to indicate that the assessing authority has reconsidered his tentative view expressed in the order passed under Section 148A(b), dated 31.7.2022 and he is now proposing to confine the proceedings to one accommodation entry of Rs. 27 lakhs only. 14. While that fact submission is attractive at the surface, yet the writ Court may not be compelled to interfere at this stage of the proceedings, especially in view of the facts noted above. 15. By way of reason, neither under the unamended law nor under the amended law, it was ever obligatory on the assessing authority to proceed to make assessment of component of escaped income with respect to entire 'information/reason to believe' that may have given rise to reassessment proceedings. That satisfaction/reason to believe has always been relevant only for the purpose of assumption of jurisdiction. Once jurisdiction was validly assumed by recording appropriate 'reason to believe', issuance of the notice thereafter, threw open entire assessment of the subject assessee. It enabled the assessing authority to pass a reassessment order both with respect to information that may have given rise to 'reason to believe', as also on other issues that may arise during the course of reassessment proceedings. 16. Similarly, the assessing authority was not bound in law to bring to tax all income commensurate to the information/'reason to believe', recorded by him, to assume jurisdiction. It was always open in law (for the assessing authority), to drop whole or any part of such allegations of escapement of income (drawn at the initial stage). 17. Even under the amended law, no change has been brought as may compel the assessing authority to subject an assessee to tax on entire information giving rise to reassessment proceedings. In short, even after the amendment made to the Act, the issue as to assumption of jurisdiction and passing of assessment order in exercise of that order remain two separate and largely independent exercise. While no reassessment order may be passed unless jurisdiction is shown to have been validly assumed, reassessment order giving rise to tax liability is not sine qua non of valid assumption of jurisdiction. 18. The fact that in the present case, the assessing authority has reconsidered his position and now reached a conclusion that there exists only one accommodation entry of Rs. 27 lakhs and not two such entries, may only impact the quantum of reassessment order to be made. 19. Insofar as at the stage of assumption of jurisdiction, the assessing authority had taken note of two entries that too after issuing due notice to the petitioner and passing an order under Section 148A(d), establishes due compliance of the procedure. The fact that such tentative conclusion recorded at that stage may not be found to be correct in entirety, and the fact only one accommodation entry of Rs. 27 lakhs may have been obtained by the assessee, may not be enough to now lead to the conclusion that learned counsel for the petitioner has tried to persuade us to. There is no material or basis to conclude that there never existed any material or information as to allegation of the second accommodation entry of Rs. 27 lakhs, in an undisclosed bank account. In any case, it is too late in the day to enter into that exercise. 20. The effect of section 149 has to be seen in the context of facts that obtained at the stage of initiation of reassessment proceedings. Insofar as at that stage the quantum of income alleged to have escaped assessment was quantified at Rs. 54 lakhs, allowed the assessing authority of the petitioner to take benefit of Section 149(b) of the Act, at that stage. Almost one year has passed since then, before present challenge has arisen. At present, even the reassessment order has come into existence. There is no reason available to this Court to infer, there is no escapement of income of Rs. 27 lakhs (arising from the other accommodation entry). 21. Subsequent development emerging in the course of reassessment proceedings wherein a fact conclusion may be drawn by the assessing authority indicating escapement of income below 50 lakhs cannot relate back to have any material bearing on the initiation of the reassessment proceedings and it cannot undo that initiation of proceeding. There is no principle of law (statutory or otherwise) to reach that conclusion. Plainly, in the facts as noted above, no sanction was required to be obtained at the stage of initiation of reassessment proceedings. Therefore, initiation of reassessment proceeding was well founded on satisfaction as to escapement of income, from tax. The fact that some part of the allegation of escapement is being dropped or not pursued at the stage of quantification of income, may not nullify the assumption of jurisdiction, by now invoking section 149 of the Act. 22. Last, we may also note as a Court of equity, the writ Court may not be persuaded to drop the entire proceedings at the fag end on a purely technical submission. Yet, that submission is not being accepted in the present facts. On a general principle, once component of escapement exists, it has to be finally determined by the assessing authority. We therefore refrain ourselves from exercising the discretionary jurisdiction to quash the entire proceedings at this late stage. To that rule of equity and good conscience, we abide. 23. Accordingly, we refuse to exercise jurisdiction under Article 226 of the Constitution of India. Writ petition is dismissed. Any observation made in this order may not prejudice the assessee in outcome of the reassessment proceedings (on merit issues). Those may be determined on own facts and submissions to be considered by the assessing authority and or the appeal authority. Order Date :- 26.5.2023 Faraz (C.K. Rai, J.) (S.D. Singh, J.) Digitally signed by :- FARAZ AHMAD High Court of Judicature at Allahabad "