Bombay High Court Affirms Reassessment Proceedings for Undisclosed Income, Emphasizes Jurisdictional Limits and Right to Appeal

Court’s Decision:

The Bombay High Court dismissed the writ petition challenging reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961. The court concluded that the petitioner’s objections pertained primarily to the merits of the reassessment and not to jurisdictional defects. As a result, the court refrained from exercising its powers under Article 226 of the Constitution to interfere at this stage. It clarified that the petitioner was free to raise objections during the reassessment or appellate proceedings.

Facts of the Case:

1. Assessment History:
   • The petitioner filed their income tax return for the assessment year 2016–17, disclosing a capital gain of ₹66,59,598.
   • The return was scrutinized, and an assessment order was passed under Section 143(3), which accepted the return and focused solely on verifying deductions claimed under Chapter VI-A.
2. Reassessment Trigger:
   • On March 24, 2023, the Income Tax Department issued a notice under Section 148A(b) based on information received via the Risk Management Strategy formulated by the Central Board of Direct Taxes (CBDT).
   • The information alleged that the petitioner had undisclosed cash receipts of ₹1.30 crore and credit card expenses amounting to ₹19,09,144, neither of which were reflected in the original return.
3. Petitioner’s Response:
   • The petitioner responded with objections, providing bank statements and supporting documentation to contest the allegations.
4. Further Proceedings:
   • The objections were rejected, and a notice under Section 148 was issued for reassessment. This was challenged by the petitioner in the present writ petition.

Issues:

1. Whether the reassessment proceedings were without jurisdiction due to the alleged procedural defects and lack of new material evidence.
2. Whether the reassessment was valid under the amended provisions of Section 148.
3. Whether the approval under Section 151 was granted with due application of mind.

Petitioner’s Arguments:

1. Erroneous Basis for Reopening:
   • The petitioner argued that the reassessment was initiated on the erroneous assumption that no income tax return had been filed, a claim contradicted by the facts.
2. Examination During Original Assessment:
   • It was contended that the alleged issues (cash receipts and credit card expenses) were already examined during the original assessment proceedings, rendering the reassessment redundant and invalid.
3. Improper Invocation of Section 148:
   • The petitioner asserted that the proper provision for reopening in this case was Section 153C, as the information related to a search conducted prior to April 1, 2021.
4. Precedent Reliance:
   • The petitioner relied on judgments such as Hexaware Technologies Ltd. v. ACIT and Narendra Kumar Shah v. ACIT, arguing that similar reassessment notices were quashed in those cases.

Respondent’s Arguments:

1. New Information After Original Assessment:
   • The respondents argued that the alleged cash transactions and credit card expenses were not part of the original assessment because the scrutiny was limited to verifying deductions under Chapter VI-A.
   • New information about undisclosed cash receipts was received only in February 2022, well after the completion of the original assessment.
2. Jurisdictional Compliance:
   • The respondents maintained that the notice under Section 148 was validly issued based on new information under the amended provisions, which emphasized “information” as the basis for reopening.
3. Approval Under Section 151:
   • The respondents defended the approval process, asserting that it reflected due application of mind and was based on a thorough review of the material.

Analysis of the Law:

1. Amended Provisions of Section 148:
   • The court emphasized that the amended Section 148 broadens the scope of reassessment, allowing reopening based on information received after the original assessment.
   • The inclusion of “information” in the amended law justified the initiation of proceedings in this case.
2. Distinguishing Precedents:
   • The court noted that the precedents cited by the petitioner pertained to the pre-amended provisions of the Act and were therefore inapplicable to the present case.
   • The specific factual matrix of the present case, involving alleged unaccounted cash receipts and credit card transactions, further distinguished it from earlier judgments.
3. Scope of Jurisdiction Under Article 226:
   • The court underscored the limited scope of interference under Article 226, particularly when jurisdictional objections were not raised in the objections filed with the department.

Court’s Reasoning:

1. Objections on Merits, Not Jurisdiction:
   • The court observed that the petitioner’s objections primarily addressed the merits of the reassessment and not jurisdictional defects. These objections were better suited for examination during the reassessment or appellate process.
2. Validity of Information-Based Reopening:
   • The court held that the reassessment was validly initiated based on information received under the CBDT’s Risk Management Strategy, which satisfied the statutory requirements.
3. Approval Under Section 151:
   • The court reviewed the approval memo and found that it demonstrated due application of mind. The approving authority had considered the relevant material, contrary to the petitioner’s claim.
4. Limited Scope of Initial Assessment:
   • The court noted that the original assessment proceedings were limited to verifying deductions under Chapter VI-A and did not examine the issues now raised.

Conclusion:

The court dismissed the writ petition, finding no procedural or jurisdictional defects in the reassessment proceedings. It clarified that the petitioner was free to challenge the reassessment during the appellate process if necessary.

Implications:

1. Broader Scope for Reassessment:
   • The judgment affirms the expanded scope of reassessment under the amended Section 148, emphasizing the importance of new information as a basis for reopening.
2. Judicial Restraint Under Article 226:
   • The ruling reiterates the limited scope of judicial intervention in tax matters, particularly when jurisdictional defects are not evident.
3. Significance of Procedural Compliance:
   • The decision highlights the importance of procedural compliance, including the application of mind during approval under Section 151.

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