Assessing Officer Must Ensure That Assessee Is Not Confronted With Undesirable Situations Due To Defective Data Applied To Initiate Proceedings U/S 148 ITA: Bombay HC

The Bombay High Court observed that the Assessing Officer (AO) must ensure that the assessee is not confronted with undesirable situations due to defective data being applied to initiate proceedings under Section 148 of the Income Tax Act, 1961 (ITA).

The Court observed thus in a writ petition filed by a woman challenging a notice issued by the Income Tax Officer (ITO) under Section 148 of ITA.

A Division Bench of Justice G.S. Kulkarni and Justice Somasekhar Sundaresan held, “Thus, necessarily when electronic information is available under the faceless mechanism and there is other material available, as may be gathered by the Assessing Officer or furnished by the assessee, it would be incumbent on the Assessing Officer to apply his mind to all such materials and only thereafter take a well considered view of the matter to issue a notice under Section 148 of the Act by dispensing the provisions of Section 148A of the Act. Any failure or overlooking of these considerations in a given situation, may result in the assessee, being put to an unwarranted prejudice, by a defective action being resorted by the respondents resulting into the assessee facing an ordeal of a notice under Section 148 of the Act. It is hence the duty of the Assessing Officer to ensure that the assessee is not confronted with such undesirable situations on account of defective data being applied to initiate proceedings under Section 148 of the Act, failing which the first proviso below Section 148 would be rendered negatory.”

The Bench said that it is of utmost necessity that before any action prejudicial to the assessee, like in the nature of issuance of a show-cause notice under Section 148 of the Act is resorted, it would be the duty and obligation of the Income Tax authorities to verify or to have a basic scrutiny whether such information when cross checked with the materials furnished by the assessee, in the returns or otherwise would lead to a prima facie conclusion that income has escaped assessment, for further action to be taken under Section 148 of the Act.

Advocate Dharen V. Gandhi appeared for the petitioner while Advocate Akhileshwar Sharma appeared for the respondents.

Facts of the Case -

The ITO issued the notice dispensing with the provisions of Section 148A of ITA on the ground that ITO was in receipt of certain information as per the scheme notified under Section 135A which provides for faceless collection of information. On the basis of such information, an opinion was formed to issue the said notice. The Assessment Year (AY) in question was 2020-21 and the petitioner filed her return of income for the said AY. Subsequently, an intimation was issued to her under Section 143(1) ITA without any addition, accepting the total income disclosed by her in her return of income. Thereafter, an information was received on the Insight Portal, intimating her of discrepancies in regard to the ‘interest income’ set out in the return filed for the said AY.

Such information indicated that her income from other sources was of Rs. 26,41,234.65/- and she replied to the said information stating that an amount of Rs. 8,88,577/- as disclosed in the return was the correct income from interest as earned by her and the balance amount of Rs. 17,52,657.65 alleged to be received by her was an incorrect information, received by ITO from the portal. Thereafter, for a period of almost two years, no steps were taken by ITO. Hence, the case of the petitioner before the High Court was to the effect that the information which was referred by ITO was not the correct information.

The High Court in the above context of the case noted, “We thus find substance in the contentions as urged on behalf of the Petitioner that merely because a faceless collection of information is provided under Section 148A of the Act, and the entire information is electronically generated on the electronic portal being required to be answered by the assessee, as in the present case, the operation of such electronic regime cannot create arbitrary consequences. To prevent such situation, the department needs to have a mechanism of having some safeguards.”

The Court enunciated that once a defect is pointed out on such information as available on the portal, it would be certainly the duty of the Assessing Officer to examine whether the version of the assessee in pointing out that the information is not correct, would require due consideration for any further action to be taken to issue notice under Section 148 of the Act.

“We find merit in the Petitioner’s case that such actions could have been avoided by the Assessing Officer if an application of mind to this effect was to be shown on the earlier occasion. We would, therefore, certainly accept the Petitioner’s contention that the impugned notice issued under Section 148 of the Act is arbitrary and vitiated by non-application of mind and consequently it being required to be quashed and set aside”, it added.

Before parting, the Court cautioned the respondents that such issues do not reach the Court. It remarked that the AOs need to bear in mind when the Assessing Officer intends to resort to an action under Section 148 of the Act on the basis of information, which is derived under Section 135A of the Act, that is in the electronic form, unless the AO has verified such other relevant materials gathered either form the assessee or otherwise available, he ought not to proceed to issue a notice under Section 148 of the Act, without undertaking an exercise of appropriate verification of such materials so as to form an opinion, that it would be permissible in a given case to dispense with the procedure under Section 148A to be followed, for issuance of a notice under Section 148 of the Act.

Accordingly, the High Court disposed of the petition and quashed the impugned notice.

Cause Title- Benaifer Vispi Patel v. The Income Tax Officer Ward 1 & Anr. (Neutral Citation: 2024:BHC-AS:29679-DB)

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