The Income Tax Appellate Tribunal (ITAT), Ranchi Bench, has quashed reassessment notices issued for three assessment years after finding that the proceedings were based on information physically received by the Assessing Officer before the cut-off prescribed under the Central Board of Direct Taxes’ instructions governing the reopening of assessments.
The Bench of George Mathan (Judicial Member) and Ratnesh Nandan Sahay (Accountant Member) has observed that the notices issued under Section 148 of the Income Tax Act, 1961, on March 26 and 27, 2021, violated the CBDT instruction dated March 4, 2021, read with its clarificatory instruction dated March 12, 2021. Consequently, the notices and all assessments completed pursuant to them were quashed.
The appeals arose from orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, on September 28, 2023. During the appellate proceedings, the taxpayer raised an additional legal ground challenging the very validity of the reassessment proceedings.
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The taxpayer relied upon the CBDT instruction dated March 4, 2021, which identified the categories of cases that could be treated as potential cases for action under Section 148 by March 31, 2021, for Assessment Years 2013-14 to 2017-18.
One of the permitted categories covered reports received from the Directorate of Income Tax (Investigation), the Directorate of Intelligence and Criminal Investigation, and cases flagged by the Directorate of Income Tax (Systems) based on risk profiling.
The instruction specifically stated that no category of cases other than those identified in the instruction should be considered by the jurisdictional Assessing Officer for action under Section 148.
A subsequent clarification issued on March 12, 2021, explained that the potential cases covered by the relevant category meant cases flagged by the Directorate of Income Tax (Systems) after March 4, 2021.
The taxpayer argued that the information underlying the reassessment proceedings had been sent by the Deputy or Assistant Director of Income Tax (Investigation), Dhanbad, on January 29, 2021, and was received in the Assessing Officer’s office on February 2, 2021.
Since the information was received before March 4, 2021, the taxpayer contended that it did not fall within the category of cases permitted to be reopened under the CBDT instructions.
It was also argued that the required approval of the Chief Commissioner of Income Tax, in addition to the approval contemplated under Section 151, was not available on record.
The Income Tax Department sought to defend the reopening by relying upon information available on the Insight Verification Portal.
According to the Revenue, the information had been uploaded to the portal by the DDIT/ADIT (Investigation), Dhanbad, on March 7, 2021. Since the upload took place after the CBDT instruction dated March 4, 2021, the Department argued that the reassessment notices satisfied the conditions prescribed by the Board.
During the hearing, the Senior Departmental Representative initially declined to provide the Insight Portal documents to the taxpayer on the ground that they were internal Insight documents.
The Tribunal rejected this position and directed the Revenue to furnish the information to the taxpayer.
The Bench observed that the principles of natural justice require that any information proposed to be used in deciding a dispute must be made available to all persons connected with the proceedings.
The department also relied upon the Delhi High Court’s decision in CIT v. Safetag International India Pvt. Ltd. to argue that a taxpayer who had not raised objections during the assessment proceedings could not be permitted to raise them at a later stage.
The Tribunal, however, found that the additional ground raised by the taxpayer was a pure question of law that went to the root of the assessments.
Relying upon the Supreme Court’s decision in National Thermal Power Co. Ltd. v. CIT, reported in 229 ITR 383, the Bench observed that an appellate tribunal has jurisdiction to entertain an additional legal ground that was not raised earlier, provided the relevant facts are already available on record and no fresh investigation is necessary.
The ITAT also noted the complexity of income-tax legislation, observing that fiscal laws are not easily understood by the common person. The fact that different interpretations are frequently considered by High Courts and the Supreme Court itself demonstrated the intricate nature of tax law, the Bench said.
Accordingly, the Tribunal admitted and adjudicated the additional ground challenging the validity of the reassessment proceedings.
A crucial factor in the Tribunal’s decision was the discrepancy between the amounts mentioned in the reasons recorded for reopening and those shown on the Insight Portal.
For Assessment Year 2014-15, the reasons recorded by the Assessing Officer stated that income of Rs. 1,41,89,843 had escaped assessment. In contrast, the Insight Portal reflected alleged undisclosed income of Rs. 1,08,74,913.
For Assessment Year 2015-16, the reasons recorded referred to an amount of Rs. 54,73,670, whereas the Insight Portal showed Rs. 92,04,260.
Similarly, for Assessment Year 2016-17, the reasons recorded referred to Rs. 66,63,818, while the Insight Portal reflected Rs. 29,48,292.
The Tribunal found that the figures recorded by the Assessing Officer did not correspond with the figures available on the Insight Portal.
Instead, the amounts appearing in the recorded reasons matched the figures contained in the physical information forwarded by the DDIT/ADIT (Investigation), Dhanbad, through the letter dated January 29, 2021.
The Bench further noted that the reasons recorded by the Assessing Officer did not refer to any information obtained from or flagged on the Insight Portal.
During the dictation of the order in open court, the Departmental Representative submitted that the portal entry also referred to a PDF and that the relevant figures might have been mentioned in that document.
The Tribunal declined to accept the submission because the purported PDF had neither been produced before the Bench nor referred to earlier in the proceedings.
It also observed that even if such a PDF contained the figures appearing in the recorded reasons, the discrepancy between those figures and the amounts uploaded on the Insight Portal would remain unexplained.
“There is no way to link the said information on the basis of which the Assessing Officer has issued notice under Section 148 of the Act or recorded the reasons for the purpose of reopening the assessment with Insight Portal information,” the Tribunal observed.
On examining the material, the ITAT concluded that the reassessment proceedings were initiated on the basis of the physical information sent by the Investigation Wing on January 29, 2021, and received by the Assessing Officer on February 2, 2021.
The Tribunal reasoned that the amounts recorded by the Assessing Officer were identical to those stated on the third page of the physical report. This established that the physical communication, rather than the information subsequently uploaded on the Insight Portal, formed the actual basis of the reassessment proceedings.
Since the physical information had been received before March 4, 2021, the case did not meet the conditions prescribed in the CBDT instruction dated March 4, 2021, as clarified on March 12, 2021.
The Bench consequently held that the reassessment notices issued on March 26 and 27, 2021, were contrary to the binding CBDT instructions.
The Tribunal quashed the notices issued under Section 148 for all three assessment years, along with the consequential reassessment orders.
Once the jurisdictional challenge was accepted and the assessments were annulled, the ITAT found it unnecessary to decide the taxpayer’s remaining grounds on merits.
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