The Karnataka High Court in a recent decision observed that mere reason to believe, cannot be a ground for carrying out assessment under Section 147 of the Income Tax Act, 1961.
The petitions having substantially similar factual matrix and involving identical questions of law, sought to lay a challenge to the orders dated 31.3.2022 passed under Section 148A(d) followed by evenly dated notices issued under Section 148 of the Income Tax Act, 1961. The impugned action has been generated at the hands of 1st respondent.
The petitioners challenged the reopening of their assessments for the Assessment Year 2018-19. They had acquired shares in MEMGIPL, and after a demerger, received shares in MISPL and Quess Corp. Ltd. The Income Tax Department issued notices alleging taxable consequences of the demerger and non-reporting of share sales.
The petitioners sent their replies to the subject Show Cause Notices taking up certain objections and requested for dropping of the proposed action. However, the Assessing Officer vide orders passed under Section 148A(d), overruled the objections and issued notices under Section 148 of the Income Tax Act for the Assessment Year 2018-19. These orders and notices are the subject matter of challenge in these petitions.
Section 147 of the Income Tax Act provides for the assessment or reassessment of escaped income, subject to complying with the provisions of sections 148 to 153 of the Income Tax Act. The Explanation to the said section allows assessment or reassessment of any other income which is chargeable to tax but has escaped assessment and comes to his notice during the course of assessment/reassessment even if provisions of Section 148A have not been complied with subject.
The Bench of Justice Krishna S Dixit observed that, “For conducting assessment under section 147, there should be not only escapement but also the reason to believe that there is such escapement, the reason being the information itself. Hence, a plausible view could be taken that post-amendment of the provision, the escapement has to be established with concrete information. Section 148A would only assist the Assessing Officer in coming to a conclusion whether such information is good enough to allow a notice to be issued under Section 148.”
The argument that omission of phrase ‘reason to believe’ has gotten away and has given way to “information with the assessing officer which suggests that the income chargeable to tax has escaped assessment” would mean that there should be no need for any reason seems incorrect. The phraseology of amended Section 148 makes in unmistakable terms clear that there should be a concrete information as defined in Explanation 1 to Section 148″ the Bench noted.
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