Supreme Court to Examine Whether Verification is Required Before Issuing Reassessment Notice u/s 148A [Read Judgement]

The Supreme Court is set to examine whether verification of information is required before issuing reassessment notice under Section 148A of the Income Tax Act, in a challenge to a Gujarat High Court ruling which held that Assessing Officers must verify data before acting on it.

The case arises from a judgment of the Gujarat High Court in the matter of Vasuki Global Industries Limited, where the petitioner challenged the action of the Income Tax Department in initiating reassessment proceedings against its buyers and suppliers based on information available on the Insight Portal.

The information was based on a report from the GST Department alleging involvement in fake invoice transactions, which was later clarified and corrected by the GST authorities, stating that the inquiry against the petitioner had already been closed.

Despite this clarification, notices under Section 148A(b) were issued to various parties dealing with the petitioner, treating transactions as bogus. The petitioner approached the High Court stating that the information on the Insight Portal was incorrect and was causing serious prejudice to its business and reputation.

Before the High Court, the petitioner argued that the Income Tax Department acted on unverified and incorrect information without proper application of mind. They argued that once the GST Department clarified that no fraud was established against the petitioner, continuation of reassessment proceedings based on earlier incorrect data was not justified.

The Income Tax Department argued that corrective steps were taken after receiving clarification from the GST authorities. They pointed out that communications were issued to various assessing officers, information was updated on the Insight Portal and several reassessment proceedings were dropped.

The Division Bench comprising Justice Bhargav D. Karia and Justice Pranav Trivedi observed that the Investigation Wing had treated the petitioner as a bogus entity and extended that conclusion to hundreds of transactions without proper verification. The court observed that such action based solely on portal information without inquiry is not appropriate.

The High Court explained that even though Section 148A was amended, it remains the responsibility of the Assessing Officer to verify the information suggesting escapement of income before issuing a notice. It pointed out that proper verification and application of mind is necessary before invoking reassessment provisions.

Considering that the department had taken corrective steps during the pendency of the petition, the High Court disposed of the matter but clarified the legal position regarding the need for verification before issuing notices under Section 148A.

Aggrieved by this observation, the Income Tax Department approached the Supreme Court. The department argued that the High Court’s interpretation effectively adds a requirement of prior verification into Section 148A(1), which was deliberately removed by legislative amendment.

The Supreme Court, comprising Justice Manoj Misra and Justice Ujjal Bhuyan, condoned the delay and observed that the issue requires consideration. The Court has issued notice in the matter and will now examine whether such a requirement of verification can be read into Section 148A.

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