Department needs to produce new or tangible information to reopen cases under new Sec 147: Madras HC
IDFC Ltd (W.P. Nos.23284 & 22737 of 2022 and WMP.Nos.21769, 21776, 22231, 22233, 29114 & 30379 of 2022)
Facts:
- IDFC,a financial institution, found itself subject to reassessment proceedings for the assessment years 2014–15 and 2017–18, initially initiated under the old reassessment scheme and later revived under the new regime.
- This revival was based on the decision of the Supreme Court in the case of Ashish Agarwal. The department received directions to proceed with the reassessment under the substituted provisions of Section 147 of the Income Tax Act, adhering to all statutory and procedural requirements.
- The Central Board of Direct Taxes (CBDT) issued an Instruction on May 11, 2022, facilitating the implementation of the Ashish Agarwal judgment.
- The petitioner argued that the department had exceeded its authority in issuing the order and notice, emphasizing that the Supreme Court’s liberty granted to the department was subject to all defenses available to the assessee under the newly substituted reassessment scheme.
- Furthermore, the petitioner contended that all relevant materials related to the issues under consideration in the reassessment had already been provided to the tax authorities during the original scrutiny assessment.
- Additionally, the proposal to tax a sum that had already been disallowed by the petitioner would result in double taxation of the same amount.
- In response, the tax department asserted that the new scheme, without the phrase “reason to believe,” eliminated the requirement for the officer to establish the “escapement of tax” prima facie at the jurisdictional assumption stage.
Hon Madras HC held as below:
- New Section 149 mandates the tax department to possess books of accounts, documents, or evidence indicating that income chargeable to tax, represented as an asset, has escaped assessment. This is a prerequisite for issuing a reassessment notice beyond three years from the end of the relevant assessment year.
- The profit and loss account does not constitute part of the books of accounts and the books of accounts or other documents held by the Revenue do not qualify as assets to conclude that income has escaped assessment under Section 149.
- The existing information already on record, which was initially examined, does not meet the legislative requirement stipulated under Section 148 Explanation 1. This section necessitates the tax department to possess evidence implying that income has escaped assessment.
- The reassessment proceedings against the petitioner are quashed.
The copy of the order is as under:
