Back
: '' Cannot Justify Reassessment of
In a significant ruling on under the , the has set aside the reassessment order and notice issued against the for . A Division Bench comprising Justice P. Sam Koshy and Justice Narsing Rao Nandikonda held that the mere need for “” of transactions does not constitute the “” required under .
The '' Fallacy
The dispute arose after the ’s , acting under , issued summons to —a public charitable trust established in and registered under —seeking details of funds received, particularly from the . Based on the trust’s responses, the compiled a report concluding that the foundation had not furnished satisfactory documentary evidence of its expenditure, and that the entire claimed expenditure for , 2019-20, and 2020-21 represented undisclosed income.
Relying on this report, the Assessing Officer issued a under and later, after receiving the foundation’s detailed reply and supporting documents (including audited financials, bank statements, and sample vouchers), passed an order under and a under . The foundation challenged these actions, arguing that no suggested any income had escaped assessment.
A Mere Desire to Verify Is Not Enough
The High Court carefully examined the record and found that the Assessing Officer’s order did not deal with the material submitted by the foundation. “It records no finding that the explanation offered is false or that any specific sum remains unaccounted. It proceeds solely on the premise that the transactions are voluminous and require ,” the Bench observed.
The Court drew on precedents to clarify the jurisdictional threshold for reassessment. In , the Apex Court held that an officer who merely records that a matter requires investigation has not formed the . Similarly, in , the emphasised that there must be a “” or “” between the material and the belief that income has escaped assessment. The power, though wide, is not plenary.
The Court also referred to and , which clarified that under Section 148A, the Assessing Officer must supply the assessee with the information forming the basis of the , and the order must be a speaking one, considering the assessee’s reply. The guidelines dated , requiring a under , reinforced this obligation.
The Roving Inquiry That Wasn't Sanctioned
The Bench noted that the summons were confined to the utilisation of funds from KC MET for . Yet the ’s report extended adverse conclusions to the foundation’s entire expenditure across three financial years without independent verification. This expansion, unsupported by any , could not furnish the requisite “information suggesting escapement.”
The Court also rejected the Revenue’s argument that the foundation failed to provide full evidence during the proceedings. It observed that the foundation had submitted substantial material during the Section 148A proceedings, including audited financials, bank ledgers, and a detailed explanation of its practice of routing funds through separate receipt and utilisation accounts—a methodology accepted in earlier assessment years.
“, being an exception to the finality of an assessment already accepted under , cannot be initiated to enable a into an assessee's affairs on the strength of an inference that was itself unsupported by the material gathered,” the Court held.
Key Observations from the Judgment
- “It records no finding that the explanation offered is false or that any specific sum remains unaccounted. It proceeds solely on the premise that the transactions are voluminous and require .”
- “Such reasoning reflects a rather than a and stands squarely within the mischief identified in Chhugamal Rajpal and Lakhmani Mewal Das .”
- “The requirement of ‘information suggesting ’ cannot be equated with a .”
- “, being an exception to the finality of an assessment already accepted under , cannot be initiated to enable a into an assessee's affairs on the strength of an inference that was itself unsupported by the material gathered.”
Decision and Implications
The High Court allowed the , setting aside the dated passed under and the under for . The connected petitions concerning other assessment years were also allowed on similar grounds. No order as to costs was made.
The ruling reinforces that the reassessment framework demands a rigorous threshold: the Assessing Officer must have suggesting that income has escaped assessment, and the order must demonstrate due application of mind to the assessee’s explanation. A mere desire to conduct further verification, no matter how voluminous the transactions, cannot substitute for this . The decision is a significant check against reopening of concluded assessments based on suspicion or incomplete inquiries, and it underscores the importance of the introduced by the 2021 amendments.
