Rajasthan High Court: Admission of Transaction Undisclosed In ITR Constitutes Grounds for Reassessment under Section 148 IT Act

Rajasthan High Court: Admission of Transaction Undisclosed In ITR Constitutes Grounds for Reassessment under Section 148 IT Act

The Rajasthan High Court has observed that when the assessee acknowledges a significant transaction with another entity, undisclosed in the Income Tax Return (ITR) form, it constitutes grounds for reopening the assessment under Section 148 of the Income Tax Act 1961 (IT Act).

Chief Justice Manindra Mohan Shrivastava and Justice Munnuri Laxman further observed that the admitted non-disclosure in 2019-20 indicates that the disputed transactional amount effectively represents income that has evaded assessment in the corresponding year.

The bench further said that non-disclosure of a significant transaction by the petitioner with Allbright Electricals Pvt. Ltd. in the Income Tax Return (ITR) or Audit, which led to the reopening of assessment through a notice under Section 148, cannot be considered arbitrary, whimsical, or perverse. Consequently, the Jodhpur court concluded that such circumstances do not justify interference by the court under Article 226 of the Constitution of India.

In the writ petition, the order issued under Section 148A(d) of the Act and the consequential notice under Section 148A(b) were challenged. During the hearing of the writ, the counsel representing the petitioner contended that the Income Tax Department had not provided sufficient evidence, whether documentary or otherwise, to the petitioner assessee, which supposedly formed the basis for reopening the assessment proceedings.

The petitioner argued that the bank details already revealed the nature of the transaction between the petitioner and Allbright Electricals. According to the petitioners, Allbright Electricals is a licensed non-banking financial company (NBFC) and not a share company. The petitioner did not opt for accommodation entries totaling Rs 50 lakh; rather, it was simply an advance provided by the petitioner to Allbright Electricals Pvt. Ltd., which was subsequently repaid in installments.

The Income Tax Department argued that there is no obligation to establish the taxability of the disputed amount prior to reopening the assessment for escaped income. The argument put forth emphasized that the taxability of the amount can only be ascertained during the reassessment proceedings before the assessing authority.

After examining the arguments presented by both parties, the Division Bench highlighted that the aggrieved party acknowledged that certain transactions had evaded assessment. In light of this acknowledgment, the court concluded that it cannot comment on the merits of the assessment or intervene in the reassessment proceedings.

The court observed that "all the submissions which have been made by the petitioner before this Court to submit that transacted amount of Rs. 65,00,000/- is not taxable in nature and would be open to be raised by the petitioner at the appropriate stage in the reassessment proceedings.".

The court acknowledged that Section 148 mandates the assessing officer to conduct an inquiry regarding the received information on potentially escaped income before issuing a notice. Regarding the present case, the court expressed that the information cannot be deemed patently false, irrelevant, or extraneous to the relevant assessment year. The court unequivocally stated that the purpose of Section 148A of the Act is to ascertain whether a case for reassessment is warranted or not. It does not entail determining whether any stated amount is liable for tax or not.

The court observed that the information, when taken as it is, clearly indicates that income chargeable to tax has potentially escaped assessment. The court highlighted that the use of the word "suggest" reflects the legislative intent, indicating that at this stage, no final conclusion is required but rather only a prima facie consideration is necessary to initiate proceedings under Section 148A.

Regarding the issue of not providing the documents relied upon by the officer, the court instructed the respondent to furnish them to the petitioner assessee. To enable the petitioner to effectively defend himself during the reassessment proceedings. With these observations, the court concluded to dispose the writ petition.