ITO Vs ONIR Infraspace Private Limited (Supreme Court of India)
The Supreme Court dismissed the Revenue’s Special Leave Petition (SLP) challenging the Gujarat High Court’s decision quashing a reassessment notice and the corresponding order under Sections 148A(b), 148A(d), and 148 of the Income Tax Act, 1961. The Supreme Court found no ground to interfere with the High Court’s reasoning and upheld its judgment, thereby affirming that the initiation of reassessment proceedings suffered from fundamental procedural infirmities.
Before the High Court, the assessee challenged a notice issued under Section 148A(b) dated 5 March 2024, the order under Section 148A(d) dated 24 March 2024, and the consequent notice under Section 148 for Assessment Year 2020-21. The company had been incorporated in October 2019 and filed its return declaring income of ₹2,58,250, which was processed under Section 143(1). The Assessing Officer (AO) later issued a notice under Section 148A(b) calling for extensive details relating to the identity, creditworthiness, and genuineness of lenders who had extended loans allegedly amounting to ₹61 crore. The assessee replied on 16 March 2024, objecting that the notice did not disclose any information indicating escaped income and was merely seeking verification-related information, which belongs to an inquiry under Section 148A(a), not a show-cause under Section 148A(b).
The assessee further argued that the AO, while passing the Section 148A(d) order, proceeded on altogether new grounds—such as the allegation that the loans were not used for business purposes—issues never raised in the Section 148A(b) notice. This, according to the assessee, amounted to rectifying or supplementing the defective notice through the order, which is impermissible. It was also argued that utilization of loans for property purchase, even assuming it was not for business purposes, does not constitute escapement of income.
The Revenue defended the notice, contending that the assessee had invested substantially in a Delhi property belonging to entities allegedly associated with a shell-company network and that verification of lenders was necessary. It argued that merely calling for such details does not invalidate the notice. The Revenue relied on decisions of the Calcutta High Court and Rajasthan High Court holding that writ petitions against Section 148A(b) notices should ordinarily not be entertained where the AO acts on information available and forms a prima facie belief that reassessment is warranted.
The High Court, after examining the notice, held that the communication issued under Section 148A(b) was fundamentally in the nature of an inquiry notice under Section 148A(a). The notice required the assessee to furnish multiple details for verification of lenders, including their PAN, loan amounts, interest, business purpose, and supporting documents—indicating that the AO had not yet conducted any inquiry or reached any prima facie conclusion about escapement of income. The High Court highlighted that Section 148A(b) requires the AO to provide an opportunity to show cause after conducting an inquiry under Section 148A(a), if required. A notice under Section 148A(b) cannot itself become a tool to collect information or initiate the inquiry contemplated under clause (a).
The Court referred to its earlier decision in Safal Constructions India Pvt. Ltd., where it was held that a notice labelled under Section 148A(b) but containing only information-gathering questions is in substance a Section 148A(a) inquiry notice. Such procedural irregularity—issuing an inquiry notice as though it were a show-cause notice—vitiates the entire reassessment process. The Court noted that the AO’s duty under Section 148A(d) includes forming an opinion on the basis of information and the assessee’s reply, but in the instant case, the AO introduced new grounds in the 148A(d) order, failed to address the assessee’s objections, and attempted to cure defects in the original notice—actions deemed impermissible.
Examining the statutory framework, the High Court reiterated that a valid Section 148A(b) notice must: (i) specify information that suggests escapement of income, and (ii) follow an inquiry (if any) already conducted under Section 148A(a). The impugned notice instead demanded bulk information and supporting documents for verification purposes, showing that the AO had not yet concluded any inquiry or reached a preliminary determination of escaped income.
Given this procedural defect, the High Court held that the notice under Section 148A(b), the consequent Section 148A(d) order, and the reopening notice under Section 148 all fail. The Court clarified that its quashing order does not prevent the Revenue from initiating fresh proceedings, if permissible under law, by strictly following statutory requirements.
The Supreme Court, upon hearing the Revenue and reviewing the material, declined to interfere with the High Court’s reasoning and dismissed the SLP, thereby affirming that reassessment proceedings initiated through a notice that is essentially an inquiry under Section 148A(a) but issued under the guise of Section 148A(b) cannot be sustained.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
