Reassessment for Further Verification Without Escapement Material Quashed: Telangana HC

Naandi Foundation Vs ACIT (Telangana High Court)

Summary: The Telangana High Court allowed three connected writ petitions filed by Naandi Foundation and set aside reassessment proceedings initiated under Sections 148A(3) and 148 of the Income Tax Act. The lead petition concerned AY 2019-20. Naandi Foundation, a charitable institution registered under Section 12A, had filed its return declaring NIL income after claiming exemption under Sections 11 and 12. The return was processed under Section 143(1). Subsequently, the Investigation Wing issued summons under Section 131(1A) seeking information for several financial years. Based on the material furnished, an investigation report alleged that substantial expenditure of the Foundation was unsupported and treated amounts including Rs.94,23,73,869 for FY 2018-19 as undisclosed income.

The Assessing Officer thereafter issued notices under Section 148A(1), initially referring to Rs.94.23 crore and subsequently to alleged escaped income of Rs.125.43 crore. The Foundation furnished audited financial statements, bank statements, bank ledgers, summaries of credits and debits, sample party accounts, vouchers and explanations regarding the movement and utilisation of funds through separate receipt and utilisation accounts. Nevertheless, the Assessing Officer held that the transactions were huge in number and required further in-depth scrutiny and consequently initiated reassessment.

The High Court held that Section 148A imposes a twofold obligation: the assessee must receive a show-cause notice and the information suggesting escapement of income forming its foundation. Relying on Union of India Vs Ashish Agarwal and Union of India Vs Rajeev Bansal, the Court emphasised that supply of relevant material is a substantive safeguard enabling an effective response. Referring further to Chhugamal Rajpal Vs S.P. Chaliha and ITO Vs Lakhmani Mewal Das, it held that information suggesting escapement cannot be equated with mere suspicion or a desire for verification; there must be tangible material and a live or rational nexus between the material and the conclusion that income escaped assessment.