Income Tax Power of revenue to travel beyond SCN issued Whether permissible?

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The Tax Publishers Power of revenue to travel beyond SCN issued -- Whether permissible? Sameer Bhatia The learned author examines the crux of the issue falling in line with the show-cause notice issued in proceedings initiated under section 148A read with section 148 of the Income Tax Act, 1961. Hon'ble Chattisgarh High Court has rightfully pointed out that revenue is not so empowered to change the landscape of show-cause notice issued to the assessee thereby proceeding to make additions on flimsy grounds. It was incumbent upon the revenue to have confronted the entire terms of SCN issued barring only that issue which surfaces in the course of assessment/re-assessment as the case may be. The author has analysed and well examined the provision associated with Explanation appended to section 147 of the Act so as to put forward an incessant view that power cannot be abused under the guise of not providing incriminating material available with the revenue. 1. Prologue The proceedings pertaining to reopening of assessment have undergone a tremendous change with effect from 01st April, 2021. Altogether a new machinery provision has been incorporated in the statute i.e. Income Tax Act, 1961 (in short 'Act') dealing with the reopening of either concluded assessments or where such assessments have not been concluded and/or are put to assessment for the very first time under the law. Numerous questions have been raised as to whether the revenue is empowered under the new regime of re-assessment to travel beyond the contents of show-cause notice issued under section 148A of the Act in question or it needs to stick itself to the suggestion leading to an inference of escapement of income. Recently Hon'ble Chattisgarh High Court had the occasion to consider the issue from a limited score in U.S. Associates v. Principal Commissioner of Income Tax reported in 2023 TaxPub(DT) 1405 (Chhattisgarh-HC) : (2023) 451 ITR 0424 (Chhattisgarh). Hon'ble Chattisgarh High Court in its wisdom has trenched deeper so as to extract a logical, legitimate and justifiable conclusion in the governing facts of the case under reference. 2. Primary contentions raised before the Hon'ble Court The assessee, namely U.S. Associates (supra) raised preliminary objection as to the assumption of jurisdiction by the revenue on the footing that it had per-se travelled beyond the scope of show-cause notice issued by virtue of which the entire proceedings would fall flat on the pedestal of provisions contained in section 149 of the Act in particular. The assessee via writ petition contended that while passing order under section 148A of the Act read with section 148 on 22nd July, 2022, revenue has considered certain transactions which never formed part of the notice originally issued as per old regime under section 148 as well as the notice issued under the new regime i.e. under section 148A of the Act. Hon'ble Supreme Court of India in Union of India v. Ashish Aggarwal reported in 2022 TaxPub(DT) 3105 (SC) : (2022) 444 ITR 1 (SC) had observed that any notice issued under section 148 of the Act as per the old regime will be treated as a show-cause notice under section 148A i.e. the new regime applicable with effect from 01st April, 2021 as substituted by the Finance Act, 2021. Since in U.S. Associates (supra), the notice issued under the old regime did not cater to the requirement of providing an opportunity to the assessee to offer his side of the story in particular with respect to Rs. 14,00,000/-, the said amount if excluded from the proceedings will have the impact of quantum going much below the statutory limit of Rs.50,00,000/- which is a condition earmarked for stepping in the re-assessment process as provided in section 149 of the Act. The assesse in particular also challenged the action of the revenue to the extent that if Rs. 14,00,000/- for which it has never been show-caused in case is excluded from the quantum of proceedings, then the income that has alleged to have escaped assessment would be an amount of Rs.36,99,555/- which is much less than Rs.50,00,000/- in terms of circular dated 11th May, 2022 issued by Central Board of Direct Taxes (CBDT). It was further contended that the impugned amount for which the assessee was never confronted amounting to Rs.14,00,000/- in case is reduced since never formed part of impugned notice would bring the aggregate threshold to less than Rs.50,00,000/- thus proceedings by itself could not have been initiated by revenue for the year under reference. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Power of revenue to travel beyond SCN issued -- Whether permissible?

Sameer Bhatia

The learned author examines the crux of the issue falling in line with the show-cause notice issued in proceedings initiated under section 148A read with section 148 of the Income Tax Act, 1961. Hon'ble Chattisgarh High Court has rightfully pointed out that revenue is not so empowered to change the landscape of show-cause notice issued to the assessee thereby proceeding to make additions on flimsy grounds. It was incumbent upon the revenue to have confronted the entire terms of SCN issued barring only that issue which surfaces in the course of assessment/re-assessment as the case may be. The author has analysed and well examined the provision associated with Explanation appended to section 147 of the Act so as to put forward an incessant view that power cannot be abused under the guise of not providing incriminating material available with the revenue.

1. Prologue

The proceedings pertaining to reopening of assessment have undergone a tremendous change with effect from 01st April, 2021. Altogether a new machinery provision has been incorporated in the statute i.e. Income Tax Act, 1961 (in short 'Act') dealing with the reopening of either concluded assessments or where such assessments have not been concluded and/or are put to assessment for the very first time under the law. Numerous questions have been raised as to whether the revenue is empowered under the new regime of re-assessment to travel beyond the contents of show-cause notice issued under section 148A of the Act in question or it needs to stick itself to the suggestion leading to an inference of escapement of income. Recently Hon'ble Chattisgarh High Court had the occasion to consider the issue from a limited score in U.S. Associates v. Principal Commissioner of Income Tax reported in 2023 TaxPub(DT) 1405 (Chhattisgarh-HC) : (2023) 451 ITR 0424 (Chhattisgarh). Hon'ble Chattisgarh High Court in its wisdom has trenched deeper so as to extract a logical, legitimate and justifiable conclusion in the governing facts of the case under reference.

2. Primary contentions raised before the Hon'ble Court

The assessee, namely U.S. Associates (supra) raised preliminary objection as to the assumption of jurisdiction by the revenue on the footing that it had per-se travelled beyond the scope of show-cause notice issued by virtue of which the entire proceedings would fall flat on the pedestal of provisions contained in section 149 of the Act in particular. The assessee via writ petition contended that while passing order under section 148A of the Act read with section 148 on 22nd July, 2022, revenue has considered certain transactions which never formed part of the notice originally issued as per old regime under section 148 as well as the notice issued under the new regime i.e. under section 148A of the Act. Hon'ble Supreme Court of India in Union of India v. Ashish Aggarwal reported in 2022 TaxPub(DT) 3105 (SC) : (2022) 444 ITR 1 (SC) had observed that any notice issued under section 148 of the Act as per the old regime will be treated as a show-cause notice under section 148A i.e. the new regime applicable with effect from 01st April, 2021 as substituted by the Finance Act, 2021. Since in U.S. Associates (supra), the notice issued under the old regime did not cater to the requirement of providing an opportunity to the assessee to offer his side of the story in particular with respect to Rs. 14,00,000/-, the said amount if excluded from the proceedings will have the impact of quantum going much below the statutory limit of Rs.50,00,000/- which is a condition earmarked for stepping in the re-assessment process as provided in section 149 of the Act. The assesse in particular also challenged the action of the revenue to the extent that if Rs. 14,00,000/- for which it has never been show-caused in case is excluded from the quantum of proceedings, then the income that has alleged to have escaped assessment would be an amount of Rs.36,99,555/- which is much less than Rs.50,00,000/- in terms of circular dated 11th May, 2022 issued by Central Board of Direct Taxes (CBDT). It was further contended that the impugned amount for which the assessee was never confronted amounting to Rs.14,00,000/- in case is reduced since never formed part of impugned notice would bring the aggregate threshold to less than Rs.50,00,000/- thus proceedings by itself could not have been initiated by revenue for the year under reference.