Introduction
Recently, the Madras High Court (‘HC’) in the case of M/s Sumit Online Trade Solution Limited v. Deputy Commissioner of Income Tax[i] addressed the power of the assessing officer (‘AO’) to reassess under s.147 of the Income-tax Act, 1961(‘Act’) against M/s Sumit Online Trade Solution Limited (‘Assessee’). This case arose following a decision by the Income Tax Appellate Tribunal (‘ITAT’). The HC authorized the AO to proceed with reassessment on the basis that the return of income (‘ROI’) filed by the Assessee contradicted the undertakings provided subsequent to a search conducted under s. 132 of the Act.
Brief Facts
The Assessee was engaged in trading in lotteries both online and through physical means.
On 24.10.2013 the Hon’ble Supreme Court (‘SC’) issued a decision relating to the refund of service tax (‘ST’) for the financial year (‘F.Y.’) 2013-14, applicable to the assessment year (‘A.Y’) 2014-15. The SC granted a refund of Rs.77.80 crores in ST to the Assessee.
A search under s. 132 of the Act was conducted at the Assessee's premises on 20.11.2014 for the F.Y. 2014-15. During the search, the Assessee submitted letters on 09.01.2015, 16.01.2015, and 11.04.2016 to the Deputy Director of Investigation Income Tax (‘DDIT’)
During the time of inspection, a senior executive of the Assessee provided a statement under s. 132(4) of the Act offering to add a sum of Rs.203 crores as taxable income for the entire group and requested telescoping of the income declared.
The Assessee filed its ROI for the A.Y. 2014-15 on 27.09.2014, declaring Rs 153 crores and for the A.Y. 2015-16, it declared Rs.273.46 crores on 30.09.2015. The ROI for A.Y. 2015-16 conflicted with the earlier offers made in letters to the DDIT, leading to various correspondences between the AO and the Assessee.
Subsequently, the AO issued assessment orders under s. 143(3) r/w s.153A r/w s.92CA (6) of the Act for A.Y.s 2014-15 and 2015-16. The Assessee, aggrieved by these orders, appealed to the Commissioner of Income Tax -Appeals (‘CIT-A’).
The CIT-A's decision was mixed, partly allowing and partly dismissing the Assessee's appeal. The decision highlighted that the Assessee had admitted to undisclosed income in sworn statements under s. 132(4) and in letters to the DDIT.
The ITAT allowed the Assessee's appeal for A.Y. 2015-16, ruling that the ST refund of Rs.77.80 crores should have been taxed in A.Y. 2014-15, as it did not accrue in A.Y. 2015-16. Consequently, the AO's automatic assumption of the ST refund for A.Y. 2015-16 was incorrect.
In light of the ITAT's order, the AO sought to reopen the assessment for A.Y. 2014-15. This led the Assessee to challenge the reassessment notices under s. 148 and the initiation of reassessment proceedings under s. 147 of the Act in the HC.
Held
The HC dismissed the petitions filed by the Assessee, observing that the ROI filed by the Assessee was contrary to the letter by the Assessee on 11.07.2020. Consequently, income for the respective A.Y. had escaped assessment as the ROI was filed contrary to the undertaking given by the Assessee pursuant to the search initiated under s. 132 of the Act on 20.11.2014.
Our Analysis
The decision of the HC to permit the reassessment emphasizes the rigorous criteria that the AO’s power to reassess previously filed returns must meet. This case particularly sheds light on the legal benchmark that ‘information,’ as described in Explanation 1(v) of s. 148 of the Act, must be satisfied to warrant the initiation of reassessment proceedings. The affirmation that the SC order qualifies as sufficient ‘information’ sets a legal precedent, potentially affecting the extent to which courts may interpret various sources of information that trigger a reassessment.
Moreover, the ruling prompts consideration regarding the extent of the AO’s discretion when re-evaluating returns in light of new interpretations or subsequent rulings from superior judicial bodies. The case serves as an example of the intricate equilibrium that tax authorities are required to uphold, balancing procedural justice with the stringent enforcement of tax statutes.
The HC’s endorsement of this reassessment, predicated on judicial orders that were previously not considered, indicates a shift toward a broader interpretation of what constitutes adequate grounds for re-examining past tax assessments. This shift could carry significant consequences for the way businesses and tax professionals perceive the conclusiveness of tax returns and their preparations for possible future reassessments.
End Note
[i] 161 taxmanm.com 488 (Madras) [05.02.2024]
Authored by Kushagra Gahlot, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.