Case Law Details
Ojaswini Retailers Private Limited & anr. Vs Union of India & Ors. (Calcutta High Court)
The Calcutta High Court heard a writ petition challenging the order dated 30 June 2025 passed under Section 148A(3) of the Income Tax Act, 1961, and the consequential notice issued under Section 148 for Assessment Year 2019-20. The principal issue before the Court was whether the Assessing Officer had validly formed the opinion that income had escaped assessment without considering the replies and materials submitted by the petitioners, and whether the principles of natural justice had been violated.
The petitioners contended that the impugned order was legally infirm because it was passed without considering their replies dated 11 April 2025 and 19 June 2025, which were filed in response to the show cause notice issued under Section 148A(1). They also challenged the Assessing Officer’s finding that transactions with M/s. Dhansidhi Developers Private Ltd. and M/s. Foremost Enterprise Private Ltd. lacked commercial substance, describing the conclusion as perverse, arbitrary, and unsustainable in law.
The petitioners submitted that they had not been given an effective opportunity to rebut the allegations despite producing banking statements and other documents. They stated that the transactions had been carried out through legitimate banking channels and relied upon the bank statements of their account with Federal Bank Ltd. and that of M/s. Foremost Enterprise Private Ltd. with IDBI Bank. According to them, mere routing of funds on the same day could not, by itself, lead to the conclusion that the transactions constituted accommodation entries or money laundering.
The Income Tax authorities opposed the writ petition, submitting that the petitioners’ replies had been duly considered. The impugned order recorded that the petitioners had furnished only partial bank statements covering selected periods of the Federal Bank account and the IDBI Bank account of M/s. Foremost Enterprises Pvt. Ltd. According to the Assessing Officer, these statements revealed a pattern of substantial credits and debits on the same day or the following day, leaving minimal balances and indicating circulatory movement of funds rather than genuine business transactions.
The Assessing Officer further concluded that M/s. Foremost Enterprises Pvt. Ltd. and M/s. Dhansidhi Developers Pvt. Ltd. lacked commercial substance, as no credible evidence establishing the genuineness of the transactions had been produced apart from banking channel routing. The order also recorded that the use of legitimate banking channels does not make a transaction genuine if it forms part of a scheme to launder unaccounted money. Additionally, it was noted that both entities had weak financials, and their financial standing, based on ITR and Insight data, did not support their ability to undertake such transactions, indicating that they were used as conduits for routing unaccounted funds.
The Revenue also submitted that the petitioners had already participated in the proceedings by filing replies to the show cause notice under Section 148A(1). It further relied upon a summons issued under Section 131(1A) dated 28 October 2024, which was initially returned undelivered by Speed Post with the endorsement “addressee cannot be located” and was subsequently served by email. According to the Revenue, the assessee did not comply despite service. It was also argued that the writ petition was premature and that the Assessing Officer had acted in accordance with law based on information received from ADIT (I&V) Unit II(1), Kolkata.
After considering the rival submissions and the available records, the High Court held that the impugned order did not consider the petitioners’ replies dated 11 April 2025 and 19 June 2025 in their entirety. The Court observed that the order referred only to the submission of partial bank statements and did not deal with the explanations furnished by the petitioners.
The Court held that the findings of the Assessing Officer were perverse and without jurisdiction because the order did not record detailed findings regarding the income alleged to have escaped assessment for Assessment Year 2019-20. It observed that mere reference to circular transactions, without analysing the commercial rationale or the materials furnished by the petitioners, could not sustain the formation of belief under Section 148A(3).
The Court further held that Section 148A requires the Assessing Officer to consider the assessee’s reply before deciding whether it is a fit case for issuing a notice under Section 148. Since the petitioners had filed specific replies which were not considered, the order stood vitiated.
The High Court also held that the genuineness and creditworthiness of the transactions with M/s. Dhansidhi Developers Private Ltd. and M/s. Foremost Enterprise Private Ltd. required fresh examination after affording an opportunity of hearing.
Accordingly, the Court quashed and set aside the order dated 30 June 2025 passed under Section 148A(3) and the consequential notice issued under Section 148. The Assessing Officer was directed to revisit the issue, examine the genuineness of the transactions afresh, provide an opportunity of hearing to the petitioners and other beneficiaries, and pass a reasoned order in accordance with law. The petitioners were directed to produce all banking statements to establish that the circular movement of funds was genuine. The exercise was directed to be completed by 15 July 2026, with the decision to be communicated to the petitioners within one week thereafter. The writ petition was disposed of, and there was no order as to costs.
Present for the Petitioner: Mr. Talay Masood Siddique, ld. Sr. Adv., Mr. Himangshu Kumar Ray, Mr. Subhasis Podder, Ms. Shiwani Shaw, Mr. Animitra Roy
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. Affidavit of service filed on behalf of the petitioners be taken on record.
2. The present Writ petition has been filed challenging the Order dated 30th June 2025 passed under Section 148A(3) of the Income Tax Act, 1961 (hereinafter referred to as the said Act) and the consequential notice dated 30th June 2025 issued under Section 148 of the said Act for Assessment Year 2019-20.
3. The core issue involved herein is whether the Assessing Officer validly formed the opinion that income has escaped assessment without considering the reply and materials submitted by the petitioners and whether the principles of natural justice has been violated.
4. The Learned Counsel appearing for the petitioners submit that the impugned order dated 30th June 2025 suffers from a legal infirmity as the same has been passed without considering the two replies dated 11th April 2025 and 19th June 2025 filed by the petitioners in response to the show cause notice dated 19th March 2025 issued under Section 148A(1) of the said Act.
5. It is further submitted that the finding recorded by the Assessing Officer that the transaction with M/s. Dhansidhi Developers Private Ltd. and M/s. Foremost Enterprise Private Ltd. lacked commercial substance, is perverse, arbitrary and unsustainable in law.
6. The order passed by the Assessing officer is in gross violation of the principles of natural justice as the petitioners have not been granted an effective opportunity to rebut the allegations, despite having submitted banking statements and other documents. The transactions in question have been carried out through legitimate banking channels and the petitioners have produced the bank statement of their accounts with Federal Bank Ltd. and M/s. Foremost Enterprise Private Ltd. with IDBI Bank. Mere routing of funds in the same day cannot ipso facto lead to a conclusion of accommodation entry of money laundering, thus, the impugned Order dated 30th June 2025 as the notice issued under Section 148 of the even date are liable to be set aside.
7. The Learned Counsel appearing for the income tax authorities vehemently opposes the Writ Petition and submits that the reply of the petitioners has duly been considered and draws the attention of this court to the penultimate paragraphs of the impugned order dated 30th June 2025 which is reproduced below:
“1. In reply to notice under sub-section (1) of section 148A of the Act, the assessee company furnished copies of its bank statement only for the period from 26/09/2018 to 11/10/2018; from 03/12/2018 to 01/02/2019 and 19/03/2019 to 30/03/2019 in respect of the bank account No. 13040200026947 maintained with Federal Bank, Bhowanipore Branch, Kolkata and also bank statement of M/s. Foremost Enterprises Pvt. Ltd only for the period from 28/02/2019 to 05/04/2019 of the bank account No. 0263102000017462 maintained with IDBI Bank, Kankurgachi Branch, Kolkata. Perusal of these part bank statements reveal the pattern of transactions, wherein substantial amounts are credited to and debited from the accounts of the entities on the same day or following day leaving the minimal balance in account, indicates a circulatory movement of funds rather than genuine business transactions. Hence, it is clear that all the concerned entities from where the assessee company received funds/money are paper/shell entity, which has been used for providing accommodation entries.
1. The transactions with is Foremost Enterprises Pvt. Ltd. and Mis Dhansidhi Developers Pvt. Ltd. lack commercial substance as no credible evidence was provided to establish the genuineness of the transactions, apart from banking channel routing. The use of legitimate banking channel doesn’t make a transaction genuine if it’s part of scheme to launder unaccounted money.
1. M/s Foremost Enterprises Pvt. Ltd. and M/s Dhansidhi Developers Pvt. Ltd. were found to have weak financial. Their financial standing, as revealed by ITR and Insight data, does not support their ability to undertake such transactions. It indicates their use as conduit for routing unaccounted funds.”
8. It has been specifically recorded that the petitioners being the assessee furnished only partial bank statements for selected period. Upon perusal of the statements reveals a pattern wherein substantial amount has been credited and debited on the same day or through immediate routing, indicating lack of commercial substance.
9. It is further submitted that apart from routing through banking channels, no evidence has been provided to establish the genuineness of the transaction. The use of a legitimate banking channels does not render a transaction genuine if it is a part of scheme to launder unaccounted money.
10. The petitioners have already participated in the proceedings by filing a reply to the show cause notice issued under Section 148A(1) of the said Act, cannot be challenged in the present Writ Petition.
11. A summons under Section 131(1A) dated 28th October 2024 has been issued seeking details regarding the nature of business and relationship with other entities. The same has been returned back undelivered by Speed Post with an endorsement “addressee cannot be located” and the same has subsequently been served by email. Despite service, the assessee did not comply.
12. It is further submitted that the Writ Petition is premature and de void of merit. The Assessing Officer has acted in accordance with law based on the information received from ADIT(I&V) Unit II (1) Kolkata.
13. After hearing the rival contention of the parties and upon perusing the available records this Court is of the prima facie view that it is apparent from the impugned order the Assessing Officer has not considered the replies dated 11th April 2025 and 19th June 2025 in their entirety. The order records only the submission of the partial bank statements but does not deal with an explanation offered by the petitioners.
14. The findings arrived by the Assessing Officer is perverse, and without jurisdiction as the order does not record a detail finding with regard to the income alleged to have escaped assessment for Assessment Year 2019-20. Mere reference to circular transactions, without analyzing the commercial rational or materials furnished cannot sustain the formation of the believe under Section 148A(3) of the said Act. Since the mandate of Section 148A requires the Assessing Officer to consider the reply from the assessee and decide by passing an order whether it is a fit case to issue notice under Section 148. In the present case since the specific replies have been filed, non-consideration thereof, vitiates the order.
16. The genuineness and the creditworthiness of the transactions with M/s. Dhansidhi Developers Private Ltd. and M/s. Foremost Enterprise Private Ltd. requires fresh examination after affording an opportunity of hearing.
17. In view of the above the impugned order dated 30th June 2025 along with the consequential notice issued under Section 148 of the said Act are hereby quashed and set aside.
18. The respondent No. 3 being the Assessing Officer is directed to revisit the issue regarding the genuineness of the transactions with M/s. Dhansidhi Developers Private Ltd. and M/s. Foremost Enterprise Private Ltd. and pass a reasoned order in accordance with law upon affording an opportunity of hearing to the petitioners and other beneficiaries before arriving at a conclusion with regard to the income alleged to have escaped assessment for Assessment Year 201920. The petitioners are directed to produce all banking statements to demonstrate and prove that the circular movements of funds are genuine in nature. The entire exercise shall be completed peremptorily by 15th July 2026. The decision taken by the Assessing Officer shall be communicated to the petitioner within a week thereafter.
19. With the above observation and direction the Writ petition is disposed of by quashing and setting aside the order dated 30.06.2025.
20. Since no affidavit has been called for the allegations made in the Writ petition are deemed not to have been admitted.
There will be no order as to costs.
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