Case Law Details
Ojaswini Retailers Private Limited & anr. Vs Union of India & Ors. (Calcutta High Court)
Calcutta HC quashed the Section 148A(3) order and Section 148 notice after finding the assessee’s replies were not fully considered before reopening.
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 order dated 30.06.2025 suffered from legal infirmity as it was passed without considering their replies dated 14.04.2025 and 19.06.2025 filed in response to the show cause notice dated 19.03.2025 issued under Section 148A(1). They further submitted that the finding that transactions with M/s. Fantastic Hirise Private Ltd. and M/s. Foremost Enterprise Private Ltd. lacked commercial substance was perverse, arbitrary and unsustainable in law.
The petitioners argued that the order had been passed in violation of the principles of natural justice as they were not given an effective opportunity to rebut the allegations despite submitting banking statements and other documents. According to the petitioners, the transactions had been carried out through legitimate banking channels, and they had produced the bank statements of their accounts with Federal Bank Ltd. and of M/s. Foremost Enterprise Private Ltd. with IDBI Bank. They contended that 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 and sought setting aside of both the order under Section 148A(3) and the consequential notice under Section 148.
The Income Tax authorities opposed the writ petition and submitted that the petitioners’ replies had been duly considered. Reliance was placed on paragraphs 5.2 and 5.3 of the impugned order, which recorded that the assessee had stated it received Rs. 2,96,50,000 from M/s. Foremost Enterprises Pvt. Ltd. and Rs. 3,06,00,000 from M/s. Fantastic Hirise Pvt. Ltd. against sale of equity shares during the relevant financial year. The order noted that the assessee had submitted only a few pages of bank statements instead of complete bank statements of itself and one buyer, copies of audited accounts, and sale bills, but had not submitted the fair market value of the equity shares.
The authorities further relied on findings of the Investigation Wing stating that the assessee had received funds through M/s. Foremost Enterprises Pvt. Ltd. and M/s. Fantastic Hirise Pvt. Ltd., which had allegedly received funds from M/s. Highland Transport Pvt. Ltd., described as a paper/shell company in the departmental database. According to the order, the past and present directors of the entities were enlisted as dummy directors of entry operators, the funds raised as share capital and premium had been invested in unlisted equities and later liquidated, and analysis of bank accounts showed substantial credits and debits despite weak financials and almost nil creditworthiness. It was stated that the bank accounts reflected circulation of funds without real business activity, leading to the conclusion that the entities were paper/shell companies used for accommodation entries.
The Revenue also submitted that the assessee had furnished only partial bank statements, which revealed substantial credits and debits on the same day or through immediate routing, indicating lack of commercial substance. It was argued that use of legitimate banking channels alone did not establish genuineness if the transactions formed part of a scheme to launder unaccounted money. The authorities further submitted that the assessee had participated in the proceedings by filing replies to the notice under Section 148A(1), that a summons under Section 131(1A) dated 28.10.2024 had initially been returned undelivered and was later served by email without compliance, and that the writ petition was premature as the Assessing Officer had acted on information received from ADIT (I&SV) Unit II(1), Kolkata.
After hearing the parties and examining the records, the High Court observed, prima facie, that the Assessing Officer had not considered the replies dated 14.04.2025 and 19.06.2025 in their entirety. The Court noted that the impugned order referred only to 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, observing that the order did not record a detailed finding regarding the income alleged to have escaped assessment for Assessment Year 2020-21. It further observed that mere reference to circular transactions, without analysing the commercial rationale or the materials furnished, could not sustain the formation of belief under Section 148A(3). Since Section 148A requires the Assessing Officer to consider the assessee’s reply before deciding whether it is a fit case for issuance of notice under Section 148, the Court held that non-consideration of the specific replies vitiated the order.
The High Court observed that the genuineness and creditworthiness of the transactions with M/s. Fantastic Hirise 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 30.06.2025 passed under Section 148A(3) and the consequential notice issued under Section 148. The Assessing Officer was directed to revisit the issue relating to the genuineness of the transactions, pass a reasoned order in accordance with law after providing an opportunity of hearing to the petitioners and other beneficiaries, and arrive at a conclusion regarding the income alleged to have escaped assessment for Assessment Year 2020-21. The petitioners were directed to produce all banking statements to demonstrate the genuineness of the circular movement of funds. The exercise was directed to be completed by 15.07.2026, with the decision to be communicated to the petitioners within one week thereafter. The writ petition was disposed of by quashing and setting aside the impugned order. No order as to costs was passed.
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 30′ 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 30′ June 2025 issued under Section 148 of the said Act for Assessment Year 2020-21.
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 30′ June 2025 suffers from a legal infirmity as the same has been passed without considering the two replies dated 14thApril 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. Fantastic Hirise 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 30′ 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:
“5.2. The assessee stated in its reply that it had received Rs. 2,96,50,000/ – from M/s Foremost Enterprises Pvt. Ltd. and Rs. 3,06,00,000/ – from M/s Fantastic Hirise Pvt. Ltd. against sale of investments (equity shares) during the relevant financial year. The assessee submitted (i) copy of bank statement only a few pages but not the complete bank statement of the assessee company as well as of one of the buyers namely M/s Foremost Enterprises Pvt Limited, (ii) the copy of audited accounts of the assessee company as well as of both the buyer for the concerned financial year, (iii) copy of sale bill etc. However, the assessee had not submitted FMV (Fair Market Value) of equity shares (being the investment).
5.3. Findings of Investigation wing:
As per investigation done by the Department in the case of M/s Highland Transport Pvt. Ltd from where in the assessee company has received fund as one of the beneficiaries through the shell entities namely M’s Foremost Enterprises Pvt. Ltd. and M/s Fantastic Highrise Put Limited. Further as per the information shared, it is also seen that M/s Foremost Enterprises Pvt. Ltd. and M/ s Fantastic Highrise Pvt Limited has received funds from shell Highland Transport Pvt. Ltd which is enlisted in the departmental database as a paper/ shell company. The past/ present directors of all the above concerns are enlisted in the database of the Department as dummy directors of well-known entry operators. The entire amount raised in the form of share capital/premium was invested in the form of unlisted equities. From the financial analysis of M/ s Highland Transport Pvt. Ltd, it is evident that bogus share capital and share premium raised have been Invested in unlisted equities and later on, those investments have been liquidated. After liquidation, those funds have been utilized as loans and advances. During the investigation, analysis of the transactions of the alleged bank accounts for the period under consideration. It is observed that huge amount were credited and debited in the account whereas the entity has very weak financials and has almost nil creditworthiness to perform such huge transactions. Moreover, the bank statement shows that the account was used for incoming and outgoing of funds i.e. circulation of funds without any real business affairs. 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 and unaccounted money has been routed and the said fund is credited in the books of accounts of the assessee company herein one of the beneficiary concerns without any business rationality.”
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(I85V) 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 14thApril 2025 and 19′ 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 2020-21. 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.
15. The genuineness and the creditworthiness of the transactions with M/s. Fantastic Hirise Private Ltd. and M/s. Foremost Enterprise Private Ltd. requires fresh examination after affording an opportunity of hearing.
16. In view of the above the impugned order dated 30thJune 2025 along with the consequential notice issued under Section 148 of the said Act are hereby quashed and set aside.
17. The respondent No. 3 being the Assessing Officer is directed to revisit the issue regarding the genuineness of the transactions with M/s. Fantastic Hirise 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 2020-21. 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 15thJuly 2026. The decision taken by the Assessing Officer shall be communicated to the petitioner within a week thereafter.
18. With the above observation and direction the Writ petition is disposed of by quashing and setting aside the order dated 30.06.2025.
19. Since no affidavit has been called for the allegations made in the Writ petition are deemed not to have been admitted.
20. There will be no order as to costs.
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