Deeksha Holding Limited Vs ACIT (Delhi High Court)
Summary: The Delhi High Court in Deeksha Holding Limited Vs Assistant Commissioner of Income Tax, Central Circle 17, Delhi & Anr. considered a writ petition challenging Explanation 2 to Section 148 of the Income Tax Act, 1961. A Division Bench comprising Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav passed an interim order on 14 February 2024 in W.P.(C) 1023/2024 along with CM APPL. 4241/2024 (Stay). The Court issued notice and allowed the respondents three weeks to file their reply, followed by one week for the petitioner to file a rejoinder. The petitioner questioned the statutory deeming fiction in Explanation 2 to Section 148, particularly where materials seized during a search of another person are treated as information suggesting that taxable income has escaped assessment. The challenged text included situations involving searches under Section 132, requisitions under Section 132A, surveys under Section 133A and material belonging to or relating to persons other than the person searched. The Court reproduced the relevant Explanation, including clauses (i) to (iv), in the order.
Advocate Salil Kapoor submitted on behalf of the petitioner that the provision deemed material relating to an assessee to indicate escaped income without separately requiring that the material itself demonstrate such escapement. He further argued that persons other than the searched person could thereby be deprived of procedural safeguards under Section 148A(b) and Section 148A(d). These were submissions made for the petitioner, not final findings of the Court. The petitioner placed particular emphasis on the wording of clauses (iii) and (iv), including the phrases concerning material that belongs to, pertains to or relates to an assessee. The submission was that such a connection alone was insufficient to show escapement of taxable income. The Court considered the matter to require further examination and also gave the Union of India, respondent no. 2, liberty to file its reply within the same three-week period.
Pending further hearing, the High Court permitted the tax authorities to proceed under the challenged notices. It nevertheless directed that any adverse orders passed against the petitioner should not be given effect to until the next date of listing. The matter was listed for 5 April 2024. The order thus provided limited interim protection without quashing the notices or finally deciding the validity or interpretation of Explanation 2 to Section 148.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Notice. Since the respondents are represented by learned counsel, let a reply be filed within a period of three weeks from today. The petitioner shall have a week therefrom to file a rejoinder affidavit.
2. Bearing in mind the challenge which stands raised to Explanation 2 to Section 148 of the Income Tax Act, 1961 [“Act”], we also accord liberty to the Union of India / respondent no. 2 to file a reply within the same period.
3. Mr. Kapoor, learned counsel appearing for the petitioner draws our attention to Explanation 2 to Section 148 of the Act which reads as follows:
“Explanation 2.—For the purposes of this section, where,—
(i) a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132-A, on or after the 1st day of April, 2021, in the case of the assessee; or
(ii) a survey is conducted under Section 133-A, other than under sub-section (2-A) [* * *] of that section, on or after the 1st day of April, 2021, in the case of the assessee; or
(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under Section 132 or under Section 132-A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under Section 132 or Section 132-A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee,
the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee [where] the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.”
4. It is contended by learned counsel that the aforesaid Explanation introduces a deeming fiction by virtue of which any material that may be gathered in the course of a search and which pertains to an assessee is deemed to be information suggestive of income chargeable to tax having escaped assessment.
5. According to learned counsel, the aforesaid provision clearly deprives the person other than the searched person of even the salutary safeguards constructed under Sections 148A(b) and 148A(d) of the Act. It is further submitted that although clauses (iii) and (iv) of Explanation 2 use the expression “pertains or pertain to, any information contained therein, relate to, the assessee”, they do not require that information being suggestive of income liable to tax having escaped assessment. Matter requires consideration.
6. It is thus provided that while it shall be open for the respondents to proceed further in terms of the impugned notices, any orders adverse to the writ petitioner, if passed, shall not be given effect to till the next date of listing.
7. Let the matter be called again on 05.04.2024.
