If foundational allegation found to be false/non-existing, entire subsequent proceedings would collapse

Catchy Prop-Build Private Limited Vs ACIT (Delhi High Court), W.P. (C) 13734/2022 & CM APPL. 41911/2022, Date of Order : 17/10/2022

Once foundational allegation is found to be false/non-existing, entire subsequent proceedings would collapse-Delhi HC

Arguments of the assessee:

1. that the impugned SCN issued u/s. 148A(b) of the Act seeking to initiate reassessment proceedings against the assessee on account of some transactions of purchase and sale of shares undertaken by it.

2. that the impugned show cause notice has been issued in violation of the provisions of Section 148A(b) of the Act as it merely states the transaction entered into by the Petitioner and does not contain any allegation of escapement of income.

3. that the petitioner filed a reply to the SCN explaining the aforesaid transactions stating that the transaction had been recorded in the books of accounts of the assessee and had also been duly declared in the ITR

4. that the assessee had also informed the revenue that the valuation of the shares sold had been done in accordance with the provisions of Rules 11U and 11UA of the Income Tax Rules, 1962 by a qualified Chartered Accountant.

5. that the Revenue passed the impugned order under Section 148A(d) of the Act on a completely different ground that the assessee was not sound so as to make an investment so the source of investment remained unexplained.

6. that this reason/information was not mentioned in the impugned show cause notice.

7. that the assessee was not provided any proper and effective opportunity to reply to the authorities as there was no specific charge/allegation/basis in the show cause notice to suggest that income had escaped assessment and the grounds on the basis of which the impugned order has been passed were never put to it before the passing of the order making it impossible for it to counter the same.

Arguments of the Revenue:

1. that even if the impugned SCN u/s. 148A(b) of the Act is vague. the Assessing Officer must be given liberty to issue a supplementary notice under Section 148A(b) of the Act. As per mandate of this Court in Mahashian Di Hatti Pvt. Limited Vs. DCIT 12504/2022 dated 1^st September, 2022.

Observations of the Hon. Court:

1. this Court is of the view that in the notice issued u/s. 148A(b) of the Act, the petitioner was never asked to explain the source of funds that were used by to purchase the shares of

This Court is further of the opinion that if the foundational allegation is missing in the notice issued under Section 148A(b) of the Act, the same cannot be incorporated by issuing a supplementary notice.

In the case of Mahashian Di Hatti Pvt. Limited (supra), there was a specific allegation that the assessee-company had taken accommodation entries of Rs.1,90,84,654/- from twenty eight bogus entities maintained by one Sh.Deepak Nanjyani. Since the foundational allegation was present in the notice issued under Section 148A(b) of the Act, this Court in the said case permitted the Assessing Officer to supply the names of twenty eight bogus entities as well as the bank details of one Raj Trading Company. Consequently, the present case is clearly distinguishable from the case of Mahashian Di Hatti Pvt. Limited (supra).

Keeping in view the aforesaid, the present writ petition along with applications is allowed and the SCN u/s. 148A(b) of the Act as well as the order passed u/s. 148A(d) of the Act and the notice issued under Section 148 of the Act for the assessment year 2018-19 are quashed.