Rajasthan HC quashes section 148 notice for Vague & Incomplete Information

Prateek Bulls And Bears Private Limited Vs DCIT (Rajasthan High Court)

The Rajasthan High Court set aside an Income Tax notice issued to Prateek Bulls And Bears Pvt Ltd for the Assessment Year 2018-19, citing procedural lapses and lack of substantive evidence. The case involved a notice under Section 148A(b) of the Income Tax Act, 1961, alleging a credit entry of ₹4.5 crore and a debit entry of ₹4.50 crore in a bank account. The petitioner denied ownership of the mentioned account and provided proof that its ICICI Bank account had been closed in 2010. Despite this, the Assessing Officer (AO) dismissed the objections due to non-response from ICICI Bank within a short timeframe.

The High Court noted that the Income Tax Department failed to adhere to the due process outlined in Section 148A, which mandates providing the assessee with all relevant materials before issuing a reassessment notice. The department did not disclose the name of the bank in which the alleged transactions took place, making it impossible for the petitioner to respond effectively. Furthermore, ICICI Bank later confirmed via emails in April and May 2022 that the account mentioned in the notice did not exist. However, the AO had already passed the order without waiting for this crucial information.

Citing procedural irregularities, the court criticized the department’s hurried approach in rejecting the petitioner’s objections within just five days of seeking clarification from ICICI Bank. The Income Tax Department also failed to present any evidence, either before the AO or during the court proceedings, to establish a link between the alleged bank account and the petitioner. The court observed that the department did not follow the due process as per Section 148A and relevant guidelines, leading to a wrongful reassessment notice.

The judgment aligns with the Supreme Court’s ruling in Union of India vs. Ashish Agarwal (2022 SCC Online SC 543), which emphasized strict adherence to reassessment procedures under Section 148 and 148A. The Rajasthan High Court reiterated that vague and incomplete information cannot justify a reassessment notice, as it violates the principles of natural justice. Consequently, the court quashed the Income Tax notice and allowed the writ petition filed by Prateek Bulls And Bears Pvt Ltd.

Petitioner is Represented by Mr. Siddharth Ranka with Mr. Rohan Chatter and Ms. Apeksha Bapna

FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT

1. This petition is filed seeking quashing of the notice dated 14.03.2022 issued under Section 148(b) of the Income Tax Act, 1961 (for short ‘the Act’) for the Assessment Year 2018-2019 and the order dated 31.03.2022 passed under Section 148A(d) of the Act.

Facts:

2. The brief facts are that the petitioner filed the return for the relevant assessment year declaring the income of Rs.2,39,47,140/-. A notice dated 14.03.2022 under Section 148A(b) of the Act was issued annexing the reason that in the assessment year 2018-19 there was a credit entry of Rs.4,50,00,000/- and debit entry of Rs.4,50,71,468/- in the bank account No.3042833. The petitioner in response dated 21.03.2022 stated that the petitioner has no bank account having the number mentioned in the notice. Further that the petitioner had a bank account with ICICI Bank, which was closed on 08.02.2010, the proof of closure of the bank account was enclosed. Order dated 31.03.2022 was passed holding that the objections are not tenable for the failure of ICICI Bank to respond to the notice issued on 25.03.2022 by the Assessing Officer (for brevity ‘AO’) under Section 133(6) of the Act.

Submissions:

3. Learned counsel for the petitioner argued that petitioner denied that the bank account mentioned in the notice belongs to it. The documents relating to closure of the bank account of the petitioner with the ICICI Bank were attached. The objections were decided in haste within six days of issuance of notice to bank. Submission is that the bank through an e-mail dated 06.04.2022 and 18.05.2022 responded to the notice of AO. The factum of closure of account of the petitioner with the ICICI Bank was accepted. Further it was stated that the account number mentioned in the notice does not exists with the bank.

4. Per contra the petitioner had not explained the entries in the account number mentioned in the notice rather had given a different account number which was closed. It is further submitted that the e-mail was received after passing of the impugned order.

Provisions & Guidelines:

Section 148A: [Conducting inquiry, providing opportunity before issue of notice under section 148.

section 148:-

a. conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

b. provide an opportunity of being heard to the assessee,[***], by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

c. consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);

d. decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:

Provided that the provisions of this section shall not apply in a case where,-

a. a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or

b. 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 in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

c. the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, 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; or

d. the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.]

Explanation.—For the purposes of this section, specified authority means the specified authority referred to in section 151.]

[Prior approval for assessment, reassessment or recomputation in certain cases.”

Relevant clauses of guidelines dated 01/08/2022 for issuance of notice u/s 148 of the Act.

xxxxxxxxxxxxxxxxxxxxxx

“iv. The “specified authority” for the seeking approval for conducting enquiry u/s 148A(a), passing order u/s 148A(d) and issuance of notice u/s 148 shall be:

v. Explanation 2 to section 148 of the Act provides that if a survey u/s 133A of the Act (other than under section 133A (2A)) was conducted in the case of the assessee on or after 1 April, 2021, the Assessing officer shall be deemed to have information which suggests that income chargeable to tax has escaped assessment. However, it is to clarify that the due procedure as prescribed u/s 148A needs to be followed in such cases also before issuing a notice u/s 148 of the Act. (refer proviso to section 148A).

vi. The AO shall, if required, undertake enquiries on any “information” received/available with him which suggests that the income chargeable to tax has escaped assessment in a previous year only with the prior approval of “specified authority”.

vii. If the result of enquiry/information available suggests that the income chargeable to tax has escaped assessment, the AO shall provide an opportunity of being heard to the assessee by issuing a show cause notice u/s 148A(b) of the Act. The said notice shall provide between 7 to 30 days’ time to the assessee for submitting the reply. A template of show cause notice is enclosed at Annexure-A1

viii. If an assessee requests for a personal hearing, the same may be dealt with following the principle of natural Justice by giving a reasonable period for compliance of notice specifying the date of hearing.

ix. As per 3rd proviso to section 149, for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded.

x. Further as per 4th proviso to Section 149, where immediately after exclusion of the period referred to in the immediately preceding proviso (i.e. 3rd proviso), the period of limitation available to the Assessing Officer for passing an order under clause (d) of Section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly.

xi . The AO has to consider the reply of assessee furnished, if any, in response to the show cause notice referred to in clause(b) of Section 148A before passing the order u/s 148A(d).

xii. The AO shall mandatorily pass a speaking order u/s 148A(d) in all cases with the ‘prior approval of the specified authority’ (Annexure-A2) for such order u/s. 148A(d), expect in the cases covered in Para 2.1

(iii) above of these guidelines, irrespective of whether issuance of notice u/s 148 is being recommended or not. A template of such order u/s. 148A(d) is enclosed at Annexure-A3.

xiii. Once an order under clause(d) of Section 148A has been passed, no further approval is required for issuance of notice u/s 148 by the AO, with effect from 1.4.2022.*

(* except for cases in which procedure under Section 148A is being applied for implementation of the Hon’ble Supreme Court’s judgment in the case of UOI Vs. Ashish Agarwal (2022 SCC Online SC 543) dated 4.5.2022 for which specific instruction dated 11.5.2022 has been issued”).

Annexure-A1 is reproduced hereinbelow:-

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
INCOME TAX DEPARTMENT
OFFICE OF THE—————-
(Designation of AO along with Office address)

To,

Notice under clause (b) of Section 148A of the Income-tax Act, 1961

Sir/Madam/M/s

1. Whereas I have information which suggests that income chargeable to tax for the Assessment Year _______ has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. The details of the information/enquiry conducted on which reliance is being placed, along with supporting documents, are enclosed with this notice.

2. You are required to show-cause as to why, in view of the details contained in enclosures mentioned in point number 1 above, a notice under Section 148 of the Income Tax Act, 1961 should not be issued.

3. You may submit your reply to this notice, along with supporting documents (if any) on the above mentioned issues on or before_______ electronically at www.incometax.gov.in.

• The AO should enclose copy of all the relevant ‘information’ available on which reliance is being placed, along with supporting documents (if any).
• In the cases where information is received from the investigation wing or any other law enforcement agency, details of letter, brief summary of information along with relevant portion of such report and details of relied upon documents may be enclosed. Such a portion as does not bear reference to the assessee concerned may be appropriately redacted.
• Details of enquiry conducted, if any, may be shared if reliance is being placed by the AO on it.
• Judicial order (i.e., case laws) on which reliance is being placed, if any.

Refer Explanation 1 and Explanation 2 of Section 148 for what constitutes “information”.

Analysis and Conclusion:

5. Section 148A of the Act stipulates that before initiating the proceedings under Section 148 of the Act, with prior approval of the specified authority the A.O. if so, required may conduct an enquiry with regard to the information suggesting escaped assessment. The assessee is to be provided an opportunity of hearing by issuing notice specifying the date of not less than seven days but not exceeding thirty days, which may be extended on application. The information relied upon for reassessment and outcome of enquiry if conducted any, is to be supplied. In case of information having been received from investigating wing or other agency, brief summary of information along with relevant portion of report and details of documents relied upon is to be supplied. The decision that if it is a fit case for issuance of notice under Section 148 is to be taken with prior approval of the specified authority, on the basis of material available on record and after considering the reply filed by the assessee. The order is to be passed within one month from ending of the month when reply was filed and in case no reply was filed within one month from end of month when time to file reply expires.

6. The proviso to Section 148A of the Act provides exception to the applicability of Section 148A of the Act.”

7. From perusal of the reasons annexed with the notice issued under Section 148A(b) of the Act, it is evident that name of the bank in which the account was maintained is not mentioned. Inspite of the mandate of Section 148A of the Act, circulars and guidelines issued by the department that material relied upon should be supplied to the assessee, the casualness in which the reasons are supplied, is evident. Vague information was supplied and in absence of name of bank it becomes impossible for the assessee to file response.

8. The petitioner filed objections on 21.03.2022 denying that the account number does not belong to it, giving details of the bank account with the ICICI Bank which was closed, the proof thereof was annexed. The AO issued notice to the bank on 25.03.2022 and without waiting for reasonable time or giving reminder or making any efforts to verify the fact from the bank, brushed aside the objections stating that no response has been received from the bank.

9. In the reply filed by respondent before this court, the e-mail received from the bank that the account of the petitioner with the ICICI Bank was closed in the year 2010 and further that the account number mentioned in the notice does not exist with the ICICI Bank has not been denied.

10. It would be appropriate to note that the e-mail was of April and May, 2022 and respondent filed reply on 22.02.2023 i.e. almost eight months after receipt of the e-mail. In reply filed, there is no pleading that the bank account number mentioned in the notice was of some other bank than ICICI or that there is even a prima-facie material with the department that the bank account mentioned in the notice belonged to the petitioner. There is no reason put-forth for hurriedly passing the impugned order within five days of sending email.

11. The objections were not decided in accordance with Section 148A and the guidelines issued for procedure to be followed in proceedings under Section 148A of the Act.

12. Even before this Court, the department miserably failed to put an iota of evidence to even prima-facie show that the bank account mentioned in the notice belonged to the petitioner and even at this stage, the name of the bank of which account number belongs is not disclosed.

13. The impugned order is quashed and the writ petition is allowed.