Information triggering assessment/ reassessment proceedings must be furnished to assessee

Charu Chains and Jewels Pvt. Ltd. Vs ACIT (Delhi High Court)

The Hon’ble Delhi High Court in Charu Chains and Jewels Pvt. Ltd. v. Assistant Commissioner of Income Tax [W. P. (C) 17577/2022 dated December 22, 2022] set aside the reassessment order against the assessee, on the grounds of non-supply of the information/ material by the Revenue Department for reopening of assessment. Held that, the underlying information/material which forms the basis of triggering the assessment/reassessment proceedings must be furnished to the assessee. Further, directed the Revenue Department to furnish the underlying material concerning the assessee within 3 weeks, to grant personal hearing and, thereafter, take decisions in accordance with law.

Facts:

This petition has been filed by M/s. Charu Chains and Jewels Pvt. Ltd. (“the Petitioner”) against the order dated July 25, 2022 (“the Impugned Order”) passed under Section 148A(d) of the Income Tax Act, 1961 (“the IT Act”) and the consequential notice of even date i.e. July 25, 2022, issued under Section 148 of the IT Act (“the Impugned Notice”) concerning Assessment Year (“AY”) 2016-17.

While carrying out the assessment for the AY 2017-18 the Assessing Officer (“AO”) came across certain unsecured transaction entered into amongst three entities amounting to a total INR 2.7 crore and passed the Impugned Order and the consequent Impugned Notice forming the following views:

i. the lenders were either not found or were entities just for the purpose of making entries in the books of account;

ii.  At least two of the three lenders had presumably struck off their names from the register maintained by the Registrar of Companies;

iii. There were common directors and the directors of two companies did not respond to the summons issued by the AO; and

iv. The lenders had nominal incomes and did not have the potential to lend the amounts.

The Petitioner vide partial reply dated May 31, 2022 made to the Revenue Department (“the Respondent”) sought for the information/materials pertaining to the enquiries made by the AO, inspection/enquiry report, any other related report/document and any other material relied upon by the Respondent.

The Petitioner contended that, the Impugned Order not being passed within one month from the date of reply as prescribed in Section 148A(d) is not sustainable.

Issue:

Whether the Impugned Order was passed within the time-frame as mentioned in Section 148A(d) of the IT Act?

Held:

The Hon’ble Delhi High Court in W. P. (C) 17577/2022 of 2022 held as under:

• Noted that, the Petitioner vide its reply had indicated that it would file a further reply once the information/material sought is made available to the Petitioner. Further, during the course of the proceedings, the information that the Respondent had gathered concerning to the transaction in issue was not made available to the Petitioner.
• Observed that, the Respondent had granted further time to the Petitioner to file a final reply on or before June 27, 2022 and making it clear that, if no reply is filed by the Petitioner, an order under Section 148A(d) of the IT Act would be passed based on the materials already available on record. Thus, the one month time-frame as mentioned in Section 148A(d) of the IT Act shall start from June 30, 2022 being end of the month i.e., the date on which the extended time to furnish the reply expired and hence, the Impugned Order was passed well within the time-frame.
• Relied on the judgment of the Hon’ble Supreme Court in the matter of Union of India v. Ashish Aggarwal [Civil Appeal No. 3005/2022 dated May 4, 2022] wherein, it was held that the AO shall provide to the assessee the reasons recorded and other material in his possession, within one month, which were the basis for recording of such reasons and issue of notice.
• Held that, with regard to the non-supply of the material by the Respondent, the underlying information/material which forms the basis of triggering the assessment/reassessment proceedings must be furnished to the Petitioner.
• Set aside the Impugned Order and the Impugned Notice.
• Remitted the matter back to the Respondent.
• Directed the Respondent to furnish the underlying material concerning the petitioner within 3 weeks.
• Directed the Petitioner to file a response within 3 weeks from the supply of materials.
• Further directed the Respondent to grant personal hearing to the Petitioner and, thereafter, take decisions in accordance with law.

Relevant Provisions:

Section 148A of the IT Act:

“148A. Conducting inquiry, providing opportunity before issue of notice under section 148.–

The Assessing Officer shall, before issuing any notice under 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. 

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Allowed, subject to just exceptions.

W.P.(C) 17577/2022 & CM APPL. 56128/2022[Application filed on

behalf of the petitioner seeking interim relief]

2. Issue notice.

2.1 Mr Sanjay Kumar accepts notice on behalf of the respondent/revenue.

3. In view of the directions that we intend to pass, Mr Kumar says that counter-affidavit is not required to be filed.

4. Therefore, with the consent of counsel for the parties, the writ petition is taken up for hearing and final disposal at this stage itself.

5. This writ petition is directed against the order dated 25.07.2022 passed under Section 148A(d) of the Income Tax Act, 1961 [in short, “the Act”] and the consequential notice of even date i.e., 25.07.2022 issued under Section 148 of the Act concerning Assessment Year (AY) 2016-2017.

6. The record appears to show that while the Assessing Officer (AO) was carrying out the assessment vis-a-vis AY 2017-2018, he came across certain unsecured loan transactions entered into amongst three entities [whose names are set forth hereafter] amounting to a cumulative sum of Rs.2.7 crores. The details concerning the read as follows:

7. Given this position, the assessing officer formed, broadly, the following view:

(i) That these were accommodation entries, and in this context, adverted to the fact that the parties were located at the same address; furthermore inspection/enquiry was conducted at two locations which revealed that the aforementioned lenders were either not found at the given address or exhibited typical characteristics of entry providing entities.

(ii) That there were common directors, and at least two out of the three companies referred to above had their names struck off, presumably, from the register maintained by the Registrar of Companies (ROC).

(iii) Likewise, directors of two out of the three companies i.e., Capital Introtech Pvt. Ltd. and NCR Buildtech Pvt. Ltd. did not respond to the summons issued by the assessing officer on 29.11.2019.

(iv) Most of the lenders had nominal incomes. In other words, they did not have the potential to lend the amounts to third parties.

8. We have, on record, the reply dated 31.05.2022 whereby the petitioner, inter alia, sought the following information/material from the AO.

(i) Enquiries made by the AO.

(ii) Inspection/ Enquiry Report.

(iii) Any other reports/documents incidental or related to the above.

(iv) Lastly, any other information and material relied upon by the revenue.

9. We may note that in the very same reply, the petitioner had indicated that it would file a further response once the aforementioned information/material is provided and that even if the information/material is not provided, it would reserve its the right to file a further response.

10. During the course of the proceedings, it has emerged, that at least, the information that the AO and/or Inspector gathered concerning the transactions in issue has not been furnished to the petitioner.

11. The record also shows that in view of the response dated 31.05.2022, the AO via communication dated 16.06.2022 granted further time to the petitioner to file a final response, albeit on or before 27.06.2022; making it clear that if no response is received, an order under Section 148A(d) of the Act would be passed based on the material available on record.

12. Mr Rajat Navet, who appears on behalf of the petitioner, has advanced the submission that the order dated 25.07.2022 deserves to be set aside, as it has been passed after the time prescribed in Clause (d) of Section 148(A) of the Act had passed.

12.1 According to him, the said order ought to have been passed within one month from the end of the month in which the petitioner had preferred the reply dated 31.05.2022.

12.2 In other words, Mr Navet’s contention is that the time for passing the order expired on 30.06.2022.

13. Mr Kumar, on the other hand contends, and in our view rightly, that a careful perusal of the reply dated 31.05.2022 would show that it was a “partial” reply, and that taking into account the assertions raised therein, the AO via communication dated 16.06.2022 granted further time to the petitioner to submit a final response. Therefore, it is Mr Kumar’s submission, that the period of one month would commence only from 30.06.2022, being end of the month i.e., the date on which the extended time to furnish the reply expired. Thus, accordingly, if this position is taken to be correct, the AO could pass an order under Section 148A(d) of the Act, on or before 31.07.2022.

13.1. In sum, it is Mr Kumar’s contention, that since the order under Section 148A(d) of the Act was passed on 25.07.2022, it was not beyond the timeframe provided in Section 148A(d) of the Act.

14. As observed above, we are in agreement with Mr Kumar on this aspect of the matter. To reiterate, since the reply of the petitioner was partial, and the petitioner itself had indicated that even if no material is supplied, it will file a further response to the notice issued under Section 148A(b) of the Act, the one-month timeframe would kick in only from 30.06.2022.

15. This brings us to the second point, which is with regard to the non-supply of the material.

16. Insofar as this aspect is concerned, Mr Kumar, cannot but accept that in terms of the judgment of the Supreme Court rendered in Union of India v. Ashish Aggarwal 2022 (5) TMI 240, underlying information/material which formed the basis for triggering the assessment/reassessment proceedings was required to be furnished to the petitioner.

17. That being the position, according to us, the best way forward is to set aside the impugned order dated 25.07.2022 passed under Section 148A(d) of the Act and the consequential notice of even date i.e., 25.07.2022 issued under Section 148 of the Act.

17.1 It is ordered accordingly.

18. The matter is remitted to the AO.

18.1 The AO will furnish the underlying material concerning the petitioner, within three weeks of receipt of a copy of the judgement.

18.2 Once the material is supplied, the petitioner will have further three weeks to file a response.

18.3 The AO will grant personal hearing to the petitioner’s authorized representative, and thereafter, take the next steps in law, as mandated under the Act.

19. The writ petition is disposed of in the aforesaid terms.

20. Pending application shall also stand closed.

21. Parties will act based on the digitally signed copy of the judgement.

*****

(Author can be reached at info@a2ztaxcorp.com)