2022 (5) TMI 553 - HC - Income Tax

Reopening of assessment u/s 147 - Notice issued on the basis of information that the petitioner has deposited a sum of Rs. 12, 50, 14, 500/- in bank account - HELD THAT - As decided in 2022 (5) TMI 550 - ALLAHABAD HIGH COURT petitioner is a cold storage company in which business dealings are mainly with farmers who usually transact in cash. The total cash deposit as has been taken in the impugned re-assessment order was fully disclosed by the petitioner-assessee in his books of account and in the audited balance sheet filed along with the return. Thus there was absolutely no material before the assessing authority for initiating proceedings under Section 148 of the Act 1961 and the reasons to believe recorded by the respondents were totally unfounded. The manner in which the proceedings under Section 148 of the Act 1961 has been initiated against the petitioner prima facie reflects illegal and arbitrary approach of the respondents on one hand and on the other hand to cause harassment to the petitioner/assessee. In the event counter affidavit is not filed within the time granted as aforesaid then the respondent no.3 shall remain personally present before this Court and shall show cause for non filing of the counter affidavit. In its counter affidavit the respondent no.1 shall show cause that what action and measures are being proposed by the Government against illegal and arbitrary exercise of powers by the respondent nos.1 2 and 3 while issuing notices under Section 148 of the Income Tax Act 1961. Matter put up as a fresh case for further hearing on 04.05.2022.

Summary

Issues:
Challenging re-assessment order under Section 148 of the Income Tax Act, 1961.

Analysis:
The petitioner, a private limited company, filed its return of income for the assessment year 2017-18, disclosing a loss. However, a notice under Section 148 of the Income Tax Act, 1961 was issued based on the allegation that the petitioner had deposited a significant sum in a bank account during that period. The petitioner objected to the notice, denying the cash deposit and stating it was unfounded. Despite the objection, the National Faceless Assessment Centre rejected it, claiming the petitioner had deposited the cash, leading to escaping assessment. The petitioner contended that the deposit was disclosed in its books and balance sheet, mainly from transactions with farmers in cash. The High Court observed discrepancies in the respondent's actions, noting that the information related to another entity, not the petitioner, and that the initiation of proceedings was arbitrary and illegal. The Court stayed the re-assessment order's operation, granting time for filing counter affidavits and setting the next hearing date.

The respondent no. 2's instructions revealed attempts to mislead the Court, as they failed to address the discrepancy in the information related to a different entity, not the petitioner. The Court found that the entire proceeding was initiated based on an anonymous letter naming a different individual and business entity. The respondent's verification report also confirmed that the information pertained to the other entity, not the petitioner. The High Court highlighted the lack of evidence against the petitioner regarding the alleged cash deposit and criticized the arbitrary and harassing approach of the respondents in initiating the proceedings under Section 148 of the Act, 1961. The Court directed the respondents to file counter affidavits and show cause for their actions, emphasizing the need for transparency and legality in exercising powers under the Income Tax Act.

The High Court's interim order extended the stay on the re-assessment order's operation until the next hearing date, emphasizing the importance of addressing the discrepancies and ensuring fair and legal proceedings. The Court directed the respondents to take necessary actions against any illegal or arbitrary exercise of powers in issuing notices under Section 148 of the Income Tax Act, stressing accountability and adherence to legal procedures. The case was scheduled for further hearing to address the issues raised and ensure justice and fairness in the assessment process.