2023 (6) TMI 1169 - HC - Income Tax

Validity of Reopening of assessment - accommodation entry being provided to the petitioner, as alleged, in the form of a bogus loan made by Mr Rajesh G Mehta - reliance on third party entry provider statement - whether AO had material available with him to form a reasonable belief that income chargeable to tax had escaped assessment? - HELD THAT - As the foundation for triggering reassessment proceedings qua the petitioner is the statement of Rajesh G Mehta. The statement, by itself, does not lend any clarity as to whether the AO had underlying material available with him for reaching a conclusion that income chargeable to tax qua the petitioner had escaped assessment. This aspect would have, perhaps, become clear if the AO had accorded personal hearing to the authorized representative of the petitioner. As required to be noticed that, as adverted to hereinabove, the search and seizure action under Section 132 of the Act was not carried out against the petitioner; such action was carried out against a third party. The period in issue, as noted right at the outset, is FY 2018-19 AY 2019-20 . There seems to be weight in the submission made on behalf of the petitioner that the CBDT via the aforementioned circular i.e., circular dated 01.08.2022 and 22.08.2022 has relaxed the rigour of the law. CBDT has read into the provisions of 148A and Section 148 of the Act, the principles of natural justice. Therefore, we are of the view that the best way forward would be to set aside the order under Section 148A(d) of the Act and consequential notice of issued under Section 148 - Decided in favour of assessee.

Summary

Issues:
The judgment concerns a challenge to an order passed under Section 148A(d) of the Income Tax Act, 1961 and a consequential notice issued under Section 148 of the Act for Assessment Year (AY) 2019-20.

Challenge to Order and Notice:
The petitioner challenged the order alleging that it is a beneficiary of a bogus loan provided as an accommodation entry by Aneri Fincap Ltd. controlled by Mr. Rajesh G Mehta. The petitioner disputed the allegation, stating that there was no reference to such entry in Mr. Mehta's statement. The petitioner admitted receiving an unsecured loan from AFL but claimed it was genuine, supported by the repayment in the succeeding AY and compliance with tax deduction provisions.

Reassessment Proceedings and Material Consideration:
Reassessment proceedings were initiated against the petitioner following a search and seizure action against "Oneworld group entities." The statement of Mr. Mehta formed the basis for focusing on AFL's loan to the petitioner. The court noted the lack of clarity on whether the AO had sufficient material to conclude that income had escaped assessment, especially considering the absence of personal hearing for the petitioner.

Legal Considerations and Order:
The court observed that the search was not against the petitioner, and the period in question was FY 2018-19. It acknowledged the relaxation of law rigour by CBDT circulars, incorporating principles of natural justice. Consequently, the court set aside the order and notice, directing the AO to conduct a fresh assessment after providing a personal hearing to the petitioner and furnishing any material triggering the reassessment. The petitioner would have the opportunity to respond, and a speaking order would be issued.

Conclusion:
The writ petition was disposed of with the above directions, allowing for a fair opportunity for the petitioner to address the allegations and participate in the reassessment process.