2024 (12) TMI 1266 - HC - Income Tax

Validity of reopening of assessment - During the course of search, certain hard disk drives were seized and the statement of the managing director was recorded which indicated that there were certain transactions (including cash sales and purchases) - HELD THAT - Petitioner had paid consideration for supplies in cash. The cash entries are thus reflected as credit entries and not debit entries. Revenue s contention that the ledger account that the petitioner had received cash is erroneous. The ledger account in question reflects that the petitioner had paid cash. It is the petitioner s case that the entries which are reflected as cash payments made by the petitioner are in fact the payments made through banking channel and have been incorrectly reflected as cash receipts in the books maintained of VKC Group. It does not appear that the AO had made any specific allegation that the petitioner had paid money through banking channel and received back the cash against those payments. We consider it apposite to set aside the impugned order dated 31.08.2024 passed u/s 148A (d) as well as the notice issued u/s 148 and remand the matter to the AO to consider afresh in light of the averments made in the present petition and the replies furnished by the petitioner on 14.08.2024 and 30.08.2024.

Summary

Issues:
Challenge to notice under Section 148A (b) of the Income Tax Act for AY 2018-19, challenge to order under Section 148A (d) of the Act, validity of reassessment proceedings under Section 147/148, consideration of petitioner's reply, discrepancy in cash entries vs. banking channel payments.

Analysis:
The petitioner sought writs to quash a notice under Section 148A (b) and an order under Section 148A (d) of the Income Tax Act for AY 2018-19, alleging income escaping assessment. The notice was based on information from a search at M/s VKC Nuts, linking transactions to the petitioner's proprietorship. The AO alleged discrepancies in cash receipts in the petitioner's ledger, indicating unassessed income. The petitioner responded to the notice, providing detailed explanations and clarifications. However, the AO proceeded with the order without considering the petitioner's additional reply, leading to a challenge on the grounds of non-examination of the response within the prescribed period.

The impugned order failed to analyze whether the cash entries in the ledger corresponded to actual cash payments or were made through banking channels. The petitioner contended that the cash entries were misinterpreted and were actually banking transactions. The AO's failure to address this discrepancy raised concerns about the validity of the reassessment proceedings. The Revenue's assertion that the petitioner received cash was refuted by the ledger entries showing cash payments. The petitioner maintained that the entries reflected as cash payments were, in fact, made through banking channels, which the AO did not specifically address.

Consequently, the Court set aside the impugned order and notice, remanding the matter to the AO for a fresh consideration. The Court directed the AO to review the petitioner's submissions and seek additional information if necessary to make an informed decision. The judgment highlighted the importance of properly examining the petitioner's responses and ensuring a thorough assessment before initiating reassessment proceedings. Ultimately, the petition was disposed of in favor of the petitioner, emphasizing the need for a comprehensive review of the facts and responses before taking further actions in income tax matters.