2025 (2) TMI 775 - HC - Income Tax

Validity of reassessment proceedings - notice as issued u/s 148A(b) to the petitioner on the basis of High Risk CRIU/VRU information available on Insight Portal - receipt of accommodation entries in the form of bogus capital expenses from fictitious entity - HELD THAT - Revenue appears to have conducted a physical verification which was confirmed vide the Clarificatory Letter dated 22.08.2024. However without issuing a further notice in respect of the alleged non-existence of the said entity at the Jasola address and calling for an explanation in that regard the respondent/Revenue passed the impugned order u/s 148A (d) of the Act dated 31.08.2024. This procedure to our mind is abject violation and infraction of the principles of natural justice inasmuch as the conclusion regarding the said entity being a non-existent bogus entity was never put to the petitioner in the show cause notice dated 09.08.2024 issued u/s 148A (b) of the Act. In other words the petitioner was never afforded an opportunity to respond to the said allegation. The aforesaid infraction gathers great significance having regard to the fact that the original assessment proceedings for the AY 2018-19 stood closed. It was only by the impugned notice u/s 148A (b) of the Act dated 09.08.2024 the initiation of re-assessment proceedings were to commence. Ordinarily after the closure of the assessment proceedings AO would be functus officio and to re-confer jurisdiction upon the AO to initiate re-assessment proceedings relevant incriminating material ought to be put to the assessee before any such re-commencement can be sought. Reassessment proceedings set aside - Decided in favour of assessee.

Summary

The issues presented and considered in the Delhi High Court judgment are as follows:1. Whether the notice issued under section 148A(b) of the Income Tax Act, 1961 to the petitioner based on High Risk CRIU/VRU information was valid?2. Whether the conclusion regarding the entity M/s. Zhonghua (India) Eng. Pvt. Ltd. being a non-existent bogus entity without affording the petitioner an opportunity to respond violated principles of natural justice?3. Whether the initiation of re-assessment proceedings without putting relevant incriminating material to the assessee after the closure of the original assessment proceedings was lawful?Detailed Analysis:Issue 1:The relevant legal framework is section 148A(b) of the Income Tax Act, 1961, which allows for the issuance of notices for re-assessment based on specific criteria. The Court found that the notice was issued to the petitioner based on High Risk CRIU/VRU information. The key evidence presented was the communication/reply from the petitioner informing the respondent/Revenue that they had not transacted with M/s. Zhongmao (India) Eng. Pvt. Ltd. but with M/s. Zhonghua (India) Eng. Pvt. Ltd. The Court reasoned that the respondent/Revenue concluded that M/s. Zhonghua (India) Eng. Pvt. Ltd. was a paper entity used for accommodation entries. The application of law to facts involved the respondent/Revenue passing an order under section 148A(d) of the Act based on the alleged bogus purchases. The Court considered the competing arguments presented by both parties and concluded that the notice under section 148A(b) was not valid.Issue 2:The legal framework for this issue includes the principles of natural justice, particularly in administrative and quasi-judicial actions. The Court referred to the Sahara India (Firm) vs. CIT case to support the importance of natural justice in such proceedings. The key evidence was the lack of opportunity given to the petitioner to respond to the allegation of M/s. Zhonghua (India) Eng. Pvt. Ltd. being a non-existent entity. The Court found that the failure to provide such an opportunity constituted a violation of natural justice. The Court's conclusion was that the impugned order and notice were set aside due to this violation.Issue 3:The legal framework here involves the jurisdiction of the Assessing Officer to reopen assessment proceedings under section 148 of the Act. The Court referenced the Grindlays Bank Plc. case to highlight the limited circumstances under which reassessment proceedings can be initiated. The key evidence was the absence of relevant incriminating material being put to the petitioner after the closure of the original assessment proceedings. The Court's reasoning was that the petitioner was deprived of the opportunity to explain the existence of M/s. Zhonghua (India) Eng. Pvt. Ltd. The Court concluded that the initiation of re-assessment proceedings without providing such an opportunity was unlawful.Significant Holdings:The Court held that the impugned order under section 148A(d) of the Act and the notice under section 148 of the Act were set aside due to violations of natural justice and procedural irregularities. The Court allowed the petition and disposed of the matter, granting the respondent/Revenue the liberty to proceed afresh in accordance with the law.Overall, the judgment focused on the procedural fairness and legal requirements in re-assessment proceedings under the Income Tax Act, emphasizing the importance of providing opportunities for parties to respond to allegations and ensuring compliance with statutory procedures.