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TMI Blog2025 (1) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... s deposited in the treasury, have been completely overlooked, misconstrued by the officer. We are in fact not only surprised but pained with the approach of not only the assessing officer in showing such gross non-application of mind, but also with the mechanical approach of the PCIT, Mumbai, in according approval to the issuance of notice to the petitioner under Section 148A (b). This aspect we advert to little later. We wonder as to how without verifying the petitioner s credentials and merely on the basis of some information which was available with the CGST authorities, the assessing officer without verifying the returns which were filed by the petitioner and the supporting documents, qua the professional fees as received by the petitioner from M/s. Flash Forge, could have proceeded to issue a notice under section 148A (b) The information which was gathered by the department indicated that M/s Flash Forge had made payments to the petitioner. However, there was no material for the assessing officer to jump to a conclusion, that having received such amount, the petitioner was deemed to be involved and/or was the beneficiary of any bogus input tax credit as being portrayed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the petitioner. All these remarks being made by the PCIT against the petitioner in granting approval under Section 151 of the IT Act for issuing notice under Section 148 of the IT Act, in our opinion, has crossed all limits of legitimacy in the discharge of the official duties by the PCIT. From the reading of the PCIT s remarks we may observe that if such high officers act with such colossal non-application of mind, amounting to an abuse of the authority and powers which are vested in him in law, which is coupled with a serious duty and an obligation to adhere to the correct facts of the case and on appropriate understanding of the law in grant of an approval, what can be the plight of the assessee. Thus, the impugned show cause notice issued to the petitioner u/s 148A (b) and also the consequent order u/s 148A (d) quashed - Decided in favour of assessee. - G. S. KULKARNI ADVAIT M. SETHNA, JJ. For the Petitioner: Mr. J. D. Mistri, Sr. Adv., a/w. Madhur Agrawal, i/b. Atul K. Jasani,. For the Respondents: Dr. Dhanalakshmi Iyer, a/w. Suresh Kumar,. ORAL JUDGMENT: [PER G. S. KULKARNI, J.] 1. This petition under Article 226 of the Constitution of India assails a notice issued to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerated by the CGST Authorities indicated that M/s Flash Forge was engaged in issuing/generating/providing fake/bogus invoices for passing of fraudulent input tax credit, without supply of goods, from which it was gathered that total purchases reported of M/s Flash Forge against the petitioner for Rs. 10,97,500/- who may be the beneficiary of the bogus ITC, hence why such income escaping assessment be not taxed in such proceedings. 5. The petitioner responded to the said show cause notice by submitting a detailed reply dated 15 March 2022, wherein the petitioner inter alia pointed out its background as an assessee, namely, it was a firm of Chartered Accountant, engaged in audit and assurance, also taxation related services, being offered to corporate and non-corporate assessees. It was also pointed out that in the assessment year in question, the petitioner has neither purchased any goods nor sold any goods to M/s Flash Forge and had merely rendered professional services to M/s. Flash Forge for which four invoices were issued for a total amount of Rs. 12,95,050/- and against the said invoices, payments were received by the petitioner of Rs. 11,80,000/- which included Rs.9,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities, there were certain entities which were engaged in issuing/generating/providing fake/bogus invoices for passing fraudulent tax credit, without supply of goods. M/s Flash Forge was one of such entity which had prepared fake invoices, issued to the petitioner amounting to Rs. 10,97,500/- for A. Y. 2018-2019. It was further stated that approval was taken from the Principal Commissioner of Income Tax ( PCIT for short) for issuing show cause notice under Section 148A (b), hence, after receiving proper approval such notice was issued. Insofar as the contents of reply submitted by the petitioner are concerned, quite significantly and surprisingly the following observations were made by the assessing officer:- In this case information was flagged in accordance with the risk management strategy formulated by the Central Board of Direct Taxes. The information is as follow: As per incident report generated by CGST authorities, certain entities are engaged in issuing/generating/providing fake/bogus invoices for passing fraudulent input tax credit without supply of goods. Of the details available to this office, it is seen that M/s Flash Forge Pvt Ltd is one such entity which has made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued to the petitioner proposing to assess or re-assess the petitioner s income for the A.Y. 2018-2019. The petitioner was called upon to file a fresh return within 30 days from the receipt of said notice for the A. Y. 2018-2019. 8. Mr. Mistri, learned senior counsel for the petitioner, at the outset, has stated that copy of the approval as granted by the PCIT for issuance of the impugned notice under Section 148 was furnished to the petitioner today in the Court, a copy of which is placed on record. 9. Reply affidavit of Shri. Amitkumar, Deputy Commissioner of Income Tax Circle-(16)(2) to the petition has been filed. We have perused the affidavit. It is the reiteration of what has been observed in the order passed by the assessing officer under Section 148A (d) of the IT Act. In Paragraph 5.5 of the reply affidavit, the following contentions has been raised:- As per their submission dated 15.03.2022, the petitioner has raised an invoice of Rs. 10,97,500/- on the company M/s Flash Forge Private ltd for certain services provided by the them. However, the petitioner has not provided any conclusive evidence of the nature of the services rendered for eg. an existing contract with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the petitioner. Mr. Mistri would further submit that, although the assessing officer has held that the petitioner deposited the GST amount collected/received by the petitioner from M/s Flash Forge, with the government treasury, however this would not show the genuineness of the transactions. This according to Mr. Mistry is something wholly unimaginable and arbitrary in the absence of any material. It is therefore Mr. Mistri s contention that this is a case wherein there is a highest degree of non-application of mind on the part of the assessing officer. 12. Mr. Mistri would next draw our attention to the nature of the approval granted by the Principal Commissioner of Income Tax-8 Mumbai Circle-16 (2) (for short PCIT ), under Section 151 of the IT Act, for issuance of a notice under Section 148, in which the PCIT refers to bogus purchases made by the petitioner/assessee as seen from the notings and remarks made by the PCIT when he refer to a One World group of entities . It is submitted that this is completely a third entity referred in such remarks. It is submitted that such entities were totally unconnected with the case of the petitioner, as this was not even brought out b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that regard as reflected in the books of accounts in relation to receipt of fees, the TDS amounts deposited as also the GST amounts deposited in the treasury, have been completely overlooked, misconstrued by the officer. 17. We are in fact not only surprised but pained with the approach of not only the assessing officer in showing such gross non-application of mind, but also with the mechanical approach of the PCIT, Mumbai, in according approval to the issuance of notice to the petitioner under Section 148A (b). This aspect we advert to little later. 18. At the outset, we wonder as to how without verifying the petitioner s credentials and merely on the basis of some information which was available with the CGST authorities, the assessing officer without verifying the returns which were filed by the petitioner and the supporting documents, qua the professional fees as received by the petitioner from M/s. Flash Forge, could have proceeded to issue a notice under section 148A (b). In this context, we may observe that the reasons which are set out in the annexure to the notice under section 148A (b) are purely on the information which is gathered under the central information mechan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Act, unless the assessing officer has tangible material to indicate that certain transactions, which are relevant to the CGST are also relevant and necessary, in so far as the returns filed by an assessee are concerned, and any bogus transactions or anything in relation to such transactions, becomes relevant in so far as in a given case, qua the income disclosed by the assessee under the IT Act is concerned. This can be the case when an assessee in filing his returns does not disclose the true and correct income. It is only when such tangible material is available, the assessing officer would have reason to believe, that income has escaped assessment for such conduct of the assessee. 20. However, in the present case, certainly the facts demonstrate that this is not a case where the income of the petitioner has escaped assessment on any CGST issue considering what has been pointed out by the petitioner in the reply to the show cause notice issued under Section 148A (b). The assessing officer merely on the basis of the information as found from the CGST authorities could not have proceeded to take steps to reopen the petitioner s assessment, when none of the materials from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... One World group of entities. In all cases of accommodation entries, the purchases are inflated resulting in suppression of profits and thereby reduction of taxable income while claiming fradulent ITC. In such cases, the paper trial is complete including transactions through bank accounts but contemporaneous corroborative evidences like LR, GRN, entries in stock register. Hence, the purchases cannot be proved. Approval given to issue order u/s. 148A (d). The A.O. may issue notice u/s 148 thereafter. 24. A firm of Chartered Accountants, which is providing to its clients accounting and audit services, certainly cannot be alleged to have made bogus purchases from One World Group of Entities and in respect of which there was not a iota of material, over and above this, the petitioner has been alleged of having accommodation entries in regard to these purchases which are stated to be inflated resulting in suppression of profits, thereby reducing of the taxable income of the petitioner, while claiming fraudulent ITC, when there was no ITC whatsoever being claimed by the petitioner. All these remarks being made by the PCIT against the petitioner in granting approval under Section 151 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorting to an action being taken against the object and spirit of the provisions of law resulting in serious consequences. The Court reprimanded such actions and considering such conduct, it imposed cost of Rs. 25,000/- on the Jurisdictional Assessing Officer ( JAO for short) and Chief Commissioner of Income Tax to be deposited personally. This Court, following the decision in Samp Furniture Private Limited (supra), in Saraswat Co-operative Bank Limited vs. Assistant Commissioner of Income-tax Circle 1(3)(1) and Others WP No. 1910 of 2022, Bombay High Court., made the following observations: 23. The power to sanction reassessment under Section 151, is coupled with a duty to exercise such power reasonably, and not arbitrarily. It is trite law that absence of avalid reasons constitutes arbitrariness. In the instant case, the entire process of according sanction demonstrates non-application of mind to the ingredients of Section 147, rendering the sanction to be arbitarary, calling for intervention by a writ court. Evidently, the proposal, the recommendation and the approval in the instant case was mechanical, without either application of mind to the law and the facts or even a modicu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice (Exhibit B) dated 10th March, 2022, passing of the impugned order (Exhibit D) dated 31st March, 2022 and the issue of the impugned notice (Exhibit E) dated 31st March 2022 and after going through the same and examining the question of legality thereof quash, cancel and set aside the impugned initial notice (Exhibit B) dated 10th March, 2022, the impugned order (Exhibit D) dated 31st March, 2022 and the impugned notice (Exhibit E) dated 31st March 2022. 31. Considering our observations as made above, this is a fit case wherein the approach as adopted by the Court in Samp Furniture Private Limited (supra) needs to be followed, namely to direct the concerned JAO in the present case as also the PCIT Mumbai-8, Circle 16 (2) to personally pay cost of Rs. 25,000/- each, to be deposited with the National Association for Blind , having its office at 11/12 Khan Abdul Gaffar Khan Road, Opp. Bandra Worli Sea Link, Mumbai, India (nabindia.org.in) within a period of two weeks from the day a copy of this order is available. 32. We also issue a further direction that in so far as the conduct of these officers in discharge of their official duties and in the light of the observations as made b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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