Salasar Services Insurance Brokerspvt. Ltd v. Assistant Commissioner Of Incometax And Ors

OD-8 APOT/152/2022IA No.GA/1/2022 IN THE HIGH COURT AT CALCUTTACivil Appellate JurisdictionORIGINAL SIDE SALASAR SERVICES INSURANCE BROKERSPVT. LTD. -Versus- ASSISTANT COMMISSIONER OF INCOMETAX AND ORS. Appearance:Mr. Sudhir Mehta, Adv.Mr. Anurag Bagaria, Adv....for the appellant. Mr. Tilak Mitra, Adv. .. . for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE PRASENJIT BISWAS Date : 2[nd ]September, 2022. The Court : This intra-Court appeal filed by the writ petitioner is directed against the order dated 17[th] August, 2022 inWPO/2412/2022. In the said writ petition the appellant had challengedan order passed by the respondent under Section 148A(d) of theIncome Tax Act, 1961 dated 30[th] July, 2022 and the consequentialnotice issued under Section 148 of the Act dated 30[th] July, 2022relating to the assessment year 2014-15. The learned Single Bench was of the view that all contentions can be raised by theappellant in the re-assessment proceedings and accordinglydismissed the writ petition. Aggrieved by such order, theappellant has filed the present appeal.We have heard Mr. Sudhir Mehta learned counsel assistedby Mr. Anurag Bagaria, learned Advocate for the appellant and Mr.Tilak Mitra, learned Advocate appearing for the respondent/department. The procedure to be followed under the amended Section148A has been the subject-matter of interpretation in severaldecisions. In Excel Commodity and Derivative Pvt. Ltd. vs. Unionof India & Ors. (APOT/132/2022) dated 29[th] August, 2022, theprocedure to be adopted by the assessing officer was consideredand the decision in the case of Divya Capital One (P.) Ltd. vs.Assistant Commissioner of Income Tax reported in [2002] 139taxmann.com 461 (Delhi) was followed. At this stage, it will beuseful to refer to the operative portion of the said judgment:“The appellant/assessee was issued notice underSection 148A(b) of the Act dated 22[nd] March, 2022. Thesum and substance of the allegation in the notice wasthat the appellant/assessee has done fictitiousderivative transactions with M/s. Blueview Tradecom Pvt.Ltd. The assessee submitted their detailed reply tothe said notice enclosing all relevant documents insupport of their claim to justify that they have notindulged in any fictitious derivative transaction. The procedure contemplated under Section 148A requires theassessing officer to consider the reply and thereafterpass a reasoned order, if in opinion of the assessingofficer, the information furnished by the assessee intheir reply is satisfactory, then nothing more requiresto be done. On the other hand, if the assessing officeris of the view that the reply furnished by the assesseeis not acceptable, then he is to pass a speaking orderin terms of clause (d) of Section 148A of the Act. Inthe instant case, the assessing officer has passed theorder under Section 148A(d) dated 7[th] April, 2022. On areading of the said order, we find that the assessingofficer has indirectly accepted the explanation given bythe appellant/assessee that they have not indulged infictitious derivative transaction. We say so because inthe order dated 7[th] April, 2022 in paragraph 4 therein,the assessing officer alleges that prima facie theappellant/assessee has taken accommodation entry by wayof fund transfer from M/s. Brightmoon Suppliers Pvt.Ltd. which is a different company. Thus, the orderpassed under Clause (d) of Section 148A of the Act isnot based on the reason for which notice dated 22[nd]March, 2022 was issued under Section 148A(b) of the Act.Therefore, the order dated 7[th] April, 2022 is illegal andhas to be held to be wholly unsustainable. In suchfactual position, the necessity to remand the matterback to the assessing officer does not arise.Further, we take note of the Circular issued bythe Central Board of Direct Taxes (CBDT) dated 22[nd]August, 2022 giving instruction to the departmentalofficers with regard to the uploading of data on functionality/portal of the Income Tax Department. Thiscircular emphasises the earlier circular dated 1[st]August, 2022 and in paragraph 3 therein, it has beenstated as follows:“3). Further, it is re-emphasized that – i)Before initiating proceedings under section 148/147 of theAct, any information available on data-base/portal of theIncome Tax Department shall be verified before drawing anyadverse inference again the taxpayers. It is not out of placeto mention here that the information made available/datauploaded by the reporting entities may not be fully accuratedue to inter alia, error of human nature technical nature,etc. Therefore, due verification may be carried out andopportunity of being heard be given to the taxpayer beforeinitiating proceedings under Section 148/147 of the Act. ii) The supervisory authorities are hereby advised to keep aneffective supervision so as to ensure that all extantInstructions/Guidelines/Circulars/SOPs are duly followed bythe Assessing Officers in their charge.” From the above it is clear that it has come tothe notice of CBDT that in several cases informationmade available/data uploaded by the reporting entriesare not fully accurate due to error of human nature,technical nature etc. Therefore, the department wasadvised to effect due verification and opportunity ofbeing heard given to the tax payers before initiatingproceedings under Section 148/147 of the Act. Thus, inthe preceding paragraph we have pointed out the factualposition in the case on hand and it appears that properverification was not done on the information which was available with the assessing officer at the time ofissuance of notice under Section 148A(b) of the Actwhich has led to an erroneous order dated 7[th] April, 2022being passed. In Divya Capital One (P.) Ltd. vs. AssistantCommissioner of Income Tax reported in [2002] 139taxmann.com 461 (Delhi), the Court had considered thenew re-assessment claim and held as follows: “7. This Court is of the view that the new re-assessmentscheme (vide amended sections 147 to 151 of the Act) wasintroduced by the Finance Act, 2021 with the intent ofreducing litigation and to promote ease of doing business. Infact, the legislature brought in safeguards in the amendedre-assessment scheme in accordance with the judgment of theSupreme Court in GKN Driveshafts (India) Ltd. v. ITO [2002]125 Taxman 963/[2003] 259 ITR 19 before any exercise ofjurisdiction to initiate re-assessment proceedings undersection 148 of the Act. 8. This Court is further of the view that under the amendedprovisions, the term “information” in Explanation 1 tosection 148 cannot be lightly resorted to so as to re-openassessment. This information cannot be a ground to giveunbridled powers to the Revenue. Whether it is “informationto suggest” under amended law or “reason to believe” undererstwhile law the benchmark of “escapement of incomechargeable to tax” still remains the primary condition to besatisfied before invoking powers under section 147 of theAct. Merely because the Revenue-respondent classifies a factalready on record as “information” may vest it with the powerto issue a notice of re-assessment under section 148A(b) butwould certainly not vest it with the power to issue a re-assessment notice under section 148 post an order undersection 148A(d).” As pointed out in the aforesaid mentioneddecision, the term “information” in Explanation-1 underSection 148 cannot be lightly resorted to so as toreopen assessment and this information cannot be aground to give unbridled power to the revenue. In fact,in the case on hand, the information has been lightlyused which resulted in issuance of notice. As pointedout earlier, the assessee had submitted the explanationto the notice along with documents in support of theirclaim. The assessing officer has given up the saidallegation which formed the basis of the notice andproceeded on a fresh ground for alleging that thetransaction with some other company was an accommodationentry. Therefore, on that score also the order dated 7[th]April, 2022 is liable to be set aside in its entiretywithout giving any opportunity to reopen the matter on adifferent issue.” Bearing in mind the above legal principle, we examine thefacts of the case on hand. The assessing officer issued noticeunder Section 148A(b) of the Act dated 27[th] May, 2022 informing theassessee that information was received and it was suggested thatincome chargeable to tax has escaped assessment. The informationas made known to the assessee is as follows: “3. An information was received from the InsightPortal that M/s. Salasar Services Insurance BrokersPvt. Ltd. received an amount of Rs.91,85,430/- fromthe alleged accommodation entry provider namely M/s.Tridev Infra Contractors Pvt. Ltd. during F.Y. 2013-14. In view of the above facts and circumstances, you are hereby given two weeks time from the receipt ofthis letter to submit your reply, if any.” The assessee submitted reply dated 7[th] June, 2022 statingthat M/s. Salasar Services Insurance Brokers Pvt. Ltd. has notentered into any type of transaction with M/s. Tridev InfraContractors Pvt. Ltd. during the assessment year 2014-15. Afterreceipt of the reply, no opportunity of hearing was granted to theappellant/assessee but the assessing officer proceeded to pass theorder dated 30[th] July, 2022 under Section 148A(d) of the Act. Theassessing officer took note of the reply but would proceed tostate that the assessee has received funds from M/s. CulminatingManagement Pvt. Ltd. and the said company is managed andcontrolled by Kamal Jain who is an entry operator. Hence, theassessing officer was of the view that the transaction remainedunexplained beyond reasonable doubt. Accordingly, it was heldthat an amount of Rs.91,85,430/- chargeable to tax has escapedassessment.In the preceding paragraphs we have extracted theinformation based on which notice under Section 148A(b) wasissued. However, on going through the order passed under Section148A(d) dated 30[th] July, 2022, we find that the order was passed oncertain material which was not made known to theappellant/assessee. The question would be whether the assessingofficer can go beyond the allegations contained in the show cause notice and what would be the effect of such an order if it is doneso. We are guided by the decision in the case of Commissioner ofCentral Excise & Customs, Surat vs. Sun Pharmaceuticals Industriesltd. reported in 2015 (326) ELT 3 (SC) wherein the Hon’ble SupremeCourt set aside an order passed by the authority which was beyondthe allegation in the show cause notice. Admittedly, the orderwhich was impugned in the writ petition has been passed based oncertain investigation report which report was not furnished to theassessee. That apart, the allegation is a new allegation whichdid not form part of the allegation as contained in the show causedated 7[th] May, 2022. Therefore, the order dated 30[th] July, 2022 isclearly beyond the scope of the show cause notice and, therefore,calls for interference.In the result, the appeal filed by the appellant/writpetitioner (APOT/152/2022) is allowed and the order passed in thewrit petition is set aside. Consequently, the order dated 30[th]July, 2022 passed under Section 148A(d) of the Act and the noticeunder Section 148A of the Act are set aside.The learned standing counsel appearing for the respondentwould submit that opportunity may be granted to the respondent toinitiate fresh proceedings. This prayer is opposed by the learnedAdvocate appearing for the appellant, who submitted that if, inlaw, the respondent is entitled to proceed, it will be well open for them to do so, but no observation or liberty is required to begranted by this Court in the present proceedings.The submission made by the learned Advocate appearing forthe appellant is well founded. The order passed under Section148A(d) of the Act has been set aside on a technical ground thatit is based on certain investigation report which was notfurnished to the assessee and such allegation did not form part ofthe show cause notice. Therefore, if the Department has materialon hand and if the law permits, nothing prevents the Departmentfrom proceeding further and for such purpose, no liberty isrequired to be specifically granted by this Court.Consequently, the connected application for stay (IANo.GA/1/2022) also stands disposed of. (T.S. SIVAGNANAM, J.) (PRASENJIT BISWAS, J.)