Xx Xx Xx Xx v. Deputy Commissioner Of Income Tax

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MR. JUSTICE MANEESH SHARMA Order 19/03/2025 -AVNEESH JHINGAN, J: 1.This petition is filed seeking quashing of order dated28.03.2022 passed under Section 148A(d) of the Income Tax Act,1961 (hereinafter referred to as the ‘Act’). 2.The relevant facts are that the petitioner is engaged inmanufacturing of Seamless Extruded Copper, Nickle, Aluminum,Brass and related products. The petitioner filed income tax returnfor assessment year 2018-19 declaring income ofRs.10,97,83,780/-. Notice dated 14.03.2022 under Section148A(b) of the Act was issued stating that the income taxdepartment had information of petitioner having made boguspurchases from M/s.Flash Forge Pvt Ltd. (hereinafter ‘company’). The notice was responded to on 17.03.2022 wherein the petitionerdenied to have made any purchases from company. Rather thestand taken was that the petitioner had made sales to thecompany. In continuation of the notice, communication dated20.03.2022 was issued wherein the petitioner was asked toexplain the transactions with company. The petitioner filed replyon 21.03.2022 explaining the sales to the tune ofRs.1,22,46,936/- made to company. Along-with reply thepurchase orders, copy of letter of credits, invoices wherein theGST was separately charged, dimension report, mill testcertificates, deliver challan/ packing list, transport bilties and copyof sales register were annexed. 3.The AO decided that it is a fit case to proceed under Section148 of the Act holding that the evidence of sending the material tothe premises of the company was not produced and it was a caseof an accommodation entry by getting bogus invoices. 4.Learned senior counsel for the petitioner submits that thereopening of assessment was on surmises and conjectures inabsence of any material. Contention is that the material reliedupon by the department was not supplied despite a specificrequest. Further that the stand taken by the department waschanged during the course of the proceedings, yet thetransactions of sale were duly explained. 5.As per contra, notice issued under Section 148A(b) of the Actwas defective to the extent that instead of sales transactionpurchase was mentioned and this was corrected by the later communication. The argument is that company was involved ingetting bogus invoices and a deeper investigation is required. 6.The relevant portion of Section 148A of the Act and theguidelines dated 01.08.2022 for issuance of notice under Section148 of the Act are reproduced:- “Provisions & GuidelinesSection 148A “[Conducting inquiry, providing opportunity beforeissue of notice under section 148. 148A.The Assessing Officer shall, before issuing any notice under section 148:- (a)conduct any enquiry, if required, with theprior approval of specified authority, with respectto the information which suggests that the incomechargeable to tax has escaped assessment; (b)provide an opportunity of being heard to theassessee,[***], by serving upon him a notice toshow cause within such time, as may be specifiedin the notice, being not less than seven days andbut not exceeding thirty days from the date onwhich such notice is issued, or such time, as maybe extended by him on the basis of an applicationin this behalf, as to why a notice under section 148should not be issued on the basis of informationwhich suggests that income chargeable to tax hasescaped assessment in his case for the relevantassessment year and results of enquiry conducted,if any, as per clause (a); (c)consider the reply of assessee furnished, ifany, in response to the show-cause notice referredto in clause (b); (b)provide an opportunity of being heard to theassessee,[***], by serving upon him a notice toshow cause within such time, as may be specifiedin the notice, being not less than seven days andbut not exceeding thirty days from the date onwhich such notice is issued, or such time, as maybe extended by him on the basis of an applicationin this behalf, as to why a notice under section 148should not be issued on the basis of informationwhich suggests that income chargeable to tax hasescaped assessment in his case for the relevantassessment year and results of enquiry conducted,if any, as per clause (a); (c)consider the reply of assessee furnished, ifany, in response to the show-cause notice referredto in clause (b); (d)decide, on the basis of material available onrecord including reply of the assessee, whether ornot it is a fit case to issue a notice under section148, by passing an order, with the prior approvalof specified authority, within one month from theend of the month in which the reply referred to inclause (c) is received by him, or where no suchreply is furnished, within one month from the endof the month in which time or extended timeallowed to furnish a reply as per clause (b)expires: XX XX XX XX Relevant clauses of guidelines dated 01/08/2022 forissuance of notice u/s 148 of the Act. XX XX XX XX v. Explanation 2 to section 148 of the Act providesthat if a survey u/s 133A of the Act (other than undersection 133A (2A)) was conducted in the case of theassessee on or after 1 April, 2021, the Assessingofficer shall be deemed to have information whichsuggests that income chargeable to tax has escapedassessment. However, it is to clarify that the dueprocedure as prescribed u/s 148A needs to befollowed in such cases also before issuing a notice u/s148 of the Act. (refer proviso to section 148A). vi.The AO shall, if required, undertake enquirieson any "information" received/available with himwhich suggests that the income chargeable to tax hasescaped assessment in a previous year only with theprior approval of "specified authority". vii. If the result of enquiry/information availablesuggests that the income chargeable to tax hasescaped assessment, the AO shall provide anopportunity of being heard to the assessee by issuinga show cause notice u/s 148A(b) of the Act. The saidnotice shall provide between 7 to 30 days' time to theassessee for submitting the reply. A template of showcause notice is enclosed at Annexure-A1 viii. If an assessee requests for a personal hearing,the same may be dealt with following the principle ofnatural Justice by giving a reasonable period forcompliance of notice specifying the date of hearing. ix. As per 3rd proviso to section 149, for thepurposes of computing the period of limitation as perthis section, the time or extended time allowed to theassessee, as per show-cause notice issued underclause (b) of section 148A or the period during whichthe proceeding under section 148A is stayed by anorder or injunction of any court, shall be excluded. x. Further as per 4th proviso to Section 149, whereimmediately after exclusion of the period referred toin the immediately preceding proviso (i.e. 3rdproviso), the period of limitation available to theAssessing Officer for passing an order under clause(d) of Section 148A is less than seven days, suchremaining period shall be extended to seven days and the period of limitation under this sub-sectionshall be deemed to be extended accordingly. xi. The AO has to consider the reply of assesseefurnished, if any, in response to the show causenotice referred to in clause(b) of Section 148A beforepassing the order u/s 148A(d). x. Further as per 4th proviso to Section 149, whereimmediately after exclusion of the period referred toin the immediately preceding proviso (i.e. 3rdproviso), the period of limitation available to theAssessing Officer for passing an order under clause(d) of Section 148A is less than seven days, suchremaining period shall be extended to seven days and the period of limitation under this sub-sectionshall be deemed to be extended accordingly. xi. The AO has to consider the reply of assesseefurnished, if any, in response to the show causenotice referred to in clause(b) of Section 148A beforepassing the order u/s 148A(d). xii. The AO shall mandatorily pass a speaking orderu/s 148A(d) in all cases with the 'prior approval ofthe specified authority' (Annexure-A2) for such orderu/s. 148A(d), expect in the cases covered in Para 2.1(iii) above of these guidelines, irrespective of whetherissuance of notice u/s 148 is being recommended ornot. A template of such order u/s. 148A(d) isenclosed at Annexure-A3. xiii. Once an order under clause(d) of Section 148Ahas been passed, no further approval is required forissuance of notice u/s 148 by the AO, with effectfrom 1.4.2022.* (* except for cases in which procedure underSection 148A is being applied for implementation ofthe Hon’ble Supreme Court’s judgment in the case ofUOI Vs. Ashish Agarwal (2022 SCC Online SC 543)dated 4.5.2022 for which specific instruction dated11.5.2022 has been issued”) Annexure-A1 is reproduced hereinbelow:- “GOVERNMENT OF INDIAMINISTRY OF FINANCEINCOME TAX DEPARTMENTOFFICE OF THE --------------(Designation of AO along with Office address) To, PAN: A.Y: Dated:DIN*NoticeNo. Notice under clause (b) of Section 148A of the-Incometax Act, 1961 Sir/Madam/M/s. 1. Whereas I have information which suggests thatincome chargeable to tax for the Assessment Year__________ has escaped assessment within themeaning of Section 147 of the Income Tax Act, 1961.The details of the information/enquiry conducted on & which reliance is being placed, along with supportingdocuments, are enclosed with this notice.2. You are required to show-cause as to why, inview of the details contained in enclosures mentionedin point number 1 above, a notice under Section 148of the Income Tax Act, 1961 should not be issued.3.You may submit your reply to this notice, alongwith supporting documents (if any) on the abovementioned issues on or before _______ electronicallyat www.incometax.gov.in. Guidelines for Enclosures •The AO should enclose copy of all the relevant‘information’ available on which reliance is beingplaced, along with supporting documents (if any).•In the cases where information is received fromthe investigation wing or any other law enforcementagency, details of letter, brief summary of informationalong with relevant portion of such report and detailsof relied upon documents may be enclosed. Such aportion as does not bear reference to the assesseeconcerned may be appropriately redacted. •Details of enquiry conducted, if any, may beshared if reliance is being placed by the AO on it.•Judicial order (i.e., case laws) on which relianceis being placed, if any. Refer Explanation 1 and Explanation 2 of Section 148for what constitutes “information”.” The Supreme Court in the case of Union of India Vs. Ashish Agarwal (2022 SCC OnLine SC 543) took note ofthe changes brought by Finance Act, 2021. The relevant partis quoted below:- •Details of enquiry conducted, if any, may beshared if reliance is being placed by the AO on it.•Judicial order (i.e., case laws) on which relianceis being placed, if any. Refer Explanation 1 and Explanation 2 of Section 148for what constitutes “information”.” The Supreme Court in the case of Union of India Vs. Ashish Agarwal (2022 SCC OnLine SC 543) took note ofthe changes brought by Finance Act, 2021. The relevant partis quoted below:- •“6. It cannot be disputed that bysubstitution of sections 147 to 151 of theIncome Tax Act (IT Act) by the Finance Act,2021, radical and reformative changes aremadegoverningtheprocedureforreassessment proceedings. Amended sections147 to 149 and section 151 of the IT Actprescribe the procedure governing initiation ofreassessment proceedings. However, forseveral reasons, the same gave rise tonumerous litigations and the reopening werechallenged inter alia, on the grounds such as(1) no valid “reason to believe” (2) notangible/reliablematerial/informationinpossession of the assessing officer leading toformation of belief that income has escaped assessment, (3) no enquiry being conducted bythe assessing officer prior to the issuance ofnotice; and reopening is based on change ofopinion of the assessing officer and (4) lastlythe mandatory procedure laid down by thisCourt in the case of GKN Driveshafts (India)Ltd. Vs. Income Tax Officer and ors; (2003) 1SCC 72, has not been followed. •6.1 Further preFinance Act, 2021, thereopening was permissible for a maximumperiod up to six years and in some casesbeyond even six years leading to uncertaintyfor a considerable time. Therefore, Parliamentthought it fit to amend the Income Tax Act tosimplify the tax administration, easecompliances and reduce litigation. Therefore,with a view to achieve the said object, by theFinance Act, 2021, sections 147 to 149 andsection 151 have been substituted. •6.2 Under the substituted provisions ofthe IT Act vide Finance Act, 2021, no noticeunder section 148 of the IT Act can be issuedwithout following the procedure prescribedunder section 148A of the IT Act. Along withthe notice under section 148 of the IT Act, theassessing officer (AO) is required to serve theorder passed under section 148A of the IT Act.section 148A of the IT Act is a new provisionwhich is in the nature of a condition precedent.Introduction of section 148A of the IT Act canthus be said to be a game changer with an aimto achieve the ultimate object of simplifying thetax administration, ease compliance and reducelitigation. •6.3 But prior to pre-Finance Act, 2021,while reopening an assessment, the procedureof giving the reasons for reopening and anopportunity to the assessee and the decision ofthe objectives were required to be followed asper the judgment of this Court in the case ofGKN Driveshafts (India) Ltd. (supra). •6.4 However, by way of section 148A, theprocedure has now been streamlined andsimplified. It provides that before issuing anynotice under section 148, the assessing officershall (i) conduct any enquiry, if required, withthe approval of specified authority, with respectto the information which suggests that theincome chargeable to tax has escapedassessment; (ii) provide an opportunity ofbeing heard to the assessee, with the priorapproval of specified authority; (iii) considerthe reply of the assessee furnished, if any, in response to the showcause notice referred to inclause (b); and (iv) decide, on the basis ofmaterial available on record including reply ofthe assessee, as to whether or not it is a fitcase to issue a notice under section 148 of theIT Act and (v) the AO is required to pass aspecific order within the time stipulated. response to the showcause notice referred to inclause (b); and (iv) decide, on the basis ofmaterial available on record including reply ofthe assessee, as to whether or not it is a fitcase to issue a notice under section 148 of theIT Act and (v) the AO is required to pass aspecific order within the time stipulated. •6.5 Therefore, all safeguards are providedbefore notice under section 148 of the IT Act isissued. At every stage, the prior approval of thespecified authority is required, even forconducting the enquiry as per section 148A(a).Only in a case where, the assessing officer is ofthe opinion that before any notice is issuedunder section 148A(b) and an opportunity is tobe given to the assessee, there is arequirement of conducting any enquiry, theassessing officer may do so and conduct anyenquiry. Thus if the assessing officer is of theopinion that any enquiry is required, theassessing officer can do so, however, with theprior approval of the specified authority, withrespect to the information which suggests thatthe income chargeable to tax has escapedassessment.•6.6 Substituted section 149 is theprovision governing the time limit for issuanceof notice under section 148 of the IT Act. Thesubstituted section 149 of the IT Act hasreduced the permissible time limit for issuanceof such a notice to three years and only inexceptional cases ten years. It also providesfurther additional safeguards which were absentunder the earlier regime pre-Finance Act,2021.” 7.By Finance Act of 2021, section 148A of the Act was insertedstipulating the procedure to be followed before issuance of noticeunder Section 148 of the Act. Prior to this decision of the SupremeCourt in GKN Driveshafts India Ltd. Vs. Income Tax Officerand Ors reported in [(2003) 259 ITR 19] gave the procedure tobe followed for initiating the proceedings for re-openingassessment. Sections 147 to 151 were also substituted. 8.The Central Board of Direct Taxes (for short ‘CBDT’) in viewof the changed scenario with the amendment in the Act anddecision of Union of India Vs. Ashish Agarwal reported in[(2022) 444 ITR 01 (SC)] issued guidelines for issuance ofnotice under Section 148 of the Act. The combined reading of Section 148A of the Act and theguidelines emanates that the safeguards were provided beforeinitiating the proceedings under Section 148 of the Act. In caseneed so arises to conduct an enquiry with regard to materialavailable suggesting escaped assessment, the Assessing Officer(‘AO’) can proceed to enquire after prior approval of specifiedauthority. The assessee is to be provided an opportunity ofhearing. The information relied upon along-with outcome of theenquiry is to be supplied. In case of an information having beenreceived from the investigation wing or the other agency, thesummary of information along-with the relevant portion of reportand details of the documents relied upon is to be supplied. The decision to proceed under Section 148 on the basis ofmaterial available with the department and after considering thereply filed by the petitioner is to be taken after prior approval ofthe specified authority. An exception has been provided by the proviso to Section148A of the Act with regard to applicability of procedure underSection 148A of the Act. 9.In the present case, the notice under Section 148A(b) of theAct was issued on the basis of information received from theGoods and Services Tax authorities. On that basis the AO issued a The decision to proceed under Section 148 on the basis ofmaterial available with the department and after considering thereply filed by the petitioner is to be taken after prior approval ofthe specified authority. An exception has been provided by the proviso to Section148A of the Act with regard to applicability of procedure underSection 148A of the Act. 9.In the present case, the notice under Section 148A(b) of theAct was issued on the basis of information received from theGoods and Services Tax authorities. On that basis the AO issued a notice to the petitioner for explaining the purchases made fromthe company. The stand was changed after filing of reply by thepetitioner denying purchases made from the company and thepetitioner was asked to explain transaction. As per Section 148A,AO before issuing notice should have information suggestingescaped assessment, the AO can conduct enquiry, if required butwith prior approval of specified authority. To similar effect,guidelines are issued. This itself pre-supposes that notice underSection 148 is not be issued in routine but after AO being satisfiedthat information suggests escaped assessment and for that therehas to be independent application of mind by AO qua theinformation. We may hurry to add that AO is not required to reachto a final conclusion of escaped assessment. The intent behind theprocedure prescribed is obvious that re-opening of assessmentshould not be result of casual or arbitrary exercise of power. 10.The non-application of mind by the AO while issuing noticeunder Section 148A(b) is writ large. There was no distinctionmade between a transaction of sale and purchase. It is a classiccase where on the basis of an information received from anotherdepartment the proceedings were initiated without considering therelevance of the information qua the Act. 11.Inspite of the precise language used in Section 148A of theAct and the issuance of guidelines by the CBDT, the AO failed tosupply the material relied upon to the petitioner or to giverelevant portion of the report received from the GST authorities ordetails of enquiry conducted, if any and this is inspite of a specific request made by the petitioner. Non supply of the informationrelied upon and outcome of enquiry if held, denies the petitionerreasonable opportunity to object that no case is made out forreopening the assessment. 12.The Supreme Court in the case of Chhugamal Rajpal Vs.S.P. Chaliha and Ors. reported in (1971) 79 ITR 603 (SC)held that the AO must have a prima-facie ground for taking actionunder Section 148 of the Act and a need for further enquiry initself shall not confer jurisdiction upon AO for reopening theassessment. 13.The only conclusion of use of phrase ‘information whichsuggest that income chargeable to tax has escaped assessment’and power to conduct enquiry if required, is that at least primafacie AO has to be satisfied that information suggest escapedassessment. In other words, there has to be basis suggestingescaped assessment for proceeding under Section 148, fishing androving enquiry to find income escaped from tax cannot be made.The changed instance of the AO during the pendency of noticeunder Section 148A(b) of the Act, in fact was issued for testingthe relevance of the material received from GST authority vis-a-visescapement of tax under the Act which is not permitted. 14. Be that as it may, the petitioner filed another reply explainingthe sales figure which are equivalent to the figure mentioned bythe AO in the notice. The stand of the petitioner was substantiatedby annexing transportation documents, invoices showing GSThaving been charged separately, testing reports and evidence that 14. Be that as it may, the petitioner filed another reply explainingthe sales figure which are equivalent to the figure mentioned bythe AO in the notice. The stand of the petitioner was substantiatedby annexing transportation documents, invoices showing GSThaving been charged separately, testing reports and evidence that the consideration passed through banking channels. Instead ofdealing with the documents produced by the petitioner andverifying the transaction, the material produced was brushedunder the carpet by the AO stating that the movement of thegoods from premises of petitioner to the company was not proved.15.The stand taken by the AO has two fold fallacy. Thedistinction of nature of investigation to be made by the GSTauthorities and the income tax authorities has been given a go-bye. Secondly, the bilties attached with the reply was an evidenceof transportation of the goods from the premises of the petitionerto premises of the company. 16.There is other angle to be considered that AO withoutdoubting the payments made through banking transaction,charging & deposit of GST and other documents produced tosubstantiate the sale transactions decided that it is a fit case toproceed under Section 148. 17.Non-compliance of the procedure as given in section 148A ofthe Act vitiates the proceeding being an unreasonable exercise ofpower. There cannot be a dispute that the procedure stipulated u/s148A is mandatory. The intent of laying down the steps to befollowed before issuance of notice u/s 148 is loud & clear, inspiteof this not only in this case but in number of cases before thisCourt it has been observed that rather than implementing theprocedure in its spirit, it is mechanically gone through to completethe formality and this needs to looked into by authorities atappropriate level. 18.Before concluding it would be appropriate to note thedecision of the Bombay High Court dated 26[th] November, 2024 inWrit Petition No.247/2023titled asC.C. Dangi andAssociates Vs. Assistant Commissioner of Income Tax,Circle-16(2), Mumbai and Others wherein the transactions withM/s.Flash Forge Pvt. Ltd. was dealt with and the proceedingsunder Section 148 of the Act were quashed holding that theproceedings were result of colossal non-application of mindamounting to abuse of authority and power vested by law. 19.The writ petition is allowed. The impugned order and theproceedings consequent thereto are quashed. (MANEESH SHARMA), J Himanshu Soni/61 (AVNEESH JHINGAN), J Reportable:- Yes