Information triggering the assessment/ reassessment proceedings must be furnished to the assessee

The Hon'ble Delhi High Court in Charu Chains and Jewels Pvt. Ltd. v. Assistant Commissioner of Income Tax [W. P. (C) 17577/2022 dated December 22, 2022]set aside the reassessment order against the assessee, on the grounds of non-supply of the information/ material by the Revenue Department for reopening of assessment. Held that, the underlying information/material which forms the basis of triggering the assessment/reassessment proceedings must be furnished to the assessee. Further, directed the Revenue Department to furnish the underlying material concerning the assessee within 3 weeks, to grant personal hearing and, thereafter, take decisions in accordance with law.

Facts

This petition has been filed by M/s. Charu Chains and Jewels Pvt. Ltd. ("the Petitioner") against the order dated July 25, 2022 ("the Impugned Order") passed under Section 148A(d) of the Income Tax Act, 1961 ("the IT Act") and the consequential notice of even date i.e. July 25, 2022, issued under Section 148 of the IT Act ("the Impugned Notice") concerning Assessment Year ("AY") 2016-17.

While carrying out the assessment for the AY 2017-18 the Assessing Officer ("AO") came across certain unsecured transaction entered into amongst three entities amounting to a total INR 2.7 crore and passed the Impugned Order and the consequent

Impugned Notice forming the following views

i. the lenders were either not found or were entities just for the purpose of making entries in the books of account;
ii. At least two of the three lenders had presumably struck off their names from the register maintained by the Registrar of Companies;
iii. There were common directors and the directors of two companies did not respond to the summons issued by the AO; and
iv. The lenders had nominal incomes and did not have the potential to lend the amounts.

The Petitioner vide partial reply dated May 31, 2022 made to the Revenue Department ("the Respondent") sought for the information/materials pertaining to the enquiries made by the AO, inspection/enquiry report, any other related report/document and any other material relied upon by the Respondent.

The Petitioner contended that, the Impugned Order not being passed within one month from the date of reply as prescribed in Section 148A(d) is not sustainable.

Issue

Whether the Impugned Order was passed within the time-frame as mentioned in Section 148A(d) of the IT Act?

Held

The Hon'ble Delhi High Court in W. P. (C) 17577/2022 of 2022 held as under:

• Noted that, the Petitioner vide its reply had indicated that it would file a further reply once the information/material sought is made available to the Petitioner. Further, during the course of the proceedings, the information that the Respondent had gathered concerning to the transaction in issue was not made available to the Petitioner.
• Observed that, the Respondent had granted further time to the Petitioner to file a final reply on or before June 27, 2022 and making it clear that, if no reply is filed by the Petitioner, an order under Section 148A(d) of the IT Act would be passed based on the materials already available on record.Thus, the one month time-frame as mentioned in Section 148A(d) of the IT Act shall start from June 30, 2022being end of the month i.e., the date on which the extended time to furnish the reply expired and hence, the Impugned Order was passed well within the time-frame.
• Relied on the judgment of the Hon'ble Supreme Court in the matter of Union of India v. Ashish Aggarwal [Civil Appeal No. 3005/2022 dated May 4, 2022]wherein, it was held that the AO shall provide to the assessee the reasons recorded and other material in his possession, within one month, which were the basis for recordingof such reasons and issue of notice.
• Held that, with regard to the non-supply of the material by the Respondent, the underlying information/material which forms the basis of triggering the assessment/reassessment proceedings must be furnished to the Petitioner.
• Set aside the Impugned Order and the Impugned Notice.
• Remitted the matter back to the Respondent.
• Directed the Respondent to furnish the underlying material concerning the petitioner within 3 weeks.
• Directed the Petitioner to file a response within 3 weeks from the supply of materials.
• Further directed the Respondent to grant personal hearing to the Petitioner and, thereafter, take decisions in accordance with law.

Relevant Provisions

Section 148A of the IT Act

"148A. Conducting inquiry, providing opportunity before issue of notice under section 148.–

The Assessing Officer shall, before issuing any notice under section 148,-

(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);

(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:

Provided that the provisions of this section shall not apply in a case where,-

(a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or

(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee; or

(d) the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.

Explanation.-For the purposes of this section, specified authority means the specified authority referred to in section 151.