The Jharkhand High Court held that belief formed by Assessment Order is vague, far fetched and irrelevant, while quashing the income tax penalty and demand raised towards the assessee-company.
The Petitioner-Company Pasari Casting & Rolling Mills Pvt. Ltd., is engaged in the business of manufacture of iron and steel products in the state of Jharkhand. It is the case of the petitioner that in the above assessment year, it had filed its Return of Income on time and its books of Accounts were audited duly. However, the proceeding has been initiated under Section 147/148 of the Income Tax Act, 1961.
The case of the petitioner is that without the existence of material and reasons to form a reasonable belief that the income of the petitioner has escaped assessment, the reasonable belief has been formed on the borrowed satisfaction. Also, the relied upon document leading to the formation of the purported reasonable belief is not supplied in spite of repeated requests and further, the petitioner has been extended only 24 hours’ time to file its Show Cause Notice.
The petitioner was served notice ITBA/AST/S/147/2021-22/1042312253(1) under Section 148 dated 31.03.2021 from the respondent alleging that the income has escaped assessment for the relevant Assessment year.
In the notice issued, there was no mention about the reason for reopening of the same. Later, on 27.09.2021, the respondent issued a notice under Section 142(1) whereby certain details were sought and reasons for reopening were supplied by the Revenue.
The reason provided therein for reopening was: “Information received during course of action in case of one Ajay Kumar Sharma that the same was involved in providing accommodation entry through his bank account to certain beneficiaries. This was also confirmed in his statement on oath taken. The copy of the bank Statement reveals that the assessee has done bogus financial transactions worth Rs. 15,54,42,417/- with Shri Ajay Kumar Sharma.”
After writing multiple letters to the Revenue during 19.10.2021 and 30.12.2021, Revenue replied via notice under Section 142(1) stating that the reasons have already been provided i.e., details about the alleged transaction with Ajay Kumar Sharma. Moreover, the Revenue has refused to provide a copy of the documents to petitioner underlying ‘reasons to believe’ and hence petitioner was denied an opportunity to file effective and proper objection to reassessment proceedings.
Kartik Kurmi, N.K.Pasari & Sidhi Jalan, Advocates appeared for the petitioner whereas R.N.Sahay, Sr.S.C and Anurag Vijay, Jr. S.C appeared for the respondents.
Kartik Kurmi assisted by N.K.Pasari, learned counsels for the petitioner submitted that there are no reasons/materials to form a reasonable belief that the income of the Petitioner has escaped assessment, hence, the proceedings initiated under Section 147 is without jurisdiction. The Counter Affidavit is also silent as to the said date, hence, said reasons/materials are vague and farfetched. The reason that Shri Ajay Kumar Sharma has provided “accommodation entry” to the Petitioner and that the assessee had done “bogus financial transactions” with Shri Ajay Kumar Sharma are not “reason” but “conclusion”.
The counsel for the petitioner further submitted that, “In the impugned Order the assessing authority has simply made additions in the returned income without stating whether it is a case of cash credit, unexplained investments, unexplained money, amount of investment, etc. not fully disclosed in books of account, unexplained expenditure, etc. The impugned Order is therefore without authority of law and bad in law. The impugned order is thus unreasonable, non-speaking and therefore not sustainable in law.”
The Petitioner also relied on the judgment rendered in the case of CIT Vs. S.Khader Khan Son reported in 2015. It is also apparent from record that the recorded reason is silent whether the purported “bogus financial transactions” represents receipt or payment or investment or share capital or unsecured loan or purchase or sale, hence, no reasonable belief of escapement of assessment of income could have been formed on the basis of such vague material.
The Division Bench of Justices Rongon Mukhopadhyay and Deepak Roshan observed that, “in the facts and circumstances of this case we are having no hesitation in holding that in the instant case the belief formed by the Assessing Officer suffers from lack of bonafides, is vague, far-fetched, irrelevant, based on conjecture and surmises and also arbitrary and irrational.”
It was also added that, “since the very initiation of the proceedings is bad in law and attracts jurisdictional issue which goes to the root of the case; thus we are having no hesitation in holding that the writ is maintainable and the judgments cited by the Revenue has no application in the facts and circumstances of this case.”
The Bench also quashed the notices, assessment orders, notices of demand and penalty along with the penalty order and demand notice for other Assessment Years to the tune of Rs. 8,00,000/- and Rs.80,55,900/-.
Having regards to the above, Impugned Notice issued under section 147 dated 31.03.2021, impugned Assessment Order dated 31.03.2022, Notice of Demand dated 31.03.2022 & Notice for Penalty under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961, dated 31.03.2022, Penalty Order & Demand Notice, both dated 28.09.2022 and order disposing of objection dated 16.03.2022, were quashed and set aside by the Bench.
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