Discretionary Power cannot be Exercised to Halt Income Tax Assessments involving Huge Undisclosed Income: Bombay HC refuses to Entertain plea [Read Order]

In a recent ruling, the Bombay High Court has ruled that its discretionary powers cannot be exercised to prevent the officers from proceedings with income tax assessment cases involving huge undisclosed income.

DNH Spinners challenged income tax notices issued under Section 153C of the Income Tax Act, 1961. The case arose from a search conducted on October 19, 2019, under Section 132 of the Act on Alok Kumar Agarwal, Ankit Agarwal, and entities of the Alankit Group in Delhi, during which documents and books of accounts were seized.

On May 31, 2022, the Deputy Commissioner of Income Tax (DCIT), Delhi, informed the DCIT, Mumbai, of evidence found during Alankit Group’s assessment under Section 153A, implicating the petitioner in receiving accommodation entries. A satisfaction note and annexures were forwarded for action under Section 153C.

Subsequently, on February 28, 2024, the DCIT, Mumbai, recorded a satisfaction note identifying shell entities controlled by the Alankit Group and their transactions with the petitioner, leading to a notice under Section 153C for the assessment year 2013-14, requiring the petitioner to file a return within 30 days.

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On April 3, 2024, the petitioner responded to the notice, requesting access to upload the return of income and a copy of the satisfaction note. On April 6, 2024, the petitioner objected to the notice, arguing that the satisfaction note was not provided, and the extended 10-year period could not be invoked as the income escaping assessment did not exceed ₹50 lakh. The petitioner also raised concerns about the computation of the block period and the starting point for calculating relevant assessment years.

The petitioner challenged the notice and rejection order on grounds that the proceedings were time-barred. It was argued that the satisfaction note was prepared after significant delays, violating procedural requirements. The petitioner also claimed that the notice lacked incriminating material and was issued without providing an opportunity to contest the satisfaction note.

The petitioner’s counsel argued that the proceedings violated the third proviso to Section 153B(1) of the Act and were initiated beyond permissible timelines. Further, it was contended that the satisfaction note lacked validity and the absence of incriminating material made the notice under Section 153C unsustainable. The petitioner sought quashing of the proceedings while acknowledging the lack of arguments for discretionary jurisdiction.

Mr. Sharma, counsel for the respondents, argued that the petitions involve factual inquiries regarding the existence of incriminating material under Section 153C of the Act for various assessment years.

He contended that the limitation issue hinges on determining the date on which the books of accounts were transferred to the petitioner’s Assessing Officer (AO) and maintained that this is a mixed question of fact and law unsuitable for adjudication under Article 226 of the Constitution.

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Hearing both sides, the High Court observed that the petitioner’s claim of lacking an alternative remedy is misplaced, as issues raised in these petitions can be effectively addressed in appellate proceedings.

The bench of Justice Jitendra Jain and Justice M S Sonak, noted that the incriminating material linked to the Alankit Group requires further investigation, which is beyond the Court’s purview under writ jurisdiction.

The bench also dismissed the petitioner’s contention regarding the belated generation of the DIN number, stating it was a factual issue better suited for adjudication in the assessment or appeal process. The petitioner’s objection to the non-correlation of documents with assessment years under Section 153C was similarly rejected, as such factual investigations must be conducted by the AO and appellate authorities.

Regarding the time-bar issue, the Court held that it is a mixed question of law and fact, requiring evidence of the last date of authorization for search or the transfer date of seized materials—facts not presented before the Court.

It was concluded that preemptively restraining assessment proceedings is unwarranted, as the AO may still decide in the petitioner’s favor based on submissions during the assessment.

“This is the case of search and seizure where huge unaccounted income in accommodation entry has been detected. In our view, this Court cannot exercise its discretionary jurisdiction in such type of cases by which the officer should be prevented to proceed with such type of assessment proceedings” observed the court.

The court made it clear that the present case requires factual based investigation and as the petitioner has alternate remedy, it may avail that. The bench reiterated its reluctance to interfere in matters requiring factual investigation and dismissed the petitions, directing the petitioner to raise all issues in appeal proceedings under the Act.

To Read the full text of the Order CLICK HERE

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