Failure by AO to Demonstrate Deficiency in Explanation: Delhi HC quashes Income Tax Notice [Read Order]

The Delhi High Court quashed income tax notice as there was failure on the part of the Assessing Officer (AO) to demonstrate deficiency in explanation.

By the writ petition, challenge is laid to the notice issued under Section 148 of the Income Tax Act, 1961 and besides this, the petitioner/assessee, Koa Investment Limited has also assailed the order, issued by the Assessing Officer (AO) whereby, its objections to the commencement of reassessment proceeding against it were rejected.

The petitioner/assessee was subjected to scrutiny assessment and accordingly, the order dated 11.02.2015 was passed under Section 142(1) of the Income Tax Act. Prior to the scrutiny, the petitioner/assessee, inter alia, was called upon to furnish information as to various aspects, including the amount shown in the balance sheet for the year in issue under the heading noncurrent investments.

Despite scrutiny having taken place with regard to the amounts reflected under the head of non-current investments, the petitioner/assessee was served with the impugned notice, i.e., notice dated 27.03.2019, under Section 148 of the Income Tax Act. Pertinently, the petitioner/assessee was not served along with the notice, the document evidencing approval for triggering the reassessment proceeding against it.

The petitioner/assessee had asserted that Rs.1.80 crores, which was invested in OFCD was shown under the head non-current investment and not loans and advances. Furthermore, the petitioner/assessee explained that under the heading non-current investments, the amount shown in the balance sheet ending in 31.03.2012 was Rs.8,55,00,000/-. In other words, the stand of the petitioner/assessee was that Rs.1,05,50,000/-, the differential amount was included in the total amount shown under the heading noncurrent investment.

A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “What is disconcerting is that in the order rejecting objections dated 17.10.2019, there is no discussion about the explanation given by the petitioner/assessee with regard to the charge levelled against it. As a matter of fact, the discrepancies which is pointed out by Chandra does not find mention either in the reasons to believe or in the order dated 17.10.2019. 10. Thus, for the foregoing reasons, we are of the view that this was not a case in which the AO could have triggered the reassessment proceeding against the petitioner/assessee.”

“Accordingly, we are inclined to set aside the impugned notice dated 27.03.2019 issued under Section 148 of the Income Tax Act and the order dated 17.10.2019, whereby, the petitioner/assessee’s objections were rejected. It is ordered accordingly” the Court noted.

To Read the full text of the Order CLICK HERE

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