Proceedings u/s 148 A of Income Tax Act is Invalid when Rejecting Response furnished by Assessee Solely for Information on Portal : Delhi HC sets aside order [Read Order]

The Delhi High Court set aside the order passed under section 148 A of the Income Tax Act, 1961, holding that the proceedings become invalid when rejecting the response furnished by the assessee solely for information on portal. It was viewed that it is necessary for the AO, at the bare minimum, to examine the material placed by the petitioner and verify whether the same could be faulted.

Devat And Ram Company Private Limited, the petitioner has filed the present petition, inter alia, impugning the notice dated 21.03.2024 [impugned notice] issued under Section 148A(b) of the Income Tax Act, 1961 [the Act]; an order dated 31.03.2024 [impugned order] passed under Section 148A(d) of the Act, which was issued pursuant to the aforesaid notice dated 21.03.2024; and a notice dated 31.03.2024 issued under Section 148 of the Act in respect of Assessment Year [AY] 2020-21.

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It is the petitioner’s case that the impugned notice underSection 148A(b) of the Act was issued without the Assessing Officer [AO] having any particular information, which suggested the petitioner’s income for AY 2020-21 had escaped assessment. The petitioner also claims that the proceedings initiated in respect of the petitioner were not dropped despite the Principal Director of Income Tax (Inv.), Kanpur recommending that no action be taken in respect of the petitioner as well as one M/s Gold Feather Pvt. Ltd. [GFPL]. He states that pursuant to the said recommendation, the proceedings against GFPL – which were commenced on the basis of the same information – were dropped. However, the proceedings against the petitioner are continuing.

The impugned notice issued under Section 148A(b) of the Act indicates that it was issued on the basis of certain information available on the insight portal. The AO found that the said information suggested that the petitioner’s income for AY 2020-21 had escaped assessment.

The petitioner replied to the said notice acknowledging that the petitioner had purchased MS Ingot from M/s Madhumita Steel Industries Pvt. Ltd. [MSIPL] aggregating ₹2,93,02,072/- (Rupees two crores ninety-three lacs two thousand seventy-two only). However, it denied that the purchases were bogus and claimed that the same were duly recorded in the books of accounts.

To allay any apprehension that the transaction was not genuine, the petitioner asserted that MSIPL was duly registered with the Goods and Services Tax Department and was allocated the Goods and Services Tax Identification Number [GSTIN]: 21AAMCM1052H1ZU.

The petitioner also sets out a comparative table giving details of the purchases and the direct sales made to various parties, which were directly linked to the purchases. The tabular statement sets out the date; invoice numbers; the vehicle number in which the goods were transferred; the quantity of the goods; the value and the input Integrated Goods and Services Tax [IGST] paid on the said purchases. On the sale side, the petitioner provided details of the purchases setting out the dates; the names of the parties to whom the sale was made; the invoice numbers; the quantity of goods sold, the value at which sales were effected; and the Central Goods and Services Tax [CGST] as well as State Goods and Services Tax [SGST] paid on the output sales.

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The petitioner claimed that the fact that the sales were genuine would be reasonably verifiable from the transactions reported at the GST portal. In addition, the petitioner also provided (a) copies of purchase bills; (b) copies of E-way bills; (c) transporter builty; (d) toll tax receipts;(e) and screen shot of GSTR-1 filed through the GST Portal. Similar details were also reported for sales.

A division bench of Justice Vibhu Bakhru and Justice Tejas Karia observed that it is necessary for the AO, at the bare minimum, to examine the material placed by the petitioner and verify whether the same could be faulted. However, the AO did not undertake any such exercise but rejected the overwhelming evidence furnished by the petitioner merely on assuming that information available on the portal was correct.

It was contended on behalf of the petitioner that the said letter clearly established that on further examination of the enquiry report, no further action was necessary. Additionally, the petitioner submitted that GFPL had also entered into transactions with MSIPL. On the basis of the information that MSIPL was a bogus company, the AO having jurisdiction in case of GFPL had initiated proceedings. However, on further enquiries, it dropped the said proceedings.

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The provisions of Section 148A of the Act must be read in a meaningful manner. It must give a fair opportunity to the assessee to respond to the information which, according to the AO, suggests that the assessee’s income had escaped assessment.The court observed that “ Disregarding response furnished by the petitioner solely for the reason of the information on portal and simply reiterating the information as available, would render the procedure under Section 148A of the Act meaningless.”

The bench set aside the impugned order passed under Section 148A(d) of the Act and the impugned notice issued under Section 148A(b) of the Act. Further clarified that this order would not preclude the AO from initiating the proceedings if it finds that any of the material furnished by the petitioner, is incorrect or if the AO finds any other material substantiating the information, which suggests otherwise.

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