The Gauhati High Court in a significant case has dismissed a challenge to an order under Section 148A(d) of the Income Tax Act, 1961. The bench held that mere mentioning of sale of entry as purchase does not invalidate Income Tax notice flagging bogus transactions.
Initially, notices were issued to the Petitioners, Abhishek Mittal based on information received through the Department’s Insight Portal that X and Y had made bogus purchases. It was alleged that proprietorship firms of both X and Y entered into accommodation entries of sale with M/s Swastik Traders and M/s Kalki Trading Company.
On the basis of such information, both X and Y were issued Show Cause notices under Section 148A(b) of the Act. It is pertinent to note that no notice under Section 148 for reassessment can be issued without following the procedure prescribed under Section 148A.
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Section 148A stipulates that before issuing any notice under Section 148, the Assessing Officer shall (i) conduct necessary enquiry with respect to the information which suggests that income chargeable to tax had escaped assessment; (ii) provide an opportunity of being heard to the assessee; (iii) consider the reply of the assessee furnished, if any; (iv) decide whether it is a fit case to issue a notice under Section 148 and (v) the Assessing Officer is required to pass a specific order within the time stipulated.
In their reply, X and Y claimed that the said transactions were sales and not purchases and as such there can be no reason that their income chargeable to tax had escaped assessment. Thereafter, the Assistant Commissioner of Tax passed an under Section 148A(d) opining that though X and Y did not make purchase, they sold to the parties concerned as regards the exact amount which were duly reflected in the information received through Insight Portal.
A Coordinate Bench of the High Court interfered with the above order for the reason that the Assistant Commissioner converted the allegations made in the SCN from bogus purchase to that of a sale after the replies submitted by X and Y. it directed the Authority to proceed de novo from the stage of SCN reply.
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Pursuant thereto, the Respondent passed two separate orders under Section 148A(d). Hence, this petition. Petitioners contended that the High Court had categorically observed that a transaction of purchase and transaction of sale are two different aspects and as such without there being any SCN issued in that perspective, the question of opening in the impugned orders that the Petitioners indulged in transactions of bogus sale was invalid.
The Income Tax Department however submitted that due information was provided to the Petitioners in the SCN pertaining to the transactions.
It was contended that when the SCNs were issued, both the Petitioners did not deny that they had relation with the firms alleged and they rather stated that they had no ‘purchase’ transactions with those firms but had sold goods to those firms. It was therefore submitted that an opportunity was given and there was no infraction of Section 148A(b).
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Justice Devashis Baruah observed that the transactions in question being bogus transactions, the efficacy of the contentions made by the Petitioners that the transactions were of sale and not purchase had lost its effect.
While dismissing the appeal, the bench viewed that there was no violation to Section 148A of the Act of 1961 while passing the impugned orders and as such the said impugned orders do not come within the ambit of the exceptions as settled by the Supreme Court as referred to supra. It is the opinion of the Court that both the writ petitions challenging the impugned orders dated 10.09.2022 in WP(C) No.7014/2022 and the order dated 31.05.2022 in WP(C) No.4975/2022 do not call for interference under Article 226 of the Constitution.
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