Cash Deposits during Demonetisation: Delhi HC strikes down Income Tax Order u/s 148(A)(d) for lack of prior notice to Assessee [Read Order]

The Delhi High Court has quashed an order passed under Section 148A(d) of the Income Tax Act, 1961, in a case concerning cash deposits made during the demonetisation period.

The Court observed that the assessee was not given prior notice about the comparison of cash deposits made during 2016-17 with those in the corresponding period of 2015-16. Holding that the absence of such notice deprived the assessee of a reasonable opportunity to respond, the Court set aside the order and directed fresh proceedings in accordance with law.

The Bench comprising Justice Vibhu Bakhru and Justice Tushar Rao Gedela, heard and reviewed this matter filed by the Assessee.

The Assessee, J.G’s Departmental Store, a partnership firm engaged in the business of operating a chain of seven departmental stores in Delhi, filed a writ petition under Article 226 of the Constitution of India, condemned firstly, notices dated 01.02.2024 and 14.02.2024 issued under Section 148A(b) of the Income Tax Act, 1961, secondly, an order dated 19.03.2024 passed under Section 148A(d) of the Act considered to be an “impugned order” and thirdly, a notice dated 19.03.2024 issued under Section 148 of the Act considered to be an “impugned notice”. Therefore, the above-mentioned notices and order were issued in respect of the assessment year 2017-18.

The Assessee was primarily engaged in retail trade of licensed sale of wine and beer where he was majorly dealing in cash sales and filed its income tax return for the Assessment Year 2017-18 on 30.10.2017 with a declaration of total income of Rs.26,30,730/-. The Assessee disclosed that an amount of Rs.6,23,39,100/- was deposited in the bank during the period of demonetisation from 09.11.2016 to 30.12.2016.

The Assessee’s return for assessment year 2017-18 was selected for scrutiny to examine the cash deposits made by the Assessee during the demonetization period and the Assessing Officer (AO) issued a notice for the same dated 24.09.2018 under Section 143(2) of the Income Tax Act, 1961.

During the assessment proceedings, AO examined the source and genuineness of cash deposits made at the time of Demonetisation and issued notices under section 142(1) of the Income tax Act, 1961. The Assessee explained in the favour of Retail trade of more than 90% cash sales from normal course of business.

After reviewing the responses submitted by the Assessee, the AO passed the assessment order dated 21.12.2019 under section 143(3) of the Income Tax Act,1961, accepting the Assessee’s contentions. Consequently, the Assessee’s income was assessed at Rs.30,94,684/-as against the declared income of Rs.26,30,730/-.

The Assessing Officer (AO) issued show cause notices to the Assessee under section 148A(b) of the Income Tax Act, 1961, on 01.02.2024 and 14.02.2024, proposing to reopen the assessment for Assessment Year 2017-18. The notices issued under section 148A(b) of the Income Tax Act, 1961 suggested that Assessee’s income had Escaped Assessment based on Information regarding Tax Collected at Source (TCS) under section 206CA of the Income Tax Act, 1961; cash deposits during demonetization and time deposits.

The Assessee responded to the notices through letters dated 22.02.2024 and 28.02.2024 explaining all the transactions and claimed that it has been regularly filing its return of income tax in respect of Assessment year 2017-18. During the assessment process, the said return was taken for scrutiny, and the Assessee was required to provide the necessary details which were to be examined by the AO.

Subsequently, AO passed an order under section 148A(d) of the Income Tax Act, 1961, and accepted the Assessee’s explanation regarding the reconciliation of TCS with proceeds of sales reflected in the books of account and the time deposits.

Moreover, AO proceeded to compare the cash deposited by the Assessee in its bank account as a new ground in comparison of cash deposits during the demonetization period with the corresponding period in the previous financial year, which ultimately showed a huge ratio in terms of increase. Whereas, this new ground was not mentioned in the initial Section 148A(b) of the Income Tax Act, 1961.

Aggrieved by this, the Assessee challenged this reopening in the High Court, that the order under section 148A(d) of the Income Tax Act, 1961, Act had travelled beyond the information furnished to the Assessee, denying to the Assessee, the opportunity to explain, which, according to the AO, was suggestive of its income escaping the assessment.

Therefore, the High Court held that the impugned order passed under Section 148A(d) of the Income Tax Act, 1961, and the consequent impugned notice issued under section 148 of the Income Tax Act, 1961 was set aside and the matter was remanded to the AO to consider the question afresh.

The Assessee was at the liberty to respond to the impugned order within the period of two weeks from date of judgement, and the AO shall consider the same and pass the appropriate order within the period of two weeks thereafter.

Thus, the petition was allowed as per the aforesaid terms and the pending application is also disposed of.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates