2022 (8) TMI 760 - HC - Income Tax

Invalidity of Income Tax Notice under Section 148, Emphasis on Natural Justice

The court found the notice issued under Section 148 of the Income Tax Act to be invalid as the respondents failed to provide evidence of alleged cash ... Reopening of assessment u/s 147 - petitioner has deposited cash in the Bank account with Bank of Baroda, Shivrajpur Branch, Kanpur - HELD THAT:- The petitioner has filed copy of his Bank account with the Bank of Baroda, Shivrajpur Branch, Kanpur for the F.Y. 2016-17 relevant to the A.Y. 2017-18 which shows that there is no such cash deposit in the aforesaid Bank. Copy of the bank account has already been filed along with certificate of Chartered Accountant with supplementary affidavit dated 30.05.2022, yet the respondents have neither replied the contents of the writ petition nor the contents of the supplementary affidavit. A short counter affidavit has been filed by the respondents. Even in the short counter affidavit, the respondents have not filed any evidences which may even indicate remotely that any cash was deposit by the petitioner in his Bank account with Bank of Baroda, Shivrajpur Branch, Kanpur. Thus, the initiation of re assessment proceedings and the impugned assessment order are not only without jurisdiction and perverse but also, the impugned reassessment order and re assessment proceeding violate fundamental right of the petitioner guaranteed under Article 14 and 21 of the Constitution of India. Since despite time granted for the last more than one month, no counter affidavit has been filed by the respondent nos. 2,3 and 4, therefore, we direct the respondent no.1 to file counter affidavit by means of his personal affidavit along with copies of the evidences of cash deposit by the petitioner in his bank account. The respondent no.1. shall also clearly state in his affidavit justification, if any, for initiation of the reassessment proceedings against the petitioner under the facts and circumstances of the case. Respondent No.1 shall further state the action he proposes to take against the respondent Nos. 2, 3 and 4 in case he finds that there was absolutely no valid material before the Assessing Officer for reason to believe that income of the petitioner has escaped assessment to tax. The respondent Nos.2, 3 and 4 shall also file a detailed counter affidavit annexing therewith the evidence of cash deposit by the petitioner in his bank account. On the next date fixed, the respondents shall also produce records before this court relating to the petitioner showing cash deposit by the petitioner in his bank account. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act.2. Legality of the Re-Assessment Order for the Assessment Year 2017-18.3. Examination of the alleged cash deposits in the Bank of Baroda.4. Adherence to principles of natural justice and rule of law by the respondents.Detailed Analysis:1. Validity of the Notice Issued under Section 148 of the Income Tax Act:The petitioner challenged the notice issued under Section 148 of the Income Tax Act dated 31.03.2021, arguing that it was issued without proper grounds. The notice was based on alleged cash deposits of Rs. 13,67,24,000/- in the Bank of Baroda, which the petitioner denied. The court noted that the respondents failed to provide any evidence of such deposits and acted arbitrarily. The court directed the respondents to file a counter affidavit with evidence of the alleged deposits.2. Legality of the Re-Assessment Order for the Assessment Year 2017-18:The petitioner sought to quash the Re-Assessment Order dated 31.03.2022, claiming it was made in gross violation of law and principles of natural justice. The court observed that the respondents made the addition of Rs. 13,67,24,000/- without any material evidence and ignored the petitioner's denial of such deposits. The court criticized the respondents for their high-handedness and arbitrary exercise of power, indicating a serious harassment to the petitioner.3. Examination of the Alleged Cash Deposits in the Bank of Baroda:The petitioner denied depositing any cash in the Bank of Baroda and provided details of cash deposits in other banks (Union Bank of India and State Bank of India). The court noted that the respondents did not examine the petitioner's stand and made the addition without any discussion or reference to evidence. The court directed the respondents to file a counter affidavit with evidence of the alleged deposits and to justify the initiation of reassessment proceedings.4. Adherence to Principles of Natural Justice and Rule of Law by the Respondents:The court highlighted the respondents' failure to adhere to the basic principles of law and justice. It noted that the respondents acted arbitrarily and whimsically, causing serious prejudice to the petitioner. The court directed the respondents to show cause why exemplary costs should not be imposed for their arbitrary actions. The court also emphasized the need for the respondents to follow the rule of law and ensure fair treatment to the assessee.Conclusion:The court granted interim relief to the petitioner by directing that no coercive action be taken pursuant to the impugned reassessment order/demand until the next hearing. The court ordered the respondents to file detailed counter affidavits with evidence of the alleged cash deposits and to justify their actions. The court also warned of imposing exemplary costs and taking action against the respondents if they failed to provide valid material for the reassessment proceedings. The matter was adjourned for further hearing on 26.07.2022, with interim orders to continue until then.