2022 (9) TMI 725 - HC - Income Tax

Court dismisses petition challenging assessment reopening under Income Tax Act for AY 2017-18, emphasizing procedural fairness and prima facie evidence

The Court dismissed the writ petition challenging the reopening of assessment for Assessment Year 2017-18 under the Income Tax Act. The petitioner's ... Reopening of assessment u/s 147 - cash deposits during demonetization period - notice issued u/s 148A(b) the reassessment proceedings were initiated on the basis of suspicious transactions flagged by the FIU [Financial Intelligence Unit] - HELD THAT:- The petitioner is registered as a non-scheduled Urban Cooperative bank who ‘maintained current accounts with Chandni Chowk, Shakarpur and Karkardooma Branches, New Delhi had deposited huge cash during the period from 01st April, 2016 to 31st December, 2016’. From the Search Assessment order under Section 153A it is not clear whether these deposits were verified by the Assessing Officer or not. In fact, the Assessment Order passed under Section 153A read with Section 143(3) is an order passed pursuant to the search, wherein it seems only the documents seized during the search were considered. The said order does not reveal that the aspect of cash deposits was specifically examined by the Assessing Officer. As far as non-consideration of petitioner’s reply is considered, it is settled law that ‘principle of natural justice is no unruly horse and no lurking land mine’ as held by Mr.Justice Krishna Iyer in Chairman, Board of Mining Examination and Chief Inspector of Mines Vs. Ramjee [1977 (2) TMI 140 - SUPREME COURT]. In fact, in M/s. S. Tikara Vs. State of M.P. & Ors, [1977 (3) TMI 178 - SUPREME COURT] it has been held that the principles of natural justice cannot be petrified or fitted into rigid moulds. They are flexible and turn on the facts and circumstances of each case. Consequently, the questions that arise are whether there has been any unfair deal by the respondent? In the present instance, in view of the allegation of cash deposits during demonetization period, this Court is of the opinion that even if the reply now sought to be relied upon by the petitioner was taken into account, notice under Section 148 of the Act was called for – as a prima facie case of escapement of income was made out. Consequently, no ground for interdicting the reassessment is made out at this stage. Accordingly, the present writ petition along with pending applications is dismissed. Issues:Challenge to Order under Section 148A(d) and Notice under Section 148 of the Income Tax Act, 1961 for Assessment Year 2017-18.Analysis:1. The petitioner challenged the reopening proceedings based on insufficient reasons provided in the impugned Notices, alleging a mere change of opinion. The petitioner argued that cash deposits during demonetization were disclosed and belonged to customers, with no foul play detected during previous assessments.2. The petitioner contended that the reassessment was initiated without considering the high volume of old currency notes deposited during demonetization, following RBI instructions. The petitioner highlighted that search and seizure operations in 2018 did not reveal any irregularities, making the current reassessment arbitrary.3. The petitioner raised procedural irregularities, citing non-compliance with Section 148A(d) and Instruction No. 1 of 2022, as the detailed reply filed by the petitioner was allegedly ignored by the Assessing Officer. The petitioner argued that the order issued without considering the reply was illegal.4. The judgment referenced the Supreme Court's stance in Raymond Woollen Mills Ltd. case, emphasizing the need for prima facie material to reopen a case, leaving the assessment authority to decide factual and legal aspects. The reassessment was based on suspicious transactions flagged by the FIU, involving significant cash deposits.5. The judgment highlighted the importance of verifying if the assessment order addressed the basis of income escapement and the need for a fair consideration of the petitioner's reply. It referenced the principle of natural justice's flexibility and emphasized the necessity of a prima facie case for income escapement during demonetization.6. Ultimately, the Court dismissed the writ petition, clarifying that the Assessing Officer should independently decide the matter without influence from the judgment. The rights and contentions of all parties were left open for further proceedings.