Notice under s.148A(b) failed to state source of funds used to buy shares; omission not curable, notices quashed

HC held that the notice under s.148A(b) failed to allege the foundational fact-source of funds used by the purchasing entity to acquire shares of the target company-and such omission cannot be cured by a supplementary notice. Consequently, the writ petition was allowed: the s.148A(b) show-cause notice, the s.148A(d) order and the s.148 notice for assessment year 2018-19 were quashed.

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Issues:
Challenging show cause notice under Section 148A(b) of the Income Tax Act, 1961 for assessment year 2018-19.

Analysis:
The petitioner challenged a show cause notice issued under Section 148A(b) of the Income Tax Act, 1961, along with subsequent orders, for the assessment year 2018-19. The petitioner contended that the notice did not contain any allegation of income escapement, violating the provisions of the Act. The petitioner explained the transactions in question were recorded in its accounts and declared in the income tax return. Additionally, the valuation of shares was done by a qualified Chartered Accountant in compliance with relevant rules. However, the respondents passed an order under Section 148A(d) on different grounds, alleging the source of investment was unexplained due to the company's financial soundness. The petitioner argued that it was not given a proper opportunity to respond as the specific grounds for the order were not mentioned in the show cause notice.

The Court noted that the show cause notice was vague and lacked a specific explanation regarding the source of funds used for the share purchase. The respondents sought permission to issue a supplementary notice, citing a previous court order in a different case. However, the Court held that foundational allegations cannot be introduced through a supplementary notice if missing in the original notice. It distinguished this case from the precedent where specific allegations were present in the initial notice, allowing for supplementary information to be provided. Consequently, the Court allowed the writ petition, quashing the show cause notice, order, and subsequent notice for the assessment year 2018-19. The respondents were granted liberty to take further steps if permitted by law, with the petitioner retaining the right to seek remedies in accordance with the law if aggrieved by future actions.

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