Writ petition succeeds: Section 148 notice and reassessment quashed due to violation of natural justice principles.

The HC allowed the writ petition, quashing the notice under Section 148 of the Income Tax Act, the order dismissing objections, and the reassessment order due to the non-supply of material forming the basis for reopening the assessment. This non-supply violated principles of natural justice. The court rejected the revenue's preliminary objection regarding statutory remedies and emphasized the necessity of providing such material to ensure a fair response. The court granted liberty to the respondents to conduct a fresh reassessment, if necessary, in accordance with the law.

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Issues Involved:
1. Maintainability of the writ petition.
2. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
3. Non-supply of material forming the basis for reopening the assessment.
4. Legal implications of the reassessment order based on the impugned notice.

Issue-wise Detailed Analysis:

1. Maintainability of the writ petition:
The petitioner challenged the notice issued under Section 148 of the Income Tax Act and the subsequent reassessment order. The revenue raised a preliminary objection, arguing that the petitioner has a statutory remedy of appeal under the Act, citing the Supreme Court decision in Commissioner of Income Tax & Ors. vs. Chhabil Dass Agarwal. The court acknowledged that while statutory remedies should be exhausted, the writ petition is maintainable in this case because there is no remedy under the Act for challenging the notice and the order disposing of objections. The court emphasized that if the notice under Section 148 and the order disposing of objections are quashed, the reassessment order would automatically fall. Thus, the preliminary objection was rejected.

2. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner argued that the notice under Section 148 was issued based on "reason to suspect" rather than "reason to believe," which is a mandatory condition for reopening the assessment. The court noted that the reasons to believe, supplied to the petitioner, referred to information from the Deputy Director of Income Tax, Investigation, and the statement of Deepak Jain recorded under Section 132(4) of the Act. However, the petitioner was not provided with these documents, which are crucial for filing a proper and effective reply. The court highlighted that the supply of material forming the basis for reopening the assessment is essential for ensuring natural justice and enabling the petitioner to respond effectively.

3. Non-supply of material forming the basis for reopening the assessment:
The court referred to the decisions of the Delhi High Court in SABH Infrastructure Ltd. and the Bombay High Court in Tata Capital Financial Services Limited, which mandate the supply of documents referred to in the reasons to believe. The court held that the non-supply of the statement of Deepak Jain and the entries in the books of M/s Sanmatri Gems Pvt. Ltd. to the petitioner was a violation of the principles of natural justice. The court emphasized that sufficiency of material is one thing, but its supply is mandatory. The non-supply of the material rendered the proceedings bad in law.

4. Legal implications of the reassessment order based on the impugned notice:
The court concluded that the material referred to in the reasons to believe was not supplied to the petitioner, which vitiated the entire proceedings for reopening the assessment and the consequential reassessment order. The court quashed the impugned notice dated 30.03.2021 and the order dated 18.08.2021 dismissing the petitioner's objections. Consequently, all proceedings, including the reassessment order dated 29.03.2022, were declared illegal, null, and void. The court granted liberty to the respondents to undertake a fresh reassessment exercise, if necessary, in accordance with the law.

Conclusion:
The writ petition was allowed, and the impugned notice, the order dismissing objections, and the reassessment order were quashed due to the non-supply of material forming the basis for reopening the assessment, which violated the principles of natural justice. The court provided liberty to the revenue to initiate fresh reassessment proceedings if required.

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