2022 (8) TMI 1600 - HC - Income Tax

Reassessment u/ss 147 and 148A(b) quashed for vague, shifting reasons on fictitious income allegations

HC quashed reassessment proceedings initiated u/s 147 where notice u/s 148A(b) and the accompanying dissemination note alleged a 'fictitious loan,' ... Reopening of assessment u/s 147 - reasons to believe - allegation is of a ‘fictitious loan’ or ‘fictitious long term capital gain’ - information uploaded on INSIGHT portal stating that search u/s 132 had been conducted in the case of Jignesh Shah and Sanjay Shah of Ahmedabad and the search had resulted in seizure of unaccounted cash (relating to accommodation entries and commission earned thereon), along with incriminating digital as well as documentary evidences HELD THAT:- This Court finds that both in the notice issued u/s 148A(b) of the Act as well as in the Dissemination of Information note supplied to the Petitioner, the allegation is of a ‘fictitious loan’ and not ‘fictitious long term capital gain’. This Court is of the view that the allegation in the notice issued under Section 148A(b) of the Act has to be precise, so that the assessee has a fair and reasonable opportunity to put forward its defence. In the event, the allegation in the notice u/s 148A(b) of the Act is incorrect or vague, the Assessee would be deprived of an opportunity of putting forward its defence and Section 148A(b) would be rendered nugatory. Reassessment proceedings set aside. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether reassessment proceedings initiated under Sections 148A(d) and 148 of the Income Tax Act, 1961, based on allegations of a 'fictitious loan' of Rs. 63,06,250/-, were valid when the Revenue's actual case pertained to 'fictitious long term capital gain' (LTCG) from trading in shares. 1.2 Whether a notice issued under Section 148A(b) of the Income Tax Act must contain precise and correct allegations so as to afford the assessee a fair and reasonable opportunity to respond. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Validity of reassessment proceedings and requirement of precision in notice under Section 148A(b) Legal framework (as discussed) 2.1 The Court examined the scheme of reassessment under Sections 148 and 148A of the Income Tax Act, 1961, particularly Section 148A(b), which mandates issuance of a show cause notice to the assessee, enabling a reasonable opportunity of being heard before passing an order under Section 148A(d) and issuing notice under Section 148. Interpretation and reasoning 2.2 The reassessment was triggered based on information uploaded on the INSIGHT portal indicating that a search under Section 132 in the case of third parties had led to seizure of unaccounted cash relating to accommodation entries and that the assessee was allegedly a beneficiary of an accommodation entry of a fictitious loan of Rs. 63,06,250/- during the relevant financial year. 2.3 While the notice under Section 148A(b) and the Dissemination of Information note supplied to the assessee alleged a 'fictitious loan,' the Revenue, before the Court, asserted that the case in fact related to 'fictitious long term capital gain' arising from trading in the shares of a particular company and relied on the dissemination note and annexures, including functional hyperlinks, in support. 2.4 The Court held that the allegation in the notice under Section 148A(b) must be precise so that the assessee has a fair and reasonable opportunity to put forward its defence. If the allegation is incorrect or vague, the assessee is deprived of an effective opportunity to respond and the statutory safeguard in Section 148A(b) is rendered nugatory. 2.5 Having noticed the discrepancy between the allegation of 'fictitious loan' in the notice and the Revenue's stand of 'fictitious LTCG,' the Court found that the existing notice and the consequent order and reassessment notice could not be sustained in their present form. 2.6 The Revenue stated that it had no objection to the impugned order under Section 148A(d) and the consequent notice under Section 148 being set aside and the matter being remanded for fresh consideration, and further sought that the expression 'fictitious loan' in the Show Cause Notice and Dissemination Note be read as 'fictitious LTCG' of Rs. 63,06,250/-, and that the notice be deemed amended accordingly. The assessee raised no objection to this course. Conclusions 2.7 The Court set aside the impugned order passed under Section 148A(d) and the consequential notice issued under Section 148 for the relevant assessment year. 2.8 The Court directed that the notice under Section 148A(b), as amended to substitute the expression 'fictitious loan' with 'fictitious LTCG' of Rs. 63,06,250/- and to be read along with the Dissemination Note and annexures, be treated as the operative show cause notice. 2.9 The assessee was granted three weeks to file a response to the amended notice under Section 148A(b), and the Assessing Officer was directed to pass a fresh order under Section 148A(d) within four weeks thereafter. 2.10 The Court clarified that it had not commented on the merits of the controversy and that all rights and contentions of the parties remained open.