Non Consideration Of Detailed Reply To Show Cause Notice Submitted After Stipulated Time, Delhi High Court Quashes Reassessment Order

The petitioner/assessee has submitted that the order under Section 148A (d) of the Income Tax Act was passed without considering the replies filed by the petitioner to the show cause notice.

The petitioner filed a preliminary response to the show cause notice in which she objected to the validity of legal notice under Section 148A(b) on the grounds that there was no evidence that income had escaped assessment.

Although the information requested was not shared with the petitioner, yet the petitioner filed a detailed paragraph wise response dated March 31st, 2022 in respect of each of the transactions stated by the respondent in the show cause notice dated March 17th, 2022.

The impugned order under section 148A (d) was passed by the AO and the consequential impugned notice under section 148 was issued by the AO.

The AO only considered the petitioner's reply when passing the impugned order because it was filed within the time period specified in the notice under Section 148A(b) of the Income Tax Act.The detailed reply filed by the petitioner was not considered by the AO as it had not been filed within the stipulated time of 7 days.

The petitioner has contended that the order was arbitrary, cryptic and without application of mind as a huge sum of Rs.10,07,05,88,04,543 is held to have escaped assessment without considering the return and business of the petitioner. There is no proper indication as to how income has escaped assessment.

The petitioner further contended that the AO erred in not appreciating the peculiarity of the business of trading in derivatives. The order was passed without any application of mind whatsoever and without appreciating the nature of the business of the petitioner. The approval obtained was mechanical in nature, as though the AO had mentioned incorrect details in the order, yet it was granted by the higher authority.

The court held that under the amended provisions, the term "information" in Explanation 1 to Section 148 can not be lightly resorted to so as to re-open assessment. Information alone cannot be used to grant the Revenue unrestricted powers. Whether it is "information to suggest" under the amended law or "reason to believe" under the erstwhile law, the benchmark of "escapement of income chargeable to tax" still remains the primary condition to be satisfied before invoking powers under Section 147 of the Act. Simply because the revenue-respondent classifies a fact already on record as "information" may give it the authority to issue a notice of reassessment under Section 148A(b), but it does not give it the authority to issue a notice of reassessment under Section 148A(d).

The court determined that the information/material stated in the impugned show cause notice dated March 17, 2022, issued pursuant to Section 148A(b) of the Act, was not shared with the Petitioner, despite a specific request made by the Petitioner via letter dated March 24, 2022, denying the Petitioner an effective opportunity to file a response/reply.

The court held that the order dated April 4, 2022, issued under Section 148A (d) and the notice issued under Section 148 of the Act are quashed and the matter is remanded back to the Assessing Officer for a fresh determination.

The court directed the Assessing Officer to pass a fresh reasoned order under Section 148A (d) after considering the petitioner's detailed reply in accordance with the law within eight weeks. In the event the Assessing Officer wants certain clarifications or would like the petitioner's response to any specific information received by the revenue, it shall be at liberty to give a supplementary notice.

Case Title: Divya Capital One Private Limited Vs. ACIT

Citation: 2022 LiveLaw (Del) 475

Dated: 12.05.2022

Counsel For Petitioner: Advocates Ved Jain, Nischay Kantoor and Richa Mishra

Counsel For Respondent: Advocate Sanjay Kumar

Click Here To Read/Download Order