Material Referred In “Reasons To Believe” Not Supplied To Assessee, Reassessment vitiated: Rajasthan High Court

The Rajasthan High Court has held that the material referred to in the "reasons to believe" was not supplied to the assessee, and the entire proceedings for the reopening of the assessment and leading to the consequential assessment stand vitiated in law.

The division bench, led by Chief Justice Pankaj Mittal and Justice Rekha Borana, ruled that a statement recorded under Section 132 (4) of the Income Tax Act can only be used as evidence for making an assessment if it is made in context with other evidence or material discovered during the search. A person's statement that is unrelated to any incriminating document or material discovered during a search and seizure operation cannot trigger the assessment on its own.

The petitioner/assessee is a private limited company engaged in manufacturing marble slabs and tiles. It filed its income tax return for the assessment year 2017-2018, and it was processed under Section 143(1) of the Income Tax Act, 1961, and an intimation regarding the acceptance of "nil" tax liability was issued to it by the Centralized Processing Centre of the Income Tax Department.

The petitioner received a notice under Section 148 for the reopening of its assessment for the year 2017–2018 on the ground that there were reasons to believe that its income for the relevant year had escaped assessment.

On the petitioner’s request, the reasons for issuing the notice were supplied. The reasons stated that the petitioner had received a bogus loan, sale, or purchase from M/s. Sanmati Gems Private Limited as per the information received from the Deputy Director of Income Tax, Investigation, Unit-4(4), Mumbai.

The petitioner, on receipt of the reasons for reopening its case, filed objections, stating that the revenue is proposing to reopen its case not for reasons to believe but for reasons to suspect.

The petitioner contended that it has not been provided with the necessary documents, such as the account books of M/s. Sanmatri Gems Private Limited showing the alleged bogus entries in its name or the statement of Deepak Jain purported to have been recorded under Section 132(4) of the Act. The objections were disposed of, holding that it has no force.

The department contended that, against the reassessment order, the petitioner has a statutory remedy of appeal under the Act. Therefore, the writ petition is not maintainable, and the challenge to the notice under Section 148 is now meaningless in view of the reassessment order.

The court held that the writ petition as filed by the petitioner cannot be thrown out on the ground that the petitioner has a statutory remedy against the reassessment order, ignoring the fact that, against the notice issued under Section 148 and the order deciding objections to it, there is no remedy available to it other than the writ jurisdiction. As there is no remedy available to the petitioner against the notice under Section 148 or the order disposing of the objections, the writ petition to the extent of challenging it is maintainable. The successful challenge to the notice and the order being germane to the reassessment order would automatically result in nullifying it.

The court held that the non-supply of the material, especially the documents of entry in the books of M/s Sanmatri Gems Pvt. Ltd. and the statement of Deepak Jain recorded under Section 132 (4) of the Act, is sufficient to vitiate the proceedings.

Case Title: Micro Marbles Private Limited Versus Office of the Income Tax Officer

Citation: 2023 LiveLaw (Raj) 5

Case No.- D.B. Civil Writ Petition No. 13719/2021

Date: 04/01/2023

Counsel For Petitioner: Senior Advocate Sanjay Jhanwar assisted by Advocate Prakul Khurana

Counsel For Respondent: Advocates Kamal Kishore Bissa, G.S. Chouhan

Click Here To Read The Order