Reassessment Notice Can't Be Challenged If Assessee Failed To Submit Crypto Currency Account Transactions: Rajasthan High Court

The division bench of Justice Manindra Mohan Shrivastava and Justice Shubha Mehta held that bank transactions alone are not sufficient to verify the trade in crypto currency. The assessee ought to have submitted before the department the relevant ledger statement evidencing that he had entered into trade of crypto currency in the manner as has been asserted by him by way of the information stated by him.

The petitioner/assessee payee for the assessment year of 2018–19 submitted his income tax returns and assessment proceedings were drawn. A notice under Section 148A(b) was issued to the petitioner stating that information received suggests that income chargeable to tax for the assessment year 2018-19 has escaped assessment. It was disclosed that as per higher risk CRIU/VRU information flagged by the Directorate of Income-Tax (systems), an investment to the tune of Rs.4,65,72,546 was made by the assessee towards the purchase of crypto currency, but the source was not verified and in the ITR filed. It was declared that the total income for the year was Rs. 5,46,500, which was quite a nominal amount as compared to the investment disclosed subsequently.

The petitioner submitted that the amount as alleged in the notice only reflects the volume of transactions in the course of trade of crypto currency and not the investment amount as alleged. Along with the reply, the petitioner filed an ITR acknowledgment for the assessment year 2018-19, a bank statement depicting the transfers done in exchange for crypto currency, and a computation of income for the assessment year 2018–2019.

The Assessing Officer was dissatisfied with the response, primarily because the volume of transaction was incorrectly assumed to be the investment amount, which was not supported by the relevant documentary evidence.The AO passed the order under section 148A(d) of the Income Tax Act, leading to the issuance of a notice under Section 148, which was not challenged.

The petitioner contended that the order was not speaking and did not consider the reply of the petitioner but mechanically rejected the objection. A finding that the petitioner had not furnished any documentary evidence in support of information was perverse as the petitioner had submitted more than one document. The source of investment has wrongly been held as unverified, though the entire bank transactions were submitted after obtaining a statement from the bank. The order was cryptic, vague, and perverse.

The department submitted that the proceedings under section 148A(b) were initiated against the petitioner because, upon receipt of credible information, it was revealed that a huge amount of investment was made by the petitioner. The petitioner's assertion that the amount as shown in the transaction was not an investment but only a volume of transactions during the course of trade of crypto currency remained unverified, even though the petitioner could have submitted before the authorities the electronic ledger records relating to the transaction of crypto currency, but failed to do so. The various documents which have been annexed with the reply were not sufficient to verify the information as submitted by the assessee in the absence of the non-submission of the ledger account relating to the transaction in Crypto Currency.

The statutory Scheme of Section 148A reveals that before initiating proceedings under Section 148, the Competent Authority is required to conduct an enquiry after affording an opportunity of hearing in the manner as specified in Section 148A of the Act, 1961. Section 148A(d) requires the Assessing Officer to decide whether or not it is a fit case to issue a notice under section 148 by passing an order with the prior approval of the specified authority, based on the material available on record, including the assessee's reply.

Section 148A(b) provides that the information must suggest that income chargeable to tax has escaped assessment. The purpose of the inquiry is to find out whether there is material which suggests that income which is chargeable to tax escaped assessment.

The court observed that whether it was the volume of the trade which is reflected in the total amount of Rs.4,65,72,546 or whether it was an investment made in the crypto currency without any withdrawal therefrom, it would essentially be a matter for consideration upon perusal of the crypto currency ledger.

"We find that the authority has considered, though in brief, the reply of the petitioner at this stage only for the purpose of deciding whether proceedings under Section 148 of the Income Tax Act, 1961 should be drawn. In our considered opinion, the exercise which has been undertaken by the authority fulfilled the legal requirement of Section 148(A) of the Act, 1961," the court said.

The court added that it would be open for the assessee to satisfy the authorities by submitting the relevant crypto currency ledger to verify the information as was submitted by him before the Assessing Officer in proceedings under Section 148A.

Case Title: Parmesh Chand Yadav Versus Income Tax Officer

Citation: 2022 LiveLaw (Raj) 233

Case No.: D.B. Civil Writ Petition No. 7352/2022

Date: 12/07/2022

Counsel For Petitioner: Advocates Nikhil Yadav, Vedant Agarwal

Counsel For Respondent: Advocate Amit Malani

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