Notice U/S 148A(b) Flagging Bogus Transactions Cannot Be Faulted For Merely Mentioning Sale Entry As That Of Purchase: Gauhati HC

In doing so, it held that the order cannot be faulted merely because the alleged bogus transactions, whose existence the Petitioners (X and Y) did not deny in their reply, were perceived to be that of sale instead of purchase.

Justice Devashis Baruah observed,

“From the replies so submitted by both X and Y to the Show Cause notices would show that both X and Y admitted transactions… transactions in question being bogus transactions, the efficacy of the contentions made by the Petitioners that the transactions were of sale and not purchase had lost its effect.”

Initially, notices were issued to the Petitioners based on information received through the Department's Insight Portal that X and Y had made bogus purchases. It was alleged that proprietorship firms of both X and Y entered into accommodation entries of sale with M/s Swastik Traders and M/s Kalki Trading Company.

On the basis of such information, both X and Y were issued Show Cause notices under Section 148A(b) of the Act.

It is pertinent to note that no notice under Section 148 for reassessment can be issued without following the procedure prescribed under Section 148A.

Section 148A stipulates that before issuing any notice under Section 148, the Assessing Officer shall (i) conduct necessary enquiry with respect to the information which suggests that income chargeable to tax had escaped assessment; (ii) provide an opportunity of being heard to the assessee; (iii) consider the reply of the assessee furnished, if any; (iv) decide whether it is a fit case to issue a notice under Section 148 and (v) the Assessing Officer is required to pass a specific order within the time stipulated.

In their reply, X and Y claimed that the said transactions were sales and not purchases and as such there can be no reason that their income chargeable to tax had escaped assessment.

Thereafter, the Assistant Commissioner of Tax passed an under Section 148A(d) opining that though X and Y did not make purchase, they sold to the parties concerned as regards the exact amount which were duly reflected in the information received through Insight Portal.

A Coordinate Bench of the High Court interfered with the above order for the reason that the Assistant Commissioner converted the allegations made in the SCN from bogus purchase to that of a sale after the replies submitted by X and Y. it directed the Authority to proceed de novo from the stage of SCN reply.

Pursuant thereto, the Respondent passed two separate orders under Section 148A(d). Hence, this petition.

Petitioners contended that the High Court had categorically observed that a transaction of purchase and transaction of sale are two different aspects and as such without there being any SCN issued in that perspective, the question of opining in the impugned orders that the Petitioners indulged in transactions of bogus sale was invalid.

The Income Tax Department however submitted that due information was provided to the Petitioners in the SCN pertaining to the transactions.

It was contended that when the SCNs were issued, both the Petitioners did not deny that they had relation with the firms alleged and they rather stated that they had no 'purchase' transactions with those firms but had sold goods to those firms. It was therefore submitted that an opportunity was given and there was no infraction of Section 148A(b).

Agreeing with the Department, the High Court said,

“The materials on record and more particularly the replies submitted by both X and Y would show that there was no denial by both X and Y that there were no transactions between X and M/s Swastik Traders and M/s Kalki Trading Company and between Y and M/s Swastik Traders. In fact, both X and Y categorically admitted in their replies that they had transactions but the transactions were not purchase but were of sale and in that regard have also placed the ledger copies of the books of the account for financial year 2017-18, copy of the particular page of the bank account in which both X and Y have received their payments, copies of the invoices raised by them and copy of the particular page of the stock register. 28. Under such circumstances, the submissions of the learned counsel for the Petitioners that Section 148A(b) of the Act of 1961 was not complied with is totally misconceived.”

Accordingly, the petition was dismissed.

Appearance: Senior Advocate A. Jain for Petitioners; Standing counsel SC Keyal for Department

Case title: Abhishek Mittal v. UoI & Ors.

Case no.: WP(C)/7014/2022