AudhiNarayana Reddy Papa Reddy V. The Union of India

WP/12693/2022

AI Insights

The case revolves around a writ petition filed by a businessman challenging an order under Section 148A(d) of the Income Tax Act, 1961, which was issued following a survey and subsequent findings of unaccounted debtors. The petitioner argued that the show cause notice and the subsequent order were illegal, arbitrary, and violative of the principles of natural justice, primarily due to the non-supply of relevant material needed to respond adequately. The respondent defended the issuance of the notice and order, asserting that the necessary materials were provided and that the procedures followed were in accordance with the law. The court found that the non-supply of relevant material constituted a violation of natural justice, leading to the setting aside of the impugned order.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 722890 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 26-12-2022
• Assessment Year: misc
• Other Referred Cases: Union of India v. Ashish Agarwal, Babcock Borsig Ltd. v. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Department Lawyers: NOT SPECIFIED NOT SPECIFIED
• Assessee Lawyers: NOT SPECIFIED NOT SPECIFIED
• Keywords: Assessment Year; Impounded material; Income Tax; Natural Justice; Show cause notice; Writ of Mandamus
• Section: 147; 133A; 148A(b); 148A(d)

Judgement Text

"HON’BLE SRI JUSTICE U. DURGA PRASAD RAO AND HON’BLE SRI JUSTICE T. MALLIKARJUNA RAO Writ Petition No.12693 of 2022 ORDER: (Per Hon’ble Sri Justice U. Durga Prasad Rao) The petitioner filed the present writ petition seeking writ of mandamus declaring the order dated 31.03.2022 passed under Section 148A(d) of the Income Tax Act, 1961 by the Respondent No.2 vide DIN & Notice No.ITBA/AST/F/148A/2021- 22/1042279650(1) as illegal, arbitrary and violative of principles of natural justice and consequently set-aside the same and pass such other orders. 2. The petitioner’s case succinctly is thus: (a) The petitioner is a businessman and had filed his annual IT returns for the Financial Year 2017-18 and the same was assessed to tax in the Assessment Year 2018-19. While so, the Respondent No.2 issued a show cause notice on 21.03.2022 under Section 148A(b) of the Income Tax Act, 1961 (for short “IT Act”) stating that the information which suggests that income chargeable 2 to tax for the Assessment Year 2018-19 has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 and called upon the petitioner to explain as to why notice under Section 148A should not be issued. The petitioner was called to submit response with supporting documents electronically in e-proceeding through the e-filing by 27.03.2022. In the Annexure enclosed to the above show cause notice it is mentioned that a survey was conducted in the case of petitioner on 18.03.2019 and upon verification of the impounded materials, it was noticed that the sundry debtors of Rs.11.77 Crores were shown in the Assessment Year 2018-19 of petitioner and similarly, the sundry debtors of Rs.5.13 Crores for the Assessment Year 2018-19 were shown in the case of Kamakshi International. The common list of debtors in both the cases comes to Rs.16.90 Crores, but as per the loose papers found and impounded, the actual total debtors are Rs.28.32 Crores and thus there are unaccounted debtors of Rs.11.42 Crores. The annexure also mentioned that these sundry debtors will be taxed as unexplained investment for the respective years. The show cause notice would thus shows that the genesis for issuance of the show 3 cause notice is the loose sheets impounded in the survey dt: 18.03.2019. (b) The petitioner submitted his explanation stating that the show cause is not in consonance with the requirement of the statute, inasmuch as, a show cause under Section 148 Clause (b) of the Act is required to show cause in view of the details contained in Annexure. However, in the show cause notice issued, the material/loose sheets of papers relied upon by the Respondent No.2 were not enclosed and the reasoning of the Respondent No.2 in the annexure does not satisfy the requirement of show cause notice u/s 148 Clause (b) of the Act. (c) The petitioner requested for copies of impounded material and other relevant papers. However, the Respondent No.2 without providing the documents relied upon passed the impugned order without assigning any reasons whatsoever. Hence the writ petition. 3. Respondent No.2 filed counter and contended thus: 4 (a) A survey U/s 133A of the IT Act was conducted in the case of the petitioner on 18.03.2019 and it was noticed that the sundry debtors of Rs.11.77 Crores were shown in the case of the petitioner for the Assessment Year 2018-19 and similarly sundry debtors of Rs.5.13 Crores were shown for the Assessment Year 2018-19 in the case of M/s Kamakshi International. In the Assessment Year 2019-20, there is no business activity in both of the above two concerns. Therefore, even if assessee’s stand is taken as correct that it is a common list of debtors, the total debtors in both the cases would be to Rs.16.90 Crores only. However, as per the loose papers found and impounded, the actual total debtors are of Rs.28.32 Crores. Thus the difference is Rs.11.42 Crores. Therefore, these sundry debtors shall be taxed as unexplained investment in the respective years of both the cases after verification of debtors. (b) It is further stated that the income chargeable to tax has escaped assessment and therefore a show cause notice was issued under section 148A(b) of the Income Tax Act. Thereafter order under Section 148A(d) of the Income Tax Act was passed and all 5 with prior approval of the Competent Authority viz., Principal Commissioner of Income Tax (Central), Visakhapatnam and therefore it is not illegal and arbitrary and there was no violation of principles of natural justice. (c) It is further contended that though the material / loose sheets could not be provided inadvertently along with the show cause notice dt: 21.03.2022 issued under Section 148A(b) of the Income Tax Act, the same has been provided to the petitioner. The Authorized Representative (for short “AR”) of the petitioner has made a request on behalf of the petitioner for copies of impounded material, etc. The said letter was received in the O/o Assistant Commissioner of Income Tax, Central Circle, Tirupathi on 29.07.2021. On 30.07.2021 the scanned copies of the impounded material were sent through whatsapp to the mobile numbers 7845044623 and 7448444623, which are the mobile telephone numbers of the AR of the petitioner namely Sri P. Purnachandra Rao. (d) It is further contended that the assessment proceedings in this case are at present in the initial stage. The assessment will be 6 made on the basis of the impounded material, books of accounts and other record. During the course of assessment proceedings, the petitioner would be given sufficient opportunity to submit his case. Further, as per the request of the AR of the assessee, the impounded material was scanned and sent through whatsapp to the mobile numbers of the AR as stated supra. The petitioner can submit his case at the relevant time when the assessing authority takes up the assessment. The writ petition is devoid of merits and hence may be dismissed. 4. Heard Sri N. Vijay, learned counsel for the petitioner and Ms. M. Kiranmayee, learned Standing Counsel for 2nd respondent. 5. POINT: Whether the impugned order U/s 148A(d) of the IT Act, 1961 passed by the 2nd respondent is bad in law for non- supply of relevant material to the petitioner/assessee along with notice Under Section 148A(b) of the IT Act, 1961? 6. As can be seen from the respective pleadings and arguments of either party, the bone of contention is with reference to the supply of the copies of the impounded material on the basis of which, the assessing authority proposes to make re-assessment on 7 the ground that unaccounted debt amount of Rs.11.42 Crores has escaped assessment during the assessment year 2018-19. The case of respondents is that a survey U/s 133A of the IT Act was conducted on 18.03.2019 in respect of the accounts of the petitioner and some material were impounded from which it was noticed that sundry debtors of Rs.11.77 Crores were shown in the case of the petitioner for the AY 2018-19 and similarly sundry debtors of Rs.5.13 Crores were shown for the AY 2018-19 in the case of Kamakshi Internationals totaling to Rs.16.90 Crores, but from the loose papers impounded, the actual total debtors were identified as Rs.28.32 Crores meaning thereby, there were unaccounted debtors of Rs.11.42 Crores in both cases together and the same escaped the assessment. Hence a show cause notice U/s 148A(b) of the IT Act was issued on 21.03.2022 to the petitioner as mandated U/s 148A(b) of the IT Act. 7. The petitioner in his reply dated 25.03.2022 inter alia stated thus: “7. Post completion of survey, we have requested for copies of the impounded material, impounding order, communication informing the assessee of the approval accorded by the 8 Pr.CIT/CCIT permitting the AO to hold on to the impounded material beyond the permissible period of 14 days and the same has not been given till date. 8. The said notice requiring show cause refers to loose papers impounded and forms the basis for the difference between position as per books and position as per loose sheets. The loose sheets are critical material which you have relied upon and therefore the same requires to be shared with the assessee at least at this point of time as it constitutes the basis of claim that the AO is in possession of books of accounts or document or other evidence. The position of law as expounded by the judicial authorities (Surani Steels Cubes Ltd., Vs. Income Tax Officer Ward 1) 136 Taxmann.com 139 (2021) would be the guiding literature on this point. xxxx 13. We once again request you to share the information in your possession so as enable me to furnish a suitable reply” 8. Thus the petitioner requested for the necessary material to submit full-fledged reply. However, in the impugned order dated 31.03.2022 passed U/s 148A(d) of the IT Act, though the 2nd respondent mentioned that he is in possession of the information relating to the income chargeable to tax had escaped assessment and also mentioned about the request of the petitioner for furnishing the loose papers impounded which form the basis for 9 issuing notice U/s 148A(b) of the IT Act, no observation has been made regarding the supply of documents as sought for by the petitioner. On the other hand, it is simply mentioned in para-7(a) of the order that the quoted case law does not apply to the instant case and that it is beyond doubt that the income had escaped the assessment as could be seen from the impounded material. 9. Be that as it may, in the counter filed by the respondent, it was mentioned as if the impounded material were furnished to the petitioner and subsequently on the request of the AR of the assessee, again the scanned copies of the impounded material were sent through the whatsapp to the mobile numbers of AR. During the hearing of arguments learned counsel for the petitioner squarely denied having received any such material. The respondents have not produced any proof positive in this regard for supply of the material. As such, we are constrained to hold that the relevant material which was said to be impounded during the course of search operation and which was the basis for the respondent authorities to embark on re-assessment was not furnished to the petitioner. Needless to emphasize, such non-furnishment of the 10 relevant material amounts to violation of principles of natural justice. It should be noted that Section 148A was newly inserted by the Finance Act, 2021 w.e.f 01.04.2021. As can be seen, before issuing notice U/s 148 for making assessment, reassessment or re- computation, a show cause notice U/s 148A(b) has to be issued. Section 148A(b) reads thus: “148A(b). provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a)” 10. The above provision would depict, there is an avowed object in it, as it is intended to provide an opportunity of being heard to the assessee before proceeding Under Section 148. Issuance of show cause notice shall not be treated as a mere formality. It should be accompanied with the relevant material so as to put the concern 11 assessee in notification as to the ground on which the assessing authority is proposing to proceed for re-assessment. If the assessee is deprived of the relevant material he will not be in a position to submit a comprehensive and befitting reply to the show cause notice. Therefore, non-supply of relevant material, as stated supra, would amount to denial of principles of natural justice. 11. In Union of India v. Ashish Agarwal1 Hon’ble Apex Court was dealing with the validity of the judgment of the High Court of Allahabad whereunder, it quashed several re-assessment notices issued by the revenue U/s 148 of the IT Act, 1961 (old Act) on the ground that the same are bad in law in view of the amendment to Finance Act, 2021, which amended the IT Act by introducing new provisions i.e., Section 147 to 151 w.e.f 01.04.2021. The reassessment notices were challenged on the grounds (1) No valid reasons to believe (2) No tangible /reliable material / information in possession of the Assessing Officer leading to formation of belief that the income had escaped assessment (3) No enquiry being conducted by the Assessing Officer prior to the issuance of notice 1 AIR 2022 SC 2781 12 and reopening is based on change of opinion of the Assessing Officer (4) The mandatory procedure laid by the Supreme Court in the case of G.K.N. Drive Shafts (India) Ltd. v. ITO2 has not been followed. In that context the Apex Court has made the following observations: 6.3 But prior to pre-Finance Act, 2021, while reopening an assessment, the procedure of giving the reasons for reopening and an opportunity to the Assessee and the decision of the objectives were required to be followed as per the judgment of this Court in the case of GKN Driveshafts (India) Ltd. (supra). 6.4. However, by way of Section 148A, the procedure has now been streamlined and simplified. It provides that before issuing any notice Under Section 148, the assessing officer shall (i) conduct any enquiry, if required, with the approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment; (ii) provide an opportunity of being heard to the Assessee, with the prior approval of specified authority; (iii) consider the reply of the Assessee furnished, if any, in response to the show-cause notice referred to in Clause (b); and (iv) decide, on the basis of material available on record including reply of the Assessee, as to whether or not it is a fit case to issue a notice Under Section 148 of the IT Act and (v) the AO is required to pass a specific order within the time stipulated. 2(MANU/SC/1053/2002 13 xxxx 7. Thus, the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the Assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided Section 148 notice has been issued on or after 1st April, 2021. We are in complete agreement with the view taken by the various High Courts in holding so. Ultimately the Apex Court passed the following order: “Therefore, we propose to modify the judgments and orders passed by the respective High Courts as under: (i) The respective impugned Section 148 notices issued to the respective Assessees shall be deemed to have been issued Under Section 148A of the IT Act as substituted by the Finance Act, 2021 and treated to be show-cause notices in terms of Section 148A(b). The respective assessing officers shall within thirty days from today provide to the Assessees the information and material relied upon by the Revenue so that the Assessees can reply to the notices within two weeks thereafter; (Emphasis Supplied) (ii) The requirement of conducting any enquiry with the prior approval of the specified authority Under Section 14 148A(a) be dispensed with as a one-time measure vis-à-vis those notices which have been issued Under Section 148 of the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts; (iii) The assessing officers shall thereafter pass an order in terms of Section 148A(d) after following the due procedure as required Under Section 148A(b) in respect of each of the concerned Assessees; (iv) All the defences which may be available to the Assessee Under Section 149 and/or which may be available under the Finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021 are kept open and/or shall continue to be available and; (v) The present order shall substitute/modify respective judgments and orders passed by the respective High Courts quashing the similar notices issued under unamended Section 148 of the IT Act irrespective of whether they have been assailed before this Court or not.” 12. On the aspect of supplying of the relevant material, the Kolkata High Court also passed a similar order in its judgment in Babcock Borsig Ltd. v. Union of India3 thus: “5. It is prima facie seen that the assessee has not been furnished the full information based on which the 3 [2022] 141 taxmann.com 85 (Calcutta) 15 reopening proceedings were proposed. Furthermore, there is a reference to a search action which is conducted and statement being recorded from a Director of the company on 03.01.2019 etc. If that is so, the appellant should have full information so as to enable them to give effective reply. This having not done, this Court is of the view that the principles of natural justice have been violated and the appellant should be afforded with an opportunity to put forth their contention.” 13. In the light of above law and facts, the writ petition is allowed and the impugned order dated 31.03.2022 passed by the Respondent No.2 under Section 148A(d) of the Income Tax Act, 1961 is set aside with a direction to the said authority to furnish the relevant material which prompted to initiate reassessment proceedings to the petitioner within two weeks from the date of receipt of copy of this order and thereupon the petitioner shall submit his reply along with relevant material to the said authority within two weeks from the date of receipt of the material and thereupon the 2nd respondent shall consider the reply and the material if any, submitted by the petitioner and after affording an 16 opportunity of hearing to the petitioner, pass an appropriate order U/s 148A(d) of the IT Act. No costs. As a sequel, interlocutory applications pending, if any, shall stand closed. _________________________ U.DURGA PRASAD RAO, J _________________________ T. MALLIKARJUNA RAO, J 26.12.2022 krk "