Facts of the Case

The present writ petition pertains to Assessment Year (AY) 2019–20, wherein the petitioner challenged reassessment proceedings initiated by the Income Tax Department.

The challenge was specifically made against:

  • Notice dated 23.02.2022 issued under Section 148A(b)
  • Order dated 26.03.2023 passed under Section 148A(d)
  • Consequential notice dated 26.03.2023 issued under Section 148

The Revenue alleged that the petitioner was a beneficiary of an accommodation entry in the form of a fictitious loan of ₹40,00,000 from BKR Capital Pvt. Ltd., controlled by one Mr. Bajrang Lal Periwal.

This allegation was primarily based on a statement recorded under Section 132(4).

The petitioner, in response, contended that:

  • No loan was taken from BKR Capital Pvt. Ltd.
  • Instead, ₹40,00,000 was deposited with BKR earlier, and the amount received was merely repayment of that deposit
  • The funds were sourced from his disclosed bank account

Supporting documents such as:

  • Income Tax Return of BKR
  • Ledger confirmations
  • Bank statements
    were submitted.     

Issues Involved

  1. Whether reassessment proceedings initiated under Sections 148A and 148 were valid in absence of proper consideration of the petitioner’s reply.
  2. Whether the Assessing Officer (AO) failed to provide adequate material to substantiate the allegation of accommodation entry.
  3. Whether principles of natural justice were violated due to lack of proper opportunity and reasoning.

Petitioner’s Arguments

  • The petitioner denied receiving any loan and clarified that the amount represented repayment of a deposit.
  • Adequate documentary evidence was furnished to substantiate the transaction.
  • The AO failed to properly appreciate the explanation and supporting documents.
  • The reassessment proceedings were initiated mechanically without establishing escapement of income.

Respondent’s Arguments

  • The Revenue relied upon the statement recorded under Section 132(4) of Mr. Bajrang Lal Periwal.
  • It was contended that BKR Capital Pvt. Ltd. was engaged in providing accommodation entries.
  • Based on available information, the AO formed a belief that income had escaped assessment.

Court’s Findings / Order

  • The petitioner’s reply, though not clearly worded, indicated that the transaction was a deposit and not a loan.
  • The AO failed to provide adequate reasoning or supporting material to justify the conclusion that income had escaped assessment.

Directions Issued by the Court:

  1. The AO shall furnish relevant material to substantiate the allegation of fictitious loan.
  2. If any fresh material is provided, the petitioner must be given an opportunity to respond.
  3. A personal hearing must be granted before proceeding further.
  4. The AO shall thereafter pass a reasoned order in accordance with law.

Accordingly, the writ petition was disposed of with the above directions.

Important Clarification

  • The Court did not quash the reassessment proceedings outright but emphasized adherence to principles of natural justice.
  • It reinforced that mere reliance on third-party statements without furnishing material to the assessee is insufficient.
  • Proper opportunity of hearing and disclosure of material is mandatory before concluding escapement of income under Section 148.

Link to download the order -

https://delhihighcourt.nic.in/app/showFileJudgment/60805092023CW113852023_165911.pdf

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