Facts of the Case

The petitioner, Draken Metals Trading Private Limited, filed the present writ petition challenging:

  • Order dated 26.03.2022 passed under Section 148A(d) of the Income Tax Act, 1961
  • Consequential notice dated 26.03.2022 issued under Section 148
  • Show cause notice dated 15.03.2022 issued under Section 148A(b)

The dispute pertains to Assessment Year 2018–19.

The Revenue alleged that the petitioner had engaged in transactions amounting to ₹20,43,99,525/- with M/s RCI Industries and Technologies Limited, which were stated to be bogus transactions involving fake purchase bills and share capital entries.

Further, it was alleged that:

  • The petitioner declared very low income in previous years
  • There was a substantial increase in authorized share capital
  • The financials did not justify the volume of transactions

The petitioner, however, did not initially respond to the notice under Section 148A(b), though replies were filed later during proceedings.

Issues Involved

  1. Whether reassessment proceedings initiated under Sections 148 and 148A were valid in law
  2. Whether the order under Section 148A(d) suffered from lack of clarity and proper reasoning
  3. Whether non-filing of reply to show cause notice under Section 148A(b) prejudiced the petitioner
  4. Whether the Assessing Officer followed due process and proper approval mechanism
  5. Whether allegations of bogus transactions were sufficiently substantiated

Petitioner’s Arguments

  • The petitioner contended that:
    • Relevant GST returns and transaction records were already placed before the Assessing Officer
    • The issue of increase in share capital had already been examined during scrutiny under Section 143(3)
    • The impugned notices and order lacked clarity and proper linkage between alleged transactions and share capital increase
    • There appeared to be procedural irregularity, as:
      • Approval seemed to have been obtained prior to passing of order under Section 148A(d)
      • The same reference number appeared in multiple notices and orders
  • It was further submitted that replies dated 06.03.2023 and 17.03.2023 were filed and should be considered

Respondent’s Arguments

  • The Revenue argued that:
    • Information was received from the Investigation Wing and CBIC indicating bogus transactions
    • The petitioner engaged in:
      • Bogus purchase entries
      • Artificial increase in share capital
    • Proper approval was obtained on 24.03.2022, prior to issuance of order under Section 148A(d)
    • The petitioner failed to respond to the initial show cause notice, which weakened its case

Court’s Findings / Order

The Delhi High Court observed that:

  • The petitioner failed to file a reply to the original notice under Section 148A(b), contributing to its difficulty
  • The allegations in the notice and order lacked clarity, particularly regarding:
    • The nexus between share capital increase and alleged bogus transactions
  • Since further proceedings had already progressed (including issuance of another show cause notice), the Court deemed it appropriate to:

Directions Issued

  • The Assessing Officer shall:
    • Consider the petitioner’s replies dated 06.03.2023 and 17.03.2023
    • Allow the petitioner to place any additional reply on record, if not already considered
    • Pass a fresh decision after proper consideration
  • Time granted:
    • 8 weeks to complete proceedings from the date of receipt of judgment
  • The writ petition was disposed of with directions, without quashing proceedings

Important Clarifications

  • Non-response to notice under Section 148A(b) can adversely affect the assessee’s case
  • The Court emphasized the need for:
    • Clarity in reasoning in reassessment notices
    • Proper articulation of link between alleged transactions and escaped income
  • Even where procedural doubts exist, courts may allow proceedings to continue with safeguards rather than quashing them outright

Sections Involved

  • Section 147 – Income Escaping Assessment
  • Section 148 – Issue of Notice for Reassessment
  • Section 148A(b) – Show Cause Notice before Reopening
  • Section 148A(d) – Order after Considering Reply
  • Section 143(3) – Scrutiny Assessment

 Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/59027032023CW38002023_203821.pdf

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