Facts of the Case

The present writ petition pertains to Assessment Year 2015–16, wherein the petitioner challenged the order dated 24.11.2022 passed under Section 148A(d) of the Income Tax Act, 1961.

A notice under Section 148A(b) was issued to the petitioner on 11.10.2022, granting an opportunity to respond. The petitioner duly filed a reply on 17.11.2022. However, while passing the impugned order, the Assessing Officer (AO) recorded that no reply had been filed and proceeded accordingly.

The allegations against the petitioner were that she had engaged in financial transactions involving equities and derivatives of PMC Fincorp Ltd. amounting to ₹1,03,13,276/-, allegedly generating bogus long-term capital gains through an entity managed by an alleged entry operator.

 Issues Involved

  1. Whether an order passed under Section 148A(d) without considering the reply filed by the assessee is legally sustainable.
  2. Whether reassessment proceedings can be initiated without proper application of mind and consideration of material submitted by the taxpayer.
  3. Whether failure to consider the petitioner’s response violates principles of natural justice.

 Petitioner’s Arguments

  • The petitioner contended that a detailed reply dated 17.11.2022 was duly filed in response to the notice under Section 148A(b).
  • It was argued that the Assessing Officer erred in recording that no reply had been filed, thereby vitiating the entire proceedings.
  • The petitioner submitted that the transactions resulted in short-term capital gains, which were duly disclosed and taxed in the Income Tax Return.
  • It was further contended that Securities Transaction Tax (STT) had been paid, and all transactions were genuine and duly reported.

 Respondent’s Arguments

  • The Revenue alleged that the petitioner had engaged in fictitious transactions to generate bogus long-term capital gains.
  • It was contended that the entity involved (PMC Fincorp Ltd.) was linked to accommodation entries facilitated by an alleged operator.
  • The Revenue sought to justify initiation of reassessment proceedings based on available material.

 Court’s Findings / Order

  • The Delhi High Court observed that the petitioner had indeed filed a reply, which was not considered by the Assessing Officer.
  • The Court held that non-consideration of the reply constitutes a serious procedural lapse.
  • Accordingly, the impugned order dated 24.11.2022 passed under Section 148A(d) was set aside.

Directions Issued:

  • The Assessing Officer was granted liberty to conduct a fresh (de novo) assessment.
  • The AO must:
    • Consider the petitioner’s reply and defence
    • Provide all relevant material relied upon
    • Allow the petitioner to file additional submissions
    • Grant an opportunity of personal hearing

 Important Clarification by Court

  • Reassessment proceedings must adhere strictly to principles of natural justice.
  • Any order passed without considering the taxpayer’s reply is unsustainable in law.
  • The Assessing Officer is obligated to provide material evidence linking the assessee to alleged transactions before proceeding further.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS27032023CW37982023_112910.pdf

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