Facts of the Case

The petitioner, SRU Steels Limited, challenged the order dated 31.03.2022 passed under Section 148A(d) of the Income Tax Act. The respondent alleged that the petitioner had engaged in bogus purchase and sale transactions with several entities to fraudulently claim Input Tax Credit (ITC).

The total alleged transaction value amounted to approximately Rs. 8,48,86,110/- for the Financial Year 2017-18 (Assessment Year 2018-19). The notice under Section 148A(b) relied upon information obtained from the insight portal.

The petitioner denied entering into such transactions and contended that no material or information linking it to the alleged entities was supplied.

 Issues Involved

  1. Whether reassessment proceedings under Section 148A(d) can be sustained without supplying material relied upon to the assessee.
  2. Whether failure of the Assessing Officer to consider the reply of the assessee vitiates the reassessment order.
  3. Whether mechanical reliance on information from the insight portal without independent application of mind is valid in law.

 Petitioner’s Arguments

  • The petitioner denied entering into any alleged bogus transactions.
  • No material or evidence linking the petitioner to the alleged entities was furnished.
  • Details regarding approval from the specified authority were not provided.
  • The reply submitted by the petitioner was not considered by the Assessing Officer.
  • The reassessment proceedings were initiated mechanically without application of mind.

 Respondent’s Arguments

  • The respondent relied on information available on the insight portal indicating bogus transactions.
  • It was contended that the petitioner had engaged in transactions with identified entities involving substantial financial amounts.
  • The revenue justified initiation of reassessment proceedings based on such information.

 Court Findings / Order

The Delhi High Court held that the approach adopted by the Assessing Officer was unsatisfactory. The Court observed that:

  • The Assessing Officer failed to deal with the objections raised by the petitioner.
  • There was no proper application of mind before initiating reassessment.
  • Reliance solely on insight portal information without independent verification is inadequate.

Accordingly, the Court:

  • Set aside the order passed under Section 148A(d) and the corresponding notice.
  • Directed the Assessing Officer to conduct a de novo exercise.
  • Mandated supply of all material and information to the petitioner.
  • Allowed the petitioner to file a supplementary reply.
  • Directed passing of a speaking order after considering objections.

 Important Clarifications by Court

  • The Assessing Officer must provide all material relied upon before proceeding.
  • Proper application of mind is mandatory in reassessment proceedings.
  • Orders passed without dealing with objections are legally unsustainable.
  • Observations made by the Court shall not affect the merits of the case.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS14022023CW8392023_172816.pdf

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