Facts of the Case

The present writ petition was filed challenging the notice dated 19.05.2022 issued under Section 148A(b) of the Income Tax Act, 1961, along with the subsequent order dated 27.07.2022 passed under Section 148A(d) and the consequential notice issued under Section 148 of the Act.

The Assessing Officer (AO) relied upon an inter-departmental communication dated 15.05.2018, which referred to a survey conducted in the case of Varun Capital Services Ltd. regarding alleged non-genuine Short Term Capital Gains. The communication alleged that the petitioner had entered into share transactions through Kisna Traders Pvt. Ltd. during Financial Years 2014-15 and 2015-16.

However, the material primarily consisted of tabulated transaction details without clearly linking them to escapement of income.

Issues Involved

  1. Whether the notice issued under Section 148A(b) was valid in the absence of specific allegations explaining escapement of income.
  2. Whether the order passed under Section 148A(d) and consequential notice under Section 148 could be sustained when the foundational notice lacked clarity and reasoning.
  3. Whether mere reliance on third-party information without proper application of mind satisfies statutory requirements.

Petitioner’s Arguments

  • The petitioner contended that the transactions were genuine online share transactions conducted with Kisna Traders Pvt. Ltd.
  • It was argued that the notice failed to disclose how the alleged transactions resulted in escapement of income.
  • The petitioner emphasized that the information provided was vague and did not contain specific allegations or reasoning, thereby violating principles of natural justice.

Respondent’s Arguments

  • The Revenue submitted that the information, though not “happily worded,” indicated that the petitioner had engaged in transactions through a broker (Varun Capital Services Ltd.) which were under scrutiny.
  • It was contended that the material suggested possible income escapement, justifying initiation of reassessment proceedings.

Court’s Findings / Order

  • The communication relied upon merely indicated that a survey report existed and that certain transactions were carried out.
  • Crucially, the notice under Section 148A(b) did not articulate how these transactions led to escapement of income.
  • The Court held that the notice must clearly spell out specific allegations and reasoning.

Final Order:

  • The impugned notices under Sections 148 and 148A(b) and the order under Section 148A(d) were set aside.
  • Liberty was granted to the Assessing Officer to issue a fresh notice with proper reasoning and material.

Important Clarification by the Court

  • A notice under Section 148A(b) must clearly articulate the basis of alleged income escapement.
  • Mere reproduction of information or third-party reports is insufficient.
  • Proper application of mind and disclosure of reasoning is mandatory before initiating reassessment.

Sections Involved

  • Section 148 – Income Escaping Assessment
  • Section 148A(b) – Opportunity before issuance of notice
  • Section 148A(d) – Order deciding whether it is a fit case
  • Income Tax Act, 1961

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/59021122022CW174662022_150732.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.