Facts of the Case

The petitioner, Movish Realtech Private Limited (formerly Ashiana Realtech Pvt. Ltd.), filed a writ petition challenging the order dated 22.03.2023 passed under Section 148A(d) of the Income Tax Act, 1961 and the consequential notice issued under Section 148 for Assessment Year 2019–20.

The reassessment proceedings were initiated on the allegation that the petitioner had received accommodation entries in the form of bogus unsecured loans amounting to Rs. 35,18,52,491/- during FY 2018–19. These entries were allegedly provided by Aneri Fincap Ltd. (AFL), which was stated to be controlled by an entry operator, Mr. Rajesh G. Mehta.

The basis of the proceedings was primarily the statement of Mr. Rajesh G. Mehta recorded under Section 131 of the Act during a search and seizure action conducted on third-party entities (Oneworld group).

 

Issues Involved

  1. Whether reassessment proceedings under Section 148 and order under Section 148A(d) can be sustained solely based on a third-party statement without independent material.
  2. Whether failure to grant a personal hearing violates principles of natural justice under the reassessment framework.
  3. Whether the Assessing Officer had sufficient material to form a “reason to believe” that income had escaped assessment.

 

Petitioner’s Arguments

  • The statement of Mr. Rajesh G. Mehta does not specifically mention the petitioner as a beneficiary of accommodation entries.
  • The loan received from AFL was genuine, and the petitioner:
    • Repaid the loan in the subsequent assessment year (AY 2020–21).
    • Paid interest and deducted tax at source under Section 194A.
  • No opportunity of personal hearing was granted despite request, which is mandatory in view of CBDT Circulars dated 01.08.2022 and 22.08.2022.
  • The reassessment was initiated mechanically without proper application of mind.

 

Respondent’s Arguments

  • AFL was a paper company controlled by an entry operator; therefore, the loan transaction could not be genuine.
  • The petitioner failed to provide a loan agreement to substantiate the transaction.
  • The reassessment was validly initiated based on information gathered during search proceedings.

 

Court’s Findings / Order

  • The Court observed that reassessment proceedings were triggered primarily based on the statement of a third party, without clarity on supporting material.
  • The statement alone did not establish that income chargeable to tax had escaped assessment.
  • The Assessing Officer failed to grant a personal hearing, which could have clarified the basis of the allegations.
  • The Court recognized that CBDT circulars incorporate principles of natural justice into Sections 148 and 148A.

Final Order

  • The order under Section 148A(d) and notice under Section 148 were set aside.
  • The Assessing Officer was granted liberty to:
    • Pass a fresh order after providing personal hearing.
    • Furnish all relevant material to the petitioner.
    • Allow the petitioner opportunity to respond.
    • Pass a reasoned (speaking) order.

 

Important Clarification

  • Reassessment cannot be initiated solely on third-party statements without corroborative material.
  • Personal hearing is a crucial component of natural justice under the reassessment regime.
  • CBDT circulars play a significant role in ensuring procedural fairness in reassessment proceedings.

 

Sections Involved

  • Section 148 – Income Escaping Assessment
  • Section 148A(d) – Procedure before issuing notice
  • Section 131 – Powers regarding discovery and production of evidence
  • Section 132 – Search and Seizure
  • Section 194A – TDS on Interest


Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS08052023CW58652023_182629.pdf

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