Facts of the Case

The petitioner, Catchy Prop-Build Private Limited, filed a writ petition challenging:

  • Show cause notice dated 16.03.2022 issued under Section 148A(b) of the Income Tax Act, 1961
  • Order passed under Section 148A(d)
  • Reassessment notice under Section 148

All pertaining to Assessment Year 2018–19.

The reassessment proceedings were initiated based on transactions involving purchase and sale of shares. The petitioner contended that:

  • The transactions were duly recorded in the books of accounts
  • The same were disclosed in the return of income
  • Share valuation was conducted as per Rule 11U and 11UA of Income Tax Rules, 1962 by a qualified Chartered Accountant

Issues Involved

  1. Whether a notice under Section 148A(b) is valid if it does not contain specific allegations of income escaping assessment
  2. Whether the Assessing Officer can introduce new grounds in the order under Section 148A(d) which were not part of the show cause notice
  3. Whether a vague notice violates principles of natural justice

Petitioner’s Arguments

  • The show cause notice was vague and lacked any allegation of escapement of income
  • The notice merely referred to transactions without establishing any wrongdoing
  • The petitioner had already disclosed all relevant transactions in its return
  • The order under Section 148A(d) was passed on a completely new ground (financial unsoundness of investor company), which was never mentioned in the notice
  • This denied the petitioner a proper opportunity of being heard, violating natural justice

Respondent’s Arguments

  • The Revenue admitted that the notice under Section 148A(b) was vague
  • Sought permission to issue a supplementary notice
  • Relied on the judgment in:
    Mahashian Di Hatti Pvt. Limited vs Deputy Commissioner of Income Tax (2022)

Court’s Findings / Order

The Delhi High Court held:

  • The notice under Section 148A(b) did not contain any foundational allegation regarding unexplained income
  • The petitioner was never asked to explain the source of funds used in the transaction
  • A supplementary notice cannot cure a fundamentally defective notice
  • Distinguished the case of Mahashian Di Hatti Pvt. Ltd., where foundational allegations were present

Final Order:

  • The writ petition was allowed
  • The following were quashed:
    • Notice under Section 148A(b)
    • Order under Section 148A(d)
    • Notice under Section 148
  • However, liberty was granted to the Revenue to take fresh action in accordance with law

Important Clarification

  • A valid notice under Section 148A(b) must contain specific and clear allegations
  • Absence of foundational facts makes the entire reassessment proceeding invalid
  • Authorities cannot improve or supplement a defective notice at a later stage

Sections Involved

  • Section 148A(b), Income Tax Act, 1961
  • Section 148A(d), Income Tax Act, 1961
  • Section 148, Income Tax Act, 1961
  • Rule 11U & Rule 11UA, Income Tax Rules, 1962

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/MMH17102022CW137342022_184822.pdf

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