Facts of the Case

The petitioner filed its income tax return declaring an income of ₹10,80,404, which was processed under Section 143(1) of the Income Tax Act. Subsequently, a show cause notice dated 17 May 2022 under Section 148A(b) was issued alleging that the petitioner had entered into transactions worth ₹87,60,348 with one Mr. Naresh Manekchand Jain in the form of accommodation entries, leading to income escaping assessment.

The petitioner denied any such transactions and submitted supporting documents including income details and bank statements. However, the Assessing Officer passed an order dated 29 June 2022 under Section 148A(d), rejecting the petitioner’s explanation on the ground that no supporting evidence was provided to disprove the allegation.

Issues Involved

  1. Whether reassessment proceedings under Section 148A can be sustained without providing underlying material to the assessee.
  2. Whether the burden can be placed on the assessee to prove a negative fact (i.e., absence of transactions).
  3. Whether non-disclosure of relied-upon documents violates principles of natural justice.

Petitioner’s Arguments

  • The petitioner contended that no transaction was ever undertaken with the alleged entry operator.
  • It was argued that all relevant financial records, including bank statements, were submitted.
  • The petitioner emphasized that it is impossible to prove a negative fact without specific allegations or evidence.
  • The reassessment proceedings were challenged as arbitrary and lacking material particulars.

Respondent’s Arguments

  • The Revenue relied on information received through the Insight Portal indicating that the petitioner was a beneficiary of accommodation entries.
  • It was submitted that the petitioner’s name appeared in a list of beneficiaries involved in penny stock transactions during FY 2013–14.
  • The Revenue argued that the petitioner failed to provide sufficient evidence to rebut the allegations.

Court’s Findings / Order

  • The Delhi High Court observed that the Assessing Officer failed to provide any specific instance or document showing transactions between the petitioner and the alleged entry operator.
  • The Court held that requiring the petitioner to prove a negative fact is unreasonable.
  • It was emphasized that documents relied upon by the Revenue must be supplied along with the notice under Section 148A(b).
  • The Court set aside the order passed under Section 148A(d).

Directions Issued by the Court:

  • The Revenue was directed to issue a fresh supplementary notice under Section 148A(b) enclosing all relevant materials after redacting third-party information.
  • The petitioner was granted liberty to file a fresh reply along with Demat and bank account statements.
  • The Assessing Officer was directed to pass a fresh order in accordance with law.
  • The Court clarified that it had not adjudicated on the merits of the case.

Important Clarification

The judgment reinforces that non-supply of incriminating material at the stage of Section 148A(b) vitiates reassessment proceedings and violates principles of natural justice. The Court clearly held that procedural fairness is mandatory before reopening assessments

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3505-DB/MMH06092022CW119442022_190044.pdf

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