Facts of the Case

The present writ petition was filed challenging the order dated 23rd July 2022 passed under Section 148A(d) of the Income Tax Act, 1961 and the consequential notice dated 24th July 2022 issued under Section 148 for Assessment Year 2014–15.

The reassessment proceedings were initiated based on information available on the INSIGHT portal indicating that a search under Section 132 was conducted on 11th September 2018 in the case of certain individuals, resulting in the seizure of unaccounted cash and incriminating material. The petitioner was alleged to be a beneficiary of an accommodation entry in the form of a fictitious loan amounting to ₹63,06,250/- during the relevant financial year.

Issues Involved

  1. Whether reassessment proceedings under Sections 148 and 148A can be sustained when the allegations in the notice are vague or inconsistent.
  2. Whether the assessee is entitled to a fair opportunity of hearing when the basis of reassessment is unclear or incorrect.
  3. Whether the notice under Section 148A(b) must contain precise and specific allegations to enable effective response by the assessee.

Petitioner’s Arguments

  • The petitioner contended that he had not entered into any transaction with the alleged parties, including any loan transaction.
  • It was argued that the information relied upon by the Revenue was incorrect and the assumption of jurisdiction for reassessment was flawed.
  • The petitioner maintained that he was willing to submit an affidavit to affirm that no such transaction had taken place.

Respondent’s Arguments

  • The Revenue submitted that the case involved fictitious long-term capital gains arising from trading in shares.
  • It relied on dissemination of information notes and annexures, asserting that the petitioner was a beneficiary of such transactions.
  • The Revenue further argued that supporting material, including hyperlinks and annexures, substantiated the allegations.

Court’s Findings / Order

  • The Court observed that there was a clear inconsistency in the allegations. While the notice referred to a “fictitious loan,” the Revenue argued the case involved “fictitious long-term capital gain.”
  • It held that the notice under Section 148A(b) must be precise and unambiguous, enabling the assessee to effectively respond.
  • The Court emphasized that vague or incorrect allegations would deprive the assessee of a fair opportunity and render the statutory provision ineffective.
  • On the Revenue’s request and with consent of the petitioner, the Court set aside:
    • Order dated 23rd July 2022 under Section 148A(d)
    • Notice dated 24th July 2022 under Section 148
  • The matter was remanded back to the Assessing Officer for fresh consideration.
  • The petitioner was granted liberty to file a response within three weeks, and the Assessing Officer was directed to pass a fresh order thereafter.
  • The Court clarified that it had not expressed any opinion on the merits of the case.

Important Clarification

The Court clarified that:

  • The defect in the notice could be corrected only by issuing a clear and proper notice.
  • The rights and contentions of both parties were kept open.
  • Procedural fairness and clarity in reassessment proceedings are mandatory.

Sections Involved

  • Section 148 – Income escaping assessment
  • Section 148A – Procedure for issuance of notice
  • Section 148A(b) – Show cause notice
  • Section 148A(d) – Order for reassessment
  • Section 132 – Search and seizure

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:2979-DB/MMH05082022CW114822022_160255.pdf

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