Facts of the Case

The present writ petition was filed by the petitioner challenging the order passed under Section 148A(d) and the consequential notice issued under Section 148 of the Income Tax Act, 1961, both dated 5th April 2022.

The petitioner contended that it had duly filed a reply dated 4th April 2022 along with supporting documents through the Income Tax portal. However, the Assessing Officer proceeded to pass the impugned order by recording that no reply had been received from the assessee.

Further, the show cause notice was issued for the purpose of verification of certain high-value transactions, specifically relating to foreign outward remittance on which tax was allegedly not deducted at source.

Issues Involved

  1. Whether the Assessing Officer violated Section 148A(c) of the Income Tax Act by not considering the reply submitted by the assessee before passing the order under Section 148A(d).
  2. Whether reassessment proceedings can be initiated merely for verification purposes.
  3. Whether non-consideration of the assessee’s reply amounts to violation of principles of natural justice.

Petitioner’s Arguments

  • The petitioner argued that the impugned order was passed in complete violation of the principles of natural justice.
  • It was submitted that the reply dated 4th April 2022 was duly filed on the e-filing portal, and acknowledgment of the same was available.
  • The Assessing Officer wrongly recorded that no reply had been received, leading to an adverse inference.
  • It was further contended that the show cause notice was issued merely for verification purposes, which is not permissible under the statutory scheme.

Respondent’s Arguments

  • The Revenue contended that no reply was visible on the ITBA system at the relevant time due to technical issues.
  • It was argued that Section 148A permits enquiry, and therefore, issuance of notice for verification of transactions is valid.
  • The Revenue also stated that technical glitches in the online system may have resulted in non-visibility of the petitioner’s reply.

Court’s Findings / Order

  • The Court held that even if reassessment was for verification, the Assessing Officer was required to conduct proper enquiry under Section 148A(a).
  • The Court observed that the petitioner had indeed filed its reply on 4th April 2022, which was prior to the passing of the order dated 5th April 2022.
  • It was held that Section 148A(c) uses the expression “shall”, making it mandatory for the Assessing Officer to consider the reply before passing an order.
  • Non-consideration of the reply amounted to violation of statutory mandate as well as principles of natural justice.
  • The Court relied on Fena Pvt. Ltd. vs ACIT Circle 7-1 & Anr. where similar action was quashed.
  • The impugned order under Section 148A(d) and notice under Section 148 were quashed and set aside.
  • The matter was remanded back to the Assessing Officer to pass a fresh reasoned order after considering the petitioner’s reply within eight weeks.

Important Clarification

  • The judgment clarifies that:
    • Consideration of the assessee’s reply under Section 148A(c) is mandatory, not discretionary.
    • Technical glitches cannot justify violation of statutory provisions.
    • Reassessment proceedings cannot bypass procedural safeguards even for verification purposes.

Sections Involved

  • Section 148 – Income escaping assessment
  • Section 148A(a), (b), (c), (d) – Procedure before issuance of notice
  • Principles of Natural Justice

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1948-DB/MMH18052022CW74152022_175438.pdf

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