R.K. Buildcreations Private Limited vs The Income Tax Officer
2024 Latest Caselaw 968 Raj/2

Rajasthan High Court

R.K. Buildcreations Private Limited vs The Income Tax Officer on 8 February, 2024

Author: Shubha Mehta

Bench: Shubha Mehta

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        HIGH COURT OF JUDICATURE FOR RAJASTHAN
                    BENCH AT JAIPUR

                D.B. Civil Writ Petition No. 14414/2022

R.k. Buildcreations Private Limited, 903, 9Th Fllor Aaradhana
Residency, G1, Manglam City, Kalwar Road, Hatoj, Jaipur,
Rajasthan 302034 Through Its Authorized Representative Mr.
Omprakash Kanaiyalal Jain S/o Mr. Kanaiyalal Shrimal, Aged
About 50 Years, R/o 115, Shrimal Bhavan, Sabji Mandi,
Bijainagar, Ajmer Rajasthan. 305624
                                                                       ----Petitioner
                                       Versus
The    Income     Tax     Officer,      Ward       1(2),     Jaipur,   Income    Tax
Department, New Central Revenue Building, Bahgwan Dass
Road, Jaipur 302005
                                                                    ----Respondent

For Petitioner(s) : Mr. Prakul Khurana, Adv. with Ms. Vrinda Lakhotia, Adv. Mr. Aryan Singh Chouhan, Adv. & Mr. Nilinesh Sen, Adv.

For Respondent(s) : Mr. Anuroop Singhi, Adv. with Mr. N.S. Bhati, Adv. & Mr. Aditya Khandelwal, Adv.

Coram: HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MRS. JUSTICE SHUBHA MEHTA

Judgment

Reportable Reserved on : 01/02/2024 Pronounced on :- 08/02/2024 Avneesh Jhingan, J

1. This writ petition is filed seeking quashing of order dated

26.07.2022 passed under Section 148A(d) of the Income Tax Act,

1961 (for short the 'Act'). Further prayer is for quashing of notice

dated 30.06.2021 issued under Section 148 of the Act.

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Facts

2. The petitioner is a Private Limited Company. For the

Assessment year (for brevity AY) 2015-16, income tax return was

filed on 04.11.2015 declaring NIL income. On 30.06.2021, notice

under Section 148 of the Act was issued stating that there were

reasons to believe that income chargeable to tax for AY 2015-

2016 had escaped assessment. After the decision of the Supreme

Court dated 04.05.2022 in the case of Union of India Vs. Ashish

Agarwal (2022) 444 ITR 01 (SC), notice under Section

148A(b) of the Act was issued on 30.05.2022. The petitioner

responded on 11.06.2022, demanded the details and the

documents. Additional objections were filed on 14.06.2022. The

information reproducing the worksheet mentioning the name of

petitioner and other entities who had provided loan to M/S Om

Sokhal Builders and Construction Private Limited was supplied on

27.06.2022. After rejection of objections on 26.07.2022, letter for

issuance of a DIN No. to the notice under Section 148 of the Act

was issued. Hence, the writ petition.

3. During the pendency of the petition, order under Section 147

read with Section 144(B) of the Act was passed on 25.05.2023.

The petitioner preferred an appeal, but on 15.11.2023 filed an

application for withdrawal of the appeal stating that it was filed

under wrong impression that the writ petition challenging the

reassessment proceedings was rendered infructuous.

Arguments of the Petitioner

4. Learned counsel for the petitioner argues that allegedly

income of Rs.30,00,000/- escaped assessment, the reassessment

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proceedings are time barred, having being initiated

beyond three years. The contention is that the adverse material

was not provided along with the notice and the information relied

upon does not relate to the petitioner. The notice is not as per the

Section 151A and the scheme framed thereunder. The grievance is

that the objections raised were not specifically dealt.

Contentions of the respondent

5. Learned counsel for the respondent argues that the

petitioner has alternative remedy and filed appeal against the re-

assessment order, the petition is liable to be dismissed. A reliance

is placed on the decision of Division Bench of this Court in cases of

Bhag Chand Jangid Vs. Principal Chief Commissoner of

Income Tax and Ors. (DBCWP No.5819/2023) decided on

17.04.2023 and Ram Kishore Kadel Vs. Assistant

Commissioner of Income Tax and Ors. (DBCWP No.

8947/2023) decided on 22.11.2023.

The impugned order is defended by arguing:-

(i) as per the information with the department income of

Rs. 2,80,00,000/- had escaped assessment and the proceedings

were within the limitation.

(ii) the petitioner was provided the information and the annexure

'A-1' was also annexed to the notice.

(iii) at the stage of initiation of reassessment the provisions of

Section 151A of the Act shall not apply.

(iv) during the survey conducted of M/S Om Sokhal Builders and

Construction Private Limited, materials relating to the petitioner

was seized and lastly;

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(v) the objections filed by the petitioner were considered and if

still aggrieved can raise the issue in appeal.

Provisions & Guidelines

Section 148A

"[Conducting inquiry, providing opportunity before issue of

notice under section 148.

148A. The Assessing Officer shall, before issuing any notice under

section 148:-

(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee,[***], by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);

(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:

Provided that the provisions of this section shall not apply in a case where,-

(a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of

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the assessee on or after the 1st day of April, 2021;

or

(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee; or

(d) the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.]

Explanation.--For the purposes of this section, specified authority means the specified authority referred to in section 151.] [Prior approval for assessment, reassessment or recomputation in certain cases."

Relevant clauses of guidelines dated 01/08/2022 for issuance of notice u/s 148 of the Act.

xxxxxxxxxxxxxxxxxxxxxx

"iv. The "specified authority" for the seeking approval for conducting enquiry u/s 148A(a), passing order u/s 148A(d) and issuance of notice u/s 148 shall be:

Specified Authority for Time limit sanction for issue of notice (Calculated from the end of u/s 148, 148A(a) and the relevant AY) 148A(d) PCIT or PDIT or CIT or DIT Upto 3 years

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(ref. Section 151(i)

-PCCIT or PDGIT or- More than 3 years but upto 10 where there is no PCCIT or years PDGIT then approval from CCIT or DGIT (ref. Section 151(ii))

v. Explanation 2 to section 148 of the Act provides that if a survey u/s 133A of the Act (other than under section 133A (2A)) was conducted in the case of the assessee on or after 1 April, 2021, the Assessing officer shall be deemed to have information which suggests that income chargeable to tax has escaped assessment. However, it is to clarify that the due procedure as prescribed u/s 148A needs to be followed in such cases also before issuing a notice u/s 148 of the Act. (refer proviso to section 148A).

vi. The AO shall, if required, undertake enquiries on any "information" received/available with him which suggests that the income chargeable to tax has escaped assessment in a previous year only with the prior approval of "specified authority".

vii. If the result of enquiry/information available suggests that the income chargeable to tax has escaped assessment, the AO shall provide an opportunity of being heard to the assessee by issuing a show cause notice u/s 148A(b) of the Act. The said notice shall provide between 7 to 30 days' time to the assessee for submitting the reply. A template of show cause notice is enclosed at Annexure-A1

viii. If an assessee requests for a personal hearing, the same may be dealt with following the principle of natural Justice by giving a reasonable period for compliance of notice specifying the date of hearing.

ix. As per 3rd proviso to section 149, for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded.

x. Further as per 4th proviso to Section 149, where immediately after exclusion of the period referred to in the immediately preceding proviso (i.e. 3rd proviso), the period of limitation available to the Assessing Officer for passing an order under clause

(d) of Section 148A is less than seven days, such

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remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly.

xi. The AO has to consider the reply of assessee furnished, if any, in response to the show cause notice referred to in clause(b) of Section 148A before passing the order u/s 148A(d).

xii. The AO shall mandatorily pass a speaking order u/s 148A(d) in all cases with the 'prior approval of the specified authority' (Annexure-A2) for such order u/s. 148A(d), expect in the cases covered in Para 2.1

(iii) above of these guidelines, irrespective of whether issuance of notice u/s 148 is being recommended or not. A template of such order u/s. 148A(d) is enclosed at Annexure-A3.

xiii. Once an order under clause(d) of Section 148A has been passed, no further approval is required for issuance of notice u/s 148 by the AO, with effect from 1.4.2022.* (* except for cases in which procedure under Section 148A is being applied for implementation of the Hon'ble Supreme Court's judgment in the case of UOI Vs. Ashish Agarwal (2022 SCC Online SC 543) dated 4.5.2022 for which specific instruction dated 11.5.2022 has been issued")

Annexure-A1 is reproduced hereinbelow:-

" GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE --------------

(Designation of AO along with Office address)

To,

PAN: A.Y: Dated: DIN* & NoticeNo.

Notice under clause (b) of Section 148A of the Income-tax Act, 1961

Sir/Madam/M/s

1. Whereas I have information which suggests that income chargeable to tax for the Assessment Year __________ has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. The details of the information/enquiry conducted on

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which reliance is being placed, along with supporting documents, are enclosed with this notice.

2. You are required to show-cause as to why, in view of the details contained in enclosures mentioned in point number 1 above, a notice under Section 148 of the Income Tax Act, 1961 should not be issued.

3. You may submit your reply to this notice, along with supporting documents (if any) on the above mentioned issues on or before _______ electronically at www.incometax.gov.in.

Guidelines for Enclosures

• The AO should enclose copy of all the relevant 'information' available on which reliance is being placed, along with supporting documents (if any). • In the cases where information is received from the investigation wing or any other law enforcement agency, details of letter, brief summary of information along with relevant portion of such report and details of relied upon documents may be enclosed. Such a portion as does not bear reference to the assessee concerned may be appropriately redacted. • Details of enquiry conducted, if any, may be shared if reliance is being placed by the AO on it. • Judicial order (i.e., case laws) on which reliance is being placed, if any.

• Refer Explanation 1 and Explanation 2 of Section 148 for what constitutes "information"."

Case Law

6. The Supreme Court in the case of Union of India Vs.

Ashish Agarwal (2022 SCC OnLine SC 543) (supra) took note

of the changes brought by Finance Act, 2021. The relevant part is

quoted below:-

"6. It cannot be disputed that by substitution of sections 147 to 151 of the Income Tax Act (IT Act) by the Finance Act, 2021, radical and reformative changes are made governing the procedure for reassessment proceedings.

Amended sections 147 to 149 and section 151 of the IT Act prescribe the procedure governing initiation of reassessment proceedings. However, for several reasons, the same gave rise to numerous litigations and the reopening were challenged inter alia, on the grounds such as (1) no valid "reason to believe" (2) no tangible/reliable material/information in

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possession of the assessing officer leading to formation of belief that income has escaped assessment, (3) no enquiry being conducted by the assessing officer prior to the issuance of notice; and reopening is based on change of opinion of the assessing officer and (4) lastly the mandatory procedure laid down by this Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and ors; (2003) 1 SCC 72, has not been followed.

6.1 Further preFinance Act, 2021, the reopening was permissible for a maximum period up to six years and in some cases beyond even six years leading to uncertainty for a considerable time. Therefore, Parliament thought it fit to amend the Income Tax Act to simplify the tax administration, ease compliances and reduce litigation. Therefore, with a view to achieve the said object, by the Finance Act, 2021, sections 147 to 149 and section 151 have been substituted.

6.2 Under the substituted provisions of the IT Act vide Finance Act, 2021, no notice under section 148 of the IT Act can be issued without following the procedure prescribed under section 148A of the IT Act. Along with the notice under section 148 of the IT Act, the assessing officer (AO) is required to serve the order passed under section 148A of the IT Act. section 148A of the IT Act is a new provision which is in the nature of a condition precedent. Introduction of section 148A of the IT Act can thus be said to be a game changer with an aim to achieve the ultimate object of simplifying the tax administration, ease compliance and reduce litigation.

6.3 But prior to preFinance Act, 2021, while reopening an assessment, the procedure of giving the reasons for reopening and an opportunity to the assessee and the decision of the objectives were required to be followed as per the judgment of this Court in the case of GKN Driveshafts (India) Ltd. (supra). 6.4 However, by way of section 148A, the procedure has now been streamlined and simplified. It provides that before issuing any notice under section 148, the assessing officer shall (i) conduct any enquiry, if required, with the approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment; (ii) provide an opportunity of being heard to the assessee, with the prior

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approval of specified authority; (iii) consider the reply of the assessee furnished, if any, in response to the showcause notice referred to in clause (b); and (iv) decide, on the basis of material available on record including reply of the assessee, as to whether or not it is a fit case to issue a notice under section 148 of the IT Act and (v) the AO is required to pass a specific order within the time stipulated. 6.5 Therefore, all safeguards are provided before notice under section 148 of the IT Act is issued. At every stage, the prior approval of the specified authority is required, even for conducting the enquiry as per section 148A(a). Only in a case where, the assessing officer is of the opinion that before any notice is issued under section 148A(b) and an opportunity is to be given to the assessee, there is a requirement of conducting any enquiry, the assessing officer may do so and conduct any enquiry. Thus if the assessing officer is of the opinion that any enquiry is required, the assessing officer can do so, however, with the prior approval of the specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment.

6.6 Substituted section 149 is the provision governing the time limit for issuance of notice under section 148 of the IT Act. The substituted section 149 of the IT Act has reduced the permissible time limit for issuance of such a notice to three years and only in exceptional cases ten years. It also provides further additional safeguards which were absent under the earlier regime preFinance Act, 2021." Issue

7. Whether the procedure prescribed under Section

148A of the Act has been followed in the present case. In

other words, the A.O. while passing the impugned order

has considered the material on record, the replies filed and

passed a speaking order.

Reasons & Conclusions

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8. Before the amendment, the Supreme Court in the

case of Gkn Driveshafts (India) Ltd vs Income Tax

Officer and Ors 259 ITR 19 held that on issuance of

notice under Section 148 of the Act, the assessee is to file

return and if desired can seek reasons for issuing notices.

The Assessing Authority has to furnish the reasons

entitling assessee to file objections, to be decided by

passing a speaking order.

9. By Finance Act, 2021, Sections 147 to 151 of the Act were

substituted. Section 148A of the Act was inserted streamlining the

procedure for initiation of proceedings under Section 148 of the

Act.

10. The Central Board of Direct Taxes (for short 'CBDT') after

the decision in Union of India Vs. Ashish Agarwal (supra) on

01/08/2022 issued guidelines for issuance of notice under Section

148 of the Act.

11. From the language of Section 148A of the Act and the

guidelines, it is clear that before initiating the proceedings under

Section 148 of the Act, with prior approval of the specified

authority, the A.O. if so, required may conduct an enquiry with

regard to the information suggesting escaped assessment. The

assessee is to be provided an opportunity of hearing by issuing

notice specifying the date of not less than 7 days but not

exceeding 30 days, which may be extended on application. The

information relied upon for reassessment and outcome of enquiry

if conducted any, is to be supplied. In case of information having

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been received from investigating wing or other agency, brief

summary of information along with relevant portion of report and

details of documents relied upon is to be supplied. The decision as

to if it is a fit case for issuance of notice under Section 148 is to be

taken with prior approval of the specified authority, on the basis of

material available on record and considering the reply filed by the

assessee. The order is to be passed within one month from

ending of the month when reply was filed and in case no reply was

filed within one month from end of month when time to file reply

expires.

12. The proviso to Section 148A of the Act provides exception to

the applicability of Section 148A of the Act.

13. In the survey conducted of M/S Om Sokhal Builders and

Construction Private Limited prior to 1st April, 2021, the

documents were seized indicating that petitioner had advanced

cash loan of Rs. 2,50,00,000/- and interest of Rs. 30,00,000/- was

received by petitioner during the AY 2015-2016. The statement of

Shri Ram Gopal Sukhal was also to this effect. On issuance of

notice, the petitioner filed replies dated 11.06.2022 and

14.06.2022 demanding copy of the material relied upon and

raising objections. The copy of the information was supplied on

27.06.2022 and thereafter, objections were rejected on

26.07.2022.

14. In the impugned order the reply dated 11.06.2022 was

reproduced and it was concluded that the petitioner had not made

argument on merits of the case hence, had nothing to explain

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about the cash loan and the interest received. It is mandatory for

A.O. to pass speaking order, taking into consideration not only the

material on record but also the reply filed. The additional reply

dated 14.06.2022 was not considered, consequently there was no

occasion to deal with the objections raised therein. The impugned

order is not as per the procedure prescribed under Section 148A

of the Act and cannot stand judicial scrutiny.

15. The impugned order passed under Section 148A(d) is

unsustainable, therefore, the other contention raised by the

counsel for the petitioner needs no dilation.

16. Before parting in all fairness, the contention raised by the

counsel for the respondent on alternative remedy needs to be

considered. There cannot be quibble with the proposition that if an

Act mandates, a particular thing to be done in the manner, it has

to be done in that way. The provisions of Section 148A of the Act

and the guidelines issued by the CBDT provides for passing a

speaking order after considering the reply and the material on

record. The impugned order is not in consonance with the

procedure prescribed and issue goes to the root of the jurisdiction

for initiating the proceedings under Section 148 of the Act. The

case falls within the exception to the self-imposed restriction of

not entertaining the writ where alternative remedy is available.

Reference be made to Whirlpool Corporation Vs. Registrar of

Trade Marks, (1998) SCC 1 wherein the Supreme Court

provided at least three contingencies where the writ petition can

be entertained in spite of alternative remedy.

(i) Where it is a case of enforcement of fundamental rights,

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(ii) Where it is the case of violation of principle of natural justice

and lastly,

(iii) Where the proceedings are without jurisdiction or vires are

challenged.

17. The reliance placed by the counsel for the respondent on the

decisions of Bhagchand Dinga and Ram Kishore Kadal (supra)

is of no avail. The writ petitions were filed in those cases after

passing of the reassessment order or just a day before when it

was passed and the petitioner participated in proceedings. In the

present case, the challenge to the initiation of proceedings was

subjudice before this Court and during the pendency, the order

under Section 147 of the Act was passed.

18. In view of the above discussion, the impugned order dated

26.07.2022 is quashed, resultantly, the consequential

proceedings. The matter is remitted back to respondent to

proceed with notice under Section 148-A(b) in accordance with

law.

19. The writ petition is allowed.

(SHUBHA MEHTA),J (AVNEESH JHINGAN),J

Sandeep/Chandan-1

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