Assessing Officer's Order Set Aside Due to Variance in Allegations and Lack of Opportunity for Assessee.

Assessing Officer’s Order Set Aside Due to Variance in Allegations and Lack of Opportunity for Assessee.

Issue:

Whether a notice and order issued under sections 148A(b) and 148A(d) of the Income-tax Act, 1961, are valid when the allegations in the order differ from those in the notice, and the assessee is denied an effective opportunity to explain discrepancies.

Facts:

The Assessing Officer (AO) issued a notice under section 148A(b) of the Income-tax Act, 1961, stating that information suggested the assessee’s income had escaped assessment.
Subsequently, the AO passed an order under section 148A(d), declaring the amount received by the assessee as unexplained income under section 69C.
The assessee challenged both the notice and the order, arguing that the allegations in the order differed from those in the notice.
The assessee claimed that the income alleged to have escaped assessment, was a part of the income disclosed in their books of account, and was subject to assessment.
The AO did not consider the assessee’s claim.

Decision:

The court held that the notice and order were invalid. The variance between the allegations in the notice and the order denied the assessee an effective opportunity to explain that their income had not escaped assessment. Additionally, the AO’s failure to consider the assessee’s claim regarding the income’s inclusion in their books of account warranted setting aside the notice and order.

Key Takeaways:

Consistency between the notice and the order is crucial in assessment proceedings under the Income-tax Act.
Assessees must be provided with a fair and effective opportunity to respond to allegations of escaped assessment.
Assessing officers must consider all relevant claims and evidence presented by the assessee.
When there is a variance between the notice and the order, the assessee has not been given a proper chance to defend themselves.

HIGH COURT OF DELHI

Jindal Saw Ltd.

Deputy/Assistant Commissioner of Income-tax

Vibhu Bakhru, ACJ.
and TUSHAR RAO GEDELA, J.

W.P.(C) 17851 of 2024
CM APPL. 75944-75945 of 2024

DECEMBER 23, 2024

Ms. Shreya Jain and Gaurav Tanwar, Advs. for the Petitioner. Siddhartha Singh, SSC for the Respondent.

ORDER

Vibhu Bakhru, ACJ.- Issue notice. The learned counsel for the Revenue accepts notice.

2. The petitioner has filed the present petition, inter alia, impugning a notice dated 05.08.2024 (hereafter the impugned notice) issued under Section 148A(b) of the Income Tax Act, 1961 (hereafter the Act); an order dated 31.08.2024 (hereafter the impugned order) issued under Section 148A(d) of the Act; and a notice dated 31.08.2024 issued under Section 148 of the Act in respect of the assessment year (AY) 2018-19.

3. The assessing officer (AO) had issued the impugned notice under Section 148A(b) of the Act, inter alia, setting out the information, which was suggestive that the petitioner’s income has escaped assessment for AY 2018-19.

4. Paragraph no.6 of the impugned notice, whereby it was alleged that the petitioner had reflected an expenditure of ?79,17,086/- that remained unexplained, is set out below: –

“6. Since no submission/explanation has been offered by Shri Mukesh Pitti regarding any transaction undertaken by him, therefore, the amounts received by him as evident from 26AS and Aggregated GST Transactions report are bogus and the amounts paid by the assessee i.e. M/s Jindal Saw Ltd. (PAN:AABCS7280C) of Rs.79,17,086/-, which is in the form of expenditure, during the year under consideration be disallowed in its books of accounts accordingly. Therefore, amount paid by the assessee of Rs.79,17,086/-, which is in the form of expenditure, has remained unexplained and has escaped assessment for AY 2018-19.”

5. The petitioner responded to the said notice and stated that it had not made any payment of ?79,17,086/-. The petitioner explained that it had, in fact, received the amount as income on which the tax has been collected at source. It is also the petitioner’s case that the said income was duly reflected in its books of account and was subject matter of the assessment for AY 2018-19.

6. The AO passed the impugned order under Section 148A(d) of the Act holding that the amount received by the petitioner to the extent of Rs. 79,17,086/- was unexplained income. The AO had held that the petitioner had sold scrap to one Mukesh Pitti and received a sum of Rs. 79,17,086/-, which was unexplained.

7. It is the petitioner’s case that the impugned order is unsustainable as it is at variance with the allegations that were made in the impugned notice issued under Section 148A(b) of the Act.

8. The learned counsel appearing for the Revenue is unable to counter the aforesaid submission.

9. We find merit in the contention that the allegations made in the impugned order under Section 148A(d) of the Act is at variance with that as was set out in the impugned notice issued under Section 148A(b) of the Act.

10. The very purpose of issuing a notice is to enable the assessee to explain the information available with the AO and to establish that the said information does not indicate that the petitioner’s income has escaped the assessment.

11. Since, the allegations made in the impugned notice issued under Section 148A(b) of the Act is at variance with the grounds raised in the impugned order passed under Section 148A(d) of the Act, the petitioner did not have any effective opportunity to further explain that the said information did not indicate that its income had escaped assessment.

12. We also find that the AO has not considered the petitioner’s claim that its income that is alleged to have escaped assessment, is a part of the income as was disclosed in its books of account and was also subject matter of the assessment.

13. In view of the above, we consider it apposite to set aside the impugned notice as well as the impugned order. It is so directed.

14. We, however, clarify that this order will not preclude the AO from issuing any fresh notice under Section 148A(b) of the Act, if the AO is of the view that the information is suggestive of the petitioner’s income escaping assessment, if otherwise, permissible in law.

15. The petition is disposed of in the aforesaid terms. Pending applications also stand disposed of.