Delhi High Court Sets Aside Reassessment Order, Orders Oral Hearing in Income Tax Case

Case Name:

Deepak Modi vs. Assistant Commissioner of Income Tax Circle 46 (1) & Another

W.P.(C) 5737/2023

Key Takeaways:

1. The High Court of Delhi has set aside the reassessment order and notice issued under the Income Tax Act, 1961, in the case of W.P.(C) 5737/2023.
2. The court found that no oral hearing was granted to the petitioner before passing the impugned order, which is in violation of the CBDT guidelines and instructions.
3. The court has directed the Assessing Officer (AO) to pass a fresh order after granting an oral hearing to the petitioner and to provide a speaking order.

The petitioner has the right to submit relevant documents and address the queries raised by the AO during the oral hearing.

1. The interim order dated May 3, 2023, which stayed the reassessment proceedings, has been vacated.

Case Synopsis:

This is a court order from the High Court of Delhi in the case of W.P.(C) 5737/2023. The order was delivered on November 22, 2023, by Hon’ble Mr. Justice Rajiv Shakdher and Hon’ble Mr. Justice Girish Kathpalia. The petitioner in this case is Deepak Modi, represented by Mr. Ruchesh Sinha, Advocate. The respondents are the Assistant Commissioner of Income Tax Circle 46 (1) and another, represented by Ms. Priya Sarkar, Standing Counsel for Mr. Shlok Chandra, Senior Standing Counsel.

The court order begins by referring to a previous hearing on May 3, 2023, where the broad contours of the case were discussed. The relevant parts of the order from that hearing are summarized in the current order. The case concerns the assessment year 2019-2020 and the allegation against the petitioner is that he has acquired accommodation entries and recorded bogus transactions with an entity called New Goodwill Traders in his books of accounts. The respondents claim that as a result of these accommodation entries, income chargeable to tax amounting to Rs. 65,95,123/- has escaped assessment.

Mr. Ruchesh Sinha, counsel for the petitioner, has submitted a reply and documents to demonstrate that all relevant documents, including purchase bills, E-way bills, lorry receipts, and sales invoices, were submitted to the Assessing Officer (AO). Mr. Sinha also contends that copies of GSTR 2A/2B and the bank statement of the subject bank account were furnished, showing payments received via RTGS. He refers to CBDT guidelines and instructions dated August 22, 2022, which prescribe a procedure that the AO should have followed before initiating reassessment proceedings.

The court notes that the reassessment proceedings against the petitioner were triggered due to a search and seizure action against Star Traders Group. The respondents argue that both New Goodwill Traders and Star Traders are engaged in providing accommodation entries, and the petitioner came under scrutiny due to the search actions against these entities. Mr. Sinha raises a grievance that oral hearing was not granted to the petitioner, which could have clarified the doubts raised by the AO.

The court observes that both the guidelines and instructions issued by the CBDT require the AO to accord a personal hearing to the notice. Mr. Shlok Chandra, counsel for the respondents, accepts notice on behalf of the respondents/revenue and undertakes to return with instructions on this aspect of the matter. The court issues notice and directs that if instructions are received to resist the writ petition, a counter-affidavit should be filed at least three days before the next date of hearing. The matter is listed for May 26, 2023.

In the meanwhile, the court orders a stay on the continuation of the reassessment proceedings. The parties are instructed to act based on the digitally signed copy of the order. The court order concludes by setting aside the impugned order dated March 30, 2023, passed under Section 148A(d) (of Income Tax Act, 1961), and the consequent notice issued under Section 148 (of Income Tax Act, 1961). The AO is given liberty to pass a fresh order after granting an oral hearing to the petitioner. The AO is also directed to pass a speaking order and provide a copy to the petitioner. The writ petition is disposed of accordingly, and the interim order dated May 3, 2023, is vacated.

FAQ:

Q1: What is the case about?

A1: The case concerns the reassessment proceedings under the Income Tax Act, 1961, for the assessment year 2019-2020. The petitioner is accused of recording bogus transactions with an entity called New Goodwill Traders.

Q2: What did the High Court of Delhi decide in this case?

A2: The High Court of Delhi set aside the reassessment order and notice issued to the petitioner. The court found that no oral hearing was granted to the petitioner, which is a violation of the CBDT guidelines and instructions.

Q3: What are the instructions given to the Assessing Officer (AO)?

A3: The AO is directed to pass a fresh order after granting an oral hearing to the petitioner. The AO must also provide a speaking order and consider the relevant documents submitted by the petitioner during the hearing.

Q4: What is the significance of this court order?

A4: This court order emphasizes the importance of granting an oral hearing to the petitioner before passing a reassessment order. It ensures that the petitioner has an opportunity to address any queries or doubts raised by the AO and submit relevant documents for consideration.

1. We had heard the matter at some length on 03.05.2023 and briefly etched out the broad contours of the case. For convenience, the relevant parts of the order dated 03.05.2023 are set forth hereafter:

“2. This writ petition concerns Assessment Year (AY) 2019-2020.

3. The allegation levelled against the petitioner is, that he has acquired

accommodation entries, and thus recorded in his books of accounts, bogus

transactions with an entity going by the name New Goodwill Traders.

4. According to the respondents/revenue, as a result of the said accommodation entries, income chargeable to tax amounting to

Rs.65,95,123/- has escaped assessment.

5. Mr Ruchesh Sinha, counsel who appears for the petitioner, has drawn

our attention to the reply, and the documents submitted with the said reply,

to demonstrate that every relevant document, which included purchase

bills issued by New Goodwill Traders, E-way Bill, Lorry receipts and the

sales invoices were placed before the Assessing Officer (AO).

5.1 It is Mr Sinha’s contention, that the copies of GSTR 2A/2B were also

furnished, along with the bank statement of the subject bank account,

wherein payments have been received via RTGS.

5.2 Mr Sinha has drawn our attention to the CBDT guidelines and

instruction dated 22.08.2022 respectively. In support of his plea, that the

procedure prescribed therein had not been followed by the AO before

triggering reassessment proceedings, inter alia, our attention

is drawn to paragraph 3 of the instruction dated 22.08.2022. Based on the

provisions of paragraph 3, Mr Sinha says that the CBDT is cognizant of

the fact, that the information available on the portal would have to be

verified.

6. A perusal of the impugned order dated 30.03.2023 passed under Section

148A(d) of the Act shows, that the reassessment proceedings qua the

petitioner were, perhaps, triggered on account of a search and seizure

action being taken out against Star Traders Group.

7. It is the respondents/revenue’s stand, that both New Goodwill Traders

and Star Traders are engaged in providing accommodation entries. The

petitioner seems to have come within the scope of enquiry, on account of

the search actions taken out against the aforementioned entities.

8. We may note, that one of the grievances articulated by Mr Sinha is, that

even though oral hearing was sought by the petitioner, the same was not

granted.

8.1 It is Mr Sinha’s contention, that if a hearing was granted, perhaps

some of the doubts which the AO raised would have got clarified.

9. A perusal of both the guidelines as well as the instruction issued by the

CBDT indicates, that the AO is required to accord personal hearing to the

notice.

10. Mr Shlok Chandra, counsel who appears on behalf of respondents/revenue says, that he will return with instructions on this aspect of the matter.

11. Accordingly, issue notice.

11.1 Mr Chandra accepts notice on behalf of the respondents/revenue.

12. In case instructions are received to resist the writ petition, counteraffidavit will be filed at least three days before the next date of hearing.

13. List the matter on 26.05.2023.

14. In the meanwhile, there shall be a stay on the continuation of the

reassessment proceedings.

15. Parties will act based on the digitally signed copy of the order.”

2. As would be evident from the above extract, the following two

grievances were articulated by Mr Ruchesh Sinha, learned counsel, who

appears on behalf of the petitioner/assessee:

(i) First, there was no inquiry conducted before directing the reassessment

proceedings;

(ii) Second, had the Assessing Officer (AO) granted an oral hearing, his

queries could have been addressed.

3. Pursuant to the said order, an affidavit dated 25.05.2023 has been

filed by the respondents/revenue. The affidavit clearly states that no oral

hearing was granted to the petitioner before passing the impugned order

dated 30.03.2023 under Section 148A(d) (of Income Tax Act, 1961) [in

short, “Act”] concerning Assessment Year (AY) 2019-20.

4. Having regard to the averments made in the aforementioned affidavit

filed by the respondents/revenue, according to us, the best way forward

would be to set aside the impugned order dated 30.03.2023 passed under

Section 148A(d) (of Income Tax Act, 1961) and the consequent notice of even date i.e., 30.03.2023

issued under Section 148 (of Income Tax Act, 1961), albeit with liberty to the AO to pass a

fresh order after hearing the petitioner/assessee.

5. Accordingly, the impugned order dated 30.03.2023 and the

consequent notice of even date i.e., 30.03.2023 issued under Section 148 (of Income Tax Act, 1961) of

the Act are set aside.

5.1 Liberty is, however, given to the AO to pass a fresh order.

5.2 Before passing an order, the AO will grant an oral hearing to the

petitioner and/or his authorised representative.

5.3 Needless to add, the AO will pass a speaking order; a copy of which will be furnished to the petitioner/assessee.

6. The writ petition is disposed of, in the aforesaid terms.

7. Interim order dated 03.05.2023 shall stand vacated. CM Appl.

22472/2023 is closed.

8. Parties will act based on the digitally signed copy of the order.

RAJIV SHAKDHER, J

GIRISH KATHPALIA, J

NOVEMBER 22, 2023