AO penalised to pay Rs. 50000 to assessee for harassment during proceedings u/s 148A(d)

High Court penalised Assessing Officer to pay cost of Rs. 50000/- to assessee for unnecessary harassment during the course of re-assesment proceedings u/s 148A(d)

In a recent judgment, a division bench of the Hon’ble Jharkhand High Court directed AO to pay cost of Rs. 50000/- for unnecessary harassment to assessee for acting in a hasty manner in conducting the entire proceedings u/s 148A(d) in utter violation of the principles of natural justice and contrary to statutory provisions contained under Section 148A of the Act.

ABCAUS Case Law Citation:
4382 (2025) (01) abcaus.in HC

In the instant case the Petitioner was an assessee having a Proprietorship Firm. The assessee had challenged the action of the DCIT/ACIT [Assessing Officer or Assessing Officer (AO)] in passing order under Section 148A(d) of the Income Tax Act, 1961 (for short ‘Act’), for initiation of re-assessment proceeding against the petitioner.

The petitioner has further prayed for setting aside the Notice issued u/s 148 initiating re-assessment proceeding on the ground of escaped assessment within the meaning of Section 147 of the Act.

The petitioner was issued a show cause notice under Section 148A(b) of the Act and was show caused as to why proceeding for re-assessment under Section 148 of the Act be not initiated against the petitioner on the allegations that the Petitioner was a beneficiary of alleged bogus entries and cash withdrawal and time deposit made and was also directed to disclose the source of said fund.

In the said show cause notice, there was mention of enclosure of an Investigation Report, but said Investigation Report was not annexed along with the said notice. Accordingly, on the first date fixed, petitioner demanded a copy of the Investigation Report being relied upon. Thereafter, AO allegedly supplied Investigation Report to the petitioner, but it was the case of the petitioner that no Investigation Report was supplied, and, next date was fixed within three days.

Since on the said date, petitioner was not supplied with the Investigation Report, he again requested for supply of Investigation Report and, ultimately, AO furnished a copy of Investigation Report to the petitioner and directed to submit its reply and it was stated that no further adjournment/extension would be allowed to the petitioner. 

Since only a short time of two days was given to the petitioner to submit its reply after receipt of the Investigation Report, petitioner on the day fixed for reply demanded seven days’ time for replying to the show cause notice, but AO directed the petitioner to submit its reply by 11.30 A.M. within two days, failing which, it was indicated that appropriate order would be passed. However, in the above said last notice, a new allegation was added in show cause notice with respect to time deposit made by petitioner and it was directed to explain the same.

The Petitioner again requested for seven days’ time to file its reply considering the new allegation levelled against and, consequent thereof, a final opportunity was granted to file its reply by 11.00 A.M. within three days. The third day was ending on Saturday and next day was Sunday and Monday was a holiday on account of ‘Holi’ festival and, accordingly, on Monday, petitioner again requested through online mode for providing the petitioner sufficient time for filing reply. However, again on Monday at 8.25 P.M., the AO granted less than 24 hours’ time for filing reply and stated that reply should be filed by the petitioner latest by 4.30 P.M. on Tuesday, as a last opportunity

Thereafter, the AO proceeded to pass the impugned order under Clause (d) of Section 148A of the Act and concluded that petitioner’s case was fit for issuance of notice for initiation of re-assessment proceeding under Section 148 of the Act and it was recorded in the order that even sanction has been granted by the competent authority against the petitioner. Consequently, further notice was issued under Section 148 of the Act initiating re-assessment proceeding against assessee.

The Hon’ble High Court observed that it is well settled principles of law as laid down by Hon’ble Supreme Court that anything done in undue haste can also be termed as ‘arbitrary’ and cannot be condoned in law.

The Hon’ble High Court opined that it was clearly evident that, initially, show cause notice was issued wherein there was mention about enclosure of an Investigation Report, but said Investigation Report was not supplied to the petitioner and, as per the petitioner, said Investigation Report was supplied later. The AO, in his Counter Affidavit, admitted that, probably, on account of technical error, enclosures were not contained as attachment to the notice, but it had been stated that subsequently Investigation Report was duly sent to the petitioner through ITBA and through Departmental e-mail. Thus, even if it is accepted that Investigation Report was supplied to the petitioner, there was no denial of the fact in the Counter Affidavit that the amount mentioned in initial show cause notice pertaining to term deposit was amended and, for the first time, petitioner was put to notice that it has made term deposit and was directed to explain the source of said fund.

However, the Income Tax Department defended their action by stating, inter alia, that information with respect to time deposit was already available in 26AS and was also within the knowledge of the petitioner and, thus, it cannot be said that a new allegation has been levelled against the petitioner.

However, the Hon’ble High Court opined that subsequent notice clearly contained additional allegations related to time deposit and petitioner was directed to explain the source of fund. Thus, certainly, new facts were introduced in the show cause notice and the petitioner was put to notice for the first time in respect of aforesaid fact.

The Hon’ble High Court also observed that the AO repeatedly granted very short time for compliance and on request of the petitioner, he was further granted further time spreading to two to three days days and on one occasion there was a holiday on account of ‘Holi’ festival and, thus, effectively, petitioner was not granted even a single working day to furnish its reply and, on request made by the petitioner, the time was again extended for one day.

The Hon’ble High Court observed that the above trail clearly revealed that the AO acted in most hasty manner in conducting the entire proceedings, and, proceedings have been conducted in utter violation of the principles of natural justice and even contrary to the provisions of Section 148A of the Act, inasmuch as, Section148A(b) of the Act clearly provides, inter alia, for providing an opportunity of being heard by serving a show cause notice upon the assessee providing such time to the assessee being not less than seven days. Since new facts were introduced in the notice, at least seven days’ time should have been granted to Petitioner for replying to the same, but in a hurried manner, entire proceedings were conducted and impugned order was passed in utter violation of the principles of natural justice and contrary to statutory provisions contained under Section 148A of the Act.

Under the aforesaid circumstances, the Hon’ble High Court quashed and set aside impugned order and Notice initiating reassessment proceeding under Section 148.  However, the AO was permitted to initiate fresh proceedings strictly in terms of the provisions of Section 148 of the Act.

The Hon’ble High Court opined that in the facts and circumstances of the case, the bench was convinced that the petitioner had been subjected to unnecessary harassment and, accordingly, their lordship imposed a cost of Rs. 50,000/- to be paid by the AO to the petitioner. 

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