Reopening quashed as AO failed to provide all information and relied upon material available alongwith notice u/s 148A(b) of the Income Tax Act, 1961 (the Act).
In a recent judgment, ITAT Delhi quashed notice under section 148 as Assessing Officer failed to comply with the direction given by the Hon’ble Supreme Court in the case of Rajiv Bansal and also the assessee Ashish Agarwal wherein it is held that AO should provide all the information and relied upon material available with him to the assessee alongwith notice u/s 148A(b) of the Act.
ABCAUS Case Law Citation:
4499 (2025) (04) abcaus.in ITAT
In the instant case, the Revenue had challenged the order passed by the CIT(A) in restricting the addition made by the Assessing Officer (AO) towards bogus purchases.
The assessee was engaged in the business of trading and also acting as commission agent for agricultural produce. His return of income was processed u/s 143(1) of the Act.
Subsequently, the AO based on the information that assessee had received accommodation entries in the shape of bogus purchases from one person and other entities controlled and managed by him, initiated the proceedings by way of issue of notice u/s 148A(b) of the Act. Thereafter, order u/s 148A(d) was passed holding that income had escaped assessment, and, subsequently, notice u/s 148 was issued after prior approval of PCIT.
In response, the assessee filed the return of income declaring the same income as was declared in the return filed u/s 139(1) of the Act. The reassessment order was passed wherein the AO has made addition being the gross value of purchases made from three entities alleged as bogus being made from the entities control and managed by the said person.
Against such order, the assessee preferred appeal before ld. CIT(A), who vide impugned order dismissed the legal ground taken by the assessee regarding reopening u/s 148, however, reduced the addition by applying G.P rate on such alleged purchased alleged as bogus.
In cross objection, the assessee challenged the validity of reopening u/s 148 of the Act based on the proceedings completed as provided u/s 148A of the Act. It was submitted that while assuming jurisdiction u/s 148 of the Act, the notice issued u/s 148A(b) was totally vague and non-speaking and without containing specific information of the alleged transactions.
It was argued that that the AO in the annexure to the notice issued u/s 148 had referred certain information received through insight portal of the Department, according to which the assessee had made bogus purchase provided by one person and entities controlled by him. However, no specific information whatsoever such as the statement of the said person, name and address of the entities with whom transactions were made, date of transactions etc. were supplied to the assessee. The assessee in response to the said notice had filed detailed reply through email wherein it was requested to supply the relied upon material gathered as referred in the notice u/s 148A(b), however, the AO without taking cognizance of such reply, passed the order u/s 148A(d) on the very same, wherein he had observed that no response was received from the assessee against the opportunity provided u/s 148A(b) of the Act.
The assessee further submitted that the Hon’ble Supreme Court in the case of Rajiv Bansal (reported in abacus 4270 (2024) (10) SC) has held that under Section 148A(b), the assessing officer has to comply with two requirements: (i) issuance of a show cause notice; and (ii) supply of all the relevant information which forms the basis of the show cause notice. The supply of the relevant material and information allows the assessee to respond to the show cause notice.
The assessee also placed reliance on the decision of Hon’ble Jurisdictional High Court wherein it is consistently held that not providing relied upon the material is fatal to reopening.
It was thus submitted that when the assessee was not provided with complete relied upon material, the same would rendered the purposes and sprit behind section 148A(b) of the Act totally illusive and ephemeral and it is impossible for assessee to reply u/s 148A(c) in absence of such relied upon material.
The Tribunal observed that the assessee since inception of the proceedings asked the AO for supply of the material relied upon for initiating proceedings u/s 148A of the Act. The Hon’ble Supreme Court in the case of Ashish Agarwal had held that material relied upon for initiating the proceedings u/s 148A should be supplied to the assessee so as to enable him to file the necessary reply.
The Tribunal observed that from the perusal of the provisions of section 148A, it is clearly provided in sub-section (a) that before issue of notice u/s 148, AO should conduct enquiry with the prior to approval of the specified authority with respect to information suggest the income chargeable has escaped assessment. However, no material whatsoever was supplied nor the results of the enquiries, if any, conducted were confronted to the assessee and it was merely stated that based on the information received through insight portal it was found that assessee was having accommodation entry in the shape of bogus purchases.
The Tribunal further noted that perusal of the order passed u/s 148A(d) showed that the AO in the order observed that the information was self-sufficient and it was considered that further enquiries u/s 148A(a) of the Act were not required. However, when as per the information provided to assessee along with notice under section 148A(a) such information did not speak about the real transactions.
The Tribunal observed that nowhere it was stated as to how department was having such information, who was the entry provider person, what was the nexus between assessee and said person, which were the entities managed and controlled by him and which of such entities had sold good to assessee alleged as accommodation entry. Further the details of purchases made, date of transactions, item, value of each individual transaction of purchases etc. were never brought on record as provided in subsection (a) to section 148A of the Act. Further, AO had never provided the statements of such person and the other relied upon material based on which of transactions were alleged as accommodation entry of purchases alongwith the notice u/s 148A(b) of the Act.
The Tribunal opined that the action of AO was highly arbitrary as he failed to appreciate the intent of the legislation behind introduction of provisions of section148A before issue of notice u/s 148 of the Act. The AO not only proceeded to issue notice u/s 148A(a) without making verification of the vague and insufficient information available with him to satisfy himself that income chargeable to tax has escaped assessment but at the same time also failed to provide the material relied upon to the assessee along with notice u/s 148A(b) of the Act. The Hon’ble Supreme Court in the case of Ashish Agarwal had held that AO should supply the relied upon material to the assessee so as to enable him to respond the show cause notice issued by AO. The CIT(A) while dismissing this plea of the assessee had observed that department was in possession of the material which also include the statement of the said entry provider. However, at no stage of proceedings u/s 148A of the Act, such statements were supplied to the assessee for rebuttal.
The Tribunal held that the Assessing Officer failed to comply with the direction given by the Hon’ble Supreme Court in the case of Rajiv Bansal and also Ashish Agarwal wherein it was held that AO should provide all the information and relied upon material available with him to the assessee alongwith notice u/s 148A(b) of the Act. Nor the reply of the assessee was considered before passing order u/s 148A(a) of the Act.
Accordingly, the Tribunal held that notice u/s 148 was bad in law and thus, the entire reassessment proceedings held was invalid and quashed.
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