Allowed¶46

Narayan Kumar v. The Principal Chief Commissioner of Income Tax

Patna HC16 Apr 2024CWJC/9206/2023

Case brief

AI extract

What is this about?

Patna HC CWJC No.9206 of 2023, decided 16-04-2024 (K. Vinod Chandran, CJ; Harish Kumar, J). Keywords: Income Tax Act 1961; Section 148; Section 148-A(d); Section 142(1); Sections 147-151 substituted by Finance Act 2021; Union of India & Ors. v. Ashish Agarwal (2023) 1 SCC 617; bogus purchases; M/s Aryan Trading Company; Rs. 50,40,218/-; assessment year 2017-18; National Faceless Assessment Centre; non-supply of information and material relied upon; no co-relation with books of accounts; PAN not supplied; abuse of process; assessment order set aside; writ petition allowed.

What did the court decide?

Assessment order set aside; writ petition allowed. ¶46

Narayan Kumar Vs The Principal Chief Commissioner of Income Tax — Income Tax | Patna HC (2024)

What the court decided

AI extract

Outcome

Assessment order set aside; writ petition allowed.

¶46

Issue for consideration

Whether the reassessment proceedings initiated under Sections 148/148-A of the Income Tax Act, 1961 were valid where the information and material relied upon by the revenue was not supplied to the assessee as required by the Supreme Court's directions in Union of India v. Ashish Agarwal. +1 more

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Court's answer

There was no supply of information and material to the petitioner as required in Ashish Agarwal; even the information said to have been passed on by the Special Commissioner of Revenue, Bureau of Investigation, South Bengal was not relayed or communicated to the petitioner.

¶33

Ratio / Principle

The assessee's books of accounts were produced, but there is no co-relation between the transactions alleged against M/s Aryan Trading Company and those found in the petitioner's books; the mere absence of PAN in the petitioner's details takes the department nowhere, since the PAN of M/s Aryan Trading Company was also not supplied to the petitioner.

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Key takeaways

There is absolutely no reliable material obtained by the department for initiating proceedings under Section 148; the report of the Special Commissioner was neither given to the assessee nor produced in the writ proceedings, and the assessee cannot be asked to prove the negative.ratio¶43
The proceeding under Section 148-A of the Act is a clear abuse of process of law and does not come within the scope and ambit of Section 148; consequently the assessment order is set aside and the writ petition is allowed.ratio¶46

Detailed headnote1 paragraphs

Assessment for AY 2017-18 founded on a Section 148 notice, alleging bogus purchases of Rs. 50,40,218/- by the assessee from M/s Aryan Trading Company, set aside by the Patna High Court (K. Vinod Chandran, CJ and Harish Kumar, J). Despite a fresh notice issued on 19.05.2022 pursuant to Union of India v. Ashish Agarwal, (2023) 1 SCC 617, the information and material relied upon by the revenue — including the report of the Special Commissioner of Revenue, Bureau of Investigation, South Bengal — was never supplied to the assessee. The assessee's books of accounts showed no co-relation with the alleged transactions, and the PAN of M/s Aryan Trading Company was itself not supplied. Holding the Section 148-A proceeding to be a clear abuse of process of law and outside the scope and ambit of Section 148, the Court set aside the assessment order and allowed the writ petition.

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IN THE HIGH COURT OF JUDICATURE AT PATNA Civil Writ Jurisdiction Case No.9206 of 2023

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Narayan Kumar Son of Ram Chandra Prasad Resident of Ward No. 01, Shanker Chowk, Dumra, Sitamari, Bihar.

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... ... Petitioner/s

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Versus

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The Principal Chief Commissioner of Income Tax Bihar, Patna.

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The Deputy Commissioner of Income Tax, Circle-1, Muzaffarpur.

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The Assistant Commissioner of Income Tax, Circle-1, Muzaffarpur.

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The National Faceless Assessment Centre, Assessment Unit New Delhi through the Assessing Authority.

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... ... Respondent/s

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======================================================

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Appearance : For the Petitioner/s : Mr. Gautam Kumar Kejriwal, Advocate For the Respondent/s : Mrs. Archana Sinha, Sr. SC. Income Tax Dept.

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====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE

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and HONOURABLE MR. JUSTICE HARISH KUMAR CAV JUDGMENT (Per: HONOURABLE THE CHIEF JUSTICE)

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Date : 16-04-2024

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The petitioner, an assessee under the Income Tax Act, 1961 (for brevity, the Act) is aggrieved with an assessment order passed after a notice issued under Section 148 of the Act.

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We have heard the learned Counsel appearing for the petitioner and the learned Senior Standing Counsel appearing for the department.

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The assessment relates to the year 2017-18, for which period the petitioner had filed a return on the due date itself, which is produced as Annexure-1. Later in the year 2021, the petitioner received a notice under Section 148 of the Act

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Patna High Court CWJC No.9206 of 2023 dt.16-04-2024 2/8

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produced as Annexure-2. The petitioner filed the very same return furnished earlier, as is seen at Annexure-3. Later, after about five months, the petitioner received Annexure-4 notice under Section 142(1) of the Act. It was in the said notice that for the first time, the petitioner was informed of an information pertaining to the financial years 2015-16 and 2016-17, in relation to sales made by one M/s Aryan Trading Company. The notice indicated that according to the enquiry report, the sales made by M/s Aryan Trading Company was bogus and the purchases made from the said entity, by the petitioner, amounting to Rs.50,40,218/- was liable to be added to the total income of the petitioner.

¶21

The petitioner replied as per Annexure-5, asserting that he had no business dealings with M/s Aryan Trading Company. It was also asserted that there was no material in the hands of the assessing authority, which could lead to a notice under Section 148 and in that circumstance, the proceedings initiated would be within the definition of a ‘mere change of opinion’, which is not permissible as has been held by the Hon’ble Supreme Court.

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Annexure-5 reply filed by the petitioner was dated 01.12.2021, and later, on 19.05.2022 the petitioner was

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Patna High Court CWJC No.9206 of 2023 dt.16-04-2024 3/8

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issued with Annexure-6 notice based on the judgment of the Hon’ble Supreme Court in Union of India & Ors. v. Ashish Agarwal; (2023) 1 SCC 617 .

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The subject matter of the cited decision was the substituted Sections 147 to 151 of the Act; by the Finance Act, 2021, which came into force on 01.04.2021. There were many notices issued to the respective assessees post 01.04.2021, under the erstwhile Sections 148 to 151. The Hon’ble Supreme Court allowed the appeals of the Union of India permitting proceedings to be continued, by treating the Section 148 notices issued, which was based on the unamended provisions, deeming it to be issued under Section 148-A of the Act as substituted with effect from 01.04.2021. The Assessing Officers were directed to provide to the respective assessees, information and material relied upon by the revenue within 30 days, so that the assessee can reply to the show-cause notice within two weeks thereafter.

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The above decision of the Hon’ble Supreme Court prompted the department to issue Annexure-6 notice. Again in Annexure-6 notice, there was a mere statement that information pertaining to one M/s Aryan Trading Company was received by the department from “Special Commissioner of

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Revenue, Bureau of Investigation, South Bengal and Nodal Officer, Enforcement”. It was based on this information indicated, that the transactions of M/s Aryan Trading Company for the assessment years 2017-18 were found to be bogus. There was also a list of beneficiaries attached, which included the petitioner and, hence for the assessment year 2017-18, an amount of Rs. 50,40,218/- was sought to be included in the total income. Again, we have to notice that there was no information supplied to the petitioner as would be required as per the decision of the Hon’ble Supreme Court, cited above, which required providing of the information and material relied upon by the revenue to the respective assessees.

¶29

The petitioner was then issued with a notice under Section 148-A(d) as is seen from Annexure-7, and then a notice under Section 148 at Annexure-8, which was followed up with Annexure-10 notice issued under Section 142(1) leading to the assessment order produced as Annexure-14. The objections filed by the petitioner were not considered is the contention of the petitioner nor was there any supply of the relevant information and material.

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The counter affidavit of the respondents also does not indicate any information or materials supplied other

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than informing the petitioner that the tax authorities in West Bengal found a registered entity in that State to be a bogus one with bogus transactions and that the said bogus entity had transactions with the petitioner amounting to sales of more than Rs. 50 lakhs. There is nothing stated as to what was the goods purchased, the dates on which such purchases were made, the invoices relating to the same and any documentary evidence of whatever materials were recovered in the State of West Bengal, which establish that the entity in West Bengal, a bogus one, had transaction with the petitioner.

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More importantly, the petitioner was also not confronted with any evidence establishing his transactions with that bogus entity but for the mere statement that the Special Commissioner of Revenue, Bureau of Investigation, South Bengal had passed on some information. Even the information passed on has not been relayed or communicated to the petitioner. We are clear in our minds that there is no supply of information and material as is required in Ashish Agarwal (supra).

¶34

We specifically queried the learned Senior Standing Counsel as to the grounds on which the assessment is made. The learned Senior Standing Counsel would only say that

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the reason which prompted the proceedings, is the bogus transactions of one M/s Aryan Trading Company, and information supplied to the department from West Bengal. The learned Senior Counsel would also take us to one paragraph of the order produced as Annexure-19, which is extracted

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hereunder:-

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The assessee was issued show cause notice dated 27.05.2023. The assessee vide reply dated 28.05.2023 submitted details of partywise purchases. However, these details do not contain the PAN of the parties. Therefore, it was not possible to establish their genuineness. The assessee was provided with an opportunity to present its explanation vide video conferencing on 29.05.2023. The assessee attended the VC and after VC submitted its reply dated 29.05.2023, the purchase register, freight charges ledger and carriage & transport ledger. However, the purchase register only contains the name of the parties and not the PAN. Therefore, it is not possible to establish the genuineness of these transactions. Although, this list does not contain the name of M/s. Aryan Trading Company but due to non availability of the PANs of the parties mentioned in the list it cannot be confirmed whether these transactions have taken place or not.

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Admittedly, the books of accounts of the

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assessee were produced. There is no co-relation between the transactions alleged against M/s Aryan Trading Company and that found in the petitioner’s books of accounts. The mere statement that the petitioner has not stated the PAN No. does not take the department anywhere, since the PAN No. of M/s Aryan Trading Company was also not supplied to the petitioner by the department.

¶42

The order does not indicate the name of M/s Aryan Trading Company having been shown in the books of accounts of the petitioner. If purchases were questioned, the department ought to have looked at the invoices of the petitioner to get the PAN Nos. or directed the petitioner to furnish the PAN Nos. of the suppliers; whose transactions could be linked to those supplies/fraudulent transactions of M/s Aryan Trading Company. For that definitely, the transactions of M/s Aryan Trading Company on the various dates, with the value of the invoices, should be available and co-related with the books of accounts of the petitioner. This exercise has not been carried out by the department.

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There is absolutely no reliable material, which the department has obtained for the purpose of initiating proceedings under Section 148 of the Act. No such material has

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been supplied to the assessee to get his response on the same. As we noticed above, the report of the Special Commissioner was also not given to the assessee and it is not produced in the present writ proceedings by the department. The petitioner’s contention all through has been that he has no business transactions with M/s Aryan Trading Company and he cannot be asked to prove the negative.

¶46

We find the proceeding under Section 148-A of the Act to be a clear abuse of process of law and not coming within the scope and ambit of Section 148. The assessment order, hence, is set aside and the writ petition stands allowed.

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(K. Vinod Chandran, CJ)

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(Harish Kumar, J):

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(Harish Kumar, J)

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aditya/-

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AFR/NAFR
CAV DATE	08.04.2024.
Uploading Date
Transmission Date

Procedural history

How this case reached the court

AI extract

Order under challenge
Assessment order for assessment year 2017-18 (produced as Annexure-14), passed after notices under Sections 148, 148-A(d) and 142(1) of the Income Tax Act, 1961, seeking inclusion of alleged bogus purchases of Rs. 50,40,218/- from M/s Aryan Trading Company.¶29
Prior proceeding
For assessment year 2017-18 the petitioner filed his return on the due date itself (Annexure-1).¶18
Prior proceeding
In 2021 the petitioner received a notice under Section 148 of the Act (Annexure-2).¶18
Prior proceeding
The petitioner filed the very same return furnished earlier (Annexure-3).¶20
Prior proceeding
About five months later the petitioner received Annexure-4 notice under Section 142(1), wherein he was for the first time informed of information pertaining to financial years 2015-16 and 2016-17 regarding sales by M/s Aryan Trading Company, with purchases of Rs. 50,40,218/- allegedly liable to be added to his total income.¶20
Prior proceeding
Petitioner replied vide Annexure-5 dated 01.12.2021, denying any business dealings with M/s Aryan Trading Company and contending the proceedings were a impermissible 'mere change of opinion'.¶21
Prior proceeding
On 19.05.2022 the petitioner was issued Annexure-6 notice, prompted by the Supreme Court's decision in Union of India v. Ashish Agarwal.¶26
Prior proceeding
Annexure-6 merely recorded information about M/s Aryan Trading Company received from the Special Commissioner of Revenue, Bureau of Investigation, South Bengal and Nodal Officer, Enforcement; a list of beneficiaries included the petitioner and Rs. 50,40,218/- was sought to be included in total income for AY 2017-18, without supplying the information and material as required by the Ashish Agarwal decision.¶28
Prior proceeding
The petitioner was thereafter issued a notice under Section 148-A(d) (Annexure-7) and a notice under Section 148 (Annexure-8), followed by Annexure-10 notice under Section 142(1).¶29
Prior proceeding
According to the petitioner's contention, his objections were not considered and there was no supply of the relevant information and material.¶29

Narayan Kumar v. The Principal Chief Commissioner of Income Tax

Case brief

What is this about?

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Narayan Kumar v. The Principal Chief Commissioner of Income Tax

Case brief

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