ORNATE AGENCIES PRIVATE LIMITED vs. ACIT CIRCLE 19(1) NEW DELHI & ANR.

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W.P.(C)/3671/2023HC DelhiDLHC01010197202324 March 2023Bench: HON'BLE MR. JUSTICE RAJIV SHAKDHER,HON'BLE MS. JUSTICE TARA VITASTA GANJU4 pages
AI SummaryRemanded

What did the High Court hold?

The Delhi High Court held that the Assessing Officer (AO) had clearly failed to apply their mind to the facts of the case and reach a definitive conclusion regarding the escaped income. The Court noted that the order passed under Section 148A(d) of the Income Tax Act, 1961, merely stated that income to the extent of Rs. 50,00,000/- or exceeding Rs. 50 lacs had escaped assessment, without any proper quantification or detailed reasoning. This lack of application of mind and failure to quantify the escaped income rendered the reassessment proceedings flawed. Consequently, the impugned order dated 26.07.2022 passed under Section 148A(d) and the consequent notice of even date were set aside. The AO was granted liberty to pass a fresh order, with a direction to ensure a personal hearing is granted to the petitioner's authorized representative.

What were the facts?

The petitioner, Ornate Agencies Private Limited, filed a writ petition challenging reassessment proceedings initiated for Assessment Year 2017-18. The revenue alleged a huge credit of Rs. 48,68,62,905/- in the petitioner's bank account. The petitioner provided a breakup of this amount, detailing sales proceeds, internal fund transfers, encashment of auto sweep in Fixed Deposits, and bank interest. The petitioner contended that these aspects were considered during the original scrutiny assessment, leading to an order under Section 143(3). The petitioner argued that the reassessment proceedings were flawed, citing a lack of proper approval under Section 151(ii) and the Assessing Officer's failure to quantify escaped income.

What were the issues?

1. Whether the reassessment proceedings are valid, considering the petitioner's contention that the issues were already examined during scrutiny assessment and that the reassessment is based on a 'change of opinion'? (Mixed question of law and fact, concerning Section 147/148 of the Income Tax Act, 1961). 2. Whether the reassessment proceedings are vitiated by the lack of proper approval from the specified authority under Section 151(ii) of the Income Tax Act, 1961? 3. Whether the Assessing Officer (AO) properly quantified the income chargeable to tax that had escaped assessment, as required under Section 148A(d) of the Income Tax Act, 1961? Assessee's Contentions: The petitioner argued that the reassessment was based on a 'change of opinion' as the AO had already considered the credit entries during the original assessment. They further contended that the reassessment proceedings lacked the mandatory approval under Section 151(ii) and that the AO failed to quantify the escaped income, as evidenced by the order under Section 148A(d) which merely stated an escaped income of 'Rs.50,00,000/- or exceeding Rs.50 lacs'. Revenue's Contentions: The revenue, through its senior standing counsel, accepted notice and stated that no counter-affidavit was required, implying an acceptance of the petitioner's request for disposal.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 148A(d),Section 151(ii),Section 148

AI-generated summary — verify with the full judgment below

2023:DHC:2324-DB

W.P.(C) 3671/2023

Page 1 of 4

$~ 36 * IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of decision: 24.03.2023

+ W.P.(C) 3671/2023

ORNATE AGENCIES PRIVATE LIMITED ..... Petitioner

Through: Mr Ruchesh Sinha, Advocate.

versus

ACIT CIRCLE 19(1) NEW DELHI & ANR. ..... Respondents Through: Mr Aseem Chawla, Sr Standing Counsel.

CORAM:

HON'BLE MR. JUSTICE RAJIV SHAKDHER

HON'BLE MS. JUSTICE TARA VITASTA GANJU [Physical Hearing/Hybrid Hearing (as per request)] RAJIV SHAKDHER, J.: (ORAL) CM Appl.14241/2023 1. Allowed, subject to the just exceptions. W.P.(C) 3671/2023 & CM Appl.14240/2023[Application filed on behalf of the petitioner seeking interim relief] 2. This writ petition concerns Assessment Year (AY) 2017-18. 3. Issue notice. 3.1 Mr Aseem Chawla, learned senior standing counsel, accepts notice on behalf of the respondents/revenue. 4. In view of the order that we intend to pass, Mr Chawla says that no counter-affidavit is required to be filed. Therefore, with the consent of the counsels for the parties, the writ petition is taken up for final hearing and disposal, at this stage itself. Digitally Signed By:TARUN RANA Signing Date:02.04.2023 19:44:36 Signature Not Verified

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5.

The principal allegation against the petitioner is that a huge credit is reflected in its bank account. There is a reference to the fact that funds have been credited to its bank account amounting to Rs. 48,68,62,905/-. 6. Mr Ruchesh Sinha, who appears on behalf of the petitioner, submits that the petitioner, in his reply dated 02.06.2022, has given a breakup of the aforementioned amount. 6.1 For this purpose, our attention has been made to paragraph 4 of the said reply.

Particulars Amount (in Rs.) Annexure Ref. Sales Proceeds received from customers during the period 9th November to 31st December 2016 which are reproduced from page no. 3 of your letter ref F No. DDIT (Inv.)/Unit-7(3)/ED/2020 - 21 dated 11th March 2021 which is attached with the reassessment notice dated 20th May 2022 as Annexure 1. 19,89,30,232 Annexure 2 Internal Fund Transfers from the Company’s HDFC Account No. 05032320001907 to Account No. 036911310004974 in OBC 7,07,00,000 Annexure 3 Internal Fund transfers from the Company’s CC Account No. 03694011000394 in OBC to Current Account No. 036911310004974 in OBC 5,80,00,000 Annexure 4 Encashment of auto sweep in FDs in OBC to Current 15,92,25,000 Annexure 5 Digitally Signed By:TARUN RANA Signing Date:02.04.2023 19:44:36 Signature Not Verified

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W.P.(C) 3671/2023

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Account No. 036911310004974 in OBC Bank interest credited to Account No. 036911310004974 in OBC on the above Sweep in FDs made during the period 9th November to 31st December 2016 7,673 Annexure 6 Grand Total as per your notice for Reassessment 48,68,62,905

7.

Furthermore, Mr Sinha says that these very aspects were considered by the Assessing Officer (AO) during scrutiny assessment and it was only thereafter, the order dated 25.12.2019 was passed under Section 143(3) of the Income Tax Act, 1961 [in short, the “Act”]. 7.1. Furthermore, it is submitted by Mr Sinha that the reassessment proceedings are flawed, inter alia, for the following reasons, besides what has been indicated hereinabove i.e., that it is a case of change of opinion: (i) The reassessment proceedings are not backed by the approval of the specified authority, as is required under Section 151(ii) of the Act. (ii) The AO has failed to quantify the income chargeable to tax, which, according to him, has escaped assessment. 7.2. In this context, our attention is drawn to paragraph 8 of the order dated 26.07.2022 passed under Section 148A(d) of the Act. For the sake of convenience, the said paragraph is extracted hereafter: “8. In view of the above it emerges that the income to the extent of Rs.50,00,000/- or exceeding Rs.50 lacs representing asset has escaped assessment. Hence it is a fit case for issuance of notice u/s 148.”

[Emphasis is ours] Digitally Signed By:TARUN RANA Signing Date:02.04.2023 19:44:36 Signature Not Verified

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8.

Clearly, there has been no application of mind by the AO. The AO has failed to reach a definitive conclusion as to what is the escaped income in the instant case. In that view of the matter, the impugned order dated 26.07.2022 passed under Section 148A(d) of the Act and consequent notice of even date i.e., 26.07.2022 are set aside. 9. Liberty is, however, given to the AO to pass a fresh order. 9.1 The AO will ensure that the personal hearing is granted to the authorized representative of the petitioner. For this purpose, the AO will issue a notice to the petitioner indicating date and time of the hearing. 10. The writ petition is disposed of in the aforesaid terms. 11. Parties will act based on the digitally signed copy of the order.

RAJIV SHAKDHER, J

TARA VITASTA GANJU, J

MARCH 24, 2023

pmc

Digitally Signed By:TARUN RANA Signing Date:02.04.2023 19:44:36 Signature Not Verified

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