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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 08TH DAY OF JULY, 2022
BEFORE
THE HON'BLE MR. JUSTICE M.I.ARUN
WRIT PETITION NO.12795 OF 2022 (T-IT)
BETWEEN:
BHARAT FRITZ WERNER LIMITED OFF TUMKUR ROAD, BANGALORE NORTH BANGALORE-560 022 REPRESENTED HEREIN BY ITS CHIEF FINANCIAL OFFICER MR. SUJOY DASGUPTA (REGISTERED UNDER THE COMPANIES ACT 1956)
… PETITIONER
(BY SRI.T.SURYANARAYANA SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR AND MS.SONISHA NALLURA, ADVOCATE)
AND:
ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 1(1)(1) 6TH BLOCK BMTC BUILDING 80FT ROAD, KORAMANGALA BANGALORE 560095
PRINCIPAL COMMISSIONER OF INCOME TAX-1 BMTC BUILDING 80 FEET ROAD, KORAMANGALA BANGALORE 560 095
... RESPONDENTS
(BY SRI. K V ARAVIND, ADVOCATE)
2 THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT THE IMPUGNED PROCEEDINGS INITIATED BY THE R1 U/S 147 R/W SECTION 148 OF THE ACT ARE OPPOSED TO THE SAID PROVISIONS AND THEREFORE WITHOUT JURISDICTION VIDE ANNEXURE- G DTD 31.8.2022 AND ETC.
THIS WRIT PETITION COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY THE COURT MADE THE FOLLOWING:
ORDER
The revenue initiated proceedings as contemplated under Section 148A of the Income Tax Act against the assessee on the ground that assessee had certain transaction with a company called "M/s Flash Forge Private Limited" and that the revenue had certain information that the assessee had not disclosed all its income. Accordingly, the notice under Section 148A(a) was issued. Thereafter, the notice under Section 148A(b) was issued calling upon the assessee to reply to the allegations. The assessee has filed detailed reply dated 30.03.2022 vide annexure-E, wherein, it has explained transaction that it had with the said "M/s Flash Forge Private Limited" and has clearly stated that same is reflected in its returns. The revenue has
3 considered the reply of the assessee and all the material available on record and has passed the impugned order under clause (d) of Section 148A of the Income Tax Act. Wherein, it has been held that the case of the assessee is fit for issuance of notice under Section 148A of the Income Tax Act and accordingly, a notice under Section 148 of the Income Tax Act has been issued. Aggrieved by the same instant writ petition is filed.
The case of the petitioner is that the order passed under Section 148A(d) of the Income Tax Act is passed in a mechanical manner without application of mind. It is submitted that respondent-authorities have not considered the material placed by the petitioner before it or the averments made in the reply to the notice issued under Section 148A(b) and without assigning any appropriate reason, the impugned order is passed. On the said ground, the proceedings against the petitioner to determine whether any income has escaped assessment or not is sought to be quashed.
Learned counsel for the revenue submits that the impugned order has taken in to consideration, the material placed before it by the petitioner as well as the reply filed by it and only after consideration of the same is of the opinion that there is primafacie material to show that the income has escaped assessment, the impugned order is passed and notice under Section 148A has been initiated. It is further submitted that it is only an initiation of enquiry as to whether income escaped assessment and final order that income has escaped assessment has not been passed and on the said ground prays for dismissal of the writ petition.
As per Section 148A of the Income Tax Act, when the authorities have information to suggest that the income chargeable to tax has escaped assessment, they can conduct an enquiry with due permissions. In the process, it has to provide an opportunity of being heard to the assessee by serving upon him a show- cause notice as contemplated under Section 148A(b) and if the assessee were to furnish any reply, the authorities are required to consider the same and
5 thereafter on the basis of material available on record including the reply of the assessee, decide whether or not it is a fit case to issue a notice under section 148 by passing an order as contemplated under Section 148A(d) of the Act. The said order cannot be passed in a mechanical manner without appreciating material available on record and the reply of the assessee. What has to be considered in the instant case is whether the revenue has passed the impugned order under Section 148A(d) of the Act after taking into consideration, the material available on record including the reply of the assessee or not.
The reasoning assigned for rejecting the reply of the assessee and ordering issuance of notice under Section 148 is recorded in para-7 of the impugned order which reads as under: “Assessee in its reply submitted that its transactions with M/s Flash Forge Pvt.Ltd. were genuine in nature and duly reflected in the books of accounts. Assessee has submitted the supporting documents for the same. Further, assessee has objected with regards to satisfaction of conditions in Explanation 1 of Sec.148 of the Act. The case of the assessee is covered under Explanation
6 1(i) to sec.148 of the Act. The information in the case of the assessee was flagged for AY 2018-19 in accordance with the risk management strategy formulated by the CBDT. Therefore, necessary condition u/s 148 of the Act is satisfied in the case of the assessee. The relevant information flagged in the case of the assessee has already been shared with the assessee through letter of enquiry and show-cause notice. The show- cause notice was issued with the prior approval from Pr.CIT-1, Bengaluru. Assessee submitted that it received the money from M/s Flash Forge Pvt. Ltd. on 21.04.2018, so it challenged the relevant AY. However, assessee in its reply had submitted that on invoice was made on 20.01.2018. Also, this transaction was part of GSTR-1 for January, 2022. Assessee follows mercantile method of accounting, therefore the amount received from M/s Flash Forge Pvt.Ltd. would be considered to be accrued in AY 2018-19 only. Therefore, submission of the assessee is not tenable on this ground. Regarding the issue of TDS on payments made outside India, assessee’s reply is acceptable”.
The case of the revenue is that petitioner had transaction with a company by name "M/s Flash Forge Private Limited", and the said transaction is not reflected in the returns filed by assessee and the transaction is bogus and that the income has escaped assessment. The assessee has issued a reply and has drawn attention of the revenue in respect of the returns
7 filed by it disclosing the nature of the business transaction that it had with said "M/s Flash Forge Private Limited". The revenue was required to give reason as to why the cause shown by the petitioner is not acceptable and that why it concluded the transaction between assessee and "M/s Flash Forge Private Limited" is bogus in the order passed under section 148A(d). But the reasoning recorded by revenue does not spell out the same. For the said reason, the order passed under Section 148A(d) requires to be set aside and consequently the notice under Section 148 also requires to be set aside. The matter requires to be remitted back to the authorities to reconsider the reply of the petitioner to the show-cause and also the material available and thereafter pass an appropriate order under Section 148(d) by assigning valid reasons to show that it is a fit case to issue or not to issue a notice under Section 148 of the Act. Hence, the following:
8 ORDER
The impugned order passed under Clause (d) 148A of Income Tax Act 1967 dated 31.03.2022 bearing notice No.ITBA/AST/F/148A/2021-22/1042327942(1) vide Annexure F to the writ petition is set aside.
Consequently, the notice issued under Section 148 of the Income Tax Act dated 31.03.2022 bearing notice No.ITBA/AST/S/148_1/2021-22/1042342150(1) vide annexure G to the writ petition is set aside.
The matter is remitted back to respondent No.1 to consider the case of the petitioner in accordance with law and take appropriate decision thereafter.
Writ petition is disposed of accordingly.
Sd/- JUDGE