Dept. To Inform Charges To Person Against Whom Income Tax Proceedings Are Initiated: Jharkhand High Court

The Jharkhand High Court has held that the show cause notice should give the noticeee a reasonable opportunity to make objections against proposed charges indicated in the notice, and the person proceeded against must be told the charges against him so that he can make his defense and prove his innocence.

The bench of Justice Rongon Mukhopadhyay and Justice Deepak Roshan has observed that in the entire course of the proceeding, at no stage is the petitioner made aware of the provisions of law that have been contravened and/or under which the additions are sought to be made, which is in gross violation of the principles of natural justice, and the procedure adopted by the Department is not fair or proper.

The petitioner or assessee is in the business of manufacturing iron and steel products in the state of Jharkhand. The petitioner had filed its return of income on time, and its books of accounts were audited duly. However, the proceeding has been initiated under Sections 147 and 148 of the Income Tax Act, 1961.

The petitioner stated that without the existence of material and reasons to form a reasonable belief that the income of the petitioner has escaped assessment, the reasonable belief has been formed on the borrowed satisfaction. The relied-upon document leading to the formation of the purported reasonable belief was not supplied in spite of repeated requests, and further, the petitioner has been extended only 24 hours' time to file its Show Cause Notice.

The assessee contended that there are no reasons or materials to form a reasonable belief that the income of the petitioner has escaped assessment; hence, the proceedings initiated under Section 147 are without jurisdiction. The statement recorded under Section 133A has no evidentiary value. He further submits that the formation of belief is based on borrowed satisfaction. There is no independent application of mind. Hence, the proceeding under Section 147 is without jurisdiction.

The department contended that the petitioner approached the high court directly, where an alternate remedy to challenge the assessment order lies before a statutory forum, i.e., the Commissioner (Appeals) under Section 246A of the Income Tax Act, 1961, and thus the writ petition should be dismissed.

The court noted that recording reasons is necessary in both administrative and quasi-judicial orders affecting the rights of parties prejudicially. Reasons give the appearance that justice is being done, to prevent arbitrary exercise of power, to ensure that discretion has been exercised on relevant grounds, and to facilitate judicial review, accountability, and transparency. The reasons in support of decisions must be cogent, clear, and succinct. Pretence of reasons, or “rubber-stamp reasons,” is not to be equated with a valid decision-making process.

The court held that the belief formed by the assessing officer suffers from a lack of bona fides and is vague, far-fetched, irrelevant, based on conjecture and surmises, and also arbitrary and irrational. The very initiation of the proceedings is bad in law and attracts a jurisdictional issue, which goes to the root of the case.

Counsel For Petitioner: M/s. Kartik Kurmi

Counsel For Respondent: R.N.Sahay

Case Title: M/s. Pasari Casting and Rolling Mills Private Ltd. Versus Income-tax Department

LL Citation: 2024 LiveLaw (Jha) 27

Case No.: W.P. (T) No. 1850 of 2022

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