Illegal Demand Of Income Tax Mechanically- Allahabad High Court Imposes Cost Of 50 Lakhs On Income Tax Authorities

The Allahabad High Court has directed that the Union of India or other authorities under the Income Tax Act, 1961 shall not interfere with the quasi-judicial functions and discharge of statutory duties by the Assessing Officers unless permitted by the Income Tax Act. Further, the High Court directed the Union of India to put in place a mechanism to ensure that the information fed on data-base/ portal of the revenue department is verified in reality, and not as an empty formality, before initiating proceedings under the Income Tax Act, 1961. The Bench of Justices Surya Prakash Kesarwani and Jayant Banerji was dealing with a writ petition filed by the assessee against the reassessment proceedings initiated against it on the basis of false information uploaded in the insight portal of the revenue department. A notice under Section 148 of the Income Tax Act, 1961 was issued to the petitioner/ assessee- SR Cold Storage on the ground that, as per the information received by the revenue department, the petitioner/assessee had deposits in its bank account which constituted its undisclosed income and which had escaped assessment to tax. A show cause notice/ draft assessment order was issued by the revenue authorities seeking to make additions to the assessee's income. The petitioner submitted a reply to the said show cause. However, the Income tax Authority, without considering the reply and the documentary evidences filed by the petitioner, passed a reassessment order under Section 147 read with Section 144B of the Income Tax Act. The assessee filed a writ petition before the Allahabad High Court challenging the notice issued to it under Section 148 and the reassessment order passed against it. The assessee SR Cold Storage submitted before the High Court that the information collected on the insight portal of the revenue department, on the basis of which reassessment proceedings were initiated against it, was incorrect. The assessee added that the reply submitted by the assessee was not considered by the Assessing Officer before passing the re-assessment order. Thus, the assessee averred that the entire proceedings initiated against the assessee under Sections 148 of the Income Tax Act was without jurisdiction, and that it constituted an arbitrary exercise and gross abuse of power. The assessee contended that it repeatedly requested for a hearing through video conferencing, however, the revenue authorities denied the assessee the opportunity of hearing. The revenue department averred that since an alternative remedy of an appeal under Section 246A of the Income Tax Act was available to the assessee, therefore, the writ petition must be dismissed. The Union of India averred that the information, on the basis of which reassessment proceeding were initiated against the assessee and the reassessment order was passed, was wrong. The revenue department conceded that as per the information uploaded in the insight portal of the revenue department, the cash deposited by the petitioner/assessee was 4 times the actual cash deposit by the assessee in the relevant Bank. The department submitted that the said information was uploaded by the Deputy Director Income Tax (Inv.), Kanpur. The Court observed that the assessee, along with its reply to the draft assessment order, had filed various documents including its copy of Form 26AS, details of cash deposit in the relevant Bank Account, along with a copy of the bank account statements for the relevant financial year. However, the Court noted that there was no mention or consideration of the reply or objections submitted by the petitioner in the reassessment order passed by the Income tax Authority. "Thus, as per own admitted case of the respondents, the cash deposit of Rs.3,41,81,000/- was made by the petitioner in its bank account with Union Bank of India and there was absolutely no cash deposit by the petitioner in Bank of Baroda whereas the entire reassessment proceedings under Section 147/148 of the Act, 1961 against the petitioner, was initiated on the alleged information of cash deposit of Rs.13,67,24,000/- by the petitioner in its bank account with Bank of Baroda. Thus, the reason to believe for initiating proceedings under Section 147/148 was totally unfounded and false. In fact initiation of proceedings and passing the impugned reassessment order dated 31.03.2022 is a glaring example of highhandedness, arbitrary actions and abuse of power by the respondents on the one hand and on the other hand, flagrant violation of principles of natural justice by them.", the Court said. Thus, the Court ruled that the notice under Section 148 and the reassessment order under Section 147 of the Income Tax Act was passed in complete breach of the principles of natural justice, and that it was completely in conflict with the principles, powers and limitations governing the exercise of powers...

Illegal Demand Of Income Tax Mechanically- Allahabad High Court Imposes Cost Of 50 Lakhs On Income Tax Authorities

Parina Katyal

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