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Allahabad HC asks Finance Secretary of action against illegal, arbitary income tax notices

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The Allahabad High Court has asked the Union Finance Secertary what action will be taken against officers of the Income Tax Department for issuing illegal and arbitrary notices under Section 148 of the Income Tax Act, 1961. Along with this, the court has also sought a response from officials of the Income Tax Department in two weeks on the petition filed regarding validity of the notice.

The Division Bench of Justice Surya Prakash Kesarwani and Justice Jayant Banerji passed this order while hearing a petition filed by Katiyar Cold Storage Private Limited.

On 04.04.2022, the Court passed the following order:

“1. Heard Abhinav Mehrotra, counsel for the petitioner and Manu Ghildyal, counsel for the respondent nos 2 and 3.

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  1. None appears for the respondent no 1.
  2. Initially the relief sought in the writ petition was that the impugned notice under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act, 1961’) dated 31.3.2021 and the order dated 22.12.2021 rejecting the objection of the petitioner and the order of approval dated 30.3.2021 under Section 151 of the Act, 1961 granted by the respondent no 3, may be quashed.
  3. By the aforesaid amendment application, the prayer has been made to quash the re-assessment order dated 29.3.2022.
  4. Briefly stated facts of the present case are that the petitioner is a private limited company registered under the Companies Act. It has been regularly filing its return of income under the Act, 1961. For the assessment year 2017-18, it filed its return of income along with audit reports as required under the Act, disclosing loss for the assessment year 2017-18. A notice under Section 148 of the Act, 1961 was issued on the basis of information that the petitioner has deposited a sum of Rs 12,50,14,500/- in bank account during the assessment year 2017-18. The assessee objected to the notice and stated that it has not deposited Rs. 12,50,14,500/- in his bank account as cash and the information so received is totally unfounded. However, the objection of the petitioner was rejected by the National Faceless Assessment Centre, Delhi vide order dated 22.12.2021 observing that the petitioner-assessee has deposited cash of Rs. 12,50,14,500/- in his bank account which has not been disclosed by him in his return of income and thus, reasons recorded by the assessing officer are crystal clear in the light of the strong evidences which came to the notice of the assessing officer and on that basis the assessing officer had reason to believe that the income chargeable to the tax has escaped assessment. It has also been repeatedly observed in the aforesaid order that the new facts came to the notice of the assessing officer through the information and the information was supported by strong evidence.
  5. Today, Manu Ghildyal, counsel for the respondent nos 2 and 3 has produced before us the instructions dated 24.3.2022 sent to him by the respondent no 2, which is kept on record.
  6. The aforesaid instructions of the respondent no 2 are not only totally hopeless but also, prima facie, reflects that he attempted to mislead the Court inasmuch as in his instructions he has not even whispered about the information despite our order dated 23.3.2022 in which we noted the submission of the petitioner that the information does not relate to the petitioner rather it relates to one M/S S.R. Cold Storage as evident from Annexure 4 to the writ petition. Perusal of some papers that have been annexed by the respondent no. 2 along with his instructions dated 24.3.2022 also clearly affirms that the alleged cash deposit of Rs. 12,50,14,500/- has absolutely no relation with the petitioner rather it relates to one M/S S.R. Cold Storage. The entire proceeding under Section 148 of the Act, 1961 have been initiated by the respondents on the basis of an anonymous letter in which also the petitioner has not been named and instead one Vishwanath Singh Katiyar @ Munnu Bhaiya owner of M/S S.R. Cold Storage has been named. Even in his verification report, the respondents have found that the information relates to M/S S.R. Cold Storage. There was absolutely no evidence that the petitioner had deposited cash of Rs. 12,50,14,500/- in his bank account during the assessment year 2017-18. Perusal of the impugned re-assessment order dated 29.3.2022 passed by the National Faceless Assessment Centre, Delhi also completely affirms that position that there was absolutely no information against the petitioner regarding cash deposit of Rs. 12,50,14,500/- by him in his bank account. The petitioner is a cold storage company in which business dealings are mainly with farmers who usually transact in cash. The total cash deposit as has been taken in the impugned re-assessment order, was fully disclosed by the petitioner-assessee in his books of account and in the audited balance sheet filed along with the return. Thus, there was absolutely no material before the assessing authority for initiating proceedings under Section 148 of the Act, 1961 and the reasons to believe recorded by the respondents were totally unfounded.
  7. The manner in which the proceedings under Section 148 of the Act, 1961 has been initiated against the petitioner, prima facie, reflects illegal and arbitrary approach of the respondents on one hand and on the other hand to cause harassment to the petitioner/assessee.
  8. Counsel for the respondent nos 2, 3 and 4 prays for and is granted a week’s time to file a counter affidavit.
  9. Petitioner shall have three days, thereafter, to file a rejoinder affidavit.
  10. List/put up in the additional cause list on 18.4.2022 at 2:00 PM for further hearing.
  11. Considering the facts and circumstances of the case as briefly discussed above, the effect and operation of the impugned re-assessment order dated 29.3.2022 shall remained stayed.”

“Counsel for respondent Nos 2 and 3 prays for and is granted two weeks and no more time to file counter-affidavit. The respondent no1 shall also file a counter affidavit within the same period.

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In the event a counter-affidavit is not filed within the time granted as aforesaid, then the respondent no 3 shall remain personally present before the Court and shall show cause for non-filing of the counter-affidavit.

In its counter affidavit, respondent no 1 shall show cause that what action and measures are being proposed by the Government against illegal and arbitrary exercise of powers by the respondent nos 1, 2 and 3 while issuing notices under Section 148 of the Income Tax Act, 1961,” the order reads.

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