Calcutta High Court annuls Section 148A(3) order for non-consideration of assessee’s submissions

Background and context

The Calcutta High Court in Ojaswini Retailers Private Limited & anr. Vs Union of India & Ors. examined the legality of:

  • An order dated 30 June 2025 passed under Section 148A(3) of the Income Tax Act, 1961 for Assessment Year 2019-20, and
  • The consequential notice issued under Section 148 on the same date.

The dispute centred on whether the Assessing Officer had properly formed a belief that income had escaped assessment after duly considering the assessee’s written submissions and supporting documents, and whether the process complied with the principles of natural justice mandated by Section 148A.

The petitioners (Ojaswini Retailers Private Limited and another) approached the High Court under writ jurisdiction, alleging that the reassessment initiation was fundamentally flawed and jurisdictionally invalid.

Issues before the Court

The High Court focused on two connected questions:

  1. Whether the Assessing Officer had jurisdiction to proceed under Section 148A(3) when the assessee’s replies and materials were not fully considered; and
  2. Whether there was a violation of natural justice in the manner in which the order under Section 148A(3) and the Section 148 notice were passed.

Assessee’s contentions

Challenge to the Section 148A(3) order

The learned Senior Counsel appearing for the petitioners contended that:

  • The order dated 30 June 2025 under Section 148A(3) was passed without proper consideration of the assessee’s detailed replies dated 11 April 2025 and 19 June 2025, which had been submitted in response to the show cause notice dated 19 March 2025 issued under Section 148A(1).
  • This omission rendered the order legally unsustainable and in breach of the statutory mandate under Section 148A.

The assessee argued that Section 148A creates a clear and mandatory requirement that the Assessing Officer:

  1. Provide the assessee with the information suggesting escapement of income;
  2. Invite a reply; and
  3. Pass a speaking order only after due consideration of such reply.

Since the replies were allegedly ignored or only selectively referred to, the assessee maintained that the jurisdictional pre-condition for issuing a notice under Section 148 had not been satisfied.

Objection to finding of “lack of commercial substance”

The petitioners further challenged the observations of the Assessing Officer that:

  • Transactions with M/s. Dhansidhi Developers Private Ltd. and
  • M/s. Foremost Enterprise Private Ltd.

“lacked commercial substance.”

This conclusion was assailed as:

  • Perversely drawn,
  • Arbitrary, and
  • Unsupported by a proper evaluation of the documentary evidence placed on record.

Violation of natural justice

The assessee’s case also emphasised that:

  • They had furnished bank statements and supporting records, including:

    • Bank account statements of the assessee’s account with Federal Bank Ltd., and
    • Bank account statements of M/s. Foremost Enterprise Private Ltd. with IDBI Bank.

  • All impugned transactions were carried out through banking channels, and merely because funds moved in and out of accounts on the same day, it could not automatically be inferred that these were:

    • Accommodation entries, or
    • Money laundering transactions.

According to the petitioners, they were not given an effective opportunity to refute the allegations, as their explanations were neither discussed nor dealt with in the impugned order, contrary to basic principles of natural justice.

On this basis, the assessee urged that both:

  • The Section 148A(3) order dated 30 June 2025, and
  • The consequential Section 148 notice dated 30 June 2025,

ought to be set aside.

Revenue’s submissions

Reliance on contents of the impugned order

Counsel for the Income Tax Department strongly opposed the writ petition and argued that: