Delhi High Court refuses to interfere with Section 148 notice for AY 2018-19 in writ jurisdiction

Background of the dispute

The Delhi High Court in Gulmuhar Silk Pvt Ltd. Vs ITO (Delhi High Court) dealt with a writ petition seeking to quash:

  • The order dated 28th March, 2022 passed under Section 148A(d) of the Income Tax Act, 1961 for Assessment Year 2018-19
  • The show cause notice dated 7th March, 2022 issued under Section 148A(b)
  • The consequential notice dated 28th March, 2022 under Section 148

The assessee approached the High Court at the stage where only reassessment proceedings had been initiated, and no assessment order had yet been framed.

Assessee’s key contentions

Allegation of non-speaking order under Section 148A(d)

Counsel for the assessee argued that the order dated 28th March, 2022 under Section 148A(d):

  • Did not adequately address the detailed reply filed by the assessee in response to the show cause notice under Section 148A(b) dated 7th March, 2022
  • Was allegedly passed in violation of principles of natural justice, being cryptic and non-reasoned

To substantiate this, reliance was placed on the Supreme Court decision in:

Kranti Associates Pvt. Ltd. & Anr. Vs. Mashook Ahmed Khan and Ors, SLP (C) No.20428/2007

where the Supreme Court emphasized the necessity for reasoned and speaking orders by quasi-judicial and administrative authorities.

Challenge to reliance on Investigation Wing information

The assessee further contended that:

  • The Assessing Officer had merely adopted information provided by the Investigation Wing without independent examination or application of mind
  • The material referred to in the show cause notice and relied upon for formation of “reason to believe” pertained to Assessment Year 2014-15
  • Despite this, the same information was being used as the basis to reopen the assessment for Assessment Year 2018-19, which, according to the assessee, lacked any rational or live nexus with the year under consideration

On this basis, it was urged that the entire exercise under Section 148A and the resultant notice under Section 148 was mechanical and unsustainable.

Court’s examination of the Section 148A(d) order

Finding that the order was reasoned and “speaking”

The High Court examined the impugned order dated 28th March, 2022 under Section 148A(d) as part of the paper book. On perusal, the Court noted that:

  • The Assessing Officer had specifically recorded that the assessee had failed to rebut the statement on oath made by the alleged entry provider
  • The order also made reference to an independent proceeding conducted by the DGGI, Ghaziabad under the CGST Act, 2017

In particular, it was recorded that:

  • A search and seizure operation was carried out at Shop No.10, Aman Banquet, Sector-5, Rajendra Nagar, Sahibabad, Ghaziabad on 18th and 19th 2018
  • The DGGI authorities, in that action, had reached a conclusion aligning with the findings relied upon by the Assessing Officer

On this basis, the High Court held that the impugned Section 148A(d) order was neither mechanical nor unreasoned. It contained: