Facts of the Case

The petitioner, R S Alloys, a partnership firm engaged in trading of ferrous and non-ferrous metals, filed its return of income for Assessment Year 2019–20 under Section 139(1) of the Income-tax Act, 1961. The return was processed under Section 143(1). Subsequently, information was received under the Risk Management Strategy formulated by the CBDT suggesting that the petitioner had entered into accommodation entry transactions amounting to ₹88,86,000 with M/s Karthik Alloys Pvt. Ltd. during Financial Year 2018–19.

Based on this information, a show cause notice dated 28.03.2025 was issued under Section 148A(1). The petitioner filed replies dated 11.04.2025 and 30.04.2025 along with extensive documentation including purchase bills, GST returns, bank statements, transportation documents, financial statements from the MCA portal, and orders passed by the NCLT, Mumbai Bench in the case of the supplier. After considering the material, the Assessing Officer passed an order dated 28.06.2025 under Section 148A(3) and issued notice under Section 148 initiating reassessment proceedings, which were challenged before the High Court.

Issues Involved

Whether reassessment proceedings initiated under Sections 148A and 148 were vitiated for alleged non-compliance with CBDT guidelines and principles of natural justice, whether information received under the Risk Management Strategy could constitute valid “information” suggesting escapement of income, and whether the High Court could examine the sufficiency of material relied upon by the Assessing Officer at the reassessment initiation stage.

Petitioner’s Arguments

The petitioner contended that the reassessment was initiated mechanically based solely on information regarding transactions with M/s Karthik Alloys Pvt. Ltd. It was argued that the Assessing Officer failed to conduct an independent enquiry and did not meaningfully consider the detailed replies and documentary evidence furnished. The petitioner relied on CBDT guidelines governing reassessment proceedings, asserting that they are binding on the Revenue and were violated in the present case. It was further argued that liquidation proceedings against the supplier could not, by themselves, render it a bogus entity, and that mere information without corroboration cannot justify reopening.

Respondent’s Arguments

The Revenue submitted that credible information under the CBDT Risk Management Strategy, supported by investigations including findings of the GST authorities and financial analysis of the supplier, clearly suggested that M/s Karthik Alloys Pvt. Ltd. was a paper entity issuing bogus invoices. It was argued that the Assessing Officer duly followed the statutory procedure under Section 148A by issuing notice, granting opportunity of hearing, and passing a reasoned order after considering the petitioner’s replies. The Revenue emphasised that sufficiency or adequacy of material cannot be examined in writ jurisdiction.

Court Order / Findings

The Delhi High Court held that the Assessing Officer had sufficient information available to initiate reassessment proceedings. The Court noted that the petitioner was afforded an opportunity under Section 148A(1), that detailed replies were filed, and that the Assessing Officer had dealt with the same in paragraphs 5.1 to 5.3 of the order dated 28.06.2025.

The Court observed that the information relied upon was recognised under the statutory framework, including Explanation to Section 148, and formed a valid basis for the Assessing Officer to conclude that income chargeable to tax may have escaped assessment. It reiterated that at the stage of initiation of reassessment, the High Court cannot examine the sufficiency or correctness of the material relied upon by the Assessing Officer, as such matters are to be adjudicated during reassessment proceedings. The Court also distinguished the judgments relied upon by the petitioner and held that there was no violation of principles of natural justice or binding CBDT guidelines.

Important Clarification

The Court clarified that while CBDT circulars and guidelines are binding on the Revenue, their application depends on the facts of each case. Where the Assessing Officer follows the statutory procedure under Section 148A and acts on recognised information suggesting escapement of income, reassessment proceedings cannot be interdicted at the threshold merely because the assessee disputes the correctness or adequacy of such information.

Final Outcome

The writ petition was dismissed. The Delhi High Court upheld the notice dated 28.03.2025 issued under Section 148A(1), the order dated 28.06.2025 passed under Section 148A(3), and the notice issued under Section 148 for Assessment Year 2019–20. The reassessment proceedings were held to be validly initiated in accordance with law, and the pending application was dismissed as infructuous.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769681516_RSALLOYSVsINCOMETAXOFFICERWARD631DELHIANR..pdf

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