Facts of the Case

The petitioner, J.G.’s Departmental Store, is a partnership firm engaged in operating a chain of departmental stores in Delhi, with more than 90% of its sales being cash sales. For Assessment Year 2017-18, the petitioner filed its return of income on 30.10.2017 declaring total income of ₹26,30,730 and disclosed cash deposits of ₹6,23,39,100 during the demonetisation period from 09.11.2016 to 30.12.2016.

The return was selected for scrutiny, inter alia, to examine cash deposits during the demonetisation period. During assessment proceedings under Section 143(3), the Assessing Officer examined the source of cash deposits, issued notices under Section 142(1), and accepted the petitioner’s explanation that the cash deposits represented sale proceeds from retail business. Assessment was completed on 21.12.2019 with minor additions unrelated to cash deposits.

On 01.02.2024 and 14.02.2024, the Assessing Officer issued notices under Section 148A(b) proposing reopening of assessment on the basis of three items of information, namely TCS relating to liquor purchases, cash deposits during demonetisation, and a time deposit of ₹10,00,000. The petitioner responded in detail explaining that all transactions were disclosed, examined earlier, and duly accounted for, including the time deposit under PM-GKY.

Despite accepting explanations relating to TCS and the time deposit, the Assessing Officer passed an order dated 19.03.2024 under Section 148A(d) holding that reassessment was justified solely on the basis of disproportionate increase in cash deposits during the demonetisation period compared to the corresponding period in the previous year, relying upon a revenue audit objection. This formed the basis for issuance of notice under Section 148.

Issues Involved

Whether the Assessing Officer could, while passing an order under Section 148A(d), rely on a new allegation not forming part of the information furnished in the notice under Section 148A(b), whether such action violated principles of natural justice, and whether the consequential notice under Section 148 could be sustained.

Petitioner’s Arguments

The petitioner contended that the allegation regarding disproportionate increase in cash deposits compared to the previous year was never disclosed in the notices under Section 148A(b). It was argued that the petitioner was denied an opportunity to respond to this new ground, rendering the order under Section 148A(d) beyond the scope of the show cause notice and violative of natural justice. The petitioner further submitted that the reopening was based on a mere audit objection and amounted to a change of opinion on issues already examined during scrutiny assessment.

Respondent’s Arguments

The Revenue argued that the reassessment was validly initiated based on information suggesting escapement of income exceeding ₹50 lakh and that comparison of cash deposits was a logical inference drawn from the material available on record. It was contended that the Assessing Officer was justified in proceeding with reassessment.

Court Order / Findings

The Delhi High Court examined the notices issued under Section 148A(b) and the impugned order passed under Section 148A(d). The Court held that the notices under Section 148A(b) were confined to three specific items of information and did not allege that the cash deposits during demonetisation were disproportionately higher than those in the corresponding period of the previous year.

The Court found that the Assessing Officer introduced an entirely new ground in the order under Section 148A(d) by comparing cash deposits of two financial years and relying on a revenue audit objection, without putting the petitioner to notice. This deprived the petitioner of an opportunity to respond and violated the mandatory procedure prescribed under Section 148A.

Accordingly, the Court held that the order under Section 148A(d) had travelled beyond the scope of the notice under Section 148A(b) and could not be sustained in law.

Important Clarification

The High Court clarified that reassessment proceedings under the post-2021 regime require strict adherence to Section 148A, and the Assessing Officer cannot rely on grounds or information not specifically disclosed in the notice under Section 148A(b). Any such action vitiates the proceedings on account of breach of natural justice.

Final Outcome

The writ petition was allowed. The order dated 19.03.2024 passed under Section 148A(d) and the consequential notice issued under Section 148 were set aside. The matter was remanded to the Assessing Officer to proceed afresh in accordance with law after furnishing the relevant information to the petitioner and granting an opportunity of hearing.

Link to download order https://www.mytaxexpert.co.in/uploads/1769756239_J.GSDEPARTMENTALSTOREVsINCOMETAXOFFICERWARD601ORS..pdf 

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