Facts of the Case

The petitioner, Majestic Handicraft Private Limited, filed its return of income for Assessment Year 2018–19 on 17.10.2018, which was processed under Section 143(1) of the Income-tax Act, 1961. The petitioner was engaged in export of garments and claimed to have made purchases from Balaji Enterprises and Dev Sales Corporation during Financial Year 2017–18, with exports made to Brazil.

Based on information received from the Investigation Wing, the Assessing Officer issued a notice under Section 148A(b) alleging that Balaji Enterprises, stated to be a proprietary concern of one Sanjeev Sharma, was non-existent and engaged in providing accommodation entries. Bank account analysis revealed matching inflows and outflows, minimal balances, and exceptionally high turnover within a short span, suggesting non-genuine transactions. Similar allegations were made with respect to Dev Sales Corporation. The AO quantified the alleged escaped income at ₹2,05,90,186/-.

The petitioner responded by relying on export invoices, GST returns (GSTR-2A), and banking transactions to assert that the purchases were genuine. However, the AO passed an order under Section 148A(d) dated 31.03.2024 holding it to be a fit case for reopening and issued a notice under Section 148.

Issues Involved

Whether reassessment proceedings initiated under Sections 148A and 148 were liable to be quashed where the assessee relied on GST compliance and export documentation, and whether the material relied upon by the Assessing Officer disclosed a live nexus indicating income escaping assessment.

Petitioner’s Arguments

The petitioner argued that the Assessing Officer failed to comply with directions issued by the Delhi High Court in an earlier round of litigation, and that the impugned order merely reiterated earlier reasons without properly examining documentary evidence such as GST returns, export invoices, and proof of banking transactions. It was contended that once exports were established and GST compliance demonstrated, reopening was unwarranted.

Respondent’s Arguments

The Revenue contended that detailed information from the Investigation Wing established that Balaji Enterprises and Dev Sales Corporation were non-genuine entities providing accommodation entries. It was submitted that summons under Section 131(1A) failed, addresses were found to be fake, telephone verification revealed no knowledge of the entities, and bank statements demonstrated circular transactions indicative of accommodation entries. The Revenue argued that at the Section 148A stage, only a prima facie satisfaction was required.

Court Order / Findings

The Delhi High Court held that the scope of enquiry under Section 148A is limited to determining whether there exists material bearing a live nexus to the belief that income has escaped assessment. The Court found that the Assessing Officer had examined the petitioner’s explanation, GST returns, and export claims, but also relied on detailed Investigation Wing reports indicating that the suppliers were not engaged in genuine business activities.

The Court observed that mere routing of transactions through banking channels or reflection in GST returns does not conclusively establish genuineness where strong material suggests accommodation entries. The bank account analysis, matching inflows and outflows, minimal balances, and inability to trace suppliers constituted sufficient material at the threshold stage.

The Court further clarified that reopening does not foreclose the petitioner’s right to establish genuineness during reassessment proceedings and that sufficiency of evidence is not to be examined in writ jurisdiction at the initiation stage.

Important Clarification

The Court clarified that Section 148A provides a safeguard against arbitrary reopening but does not require conclusive proof of escapement of income. Where Investigation Wing material discloses a live nexus suggesting non-genuine transactions, reassessment proceedings are legally sustainable.

Final Outcome

The writ petition was dismissed. The Delhi High Court upheld the notice issued under Section 148A(b), the order passed under Section 148A(d), and the consequential notice under Section 148 for Assessment Year 2018–19, holding that no grounds for interference were made out. Pending applications were also disposed of.

 Link to download the order - https://www.mytaxexpert.co.in/uploads/1769850778_MAJESTICHANDICRAFTPRIVATELIMITEDVsDY.COMMISSIONEROFINCOMETAXCIRCLE161NEWDELHI.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.