R Cold Storage vs Union of India for arbitrary demand & proceedings

Rs. 50 lakhs cost imposed on the department in case of arbitrary demand and proceedings initiated on the pretext of Faceless Assessment* under Income Tax. Allahabad HC rejects affidavit of Principal Chief Commissioner of Income Tax, U.P. (West) and Uttarakhand Region at Kanpur

1. Heard Sri Abhinav Mehrotra, learned counsel for the petitioner, Sri.S.P. Singh, learned Additional Solicitor General of India, assisted by Sri Anant Kuma Tiwari, learned counsel for the respondent no.1 and Sri Gaurav Mahajan, learned Senior Standing Counsel for the Income Tax DepartmentRespondent Nos. 2,3, and 4.

2. This writ petition has been filed praying for the following relief:
“I. To issue a writ, order or direction in the nature of CERTIORARI quashing the Impugned Notice issued under Section 148 of the Income Tax Act Dated 31.03.2021 [Annexure No. 2 (coll)] r/w Order Dt. 24.03.2022 [Annexure No. 9] issued by the Respondent No.2 and the connected proceedings for Reassessment of Income for A.Y. 2017-18. 

II. To issue a writ, order or direction in the nature of Certiorari Quashing the Re-Assessment Order for the Assessment Year 2017-18, Dt. 31.03.2022 [Annexure No.13] which is made in gross violation of law and principles of Natural justice.

III. To issue a writ, order or direction in the nature of MANDAMUS declaring that Amendment caused to the Income Tax Act, 1961, vide Section 42 of the Finance Act, 2022, OMITTING Sub-Section 9 of Section 144B of the Income Tax Act, is wholly unconstitutional and bad in law.
IV. To issue a writ, order or direction in the nature of CERTIORARI quashing the Order Dt. 30.03.2021 issued under Section 151 of the Income Tax Act, by Respondent No.3 [Annexure No.2 (coll)] and the connected proceedings for Reassessment of Income for A.Y. 2017-18.”
Neutral Citation No. – 2022:AHC:125854-DB

3. By order dated 26.05.2022, the relief No.III has been deleted on the statement made by the petitioner’s counsel that the Relief No.III is not being pressed.

4. This writ petition was heard at length on 18.05.2022, 26.05.2022, 30.05.2022, 05.07.2022, 14.07.2022 and 05.08.2022 and the judgment was reserved on 05.08.2022. Submissions on behalf of the petitioner:-

5. Learned counsel for the petitioner submits that according to own admission of the respondents, information on the basis of which proceeding under Sections 147/148 of the Income Tax Act, 1961 was sought to be initiated was totally unfounded and yet the misleading counter affidavits have been filed by them. The assessee has been harassed continuously by the
respondents. The National Faceless Assessment Center is total failure and insight portal of the department has been made to cause harassment to the assessees. The information collected on the insight portal of the department is not correct. Even reply of the assessee has not been considered at all by the Assessing Officer. In the re-assessment order, despite every material
placed by the assessee before the Assessing Officer-respondent no.4, there is no whisper in the re-assessment order about consideration of the reply. The entire proceedings under Sections 147/148 of the Income Tax Act, 1961 against the assessee is wholly without jurisdiction and the result of arbitrary exercise of power and gross abuse of power. In fact the initation of the
proceedings and passing of the impugned reassessment order, is a glaring example of conscious and deliberate abuse of the powers by the respondents in the name of faceless assessment procedure. Practically the assessees are not being heard at all and they are not in a position to place and demonstrate their stand and to support it by documentary evidences, as available with them. This Court passed a detailed order dated 26.05.2022 and yet the respondents-authorities have no fear of law and are still trying to justify their action while at the same time admitting the information to be not correct. By 2 order dated 30.05.2022 this Court required the respondents to show cause as to why exemplary cost may not be imposed upon them and yet no cause has been shown in their respective counter affidavits filed before this Court. He submits that the writ petition may be allowed with exemplary cost and accountability of the officer may be fixed so that there may be some check on arbitrary exercise of power and abuse of power by the respondents and transparency in the assessment process may be ensured.

6. Learned counsel for the petitioner has referred paragraph Nos. 6,7,8,9, and 10 of the counter affidavit dated 24.07.2022 filed on behalf of the respondent no.1 and submits that the averments made therein show complete collapse of the system in the Income Tax Department. The deponent of the counter affidavit dated 24.07.2022 filed on behalf of Union of Indiarespondent no.1 is the Principal Chief Commissioner and he does even know basic principles of assessment and quasi judicial function of the assessing officer. If the averments made in paragraph Nos. 6,7,8,9, and 10 of the counter affidavit filed on behalf of the respondent no.1 are accepted, then entire assessment process would be an empty formality. From the state of affairs as are prevailing presently as reflected from the paragraph Nos. 6,7,8,9, and 10 of the counter affidavit filed on behalf of the respondent no.1, it is evident that even basic principles of Rule of law have been given complete goby and assessing officer are under threat of the top level or higher authorities that if they want to do justice or want to discharge quasi judicial function, they may face disciplinary action. 

Submissions on behalf of respondent Nos.2, 3 and 4:-
7. Sri Gaurav Mahajan, learned Senior Standing Counsel for the respondent Nos. 2,3 and 4-Income Tax Department submits that against the impugned reassessment order, appeal lie under Section 246A of the Income Tax Act, 1961 and therefore, writ petition may be dismissed on the ground of alternative remedy. He relied upon judgment dated 09.05.2022 in Writ Tax No. 202 of 2022 (Katiyar Cold Storage Private Limited Versus Union of 3 India and 2 others). He referred to paragraph nos. 4 and 5 of the counter affidavit dated 25.07.2022 filed on behalf of the respondent Nos. 2 and 3 and submits that in insight portal the cash deposited by the petitioner was shown as Rs.13,67,24,000/- in the ban k account of the Bank of Baroda, Kanpur, which was 4 times of the actual cash deposit of Rs.3,41,81,000/- in Union Bank of India. In Insight portal it was shown as Rs. 13,67,24,000/-, which information was uploaded by the Deputy Director Income Tax (Inv.), Unit-III, Kanpur. 

Submissions on behalf of Responde nt No.1:-
8. Learned Additional Solicitor General of India submits that the information received and used against the assessee which was made basis to initiate reassessment proceeding and to pass the impugned reassessment order was the result of mistake on the part of the respondents. He referred to paragraph Nos.6,7,8,9 and 10 of the counter affidavit dated 24.07.2022 filed on behalf of the respondent no.1 and sworn by Shishir Jha, Principal Chief Commissioner of Income Tax, U.P (West) and Uttarakhand Region at Kanpur.

Discussion and Findings:-
9. Briefly stated facts of the present case are that the petitioner is a partnership firm engaged in the business of running a cold-storage. It filed its return of income on 17.10.2017 for the Assessment Year 2017-18 declaring a total income of Rs.11,55,016/-. The assessment of the petitioner was completed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act, 1961’) accepting the total income as declared by the petitioner. On 31.03.2021, the Assessing officer issued a notice to initiate proceedings under Section 147/148 of the Act, 1961 alleging that an information has been received that the petitioner has deposited a sum of Rs.13,67,24,000/- in its bank account which is undisclosed income and escaped assessment to tax. The 4 petitioner repeatedly requested the Assessing Officer to supply the reasons recorded but instead of supplying the reasons the respondent No.2 issued notice dated 11.11.2021 under Section 143(2) read with Section 147 of the Act, 1961 which was followed by his letter dated 18.11.2021. In paragraphs 4 and 6 in the aforesaid letter dated 18.11.2021, the respondent No.2 has stated as under: “4. Enquiries made by the A.O. as sequel to information collected/received: Information uploaded by the DDIT(Inv.), Unit-3, Kanpur regarding unexplained cash deposits of Rs.13,67,24,000/- in this case, has been examined. Necessary verification was made from the entire details available in the ITR, on the database of ITBA and ITD and therefore, I have sufficient form of ‘Reason to believe’ to frame my opinion. The Information available with this office has been analyzed and I have framed my opinion after due application of all the facts and mind. 6. Basis of forming reason to believe escapement of Income: In light of the details available on records and on the basis of above facts and findings, I have reason to believe that income of Rs.13,67,24,000/- which is chargeable to tax, has escaped the assessment. Thus, I have reasons to believe that this is a fit case for reopening and there is an escapement of income within the meaning of Explanation 2(a) to Section 147 of the Income Tax Act, 1961.”

10. The petitioner filed its detailed objections before the respondent No.2 vide letter dated 26.11.2021 in which it submitted that the reasons recorded are neither correct nor proper nor honest which may give jurisdiction to the Assessing Officer to issue notice under Section 148 of the Act, 1961. However, without disposing of the objection of the petitioner, the respondent
No.4 (National Faceless Assessment Centre, New Delhi) issued a notice under Section 142(1) of the Act, 1961. Subsequently, the objection dated 26.11.2021 filed by the petitioner was rejected by the respondent No.4 by order dated 24.03.2022 and a show cause notice/ draft assessment order dated 25.03.2022 was issued requiring the petitioner as to why addition of Rs.13,67,24,000/- be not made. Paragraph 4.1 and 5 of the show cause notice/ draft assessment order, is reproduceced below:

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