Delhi HC directs Tax Dept to proceed against Officials since No Reasons Recorded Prior to Issue of Re-Assessment Notice & Manipulation of Records [Read Judgment]

The Delhi High Court in the case of Prabhat Agarwal v. Deputy Commissioner of Income Tax held that the reasons were not recorded before the impugned notice was issued and ordered the concerned Chief Commissioner to cause an inquiry to be conducted as to the involvement of the officials or employee in the manipulation of the record in this case, and take strict disciplinary action, according to the concerned rules and regulations.

The petitioner by way of a writ petition in the present case seeks directions for the quashing of the re-assessment notice issued to him under Section 147/ 148 of the Income Tax Act.

The assessee-petitioner had filed a return declaring losses in the relevant assessment year. The losses claimed were in respect of two transactions i.e. Sale of shares of M/s Parec Technology and on account of sale of mutual fund units. The Assessing Officer proceeded to record that the assessee had acquired Rs. 10/- face value 3,84,500 shares of Parsec Technologies at a premium of Rs. 130/- per share and later another 46500 shares for Rs. 10 (without any premium) from one Ravi Sikka. He then sold (on 26.3.2004) 4,00,000 shares to his father M.M. Agarwal at Rs. 25/- per share and declared a loss. This transaction, according to the AO was not genuine and was a device to avoid tax and a medium of set off other income. Since the assessee’s contentions were turned down before the lower authorities, the present writ petition has been preferred.

The issue before the Court was that whether the assessee is correct in asserting that these reasons were inserted later and did not exist, or were not reflected when the notice was issued. In other words, the veracity of the Revenue’s position that reasons existed on the file before the notice was issued, is disputed.

The respondent contended that the proceedings initiated by the AO under Section 148 are in accordance with law. There was enough material before the AO on the basis of which, he could form a belief that the income chargeable to tax had escaped assessment in the assessee’s case.

The petitioner on the other hand contended that the alleged reasons for re-assessment were not furnished to the petitioner till 18 months from the date of initiation of proceedings under Section 147 of the Act and entirely unreasonable which itself shows that no reasons to believe were recorded as alleged when the notice under Section 148 of the Act was issued.

The division bench comprising of Justices S. Ravindra Bhat and A.K. Chawla after going through the contentions made by the parties, relying on the existing precedents and after analyzing the documentary evidence on record was of the opinion that the “official record lends credence- rather proves the petitioner’s allegations that no reasons were recorded prior to the issue of the notice on 28.05.2007. The AO should have recorded some reasons to justify such reassessment notice, before it was issued, given that it is a mandatory requirement under section 148(2) of the Act.”

Hence, the Tribunal ruling against the revenue held that the reasons were not recorded before the impugned notice was issued. Further, the Court pointed out that “the revenue played a subterfuge, in trying to cover up its omission, and in antedating the record, in the attempt to establish that such reasons existed, and this court’s interference was not called for.” The Court in addition to the relief went further to order the Chief Commissioner concerned to cause an inquiry to be conducted as to the involvement of the officials or employee in the manipulation of the record in this case and take strict disciplinary action, according to the concerned rules and regulations.