The Allahabad High Court, Lucknow Bench, quashed the reassessment proceedings initiated by the Income Tax Department against Yogendra Singh, a scrap dealer and sole proprietor of M/s Awadh Steels, for the Assessment Year 2020-21. The court observed that the approval for the reassessment was given “without application of mind,” and directed the authorities to reconsider the case after appropriately considering the petitioner’s replies.
Background of the Case
Yogendra Singh, the petitioner, is a scrap dealer and the sole proprietor of M/s Awadh Steels, a trading firm established in 2013 and duly registered with the Goods and Services Tax Identification Number (GSTIN). For the Assessment Year 2020-21, Singh filed his Income Tax Return under Section 139(1) of the Income Tax Act, 1961, declaring a total income of Rs. 5,06,240. This was initially accepted by the Income Tax Department.
However, the petitioner received a notice under Section 148A(b) of the Income Tax Act from the Jurisdictional Assessing Officer (JAO), alleging that Singh was involved in bogus purchases amounting to Rs. 66,37,468 from M/s Singh Iron and Metals, a firm alleged to be fraudulent. The said firm had failed to submit regular returns for six months under the Act, leading to its registration being canceled suo motu on December 20, 2020.
Legal Issues Involved
The key legal issues in this case centered around:
1. The Legality of Reassessment Proceedings: The petitioner challenged the notice under Sections 148 and 148A(d) of the Income Tax Act, which pertain to the reopening of assessments based on the alleged bogus transactions.
2. Application of Mind by the Principal Commissioner: The court had to determine whether the Principal Commissioner of Income Tax (PCIT) applied due diligence and proper judgment in approving the reassessment notice under Section 151 of the Income Tax Act.
3. Validity of the Approval Process: The petitioner argued that the approval by the Principal Commissioner under Section 151 was granted without properly considering the petitioner’s detailed reply, which had already been scanned and included in the draft order but was ignored in the final decision.
Court’s Decision and Observations
The Division Bench, comprising Hon’ble Mrs. Sangeeta Chandra and Hon’ble Brij Raj Singh, ruled in favor of the petitioner, Yogendra Singh. The court observed that the Principal Commissioner of Income Tax had given the approval for reassessment without adequately considering the petitioner’s reply. The court noted:
“This Court is of the considered opinion that clearly there is non-application of mind while giving approval under Section 151 of the Act.”
The court also emphasized that the approval process lacked the necessary scrutiny and application of mind by the Principal Commissioner, as required under the law. It stated:
“The judgment does not say that JAO shall issue notice under Section 148 A(b) and order under Section 148 A(d) of the Act without application of mind and without jurisdiction, and that the Principal Commissioner, Income Tax, Lucknow, shall issue approval order under Section 151 of the Act also without application of mind against the assessee.”
The court quashed both the reassessment notice under Section 148 and the approval order under Section 148A(d) and Section 151 of the Income Tax Act. It remitted the matter back to the concerned authorities (opposite parties no. 2 and 3) to pass fresh orders after properly considering the petitioner’s detailed replies. The court directed the authorities to ensure a fair hearing to the petitioner and to apply due diligence in reassessment proceedings.
The petitioner was represented by a team of lawyers including Mr. Manish Misra, Mr. Dileep Pandey, and Mr. Gaurav Upadhyay. The respondents, including the Union of India and the Income Tax Department, were represented by Additional Solicitor General of India (ASGI) Mr. Kushagra Dikshit, along with Mr. Neerav Chtravanshi.
