HC Quashes Reassessment Notice alleging Bogus Purchases made from GST Non-Fillers

The Petitioner filed its return of income for the Assessment Year 2018-19 declaring an income of Rs. 6,32,45,180 and a loss of Rs. 74,36,185. The case of the Petitioner was picked up for scrutiny and an assessment order under Section 143(3) read with Section 144B of the Act was passed assessing the income of the Petitioner at Rs. 6,41,76,500. One of the points for selecting the Petitioner’s case for scrutiny was ‘Business Purchases’ and after analyzing the documents submitted by the Petitioner, no additions were made by the Assessing Officer on account of business purchases. The notice dated 31st March 2022 was issued under Section 148 of the Act as well as the show cause notice dated 16th March 2022 issued under Section 148A(b) of the Act for the Assessment Year 2018-19, did not provide any information and/or details regarding the income that has been alleged to have escaped assessment.

This Court was of the view that the impugned show cause notice, as well as the impugned order under Section 148A(d) of the Act, are based on distinct and separate grounds. The show cause notice primarily states that “it is seen that the Petitioner has made purchases from certain non-filers”. However, no details or any information about these entities was provided to the Petitioner. It is not understood as to how the Petitioner was to know which of the entities it dealt with were filers or non-filers. Further, the impugned order states that a report was prepared against the Petitioner-company which concludes that the assessee had shown bogus purchases from bogus entities to suppress the profit of the company and reduce the tax liability during the years 2015-16 to 2020-21. However, no such report which forms the basis for the ‘information’ on which the assessment was proposed to be reopened had been provided to the Petitioner.

The impugned order dated 30th March 2022 passed under Section 148A(d) and notice dated 31st March 2022 issued under Section 148 of the Act are quashed and the Respondents are given liberty to furnish additional materials in support of the allegations made in the show cause notice dated 16th March 2022 within three weeks including reports, if any. The court quashed the notice, stating that “further, the impugned order states that a report was prepared against the Petitioner-company which concludes that the assessee had shown fictitious purchases from fictitious entities to suppress the profit of the company and reduce the tax liability during the years 2015-16 to 2020-21.” However, the Petitioner had not received a copy of the report that served as the basis for the “information” that led to the proposal to reopen the assessment. In actuality, the show cause notice contains no specific accusations to which the petitioner could respond. Therefore, the present writ petition along with the pending application was disposed of. The rights and contentions of all the parties were left open.

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