The Delhi High Court recently set aside a reassessment order against J.G’s Departmental Store under Section 148A(d) of the Income Tax Act, 1961. The Court ruled that the assessing officer had overstepped the scope of the initial notice issued under Section 148A(b), concerning cash deposits during the demonetisation period.
The petitioner, a partnership firm operating seven departmental stores in Delhi, had declared an income of ₹26,30,730 for Assessment Year (AY) 2017-18. During the demonetisation window (09.11.2016 to 30.12.2016), it deposited ₹6,23,39,100 in its bank accounts, primarily from cash sales—a common practice in retail businesses.
Earlier, the Assessee’s return was selected for scrutiny, and the Assessing Officer (AO) accepted its explanation regarding the cash deposits during the assessment under Section 143(3) of the Act. However, the case was later reopened based on new notices issued under Section 148A(b), citing concerns about unexplained transactions, including cash deposits, TCS-related entries, and a fixed time deposit.
The Assessee responded promptly, explaining that all transactions had been duly disclosed during the earlier scrutiny. They clarified that the cash deposits arose from legitimate sales proceeds and submitted reconciliations for TCS and time deposits. Moreover, they pointed out discrepancies in the figures alleged by the AO, emphasizing that actual cash deposits for the financial year were much higher and previously declared.
Despite these detailed submissions, the AO passed an order under Section 148A(d), focusing heavily on a comparative analysis of cash deposits during the demonetisation period vis-à-vis the same period in the previous financial year. The AO noted a significant increase—specifically, a 618.25% rise in cash deposits during the demonetisation months compared to the previous year, suggesting income had escaped assessment.
However, the Court found that this specific allegation of disproportionate increase in cash deposits was never mentioned in the original notice under Section 148A(b). The Court emphasized:
"Concededly, there was no allegation in the notice issued under Section 148A(b) of the Act that the cash deposited by the Assessee in its bank account during the demonetization period was disproportionately higher in comparison with the cash deposited during the corresponding period in the previous financial year."
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Because the Assessee had no opportunity to address this new allegation, the Court concluded that the reassessment order was beyond the scope permitted by the law.
In their judgment, Justices Vibhu Bakhru and Tushar Rao Gedela stated:
"We find merit in the contention that the impugned order passed under Section 148A(d) of the Act had travelled beyond the information furnished to the Assessee... thus, the impugned order passed under Section 148A(d) of the Act cannot be sustained and is set aside."
Consequently, the High Court quashed the reassessment notice and remanded the matter back to the AO for reconsideration. The Assessee was granted two weeks to respond to the points raised in the order under Section 148A(d), after which the AO must pass a fresh order.
The decision underscores the principle that reassessment proceedings must strictly adhere to the grounds stated in the initial show cause notice, safeguarding taxpayers' rights to a fair hearing.
Appearance: For the Petitioner : Mr. Ved Jain, Mr. Nischay Kantoor, Ms. Soniya Dodeja, Mr. Divyansh Dubey and Mr. Govind Gupta, Advocates. For the Respondents : Mr. Shlok Chandra, Standing Counsel with Ms. Naincy Jain, Advocate
Case title: J. G'S Departmental Store v. Income Tax Officer Ward 60(1) & Ors.
Case no.: W.P.(C) 13669/2024
