Coming down heavily on the jurisdictional assessing officer (JAO) and principal commissioner of income-tax (PCIT) for gross non-application of mind and totally irrelevant remarks alien to the case, causing serious prejudice to the petitioner and leading the petitioner to knock on the doors of the court, the Bombay High Court (HC) imposed a cost of Rs25,000 each on the JAO and PCIT.
In an order in November 2024, the division bench of justice GS Kulkarni and justice Advait M Sethna says, "...the petitioner, a firm of chartered accountants (CAs), has been alleged of having accommodation entries in regard to these purchases which are stated to be inflated resulting in suppression of profits, thereby reducing of the taxable income of the petitioner, while claiming fraudulent input tax credit (ITC), when there was no ITC whatsoever being claimed by the petitioner. All these remarks being made by the PCIT against the petitioner in granting approval under Section 151 of the IT Act for issuing notice under Section 148 of the Income Tax (I-T) Act, in our opinion, has crossed all limits of legitimacy in the discharge of the official duties by the PCIT."
"We have a serious doubt whether the concerned PCIT who has granted such approval can at all continue to discharge his duties on such post. This is required to be seriously considered by the CBDT, in deciding the competence of an officer who is being conferred with such enormous powers, considering the approval as accorded in the present case," it added.
"We are not happy to make the abovesaid observations," the bench continued, "Suffice it to observe that we cannot overlook such gross non-application of mind and totally irrelevant remarks, which are alien to the petitioner's case, has caused serious prejudice to the petitioner, leading the petitioner to knock the doors of this court and invite an adjudication on this petition. This is not the first time that the court is required to observe on such conduct of the PCIT."
The case is related to a notice received under Section 148A(b) by CC Dangi & Associates for assessment year (AY) 2018-19. The firm was in relation with Flash Forge Pvt Ltd (Flash Forge), which, according to the assessing officer (AO), has issued fake invoices in favour of the firm amounting to Rs10.97 lakh for AY18-19.
According to the I-T department, the income of Rs10.97 lakh chargeable to tax had escaped assessment, as CC Dangi & Associates has not set out what kind of professional services were rendered by it to Flash Forge. Hence, the AO found it appropriate to reopen CC Dangi & Associates' assessment.
An incident report by the central board of direct taxes (CBDT) authorities indicated that Flash Forge was engaged in issuing, generating and providing fake or bogus invoices for passing of fraudulent ITC without the supply of goods, from which it was gathered that total purchases reported of Flash Forge against the firm for Rs10.97 lakh which may be the beneficiary of the bogus ITC.
In its reply to the notice, CC Dangi & Associates contended that it has neither purchased any goods nor sold any goods to Flash Forge and had merely rendered professional services and raised four invoices for Rs12.95 lakh. It received Rs11.80 lakh for the services, including Rs9 lakh as professional fees, Rs1 lakh as a tax deduction at source (TDS) and Rs1.80 lakh as goods and services tax (GST).
While pointing out that Rs1.05 lakh was still receivable from Flash Forge, the CA firm furnished copies of the I-T department's record, including form 26-A, which contained the details of professional fees and TDS deducted by Flash Forge. It also provided screenshots of the GSTR-1 filed for the year under consideration, reflecting invoices issued through Flash Forge.
However, the AO passed an order on 31 March 2022 under Section 148A(d) recording that in the firm's case, information was flagged in accordance with the risk management strategy formulated by the CBDT and, as per such information, it was noticed that under the incident report generated by CGST authorities, there were certain entities which were engaged in issuing, generating and providing fake or bogus invoices for passing fraudulent tax credit, without supply of goods. The AO further stated that approval was taken from the PCIT for issuing show-cause notice (SCH) under Section 148A(b).
Hearing the case, Bombay HC opined that the approach of the assessing officer was totally unfounded for more than one reason. "The primary reason being the AO's understanding of the GST transactions, secondly, the AO's complete misreading of the facts, this despite the correct facts being placed on the record of the AO by the firm. Thirdly, tangible material in the form of all documents pertaining to the professional services as rendered by CC Dangi & Associates to Flash Forge and all the details in that regard as reflected in the books of accounts in relation to receipt of fees, the TDS amounts deposited as also the GST amounts deposited in the treasury, have been completely overlooked, misconstrued by the officer."
"We are in fact, not only surprised but pained with the approach of not only the AO in showing such gross non-application of mind, but also with the mechanical approach of the PCIT, Mumbai, in according approval to the issuance of notice to the petitioner under Section 148A(b)," the bench says.
The bench outlined that the information available with CGST cannot ipso facto or automatically apply to the assessee unless the AO has tangible material to indicate that the income has escaped assessment.
(Writ Petition No 247 of 2023 Date: 26 November 2024)
