IT Assessing Officer Asks Firm To Pay Tax On Rs 1.07L Cr; Delhi HC Quashes ‘Arbitrary’ Order

Delhi HC quashes it calling it arbitrary, cryptic & non-application of mind.

The Income Tax has raided over 30 locations linked to the close aides of Samajwadi Party Maharashtra MLA Abu Azmi on Tuesday as a part of a probe on tax evasion
File image Income Tax Department in Delhi. (Representative Image)

Chandigarh: The Delhi High Court has come down with a heavy hand on a weird order of an Income Tax Assessing Officer of the Delhi Circle. The Assessing Officer issued a notice to a firm involved in providing support services of financial intermediation. And the notice was to cough up tax on a supposed income of a whopping Rs 1.07 lakh crore.

Alarmed at the order and the income shown, in April 2022, the aggrieved party Divya Portfolio Private Limited approached the Delhi High Court to seek relief.

The Delhi High Court quashed the injudicious and “arbitrary orders” of the Assessing Officer of the Income Tax department which sought tax on Rs 1.07 lakh crore from Divya Portfolio Private Limited. The Delhi High Court order stated that the “impugned order is arbitrary, cryptic and without application of mind.” That what is being considered income by the Assessing Officer (AO) is the total value of currency exchanged – including salary transactions of the employees, professional fees, and purchases made and not income.

The assessing officer had passed orders that Divya Portfolio Private Limited escaped assessment on the sum of Rs 10,07,05,88,04,543 or Rs 1.07 lakh crore. The officer had issued orders under Section 148 of the Income Tax Act 1961 which gives power to an Assessing Officer to either assess or re-assess any taxable income that may have come under the radar and has not been assessed as per the stipulated guidelines of the Income Tax Act.

The petitioner however stated that the transactions carried out by the company are subject to Securities Transaction Tax (STT) and are to be reported by Stock exchanges. And that the said turnover is not the actual turnover. Thus, the total value which in this case is Rs 1.07 lakh crore is not relevant and only the net gain or loss is accounted for as income.

The court stated that the notice dated March 17, and the order dated 4th April 2022 were cryptic as was evident from the fact that information culled out from the petitioner’s own return and records (namely Form 10DB, GST return, Form 26AS) were used to issue a notice under Section 148A(b) of the Act.

However, the notice did not mention what was wrong in those transactions, what were the apprehensions of the Assessing Officer, and the points on which the Assessing Officer sought clarification.

The court order also stated that it was difficult to understand how expenditure incurred by the petitioner on salaries, payment of professional fees, and purchases could amount to being called income — which purportedly escaped assessment.

Even as there were no allegations that the employees/professionals to whom salaries and fees had been paid were dummies or fictitious entities.

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