Case Commentary: Ojaswini Retailers Private Limited & Anr. vs. Union of India & Ors. – Calcutta High Court Quashes Section 148A(3) Order for Violation of Natural Justice
Introduction
The Calcutta High Court, in its order dated 11.06.2026 in WPA 19078 of 2025, delivered a significant ruling on the procedural safeguards under Section 148A of the Income Tax Act, 1961. The case involved a challenge to an order dated 30th June 2025 passed under Section 148A(3) and a consequential notice under Section 148 for Assessment Year 2019-20. The core issue was whether the Assessing Officer (AO) validly formed the opinion that income had escaped assessment without properly considering the assessee’s replies, thereby violating principles of natural justice. The Court quashed both the order and the notice, directing a fresh examination with a reasoned order after granting an opportunity of hearing. This commentary delves into the legal reasoning, the application of Section 148A, and the implications for tax assessment proceedings.
Facts of the Case
The petitioners, Ojaswini Retailers Private Limited, had received a show cause notice under Section 148A(1) on 19th March 2025, alleging that transactions with M/s. Dhansidhi Developers Private Ltd. and M/s. Foremost Enterprise Private Ltd. lacked commercial substance and were accommodation entries. The petitioners filed two detailed replies—on 11th April 2025 and 19th June 2025—along with bank statements from Federal Bank Ltd. and IDBI Bank. The AO, however, passed the impugned order under Section 148A(3) on 30th June 2025, concluding that the transactions were circular and lacked genuineness, and issued a notice under Section 148.
The AO’s order, as reproduced in the judgment, noted that the assessee had furnished only partial bank statements for selected periods. The AO observed a pattern of substantial sums being credited and debited on the same or following day, leaving minimal balances, which was deemed indicative of a circulatory movement of funds. The AO further stated that the entities involved were paper/shell companies used for accommodation entries, and use of legitimate banking channels did not make the transaction genuine.
Legal Reasoning of the High Court
The Court’s reasoning is the longest and most detailed part of the judgment. It focused on two key violations: non-consideration of the replies and perversity of the findings.
1. Non-Consideration of Replies:
The Court held that the AO had not considered the petitioners’ replies dated 11th April 2025 and 19th June 2025 in their entirety. The impugned order merely recorded the submission of partial bank statements but did not address the explanations offered by the petitioners. Under Section 148A, the AO is mandated to consider the reply from the assessee and then decide whether it is a fit case to issue a notice under Section 148. Since specific replies had been filed, the non-consideration thereof vitiated the entire order. This was a clear breach of natural justice.
2. Perverse Findings without Jurisdiction:
The Court found that the AO’s conclusion that income had escaped assessment was “perverse and without jurisdiction.” The order did not contain a detailed finding regarding the income alleged to have escaped for Assessment Year 2019-20. Mere reference to circular transactions, without analyzing the commercial rationale or materials furnished (such as the banking statements and other documents), could not sustain the formation of belief under Section 148A(3). The AO’s reliance on partial bank statements and the pattern of same-day credits/debits was insufficient to conclude accommodation entries. The Court emphasized that “mere routing of funds in the same day cannot ipso facto lead to a conclusion of accommodation entry of money laundering.”
3. Fresh Examination Directed:
The Court quashed the impugned order and notice, and directed the Assessing Officer to revisit the issue regarding the genuineness and creditworthiness of transactions with M/s. Dhansidhi Developers Private Ltd. and M/s. Foremost Enterprise Private Ltd. The AO must pass a reasoned order after affording an opportunity of hearing to the petitioners and other beneficiaries. The petitioners were further directed to produce all banking statements to demonstrate that the circular movements of funds were genuine. The entire exercise was to be completed peremptorily by 15th July 2026.
4. Importance of Natural Justice:
The Court underscored that the AO’s failure to grant an effective opportunity to rebut allegations—despite the petitioners having submitted banking statements and other documents—violated the principles of natural justice. The writ petition was disposed of with no order as to costs, but the allegations made in the petition were deemed not admitted since no affidavit had been called for.
Conclusion
The Calcutta High Court’s ruling in Ojaswini Retailers Private Limited vs. Union of India reinforces the procedural requirements of Section 148A of the Income Tax Act, 1961. The decision makes it clear that an Assessing Officer cannot mechanically issue a notice under Section 148A(3) without properly considering the assessee’s reply and without recording detailed findings on the income escaping assessment. The judgment serves as a warning against perverse and arbitrary findings based solely on patterns of fund movements or partial bank statements. By directing a fresh examination with full natural justice, the Court has ensured that tax proceedings remain fair and legally sound.