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Informist, Wednesday, Feb. 19, 2025

 

NEW DELHI – The Delhi High Court has quashed an order by the income tax department that held that a transaction amounting to INR 73.55 million shown as expenses by Vivo Mobile India Pvt. Ltd. was bogus purchases made by it from Zhonghua (India) Eng. Pvt. Ltd. during 2017-18 (Apr-Mar), and that this should be disallowed. The court also quashed the income tax department's notice under Section 148 of the Income Tax Act, 1961, against Vivo Mobile.

 

The high court noted that the show-cause notice issued under Section 148A(b) of the Act to Vivo Mobile was premised on the basis of a transaction from a fictitious entity, namely Zhongmao (India) Eng. Pvt. Ltd., to the extent of INR 73.55 million. It was only upon the clarification issued by Vivo Mobile that the income tax department came to be informed of the correct name of the entity, which was Zhonghua (India) Eng. Pvt. Ltd.

 

During pre-search enquiries, the department had found that no entity by Zhonghua (India) Eng. was found carrying out activities at its given address. On that basis, the department had concluded that Zhonghua (India) Eng. was a paper entity used for the purpose of accommodation entries by entities such as OPPO Mobiles India Pvt. Ltd and Vivo Mobile. Consequently, the department said that the amount of INR 73.55 million should be disallowed and it was liable to be added to the total income of Vivo Mobile for assessment year 2018-19, suggesting escapement of income. 

 

The high court said that the income tax department had not issued a further notice to Vivo in respect of the alleged non-existence of Zhonghua (India) Eng. calling for an explanation in that regard, and had passed the order under Section 148A(d) of the 1961 Act. This procedure was an abject violation and infraction of the principles of natural justice, in as much as the conclusion regarding the given entity being a bogus entity was never put to the petitioner in the show-cause notice under Section 148A(b) of the Act, the court said. Vivo Mobile was never afforded an opportunity to respond to the allegation, it said. "It is trite that principles of natural justice inhere in all administrative and quasi judicial actions, particularly in taxing statutes, unless expressly barred by legislative intent," the court said.  End

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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