Passing an Order Under Section 148A(d) Leading To Issue of Notice Under Section 148 if Assessee Failed to Verify Source for Purchase of Cryptocurrency

The Assessee in this case was involved in trading cryptocurrency and had made investments worth Rs. 4,65,72,546 towards the purchase of cryptocurrency during the assessment year 2018-19. However, the source of these investments was not verified and the Assessee had only declared a nominal income of Rs. 5,46,500 in the ITR filed.

The Directorate of Income-Tax (systems) had flagged higher risk CRIU/VRU information regarding the investment made by the Assessee in cryptocurrency. The Assessing Officer issued a notice under section 148A(b) to the Assessee stating that the source of the investment had not been verified. The Assessee replied stating that the alleged amount reflected only the volume of transactions made in the course of trade of cryptocurrency and not the actual investment amount. However, the Assessing Officer was not satisfied with the reply and passed an order under section 148A(d), leading to the issuance of a notice under section 148.

The Assessee then submitted before the High Court that the Assessing Officer had not considered their reply and had mechanically rejected their objection. The High Court observed that the Assessing Officer had recorded a finding that the material evidence to verify the transaction regarding cryptocurrency was not placed on record. The Assessee had not submitted the relevant ledger statements relating to the trade in cryptocurrency, which would have verified whether it was the volume of trade reflected in the total investment amount or an actual investment made in cryptocurrency.

The High Court agreed with the submission of the counsel for the revenue that bank transactions alone were not sufficient to verify the trade in cryptocurrency. The Assessee should have submitted the relevant ledger statement to evidence that they had entered into trade of cryptocurrency in the manner as had been asserted by them. The High Court held that the exercise undertaken by the authority fulfilled the legal requirement of section 148(A) of the Act, 1961. However, the Assessee was granted liberty to submit appropriate documentary evidence in support of the information in the section 148 proceedings.

The High Court did not find the order of the authority to be perverse or lacking jurisdiction, and therefore, dismissed the petition in favor of the revenue. The Assessee had the opportunity to satisfy the authority by submitting the relevant ledger statement to verify the information submitted by them in the section 148A proceedings.

In conclusion, the High Court dismissed the petition, in favour of the revenue, as it did not find the order either perverse or lacking jurisdiction. The Assessee was granted the liberty to submit relevant documentary evidence in support of the information provided in section 148 proceedings. The High Court emphasized that it would be necessary to peruse the cryptocurrency ledger to determine whether the volume of the trade reflected in the total amount or it was an investment made without any withdrawal.

[Parmesh Chand Yadav v. ITO (2023) 146 514 (Raj.)]

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