#Income Tax Archives - Prime Legal

11 May

Powers of Section 127 of the Act can Be invoked for public interest and administrative convenience: Delhi High court

Blog # Writ Petition, #Income Tax, #search operation, delhi high court

CASE TITLE: DOLLAR GULATI v PRINCIPAL COMMISSIONER OF INCOME TAX & ORS. And MARK GULATI v PRINCIPAL COMMISSIONER OF INCOME TAX & ORS.

CASE NO: W.P.(C) 4054/2024 & CM APPL 16537/2024

ORDER ON: 07 May 2024

QUORUM: J. YASHWANT VARMA, J. PURUSHAINDRA KUMAR KAURAV

FACTS OF THE CASE:

The present writ petitions, at the instance of the assessees, seek to assail the impugned orders dated 20 February 2024 [W.P.(C) 4086/2024] and 11 March 2024 [W.P.(C) 4054/2024] passed under Section 127 of the Income Tax Act, 1961

The facts leading to the present petition, are taken into consideration.in W.P.(C) 4054/2024 [Dollar Gulati v. Principal Commissioner of Income Tax, wherein, on 11 April 2023, a search operation under Section 132 of the Act was conducted on the premises of M/s. Zee Lab Group, Pursuant to the said search, some incriminating material alluding to the assessee was discovered and therefore, a notice under Section 131(1A) of the Act was issued to the assessee, whereby, the assessee was called on to furnish details of income earned by him since Assessment Year 2017-18 Thereafter, the assessee furnished a reply to the aforesaid notice, whereby, the financial statements of bank accounts, particulars of the investments made and details of the unsecured loan transactions etc. were provided to the Revenue. Subsequently, on 2 February 2024, a show cause notice was issued to the assessee, whereby, for the purpose of an ‘administrative, convenience, coordinated investigation and assessment’, the case of the assessee was sought to be centralized at DCIT, Central Circle, Karnal, Haryana and the assessee was called upon to furnish objections, if any, against the proposed transfer. Consequently, on 3 February 2024, the assessee furnished his reply against the above noted show cause notice stating inter alia that the proposed transfer was not bona fide and there was no link between the assessee and the searched party. After considering the reply filed by the assessee, on 11 March 2024, the Revenue passed an order under Section 127 of the Act, whereby, the case of the assessee was centralized and transferred from the Income Tax Office Delhi to DCIT, Central Circle, Karnal, Haryana. It is this order which is challenged before this court in this writ petition.

LEGAL ISSUES:

whether the Revenue while passing the impugned order bears in mind the legislative mandate of Section 127 of the Act and considers the objections raised by the assesses (petitioner)?

LEGAL PROVISIONS:

Section 127 of the Income Tax Act, 1961- empowers the Principal Commissioner or Commissioner of Income Tax to transfer cases from one AO to another.

Section 132 of the income tax Act – empowers income tax authorities to carry out a search and seizure of books of accounts, documents, cash, jewellery etc.

CONTENTIONS OF THE PETITIONER:

The Petitioner through their counsel. N.P. Shahi submitted that the impugned order was passed without any application of mind and in a mechanical manner as it reflects no reasoning regarding the transfer of the petitioner’s case from the jurisdictional Assessing Officer to DCIT, Central Circle, Karnal, Haryana. the counsel further argued that the petitioners case was nowhere linked to the searched party and therefore, there was no need for the centralization of the petitioner’s case. He further submitted that due to the arbitrary and irrational order passed by the Revenue, unnecessary hardship would be caused to the petitioner as he has to travel all the way from Delhi to the DCIT, Central Circle, Karnal, Haryana.

CONTENTIONS OF THE RESPONDENT:

The counsel, Mr. Deepak Gupta, appearing on behalf of the Respondent, strongly opposed the submissions advanced by the petitioner’s counsel and submitted that the impugned order was passed following the mandate of Section 127 of the Act. Counsel also argued that the petitioner has duly been given an opportunity of hearing and after considering the reply of the petitioner, the Revenue has passed the impugned order. counsel further submitted that the petitioner had an indelible link to the searched persons, which was even reflected in the reply filed by the a petitioner, to the notice and therefore, an order of centralization under Section 127 of the Act is justifiable.

COURT ANALYSIS AND JUDGEMENT:

The court having been heard both the the parties, analysed the scope and ambit of powers conferred upon the Revenue under Section 127 of the Act. And the court observed that, Section 127 of the Act, is a machinery Provision which is aimed at larger public interest which can be Exercised. Further the court considered that, the legislative mandate advises that the order Of transfer under Section 127 of the Act ought to be passed after Providing a reasonable opportunity of hearing to the assessee. Hence the court opined that, the order passed under Section 127 of the Act should duly reflect the application of mind while disposing of the Objections filed by the assessee. Moreover, the convenience of parties Shall be considered by the Revenue while exercising the powers under Section 127 of the Act, however, the court considered that in view of the administrative nature Of such an order, the administrative convenience of the Revenue and The need for coordinated investigation‘ would take precedence over The logistical difficulties faced by the assessee. It is also fundamental to point out that despite being a machinery provision, the reasons Recorded in the order of transfer should not be capricious or mala fide And such order shall not run contrary to the bona fide objectives of the Act.

For more clear understanding of the ambit and scope of section 127 of the act The following judicial decisions where considered by the court,

P. Mohammed Salim v. CIT,
Infrastructure Ltd. V. Commissioner of Income-tax,
Sanjay Gandhi Memorial Trust v. CIT
Aamby Valley Ltd. V. CIT
Sameer Leasing Co. Ltd. V. Chairman, CBDT,
Bhatia Minerals v. Commissioner of Income-Tax,
Jharkhand Mukti Morcha v. Commissioner of Income-Tax, Ranchi

In the conspectus of the above judicial decisions and principles Emerging from those decisions, the court examined the Grounds of challenge raised, And the court observed that it is evident from an ex facie reading of the impugned order That an opportunity of hearing was given to the assessee and the Revenue has considered the objections raised by the assessee before Passing the impugned order, and moreover, the court opined that the case of the assessee Was centralized on the grounds of coordinated enquiries, Investigations and administrative convenience’, therefore, the Contention of the assessee that the impugned order reflects no Application of mind and the Revenue had not considered the Objections raised by the assessee holds no merit. Therefore the court pointed out that it is crystal clear in light of the Discussion noted above that the powers of Section 127 of the Act can Be invoked for public interest and administrative convenience. Furthermore, the ground of coordinated investigation‘ is a good Ground of transfer as upheld by various decisions quoted above.Furthermore, considering the controversy from another lens of Exercising the power of judicial review vested under Article 226 of the Constitution, the court finds that the present is not a case where the exercise Of statutory powers by the authority can be said to be wholly arbitrary, Irrational, without jurisdiction or suffers with mala fide intention. Therefore, in light of all the discussion and judicial Pronouncements, the court hereby does not opine to interfere with the Orders dated 20 February 2024 [W.P.C. 4086/2024] and 11 March 2024 [W.P.(C) 4054/2024] passed under Section 127 of the Act. Further the court contended that these observations have been made only for the Purpose of deciding the challenge which stands raised before the court they Should not be construed to be an expression on the merits of the case Or otherwise. Accordingly and subject to the aforesaid observations, the court Dismissed these writ petitions.

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Judgement reviewed by:SOWMYA.R

8 May

Section 148 cannot be used without approval of the specified authority, as indicated in Section 151(ii) of the income tax Act: Supreme Court

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Blog # Supreme Court, #appeal, #Income Tax, #specified authority

CASE TITLE: ASHOK KUMAR MAKHIJA. V. UNION OF INDIA AND ORS.

CASE NO: W.P.(C) 16680/2022

ORDER ON: 07 May 2024

QUORUM: J. YASHWANT VARMA. V. JUSTICE PURUSHAINDRA KUMAR KAURAV

FACTS OF THE CASE:

The present petition, filed, seeks quashing of the notices dated 26 May 2022 and 30 July 2022, issued under Section 148A(b) and Section 148, respectively and the consequential order dated 30 July 2022 passed under Section 148A(d) of the Income Tax Act, 1961.

The facts leading present case is that the petitioner On 28 March 2017, was served with a summon seeking verification of cash deposits made by him in his bank account during the period of demonetization Accordingly, the Income Tax Return was filed by the petitioner for AY 2017-18 declaring a total income. The said ITR was subjected to scrutiny assessment on the issues of capital gains/loss on sale of property and cash deposits made during the demonetization period. The petitioner claimed that the said cash deposit in his bank account represents the sale proceeds of the business. While issuing notice dated 20 November 2019 under Section 133(6) of the Act, the Revenue sought confirmation from M/s Mahalaxmi Devi Flavours Pvt. Ltd., from whom the petitioner claimed to have made the purchases. Consequently, on 28 December 2019, an assessment order under Section 143(3) of the Act came to be passed accepting the aforesaid ITR. Later, on 08 April 2021, a notice under Section 148 of the Act was issued, reopening the assessment of the petitioner for AY 2017-18 on the ground that the income of the petitioner which was chargeable to tax, had escaped assessment. However, the said notice was quashed following the decision rendered by several High Courts and concluded that the Revenue issued the impugned notice dated 26 May 2022, under Section 148A(b) of the Act and initiated reassessment proceedings by supplying the petitioner with the information in its possession i.e., an exponential increase in the sales turnover of the petitioner during AY 2017-18, alleging that the same has escaped assessment. Consequently, the impugned order under Section 148A(d) dated 30 July 2022 was passed by the Revenue

LEGAL PROVISIONS:

Section 148 of the Income Tax Act, 1961, which states that if the assessing officer has a reason to believe that some income has escaped assessment, he/she can send a notice under section 148 to the taxpayer

Section 131(1A) of the Income Tax Act, which was introduced to keep a check on the assessee who has concealed income or is trying to conceal income.

Section 151 of income tax act, which states, The Commissioner or an officer authorised by him may, by an order, direct any person to furnish information relating to any matter dealt with in connection with this Act, within such time, in such form, and in such manner, as may be specified therein.

CONTENTIONS OF THE APPELLANT:

Mr. Kalrav Mehrotra, learned counsel for the petitioner argued that the reassessment proceedings for AY 2017-18 lack requisite jurisdiction and are entirely unlawful. He asserted that the initiation of these proceedings stems solely from a change of opinion without providing any new substantial evidence that would warrant such action by the Revenue. He, however, restricted his submission to the extent that as per Section 151 of the Act and because the reopening of the case is occurring after a lapse of more than three years, the appropriate authority for issuance of the notice under Sections 148 and 148A(b) of the Act should have been either the Principal Chief Commissioner or Principal Director General, or in their absence, the Chief Commissioner or Director General, instead of the Principal Commissioner of Income Tax, Delhi-10, who does not fall within the specified authorities outlined in Section 151 of the Act. He relied on the decision of this Court in the case of Twylight Infrastructure Pvt. Ltd. v. ITO & Ors.3 , to substantiate his argument that the impugned notice is bad in law.

COURTS ANALYSIS AND JUDGEMENT:

On hearing learned counsels for parties, the court observed the judgment rendered in Twylight Infrastructure Pvt. Ltd. v. ITO & Ors, Therefore, having regard to the aforesaid, the impugned notices and orders in each of the above-captioned writ petitions are quashed on the ground that there is no approval of the specified authority, as indicated in Section 151(ii) of the Act. The direction is issued with the caveat that the revenue will have the liberty to take steps, if deemed necessary, albeit as per law. Needless to add, the rights and contentions of both the sides will remain open, in the event the revenue triggers reassessment proceedings. Hence with all the above considerations and observations, for the reasons assigned in the aforenoted judgment, the bench allowed the instant writ petition and quashed the impugned notices dated 26 May 2022 and 30 July 2022 and the impugned order dated 30 July 2022, accordingly, The writ petition is disposed of.

judgement reviewed by: Sowmya.R

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14 Mar

Assessing Officer not entitled to make additions again, when the same had been deleted by the CIT(A): Bombay High Court

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Blog #Additions, #Assessee, #Assessing Officer, #Assessment order, #Bombay HC, #CIT(A), #Commissioner of IT, #Income Tax, #ITAT, #Section 260A

Case title – CCIT (OSD)/Pr. Commissioner of Income Tax VS Bhupendra Champaklal Dalal

Case no. – Income Tax Appeal No.1491 OF 2019 (A.Y. 1989-1990)

Decision on – March 06, 2024

Quoram – Justice K. R. Shriram & Justice DR. Neela Gokhale

Facts of the case

The Respondent/Assessee, an individual, was carrying on business as sole proprietor in the name and style of M/s B.C. Devidas. Assessee, who was a registered broker of Bombay Stock Exchange, was also engaged in trading in securities and shares. In addition to the profit, assessee also received salary and commission from CIFCO Limited and Food and Inns Limited in which he was a director.

The Assessee having been involved in the multicrore securities transactions scam of 90’s infamously known as Harshad Mehta Scam, got labelled as notified party on 2nd July 1992 under the Special Court’s (TORTS) Act, 1992. The investigation of Assessee by CBI was followed by a search and seizure action by the IT Department.

The assessment was originally completed after the search operations. Both assessee as well as Revenue filed appeals before the ITAT. The ITAT restored the matters to the file of the Assessing Officer for denovo assessments. Consequently, the assessment order was passed under Section 143(3) read with Section 254 of the IT Act 1961, wherein, certain additions to the income were made.

The Assessee aggrieved by the said order, filed an appeal before Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) partly allowed the appeal. The parties being discontented by the order preferred appeals before ITAT. The ITAT by a common order partly allowed the contentions of assessee for the AY-1989-1990.

The Revenue challenging this decision filed an appeal under Section 260A of the Act before the Bombay High Court.

Court’s Analysis and Judgement

The first issue relates to the disallowance of interest expenses incurred for non-business purposes. The AO disallowed interest of Rs. 12,19,181/- paid to banks and others on the ground that the assessee diverted interest-bearing funds for giving interest-free advances.

The ITAT came to a factual finding that the assessee had huge interest-free debts with him and the assessing officer has failed to recognize the same. The Court agreeing with the findings of ITAT opined that when interest-free funds and interest-bearing funds are mixed together, they lose their respective identities, and hence, the presumption should be that the assessee has used interest-free funds to give interest-free advances.

The ITAT order concluded that even for AY 1989–1990, interest-free funds available with the assessee were sufficient to take care of interest-free advances made. The Court held that ITAT right in concluding that the interest expenditure claimed by the assessee was allowable.

The final issue is related to the deletion of various additions aggregating to Rs. 10,89,30,545/. It is noted by the ITAT that various types of additions aggregating to this amount were made by the Assessing Officer in the original assessment proceedings, and in the appeal filed by the assessee, the CIT(A) deleted these additions.

The department did not prefer an appeal challenging the order of the CIT (A), and hence, the same has attained finality. Only the assessee challenged the additions confirmed by the CIT(A). The ITAT has also restored those additions, which were confirmed by the CIT(A), to the file of the Assessing Officer for fresh examination.

The Bombay High Court upholding the ITAT’s ruling held that the Assessing Officer could not have assessed additions again since the CIT (A) had deleted the same in the first round of proceedings and the concerned matters have attained finality. The Court re-affirmimg the ruling of ITAT held that Assessing Officer was not legally entitled to make these additions again in the second round of proceedings.

Judgement Reviewed by – Keerthi K

Click here to view the Judgement