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IT Act| AO’s Attempt To Get Reopening Assessment Approved Is Just Rubber-Stamped: Delhi High Court

Title:  Manujendra Shah v. Commissioner of Income Tax and Anr.
Decided on:  18th July, 2023

+  W.P.(C) 12677/2018

 CORAM:HON’BLE MR. JUSTICE RAJIV SHAKDHER HON’BLE & MR. JUSTICE GIRISH KATHPALIA

Introduction

The Delhi High Court quashed a reassessment notice issued under the Income Tax Act, ruling that the proceedings were initiated without proper application of mind. The reassessment was based on the incorrect invocation of Section 50C of the Income Tax Act and the erroneous determination of the market value of the land as on April 1, 1981, for the computation of capital gain. The Court found that the Assessing Officer (AO) and the Principal Commissioner of Income Tax (PCIT) failed to properly consider the relevant provisions and materials before reopening the assessment.

Facts

The Assessee, an individual, filed a return of income for the Assessment Year (AY) 2011-12, disclosing long-term capital gain (LTCG) of Rs. 1.47 crore from the sale of six parcels of land. The Assessee declared the full value of consideration (FVC) as Rs. 20.26 crore and the cost of acquisition (COA) as Rs. 17.77 crore, claiming an exemption of Rs. 1 crore under Section 54EC.

The Revenue initiated reassessment proceedings, alleging non-disclosure of the actual FVC of Rs. 5.32 crore, which was below the circle rate specified by the stamp valuation authority. They also invoked Section 50C and questioned the COA of Rs. 17.77 crore, claiming an escapement of income amounting to Rs. 18.56 crore.

The Assessee approached the High Court, contending that the AO did not possess relevant material before initiating the reassessment proceedings.

Analysis

The Delhi High Court observed that Section 50C clearly stipulates that the FVC should be taken as the circle rate fixed by the stamp valuation authority while calculating capital gain under Section 48 of the Act. In this case, there was no dispute that the Assessee had already calculated capital gains based on the circle rate of Rs. 20.26 crore. Hence, the invocation of Section 50C was inapplicable as the capital gain was already computed using the circle rate.

The significant difference in LTCG between the AO and the Assessee was due to the difference in the COA. The AO based the COA on inputs claimed by the DCIT (Central Circle), Dehradun, using a rate of Rs. 8 per square meter, while it was claimed that Rs. 10 per square meter should have been used.

The High Court noted that the AO failed to apply his mind to the inputs from DCIT (Central Circle) and did not provide any reason for adopting the rate of Rs. 8 per square meter instead of Rs. 10 per square meter for calculating COA.

Held

The Delhi High Court held that there was complete non-application of mind by the AO, both in the applicability of Section 50C and in failing to secure the relevant material from DCIT, Dehradun, for determining the market value of the land as on April 1, 1981, which forms the basis of COA. Consequently, the reassessment proceedings were quashed.

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Written by- Ankit Kaushik

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Social Media and Freedom of Speech: The Legal Boundaries in India

Introduction:

Social media platforms have become integral to modern communication, enabling people to express their opinions and engage in public discourse. However, the intersection of social media and freedom of speech raises important legal considerations. This article explores the legal boundaries of free speech on social media platforms, the challenges of content moderation, and the delicate balance between freedom of expression and harmful speech in India.

Freedom of Speech in India:

 India, as a democratic country, values freedom of speech as a fundamental right enshrined in the Constitution. Article 19(1)(a) guarantees the right to freedom of speech and expression, subject to reasonable restrictions for the protection of public order, decency, and morality.

Legal Boundaries on Social Media:

While individuals enjoy the right to express their opinions on social media, certain restrictions exist within the legal framework. The Information Technology Act, 2000, and its subsequent amendments regulate online activities, including social media platforms.

The legal boundaries on social media platforms involve a combination of legislation, regulations, and court interpretations. Here are some key aspects that define the legal boundaries on social media:

  1. Information Technology Act, 2000, and its Amendments:

 The Information Technology Act (IT Act) in India governs various aspects of online activities, including those related to social media. Some key provisions within the IT Act that set the legal boundaries include:

  1. Section 69A: Under this section, the government has the power to block online content that threatens national security, public order, or incites violence. It empowers the government to issue directions to block access to specific content or websites.
  2. Section 79: This section deals with the liability of intermediaries, including social media platforms. It requires intermediaries to observe due diligence and promptly remove or disable access to illegal content upon receiving notice from appropriate authorities.
  3. Section 505(2): Sharing or spreading content that promotes hatred, enmity, or ill-will among religious or social groups is punishable under this section.
  4. Intermediary Guidelines and Digital Media Ethics Code (2021):

 The Intermediary Guidelines and Digital Media Ethics Code were introduced by the government of India in 2021 to regulate social media intermediaries and digital media platforms. These guidelines impose certain obligations on intermediaries, including social media platforms, such as:

  1. Appointment of a Chief Compliance Officer, Grievance Redressal Officer, and Nodal Contact Person.
  2. Implementation of a robust content moderation mechanism, including the removal of specific categories of prohibited content within 36 hours of receiving a court order or notification from appropriate authorities.
  3. Establishment of a grievance redressal mechanism to address user complaints within a specified timeframe.

Court Interpretations and Precedents:

Indian courts have played a significant role in defining the legal boundaries on social media through their interpretations and judgments. Some key principles established by courts include:

  1. Balancing Fundamental Rights: Courts strive to strike a balance between freedom of speech and other fundamental rights such as the right to privacy, reputation, and public order. They often weigh the context, intent, and potential harm caused by online speech while evaluating its legality.
  2. Clarity and Proportionality: Courts emphasize the need for clear and specific legal provisions to restrict online speech. They also stress that restrictions must be proportionate to the harm sought to be prevented and should not be overly broad or vague.
  3. Due Diligence and Content Moderation: Courts have recognized the responsibility of social media platforms to implement effective content moderation mechanisms. Platforms are expected to have clear policies, guidelines, and mechanisms to remove or disable access to illegal or harmful content.

It’s important to note that the legal boundaries on social media platforms are subject to ongoing debates, legislative changes, and judicial interventions. As technology evolves and new challenges emerge, the legal landscape continues to develop and adapt to address the complexities of social media and freedom of speech.

Challenges of Content Moderation:

Content moderation on social media platforms poses several challenges due to the scale, diversity, and constantly evolving nature of user-generated content.

Here are some key challenges faced in content moderation:

  1. Volume and Speed: Social media platforms receive an enormous volume of user-generated content every second. Moderating this massive amount of content within a short time frame is a significant challenge. The speed at which content is shared and spread on social media requires platforms to employ efficient systems and technologies to identify and moderate harmful or objectionable content promptly.
  2. Contextual Nuances: Content moderation becomes challenging due to the need to understand and interpret the contextual nuances of user-generated content. Differentiating between legitimate expression and harmful speech requires considering the specific context, intent, cultural factors, and local sensitivities. The lack of contextual understanding can lead to the misinterpretation or wrongful removal of content.
  3. Varying Legal and Cultural Standards: Social media platforms operate globally, but legal standards and cultural norms differ across jurisdictions. Compliance with diverse legal frameworks and striking the right balance between different cultural sensibilities poses a challenge. Platforms must navigate these variations to ensure consistent and fair content moderation practices.
  4. Automation and Human Review: To cope with the volume of content, platforms often rely on automated systems for content moderation. However, relying solely on automation can lead to errors, false positives, and removal of legitimate content. Striking the right balance between automated systems and human review is crucial to ensure accurate and context-sensitive content moderation.

Recent Legal Developments:

In recent years, India has taken steps to regulate social media platforms and address concerns related to harmful speech. Notable developments include:

  1. Intermediary Guidelines and Digital Media Ethics Code (2021): These guidelines introduce obligations for social media intermediaries, including appointing a Chief Compliance Officer and implementing a grievance redressal mechanism.
  2. Court Decisions: Indian courts have intervened in cases involving freedom of speech on social media platforms, aiming to strike a balance between free expression and protecting individuals from harm.

Balancing Freedom of Expression and Harmful Speech:

Balancing freedom of expression and the need to combat harmful speech is crucial. Striking the right balance involves creating transparent content moderation policies, considering contextual factors while assessing content, and promoting public awareness about responsible digital citizenship.

Here are some key considerations in balancing freedom of expression and harmful speech:

  1. Legal Framework and Restrictions: Freedom of expression is not an absolute right and is subject to reasonable restrictions. Legal frameworks, including national constitutions, human rights conventions, and local laws, define the boundaries within which freedom of expression operates. These restrictions are typically aimed at protecting public order, national security, the rights and reputations of others, and preventing harm. Identifying and enforcing these restrictions effectively is essential to maintain the delicate balance between free expression and preventing harm.
  2. Clear Definitions and Standards: One of the challenges in balancing freedom of expression and harmful speech lies in defining and interpreting what constitutes harmful content. Vague or ambiguous definitions can lead to inconsistencies and subjective decision-making in content moderation. It is crucial to establish clear standards and guidelines that provide clarity on the types of speech that are considered harmful and warrant intervention.
  3. Contextual Evaluation: Context plays a vital role in determining the potential harm caused by speech. The intention behind the speech, its social and cultural context, and the potential impact on individuals or marginalized groups must be carefully considered. Contextual evaluation helps distinguish between legitimate expressions of opinion and speech that incites violence, promotes hate, or targets individuals or communities. Platforms need to develop sophisticated moderation mechanisms that account for contextual factors while assessing and handling content.
  4. Proportionality and Consistency: Ensuring proportionate responses to harmful speech is crucial. The severity of the harm caused, the intent of the speaker, and the potential impact on society should be taken into account when determining appropriate measures. Responses to harmful speech should be consistent and applied uniformly to avoid allegations of bias or unfair treatment.

Finding the right balance between freedom of expression and harmful speech on social media platforms is an ongoing challenge. It requires continuous evaluation, refinement of policies and practices, and an understanding that the digital landscape is constantly evolving. By incorporating legal frameworks, clear definitions and contextual evaluation, a more inclusive and responsible digital environment can be fostered.

Case Laws

Some of the case laws that provide important legal precedents and interpretations in the context of social media and freedom of speech in India include:

  1. Indian National Congress (I) v. Union of India (2014): In this case, the Supreme Court upheld the validity of Section 66A but clarified its interpretation. The court held that online speech could only be restricted if it posed an actual threat to public order or had the potential to incite violence. It emphasized the importance of striking a balance between free speech and maintaining public order.
  2. Kamlesh Vaswani v. Union of India (2015): This case dealt with the issue of blocking websites hosting objectionable content, particularly child pornography. The Supreme Court held that intermediaries like social media platforms have a responsibility to proactively identify and block access to such content to protect children from exploitation.
  3. Faheema Shirin R.K. v. State of Kerala (2019): The Kerala High Court ruled in this case that the freedom of choice and expression of an individual cannot be curtailed merely based on objections raised by others on social media. It emphasized the importance of allowing individuals to express their opinions freely without fear of retaliation or censorship.
  4. Maheshwari v. Union of India (2020): This case involved a plea seeking quashing of an FIR filed against a social media user for allegedly posting objectionable content. The Supreme Court emphasized that social media users cannot be held liable for the mere forwarding or sharing of content unless there is a clear intent to promote hate speech or incite violence.

Conclusion:

Social media platforms have transformed the way people communicate, making freedom of speech a critical issue in the digital age. While India recognizes freedom of speech as a fundamental right, it also imposes reasonable restrictions to protect public order and harmony. The legal boundaries of free speech on social media platforms must be navigated carefully, ensuring a balance between the right to express opinions and the prevention of harmful speech. Ongoing discussions, regulatory developments, and judicial interventions contribute to shaping the legal landscape and finding this delicate balance in India.

References

Case Laws

  1. Shreya Singhal v. Union of India, (2015) 5 SCC 1
  1. Indian National Congress (I) v. Union of India, (2014) 16 SCC 1
  2. Kamlesh Vaswani v. Union of India, (2015) 2 SCC 701
  3. Faheema Shirin R.K. v. State of Kerala, (2019) SCC Online Ker 529
  4. Maheshwari v. Union of India, (2020) SCC Online SC 1223

Websites

Statutes

  • Information Technology Act, 2000

ARTICLE WRITTEN BY AMIT ARAVIND

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

 

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A vague description of a show cause notice served under section 179 of the IT Act is illegal and fails to subsist: Gujarat High Court

Kushal Vinodchandra Mehta vs The Income Tax Officer, Ward … on 2 May, 2023

Bench: Honourable Justice Ashutosh Shastri

R/SPECIAL CIVIL APPLICATION NO. 12634 of 2019

Facts

The petitioner in this case was appointed as the director of ‘Annapurna Polymers Pvt. Ltd.’ Later on, he sold his shares and resigned from the post. The company later on went into liquidation and an Official Liquidator was appointed. Then, after an unreasonable period, a show cause notice in exercise of power under Section 179 of the Income Tax Act came to be issued to the petitioner calling upon the petitioner to show cause why an order should not be made against him for the pending tax dues of ‘Annapurna Polymers Pvt. Ltd,’ for the Assessment Year 2011-12 amounting to Rs.1,16,58,350/-.

The provisions of Section 179 of the Income Tax Act, 1961 provides that if any tax due from a private company, in respect of any income of any previous year cannot be recovered then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable

The petitioner responded to the notice starting that the tax dues relate to a disputed issue which is under litigation and the notice does not state any efforts undertaken to recover money from the Company itself and further non-recovery of said dues does not amount to breach of duty in the affairs of the Company and as such the notice is vague. Due to this reason, the petition has been brought before the High Court

The advocate appearing for the petitioner contended that the notice itself is vague, without reflecting any condition precedent as mentioned in Section 179 of the Income Tax Act and by issuing such vague notice, the petitioner has been deprived of making effective representation which thereby violated a well-recognized principle of natural justice.

The advocate appearing for the authority opposed this petition by submitting that the notice which had been issued was very well reflecting circumstance regarding the reasons the petitioner called upon under Section 179 of the Income Tax Act and as such, in no circumstance, the notice can be said to be vague

Judgement

The Court held that, from the perusal of the Notice under Section 179 of the Act, 1961, it was revealed that the notice was totally silent as regards to the satisfaction of the condition precedent for taking action under Section 179 of the Act as the notice did not specify the steps that were taken against the company for recovery of the outstanding amount

The court therefore set aside the order and quashed the notice issued and held that it did not adequately satisfy the ingredients of section of 176 thereby allowing the petition. It also directed the respondent authority to re- consider and pass a fresh order

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JUDGEMENT REVIEWED BY AMIT ARAVIND

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”