In the High Court at Calcutta Constitutional Writ Jurisdiction Original Side GA1228of 2015 WP269of 2015 M/S.Korp Resources PVT.LTD.& Anr.
-Vs.Deputy Commissioner of Income Tax, Circle-3, Kolkata & ORS.Coram : The Hon’ble Justice Arijit Banerjee For the Petitioners : Mr.S.Basu, Sr.Adv.Mr.S Dasgupta, Adv.Mr.D.Mukherjee, Adv.For the Respondents : Mr.S.B.
Saraf, Adv.Mr.K.K.
Maity, Adv.Heard On : 01.04.2015, 16.04.2015, 24.04.2015, 16.11.2015 06.05.2016, 31.08.2016, 29.09.2016, 04.10.2016 CAV On : 06.10.2016 Judgment On : 22.12.2016 Arijit Banerjee, J.(1) In this writ application the petitioners challenge notices issued by the Income Tax Department under Section 148 read with Section 147 of the IT Act, 1961 pertaining to the assessment years 2007-08 to 2011-12 and other consequential notices.
(2) The respondent No.1 issued five notices all dated between 6 February, 2014 and 28 February, 2015 under Section 148 of the IT Act pertaining to the five assessment years from 2007-08 to 2011-12 for reassessment of the petitioner company’s income for the said yeaRs.(3) By five letters all dated 4 March, 2014, the petitioner company requested the Assessing Officer for copies of reasons recorded for the issuance of the notices under Section 148 of the IT Act.
(4) By five separate letters dated 7 March, 2014 the office of the Deputy Commissioner of Income Tax, Circle 3, Calcutta communicated to the petitioner company the reasons for issuing notices under Section 148 of the IT Act.
(5) The petitioners challenged the said communications dated 7 March, 2014 by filing WP No.1138 of 2014 in this Court.
The said writ petition was disposed of by an order dated 18 December, 2014, the operative portion whereof is as follows:“More particulars are required.
If at all there is a network through which the assessee is operating, the main circuits have to be identified.
In those circumstances, the communications dated 7 March, 2014 being ‘P-8’ collectively, are set aside.
The respondents are directed to issue fresh communications containing details to substantiate the allegations of the department by 27 February, 2015.
If they are not issued, the Secs.
147, 148 proceedings in respect of the above assessment years will automatically stand dropped.
If the fresh reasons are supplied, the writ petitioner will have the right to reply to them within four weeks after communication of the reasons.
In that event, the Secs.
147, 148 proceedings in respect of the above assessment years will remain suspended till the reply is received and processed by the Income Tax Department, by a decision.” (6) Thereafter the office of the Deputy Commissioner of Income Tax wrote a letter dated 15 January, 2015 to the petitioneRs.the material portion whereof is set out hereinbelow:“A copy of the order of the Hon’ble Kolkata High Court in respect of Writ Petition No.1138 of 2014 has been received from the A/R of your company.
However, the certified copy of the same are yet to be received and presuming it to be authentic, the details relating to formation of opinion of escapement of income for the assessment years 2007-08 to 2011-12 are hereby forwarded to you for communication of the same as per direction of the Hon’ble Kolkata High Court.
The ITI of the department was deputed to verify the genuineness of the parties and transaction.
On enquiry, it was found that there was no existence of the companies in the recorded address.
As such there were sufficient reasons to believe that the introduction of share capital and premium in the assessee company was mere accommodation entries from paper companies.
It may be noted that reasons to believe was only formed on the basis of enquiry.
Certified copies of enquiry report submitted by the departmental ITI are enclosed herewith as Annexure A consisting of 12 pages.” (7) The present writ petition was filed on or about 4 March, 2015 challenging the Section 148 notices as also the letter dated 15 January, 2015.
During the pendency of the writ petition the respondent No.1 passed five ex parte assessment orders all dated 31 March, 2015 for the assessment years 2007-08 to 2011-12 which were brought on record by the petitioner company by filing GA No.1228 of 2015.
Contention of the petitioners:(8) The sole contention of the petitioners is that this Court’s order dated 18 December, 2014 has not been complied with by the Department and as such the proceedings under Section 148 of the IT Act in respect of the aforesaid assessment years automatically stand dropped.
Learned Counsel submitted that no fresh reasons were supplied by the Department as required by this Court’s earlier order.
The Income Tax Inspector’s report supplied under cover of the letter dated 15 January, 2015 were the details relied on for issuing the letters dated 7 March, 2014 communicating the purported reasons for issuing the Section 148 notices.
Such reports culminated in the letters dated 7 March, 2014.
However, the letters dated 7 March, 2014 were set aside by this court on the ground that the reasons mentioned therein were insufficient.
Hence, the Income Tax Inspector’s report cannot be the fresh reasons that were required to be supplied by the Department.
This has also been accepted by the Department by not assailing the order dated 18 December, 2014.
(9) Learned Counsel submitted that it is also the contention of the respondents that after issuance of a notice under Section 148 of the IT Act, fresh reasons cannot be recorded by them.
Recording of reasons must precede issuance of a Section 148 notice.
In spite of the same, the respondents accepted the order of this Court requiring them to give fresh reasons.
Now the respondents are trying to save the situation by interpreting this Court’s order in a manner which cannot be sustained.
Learned Counsel emphasised that the basis of initiation of proceedings under Section 148, namely, reasons contained in the letters dated 7 March, 2014 were found to be bad and hence have been set aside and for want of power or capacity to cite fresh reasons, proceedings under Section 148 are liable to be quashed.
(10) Learned Counsel contended that the only allegation of the Department is that the shareholders shown to have subscribed to the capital of the petitioner company and the entities shown to have provided service to the petitioner company, to whom payments were shown to have been made, were fictitious and had no real existence.
However, all notices issued to them by the Department have been received by them.
In the affidavit-in-opposition of the respondents, there is no denial of the fact that the shareholders are in existence.
This was the only basis/reason to reopen the petitioner company’s assessment for the years mentioned above and such reason has been set aside by this Court.
The respondents admit, once Section 148 notice is issued, no fresh reasons can be recorded.
He submitted that this is a case where there has been ab initio error apparent on the face of the decision making process and gross abuse of statutory process.
(11) Learned Counsel then submitted that even assuming but not admitting that fresh and valid reasons were supplied by the letter dated 15 January, 2015, even then, the petitioner company had a right to file an objection to such reasons and the respondent No.1 would have been under a mandate to consider and pass an order rejecting or accepting such objection.
The petitioner company cannot be deprived of such a right to file an objection merely because of its bona fide decision to agitate the issue of non-supply of valid/fresh reasons by way of the present writ petition.
It was wholly improper on the part of the Department to pass ex parte assessment orders on 31 March, 2015 with the knowledge that the present writ petition was pending.
This amounts to overreaching the Court.
Further, submitted learned Counsel, that had the petitioner company filed objection to the reasons furnished by the Department by the letter dated 15 January, 2015 and such objection was rejected by the Department, then and in that case, the petitioner company had the right to assail such rejection order by way of judicial review.
Hence, initially or finally, judicial review is permissible and the right to object to the reasons supplied cannot be taken away just because appealable orders of assessment have now been passed.
(12) As an alternative, Learned Counsel submitted that the assessment orders dated 31 March, 2015 be set aside and the petitioner company be granted liberty to file its written objection to the purported reasons supplied under cover of the letter dated 15 January, 2015 and the proceedings could take their ordinary couRs.in accordance with law thereafter.
Contention of the respondents:(13) Appearing for the Department, Mr.Saraf, Learned Counsel submitted that notices for re-assessment under Section 148 of the IT Act for the assessment years 2007-08 to 2011-12 were issued after a survey had been conducted at the business premises of the petitioner company on 30 September, 2013.
Reasons recorded for issuance of such notices were supplied by letters dated 7 March, 2015.
By the order dated 18 December, 2014 passed in WP No.1138 of 2014 this court had directed the Department to issue fresh communications containing details to substantiate the allegations of the Department.
By letter dated 15 January, 2015 the Department provided the fresh reasons along with certified copy of the enquiry report containing details of the investigation.
As per this Court’s order, the petitioner company was required to file reply to the reasons within four weeks after communication of the reasons.
The petitioner company failed to do so and also did not participate in the assessment proceeding that followed.
(14) The petitioners filed the present writ petition in the month of March, 2015, one month after the time expired for filing reply before the respondent authorities.
When the matter came up for hearing in the month of April, 2015, no one appeared on behalf of the writ petitioners and the writ petition was dismissed for default.
On 31 March, 2015, the re-assessment orders under Section 147 of the IT Act for the five assessment years were passed.
The writ petitioners thereafter filed an application being GA No.1228 of 2015 in the month of April, 2015 that came up for hearing before this court on 8 June, 2015 and direction for affidavits was given.
No interim order was passed.
(15) Learned Counsel submitted that the respondent authorities have acted strictly in accordance with the order passed in the earlier writ petition and supplied the fresh reasons along with the particulars of the enquiry conducted which formed the bedrock of the recorded reasons.
He submitted that the contention of the Department is not that the companies shown to be shareholders of the writ petitioner or service providers to the petitioner company are non-existent but that they are paper companies.
The petitioner company has endeavoured to legitimize its unaccounted income in cash money by showing the same as share subscription money paid by paper companies and also by showing payment by the petitioner company for alleged services provided by paper companies.
Mr.Saraf submitted that the procedure to be followed in the case of re-assessment has been laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd.-vs.-Income Tax Officer, (2003) 259 ITR19 and in particular he relied on the following observation of the Hon’ble Apex Court in the said judgment which is set out hereinbelow:“We see no justifiable reason to interfere with the order under challenge.
However, we clarify that when a notice under Section 148 of the Income tax Act is issued, the proper couRs.of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices.
The assessing officer is bound to furnish reasons within a reasonable time.
On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order.
In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking Order before proceeding with the assessment in respect of the abovesaid five assessment years.” (16) Learned Counsel submitted that the IT Act provides for a complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities and the assessee should not be permitted to abandon that machinery and invoke the jurisdiction of the High Court under Art.
226 of the Constitution of India when he has an adequate alternative remedy open to him by way of an appeal to the Commissioner of Income Tax (Appeals).In this connection he relied on a decision in the case of Commissioner of Income Tax-vs.-Chhabil Dass Agarwal, (2013) 357 ITR357 (17) Learned Counsel then relied on a decision of the Hon’ble Apex Court in the case of Phool Chand Bajrang Lal-vs.-Income Tax Officer, (1993) 203 ITR456in support of his submission that it is not open to the Writ Court to judge the sufficiency of reasons provided by the Income Tax Officer and in particular he relied on the following observations of the Apex Court:“Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information.
To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Incometax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief.
It would be immaterial whether the Income-tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment.” (18) Mr.Saraf then submitted that the Income Tax Officer is justified in trying to ascertain the source of depositors as he has tried to do in the instant case.
In this connection he referred to the Division Bench decision of this Court dated 13 May, 2016 in the case of Rajmindir Estates PVT.Ltd.-vs.-Principal Commissioner of Income Tax, Kolkata-III, Kolkata (delivered in ITAT No.113 of 2016) wherein the Division Bench referred to and agreed with a Full Bench decision of the Delhi High Court in the case of CIT-vs.-Sophia Finance LTD.(1994) 205 ITR98 wherein it was held that the Income Tax Officer may even be justified in trying to ascertain the source of the deposit, assuming he is identified in order to determine whether that depositor is a mere name-lender or not.
The Income Tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money.
(19) On the basis of the aforesaid submission, Mr Saraf, submitted that the writ petition should be dismissed and the petitioners should be relegated to the alternative statutory remedy available under the IT Act.
Court’s View: (20) I am unable to accept the petitioner’s contention that this Court’s order dated 18 December, 2014 has not been followed by the Department and that therefore the Section 148 proceedings stand dropped.
By the said order, this Court had found that the communications dated 7 March, 2014 were inadequate and not sufficiently informative and, hence, had set aside such communications with a direction on the Department to issue fresh communications containing details to substantiate the allegations against the assessee.
The Department duly issued fresh communication dated 15 January, 2015 and along with it supplied certified copy of the enquiry report containing details of the investigation conducted by the Department at the business premises of the petitioner company.
Such report makes it clear as to why the Section 148 notices were issued for re-assessment.
I am not impressed with the argument of the petitioner’s learned Counsel that fresh reasons were not supplied by the Department.
By issuing the communications dated 15 January, 2015 along with copy of the enquiry report, the Department made the reasons for reopening the assessment crystal clear.
In my opinion, the petitioner company should have filed its objection to the reasons communicated by the Department and then it would have been incumbent upon the assessing officer to pass an order dealing with such objection before proceeding with the reassessment proceeding.
If the assessee was aggrieved by the result of the reassessment proceeding, it would have had a comprehensive remedy by way of a statutory appeal.
In my view, the petitioners were ill-advised to file the present writ application.
(21) Whether or not the reasons recorded by the assessing officer for issuing notices under Section 148 are valid and good reasons is entirely a factual issue.
The assessee would have the right to urge before the assessing officer that the reasons are not justifiable and the assessing officer would have to deal with and dispose of the assessee’s objection by a reasoned order.
This is the proper couRs.of action as also held by the Hon’ble Apex Court in the case of GKN Driveshafts (India) LTD.(supra).In the present case, the Writ Court cannot go into the disputed fact of whether or not the petitioner company has window-dressed its accounts by showing contributions on account of share subscription money by paper companies and by showing payments for alleged services rendered by shell companies.
Such factual matters are within the exclusive domain of the assessing officer.
(22) I would have simply dismissed this writ petition had ex parte assessment orders dated 31 March, 2015 not being passed.
Although strictly speaking there was no impediment to the assessing officer proceeding with the reassessment in respect of the petitioner company since there was no order of stay, yet, in my view, it would have been proper for the Department to obtain leave of this Court before proceeding ex parte against the petitioner company since the instant writ petition was pending.
Further, ex parte proceedings and ex parte orders are generally frowned at by the Courts of Law unless there are compelling reasons or good justification for the same.
It is of utmost importance that any proceeding which is likely to affect the civil rights of a party is conducted strictly in accordance with the principles of natural justice.
Audi alteram partem does not enshrine a principle of mere formality.
It embodies a very valuable right of a citizen i.e.not to be condemned unheard.
Hence, to the extent possible, courts insist on the principles of natural justice being observed in the matter of conducting proceedings which culminate in orders likely to affect the rights of the party concerned.
(23) In view of the aforesaid, and for the ends of justice, I am inclined to give an opportunity to the petitioner company to file its objection to the reasons recorded by the assessing officer for issuing the notices under Sec.
148 of the IT Act so that the assessing officer may conduct the assessment proceeding afresh from that stage.
Solely on that ground and without going into the merits of the assessment orders dated 31 March, 2015, the said assessment orders are set aside.
The petitioners are permitted to file objection to the Department’s communication dated 15 January, 2015 within three weeks from date.
In the event they do so, the assessing officer shall consider and dispose of such objection by a reasoned order, before proceeding, if at all, with the reassessment in accordance with law and the principles of natural justice.
If the petitioners do not file their objection within the time indicated above, the assessment orders dated 31 March, 2015 shall stand revived.
(24) I have already indicated that I am of the view that the petitioners should have filed their objection as they were permitted to do by this Court’s order dated 18 December, 2014, rather than filing the present writ application.
It is only for the ends of justice that I have granted one more opportunity to the petitioners to participate in the reassessment proceedings.
I am of the view that the petitioners should be put on terMs.Accordingly, the petitioners shall pay costs of this application assessed at Rs.25,000/- to the respondent Department.
Such cost is to be paid within two weeks from date.
In default of payment of such cost this writ application shall stand dismissed.
(25) WP No.269 of 2015 along with GA1228of 2015 are accordingly disposed of.
(26) Urgent certified photocopy of this judgment and order, if applied for, be given to the parties upon compliance with necessary formalities.
(Arijit Banerjee, J.)