M/S NAVODAYA EDUCATION TRUST V. UNION OF INDIA

WA/836/2018

AI Insights

The case involves M/S. Navodaya Education Trust and its trustees, who appealed against the orders of the Income Tax Department and the subsequent dismissal by the Hon'ble Single Judge. The Trust was accused of misusing funds for personal purposes, leading to a raid and seizure of documents. A show-cause notice was issued to withdraw the Trust's approval under Section 10(23C)(vi) of the Income Tax Act, 1961. The appellants argued that the notice was vague and lacked specific allegations, making it difficult to mount an effective defense. The court, referencing precedents, agreed that the notice was insufficiently detailed and set aside the orders, allowing for a reissue of the notice with adequate particulars.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 722288 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 05-02-2019
• Assessment Year: misc
• Other Referred Cases: Gorkha Security Services Vs. Govt. of NCT of Delhi and Others, Mr. S.N. Sinha Vs. The State of Karnataka, by its Secretary Department of Revenue and Others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALGI
• Assessee Lawyers: S S; VIKRAM
• Keywords: Educational trust; Income Tax; Search and seizure; Show cause notice; Withdrawal of approval
• Section: 11; 132; 10(23C)(vi); 13(1)(c)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 5TH DAY OF FEBRUARY, 2019 PRESENT THE HON’BLE MR.JUSTICE L. NARAYANA SWAMY ACTING CHIEF JUSTICE AND THE HON’BLE MR.JUSTICE P.S. DINESH KUMAR WRIT APPEAL Nos.836-840 OF 2018 (T-IT) BETWEEN: 1. M/S. NAVODAYA EDUCATION TRUST, NO.6-2-139/5, MANTRALAYA ROAD, RAICHUR, REPRESENTED BY ITS CHAIRMAN AND TRUSTEE, SRI.S.R. REDDY. 2. SRI. SUNKI RAJENDER REDDY, AGED ABOUT 54 YEARS, S/O LATE SUKI RAJESHWAR REDDY, CHAIRMAN AND TRUSTEE, M/S. NAVODAYA EDUCATION TRUST, YASHODHA, H.NO.4-4-402/117, ANUSHA NAGAR, MANTRALAYAM ROAD, RAICHUR- 584103. 3. SMT. SWATHI RAJENDER REDDY, AGED ABOUT 44 YEARS, W/O SRI. S.R. REDDY, EXECUTIVE TRUSTEE, M/S. NAVODYA EDUCATION TRUST, YASHODHA, H.NO.4-4-402/117, ANUSHA NAGR, MANTRALAYAM ROAD, RAICHUR-584103. 2 4. SMT. SUNKI YASHODHARA REDDY, AGED ABOUT 84 YEARS, W/O LATE SUNKI RAJESHWAR REDDY, EXECUTIVE TRUSTEE, M/S. NAVODYA EDUCATION TRUST, YASHODHA, H.NO.4-4-402/117, ANUSHA NAGAR, MANTRALAYAM ROAD, RAICHUR -584103. 5. SMT. V.SUMA, AGED ABOUT 51 YEARS, W/O SHRI SHANKARNARYAN, TRUSTEE-M/S. NAVODAYA EDUCATION TRUST, NO.22, 14TH CROSS, 27TH MAIN, PADMANABHANAGAR, BENGALURU- 560070. ... APPELLANTS (BY SRI S S NAGANAND, SR. ADV. FOR SRI VIKRAM U.R., ADV.) AND: 1. UNION OF INDIA, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI, THROUGH THE SECRETARY. 2. DIRECTOR GENERAL OF INCOME TAX (INV), KARNATAKA & GOA, 3RD FLOOR, C.R. BUILDING, QUEEN’S ROAD, BENGALURU- 560 001. ... RESPONDENTS (BY SRI JEEVAN J NEERALGI, ADV. FOR R1 R2-SERVED BUT UNREPRESENTED) --- THESE WRIT APPEALS ARE FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE IMPUGNED ORDER DATED 05/02/2018 PASSED BY 3 THE LEARNED SINGLE JUDGE IN W.P.Nos.3468-3472/2018 AND ALLOW THE WRIT PETITIONS AS PRAYED FOR THEREIN, WITH COSTS. THESE APPEALS COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT Heard Sri.S.S. Naganand, learned Senior Counsel for the appellants and Sri. Jeevan J. Neeralgi, learned counsel for the First respondent – Revenue. 2. Though these matters are listed for preliminary hearing, with consent of learned Advocates for both parties, the same are taken up for final disposal. 3. Appellant No.1 is an Educational Trust. Appellant Nos. 2 to 5 are the Trustees. On 16.12.2015, the Income Tax Department conducted a raid in the premises belonging to the Trust and also the residences of some of the Trustees and seized several documents. Thereafter, a notice dated 28.11.2017 was issued calling upon the Trust to show cause as to why approval granted under Section 10(23C)(vi) of the Income Tax Act, 1961, (for brevity ‘the 4 Act’) should not be withdrawn for violating the provisions of the Act. The Trust gave its reply through Chartered Accountant on 11.12.2017. The authorities passed an order dated 21.12.2017 withdrawing the approval granted under Section 10(23C)(vi) of the Act, by the Chief Commissioner of Income Tax, Hubli, with effect from assessment year 2010-11 onwards. The said order is challenged in the instant writ petitions. The Hon’ble Single Judge has dismissed the writ petitions. Hence these writ appeals. 4. Sri S.S. Naganand, learned Senior Counsel appearing for the appellants argued that a show cause notice has to contain details of the allegations made against the noticee in order to effectively answer the notice. Adverting to the notice he pointed out that except stating that there was a raid on 16.12.2015 and documents were seized from the premises and that considerable part of amount belonging to the Trust has been misused for personal use of Trustees, no other details are forthcoming. 5. Sri Jeevan J Neeralgi, learned counsel for the first respondent – Revenue supporting the impugned order 5 passed by the Hon’ble Single Judge submitted that large number of documents were seized from the premises of the Trust and the residences of appellants No.2 to 5. The Trustees had complete knowledge of misdemeanor conducted by them and have given detailed reply through their Chartered Accountant. Therefore, no interference is called for with the impugned order. 6. We have carefully considered the submissions made by learned counsel for both the parties and perused the records. 7. The notice dated 28.11.2017 reads thus :- “Sub: Withdrawal of approval granted u/s 10(23C)(vi) of the IT Act, 1961 – In the case of M/s. Navodaya Education Trust, Raichur – regarding I am directed to communicate the following: 2. A search and Seizure action u/s.132 of the Income-tax Act, 1961 was conducted in your case on 16.12.2015. During the course of the said search action certain books of account and other documents were found and seized, The 6 said documents have been verified and it is seen from the said documents that you have allowed considerable part of the amount collected as Donation by the trust to be used by the trustees for their personal purposes like personal investments/expenditure, cash paid for obtaining accommodation entries, purchase of personal assets etc, in contravention to the provisions of Section 10(23C) (vi), 11 and 13(1) (c) of the Income-tax Act, 1961. 3. You are requested to show cause as to why the approval u/s 10 (23C) (vi) of the IT Act should not be withdrawn for violating the provisions of Section 10(23C) (vi) of the IT Act. You are hereby given an opportunity of being heard and your case is posted for hearing on 6.12.2017 at 12.00 PM. You may appear before the Director General of Income- tax (Inv.), Bengaluru at the above address for the hearing along with your explanations and documentary evidences or may send your written submissions on or before the date of hearing. 3. In case of failure to utilize this opportunity of being heard, the issue will be decided based on the facts available on record without further reference to you.” 7 8. In GORKHA SECURITY SERVICES Vs. GOVT. OF NCT OF DELHI AND OTHERS1 relied upon by Sri Naganand, it is held as follows:- “19. The Central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of Show Cause Notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out that proposed action is not warranted in the given case, even if the defaults/ breaches complained of are not satisfactorily explained. When it comes to black listing, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action. 20. The High Court has simply stated that the purpose of show cause notice is primarily to enable the noticee to meet the grounds on 1 AIR 2014 SC 3371 8 which the action is proposed against him. No doubt, the High Court is justified to this extent. However, it is equally important to mention as to what would be the consequence if the noticee does not satisfactorily meet the grounds on which an action is proposed. To put it otherwise, we are of the opinion that in order to fulfil the requirements of principles of natural justice, a show cause notice should meet the following two requirements viz: i) The material/ grounds to be stated on which according to the Department necessitates an action; ii) Particular penalty/action which is proposed to be taken. It is this second requirement which the High Court has failed to omit. We may hasten to add that even if it is not specifically mentioned in the show cause notice but it can be clearly and safely be discerned from the reading thereof, that would be sufficient to meet this requirement.” (emphasis supplied) 9. In MR.S.N. SINHA Vs. THE STATE OF KARNATAKA, BY ITS SECRETARY DEPARTMENT OF 9 REVENUE AND OTHERS2 it is held that for a notice to be valid in law, should be clear and precise so as to give the party concerned adequate information of the case he has to meet. The adequacy of notice is a relative term and must be decided with reference to each case. The test of adequacy of notice will be whether it gives sufficient information so as to enable the person concerned to put up an effective defence. If a notice is vague or it contains unspecified or unintelligible allegations, it would imply a denial of proper opportunity of being heard. Natural Justice is not only a requirement of proper legal procedure but also a vital element of good administration. 10. On a careful perusal of the notice issued by the Income Tax Department extracted supra and the law laid down by the Hon’ble Apex Court and this Court, we are of the considered view, that the respondent-revenue has not given reasonable opportunity to the appellants to put forth their case effectively. In the circumstances, the notice dated 28.11.2017 is unsustainable in law. 2 ILR 2012 KAR 448 10 11. Resultantly, these appeals merit consideration and hence the following: ORDER i) Appeals are allowed. ii) The notice dated 28.11.2017 (Annexure-F) and the order dated 21.12.2017 (Annexure-A) issued by the Income Tax Department, as also the impugned order dated 05.02.2018 passed by the Hon’ble Single Judge in W.P.Nos.3468-72 / 2018 are set aside. iii) Liberty is reserved to the Respondent – Revenue to issue a fresh show-cause notice to the appellants within four weeks from the date of receipt of a copy of this order, giving particulars upon which the revenue desires the appellants to furnish their reply iv). All contentions are left open. 11 In view of disposal of the appeals, I.A.No.1/2018 does not survive for consideration and it is accordingly disposed of. Sd/- ACTING CHIEF JUSTICE Sd/- JUDGE NG* CT: bms "