PRATHIBHA JEWELLERY HOUSE V. THE COMMISSIONER OF INCOME TAX (APPEALS)

WP/24646/2015

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Prathibha Jewellery House, represented by its partner S N Sharath Kumar, filed writ petitions challenging the orders of the Income Tax authorities regarding the assessment years 2005-06 to 2010-11. The main contention was the validity of the search and subsequent proceedings under Section 153A of the Income Tax Act, 1961. The Income Tax Appellate Tribunal (ITAT) had earlier remanded the case to the Commissioner of Income Tax (Appeals) [CIT(A)] to examine the validity of the search. However, the CIT(A) declined to address this issue, citing the authority's limitations and the ongoing legal debates at higher judicial levels. The High Court, in its decision, supported the CIT(A)'s stance, emphasizing the need to await the Supreme Court's final decision on the matter and acknowledging the retrospective legislative changes that restrict the examination of such issues by appellate authorities.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 764739 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 07-11-2017
• Assessment Year: misc
• Other Referred Cases: C.Ramaiah Reddy v. Assistant Commissioner of Income Tax, Trilok Singh Dhillon vs. CIT, Bhopal Industries Ltd. v. Income-Tax Officer, Bhopal, Director General of Income Tax (Investigation) & ORS. v. Spacewood Furnnishers (P) Ltd. & Ors.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: A SHANKAR
• Keywords: Assessment Order; CIT(A); Income Tax; ITAT; Jurisdiction; Search warrant
• Section: 143(3); 132; 226; 153(A); 227

Judgement Text

" 1/15 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 7TH DAY OF NOVEMBER 2017 BEFORE THE HON'BLE Dr.JUSTICE VINEET KOTHARI W.P.Nos.24646 – 24651 OF 2015(T-IT) BETWEEN: Prathibha Jewellery House Rep. by its Partner Sri S N Sharath Kumar Aged about 68 years No.1/1, Raja Ram Mohan Roy Road Richmond Circle Bangalore – 560 025. …Petitioner (By:Mr.A Shankar, Advocate) AND: 1. The Commissioner of Income Tax (Appeals) Office of the Commissioner of Income-Tax (Appeals)- 11, Central Revenue Building Queens Road, Bangalore – 560 001. 2. The Commissioner of Income-Tax Central Circle, C.R.Building, Queens Road Bangalore – 560 001. 3. The Deputy Commissioner of Income-Tax Central Circle-1(4), Central Revenue Building Queens Road, Bangalore – 560 001. …Respondents R Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 2/15 (By:Mr.K.V.Aravind, Advocate) These Writ Petitions are filed under Articles 226 and 227 of the Constitution of India praying to quash the order passed by the 1st respondent dated 11.2.2015 in upholding the order of assessment passed for the Assessment Years 2005-06 to 2010-11 vide Annexure – A and quash the order of Authorities below as the very initiation of proceedings under Section 153-A is without jurisdiction as the mandatory conditions has been not complied and etc. These W.Ps. coming on for Preliminary Hearing ‘B’ Group this day, the Court made the following:- ORDER Mr.A Shankar, Advocate for Petitioner-Assessee Mr.K.V.Aravind, Advocate for Respondent-Revenue The assessee – petitioner has filed these petitions in this Court directly against the order Annexure-A passed by the Commissioner of Income Tax (Appeals) [CIT(A)] on 11.2.2015, passed in pursuance of the remand order passed by the higher Appellate Authority – Income Tax Appellate Tribunal (ITAT), ‘C’ Bench, Bangalore on 21.11.2014 for the Assessment Years 2005-2006 to 2011-2012. Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 3/15 2. The ITAT while deciding the earlier appeals filed by the assessee-petitioner, M/s.Prathibha Jewellery House had given the following directions while remanding the case back to CIT (A). The same is quoted below for ready reference:- “2. Having regard to the rival contentions and the material on record, we find that the assessee has raised an additional ground of appeal particularly against the existence of conditions for issuance of warrant of search and the validity of the assumption of jurisdiction u/s 153A read with section 143(3) of the Act. In the remand report to the said additional grounds raised by the assessee, the AO has clearly not only rebutted the contentions of the assessee but also has remained silent as to whether the conditions for issuance of warrant of search existed at all. In such circumstances, the CIT(A) ought to have at least satisfied herself about the existence of conditions before concluding that that the jurisdiction has been validly exercised by the AO in view of the judgment of the jurisdictional High Court in the case of Ramaiah Reddy (cited supra) on which the assessee has placed reliance Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 4/15 upon. All the subordinate courts and authorities are bound by the decision of the jurisdictional High Court and has to follow the same in its letter and spirit. In view of the same, we deem it fit and proper and remand the appeals for all the assessment years back to the file of the CIT(A) for proper adjudication of the additional ground of appeal relating to the validity of the jurisdiction u/s 153A as well as the existence of conditions for issuance of warrant u/s 132A of the Act. The other grounds of appeal raised by the assessee with regard to the merits of the disallowance of the addition made by the AO and as confirmed by the CIT(A), are not adjudicated at this stage and the assessee shall be at liberty to agitate the same in case the CIT(A) decides the ground of jurisdiction against the assessee.” 3. Learned CIT(A) upon such remand, passed the impugned order on 11.2.2015 with the following observations dismissing the appeal of the assessee- petitioner and holding that it could not go into the question of validity of Search action against the petitioner under Section 132 of the Income Tax Act, Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 5/15 1961 (‘the Act’). The relevant portions of the order are quoted hereinbelow for ready reference:- “8. In any case, as regards the justification or validity of search action u/s 132 with reference to the decision of the Hon’ble High Court of Karnataka in the case of C Ramaiah Reddy 339 ITR 210, the same is examined in light of the specific order of the Hon’ble ITAT. On going through the said decision, it is apparent that the issue before the Hon’ble Court was ‘whether the Tribunal is competent to look into the issue regarding validity of search? With regard to the said issue, the Hon’ble High Court has answered the said issue in favour of the appellant holding that the Tribunal was competent to look into the issue of validity of search. 9. It is on record that the said decision is pending in appeal before the Hon’ble Supreme Court, and also that the Hon’ble Chattisgarh High Court in the case of Trilok Singh Dhillon vs. CIT (2011)41(I)ITCL 2010 (Chattisgarh-HC), on a similar issue has decided in favour of Revenue, and that on an appeal against the Revenue favourable decision of Chattisgarh High Court, the Supreme Court has dismissed the Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 6/15 appeal of the appellant. In effect, the decision favouring Revenue has been upheld. 10. The powers and jurisdiction of the CIT(A) and the orders which are appealable before CIT(A) as per the Income Tax Act, 1961 do no empower me to look into the issue of reasons for search ordered by the Director or Director General of Income Tax. Moreover, as an officer of the Income Tax Department, I cannot sit in judgment over the action authorized by an authority superior to me [in the case of Director General or Chief Commissioner] or an authority equivalent to me [in the case of a Director or Commissioner] authorizing the search action. Even in the case of Sri C Ramaiah Reddy, (supra) as cited by the appellant, this issue has been sent back for decision to the Hon’ble Tribunal and not to any lower authority. Thus the ground raised on justification of search action is not maintainable before me. 11. With the above findings, I hold that proceedings u/s 153A have been validly initiated in the case of the appellant pursuant to search action authorized and executed through valid warrants to search the appellant. The issue setaside before me vide the order of the Hon’ble Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 7/15 ITAT vide their order dated 21.11.2014 in ITA Nos.579 to 585/Bang/2014 for A.Ys 2005-06 to 2011-12 is decided accordingly.” 4. The assessee-petitioner preferred these writ petitions without filing an appeal before ITAT against the said order passed by the learned CIT(A) on 11.2.2015 and the present writ petitions were filed before this Court on 15.6.2015. 5. Mr. A.Shankar, the learned counsel for the assessee-petitioner submitted before the Court that learned CIT(A) was bound to consider the question of validity of Search against the assessee-petitioner under Section 132 of the Act, in view of the decision of this Court in the case of C.Ramaiah Reddy v. Assistant Commissioner of Income Tax [339 ITR 210)(Kar)] and the learned CIT (A) instead of doing that, could not have refused to do so following the decision of Chattisgarh Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 8/15 High Court in the case of Trilok Singh Dhillon v. CIT (2011)41(I)ITCL 2010 (Chattisgarh-HC). 6. Mr.Shankar has relied upon the decisions of the Hon’ble Supreme Court in the case of Bhopal Industries Ltd. v. Income-Tax Officer, Bhopal [1960 (40) ITR (618)] and in the case of Director General of Income Tax (Investigation) & ORS. v. Spacewood Furnnishers (P) Ltd. & Ors. [(2015) 119 DTR 201 (SC)] and also the order passed by the Hon’ble Supreme Court on 17.11.2016 in S.L.P.(C) Nos.15734- 15735/2016, to support his contention that even the Appellate Authorities, including CIT (A)– first Appellate Authority was bound to look into the question of validity of Search under Section 132 of the Act. 7. However, Mr.Shankar has also brought to the notice of the Court the recent Amendment effected by the Finance Act, 2017 with retrospective effect from Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 9/15 1-4-1962 inserted to the Explanation in Section 132(1) of the Act, which reads as under:- “Explanation.- For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal.” 8. He further submits that the writ petition challenging the validity of the said Amendment by way of insertion of the said Explanation is already pending in this Court vide Writ Petition No.45250/2017 (C.Ramaiah Reddy v. Union of India). He therefore submitted that the matter should be remanded back to CIT(A) to reconsider the question of validity of search under Section 132 of the Act in view of the specific directions of the ITAT, which CIT(A) has failed to comply in the present case. Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 10/15 9. On the other hand, learned counsel for the Revenue, Mr.K.V.Aravind supported the impugned order and urged that not only in view of the amendment of law with retrospective effect the CIT(A) could not go into the said question of validity of Search under Section 132 of the Act, but also because, since Civil Appeal No.2734/2013 (The Assistant Commissioner of Income Tax v. C.Ramaiah Reddy) against the decision of this Court in C.Ramaiah Reddy’s case is still pending before the Hon’ble Supreme Court and the judgment is still awaited. He therefore submitted that learned CIT(A) was justified in following the decision of Chattisgarh High Court in Trilok Singh Dhillon’s case (supra), against which the S.L.P. filed by Revenue was dismissed by the Hon’ble Supreme Court and therefore, the CIT (A) could not be mandated to specifically go into this question. 10. Having heard the learned counsels for the parties, this Court is satisfied that the present writ Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 11/15 petitions deserve to be dismissed for the following reasons:- (i) That the decision of this Court in the case of C.Ramaiah Reddy, which allowed the Appellate Authority to go into the question of validity of Search is a subject-matter of pending appeal before the Hon’ble Supreme Court and therefore, not only the Authorities of the Department, but even this Court should await the decision of Hon’ble Supreme Court on the said issue and cannot direct the Appellate Authorities like (CTC Appeal) below by way of a writ of mandamus to go into the question of validity of search under Section 132 of the Act and it would be incongruous and not in deference to the pendency of aforesaid Civil Appeal No.2734/2013 before the Hon’ble Supreme Court. Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 12/15 (ii) That even the law has been amended by insertion of the aforesaid Explanation by Parliament in Section 132 of the Act by the Finance Act, 2017 with retrospective effect from 1.4.1962. That Explanation also prohibits the Appellate Authorities to go into the reasons recorded by the concerned Income Tax Authority for directing Search against the assessee or tax payer. (iii) That this Amendment came after both, ITAT passed the order in the present case on 21.11.2014 as also the learned CIT(A) passed the impugned order on 11.2.2015. Nonetheless, retrospective effect of the said Amendment, will have its effect on the present case as well so long that the said Amendment holds the field. Therefore, the Appellate Authorities of the Department Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 13/15 cannot be expected to go into the said question. It is only for the Constitutional Courts to examine the vires and validity of such Amendment and for that, a separate writ petition is already said to be pending. However, no such challenge to the Amendment has been made in the present case. 11. In these circumstances, the impugned order Annexure-A dated 11.2.2015 passed by the learned CIT(A) cannot be faulted and it stands to the reason for the learned CIT(A) to have followed the Chattisgarh High Court’s decision and refused to do so. 12. The assessee-petitioner obviously had an alternative, adequate and efficacious remedy against the said order passed by the learned CIT(A) before the Income Tax Tribunal again under Section 253 of the Act. There appears to be no justification for cutting Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 14/15 short that regular remedy at this stage and to entertain these writ petitions on merits. 13. The decisions relied upon by the learned counsel for the petitioner can also not enure to the benefit of assessee-petitioner awaiting the final decision from the Hon’ble Supreme Court in Civil Appeal No.2734/2013 against the decision of Division Bench of this Court in C.Ramaiah Reddy’s case (supra) and also the question of validity of Explanation’’ is yet to be examined by the Constitutional Courts. Without that, the lower Appellate Authorities of the Income Tax Department cannot be expected to look into these questions of validity of search under Section 132 of the Act at their own level independently. 14. Therefore this Court does not find any good ground to allow the petitioner to bypass the said alternative remedy and directly assail the order of learned CIT(A) before this Court. The writ petitions Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., 15/15 being devoid of merit are accordingly dismissed. No costs. 15. If the assessee-petitioner files an Appeal before the Income Tax Tribunal within a period of 30 days from today, the same may be entertained without raising an objection of limitation subject to assessee-petitioner complying with the other conditions as per provisions of Act in this regard. Sd/- JUDGE VGR "