SHRI. NARAYANAPPA GANGADHAR V. INCOME TAX OFFICER

WP/1999/2024

AI Insights

The case involves Shri Narayanappa Gangadhar, the petitioner, who challenged several notices and orders issued by the Income Tax Department concerning the Assessment Year 2015-16. The primary contention was that the initial notice under Section 148A(b) of the Income Tax Act, 1961, was unsigned and thus invalid. This notice was crucial as it initiated the reassessment proceedings. The petitioner argued that all subsequent actions taken by the tax authorities, including reassessment and penalty orders, were based on this invalid notice and were therefore also invalid. The respondents defended the validity of their actions. The court, referencing precedents and legal provisions, found in favor of the petitioner, leading to the quashing of all contested notices and orders.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 759410 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 24-01-2024
• Assessment Year: misc
• Other Referred Cases: Begur Sinappa Venkatesh vs. The Income Tax Officer, Mukesh J. Ruparel vs. Income Tax Officer, Ward 27(2)(1)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SUSHAL TIWARI
• Assessee Lawyers: SANDEEP HUILGOL
• Keywords: Assessment Year 2015-16; Income Tax; Quashing of notice; Unsigned notice
• Section: 147; 148; 144; 271(1)(c); 271(1)(b); 144B; 148A(b); 148A(d); 156

Judgement Text

" - 1 - NC: 2024:KHC:3462 WP No. 1999 of 2024 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF JANUARY, 2024 BEFORE THE HON'BLE MR JUSTICE S.R.KRISHNA KUMAR WRIT PETITION NO. 1999 OF 2024 (T-IT) BETWEEN: SHRI. NARAYANAPPA GANGADHAR SON OF LATE B K NARAYANAPPA, AGED ABOUT 65 YEARS, NO. 36, KATHRIGUPPA MAIN ROAD, KAVERI NAGAR, BSK 3RD STAGE, BANGALORE 560 085. …PETITIONER (BY SRI. SANDEEP HUILGOL.,ADVOCATE) AND: 1. INCOME TAX OFFICER WARD 7(2)(5), BANGALORE BMTC BUILDING, 80FT ROAD, 6TH BLOCK, KORAMANGALA, BENGALURU - 560 095. 2. ASSESSMENT UNIT -INCOME TAX DEPARTMENT, 2ND FLOOR, JAWAHARLAL NEHRU STADIUM, NEW DELHI – 110 003. 3. PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, KARNATAKA AND GOA BCR BUILDING, PRO SECTION, GROUND FLOOR, QUEENS ROAD, VASANTH NAGAR, BENGALURU - 560 001. …RESPONDENTS (BY SRI.SUSHAL TIWARI.,ADVOCATE) THIS W.P IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO i) QUASH THE IMPUGNED UNSIGNED NOTICE DATED: 18/03/2022 BEARING DIN AND NOTICE NO. ITBA/AST/F/148A(SCN)/2021-22/1041008099(1) ISSUED BY R1 UNDER SECTION 148A(b) OF THE INCOME TAX ACT, 1961 (ANNEXURE-D1) AY 2015-16 & ETC., THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING: Digitally signed by VANDANA S Location: HIGH COURT OF KARNATAKA - 2 - NC: 2024:KHC:3462 WP No. 1999 of 2024 ORDER In this petition, petitioner has sought for the following reliefs:- (i) Quashing the impugned unsigned notice dated: 18.03.2022 bearing DIN and Notice No. ITBA/AST/F/148A(SCN)/2021-22/1041008099(1) issued by Respondent No.1 under section 148A(b) of the Income- tax Act,1961 (Annexure ‘D-1’);AY 2015-16. (ii) Quashing the impugned order dated: 31.03.2022 bearing DIN and Notice No. ITBA/AST/F/148A/2021-22/1042248538(1) passed by Respondent No.1 under section 148A(d) of the Income-tax Act,1961 (Annexure ‘D-2’);AY 2015-16. (iii) Quashing the impugned notice dated: 31.03.2022 bearing DIN and Notice No. ITBA/AST/S/148_1/2021-22/1042341130(1) issued by Respondent No.1 under section 148 of the Income-tax Act,1961 (Annexure ‘D-3’);AY 2015-16. (iv) Quashing the impugned assessment order dated: 24.03.2022 bearing DIN and Notice No. ITBA/AST/S/147/2022-23/1051290958(1) passed by Respondent No.2 under section 147 read with section 144 and section 144B of the Income-tax Act,1961 (Annexure ‘J-1’);AY 2015-16. (v) Quashing the resultant computation sheet dated: 24.03.2022 bearing DIN and Notice No. ITBA/AST/S/114/2022-23/1051291224(1) issued by Respondent No.2 (Annexure ‘J-2’);AY 2015-16. (vi) Quashing the impugned notice of demand dated: 24.03.2022 bearing DIN and Notice No. ITBA/AST/S/156/2022-23/1051291129(1) issued by - 3 - NC: 2024:KHC:3462 WP No. 1999 of 2024 Respondent No.2 under section 156 of the Income-tax Act,1961 (Annexure ‘J-3’);AY 2015-16. (vii) Quashing the impugned penalty order dated: 27.09.2023 bearing DIN and Notice No. TBA/PNL/F/271(1)(c)/2023-24/1056620046(1) passed by Respondent No.2 under section 271(1)(c) of the Income- tax Act,1961 (Annexure ‘M-1’);AY 2015-16. (viii) Quashing the resultant computation sheet dated: 27.09.2023 bearing DIN No. 2023201540414030114T issued by Respondent No.2 (Annexure ‘M-2’);AY 2015-16. (ix) Quashing the impugned notice of demand dated: 27.09.2022 bearing DIN and Notice No. ITBA/PNL/S/156/2023-24/1056619923(1) issued by Respondent No.2 under section 156 of the Income-tax Act,1961 (Annexure ‘J-3’);AY 2015-16. (x) Quashing the impugned penalty order dated: 27.09.2023 bearing DIN No. ITBA/PNL/F/271(1)(b)/2023- 24/1056620066(1) passed by Respondent No.2 under section 271(1)(b) of the Income-tax Act,1961 (Annexure ‘N-1’);AY 2015-16. (xi) Quashing the resultant computation sheet dated: 27.09.2023 bearing DIN No. 2023201540414030346T issued by Respondent No.2 (Annexure ‘N-2’);AY 2015-16. (xii) Quashing the impugned notice of demand dated: 27.09.2022 bearing DIN and Notice No. ITBA/PNL/S/156/2023-24/1056619934(1) issued by Respondent No.2 under section 156 of the Income-tax Act,1961 (Annexure ‘N-3’);AY 2015-16. - 4 - NC: 2024:KHC:3462 WP No. 1999 of 2024 (xiii) Pass such order or further orders as this Hon’ble court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity. 2. Heard learned counsel for the petitioner and learned counsel for the respondents and perused the material on record. 3. In addition to reiterating the various contentions urged in the memorandum of petition and referring to the material on record, learned counsel for the petitioner invites my attention to the impugned Notice dated 18.03.2022 issued under Section 148A(b) of the Income Tax Act (for short, ‘IT Act’) in order to point out that the said notice issued by respondent No.1 to the petitioner for the Assessment Year 2015-16 calling upon the petitioner to submit his response / reply on or before 24.03.2022, is contrary to the prescribed period of seven days as contemplated under Section 148A(b) of the IT Act, which is illegal, invalid and inoperative and no proceedings pursuant thereto could have been taken by the respondents and the same deserve to be quashed and as such, the said notice as well as all subsequent proceedings including re- assessment order issued under Section 148A(b), notices, etc., deserve to be quashed. It is submitted that despite the aforesaid - 5 - NC: 2024:KHC:3462 WP No. 1999 of 2024 facts and circumstances, respondent No.2 proceeded to pass the impugned re-assessment order, which deserved to be quashed. 4. Per contra, learned counsel for the respondents would support the impugned orders, notices, etc., and submit that there is no merit in the petition and the same is liable to be dismissed. 5. Learned counsel for the petitioner is correct in his submissions that the impugned notice dated 18.03.2022 having not been digitally / physically signed, the same is illegal, invalid and inoperative as held by this Court in the case of Begur Sinappa Venkatesh Vs. The Income Tax Officer and another – W.P.No.20807/2023, wherein it is held as under: “The petitioner has impugned the notice dated 17.03.2022 [Annexure-A] issued by the first respondent under Section 148A(b) of the Income Tax Act, 1961 [for short, the ‘IT Act’], the subsequent adjudication order dated 30.03.2022 under Section 148A(d) of the IT Act [Annexure-A1], the notice dated 31.03.2022 under Section 148 of the IT Act [Annexure– A2], the assessment order dated 24.02.2023 under Section 147 read with Section 144 of the IT Act [Annexure–A3] and the consequential penalty orders and demand notices dated 24.08.2023 and 07.07.2023 [Annexures-A4, A5 and A6]. 2. The petitioner’s primary grievance is with the notice under Section 148A(b) of the IT Act and based on this grievance, it is contended that all further proceedings must fail. - 6 - NC: 2024:KHC:3462 WP No. 1999 of 2024 Sri Ravishankar S V, the learned counsel for the petitioner, canvasses that the first respondent has caused the aforesaid notice under Section 148A(b) of the IT Act without digital signature and in view of the decision of the High Court of Bombay in Prakash Krishnavtar Bhardwaj vs. Income Tax Officer, reported in [2023] 451 ITR 27 [Bombay], all further proceedings must fail. 3. Sri Ravishankar S V, also submits that during the financial year relevant to the assessment year 2015-16, the petitioner was employed with M/s Varshitha Enterprises, Kunigal; that the proprietor of this enterprise was not keeping good health and therefore had issued necessary mandate to the petitioner to operate the concern’s bank account maintained with the Indian Overseas Bank; that the petitioner, bona fide and not intending to disturb the proprietor who was not keeping good health, credited the cash received from the sale of currency to recharge mobiles and utilized the deposits to disburse the same to the Telecom operator, M/s Idea Cellular. 4. Sri Ravishankar S V further submits that the details of these cash deposits and the disbursement to M/s Idea Cellular are reflected in the Income-tax returns filed on behalf of the proprietary concern in PAN AJGPV 3120P; that during the subsequent assessment year, the petitioner commenced his own business under the name and style ‘M/s Gagan Enterprises’ selling currency for mobile recharge; that the cash deposits even during this subsequent assessment year is treated as business income; the petitioner’s income is determined at the rate of 3% of the gross turn over; that the petitioner would not be liable for any income tax for the - 7 - NC: 2024:KHC:3462 WP No. 1999 of 2024 relevant assessment year and even otherwise if cash deposits are treated as gross business turn over, the petitioner’s liability will be below Rs.3,00,000/- at the rate of 3% and hence, the first respondent cannot assume jurisdiction to initiate proceedings. 5. Sri Ravishankar S V, relying upon the aforesaid circumstances, submits that for these reasons and in view of the indisputable fact that the notice under Section 148A(b) is not digitally signed, the proceedings must fail. Sri M. Dilip submits that he cannot contest the assertion that 148A(b) notice is not digitally signed especially when the adjudication order under Section 148A(d) and the subsequent proceedings are digitally signed or that in very similar circumstances, the High Court of Bombay in Prakash Krishnavtar Bharadwaj vs. Income Tax Officer supra has held that because the notice is not signed either digitally or manually, the same would be invalid and because such notice is invalid, no jurisdiction would vest with the first respondent to continue the proceedings pursuant to such notice. 6. However, Sri M.Dilip, submits that the authorities must be reserved with liberty to issue fresh notice if it could be permissible given the provisions of Section 149 of the IT Act. In rejoinder, Sri Ravishankar S V, submits that in the event the writ petition is being disposed of on this limited ground, this Court may observe that any further proceedings shall be initiated in the light of the defence that is canvassed in this petition. 7. The rival submissions are considered and this Court must opine that with the authorities being unable to dispute that the notice under Section 148A(b) of the IT Act is - 8 - NC: 2024:KHC:3462 WP No. 1999 of 2024 not either digitally or manually signed and with the proposition enunciated by the High Court of Bombay in the aforesaid decision being applicable on all fours to this case, the petition must be disposed of on the ground that the first respondent could not have continued the proceedings based on 148A(b) notice dated 17.03.2022. However, the authorities must be reserved with liberty, subject to all just exceptions in law, to initiate further proceedings. Hence, the following ORDER The petition is allowed and the impugned notice dated 17.03.2022 issued by the first respondent under Section 148A(b) of the Income Tax Act, 1961 [Annexure-A], the subsequent adjudication order dated 30.03.2022 under Section 148A(d) [Annexure-A1] of the IT Act, the notice dated 31.03.2022 under Section 148 of the IT Act [Annexure–A2], the assessment order dated 24.02.2023 under Section 147 read with Section 144 of the IT Act [Annexure–A3] and the consequential penalty orders and demand notices dated 24.08.2023 and 07.07.2023 [Annexures-A4, A5 and A6] are quashed.” 6. As can be seen from the aforesaid order, this Court has come to the categorical conclusion that the notice under Section 148A(b) of the I.T Act, is not signed either physically or digitally and the same is illegal, invalid and inoperative and further proceedings pursuant thereto including the order under Section - 9 - NC: 2024:KHC:3462 WP No. 1999 of 2024 148A(d) of the IT Act, penalty notices, orders, etc., deserve to the quashed. 7. So also, having regard to the minimum period of seven days prescribed under Section 148A(b) of the IT Act as held by the High Court of Bombay in the case of Mukesh J. Ruparel Vs. Income Tax Officer, Ward 27(2)(1) – W.P.No.15268/2023 dated 25.07.2023, that if notice under Section 148A(b) prescribes a period lesser than a period of seven days as contemplated in the said provision, the said notice would be vitiated resulting in quashment of not only the notice but also the subsequent assessment orders, penalty notices, orders, etc. In the aforesaid judgment of the Bombay High Court, it is held as under: “Petitioner is impugning a notice dated 15th March 2023 issued under Section 148A(b) of the Income Tax Act, 1961 (the Act), the order dated 31st March 2023 passed under Section 148-A(d) of the Act and notice dated 31st March 2023 issued under Section 148 of the Act. 2. Petitioner is an individual who did not file return of income for Assessment Year 2016-17 because his income was less than taxable limit. 3. Petitioner received a notice dated 15th March 2023 under Clause 148A(b) of the Act from Respondent No.1, stating that Respondent No.1 has information which suggests that income chargeable to tax for Assessment Year 2016-17 has escaped assessment within the meaning of Section 147 of the Act. Petitioner was provided with information / enquiry on which reliance was placed in the form of annexure to the notice and Petitioner was called - 10 - NC: 2024:KHC:3462 WP No. 1999 of 2024 upon to show cause on or before 28th March 2023 as to why a notice under Section 148 of the Act should not be issued. The information which suggested that there has been an escapement of income from assessment provided details of a property that Petitioner had purchased. Petitioner was directed to provide head-wise computation of income, details of purchase of immovable property during Financial Year 2015-16 supported with copy of registered agreement with annexure II, details of payment made and source of acquisition of said immovable property. 4. Petitioner submitted an elaborate reply on 18th March 2023 and also raised certain objections. The main objection raised was that under the provision of Section 148A(b) of the Act, the assessee should be provided an opportunity of being heard by serving upon the assessee a notice to show cause within such time as may be specified in the notice being not less than seven days but not exceeding thirty days from the date on which said notice has been issued. Since the notice dated 15th March 2023 provides only for five days when the law requires minimum seven days to be given, the notice itself was bad-in-law. 5. Along with reply, Petitioner also provided a photo copy of the notarised affidavit of Petitioner's brother affirmed on 18th March 2023, in which the brother has confirmed of giving gift of Rs.75 lakhs to Petitioner on 26th March 2019, which is much beyond the relevant Assessment Year. 6. Respondent No.1 has passed the impugned order dated 31st March 2023 under Clause D of Section 148A of the Act. In the order, Respondent No.1 states that from the statement issued by HDFC Bank for the period 1st April 2018 to 31st March 2019 of the brother, it is seen that there is a credit entry of Rs.1 Crore on 19th March 2019, out of which Rs.75 lakhs has been paid to Petitioner on 26th March 2019. Respondent No.1 also states that the gift deed submitted by Petitioner from the brother has not been notarised. 7. Moreover, Respondent No.1 states that income chargeable to tax has escaped assessment without mentioning what is the amount of income that has escaped assessment. Further, the approval under Section 151 of the Act which is annexed to the impugned order is of one Poonam Vijay Chhabria whose PAN number is also entirely different from the PAN number of Petitioner. Respondent - 11 - NC: 2024:KHC:3462 WP No. 1999 of 2024 No.1 is totally silent about the objections raised by Petitioner of minimum seven days notice required. Mr. Gandhi states that on each of these grounds not only the impugned order dated 31st March 2023 but also the notice dated 31st March 2023 itself should be quashed and set aside. 8. No reply has been filed though Petition was served more than a month ago. We have, therefore, decided to go ahead and consider the matter and dispose it since we were, prima facie, satisfied that there was merit in Petitioner's submissions. Section 148-A(B) of the Act reads as under:- “provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a).\" 9. The notice dated 15th March 2023 gives time only up to 20th March 2023 to show cause. We have to note that even the guidelines dated 1st August 2022 for issuing of notice under Section 148 of the Act also provide that if the result of an enquiry / information available suggests that income chargeable to tax has escaped assessment, the Assessing Officer shall provide an opportunity of being heard by assessee by issuing the show cause notice under Section 148A(b) of the Act and the notice shall provide between seven to thirty days time for the assessee to submit their reply. A template of the show cause notice is also annexed to the guidelines. Therefore, in view of the guidelines, we would also read that the minimum seven days required to be made as a mandatory requirement and failure to comply with would render a notice itself invalid. Therefore, on this ground alone, the notice requires to be quashed and set aside. - 12 - NC: 2024:KHC:3462 WP No. 1999 of 2024 Perhaps, being aware of this position, Respondent No.1 has chosen not to deal with these objections raised by Petitioner in the reply to the show cause notice. 10. We also found in the said guidelines a provision that the order under Section 148A(d) of the Act shall be sent to assessee along with the approval of the specified authority for such order under Section 148A(d) of the Act. In the case at hand, the approval that has been sent is of some other assessee and not Petitioner. This also indicates non- application of mind by Respondent No.1. On this ground also, the order dated 31st March 2023 impugned in the Petition is required to be quashed and set aside. 11. Further, in the guidelines to which is annexed a template of the order to be passed under Section 148A(d) of the Act provides for mentioning of amount escaped based on the information and how this amount is represented in the form of assets. It also provides that the Assessing Officer will specify the quantum of income / assets / expenditure / entry which has escaped assessment. This not stated in the order under Clause D of Section 148 of the Act. On this ground also, the said order dated 31st March 2023 is required to be quashed and set aside. 12. Further, there is a factually incorrect statement made in the order that the affidavit of Petitioner's brother that was submitted was not notarised when it was factually a notarised affidavit. 13. Further, in the impugned order, it is stated that the HDFC statement / document do not substantiate the credit worthiness and genuineness of the lender of the gift, i.e., brother of Petitioner. Mr. Gandhi states that if only Petitioner was called upon to submit, Petitioner would have submitted evidence towards credit worthiness of the brother because in the show cause notice issued, Petitioner was only directed to call upon to disclose the source from which he got money to pay for the flat. In over view, therefore,, on this ground also, the impugned order dated 31st March 2023 is required to be quashed and set aside. - 13 - NC: 2024:KHC:3462 WP No. 1999 of 2024 14. Accordingly, we hereby quash and set aside the notice dated 15th March 2023 issued under clause (b) of Section 148-A of the Act, the impugned order dated 31st March 2023 issued under clause (d) of Section 148A of the Act and consequent notice dated 31st March 2023 issued under Section 148 of the Act. 15. Petition disposed. There shall be no order as to costs.” 8. In the instant case, it is an undisputed fact that the Notice at Annexure – D1 dated 18.03.2022 is not signed either physically or digitally but the impugned notice also prescribes a period of six days, which is lesser than the minimum prescribed period of seven days as contemplated under Section 148A(b) of the IT Act. Under these circumstances, in the light of the judgment of this Court in Begur’s case and the judgment of the Bombay High Court in Mukesh’s case supra, I am of the considered opinion that the impugned notice at Annexure – D1 and also consequential proceedings, orders, notices, etc., deserves to be quashed by reserving liberty in favour of the respondents to take recourse to such remedies as available in law. 9. In the result, I pass the following: ORDER (i) Petition is hereby allowed. - 14 - NC: 2024:KHC:3462 WP No. 1999 of 2024 (ii) The impugned Notice at Annexure – D1 dated 18.03.2022, Order at Annexure – D2 dated 31.03.2022, Notice at Annexure – D3 dated 31.03.2022, Assessment Order at Annexure J1 dated 24.03.2023, resultant computation sheet at Anneuxre-J2 dated 24.03.2023, Notice of Demand at Annexure-J3 dated 24.03.2023, Penalty Order at Annexure – M1 dated 27.09.2023, resultant computation sheet at Annexure-M2 dated 27.09.2023, Notice of Demand at Annexure-M3 dated 27.09.2023, Penalty order at Annexure – N1 dated 27.09.2023, computation sheet at Annexure-N2 dated 27.09.2023 and Notice of Demand at Annexure-N3 dated 27.09.2023 are hereby quashed. (iii) Liberty is reserved in favour of the respondents to initiate proceedings against the petitioner subject to all just exceptions, in accordance with law. Sd/- JUDGE Srl. "