Sri. Sunilkumar Yamanappa Vallyapur V. Assessment Unit, Income Tax Department and The Assistant Commissioner of Income Tax, Circle 1, Gulbarga and The Principal Commissioner of Income Tax Hubballi and Central Board of Direct Taxes

WP/203492/2023

AI Insights

The case revolves around a writ petition filed by Sri. Sunilkumar Yamanappa Vallyapur challenging various orders and notices issued by the Income Tax Department for the assessment year 2017-18. The petitioner contested the validity of the re-assessment proceedings initiated under Section 147 read with Sections 144 and 144B of the Income Tax Act, 1961, claiming they were issued without proper jurisdiction and in violation of the principles of natural justice. The primary contention was that the notices were issued beyond the permissible time limit and without the necessary approvals, making them invalid. The court's decision to set aside the assessment order was based on these procedural lapses.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 821160 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 01-07-2024
• Assessment Year: misc
• Other Referred Cases: Union of India vs. Ashish Agarwal [2022 SC Online SC 543]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M THIRUMALESH
• Assessee Lawyers: S ANNAMALAI
• Keywords: Assessment Order; Escape assessment; Income Tax; Jurisdiction; Natural Justice; Penalty; Re-assessment
• Section: 147; 148; 144; 274; 270A; 144B; 148A(b); 148A(d); 272A(1)(d); 156; 149(1)(b); 151(ii); 226; 130; 227; 151A(1)

Judgement Text

" - 1 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 IN THE HIGH COURT OF KARNATAKA KALABURAGI BENCH DATED THIS THE 1ST DAY OF JULY, 2024 BEFORE THE HON'BLE MR. JUSTICE R.NATARAJ WRIT PETITION NO.203492 OF 2023 (T-IT) BETWEEN: SRI. SUNILKUMAR YAMANAPPA VALLYAPUR SON OF SRI YAMANAPPA VALLYAPUR, AGED ABOUT 57 YEARS, OCC: EX. MLC, SRI. SUNIL VALALYAPUR SRINAGAR NGO COLONY, H.NO.1-891/30/25A, JEWARGI ROAD, KALABURAGI-585102. …PETITIONER (BY SRI. S. ANNAMALAI, ADVOCATE) AND: 1. ASSESSMENT UNIT, INCOME TAX DEPARTMENT INCOME TAX DEPARTMENT, MINISTRY OF FINANCE, ROOM NO. 401, 2ND FLOOR, E-RAMP, JAWAHARLAL NEHRU STADIUM, DELHI-110003. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, GULBARGA, INCOME TAX OFFICE, AAYAKAR BHAVAN, SEDAM ROAD, KALABURAGI, KARNATAKA-585105. 3. THE PRINCIPAL COMMISSIONER OF INCOME TAX HUBBALI, C.R. BUILDING, NAVANAGAR, HUBLI-580025. Digitally signed by MARKONAHALLI RAMU PRIYA Location: HIGH COURT OF KARNATAKA - 2 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 4. CENTRAL BOARD OF DIRECT TAXES DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, NORTH BLOCK, NEW DELHI-110002. REPRESENTED HEREIN BY ITS CHAIRPERSON …RESPONDENTS (BY SRI. M. THIRUMALESH, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ASSESSMENT ORDER PASSED UNDER SECTION 147 RWS 144 RWS 144B OF THE ACT DATED 29-04-2023 BEARING DIN NO. ITBA/AST/S/147/2023-24/1052447810(1) ISSUED BY THE RESPONDENT NO.1 FOR THE ASSESSMENT YEAR 2017-18 HEREIN MARKED AS ANNEXURE-A AND ETC. THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUPS DAY, THE COURT MADE THE FOLLOWING: ORDER The petitioner has challenged the assessment order dated 29.04.2023 passed by the respondent No.1 under Section 147 read with Section 144 read with Section 144B of the Income Tax Act, 1961 (henceforth referred to as 'Act of 1961' for short) for the assessment year 2017-18, the computation sheet dated 29.04.2023 issued by the respondent No.1, demand notice dated 29.04.2023 issued by the respondent No.1 under Section 156 of the Act of 1961, the penalty notice dated 29.04.2023 - 3 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 issued by the respondent No.1 under Section 274 read with Section 270A of the Act of 1961 and penalty order dated 20.09.2023 passed by the respondent No.1 under Section 272A(1)(d) of the Act of 1961 along with computation sheet dated 20.09.2023, for the assessment year 2017-18. The petitioner has also challenged the show-cause notice dated 25.05.2022 issued by the respondent No.2 under Section 148A(b) and the order dated 29.07.2022 passed by the respondent No.2 under Section 148A(d), notice dated 29.07.2022 issued by the respondent No.2 under Section 148 and notice dated 29.06.2021 issued by the respondent No.2 under Section 148 of the Act of 1961 for the assessment year 2017-18. The petitioner has also challenged Instruction bearing No.1/2022 dated 11.05.2022 issued by respondent No.4. 2. The petitioner is an individual, who filed his return of income for the assessment year 2017-18 on 29.03.2018 declaring total income of Rs.13,96,440/-. The respondent No.2 issued a re-assessment notice dated 29.06.2021 under Section 148 of the Act of 1961. Subsequent thereto, a notice dated 04.01.2022 was issued by respondent No.2 under Section 142(1) of the Act of 1961 calling upon the petitioner to furnish - 4 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 information as sought for in the Annexure to it. The respondent No.1 without any intimation, issued a notice dated 06.04.2022 under Section 142(1) of the Act of 1961. On 04.05.2022, the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal [2022 SC Online SC 543] held that notices issued under Section 148 shall be deemed to be issued under Section 148A of the Act of 1961, as substituted by the Finance Act, 2021 and shall be treated as show-cause notice under Section 148A(b). Following the judgment, the respondent No.4 issued Instruction No.1/2022 dated 11.05.2022 giving instructions to assessing officer as to how to proceed with such re-assessment notices. The respondent No.2 therefore, issued a notice dated 25.05.2022 under Section 148A(b) of the Act of 1961 based on the Instruction No.1/2022. The notice indicated that the petitioner was engaged in real estate business and as per the information provided in the Insight portal, the petitioner did not disclose income earned from the sale of plots and consequently, proposed to reopen the petitioner's case under Section 147 of the Act of 1961. The respondent No.2 subsequently passed an order dated 29.07.2022 under Section 148A(d) of the Act of 1961 treating a sum of Rs.12,30,000/- as - 5 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 escaped income. The respondent No.2 then issued a notice dated 29.07.2022 under Section 148 of the Act of 1961. The respondent No.1 issued an intimation dated 02.11.2022 for completion of the assessment in accordance with the procedure prescribed in Section 144B of the Act of 1961. The respondent No.1 issued notices dated 23.12.2022 and 25.01.2023 under Section 142(1) of the Act of 1961 seeking certain information and documents. The respondent No.1 then issued a letter dated 27.03.2023 and a show-cause notice dated 06.04.2023 under Section 144 of the Act of 1961. Following this, the respondent No.1 issued a penalty notice dated 17.04.2023 under Section 274 read with Section 272A(1)(d) of the Act of 1961 to show cause as to why the proposed addition of Rs.12,30,000/- should not be made. The respondent No.1 then passed an assessment order dated 29.04.2023 under Section 147 read with Section 144 read with Section 144B of the Act of 1961 along with computation sheet and demand notice, whereby a sum of Rs.12,30,000/- was added in the assessment order. The respondent No.2 issued a letter dated 28.08.2023 intimating the outstanding demands for the assessment years 2017-18 - 6 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 and 2018-19. The respondent No.1 then passed a penalty order dated 20.09.2023 under Section 272A(1)(d) of the Act of 1961. 3. The petitioner contends that the assessment order is passed without jurisdiction and in violation of the principles of natural justice in as much as the approval issued by the respondent No.3 for an order dated 29.07.2022 under Section 148(A)(d) and notice dated 29.07.2022 issued under Section 148 of the Act of 1961 were not provided to the petitioner along with the order. Besides, it is contended that the notice issued under Section 148A(b), the order under Section 148A(d) and notice under Section 148 of the Act of 1961 are in contravention of Section 151A(1) and Section 130 of the Act of 1961 and notifications issued thereunder. It is contended that the order passed under Section 148A(d) is not passed by the authority specified under Section 151(ii) of the Act of 1961 and consequently is invalid. Besides, it is contended that the notice is issued beyond three years from the relevant assessment year. Being aggrieved by the above, the petitioner is before this Court. - 7 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 4. The petitioner relied upon the Standard Operating Procedure for Faceless Income Tax Assessment under Section 144B and relied upon Part - G3, which dealt with Centralized Communication to improve compliance of notice under Section 142(1), in cases where assessee does not respond to the notice under Section 142(1) of the Act of 1961. It is contended that notice under Section 148 does not show any intention to assess or re-assess the income or re-computed the loss of depreciation allowance or any other allowances or deduction, which is mandatory as provided under Sections 147 and 148 of the Act of 1961 and consequently is bad. The petitioner has relied upon a host of judgments in support of his contention. 5. The learned counsel for the petitioner raised the following contentions:- i) that there is no allegation in the notice issued with reference to 148A(b) and order passed under Section 148A(d) of the Act of 1961 to invoke the extended period of limitation beyond three years. Hence, the proceedings are time barred. - 8 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 ii) that the sanction under Section 151(ii) was not obtained and therefore, the order passed under Section 148A(d) and notice under Section 148 of the Act of 1961 is invalid in law. iii) notice under Section 148A(b), order passed under Section 148A(d) and notice under Section 148 are in contravention of Section 151A(1) and Section 130 of the Act of 1961 and notification issued thereunder. iv) that the respondents could not have passed an order under Section 148 of the Act of 1961 in view of the bar of limitation contained in Section 149(1)(b) of the Act of 1961 as the alleged income that had escaped tax was Rs.12,30,000/-. v) that the notice under Section 148 of the Act of 1961 dated 29.07.2022, does not bear a Document Identification Number and therefore, is invalid as per the guidelines issued by the Central Board of Direct Taxes and consequently, assessment proceedings are bad in law. - 9 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 vi) that the notice issued under Section 148 of the Act of 1961 dated 29.07.2022 is without providing a copy of the mandatory approval and hence, bad in law. vii) the sanction obtained from the Range, Gulbarga for issue of notice under Section 148 dated 29.06.2021 is invalid. viii) that the respondent No.1 did not follow the mandatory procedure contemplated under the Standard Operating Procedure in respect of non- responsive cases and therefore, violates the principles of natural justice. 6. Learned counsel for the respondents however, contended that the re-assessment proceedings is conducted in accordance with the dictum of the Hon'ble Supreme Court in the case of Ashish Agarwal, cited supra as well as Instruction 1/2022. He contended that the petitioner failed to disclose in his return, the income earned from the sale of a plot and therefore, the proceedings to re-assess the petitioner were taken out in accordance with law. - 10 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 7. I have considered the submissions made by the learned counsel for the petitioner as well as the learned counsel for the respondents. 8. Though the learned counsel for the petitioner has urged several grounds, the formidable being that the notice under Section 148 of the Act of 1961 was issued in violation of Section 149(1)(b), deserves consideration. If this contention is answered in favour of the petitioner, then all other contentions pales into insignificance. 9. The respondent No.2 alleging that the return of income filed by the petitioner for the assessment year 2017-18 had escaped income within the meaning of Section 147 of the Act of 1961, issued a notice dated 29.06.2021 and proposed to re-assess the income and therefore, called upon the petitioner to furnish a return in the prescribed form. Following this, a notice under Section 142(1) of the Act of 1961 was issued on 04.01.2022, followed by another notice under Section 142(1) under the Faceless Assessment Scheme, 2019. In the meanwhile, the Hon’ble Supreme Court in Ashish Agarwal, referred supra, by its judgment dated 04.05.2022 held that - 11 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 notices issued under Section 148 shall be deemed to be notices issued under Section 148A and treated as show-cause notice in terms of Section 148A(b) of the Act of 1961. It further held that the requirement of conducting an enquiry under Section 148A(a) shall be dispensed with in respect of all notices issued under Section 148 between 01.04.2021 and 04.05.2022. The assessing officers were directed to pass an order in terms of Section 148A(d) after following the procedure prescribed under Section 148A(b). It further held that all defences available to assessee under Section 149 and all rights available to the Assessing Officer under the Finance Act, 2021 are kept open. 10. Following this Judgment, the respondent No.4 issued Instruction No.1/2022 dated 11.05.2022 instructing the assessing officers to assess the reply submitted by the assessee and determine whether it is a fit case for issuing notice under Section 148 by passing an order under Section 148A(d), with the prior approval of the specified authority. If reply was not filed by the assessee, then an order under Section 148A(d) had to be passed within one month from the end of the month in which time or extended time allowed to furnish a reply expired. - 12 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 11. Following this, the respondent No.2 issued a notice dated 25.05.2022 under Section 148A(b) and called upon the petitioner to show cause as to why an order under Section 148A(d) of the Act of 1961 should not be passed holding that the case of the petitioner is fit for notice under Section 148. The petitioner did not submit any reply to this notice. Therefore, an order under Section 148A(d) was passed on 29.07.2022 holding that the case of the petitioner was fit for a notice under Section 148 of the Act of 1961. It was held in the order that income chargeable to tax amounting to Rs.12,30,000/- had escaped assessment. Hence, a contemporaneous notice under Section 148 of the Act of 1961 along with an intimation letter for notice under Section 148 were issued on 29.07.2022. An intimation dated 02.11.2022 was issued to the petitioner for completion of faceless assessment in accordance with Section 144B. Accordingly, a notice under Section 142(1) of the Act of 1961 was issued on 23.12.2022 calling upon the petitioner to produce documents and information as sought for in the annexure. Since the petitioner did not furnish the information/documents called for, another notice was issued on 25.01.2023 under Section 142(1) - 13 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 calling upon the petitioner to produce the documents called for. The petitioner again failed to do so, which prompted the respondent No.2 to issue a show-cause notice dated 06.04.2023 under Section 144 as to why an assessment should not be completed under Section 144. The petitioner again did not respond to the notice. Therefore, the respondent No.2 proceeded to provisionally assess the petitioner and called upon the petitioner by a notice dated 17.04.2023 under Section 144 as to why the proposed variation by adding Rs.12,30,000/- should not be accepted. The respondent No.2 then raised a demand on 28.08.2023 for the outstanding. 12. Therefore, one thing is certain, namely that the income that had escaped from assessment was Rs.12,30,000/- and the re-assessment was in respect of the assessment year 2017-18. A perusal of Section 149 of the Act of 1961, shows that it provides for the time within which an assessment can be re-opened. For the sake of reference, Section 149 of the Act of 1961 is extracted below:- \"149. (1) No notice under Section 148 shall be issued for the relevant assessment year,- - 14 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c) (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of - (i) an asset; (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of accounts, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more.\" Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub- section (1) of this section or section 153A or section 153C, as the case may be, as they stood - 15 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 immediately before the commencement of the Finance Act, 2021: Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021: Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded: Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly. - 16 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 Explanation.—For the purposes of clause (b) of this subsection, \"asset\" shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account. (1A) Notwithstanding anything contained in sub-section (1), where the income chargeable to tax represented in the form of an asset or expenditure in relation to an event or occasion of the value referred to in clause (b) of sub-section (1), has escaped the assessment and the investment in such asset or expenditure in relation to such event or occasion has been made or incurred, in more than one previous years relevant to the assessment years within the period referred to in clause (b) of sub- section (1), a notice under section 148 shall be issued for every such assessment year for assessment, reassessment or recomputation, as the case may be. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.\" 13. Therefore, the initial attempt to re-open the assessment, which was on 29.06.2021 was itself beyond three years from the end of the assessment year 2017-18. The - 17 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 income that had allegedly escaped assessment was Rs.12,30,000/- and therefore, the benefit of extended period under Section 149(1)(b) was not available to the revenue to re- open the assessment of the petitioner. Consequently, the entire proceedings initiated by the revenue is without jurisdiction and fell foul of Section 149 of the Act of 1961. A perusal of the impugned order under Section 148A(d) of the Act of 1961 shows that the respondent No.2 has failed to apply his mind before treating the case of the petitioner as fit to take up re- assessment and the consequent proceedings under Sections 142 and 144 of the Act of 1961, are all without jurisdiction. In that view of the matter, the petitioner is bound to succeed in this writ petition. Hence the following ORDER i) This writ petition is allowed. ii) The order of assessment dated 29.04.2023 bearing DIN No.ITBA/AST/S/147/2023- 24/1052447810(1) issued by the respondent No.1 under Section 147 read with Section 144 read with Section 144B of the Act of 1961 for the assessment year 2017-18 is set aside. - 18 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 iii) Consequently, the corresponding computation sheet dated 29.04.2023 issued by the respondent No.1 for the assessment year 2017- 18 is also quashed. As a result, the corresponding demand notice dated 29.04.2023 issued by the respondent No.1 for the assessment year 2017-18 is quashed. iv) In view of the above, the penalty notice dated 29.04.2023 issued by the respondent No.1 under Section 274 read with Section 270A of the Act of 1961 for the assessment year 2017- 18 and the penalty order dated 20.09.2023 passed by the respondent No.1 under Section 272A(1)(d) of the Act of 1961 as well as the computation sheet dated 20.09.2023 issued by respondent No.1, are also quashed. v) In view of the above, the show-cause notice dated 25.05.2022 issued by the respondent No.2 under Section 148A(b) of the Act of 1961 for the assessment year 2017-18 and the order - 19 - NC: 2024:KHC-K:4438 WP No. 203492 of 2023 dated 29.07.2022 passed by the respondent No.2 under Section 148A(d) of the Act of 1961 for the assessment year 2017-18, are quashed. vi) Likewise, the notice dated 29.07.2022 issued by the respondent No.2 under Section 148 of the Act of 1961 for the assessment year 2017-18 and the notice dated 29.06.2021 issued by the respondent No.2 under Section 148 of the Act of 1961 for the assessment year 2017-18 are quashed. vii) The challenge to the Instruction bearing No.1/2022 dated 11.05.2022 issued by the respondent No.4 is kept open to be considered in an appropriate stage. viii) All other contentions, which are not dealt above, are kept open. Sd/- JUDGE PMR List No.: 1 Sl No.: 52 "