M/S SWADESH TRADING CO V. DEPUTY COMMISSIONER OF INCOME TAX

WA/828/2019

AI Insights

The case involves M/S. Swadesh Trading Co., a partnership firm, which appealed against the order of the Deputy Commissioner of Income Tax, Central Circle-I, Mangalore, concerning an assessment for the Assessment Year 2011-12. The appellant had filed a return of income tax, which led to a notice under Section 148 of the Income Tax Act, 1961, proposing re-assessment of alleged escaped income. The appellant raised objections to the notice, which were not addressed before the assessment was completed. The court referenced the decision in GKN Driveshafts (India) Ltd. vs. Income Tax Officer, emphasizing that objections must be disposed of by the Assessing Officer before proceeding with the assessment. The court found that the assessment was completed without following the mandatory procedure, thus quashing the assessment order.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 755004 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 03-09-2019
• Assessment Year: misc
• Other Referred Cases: M/S. DEEPAK EXTRUSIONS PVT. LTD. vs. THE DEPUTY COMMISSIONER OF INCOME TAX, GKN DRIVESHAFTS (INDIA) LTD. vs. INCOME TAX OFFICER & ORS.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: VANI
• Keywords: Assessment Order; Income Tax; Objections; Re-assessment; Section 144A
• Section: 147; 148; 143(3); 144A

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3RD DAY OF SEPTEMBER, 2019 PRESENT: THE HON’BLE MR.ABHAY S. OKA, CHIEF JUSTICE AND THE HON’BLE MR.JUSTICE MOHAMMAD NAWAZ WRIT APPEAL NO.828 OF 2019 (T-IT) BETWEEN: M/S. SWADESH TRADING CO., A PARTNERSHIP FIRM, D.NO.2-43, BADRIYA COMPOUND, KAMBALABETTU, VITTAL MUDNOOR, BANTWAL-574 211. DAKSHINA KANNADA, KARNATAKA, REPRESENTED BY ITS ERSTWHILE PARTNER: SMT. KADEEJA MOHAMMED ANDHUNI, W/O. ANDHUNI MOHAMMED, AGED ABOUT 57 YEARS. ... APPELLANT (BY SMT. VANI H., ADVOCATE) AND: 1. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-I, ALBUQUERQUE HOUSE, PANDESHWAR, MANGALORE-575 001. - 2 - 2. THE ADDITIONAL COMMISSIONER OF INCOME TAX, CENTRAL RANGE, ALBUQUERQUE HOUSE, GROUND FLOOR, PANDESHWAR, MANGALORE-575 001. ... RESPONDENTS (BY SRI. E.I.SANMATHI, ADVOCATE) --- THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT, 1961, PRAYING TO SET ASIDE THE ORDER DATED 07.02.2019 PASSED BY THE LEARNED SINGLE JUDGE IN WRIT PETITION NO.1374/2019 (T-IT). THIS APPEAL COMING ON FOR ORDERS THIS DAY, CHIEF JUSTICE DELIVERED THE FOLLOWING: JUDGMENT The parties were put to notice that the appeal will be decided finally. 2. With a view to appreciate the submissions canvassed across the bar, a reference to few factual details is necessary. The appellant has filed a return of income tax for the Assessment Year 2011-12. On 27th March 2018, a notice under Section 148 of the Income Tax Act, 1961 (for short ‘the - 3 - said Act of 1961’) was issued to the appellant proposing re- assessment of the alleged escaped income. After receiving a copy of the reasons recorded in the notice issued under Section 148 of the said Act of 1961, on 15th October 2018, the appellant filed objections. The appellant also made an application dated 22nd October 2018 to the jurisdictional Deputy Commissioner of Income Tax seeking a direction under Section 144A of the said Act of 1961. On 22nd October 2018, a notice was served to the appellant by the Deputy Commissioner of Income Tax, Central Circle-1, Mangaluru, to file objections within a period of one week. The appellant filed objections on 29th October, 2018. 3. On 26th December 2018, the first respondent proceeded to conclude the assessment under sub-section (3) of Section 143 read with Section 147 of the said Act of 1961. We may note here that the Additional Commissioner of Income Tax, Central Range, Mangaluru passed an order on 28th November 2018 directing the Assessment Officer to pass an appropriate order after giving an adequate opportunity of hearing to the assessee. - 4 - 4. The learned counsel appearing for the appellant relied upon the decision of the Division Bench of this Court dated 15th March 2017 in W.A.No.1725/2017 (T-IT) in the case of M/S. DEEPAK EXTRUSIONS PVT. LTD. vs. THE DEPUTY COMMISSIONER OF INCOME TAX. Her submission is that the purpose of seeking a direction under Section 144A of the said Act of 1961 was to ensure that the objections raised by the appellant are promptly decided. Her further submission is that without considering the objections, an assessment under sub- section (3) of Section 143 read with section 147 of the said Act of 1961 could not have been completed in law. 5. The learned counsel appearing for the respondents submitted that the appellant himself applied for the direction under Section 144A of the said Act of 1961 and that is how the Additional Commissioner has passed an order on the said application which is binding on the Assessing Officer and that is why the Assessing Officer proceeded to complete the assessment in accordance with law under sub- section (3) of Section 143 read with section 147 of the said Act - 5 - of 1961. He relied upon the decision of the Apex Court in the case of GKN DRIVESHAFTS (INDIA) LTD. vs. INCOME TAX OFFICER & ORS. in Civil Appeal Nos.7731-7737/2002 dated 25th November 2002. His submission is that as the Assessing Officer is bound by the order passed under Section 144A of the said Act of 1961, no interference can be made. 6. We have considered the submissions. It is necessary to note the law laid down by the Apex Court in the case of GKN DRIVESHAFTS (INDIA) LTD (supra) and in particular, what is held in paragraph 5 which reads thus: “5. 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 course 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 notice 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 - 6 - filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.” (underline supplied) 7. The same decision of the Apex Court was noted by the Division Bench of this Court in the case of M/S. DEEPAK EXTRUSIONS PVT. LTD (supra). The Division Bench referred to another decision of the learned Single Judge in which the decision of the Apex Court in GKN DRIVESHAFTS (INDIA) LTD. (supra) was followed. Ultimately, in paragraphs 11 and 12, the Division Bench held thus: “11. If the facts of the present case are examined in the light of aforesaid legal position, it is an admitted position that the reasons for re- opening of the assessment by issuing of the notice under Section 148 of the Act were supplied to the appellant assessee. It is also admitted position that the appellant assessee after receipt of such reasons raised objections. It is also undisputed position that the Assessing Officer did not dispose of the objections prior to proceeding with the assessment further and proceeded to pass the order for assessment. Under the circumstances, it can be said that the mandatory procedure of disposal of the objection by Assessing officer before proceeding with the assessment has not been followed and exercise - 7 - of power can be said as not only vitiated, but the order of assessment cannot be sustained. 12. If the decision of the Assessing Officer is illegal on the face of it, in our view, it would fall in the exceptional category of making departure from the normal principles of self impose limitation of not to interfere in a matter where there is existence of alternative statutory remedy.” (underline supplied) 8. Now, coming to the facts of the case in hand, a notice under Section 148 of the said Act of 1961 was served upon the appellant for reopening of the assessment. After receiving the copy of the reasons, the appellant admittedly raised objections. It is not in dispute that the Assessing Officer did not dispose of the objections prior to completing the assessment under sub-section (3) of Section 143 read with Section 147 of the said Act of 1961. Therefore, the law laid down by the Apex Court as well as the Division Bench of this Court would squarely apply. Therefore, the only conclusion is that the order of assessment is bad in law as the same is made without deciding the objections of the appellant. - 8 - 9. Now, the only question is about the effect of the direction issued under Section 144A of the said Act of 1961. After having perused the said direction, we find that the Additional Commissioner did not direct the Assessing Officer to complete the assessment without deciding the objections filed by the appellant. When a direction is issued under Section 144A of the said Act of 1961 to the Assessing Officer to pass an appropriate order, he has to pass the appropriate order in accordance with law. While issuing a direction under Section 144A of the said Act of 1961, the Additional Commissioner could not have bypassed the well settled law and directed the Assessing Officer to act contrary to law. 10. We may note at this stage that the learned counsel appearing for the appellant stated that the appellant is now not pressing the application made under Section 144A of the said Act of 1961. 11. Therefore, in our considered view, the order dated 28th November 2018 passed under Section 144A of the said - 9 - Act of 1961 does not affect the applicability of the principles laid down in the aforesaid decision of the Apex Court. 12. Accordingly, we pass the following order: (i) The assessment order dated 26th December 2018 for the Assessment Year 2011-12 passed by the first respondent is hereby quashed and set aside; (ii) We direct the first respondent to decide the objections raised by the appellant by passing a reasoned order before undertaking the assessment in accordance with Section 143 read with Section 147 of the said Act of 1961; (iii) The order dated 28th November 2018 issued under Section 144A of the said Act of 1961 is hereby set aside and the application made by the appellant under Section 144A of the said Act stands disposed of as not pressed. In view of the above direction, the impugned order passed by the learned Single Judge stands modified to that extent; (iv) We direct the appellant to remain present before the Assessing Officer on 13th - 10 - September 2019 so that the Assessing Officer can hear the appellant on the objections and decide the same as directed; (v) The appeal is partly allowed on above terms. The pending interlocutory application does not survive for consideration and is accordingly disposed of. Sd/- CHIEF JUSTICE Sd/- JUDGE Ksm* "