PRADEEP DAYANAND KOTHARI vs. COMMISSIONER OF INCOME TAX 2

T.C.A.Nos.404 & 405 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 24.09.2020 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.404 & 405 of 2019 Pradeep Dayanand Kothari, Kothari Buildings, 4th Floor, 114, Mahatma Gandhi Road, Chennai-600 034. PAN: AEEPK6866L .. Appellant/Appellant in both TCAs -vs- Commissioner of Income Tax 2, 121, Uthamar Gandhi Salai, Nungambakkam, Chennai-600 034. .. Respondent/Respondent in both TCAs Appeals under Section 260A of the Income-tax Act, 1961, against the common order dated 27.04.2016 made in I.T.A.No.1303/Mds/15 and I.T.A.No.1302/Mds/15 on the file of the Income Tax Appellate Tribunal 'B' Bench, Chennai for the assessment years 2006-07 and 2007-08 respectively. 1/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 For Appellant : Mr.M.A.Mudi Mannan (In both TCAs) For Respondent : Mr.Karthik Ranganathan, (In both TCAs) Senior Standing Counsel & : Mr.S.Rajesh, Standing Counsel ****** COMMON JUDGMENT (Delivered by T.S.Sivagnanam, J.) These appeals have been filed by the appellant/assessee under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) challenging the common order 27.04.2016 made in I.T.A.No.1303/Mds/15 and I.T.A.No.1302/Mds/15 passed by the Income Tax Appellate Tribunal 'B' Bench, Chennai (for brevity “the Tribunal”) for the assessment years 2006-07 and 2007-08 respectively. 2.The appeals have been filed raising the following substantial questions of law:- “(a) Whether on the facts and circumstances of the case, the Tribunal is right in law and having materials on record to uphold the re-opening of the 2/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 assessments under Section 147 of the Income Tax Act especially when the Department failed to get any confirmation from any authority in support of his decision to re-open the assessment? (b) Whether under facts and circumstances of the case, the re-opening of assessments under Section 147 of the Income Tax Act is valid in law in the absence of a notice under Section 143(2) of the Act? and (c) Whether under facts and circumstances of the case, the Tribunal was right in not adjudicating the correctness of the assessment of the purported credits into the bank account of the appellant as his income particularly when the assessing officer has recorded a finding that the addition has been made in the absence of conclusive information and the factual position regarding the appellant's bank account is awaited?” 3.The facts, which are necessary to be noted, are as hereunder. The assessee filed its return of income for the assessment years under consideration (2006-07 on 27.07.2006 and 2007-08 on 30.07.2006). The Assistant Director of Income Tax (Investigation), Chennai issued summons under Section 131(1A) of the Act dated 19.08.2011 calling upon the 3/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 appellant/assessee to appear before him with books of accounts on 29.08.2011. The assessee in compliance with the summons, appeared before the authority and, details regarding amounts deposited in the account of HSBC Bank, Switzerland with client names Xenios Foundation and with regard to M/s.Dayanand 837 were called for. The assessee filed their letters dated 13.09.2011 stating that the assessee was not aware of the existence of any account in the name of Dayanand and one account was in the name of the Foundation in which, the assessee was the beneficiary and the funds were transferred by his father prior to 2006 and no amount was deposited after 31.03.2006 and the amounts lying in the foreign bank are not taxable. The Assessing Officer issued notices under Section 148 of the Act proposing to reopen the assessments, which are objected to by the assessee and ultimately, by orders dated 30.03.2013, the re-assessment orders were passed. Aggrieved by the same, the assessee preferred appeals before the Commissioner of Income Tax (Appeals)-8, Chennai (for brevity “the CIT(A)”). The appeals were dismissed by order dated 31.03.2015. Challenging the same, the assessee preferred appeals before the Tribunal, which were dismissed by the impugned order. This is how the assessee is 4/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 before us by way of these tax case appeals raising the aforementioned substantial questions of law. 4.We have elaborately heard Mr.M.A.Mudi Mannan, learned counsel for the appellant/assessee and Mr.Karthik Ranganathan, learned Senior Standing Counsel and Mr.S.Rajesh, learned Standing Counsel appearing for the respondent/Revenue. 5.Before we proceed to consider the merits of the matter and the questions raised before us, we need to point out that the questions, which have been raised before us in these appeals more particularly, substantial questions of law (a) and (b) have been raised before this Court for the first time by the assessee. In other words, these issues were never raised by the assessee before the Assessing Officer or before the CIT(A) or before the Tribunal. Thus, the larger question would be whether the assessee, who pleads defective procedure, can raise such an issue for the first time before this Court in an appeal filed under Section 260A of the Act. In the earlier decisions of this Court, we have held that a mere defect in the procedural 5/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 aspect would not vitiate the entire proceedings especially, when the assessee did not raise any objection at the earliest point of time. In other words, it has been held that every procedural aspect will not result in the assumption of jurisdiction to be wholly illegal, unless and until the assessee proves that he has been put to prejudice on account of such procedural error. That apart, the jurisdiction of this Court is adumbrated under Section 260A of the Act and we are not here to test the orders passed by the Tribunal as if sitting as a third appellate authority. With this caveat, we proceed to decide the issues. 6.Mr.M.A.Mudi Mannan, learned counsel for the assessee would vehemently contend that the Assessing Officer issued notices dated 26.09.2011 under Section 148 of the Act after which, the assessee through its Chartered Accountant, vide letters dated 15.02.2013, requested the Assessing Officer to treat the original returns of income as returns filed in pursuance to notices under Section 148 of the Act and thereafter, without issuing any notice under Section 143(2) of the Act, re-assessment proceedings has been completed. 6/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 7.According to Mr.M.A.Mudi Mannan, learned counsel for the assessee, this is a jurisdictional defect amounting to failure to follow mandatory procedure and the entire re-assessment proceedings stands vitiated. In this regard, the learned counsel has drawn the attention of this Court to Section 143(2) of the Act. It is further argued that the re-assessment proceedings has been done beyond the time limit prescribed under Section 153 of the Act. In support of the argument that non issuance of notice under Section 143 of the Act would vitiate the entire re-assessment proceedings, the learned counsel placed reliance on the decision in CIT vs. C.Palaniappan [(2006) 284 ITR 257 (Madras)]; Director of Income-Tax vs. Society for Worldwide Interbank Financial, Telecommunications [(2010) 323 ITR 249 (Del.)]; Sapthagiri Finance & Investments vs. Income Tax Officer [T.C(A).No.159 of 2006: dated 17.07.2012]; N.Ahamed Ali vs. Income Tax Officer [T.C(A) No.766 of 2014: dated 19.11.2014] and Pr. Commissioner of Income Tax vs. Shri Jai Shiv Shankar Traders Pvt. Ltd. [2015 SCC Online Del 12949]. 7/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 8.Per contra, Mr.Karthik Ranganathan, learned Senior Standing Counsel and Mr.S.Rajesh, learned Standing Counsel appearing for the Revenue would contend that the assessee should not be permitted to canvass the alleged defective procedure for the first time before this Court, having not raised such contention at any earlier point of time. Further, it is submitted that the case on hand is not one where no notice was issued under Section 143(2) of the Act, but the assessee seeks to argue that the notices were prior to the letters of the Chartered Accountant of the assessee dated 15.02.2013 and no notice was issued after the Chartered Accountant's letters dated 15.02.2013 under Section 143(2) of the Act and therefore, the re-assessments are bad. It is further submitted that the assessee has not placed the correct details, the Revenue has followed the proper procedure and that is why the assessee never questioned the procedural aspect in any of the earlier proceedings and seeks to canvass the same for the first time before this Court and the same may not be permitted and it is not sustainable both on law as well as on facts. 8/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 9.During the course of argument, reference was made to the latest decision of the Hon'ble Supreme Court in CIT vs. Laxman Das Khandelwal [(2019) 108 taxmann.com 183]. The decision explains the scope of Section 292BB of the Act. The reason for referring to the said decision was on account of the submission made by Mr.Karthik Ranganathan, learned Senior Standing Counsel by referring to the said provision and submitting that the notice issued is deemed to be valid and issued in accordance with law and the assessee cannot find fault in the procedure adopted. In the case of Laxman Das Khandelwal (supra), the Court has held that for Section 292BB of the Act to apply, Section 143 (notice) of the Act must have emanated from the Department and it is only the infirmities in the manner of service of notice that the section seeks to cure and it is not intended to cure complete absence of notice itself. The decision has clearly explained the scope of Section 292BB of the Act. 10.The decisions relied on by Mr.M.A.Mudi Mannan, learned counsel for the assessee in the case of C.Palaniappan (supra), Sapthagiri Finance & Investments (supra), N.Ahamed Ali (supra) and Shri Jai Shiv 9/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 Shankar Traders Pvt. Ltd. (supra) also explain the said concept, but not as crystallised in the case of Laxman Das Khandelwal (supra). 11.The question would be as to whether at all an argument is required to be made by referring to Section 292BB of the Act and whether at all there is any necessity for the Court to consider the decisions relied on, would all depends on the factual position. The assessee seeks to make out a case by referring to paragraph 4 of the re-assessments order dated 30.03.2013. In the said paragraph, it has been stated that the notice under Section 143(2) dated 12.02.2013 was issued and duly served on the assessee. The Assessing Officer further states that Mr.Devesh Vasavada, Chartered Accountant appeared on behalf of the assessee; the Authorised Representative filed letters dated 15.02.2013 requesting to treat the returns already filed for the assessment year 2006-07 and 2007-08 as filed in response to notices under Section 148 of the Act. The assessee seeks to make out a case from the averments contained in paragraph 4 to say that the notices under Section 143(2) are dated 12.02.2013, the Chartered Accountant of the assessee filed letters on 15.02.2013 and requested to treat 10/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 the returns already filed as returns in response to notices under Section 148 and before taking up the re-assessment proceedings, notice under Section 143(2) of the Act has to be issued. 12.After we have carefully gone through the factual position, we find that the argument of the assessee is wholly unsustainable, factually incorrect. Even going by the averment in paragraph 4 of the re-assessment orders, it is not clear as to when the notices under Section 143(2) of the dated 12.02.2013 were served on the assessee. The averments does not clearly state as to on what date, the Authorised Representative appeared before the Assessing Officer, though the Chartered Accountant's letters are dated 15.02.2013. Therefore, the attempt of the assessee appears to be to read in between lines with a view to make out a case of non service of notice at the fag end of the proceedings and for the first time before this Court. We are convinced to make such observation because of the factual position recorded by the CIT(A) in its order dated 31.03.2015. The CIT(A) has stated that the assessee who traded shares and mutual funds, filed returns for the assessment years under consideration and assessment orders 11/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 were passed by the jurisdictional Assessing Officer on 27.07.2006 for the assessment year 2006-07 and 30.07.2007 for the assessment year 2007-08. It is further stated that information was obtained from the Investigation Wing that the assessee had operated undeclared account with HSBC Bank located in Switzerland and carried out unaccounted transactions and made deposits in them during the financial years 2005-06 and 2006-07 relevant to the assessment years 2006-07 and 2007-08 respectively. Further, the CIT(A) states that the assessment orders were reopened after recording reasons thereof with prior approval of the Joint Commissioner of Income Tax, Salary Range V, Chennai; notices under Section 148 of the Act dated 26.09.2011 were issued for both the assessment years (2006-07 and 2007- 08) by the Deputy Commissioner of Income Tax, Salary Circle V, Chennai and notices under Section 143(2) of the Act were issued, subsequently, in response to which the assessee's Authorised Representative made submission and furnished details; after discussing the case with the assessee's representative, the assessments were completed by the Assessing Officer by passing the orders dated 30.03.2013. The above facts as recorded by the CIT(A) in his order dated 31.03.2015 will evidently make it 12/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 clear that procedure has been followed, notices under Section 143(2) of the Act were issued and the case on hand is not a case where notice was not issued and from the facts recorded, we find that there is no procedural irregularity and the question of applying Section 292BB of the Act would not arise in the facts and circumstances of the case on hand. Furthermore, we noted that the assessee appears to have been well aware of this position and precisely for that reason, the grounds canvassed before us were never canvassed at an earlier stage. 13.Thus, for all the above reasons, we hold that the order passed by the Tribunal does not call for any interference and the substantial question of law (c) has to be decided against the assesseee. 14.So far as substantial questions of law (a) and (b) are concerned, on facts, we have found that there are proper issuance and service of notices under Section 143(2) of the Act and consequently, the substantial questions of law though cannot be canvassed for the first time before this Court, as the assessee was never prejudiced earlier, yet on facts, 13/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 we found that there is statutory compliance of the procedure under Section 143 of the Act. 15.With regard to the contention regarding the applicability of Section 153 of the Act, we find that at the relevant time, the limitation was one year and the order could have been passed on or before 31.03.2013. Therefore, on this aspect also, the assessee's contention has to be rejected. 16.For the above reasons, substantial questions of law (a) and (b) are held against the assessee. 17.In the result, the appeals filed by the assessee are dismissed and the substantial questions of law are answered against the assessee. No costs. (T.S.S., J.) (V.B.S., J.) 24.09.2020 Index : Yes/No Speaking/Non-Speaking Order abr 14/15 http://www.judis.nic.in T.C.A.Nos.404 & 405 of 2019 T.S.Sivagnanam, J. and V.Bhavani Subbaroyan, J. (abr) To The Income Tax Appellate Tribunal 'C' (SMC) Bench, Chennai. T.C.A.Nos.404 & 405 of 2019 24.09.2020 15/15 http://www.judis.nic.in