BANSILAL B. RAISONI AND SONS. vs. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-I AND ANR.

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WP/13391/2018HC BombayHCBM01052859201829 November 2018Author: HON'BLE SHRI JUSTICE M.S. SANKLECHA,HON'BLE SHRI JUSTICE AKIL KURESHI10 pages
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What did the High Court hold?

The High Court agreed with the petitioner that for a notice under Section 153A(1) to be valid, a search must be initiated against the noticee, and mere authorization is insufficient, distinguishing between authorization and conduct of search. The Court also agreed that the time limit under Section 124(3) of the Act, which pertains to territorial jurisdiction, does not apply to a challenge where the assessee claims the action is wholly without jurisdiction. However, the Court declined to entertain the writ petition for two primary reasons. Firstly, it is not appropriate for a High Court to delve into minute factual details in a writ petition when such aspects can be examined by the Assessing Officer, citing Commissioner of Income Tax Vs. Vijaybhai N. Chandrani (2013) 357 ITR 713 (SC). Secondly, the Court noted that search authorization was issued against the firm and others, and actual searches were conducted at multiple locations, including partners' residences. Prima facie, there is no provision restricting searches solely to the registered office. The conduct of searches and their relation to the firm's business require examination by the Assessing Officer. Therefore, the Court relegated the petitioner to the Assessing Officer, keeping factual and legal contentions open for consideration at that level.

What were the facts?

The petitioner, Bansilal B. Raisoni & Sons, a partnership firm, challenged notices issued under Section 153A of the Income Tax Act, 1961, by the Assistant Commissioner of Income Tax. A search was conducted on April 5, 2016, concerning one partner, Mr. Rajendra Bansilal Raisoni, his brother Mr. Sunil Bansilal Raisoni (not a partner), and Mr. Kunal Pradeep Raisoni. The search took place at three residential addresses. The petitioner contended that no search was conducted at the firm's premises, thus invalidating the Section 153A notices. The petitioner had lodged objections with the Assessing Officer, which were rejected on October 25, 2018. The petitioner also challenged this rejection order. The Revenue argued that the search was validly conducted in relation to the firm and its partners.

What were the issues?

1. Whether the issuance of notices under Section 153A of the Income Tax Act, 1961, is valid when a search was authorized against the partnership firm but not actually conducted at its premises, relying on the distinction between search authorization and initiation of search, as per Commissioner of Income Tax Vs. Wipro Finance Ltd. (2000) 323 ITR 467 (Karnataka)? 2. Whether a partnership firm and its partners are treated as separate entities for the purpose of the Income Tax Act, meaning a search at partners' premises cannot be equated with a search against the firm, as observed in Commissioner of Income Tax Vs. A.W. Figgies & Co. (1953) 24 ITR 405 (SC)? 3. Whether the objection regarding the Assessing Officer's jurisdiction, based on the absence of a search initiation against the firm, is barred by the time limit stipulated in Section 124(3) of the Act? Assessee's contentions: (i) No search was initiated against the firm, making Section 153A notices invalid. (ii) Firm and partners are separate entities; search at partners' premises is not a search against the firm. (iii) Section 124(3) time limit is irrelevant to a challenge based on lack of authority of law. Revenue's contentions: (i) Search was conducted in case of the partnership firm, and statutory provisions do not restrict searches to the registered office. (ii) The High Court should not examine factual aspects in a writ petition at this stage; the assessee should pursue remedies before the Assessing Officer.

Which sections of the Income-tax Act were involved?

Section 153A,Section 132,Section 132A,Section 139,Section 147,Section 148,Section 149,Section 151,Section 153,Section 124,Section 153C

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Uday S. Jagtap 13391-18-WP-904=.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL  APPELLATE JURISDICTION WRIT PETITION NO.13391 OF 2018

Bansilal B. Raisoni & Sons .. Petitioner v/s. Asstt. Commissioner of Income Tax, Central Circle­I, Nashik & Anr. .. Respondents Mr. Mihir Naniwadekar a/w Mr. Rohan Deshpande I/b Alisha Pinto for the petitioner Mr. Sham Walve for the respondents

CORAM : AKIL KURESHI &

M.S. SANKLECHA, J.J.

DATED  : 29th NOVEMBER,  2018. P.C.

1.

The petitioners have challenged the Notices dated 12.08.2017 issued by the respondent no.1 –   Asstt. Commissioner of Income Tax under Section 153A of the Income Tax Act, 1961 ("the Act" for short). The brief facts are as under :­

2.

The petitioner is a partnership firm having its registered office at 401/402, Poonam Plaza, Pune.   A search was conducted by the Income Tax Authorities on 05.04.2016  in case of the partnership firm, one of the   partners   of   the   firm   Mr.   Rajendra   Bansilal   Raisoni   and   one Mr. Sunil Bansilal Raisoni, brother of Rajendra Raisoni but who was not 1 of 10

Uday S. Jagtap 13391-18-WP-904=.doc a partner of the firm.   Said search was conducted at 3 different places namely; (i) at the residential address of Rajendra Bansilal Raisoni (ii) at the residential address of Sunil Bansilal Raisoni, and       (iii) at the residential address of Mr. Kunal Pradeep Raisoni.    According to the petitioner, no search was conducted at the premises of the partnership firm and, therefore, the Assessing Officer had no authority to initiate proceedings under Section 153A of the Act.   Despite this, the impugned show­cause notices for the relevant assessment years came to be issued on 10.08.2017. The petitioner has, therefore, challenged such notices. Before   filing   the   petition,   the   petitioner   has   also   lodged   detailed objections before the Assessing Officer under Communication dated 25.09.2017. However, the same was rejected by the Assessing Officer by   an   order   dated   25.10.2018. The   petitioner   has,   therefore, challenged the said order as well.

3.

The case of the petitioner in brief is that the Assessing Officer could not have issued the impugned notices under Section 153A of the Act without carrying out search at the premises of the partnership firm. The Department however, contends that the search was carried in case of the partnership firm and the premises of one of its partners and other persons related to the partnership business, the action of the Assessing 2 of 10

Uday S. Jagtap 13391-18-WP-904=.doc Officer is, therefore, valid.   The Department has also taken an objection that the petitioner did not raise objection of the Assessing Officer within the time permitted under sub­section (3) of Section 124 of the Act.

4.

In the background of the such facts, learned Counsel for the petitioner raised following contentions :­ (i) 13391-18-WP-904=.doc Tax Vs. A.W. Figgies & Co. (1953) 24 ITR 405. (iii) Counsel further submitted that the objection of limitation of the Department is wholly fallacious.     Section 124 of the Act relates to territorial jurisdiction of the Assessing Officer.   The time limit provided under sub­section (3) of Section 124, therefore, must be seen in the light of such issue.

5.

On the other hand, learned Counsel for the Revenue opposed the petition.  By referring to the affidavit­in­reply filed by the respondents, Counsel submitted that the action of the Assessing Officer is legal and valid.   A search was conducted in case of partnership firm.  Statutory provisions   no   where   envisage   that   search   must   be   confined  to   the registered office of the firm.   He further submitted that in any case in a writ petition, at this stage the High Court would not examine the factual aspects minutely.   The assessee must be relegated before the Assessing Officer   to   contest   the   assessments   and   thereafter   follows   remedies available under the Act.

6.

As noted above, the broad facts before us are that the search authorization was issued against the petitioner partnership firm, one of its partners and another person.   Actual search was carried, as pointed 4 of 10

Uday S. Jagtap 13391-18-WP-904=.doc out   by   the   petitioner,   at   three   different   locations   namely   at   the residential premises of one of the partners and two other residential premises, one of them belonging to the brother of the partner of the partnership firm.     In the context of such broad facts, if we refer to Section 153A of the Act, we notice that in sub­section (1) thereof, notwithstanding anything contained in Sections 139, 147, 148, 149, 151 and 153 of the Act, in case of a person where search is initiated under   Section   132   or   books   of   accounts,   other   documents   are requisitioned under Section 132A, the Assessing Officer would have the authority to issue notice to such person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years and thereafter carry out the assessments accordingly. In the present case, we have no hesitation in accepting the petitioner's contention that in order to issue notice under sub­section (1) of section 153A, there must be initiation of search in case of the noticee.   Mere search authorization would not be sufficient.  There is clear distinction between search authorization and conduct of the search.     In sub­ section (1) of Section 153A of the Act, therefore, the legislature has advisably used expression "where a search is initiated under Section 132". 5 of 10

Uday S. Jagtap 13391-18-WP-904=.doc

7.

We are also in agreement with the contention of the Counsel for the petitioner that the petitioner's objection to the jurisdiction of the Assessing Officer on the ground that if no search was initiated, notice under Section 153A of the Act could not have been issued, cannot be curtailed on the ground that such objection was raised beyond the period referred to in sub­section (3) of Section 124 of the Act.  Section 124 of the Act pertains to jurisdiction of Assessing Officers.     Sub­ section   (1)   of   Section   124   lays   down   territorial   jurisdiction   of   the Assessing Officer.   Sub­section (2) of Section 124 provides that where the   question   arises   under  said  section,   as  to   whether   an  Assessing Officer has jurisdiction to assess any person, such question shall be determined   by   the   authority   prescribed   under   the   said   sub­section. Sub­section (3) of section 124 provides time limits for a person to call in question jurisdiction of an Assessing Officer.     Clause (c) of sub­ section (3) of section 124 provides that no person shall be entitled to call in question jurisdiction of an Assessing Officer where an action has been taken under Section 132 or section 132A, after the expiry of one months from the date on which he was served with a notice under sub­ section (1) of Section 153A or sub­section (2) of Section 153C of the Act or after the completion of the assessment, whichever is earlier.    In clear terms, the time limit for raising objection to the jurisdiction of the 6 of 10

Uday S. Jagtap 13391-18-WP-904=.doc Assessing Officer prescribed under sub­section (3) of section 124 has a relation to the Assessing Officer's territorial jurisdiction.  The time limit Gujarat High Court challenging show­cause notice under Section 153C of   the   Act   contending   that   during   the   search   conducted   by   the Department   against   another   person,   no   material   belonging   to   the assessee was found and, therefore, action against the assessee under Section 153C of the Act was invalid.   The High Court had examined the material   on   record   and   allowed   the   petition.     Upon   which,   the Department had approached the Supreme Court.  The Supreme Court 7 of 10

Uday S. Jagtap 13391-18-WP-904=.doc allowed the Department's appeal making following observations :­ “14. be filed against the show­cause notice and observed that the High Court should not have interfered in the matter as the writ petition was filed without even reply to the show­cause notice.  This Court further observed as follows: “3 …... In the circumstances, we could have dismissed these civil appeals only on the ground of failure to exhaust the statutory remedy, but for the fact that huge investments involving the large number of industries are in issue.”

16.

In   the   present   case,   the   assessee   has   invoked   the   writ jurisdiction of the High Court at the first instance without first exhausting the alternative remedies provided under the Act.  In our considered opinion, at the said stage of proceedings, the High Court ought not have entertained the writ petition and instead should have directed the assessee to file reply to the said notices and upon receipt of a decision from the assessing authority, if for any reason it is aggrieved by the said decision, to question the same before the forum provided under the Act.

17.

In view of the above,  without expressing any opinion on the correctness or otherwise of the construction that is placed by the High Court on section 153C, we set aside the impugned judgment and order.   Further, we grant time to the assessee, if it so desires, to file reply / objections, if any, as contemplated in the said notices within 15 days' time from today.   If such reply / objections is / are 8 of 10

Uday S. Jagtap 13391-18-WP-904=.doc filed within time granted by this Court, the assessing authority shall first consider the said reply / objections and thereafter direct the assessee to file the return for the assessment year in question.  We make it clear that while framing the assessment order, the assessing authority will not be influenced by any observations made by the High Court while disposing of the writ petition.  If, for any reason, the assessment order goes against the assessee, he / it shall avail of and exhaust the remedies available to him / it under the Act, 1961.”

The second reason for our reluctance in entertaining this petition is that admittedly search authorization was issued against the firm as well as other persons.    Actual search was also conducted and carried out at 3 different locations, which included the residential premises of one of the partners of the firm and residential premises of two more persons.     Prima­facie,  we  do  not  find  any  provision  which  would restrict the Department's search action only to the registered office of a partnership firm.   The conduct of the search at these places in relation to the partnership firm and its business need to be examined in proper perspective keeping in mind the objections of the partnership firm and such exercise should be allowed to be done at the level of the Assessing Officer.     At this stage, we do not propose to thwart the assessment pursuant to the impugned notices.

9.

Under  the   circumstances,   keeping   the  petitioner's  factual  and 9 of 10

Uday S. Jagtap 13391-18-WP-904=.doc legal contentions and objections open, we relegate the petitioner before the Assessing Officer.   Once the Assessing Officer passes final order pursuant   to   the   impugned   notices,   it   will   always   be   open   to   the petitioner to pursue the remedy available under the Act.

10.

With these observations, the petition is disposed of. (M.S. SANKLECHA, J.) (AKIL KURESHI, J.)

10 of 10

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