Nassar Parackal Puthenpura Meerakutty vs. THE ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF

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WP(C)/23767/2022HC KeralaKLHC01049555202219 January 2023Bench: HONOURABLE MR. JUSTICE GOPINATH P.8 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the writ petition, quashing the assessment order (Ext.P6) and penalty notices (Exts.P7 and P8). The Court agreed with the petitioner that the proceedings violated the principles of natural justice. While acknowledging that the assessment was nearing the time bar (31.03.2022), the Court found that issuing a show cause notice on 26.03.2022 and completing the assessment on 29.03.2022, granting only two days for response, did not provide a reasonable opportunity. The Court relied on its own previous judgment in W.P.(C.) No.21524 of 2021, which emphasized that granting a reasonable opportunity to respond and for hearing is an element of natural justice and that failure to do so prejudices the assessee. The Assessing Officer was directed to complete the assessment afresh after providing the petitioner an opportunity to respond to the show cause notice dated 26.03.2022. The petitioner was given three weeks to file their response, and the National Faceless Assessment Centre was to complete the assessment in accordance with law, affording an opportunity of being heard, including providing a suitable link for uploading the response if necessary.

What were the facts?

The petitioner, Nassar Parackal Puthenpura Meerakutty, is aggrieved by an assessment order (Ext.P6) and penalty notices (Exts.P7 and P8) for assessment year 2013-14. The petitioner had not filed a return for AY 2013-14. A notice under Section 148 was issued on 31.03.2021, to which the petitioner did not respond. Subsequently, a notice under Section 142(1) was issued, triggering proceedings due to substantial amounts (approx. Rs. 22 Crores) reflected in the petitioner's Form 26AS from a financial institution and other cash deposits. The petitioner responded that he had no connection to these transactions. A notice under Section 142(1) was issued on 19.03.2022, followed by a show cause notice on 26.03.2022, granting two days to respond. The assessment was completed on 29.03.2022, treating the entire amount as unexplained deposits, leading to a demand of Rs. 22,07,78,452/-.

What were the issues?

1. Whether the assessment order and penalty notices are vitiated by a violation of the principles of natural justice due to the grant of insufficient time to respond to the show cause notice? Assessee's Contention: The petitioner argues that the entire proceedings are in violation of natural justice. They rely on the High Court's judgment in Sree Narayana Dharma Sabha V. Additional Commissioner of Income Tax (W.P.(C.) No.21524 of 2021), which held that assessment orders are vitiated if reasonable time is not granted to respond to show cause notices. The petitioner highlights that after the initial notice in 2021, the subsequent notice under Section 142(1) was issued on 19.03.2022, followed by a show cause notice on 26.03.2022, with the assessment completed arbitrarily on 29.03.2022, despite the petitioner facing a huge demand. They contend they should be given a reasonable opportunity to explain their stand. Revenue's Contention: The respondent-Department argues that the assessment order cannot be challenged under Article 226 of the Constitution. They state that every possible opportunity was extended to the petitioner and that the petitioner should have filed an appeal instead of a writ petition. The Department asserts that the figures used were from the petitioner's Form 26AS, thus not without basis. They also argue that the judgment in W.P.(C.) No.21524 of 2021 is distinguishable and not applicable.

Which sections of the Income-tax Act were involved?

Section 148,Section 142(1),Section 144(B)(1)(xxii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE GOPINATH P. THURSDAY, THE 19TH DAY OF JANUARY 2023 / 29TH POUSHA, 1944 WP(C) NO. 23767 OF 2022 PETITIONER/S: NASSAR PARACKAL PUTHENPURA MEERAKUTTY AGED 44 YEARS PARACKAL PUTHENPURA HOUSE, PERUMATTAM POST, MUVATTUPUZHA, ERNAKULAM-686673., PIN - 686673 BY ADVS. ABRAHAM JOSEPH MARKOS ISAAC THOMAS V.ABRAHAM MARKOS ALEXANDER JOSEPH MARKOS SHARAD JOSEPH KODANTHARA P.G.CHANDAPILLAI ABRAHAM RESPONDENT/S: 1 THE ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX/ INCOME TAX OFFICER, NATIONAL FACELESS ASSESSMENT CENTRE, NEW DELHI-110001., PIN - 110001 2 THE PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX NATIONAL FACELESS ASSESSMENT CENTRE, NEW DELHI-110001., PIN - 110001 3 THE INCOME TAX OFFICER WARD 1 &TPS, THODUPUZHA-685584., PIN - 685584 BY ADVS. JOSE JOSEPH, SC, INCOME TAX DEPARTMENT, KERALA CHRISTOPHER ABRAHAM ADV. CHRISTOPHER ABRAHAM (SC) THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 19.01.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

WP(C) NO. 23767 OF 2022 2 JUDGMENT

Petitioner has approached this Court, being aggrieved by Ext.P6 order of assessment and Exts.P7 and P8 notices, imposing penalty in respect of assessment year 2013-14 under the provisions of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’).

2.

The facts which are necessary to be noticed are that the petitioner had not filed a return of income for assessment year 2013-14. On 31.03.2021, the petitioner was issued with a notice under Section 148 of the Act to which the petitioner did not respond. Thereafter, the petitioner was issued with a notice under Section 142(1) of the Act to which the petitioner responded through Ext.P3. The proceedings appear to have been triggered by the fact that the details available in Form 26AS of the petitioner showed that the petitioner had received substantial amounts from a financial institution, amounting to nearly Rs.22 Crores as well as other cash deposits in his account. The response of the petitioner at Ext.P3 was that he had nothing to do with the transactions, which showed that he had received substantial amounts from the financial institution. Thereafter, the petitioner was issued with Ext.P4 notice under Section 142(1)

WP(C) NO. 23767 OF 2022 3 on 19.03.2022 and followed by Ext.P5 show cause notice dated 26.03.2022, granting two days time to show cause as to why the proposed addition should not be made and thereafter, by Ext.P6 assessment order dated 29.03.2022, the assessment of the petitioner was completed by treating the entire amounts received from the financial institution in question as unexplained deposits and raising a demand for payment of a sum of Rs.22,07,78,452/- on the petitioner. This was followed by notices, namely, Exts.P7 and P8, proposing to impose penalties in respect of the same assessment year.

3.

Learned Senior counsel appearing for the petitioner, on the instructions of Advocate Alexander Joseph Markos, would submit that the entire proceedings initiated and completed against the petitioner are in violation of principles of natural justice. It is submitted that the judgment of this Court in W.P. (C.) No.21524 of 2021 [Sree Narayana Dharma Sabha V. Additional Commissioner of Income Tax] holds that unless reasonable time is granted to the assessee to respond to show cause notices etc., the assessment order will be vitiated. It is submitted that in the facts of this case, after the initial notice issued in the year 2021, the subsequent notice under Section

WP(C) NO. 23767 OF 2022 4 142(1) of the Act was issued only on 19.03.2022, followed by the show cause notice dated 26.03.2022. It is submitted that though the petitioner did not respond to the notices dated 19.03.2022 and 26.03.2022, the assessment could not have been completed in an arbitrary manner on 29.03.2022. He submits that since the petitioner has faced with such a huge demand, it is only appropriate that the petitioner be given a reasonable opportunity to explain his stand before the assessing officer.

4.

Learned Standing Counsel appearing for the respondent-Department would submit that the assessment order cannot be challenged by the petitioner under Article 226 of the Constitution of India. It is submitted with reference to Paragraph Nos.4 and 5 of the statement filed in this Court that every possible opportunity was extended to the petitioner. It is submitted that the petitioner ought to have challenged the assessment order by filing an appeal and not by way of a writ petition under Article 226 of the Constitution of India. It is submitted that the figures, which have been taken by the assessing officer, are those that were reflected in the Form-26AS of the petitioner and therefore, it cannot be said to be without any basis as contended by the learned Senior Counsel appearing

WP(C) NO. 23767 OF 2022 5 for the petitioner. It is submitted that the judgment of this Court in W.P.(C.) No.21524 of 2021 was rendered in completely different circumstances and the decision taken therein cannot apply in the facts of the present case.

5.

Having heard the learned Senior Counsel appearing for the petitioner and the learned Standing Counsel appearing for the responded-Department, I am of the view that this writ petition has to be allowed.

6.

It is true that the petitioner did not respond to the initial notice issued under Section 148 of the Act. However, to the notice issued later under Section 142(1) of the Act, the petitioner had given a reply stating that the transactions which were reflected in Form-26AS of the petitioner were in substantial part not relatable to the petitioner and were mistakenly shown as transactions of the petitioner. It is clear that if such huge amounts had actually been received by the petitioner, the same could have been reflected in his bank account. The petitioner had taken a stand before the Assessing Officer that those amounts did not, in any manner, relate to him. Thereafter, for a considerably long period, no notices were issued to the petitioner and the first notice, thereafter, was on 19.03.2022,

WP(C) NO. 23767 OF 2022 6 followed by the show cause notice on 26.03.2022. The assessment was completed on 29.03.2022. This Court, in the judgment in W.P.(C.) No.21524 of 2021 held as follows:-

‘’6. It is curious to note that the assessing officer proceeded to assess the assessee by the orders impugned in this case when they failed to respond within 48 hours of serving the show cause notice. It is elementery that every order must be rendered only after granting a reasonable opportunity for responding as well as hearing. The grant of a reasonable opportunity to file a response is an element of the cherished principle of natural justice.

7.

Consideration of the objections raised by an assessee is the platform from which the rights and obligations of the assessee depends. Therefore, unless sufficient opportunity is granted to the assessee to respond which is mandated by the explicit provisions of Section 144(B)(1)(xxii) of the Act, the assessee will be put to prejudice.

8.

It is clear from the circumstances that have transpired in the instant case, from the time of show cause notice till the date of assessment, for both the assessment years, that the show cause notices failed to provide sufficient opportunity to the petitioner to respond. The violation of principles of natural justice in the orders impugned is manifest.’’ I am in complete agreement with the view taken by this Court in W.P.(C.) No.21524 of 2021. Ofcourse, the proceedings would have been completed by 29.03.2022 on account of the fact that the assessment was getting time barred by 31.03.2022. However, that by itself, does not compel me to taken the view that the proceedings were completed in a fair manner as the show cause notice was issued only on 26.03.2022. The

WP(C) NO. 23767 OF 2022 7 assessment was completed three days later on 29.03.2022. I am therefore of the view that the reasons which compelled this Court to set aside the order of assessment in W.P.(C.) 21524 of 2021 equally apply to the facts of this case.

Therefore, the writ petition is allowed. Exts.P6 order of assessment and Exts.P7 and P8 notices, imposing penalty, are quashed. The Assessing Officer (the 1st respondent) shall complete the assessment afresh, after providing an opportunity to the petitioner to respond to the show cause notice issued to the petitioner on 26.03.2022. The petitioner shall file his response to the show cause notice dated 26.03.2022, within a period of three weeks from today. The National Faceless Assessment Centre shall complete the assessment afresh, in accordance with law, after affording to the petitioner an opportunity of being heard. If necessary, a suitable link shall be provided to the petitioner for uploading the response to Ext.P5 show cause notice dated 26.03.2022. sd/- GOPINATH P. JUDGE ajt

WP(C) NO. 23767 OF 2022 8 APPENDIX OF WP(C) 23767/2022 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE NOTICE DATED 15.07.2021 ISSUED UNDER SECTION 142(1) Exhibit P2 TRUE COPY OF THE FORM 26 AS STATEMENT FOR ASSESSMENT YEAR 2013-14 Exhibit P3 TRUE COPY OF THE E- PROCEEDINGS RESPONSE ACKNOWLEDGEMENT NO. 460229721070921 FOR FILING THE OBJECTIONS Exhibit p4 TRUE COPY OF THE NOTICE UNDER SECTION 142 (1) DATED 19.03.2022 ISSUED BY THE 1 ST RESPONDENT Exhibit p5 TRUE COPY OF THE SHOW CAUSE NOTICE DATED 26.03.2022 ISSUED BY THE 1 ST RESPONDENT Exhibit p6 TRUE COPY OF THE ASSESSMENT ORDER ALONG WITH DEMAND NOTICE DATED 29.03.2022 PASSED BY THE 1 ST RESPONDENT Exhibit p7 TRUE COPY OF THE NOTICE DATED 29.03.2022 INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(B) Exhibit p8 TRUE COPY OF THE NOTICE DATED 29.03.2022 INITIATING PENALTY PROCEEDINGS UNDER SECTION 271AAC(1) Exhibit P9 TRUE COPY OF THE E-PROCEEDINGS RESPONSE ACKNOWLEDGEMENT NO. 603398- 481300422 PERTAINING TO SECTION 271 (1)(B) Exhibit1 P10 TRUE COPY OF THE E-PROCEEDINGS RESPONSE ACKNOWLEDGEMENT NO. 60340257- 1300422 PERTAINING TO SECTION 271AAC Exhibit P11 TRUE COPY OF THE JUDGMENT DATED 15.03.2022 PASSED BY THIS HONOURABLE COURT IN W.P.(C) NO.11540 OF 2021 Exhibit P12 RUE COPY OF THE AFFIDAVIT DATED 19.07.2022 OF THE CHARTERED ACCOUNTANT OF THE PETITIONER

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