Mr. Pramod Kumar vs. The Assistant Commissioner of Income Tax and 3 others

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WP/36986/2022HC TelanganaHBHC01054517202226 September 2022Bench: C.V. BHASKAR REDDY,UJJAL BHUYAN10 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the present case is not a fit case to interdict the proceedings at the very threshold. The Assessing Officer has assigned reasons as to why the explanation provided by the petitioner could not be accepted, and these reasons have a nexus with the formation of the belief that income chargeable to tax has escaped assessment. The sufficiency or adequacy of the reasons cannot be gone into in a proceeding under Article 226 of the Constitution of India. The Court noted that it is at a stage prior to the issuance of notice under Section 148. A detailed analysis is neither warranted nor justified at this stage. As rightly pointed out by the Supreme Court in *Anshul Jain Vs. Principal Commissioner of Income Tax*, the petitioner would have ample opportunities to agitate his contentions during the reassessment proceedings. Therefore, the Court found no ground to entertain the writ petition.

What were the facts?

The petitioner, Mr. Pramod Kumar, an individual assessee, filed his income tax return for Assessment Year 2015-16 on November 27, 2015, declaring a total income of Rs. 45,99,150.00. His case was selected for scrutiny, and an assessment order was passed on November 30, 2017, determining tax and interest payable. Subsequently, on April 5, 2021, the Assessing Officer (AO) issued a notice under Section 148, believing income had escaped assessment. Following a Supreme Court order in *Union of India v. Ashish Agarwal*, a fresh notice under Section 148A(d) was issued on May 25, 2022, stating that the assessee had earned a profit of Rs. 3,73,26,923/- from trading in equity derivatives through M/s Kavan Securities Pvt. Ltd., which was not disclosed. The petitioner replied on June 4, 2022, stating these profits amounting to Rs. 3,96,57,630.00 from financial year 2014-15 were disclosed in the profit and loss statement of his proprietary firm, M/s Agarwal Foundries. The AO passed an order on July 29, 2022, under Section 148A(d) holding the gains from Kavan Securities to be non-genuine and income that had escaped assessment, leading to the issuance of a consequential notice under Section 148 dated July 29, 2022.

What were the issues?

1. Whether the order dated 29.07.2022 passed by the 1st Respondent under Section 148A(d) of the Income Tax Act, 1961, and the consequential notice under Section 148 of the Act for Assessment Year 2015-16 are arbitrary, illegal, bad in law, without jurisdiction, void-ab-initio, and violative of the principles of natural justice and Articles 14, 19(1)(g), and 265 of the Constitution of India and Section 14BA of the Income Tax Act, 1961. Assessee's contention: The profits received from M/s Kavan Securities Private Limited were shown in the profit and loss statement of the petitioner's proprietary firm, and the AO was not justified in brushing aside this clarification and proceeding to issue the notice under Section 148. Revenue's contention: At the stage of passing an order under Section 148A(d), only a prima facie satisfaction is required regarding the issuance of a notice under Section 148. No detailed order or proceedings are required at this stage. The petitioner will have opportunities to substantiate his claims during the reassessment proceedings. Reliance is placed on the Supreme Court decision in *Anshul Jain Vs. Principal Commissioner of Income Tax*.

Which sections of the Income-tax Act were involved?

Section 148A,Section 148,Section 143(3),Section 142(1),Section 14BA

AI-generated summary — verify with the full judgment below

[ 32es ] HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) MONDAY, THE TWENTY SIXTH DAY OF SEPTEMBER TWO THOUSAND AND TWENry TWO PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HONOURABLE SRI JUSTICE C.V. BHASKAR REDDY Between: Mr. Pramod Kumar, S/o Mr. Maniklal Agarwal, agea SZ years, Occ, Business, H.No.2-1-1 13, Tobacco Bazar, Secunderabad - 500 003, Telangana. ...PETITIONER AND 1 The Assis t Commissioner of lncome Tax, Circle 6(1), Hyderabad, l.T asab Tank, Hyderabad - 500 004, Telangana oner of lncome Tax - 1 , Hyderabad, 7 11 , 7th Floor, 'A' uards, Masab Tank, Hyderabad - 500 028, Telangana joner of lncome Tax, Ward '16(4), Hyderabad, l.T Towers, A C Guards Masab Tank, Hyderabad - 500 004, Telangana Additional /Joint/ De ty / Assistant Commissioner of lncome Tax / lncome Tax Officer, National F Iess Assessment Center, New Delhi, Room No 401 ,2nd Floor, E-Ramp, awaharlal Nehru Stadium, New Delhi - 110 003. ...RESPONDENTS Petition Under Article 2 of the Constitution of lndia praying that in the circumstances stated in the ffidavit filed therewith, the High Court may be pleased to issue a Writ o andamus or any other appropriate Writ, Order or Direction, declaring the er dated 2910712022, passed by the '1st Respondent, under Sec. 14BA(d) o the lncome Tax Act, 1961, vide DIN and Notice No tTBA/COMi F/17 t2022. 311044264255(1), for the Assessment Year 2015 - 16 and the consequential riotice under Sec, 148 of the lncome Tax Act, 1961, dated 2910712022, issued by the 1st Respondent, for the Assessment Year 2015 - 16, as arbitrary, illegal, bad in law, without jurisdiction, void-ab-initio, violative of the principles of natural justice apart from being violative of Articles 14, 19(1)(g) and 265 of the Constitution of lndia and Sec. 14BA of the lncome Tax Act, 1961, and consequently set aside the same in the interests of justice. 2 3 4 WRIT PETITION NO: 36986 OF 2022

Petition Under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay all further proceedings, including any recovery, pursuant to the notice under Sec. 148 of the lncome Tax Act, 1961, dated 29.07.2022, issued by the 1st Respondent, for the Assessment Year 2015 - 16, pending disposal of the above writ petition. Counsel for the Petitioner KARTIKEYA SRI.KRISHNA KOUNDINYA, Sr. Counsel FOR SRI.A.V.A.SlVA Counsel for the Respondents : SRI.J.V.PRASAD (Sr. SC FOR INCOME TAX) The Court made the following ORDER I.A.NO:1 OF 2022

7 H o CH B AND THE HON'BLE SRI JUS'I'ICE C.V.BHASKAR REDDY W.P.No.36986 of 2022 ORDER: ['ar r.4r Hat'bh lbe Chi4'lrni" tljla/ Bhtjan) I Ieard N{r. I(rishna Kour.rdinva, ]carned Senior Counscl rcpresenting Mr. A.\2.A. Siva Karr.il<cva, learned counsel for the petitioncr and N,[r. J.V.Prasad, learned Standing counsel, Income 'l'ax l)cpartmcnt lor the respondcnts 2. -I'his rvrit petition has bcen filed under Article 226 of thc (-onstitution of India assailing rhc lcgality and validiry o[ the order datcd 29.01 .2022 passcd br rcspondcnt No.1 under Sccdon 14BA(d) o[ the Incorne'l'ax Act, 1961 (briefly'the Act' hereinafter) lor the assessmcnt vear 201,5-1,6 AS rvell AS the c()nscguential n()ticc ()f cvcn clalc issucd undcr Section 148 oF the said Act 3. Pctitioncr is an asscsscc undcr thc Act har.ing the status of I I 'individual'. [;or thc assessment ycar 201,5-16, petitioner filcd y'etwn of income on 27.11.2015 declaring total income o[ T 11s.45,99.150.00

2 4. Asscssnrc:nt case of thc pctitioncr was selectcd for scrutiny u'hereaftcr, respondent No. I passed the assessmcnt order dated 30.11.2()17 undcr Scction l-13(3) ol thc ..\cr holding thar an arnount ol l{s.14,81,585.00 rvas requircd to be paid as tax along u'ith intercst. 5. '['hercaftcr, respondcnt No.1 issued noticc undcr Scction 148 of the Act on 05.04.2021 contcncling that he had rcasons to believe th:rt incomc t:hrLrgcablc to trx ior tlrc alorcsai<l asscssrrcnt vcar had escaped asscssmcnt. In response thereto, p€uti()ncr filcd his returfls. Itespondent No.1 procceded with rc-asscssmcnt by issuing notlce undcr Scction 142(1) rf thc ;\ct. In thc mcanwhilc, Supremc Court passcrrl order in Union of India v. Ashish Agarwall u,he r caltcr. a lresh noticc dated 25.05.2022 was issued by respondcnt No.1 to thc pctitioncr undcr Scction 1.liil\(l) ol the Act. Peutioncr was [urnrshed thc lollowing infbrmat-ion and matenals: I I 2022 scc onLine sc 543

'7 -1 In this casc assessrncnr u/s. 143(3) was completcd on 30. I 1."017, clctcrnrininq totnl incorr-rc of lts.48,44,480/- as against the returned incornc ot lis.45,99,1 50,/ -. Subsequendy, the informadon was rcceived that the assessee has earned profit of Rs.3,73,26,923/- oo trading of c<;uin'/dcrivativcs thr()ugh II/s. Kat,an Sccurities Irvt. Ltd. Howcver, thc asscsscc hirs not discklsed the profits of l\s.3,7 3,26,923/-, either in thc rerurn oI income or during the course o[ assessment proceedings. I lcncc, there is a failure on the part of thc asscsscc to disclosc the information as necessary lor thc purposcs of asscssmcnt ol'his irtcome and there is a reason to believe that thc incomc of Pis.3,73,26,923/- chargeable to tax has escaped asscssmcnt, within the meaning of section 147 of thc I.'f. Act. 6. In response thercto, pctiu()ncr Frlcd reply on 04.06.2022 stating that fcrr the financial I'car 2014-15, he had earned profits [rom trading in commoditres amounting to Its.3,96,57,630.00 lrom i\,1/s. IQyan Securities lrrir.atc Limited, which was disclosed on the credit side of the profit and loss statemcnt of his proprietary Flrm- ) ) M,i s Agar-wal Foundrics. 7 Notwithstanding thc san.rc, impugncd ordcr was passed by rcspondcnt No.1 holding as follrxvs: 1iI

{ '[-ltc subrnissiorrs of tlrc asscsscc havc becn considcred. In the instant case, it was [ouncl that N[/s Kavan Securiries l)r.t. Ltd. was activelv involvcd in trading of illiqurd opdons with thc sole motivation of generating profits and lossess to evade taxcs lor its clients. -I'hc samc rvas also confirmcd bv thc L)irector o[ \{/s halan Sccurities [)r,t. l.ttl. l-lcncc, it is csrablishcd that rvhatever gains/losses generated from trading with N{/s l(avan Securitie s Pvr. I.td. is purelv non-genuine in nature with the ()nl)' PlrtTlosc berng tax cvasl()n. 'l'he asscsscc has sr-rbmittcd that thc profits received fr<rm \1,/s liavan amounting tr> Rs.3,96 ,51 ,630 / - rvas shown under Sale of serviccs in drc P&L account. However, in thc P&L account, thc assesscc has shown an amouflt of Rs.73,58.33,802/ undcr Salcs r\ccount. 'l'hus, the brcakup oI the sales rccount has not becn providcd by the asscsscc. Withour prejudice to the above, even i[ it is considercd that assessee has offered thc samc amount in the sale of sen'ices, given the background of i\l/s l(a1'an Sccuritics, thc entire ptofit tcccir.ed from it should be treated as income and not as gross rcceipts, as claimed b,v the assessee. Hence, in the light of the above facts, it is apparent that thc income of Rs.3,73,26,9 23 /-, rcceived as profit on ttrading of ec1ui6./clerivatives through I(ayan Securities Pvt. I-td. has cscaped assessment within the meaning of scction 147 of the I.'l-. Act. 'I here [ote, it is a fit case for issue of notice u/s. 148 of thc [. ]'. \cr., 196 1. !

7 'l'his or:det is passed with tlrc prior approval of the PT.CCI-I , ,-\P & 'l clangana. [ [ydcrabad vide letter in F.No. PT.CCIT /' l' ech / 53 / Approval u/s 1 48 A / 2022-23 dated 27.07,2022. fl. 'I'his rvas follrxvcd tl thc irnpugncd noticc datcd 29.07.2022 issued by respondent No.1 under Section 148 o[ the Act. (). Lcarncd Scnior Counscl lrrr thc pctittoner submits that thc lrrofits rcceivcd from NI/s. lialar-r Sccuriucs l)rivatc Limited rverc sh<xvn in the proFrt and loss statement of thc said firm, which was a proprictarv firm of thc pctitioncr. "l'hcrcforc, rhe assessing o[ficer wrls not justificd in brushing asidc thc clarificauon providcd by thc petitioner and proceeding to issue notice under Section 148 o[ the . \cr 10. On the other hand, learned Standing Counsel for the rcspondents submits that at thc stage of passing an order under Sccrion 1484(d) of thc i\ct, rnl.t a, prinza.farze sadslaction is rcquircd to be arrived at by thc assessing officcr as t<> whcther issuance of notice under Scction 148 ol drc Act is called for or not. At this ) stxgc r)() dctailcd orclcr or tlcttilcd procccdings erc reguircd. I \

6 .\ccordinq to lirn'r. irr tht'rcrrsscssnrcnt pr()cccclirrqs. pctitioncr rvill har.c all thc opportunitics to -strbstanriatc his clain'r. H e has placcd reliance on a rcccnt dccision of thc Suprerne (-ourt dated t)2.09.2022 Sll'](c) No l.l82.l of 2022 (Anshul Jain Vs. 111 Principal Cor.r-rmissioner o[ Income Tax) and submits that Suprernc (-oLrrt .iid rrot tntcricrc with the ordcr ol thc Pur-rjab and l lan'ana I liulr (.ourt rcjccting ch:rllcr-rgc t<> thc orclcr passcd unclcr Secuon 1+8r\(l) ol the .\ct. i 1. Subrnissions rnadc bl lcarncd counscl tor thc pardcs havc rcccir,cd thc clrrc consiclcration oi thc Court. 12 Afrer licenng lcarnecl counscl lor the parrics arrd considering thc rnatcrials (,n lcc()r(1. wc rtrc of tlrc vicrv that prcscrtt is not a fit to intcrdict thc procecdings at the very thrcshold. Reasons \t CASC have been assigned bv the assessing officer as to why the cxplanatior-r gn r:n bl thc pctitioner coulcl not bc acceptcd. Ccrtainly, such rcasons givcn havc a flexus with thc flormadon o[ the bctieI that income chargeablc to tax has cscaped assessmcnt. It IS eclu;rllv rritc tlt,it sirficicncr ol ar-lcquar:r' of rcasr )lts cannot [)c

7 g()r1c into in a procccdin.q undcr ,\rticlc 22(r oI the Constitution o[ India. 'I'hat apart, wc are at a stage prior to issuance o[ notice undcr Sccrion 1.18 ol the r\ct. 13. At this stage, a dctailed analvsis is neither warranted nor Jain Vs. Principal Commissioner of Incomc Tax (supra), pcritioner rvould have amplc opportunities to agitate his c( )n[cnUOns during the rcasscssment procccdings. \\'c scc no qround tr> cntertain rhc rvrit pctition. 1.+. \\,'rit Pctition is accordinglv dismisscd. No costs. .\s a scrlucl, miscellancous pcriti()ns, pcnding if any, stand dismisscd. //TRUE COPYII sp1-T.KRtSHNA KUMAR DEPUTY REGISTRAR / 1/ 1 2 3 4 S.A. SW SECTION OFFICER To q . One CC to SRt. . One CC to SRl. Two CD Cooies . one spare iopy I 'Y A-7 Xtffi '$= I3 Sfl,"SS?;? t ?ffi t,, " r 7 justified. ,\s nghtlv pointcd out bv thc Supreme Court in Anshul

HIGH COURT DATED:2610912.022 ORDER WP.No.36986 of 2022 DISMISSING THE W.P 21 st[ ]i11 'f, -t STA J',J k * 7 4: WITHOUT COSTS. @rqtg -z C ,l %q--- ---.------ra\'\n"-

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