KAPOOR INDUSTRIES LIMITED. vs. DEPUTY COMMISSIONER OF INCOME TAX AND ORS.

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W.P.(C)/6555/2022HC DelhiDLHC01015859202205 May 2022Bench: HON'BLE MR. JUSTICE MANMOHAN,HON'BLE MR. JUSTICE DINESH KUMAR SHARMA5 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the impugned assessment orders were liable to be set aside on the ground of being violative of the principle of natural justice. Even if the Revenue's submission regarding the active PAN of the partnership firm was accepted, the Petitioner was not afforded an opportunity to respond to the show cause notices as they were issued after the stipulated compliance date and time. Consequently, the Court set aside the impugned orders and remanded the matter back to the Assessing Officer for fresh adjudication. The Petitioner was directed to file its response to the show cause notices within four weeks, along with specified documents related to exports, imports, and interest income. The Assessing Officer was further directed to cross-check these documents with available AIR information, fix a hearing date after four weeks, and decide the matter by way of a reasoned order after granting an opportunity of hearing to the Petitioner.

What were the facts?

The Petitioner, Kapoor Industries Limited, filed writ petitions challenging reassessment notices dated March 30, 2021, issued under Section 148 of the Income Tax Act, 1961, for assessment years 2015-16, 2016-17, and 2017-18. The petitions also challenged assessment orders dated March 31, 2022, passed under Section 147 read with Section 143(3) of the Act. The Petitioner argued that the reassessment notices were void as they were issued in the name of a non-existent partnership firm, "M/s Kapoor Industries," which had been converted into a limited company on March 5, 2012. The Petitioner asserted that this conversion was intimated to the Income Tax Department, and scrutiny assessments for assessment year 2012-13 were conducted for both the firm and the company. Furthermore, the Petitioner highlighted procedural irregularities, stating that show cause notices dated March 28, 2022, were digitally signed on March 29, 2022, after the compliance date and time fixed in those notices.

What were the issues?

1. Whether the reassessment notices issued under Section 148 of the Income Tax Act, 1961, are void ab initio as they were issued in the name of a non-existent partnership firm, given its conversion into a limited company prior to the assessment years in question. Assessee's contention: The notices are void ab initio because the partnership firm, M/s Kapoor Industries, ceased to exist upon its conversion into Kapoor Industries Limited on March 5, 2012. The Income Tax Department was duly informed of this conversion, and subsequent assessment years' income was offered to tax in the hands of the converted company. Revenue's contention: The PAN of the partnership firm was still active on the ITBA system at the time of issuing the Section 148 notices. The onus is on the assessee to get the PAN and other identification struck off if an entity ceases to exist due to conversion. The utilization of the old PAN for TDS and other data indicated its continued use, forming the basis for the Section 148 notices. 2. Whether the assessment orders passed under Section 147 read with Section 143(3) of the Act are liable to be set aside due to violations of the principles of natural justice, specifically concerning the issuance and compliance date of the show cause notices. Assessee's contention: The show cause notices, purportedly dated March 28, 2022, were digitally signed on March 29, 2022, at 2:54 pm, while the compliance date was fixed for March 29, 2022, at 12 pm, rendering the notices invalid and violating natural justice.

Which sections of the Income-tax Act were involved?

Section 148,Section 147,Section 143(3)

AI-generated summary — verify with the full judgment below

Heard together (3 matters)

W.P.(C) Nos.6555/2022
W.P.(C) 6559/2022
W.P.(C) 6560/2022

Read from the judgment's own cause title. This page is filed under one of them.

W.P.(C) Nos.6555/2022, 6559/2022, 6560/2022 Page 1 of 5 $~18 to 20 * IN THE HIGH COURT OF DELHI AT NEW DELHI 18 + W.P.(C) 6555/2022 KAPOOR INDUSTRIES LIMITED. ..... Petitioner Through: Dr. Rakesh Gupta, Mr. Somil Agarwal, Mr. Anshul Mittal and Mr. Rajan Bajaj, Advocates. Versus DEPUTY COMMISSIONER OF INCOME TAX AND ORS. ..... Respondents Through: Mr. Abhishek Maratha, Sr. Standing Counsel for Revenue. 19 + W.P.(C) 6559/2022 KAPOOR INDUSTRIES LIMITED AS SUCCESSOR IN INTEREST OF KAPOOR INDUSTRIES ..... Petitioner Through: Mr. Ajay Vohra, Sr. Advocate with Dr. Rakesh Gupta, Mr. Rohit Jain, Mr. Aniket D. Agarwal and Mr. Somil Agarwal, Advocates. versus DEPUTY COMMISSIONER OF INCOME TAX & ORS. ..... Respondents Through: Mr. Abhishek Maratha, Sr. Standing Counsel for Revenue. Digitally Signed By:JASWANT SINGH RAWAT Signing Date:06.05.2022 16:47:52 Signature Not Verified

W.P.(C) Nos.6555/2022, 6559/2022, 6560/2022 Page 2 of 5 20 + W.P.(C) 6560/2022 KAPOOR INDUSTRIES LIMITED ..... Petitioner Through: Dr. Rakesh Gupta, Mr. Somil Agarwal, Mr. Anshul Mittal and Mr. Rajan Bajaj, Advocates. versus DEPUTY COMMISSIONER OF INCOME TAX & ORS ..... Respondents Through: Mr. Abhishek Maratha, Sr. Standing Counsel for Revenue. % Date of Decision: 05th May, 2022 CORAM: HON'BLE MR. JUSTICE MANMOHAN HON'BLE MR. JUSTICE DINESH KUMAR SHARMA J U D G M E N T MANMOHAN, J (Oral): CM APPL.19914/2022 (exemption) in W.P.(C) 6555/2022 CM APPL.19927/2022 (exemption) in W.P.(C) 6559/2022 CM APPL.19930/2022 (exemption) in W.P.(C) 6560/2022 Exemptions allowed subject to all just exceptions. Accordingly, the applications stand disposed of. W.P.(C) 6555/2022 & CM APPL.19913/2022 W.P.(C) 6559/2022 & CM APPL.19926/2022 W.P.(C) 6560/2022& CM APPL.19929/2022 1. Present writ petitions have been filed challenging the reassessment notices dated 30th March, 2021 issued by Respondent No. 2 under Section 148 of the Income Tax Act, 1961 [‘the Act’] for the assessment years 2015- Digitally Signed By:JASWANT SINGH RAWAT Signing Date:06.05.2022 16:47:52 Signature Not Verified

W.P.(C) Nos.6555/2022, 6559/2022, 6560/2022 Page 3 of 5 16, 2016-17 & 2017-18 as well as the assessment orders dated 31st March, 2022 passed under Section 147 read with Section 143(3) of the Act. 2. Mr.Ajay Vohra, learned senior counsel for the petitioner states that the impugned notices are void ab initio as they have been issued in the name of a non-existing partnership firm i.e. "M/s Kapoor Industries”. He states that the erstwhile partnership firm was converted into a limited company in terms of Part IX of the Companies Act, 1956 with effect from 05th March, 2012. He emphasises that during the assessment proceedings of the erstwhile firm and of the Petitioner company for the assessment year 2012-13, the fact of the conversion of the partnership firm into the Petitioner company with effect from 05th March, 2012 was specifically intimated to the Income Tax Department and the returns up to the date of conversion were filed separately, i.e., till 4th March 2012, the return was filed in the name of the partnership firm and after 4th March 2012 till 31st March 2012, the return was filed in the name of the Petitioner company. He states that scrutiny assessments have been done for the assessment year 2012-13 in the hands of both the partnership firm as well as the Petitioner company. 3. Learned senior counsel for the Petitioner also states that even though the show cause notices were purportedly dated 28th March, 2022, yet the same were digitally signed by respondent No.1 on 29th March at 2:54 pm -- most importantly the date and time of compliance of the said notices were fixed on 29th March, 2022 at 12 pm, i.e., before the time when the said notices were evidently even signed by respondent No.1. 4. Learned senior counsel for the Petitioner further states that the income, alleged to have escaped assessment in the aforesaid assessment years, had been offered to tax in the hands of the converted company. Digitally Signed By:JASWANT SINGH RAWAT Signing Date:06.05.2022 16:47:52 Signature Not Verified

W.P.(C) Nos.6555/2022, 6559/2022, 6560/2022 Page 4 of 5 5. Per contra, Mr.Abhishek Maratha, learned counsel for the respondent/Revenue states that as per data available on ITBA, the PAN of the so-called partnership firm was alive on the system at the time of issuance of the notice under Section 148 of the Act. He further states that if an entity ceases to exist by virtue of conversion, the liability to get PAN and other identification struck off/erased lies with assessee. He contends that the existence of TDS and other data in the name of the partnership firm means that the PAN of the earlier entity was being utilized for making certain transactions based upon which Section 148 notices were issued. 6. Having heard the learned counsel for the parties, this Court is of the view that even if the submission of learned counsel for the respondent is accepted, then also the impugned orders are liable to be set aside as the Petitioner had not been given an opportunity either to deal with or to respond to the show cause notices dated 28th March, 2022 inasmuch as it had been issued after the date and time of compliance had expired. 7. Consequently, the impugned orders are set aside on the ground of being violative of the principle of natural justice and the matter is remanded back to the Assessing Officer for fresh adjudication. The Petitioner shall file its response to the show cause notices dated 28th March, 2022 within four weeks. Along with its response, the Petitioner shall enclose the following documents including that of the erstwhile partnership firm:- S.No. Exports 1. Export Invoice & Packing List 2. Shipping Bills of Exports 3. Bank Certificate of Payment Receipt 4. Bank Statements showing inward remittance 5. Ledger account of export sales Digitally Signed By:JASWANT SINGH RAWAT Signing Date:06.05.2022 16:47:52 Signature Not Verified

W.P.(C) Nos.6555/2022, 6559/2022, 6560/2022 Page 5 of 5 6. Debtors ledger accounts Imports 1. Purchase Invoices 2. Bill of entry of imports 3. Outward foreign remittance for import payments 4. Bank statements showing payments Interest Income 1. 26 AS 2. Ledger account. 8. The Assessing Officer shall cross check the aforesaid documents with the AIR information available with the Respondent-Department. 9. The Assessing Officer is also directed to fix the date of hearing after four weeks thereafter and decide the same by way of a reasoned order in accordance with law after giving an opportunity of hearing to the Petitioner. 10. With the aforesaid directions, present writ petitions along with pending applications are disposed of. MANMOHAN, J DINESH KUMAR SHARMA, J MAY 05, 2022 KA/st Digitally Signed By:JASWANT SINGH RAWAT Signing Date:06.05.2022 16:47:52 Signature Not Verified

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