SRI. S S MADHUSUDHAN (HUF) vs. DEPUTY COMMISSIONER OF INCOME TAX

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WP/10588/2023HC KarnatakaKAHC01024179202312 July 2023Bench: S SUNIL DUTT YADAV4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court acknowledged that there had been a violation of the principles of natural justice. Consequently, the Court found that a case was made out for remanding the matter for fresh consideration. The Authority was directed to reconsider the matter, including the contentions raised regarding the invocation of Section 153C of the Act, in light of the law laid down by the Apex Court in the case of Abhisar Buildwell (supra). The penalty order at Annexure-H2 and the assessment order at Annexure-C were set aside. The respondents were directed to fix a date for hearing, afford an opportunity of personal hearing as mandated by law, and pass orders afresh. The issue of jurisdiction under Section 153C was to be reconsidered by the Authority.

What were the facts?

The petitioner, Sri. S S Madhusudhan (HUF), filed a writ petition challenging a penalty order dated 26.09.2022 (bearing No. ITBA/PNL/F/270A/2022-23/1045989952(1)) for Assessment Year 2017-18, passed by the Deputy Commissioner of Income Tax (1st Respondent). The petitioner also sought to set aside the assessment order dated 15.03.2022 (Annexure-C) passed under Section 143(3) read with Section 153C of the Income Tax Act, 1961. The petitioner contended that both the assessment and penalty orders were passed without affording mandatory opportunities of hearing as required by law, and that the authority lacked jurisdiction to invoke Section 153C.

What were the issues?

1. Whether the penalty order passed under Section 270A of the Income Tax Act, 1961, is liable to be quashed for violation of the principles of natural justice, specifically the mandatory hearing requirement under Section 274(1) of the Act? 2. Whether the assessment order passed under Section 143(3) read with Section 153C of the Income Tax Act, 1961, is liable to be set aside for non-compliance with the opportunity of hearing provided under Section 143(3) of the Act? 3. Whether the authority had the jurisdiction to invoke Section 153C of the Income Tax Act, 1961, without recovery of incriminatory material? Assessee's Contentions: The petitioner argued that both the assessment order and the penalty order were passed without affording mandatory hearing as required by Section 274(1) of the Act for the penalty and Section 143(3) of the Act for the assessment. The petitioner further contended that the authority lacked jurisdiction to invoke Section 153C as there was no recovery of incriminatory material, and reliance was placed on the judgment in Principal Commissioner of Income Tax vs. Abhisar Buildwell Private Limited - 2023 SCC Online SC 481. Revenue's Contentions: The judgment records no specific contentions from the revenue.

Which sections of the Income-tax Act were involved?

Section 270A,Section 274(1),Section 143(3),Section 153C,Section 147,Section 148

AI-generated summary — verify with the full judgment below

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NC: 2023:KHC:24103 WP No. 10588 of 2023 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF JULY, 2023 BEFORE THE HON'BLE MR JUSTICE S SUNIL DUTT YADAV WRIT PETITION NO. 10588 OF 2023 (T-IT) BETWEEN: 1. SRI. S S MADHUSUDHAN (HUF) S/O S.N.SHIVASHANKAR, AGED 49 YEARS, R/AT NO.11, 1ST FLOOR, 1ST CROSS, KIRLOSKAR COLONY, NEAR AVANI SHANKA MAIN, BASAVESHWARANAGAR, BANGALORE - 560 079 REP. BY ITS KARTHA SRI. S.S.MADHUSUDHAN … PETITIONER (BY SRI. ARAVIND V CHAVAN., ADVOCATE) AND: 1. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(1), C.R. BUILDING, QUEENS ROAD, BANGALORE - 560 001. 2. PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, C.R. BUILDING, QUEENS ROAD, BANGALORE - 560 001. … RESPONDENTS (BY SRI. M. DILIP, ADVOCATE) Digitally signed by VIJAYA P Location: High Court of Karnataka

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NC: 2023:KHC:24103 WP No. 10588 of 2023

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE PENALTY ORDER DATED 26.09.22 BEARING NO. ITBA/PNL/F/270A/2022-23/1045989952(1) ANNEXURE-H2 FOR THE ASSESSMENT YEAR 2017-18 PASSED BY THE FIRST RESPONDENT AND ETC.

THIS WRIT PETITION COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER

Petitioner has challenged the penalty order at Annexure-H2 for the assessment year 2017-18 and has also sought for setting aside of the assessment order at Annexure-C. 2. It is the contention of the learned counsel for petitioner that the impugned orders passed including the penalty order under Section 270A of the Income Tax Act, 1961 ('the Act') is without affording mandatory hearing in terms of the legal requirements under Section 274(1) of the Act and also insofar as the assessment order passed under Section 143(3) read with Section 153C of the Act, the opportunity of hearing as is provided for under Section 143(3) of the Act was not given. It is also contended that

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NC: 2023:KHC:24103 WP No. 10588 of 2023 the Authority had no jurisdiction to invoke Section 153C of the Act. 3. It is pointed out that for the purpose of initiating proceedings, there must be recovery of incriminatory material without which recourse cannot be had to Section 153C of the Act and that the only option available under such circumstance would be to proceed for reassessment under Sections 147 to 148 of the Act. Reliance is placed on the judgment in the case of Principal Commissioner of Income Tax vs. Abhisar Buildwell Private Limited - 2023 SCC Online SC 481. 4. Admittedly, there has been violation of principles of natural justice. Accordingly, case is made out for remanding the matter for fresh consideration while directing the Authority to embark upon reconsideration including the contentions raised regarding Section 153C of the Act with reference to the law laid down by the Apex Court in the case of Abhisar Buildwell (supra).

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NC: 2023:KHC:24103 WP No. 10588 of 2023 5. The penalty order at Annexure-H2 and the assessment order at Annexure-C are set aside. The Authority to reconsider the matter in light of the discussion made above. The respondents are directed to fix a date for hearing and afford an opportunity of personal hearing as mandated under law as noticed above and pass orders afresh. 6. Writ petition is allowed accordingly. Sd/- JUDGE VP

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