MR. MAHABOOB SAB MOULA SHARIFF vs. THE CHIEF COMMISSIONER OF INCOME TAX

WP/5210/2023HC KarnatakaKAHC01012263202309 March 2023Bench: B M SHYAM PRASAD11 pages

AI SummaryPartly Allowed

What did the High Court hold?

The High Court allowed the writ petition in part. It quashed the assessment order dated December 29, 2022, passed by the third respondent under Section 143(3) of the Income Tax Act, 1961. The Court found merit in the petitioner's contention that transactions relating to earlier assessment years (2014-2019) could not be assessed in the current Assessment Year 2021-22, and the impugned order failed to consider this crucial aspect. Regarding the procedural issue, the Court observed that if the reassessment were reframed under Section 143(3) after examining all questions, the grievance of proceedings initiated under Section 144 resulting in an order under Section 143(3) would be resolved. The Court directed the third respondent to reframe the assessment for Assessment Year 2021-22 within six weeks from the petitioner's first date of appearance, providing due opportunity to the petitioner. Until then, the petitioner was permitted to operate his bank account with Kotak Mahindra Bank (Account No. 04260010000559) subject to maintaining a minimum balance of Rs. 75,00,000/-. Subsequently, in an order on 'for being spoken to', the Court clarified that the petitioner could operate three accounts (Nos. 04260010000559, 4712621911, and 8711415182) subject to maintaining a cumulative balance of Rs. 75,00,000/-.

What were the facts?

The petitioner, Mr. Mahaboob Sab Moula Shariff, filed a writ petition challenging an assessment order dated December 29, 2022, passed by the Deputy Commissioner of Income Tax (R3) under Section 143(3) of the Income Tax Act, 1961. The petitioner also sought directions to the Tax Recovery Officer (R4) to lift the attachment of his bank account with Kotak Mahindra Bank. The assessment order, which brought transactions from 2014-2019 into assessment for the Assessment Year 2021-22, resulted in an additional income of Rs. 12,49,86,194/-. The petitioner argued that these transactions could not be assessed in AY 2021-22 and that he was not served with a notice under Section 144, under which the assessment was purportedly initiated. The revenue contended that the advances were not disclosed in the books of accounts and the petitioner failed to discharge his onus.

What were the issues?

1. Whether the assessment order dated 29.12.2022, passed by the third respondent under Section 143(3) of the Income Tax Act, 1961, is without jurisdiction, considering the petitioner's argument that the transactions assessed relate to earlier assessment years (2014-2019) and cannot be brought to tax in Assessment Year 2021-22, and that he was not served with a notice under Section 144. Assessee's Contention: The assessment order is bad in law as it assesses transactions pertaining to earlier years (2014-2019) in Assessment Year 2021-22. Furthermore, the assessment order is flawed because it was purportedly initiated under Section 144 but concluded under Section 143(3) without proper service of notice under Section 144, rendering the order without jurisdiction. Revenue's Contention: Advances totaling Rs. 12,29,86,194/- were brought to assessment after examining the petitioner's financials post-search, as these advances were not disclosed in the books of accounts. The petitioner failed to discharge the minimum onus regarding these advances. The revenue did not dispute that the transactions related to the period between 2014 to 2019.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144

AI-generated summary — verify with the full judgment below

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WP No. 5210 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF MARCH, 2023 BEFORE THE HON'BLE MR JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 5210 OF 2023 (T-IT) BETWEEN:

MR. MAHABOOB SAB MOULA SHARIFF S/O MAHABOOB SAB R/A NO.24, OLD NO.42 R K TERMINUS, BELLARY ROAD GANGA NAGAR, BANGALORE-560032 PAN NO. AOWPM4953N AGED ABOUT 44 YEARS.

…PETITIONER (BY SRI. SRI MALLAHAR RAO.,ADVOCATE) AND:

THE CHIEF COMMISSIONER OF INCOME TAX, BENGALURU C R BUILDING, NO.1 QUEENS ROAD BENGALURU-560001.

THE PRINCIPAL COMMISSIONER OF INCOME TAX, BENGALURU-3 C R BUILDING NO.1 QUEENS ROAD BENGALURU-560001.

Digitally signed by NARASIMHA MURTHY VANAMALA Location: HIGH COURT OF KARNATAKA

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THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(3) CENTRAL REVENUE BUILDING QUEENS ROAD BENGALURU-560001.

THE TAX RECOVERY OFFICER CENTRAL REVENUE BUILDING QUEENS ROAD BENGALURU-560001

…RESPONDENTS (BY SRI. DILIP., ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED ORDER DATED 29.12.2022, VIDE DIN AND ORDER NO.ITBA/AST/S/ 143(3)/ 2022-23/ 1048347201(1), PASSED BY THE R3 VIDE ANNEXURE-A; DIRECTING R-4 TO LIFT THE BANK ATTACHMENT REGARDING NOTICE ISSUED BY THE R-4 TO THE KOTAK MAHINDRA BANK, PERTAINING TO ATACHMENT OF BANK ACCOUNT OF THE PETITIONER VIDE REF.NO.TBA/COM/F/17/2022-23/1050166313(1) DATED 2.03.23 VIDE ANNEXURE-D; DIRECTING THE RESPONDENT NO.4 TO SERVE THE ABOVE STATED NOTICE TO THE PETITIONER TO REPLY TO THE SAME AND ETC.

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

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ORDER

The petitioner has essentially called in question the third respondent’s assessment order dated 29.12.2022 [Annexure-A] under Section 143(3) of the Income Tax Act, 1961 [for short, ‘the Act’] while seeking directions to the fourth respondent to lift the attachment of his bank account bearing No.04260010000559 with M/s Kotak Mahindra Bank.

Sri Malhar Rao K, the learned counsel for the petitioner, submits that the impugned assessment order is consequent to the documents purportedly seized during the search at the petitioner’s business premises. The transactions, which even according to the impugned assessment order relate to the period between 2014 to 2019, have been brought into assessment for the assessment year 2021-22, and it would be irrefutable that these transactions cannot be brought into assessment during the current assessment year 2021-22. This

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has resulted in additional income of Rs.12,49,86,194/- [Rs. Rs.12,29,86,194/- + Rs.20,00,000/-]1.

Sri Malhar Rao K further submits that according to the impugned assessment order, the notice is issued under Section 144 of the Act, and the petitioner is not served with this notice. However, it is undisputed that as the petitioner has appeared before the assessing officer on 13.12.2022 and 24.12.2022, the assessment order is framed under the provisions of Section 143(3) of the Act. He argues that if notice is issued under section 144 of the Act, the assessment could not have been framed under section 143(3) of the IT Act, and these two grounds render the impugned order without jurisdiction.

Sri M.Dilip, the learned counsel for the respondents, submits that the advances totaling to a

1 The assertion is also that Rs.20,00,000/- is taken twice, one as part of advances during the period 2014-15 and another as protective addition.

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sum of Rs. 12,29,86,194/- is brought into assessment on examination of the financials submitted by the petitioner after the search and as it is ascertained that the advances are not disclosed in the books of accounts. He argues that the petitioner has failed to discharge even the minimum onus with respect to these advances.

Significantly, Sri M.Dilip does not dispute that even as per the details extracted in the impugned assessment order, the transactions totaling to a sum of Rs.12,29,86,194/- are reflected in the bank transactions for the period between 2014 to 2019. If it undisputed that the aforesaid transactions relate to the assessment years much prior to the present assessment year 2021-22, this Court is of the considered view that the third respondent should have considered framing the assessment in the light of the petitioner’s specific defense that the transactions which relate to earlier assessment years

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could not have been assessed or brought to tax in the current assessment year. The impugned assessment order does not consider this aspect at all and as such, there must be interference on this ground.

Insofar as the other ground it would suffice for this Court to observe that, in the peculiarities of this case viz., the petitioner has appeared before the assessing officer after issuance of notice under Section 144 of the Act and has filed financials, if the reassessment is reframed under Section 143(3) of the Act upon examination of all questions there would be no room for the grievance that the proceeding, which is begun for the best judgment assessment, has resulted in an order under Section 143(3) of the Act.

The next question that this Court will have to consider is that should the petitioner be permitted to operate his account with M/s Kotak

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Mahindra Bank in No.04260010000559 while the third respondent reconsiders the framing of assessment order in the light of the petitioner’s grievance. Sri M.Dilip submits that the petitioner’s principal grievance is that the transactions pertaining to the period from 2014 to 2019 is brought into assessment for the current assessment year 2021-22, and this Court’s interference is also because of such ground. Hence, the petitioner must be called upon to deposit 20% of the remaining amount i.e., Rs.6,03,19,368/- subject to reframing of the assessment.

Sri Malhar Rao K, on the other hand tries to persuade this Court against imposing any condition on the petitioner operating his account asserting that even the amount of Rs.5,60,00,000/ which is brought into assessment as unexplained investment relates to the year 2018-19; if the terms are stringent, the petitioner will not be able to defray

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the salary expenses and meet statutory financials, and this will shut down the petitioner’s business.

On a careful consideration of these submissions, and the undisputed fact that the balance is about Rs.1,25,00,000/- this Court is of the view that the third respondent must reframe the assessment order for the relevant year expeditiously within a time frame and the petitioner until then should be permitted to operate his account with M/s Kotak Mahindra Bank bearing No.04260010000559 subject to maintaining a certain reasonable minimum balance. For the foregoing, the following:

ORDER

[i] The writ petition is allowed in part and the third respondent’s assessment order dated 29.12.2022 as per Annexure-A under Section 143(3) of the Income Tax Act, 1961 is quashed. The third respondent shall reframe assessment for

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the assessment year 2021-22 within six [6] weeks from the petitioner’s first date of appearance after this order with due opportunity to the petitioner. [ii] The petitioner until then is permitted to operate his account with M/s Kotak Mahindra Bank bearing No.04260010000559 subject to maintaining a minimum balance of Rs.75,00,000/-. The petitioner without further notice shall appear before the third respondent on 05.04.2023.

Sd/- JUDGE

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU [MR. MAHABOOB SAB MOULA SHARIFF VS. THE CHIEF COMMISSIONER OF INCOME TAX AND OTHERS]

BMSPJ 15.03.2023

(VIDEO CONFERENCING / PHYSICAL HEARING)

ORDER ON ‘FOR BEING SPOKEN TO’

This petition is disposed of by this Court on 09.03.2023 inter alia enabling the petitioner to operate his account with M/s. Kotak Mahindra Bank in No.04260010000559 subject to maintaining a minimum balance. The petition is listed today at the instance of Sri. Mallahar Rao, the learned counsel for the petitioner, who submits that the petitioner’s three accounts with M/s. Kotak Mahindra Bank including the accounts in Nos.4712621911 and 8711415182 are attached. This Court will have to permit, in terms of this Court’s Order dated 09.03.2023, to operate all the three accounts subject to maintaining the minimum balance as stipulated in the order dated 09.03.2023.

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In support of this submission, Sri. Mallahar Rao draws the attention of this Court to Annexure-D where there is a reference not just to the aforesaid account number but also account in Nos. 4712621911 and 8711415182. The submissions must be accepted as this Court has opined, for reasons discussed in the Order dated 09.03.2023, that the petitioner must be permitted to operate his accounts with M/s. Kotak Mahindra Bank subject to maintaining balance of Rs.75,00,000/-. Hence, it is clarified that the petitioner is permitted to operate the following three accounts with M/s. Kotak Mahindra Bank in Nos.04260010000559, 4712621911 and 8711415182 subject to maintaining cumulative balance of Rs.75,00,000/- in all the three accounts.

Sd/- JUDGE AN/- List No.: 1 Sl No.: 12

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