M/S DAVANAM CONSTRUCTIONS PRIVATE LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX

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WP/11459/2021HC KarnatakaKAHC01021364202104 December 2024Author: M.I.ARUN5 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the writ petition, quashing the impugned notices, assessment orders, demand notices, and the letter issued by the respondent. The Court held that the petitioner company was the 'searched person' and not an 'other person' for the purposes of Sections 153A and 153C of the Income Tax Act, 1961. This decision was based on the admitted facts that the search warrants were issued on the same day, originated from proceedings against Sri D.K. Shivakumar, and the search was conducted on the premises of the Directors of the petitioner company in their capacity as its Directors. The Court found itself bound by the prior decisions of a learned Single Judge, a Division Bench of the same High Court, and the Apex Court in similar matters (W.P.No.9939/2022, W.A.No.830/2022, and SLP No.21526/2024). The ratio decidendi is that if a search is conducted on the premises of a person who is a director of a company, and incriminating material is found pertaining to the company, then the company is the 'searched person' and Section 153A applies, not Section 153C. The respondent was granted liberty to initiate appropriate proceedings in accordance with law. No issue was expressly left undecided.

What were the facts?

The petitioner, M/s. Davanam Constructions Private Limited, filed a writ petition challenging proceedings initiated under Section 153C of the Income Tax Act, 1961. The respondent, Deputy Commissioner of Income Tax, initiated these proceedings based on a search conducted on the premises of the petitioner's directors. The petitioner argued that the proceedings should have been initiated under Section 153A, not 153C. The search was part of a larger operation concerning Sri D.K. Shivakumar, with separate warrants issued for Sri Sunil Kumar Sharma and the petitioner's directors. Incriminating material was found against Sri Sunil Kumar Sharma and the petitioner company. A similar challenge by Sri Sunil Kumar Sharma was allowed by a learned Single Judge, holding that proceedings should have been under Section 153A. This decision was upheld by a Division Bench, which ruled that the searched person is the 'searched person' and not an 'other person' for Section 153C. The revenue's SLP against this order was also dismissed.

What were the issues?

1. Whether proceedings initiated under Section 153C of the Income Tax Act, 1961, are valid when the search was conducted on the premises of the directors of the assessee company, and incriminating material was found against the company, thereby making the company the 'searched person' and not an 'other person' as contemplated under Section 153C? (Question of law and mixed fact and law, turning on Section 153C and Section 153A of the Income Tax Act, 1961). Assessee's Contention: The petitioner argued that since the search was conducted on the premises of its directors in their capacity as directors, and incriminating material was found against the company, the company should be considered the 'searched person'. Therefore, proceedings under Section 153C, which applies to 'other persons', were not appropriate, and Section 153A should have been invoked. They relied on the decisions in W.P.No.9939/2022, W.A.No.830/2022, and SLP No.21526/2024, which dealt with similar facts and circumstances originating from proceedings against Sri D.K. Shivakumar. Revenue's Contention: The judgment does not record any specific arguments made by the revenue in this particular writ petition. However, it notes that the revenue had challenged the earlier decisions in the writ appeals and the SLP, which were ultimately dismissed.

Which sections of the Income-tax Act were involved?

Section 153C,Section 153A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 4TH DAY OF DECEMBER, 2024 BEFORE THE HON'BLE MR JUSTICE M.I.ARUN WRIT PETITION NO.11459 OF 2021 (T-IT)

BETWEEN:

1.

M/S. DAVANAM CONSTRUCTIONS PRIVATE LIMITED NO.148, SURVEYOR STREET BASAVANAGUDI BENGALURU-560 004 REPRESENTED BY ITS DIRECTOR SHRI HARISH D.V., AGED ABOUT 55 YEARS.

…PETITIONER

(BY SRI K. SHASHIKIRAN SHETTY, SENIOR COUNSEL FOR SRI A. MAHESH CHOWDHARY, ADVOCATE)

AND:

1.

DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(4), CR BUILDING, QUEENS ROAD, BANGALORE-560 001.

…RESPONDENT

(BY SRI RAVI RAJ Y.V. & SRI M. DILIP, ADVOCATES)

THIS PETITION IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH AND STRIKE DOWN THE IMPUGNED SECTION 153C OF INCOME TAX ACT, 1961 BEARING NO.ITBA/AST/S/153C/2019- 20/1017491421 (1) DATED 21.08.2019 VIDE ANNEXURE-A1, ETC.

Digitally signed by H K HEMA Location: High Court of Karnataka

THIS PETITION COMING ON FOR FURTHER HEARING, THROUGH PHYSICAL HEARING/VIDEO CONFERENCING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

CORAM: HON'BLE MR JUSTICE M.I.ARUN

ORAL ORDER

1.

Proceedings were initiated by the respondent against the petitioner and the premises of the Director of the petitioner herein was searched. On the ground that incriminating materials have been found, the respondent initiated proceedings under Section 153C of the Income Tax Act, 1961 (for short 'the Act'). On the short ground that proceedings ought to have been initiated under Section 153A of the Act, the present writ petition is filed. 2. The petitioner contends that search was ordered to be conducted in respect of one Sri D.K.Shivakumar. Separate warrants were issued to conduct search in the premises of one Sunil Kumar Sharma and the Directors of the petitioner herein (in the capacity of the Directors of the petitioner company). In the search conducted against Sri Sunil Kumar Sharma, incriminating material was found against him and in the search conducted against the Directors of the petitioner herein

incriminating material was found against the petitioner company. 3. The respondent initiated proceedings against the said Sunil Kumar Sharma and the present petitioner herein under Section 153C of the Act. The said Sunil Kumar Sharma challenged the same by way of W.P.No.9939/2022 and connected matters. The learned Single Judge on the ground that proceedings ought to have been initiated under Section 153A of the Act and not Section 153C of the Act, allowed the writ petitions. The said order was challenged before a Division Bench of this Court in W.A.No.830/2022 and other connected matters. The view of the learned Single Judge has been upheld and the writ appeals filed by the revenue came to be rejected on the ground that the search conducted on the premises of a person becomes a 'searched person' and not 'other person' as required for the purposes of Section 153C of the Act. The same was challenged by filing SLP No.21526/2024 by the revenue. The said SLP also came to be dismissed. 4. As the facts in W.P.No.9939/2022, W.A.No.830/2022, SLP No.21526/2024 and the present case are similar and originate

from the proceedings initiated against the same person namely, Sri D.K.Shivakumar and the search warrants were issued on the same day and the search was conducted on the premises of the Directors of the petitioner company in their capacity as its Directors, as admitted by both the petitioner and respondent herein, this Court is bound by the decision of the Division Bench of this Court and also the Hon'ble Apex Court. For the said reason, the writ petition requires to be allowed as the petitioner becomes the 'searched person' and not the 'other person' for the purposes of Sections 153A and 153C of the Income Tax Act. Hence, the following: ORDER (i) The impugned notices dated 21.08.2019 (vide Annexures-A to A5 to the writ petition), the impugned assessment orders dated 31.12.2019 (vide Annexures-B to B6 to the petition), the impugned demand notices dated 31.12.2019 (vide Annexures-C to C6 to the petition) and the impugned letter dated 10.09.2020 issued by the respondent (vide Annexure-D to the writ petition) are quashed;

(ii) The respondent is at liberty to initiate appropriate proceedings against the petitioner in accordance with law.

Sd/- (M.I.ARUN) JUDGE

hkh.

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