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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 12TH DAY OF SEPTEMBER, 2022
PRESENT
THE HON’BLE MR. JUSTICE P.S.DINESH KUMAR
AND THE HON’BLE MR. JUSTICE UMESH M ADIGA
INCOME TAX APPEAL No.371 OF 2015 C/W INCOME TAX APPEAL No.372 OF 2015 INCOME TAX APPEAL No.373 OF2015
In I.T.A.No.371/2015
BETWEEN:
M/s. TRISHUL BUILDTECH INFRASTRUCTURE (P) LTD, [ERSTWHILE TRISHUL DEVELOPERS], REPRESENTED BY ITS MANAGING DIRECTOR SRI K.PRAKASH SHETTY, No.9, ALI ASKAR ROAD, OFF.CUNNINGHAM ROAD, BENGALURU - 560 025. ...APPELLANT (BY SRI A SHANKAR, SENIOR COUNSEL FOR SRI MADHUSUDHAN U.A, ADVOCATE)
AND:
THE JOINT COMMISSIONER OF INCOME TAX (OSD), CENTRAL RANGE, C.R. BUILDING, QUEENS ROAD, BENGALURU- 560 001. ...RESPONDENT
(BY SRI K V ARAVIND, SENIOR STANDING COUNSEL)
INCOME TAX APPEAL No.371 OF 2015 FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.02.2015 PASSED IN ITA No.1362/BANG/ 2013, FOR THE ASSESSMENT YEAR 2004-2005 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT; TO ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE ITAT, BENGALURU 'B' BENCH IN ITA No.1362/BANG/2013 RELATING TO ASSESSMENT YEAR 2004- 2005 VIDE ITS ORDER DATED 20.02.2015.
In I.T.A.No.372/2015
BETWEEN:
M/s. TRISHUL BUILD TECH INFRASTRUCTURE (P) LTD, [ERSTWHILE TRISHUL DEVELOPERS], REPRESENTED BY ITS MANAGING DIRECTOR SRI K.PRAKASH SHETTY, No.9, ALI ASKAR ROAD, OFF.CUNNINGHAM ROAD, BENGALURU - 560 025. ...APPELLANT
(BY SRI A SHANKAR, SENIOR COUNSEL FOR SRI MADHUSUDHAN U.A., ADVOCATE)
AND: THE JOINT COMMISSIONER OF INCOME TAX (OSD), CENTRAL RANGE,
3 C.R.BUILDING,QUEENS ROAD,BENGALURU-560 001. ...RESPONDENT
(BY SRI K V ARAVIND, SENIOR STANDING COUNSEL)
INCOME TAX APPEAL No.372 OF 2015 FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20/02/2015 PASSED IN ITA No.1363/BANG/ 2013, FOR THE ASSESSMENT YEAR 2005-2006 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT; TO ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE ITAT, BENGALURU 'B' BENCH IN ITA No.1363/BANG/2013 RELATING TO ASSESSMENT YEAR 2005- 2006 VIDE ITS ORDER DATED 20.02.2015.
In I.T.A.No.373/2015
BETWEEN:
M/s. TRISHUL BUILD TECH INFRASTRUCTURE (P) LTD., [ERSTWHILE TRISHUL DEVELOPERS] REPRESENTED BY ITS MANAGING DIRECTOR SRI K.PRAKASH SHETTY, No.9, ALI ASKAR ROAD, OFF. CUNNINGHAM ROAD, BENGALURU-560 025. ...APPELLANT (BY SRI A SHANKAR SENIOR COUNSEL FOR SRI MADHUSUDHAN U.A, ADVOCATE)
AND:
THE JOINT COMMISSIONER OF INCOME TAX (OSD), CENTRAL RANGE, C.R.BUILDING, QUEENS ROAD, BENGALURU-560 001. ...RESPONDENT
(BY SRI K V ARAVIND, SENIOR STANDING COUNSEL)
INCOME TAX APPEAL No.373 OF 2015 FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.02.2015 PASSED IN ITA No.1367/BANG/2013, FOR THE ASSESSMENT YEAR 2007-2008 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT; ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE ITAT, BENGALURU 'B' BENCH IN ITA No.1367/BANG/2013 RELATING TO ASSESSMENT YEAR 2007- 08 VIDE ITS ORDER DATED 20.02.2015.
THESE INCOME TAX APPEALS COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING:-
5 JUDGMENT
These three appeals by the assessee, challenging the order dated 20.02.2015 in I.T.A.Nos.1362, 1363 and 1367/Bang/2013 for the assessment years 2004-05, 2005- 06 and 2007-08, have been admitted to consider the questions of law raised in the respective appeals. After hearing the learned advocates on both sides, in our view, the following questions of law are relevant for consideration:
a) Whether the notice issued and assessment order passed in the erstwhile partnership firm was no more in existence (substantial question of law at Para 22 of the modified and additional substantial questions of law)?
b) Whether the assessment order passed is without jurisdiction as the assessment order is passed by an officer who had no jurisdiction (substantial question of law at Para 23 & 24 of the modified and additional substantial questions of law)?
c) Whether the assessment u/s 153A of the Act is invalid in law as neither any incriminating
6 material was found during the course of search nor any addition was made on the basis of materials seized in the course of search of the appellant (substantial question of law at Para 25 of the modified and additional substantial questions of law)?
d) Whether the order passed under section 153A of the Act is bad in law as the additions are made based on the material seized in the course of search of persons other than the appellant and the assessment ought to have been made under section 153C of the Act (substantial question of law at Para 26(i) and 26(iii) of the modified and additional substantial questions of law)?
e) Whether the search in the case of the appellant is not a valid search and the conditions contemplated under section 132 of the Act have not been complied with (substantial question of law at Para 26(ii) of the modified and additional substantial questions of law)?
f) Whether the addition made of a sum of Rs.11,50,000/- for the AY 2004-05 and Rs.2,14,50,000/- for AY 2005-06 u/s 69C of the Act is unsustainable in law and the presumption under section 292 C of the Act is not applicable
7 (substantial question of law at Para 26(iv), 27, 28 & 29 of the modified and additional substantial questions of law)?
Heard Shri Shankar, learned Senior Advocate for the assessee and Shri Sanmathi, learned Standing Counsel for the Revenue.
Brief facts of the case are: The assessee was a partnership firm in the name and style of "M/s.Trishul Developers". On 01.02.2010, the firm was converted into a Private Limited Company in the name and style of "M/s.Trishul Build Tech Infrastructure Private Limited". On 20.11.2009, there was a search under Section 132 of the Income Tax Act, 1961 (for brevity, hereinafter referred to as 'IT Act') in the premises of Trishul Developers. Consequently, notice under Section 153-A of the IT Act was issued on 25.04.2011 in the name of
8 partnership firm, Trishul Developers. Assessments were completed by the assessing officer by adding Rs.11,50,000/- for the assessment year 2004-05 and Rs.2,14,50,000/- for the assessment year 2005- 06. No addition was made for the assessment years 2006-07 and 2007-08.
In these appeals, we are concerned with assessment years 2004-05, 2005-06 and 2007-08.
Shri Shankar, learned Senior Advocate mainly urged following grounds: The assessment under Section 143(3) of IT Act for the assessment year 2004-05 and assessment year 2005-06 were completed on 29.03.2006; The search was conducted when the firm was partnership in nature; Notice under Section 153-A of the IT Act was issued on 25.04.2011 to the partnership firm, which was not in existence.
9 No incriminating material was found during search under Section 132 of the IT Act; therefore, the assessment orders passed by the assessing officer are un-sustainable in law. Similarly, the orders passed by the Commissioner of Income Tax (Appeals)-VI, Bengaluru (for brevity, hereinafter referred to as 'CIT(A)') as also the Income Tax Appellate Tribunal
(for brevity, hereinafter referred to as 'ITAT') who have confirmed the view taken by the assessing officer are also not sustainable. The Assessment order has been passed by an officer who had no jurisdiction.
The assessment under Section 153A of the Act is invalid in law as neither any incriminating materials was found during the course of search nor any addition was made on the basis of materials seized in the course of search of the appellant .
The order passed under Section 153A of the Act is bad in law as the additions are made based on the material seized in the course of search of persons other than the appellant and the assessment ought to have been made under Section 153C of the Act.
The search in the case of the appellant is not a valid search and the conditions contemplated under Section 132 of the Act have not been complied with.
The addition made of a sum of Rs.11,50,000/- for the AY 2004-05 and Rs.2,14,50,000/- for AY 2005-06 under Section 69C of the Act is unsustainable in law and the presumption under Section 292C of the Act is not applicable.
Shri K.V.Aravind, learned Senior Standing Counsel for the Revenue, opposing the appeals submitted that the language in Section 153(A) of the IT Act is
11 unambiguous. Once the search is initiated under Section 132 of the IT Act, the assessing officer is duty bound to issue notice to such person requiring him to furnish the returns of income for six years immediately preceding the relevant assessment year. The assessing officer has rightly issued the notice after the search and completed the assessments. The CIT(A) and ITAT have re-examined the matter and upheld the view taken by the assessing officer. The questions of law raised by the assessee do not arise for consideration in these appeals. In support of his contentions, that notice under Section 153(c) is not necessary, he placed reliance on Vinod Kumar Gupta vs. Deputy Commissioner Of Income.1
In support of his contentions, that the assessment proceedings are not vitiated on the ground that notice was issued to the partnership firm, he relied
1 (2018) 101 CCH 0083 Delhi High Court
12 upon the Principal Commissioner Of Income-tax vs. Mahagun Realtors (P) Limited2.
In reply, Shri Shankar submitted that in PCIT vs. Anand Kumar Jain (HUF)3, the Delhi High Court has held that notice under Section 153(c) is mandatory. With regard to Mahagun Realtors, he contended that in this case, a partnership firm has been converted into a Private Company and therefore, the facts in that case are not applicable.
We have carefully considered the rival contentions and perused the records.
The first question of law is with regard to issuance of notice to the partnership firm. It is not in dispute that the search was conducted on 20.11.2009 and the firm was converted into a Private Company Limited on 01.02.2010.
2 (2022) 137 taxmann.com 91(SC) 3 2021 SCC OnLine Del 3174
With regard to the other questions of law, the Revenue has placed reliance on Mahagun Realtors Private Limited. In that case, the Apex Court has recorded in para-41 that though entity ceased to be in existence, in law, yet, appeals were filed on its behalf before the CIT, and a cross appeal was filed before ITAT.
Further, in para-43, it is noted that having regard to the facts of that case, the order passed by the High Court was not sustainable. We may record that a similar contention was raised in Logica Private Limited vs. Assistant Commissioner of Income Tax and Another4. After adverting to the Authority in Principal Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India limited5, this Court has held that notice was necessary. In the case on hand, records disclose that the appeal had been filed by the private limited company. Therefore, on facts, the
4 ITA No.1008/2017 decided on 01.08.2022 5 [2019] 107 taxmann.com 375 (SC)
14 authority Mahagun Realtors Private Limited does not lend any support to the Revenue's case.
The preliminary grievance of the assessee is that when no incriminating materials were found, assessment pursuant to Section 153-A is not sustainable.
This Court in S.M.Kamal Pasha vs. The Deputy Commissioner of Income-tax6 after considering various Authorities has held that incriminating material is necessary for issuance of notice under Section 153-A of the Act. Therefore, in the facts and circumstances of this case, in our considered view, the matter requires re- consideration in the hands of the Tribunal to examine the contentions urged by the rival parties. We have not adverted to each question of law as the same may influence the I.T.A.
The next contention, which is seriously urged is, whether the Tribunal was justified in not holding that the
6 ITA No.155/2017 DECIDED ON 02.08.2022
15 assessment under Section 153(C) cannot be made in the case of assessee unless mandatory conditions were complied with, including recording of proper satisfaction. Thus, this ground has been urged before the ITAT, ITAT in its judgment at para Nos.26 to 28, has held that the assessment made under Section 153-A is not dependant on any incriminating materials during the search.
It has further held that the proper course to proceed with was issuance of notice under Section 153(c) has also been negative.
In view of the above, we pass the following: ORDER i) Appeals are allowed. ii) The order dated 20.02.2015 in I.T.A.Nos.1362, 1363 and 1367/Bang/2013 is set aside. iii) The matters are remanded to the file of ITAT for fresh consideration of all the issues raised in these appeals in accordance with law.
16 iv) All contentions of both the parties are kept open. v) Since the matter is remanded to the file of ITAT, the questions raised in this appeal do not call for answers and accordingly not answered.
No costs.
Sd/-
JUDGE
Sd/-
JUDGE