Madras High Court
Presently At vs The Deputy Commissioner Of Income Tax on 23 November, 2023
Author: Mohammed Shaffiq
Bench: Mohammed Shaffiq
W.P. No.26086 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 23.11.2023
CORAM
THE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ
W.P. No.26086 of 2021 and
W.M.P. Nos.27536, 27538, 27539 of 2021
ASE Structure Design Private Limited
Represented by its Director,
Bharat Manilal Pujara,
Previously at:
377/272, Anna Salai, Teynampet,
Chennai 600 018.
Presently at:
No.6 & 7, 5th Street, Dr.Radhakrishna Salai,
Mylapore, Chennai 600 004. .. Petitioner
Vs.
The Deputy Commissioner of Income Tax
Corporate Circle 1(1)
MG Road, Nungambakkam,
Chennai - 600 034.
..Respondent
PRAYER: Writ Petitions filed under Article 226 of the Constitution of India,
praying to issue a Writ of Certiorarified Mandamus to call for the records of
the Respondent contained in its notice bearing No.ITBA/AST/S/148/2019-
20/1017075244(1), dated 29.07.2019, issued by the Respondent under Section
148 of the Income Tax Act, 1961, for PAN: AAECA3065E, for assessment year
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1/10
W.P. No.26086 of 2021
2015-16, and all proceedings in furtherance thereof, including the assessment
order in DIN and Order No. ITBA/AST/F/147/2021-22/1036075038(1), dated
30.09.2021 passed by the Respondent under Section 147 of the Income Tax Act,
1961, for PAN: AAECA3065E, for the assessment year 2015-16, and to quash
the same as arbitrary, illegal and unjust, and to consequently forbear the
Respondent or its superiors, subordinates, agents etc. from re-assessing the
petitioner's income for the assessment year 2015-16 under Section 147 of the
Income Tax Act, 1961.
For Petitioner : Mr.Suhrith Parthasarathy
For Respondent : Mr.B.Ramanakumar
Standing Counsel
ORDER
The writ petition is filed challenging the impugned order dated
30.09.2021 for the assessment year 2015-16 on two grounds viz., the procedure
laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts Ltd v.
Income Tax Officer, reported in 259 ITR 19 (SC) has not been followed and
secondly, the show cause notice was issued on 28.09.2021 and the impugned
orders of assessment has been made on 30.09.2021 i.e., in less than 72 hours, it
was thus submitted that the opportunity granted was not real but illusory.
Though submissions were made for a brief while on the merits, I do not propose
to examine the same and I intend to confine myself as to the infirmity in the
decision making process.
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2. The petitioner is in the business of preparation of engineering drawing
for overseas Engineering and Construction Company. For the assessment year
2015-16, the petitioner filed its original return of income on 30.11.2015
admitting a total income of Rs.1.69 Crores. The petitioner's original return of
income was processed under Section 143(1) of the Income Tax Act, 1961
(hereinafter referred to as "the Act"). On 13.03.2016, a tax demand of Rs.10
was determined. Thereafter, the petitioner was issued a notice under Section
148 of the Act dated 29.07.2019 seeking to reopen the assessment for the year
2015-16 under Section 147 of the Act. The respondent issued a notice under
Section 142(1) of the Act dated 13.09.2019 and sought for details including
documents in support of its claim of deduction under Section 35(1)(ii) and
35AC of the Act. In response, the petitioner filed its return of income on
16.10.2019 and requested the respondent to provide the reasons of re-opening
the assessment. The respondent vide its letter dated 29.11.2019 furnished the
reasons recorded for reopening the assessment as under :
"It is brought to notice that while completing assessment for the AY
2016-17, a sum of Rs.20,00,000/- being donation made to M/s.Rural
Development Society and weighted deduction of Rs.35,00,000/- was
disallowed. Further, the Deputy Commissioner of Income Tax (Exemptions),
Vijayawada vide their letter dated 23/05/2019 in
No.DCIT/Exemptions/information/2019-20 informed that a survey u/s.133A
was conducted in the case of M/s. Rural Development Society, Hyderabad. As
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a result, it was found that the said society is not approved u/s 35(1)(ii) and
accordingly, the donor who might have claimed weighted bogus donation
needs to be looked into. They further communicated that one of the donors is
M/s.ASE Structure Design Limited. Further, the CBDT vide its letter in
F.No.225/26/2019-ITA(II) dated 25/02/2019 communicated information
regarding bogus donation racket under Section 35(1)(ii) in the case of
M/s.Rural Development Society and also communicated list of donors in
which the assessee company name appears in S.No.186.
2.On perusal of the original and revised return filed by the assessee
company for the AY 2015-16, it is found that the assessee company claimed
weighted deduction u/s.35 Rs.35,00,000/- which appears on similar lines of
bogus donation as disseminated by the Deputy Commissioner of Income Tax
(Exemption), Vijayawada and CBDT, New Delhi for AY 2016-17. Further the
assessee company also claimed expenditure on eligible project or scheme to
the extent of Rs.2000000/- under Section 35AG without adducing evidence
and Rs.3536236/- as professional/ consultancy fees/ fee for technical services
which attracts the provisions of Section 40(a)(ia) and need to be disallowed."
2.1. The petitioner submitted its objection to the above, vide its letter
dated 18.12.2019 inter alia highlighting the following:
"In the letter you refer to Deputy Commissioner of Income Tax,
Exemptions, (Vijayawada) letter dated 23.05.2019 regarding survey U/s.133A
in the case of Rural Development Society, Hyderabad. Further you quote
CBDT in its letter in F.No.225/26/2019-ITA(II) dated 25.2.2019 regarding
bogus donation racket U/s.35(1)(ii) in the case of M/s.Rural Development
Society. The contents of the circular relates to Asst Years 2016-17 and 2017-
18 (and not AY 2015-16, the impugned asst. year). Hence the letter and
circular cited are irrelevant to this assessment year and cannot constitute
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reasons for reopening of assessment."
The other reasons for reopening cited in Para 2 of the letter in
reference and our comments are listed below:
No. Reason cited by AO Rebuttal Fact
1. Assessee claimed deduction "appears on similar lines The assessee has not made
of Rs.35,00,000/= which to bogus donations" any donation during the
appears on similar lines of cannot be ground for year to Rural
bogus donation as reopening of assessment. Development Society.
disseminated by the Suspicion, roving enquiry
DDIT(E) Vijayawada for cannot be ground for
asst. year 2016-17. reopening.
2. Assessee has claimed The assessee had claimed The assessee has not
deduction U/s.35AC of only Rs.2,00,000/= claimed deduction of
Rs.20,00,000/= without U/s.35AC and has Rs.20,00,000/=
adducing evidence. provided all details sought
in the return of income.
3. Assessee had claimed 40(a)(ia) is applicable The assessee had deducted
deduction of Rs. 35,36,236/= only on expenditure which and paid tax on all the
as professional/consultancy is liable to TDS and where expenditure of
fee/fees for technical such tax has not been Rs.35,36,236/=.
services which attracts the deducted or been deducted
provisions of Section but not paid within due
40(a)(ia). date.
2.2. Thereafter the show cause notice came to be issued stating that on
verification of the details a sum of Rs.20 lakhs being donation was made to
M/s.Rural Development Society and weighted deduction of Rs.35 lakhs was
claimed by the assessee under Section 35AC of the Act. However, the above
claim was not supported by cogent evidence.
2.3. It was further stated that the Deputy Commissioner of Income Tax
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(Exemption), Vijayawada vide letter dated 23.05.19 had informed that a survey
under Section 133A of the Act was conducted in the case of Rural Development
Society, Hyderabad, and it was found that the said society was not approved
under Section 35(1)(ii) of the Act and accordingly the claim of weighted bonus
donation needs to be examined. Importantly, the show cause notice issued on
28.09.2021 fixed the hearing date on 29.09.2021 and thereafter, the order was
passed on 30.09.2021.
3. This Court finds that the above notice was issued only at around 7.32
p.m. while fixing the hearing date on 29.09.2021 at 11.00 a.m. The following
day i.e., on 30.09.2021 the impugned order came to be passed.
4. It is submitted by the learned counsel for the petitioner that the
Supreme Court in GKN Drive Shaft had laid down the procedure to be
followed while making an assessment under Section 148 of the Act. The
relevant portion of the above judgment is extracted hereunder:
“5. We see no justifiable reason to interfere with the order under
challenge. However, we clarify that when a notice under Section 148 of the
Income Tax Act is issued, the proper course of action for the notice is to file
return and if he so desires, to seek reasons for issuing notices. The assessing
officer is bound to furnish reasons within a reasonable time. On receipt of
reasons, the noticee is entitled to file objections to issuance of notice and the
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assessing officer is bound to dispose of the same by passing a speaking order.
In the instant case, as the reasons have been disclosed in these proceedings,
the assessing officer has to dispose of the objections, if filed, by passing a
speaking order, before proceeding with the assessment in respect of the above
said five assessment years.”
4.1. A reading of the above judgment would show that the assessing
officer is bound to furnish the reasons if sought for by an assessee issued with a
notice under Section 148 of the Act. On reasons being furnished, the assessee is
entitled to file objection and if any such objection is filed, the assessing officer
is bound to dispose of the same by passing a speaking order.
5. Admittedly in the instant case though the assessee filed its objections
vide reply dated 18.12.2019 in response to the reasons furnished for re-
assessment however the same was not disposed of as mandated by the Supreme
Court in its judgment in GKN Drive Shafts, instead the respondent proceeded to
issue show cause notice.
6. It is submitted by the learned counsel for the petitioner that the failure
to dispose of the objection is fatal to the validity of re-assessment. The issue as
to the consequence / effect of failure to dispose of the objections filed in
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response to the reasons furnished for reassessment, has been decided by the
Bombay High Court wherein it was held that re-assessment proceedings would
be bad for want of jurisdiction. The relevant portion of the judgment is
extracted hereunder:
i) Bayer Material Science Pvt. Ltd. v. Deputy Commissioner of Income-Tax, 2016 SCC
OnLine Bom 15952:
"9. This passing of the draft assessment order without having disposed
of the objections is in defiance of the Supreme Court's decision in GKN
Driveshafts (India) Ltd.(supra). Thus, the draft assessment order dated March
30, 2015 is not sustainable being without jurisdiction. This for the reason that
it has been passed without disposing of the objections filed by the petitioner to
the reasons recorded in support of their impugned notice."
ii) KSS Petron Pvt Ltd v Assistant Commissioner of Income Tax, Income Tax Appeal No. 224
of 2014:
"8.We note that once the impugned order finds the Assessment
Order is without jurisdiction as the law laid down by the Apex Court in
GKN Driveshafts (supra) has not been followed, then there is no reason to
restore the issue to the Assessing Officer to pass a further/fresh order. If
this is permitted, it would give a licence to the Assessing Officer to pass
orders on reopening notice, without jurisdiction (without compliance of
the law in accordance with the procedure), yet the only consequence,
would be that in appeal, it would be restored to the Assessing Officer for
fresh adjudication after following the due procedure. This would lead to
unnecessary harassment of the Assessee by reviving stale/ old matters"
7. Applying the above judgment to the facts of the present case, I am of
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the view that the impugned order under Section 147 of the Act is made contrary
to and in gross disregard / non-compliance with the procedure laid down for
reassessment by the Hon'ble Supreme Court inasmuch as the assessment order
is passed without disposing of the petitioner's objection filed in response to the
reasons furnished for reassessment. The impugned order stands vitiated and is
thus set aside.
8. In view of the above, the impugned order is quashed. The writ petition
stands allowed. The respondents are at liberty to reassess subject to limitation
and in accordance with law. No costs. Consequently, connected miscellaneous
petitions are closed.
23.11.2023
Speaking (or) Non Speaking Order
Index:Yes/No
Neutral Citation: Yes/No
Spp
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MOHAMMED SHAFFIQ, J.
Spp
To:
The Deputy Commissioner of Income Tax
Corporate Circle 1(1)
MG Road, Nungambakkam,
Chennai - 600 034.
W.P. No.26086 of 2021 and
W.M.P. Nos.27536, 27538, 27539 of 2021
23.11.2023
https://www.mhc.tn.gov.in/judis
