Madras High Court

Rajam Selvi vs The Income Tax Officer on 13 August, 2024

Author: Mohammed Shaffiq

Bench: Mohammed Shaffiq

                                                                       W.P.(MD)No.18735 of 2024

                          BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT

                                             DATED : 13.08.2024

                                                   CORAM

                         THE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ

                                       W.P.(MD)No.18735 of 2024
                                                 and
                                  W.M.P.(MD)Nos.15860 and 15861 of 2024

                Rajam Selvi                                                    ... Petitioner

                                                      Vs.
                1.The Income Tax Officer,
                  Ward 4,
                  Income Tax Department,
                  Office of the Income Tax Officer Ward 4,
                  Tirunelveli.

                2.The Principal Commissioner of Income Tax,
                  Office of the Principal Commissioner of Income Tax,
                  Madurai.                                            ... Respondents

                PRAYER: Writ Petition filed under Article 226 of the Constitution of India for
                issuance of Writ of Certiorarified Mandamus, calling for the records of the
                impugned notices clause (d) of Section 148A of the Income Tax Act,1961 DIN
                and Notice No.ITBA/AST/F/148A/2024-25/1064475672 (1) dated 30.04.2024
                and clause (d) of Section 148A of the Act has been passed vide DIN and Notice
                No. ITBA/AST/S/148_1/2024-25/1064477112 (1) dated 30.04.2024 issued by
                the first respondent and quash the same as illegal and consequentially directing
                the respondents to provide an opportunity of personal hearing to the petitioner
                by following the procedure laid down in Section 148A of the Income Tax Act.

                1/17
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                                                                          W.P.(MD)No.18735 of 2024


                                      For Petitioner    : Mr.G.Karthik

                                      For Respondents   : Mr.J.Parekh Kumar
                                                          Senior Standing Counsel

                                                  ORDER

This Writ Petition is filed challenging the impugned order dated

30.04.2024, issued under clause (d) of Section 148-A of the Income Tax Act

and subsequent impugned notice dated 30.04.2024, issued under Section 148 of

the Income Tax Act on the following grounds viz., a) that the petitioner's

objection dated 25.04.2024 has not been considered in its proper perspective; b)

opportunity to explain his objection in person has not been considered; c) the

details based on which the notice under Section 148-A(b) of the Act was issued,

has not been disclosed, despite the specific request made by the petitioner in

this regard.

2. The notice under Section 148-A(b) of the Act, dated 30.03.2024, was

issued on the premise that there were unexplained credit to the account of the

petitioner to an extent of Rs.40,25,000/- that the assessee has not filed the return

of income tax for the assessment year 2020-2021. In response to the above

notice, the petitioner submitted his reply dated 25.04.2024 wherein, inter alia

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he has stated that he has received a sum of Rs.34,25,000/- from one Robert

Francis Sahayam as loan through bank account. The said Robert Francis

Sahayam is a family friend, who was working abroad. The entire money had

been received only through proper banking channel and the same was returnable

to the said Robert Francis Sahayam. The copies of the bank account statements

to that effect were also enclosed along with the reply. The petitioner in his

reply requested for an opportunity of personal hearing and also sought for the

basis on which they have arrived at the figure of Rs.40,25,000/- as representing

unexplained credit.

3. The impugned order dated 30.04.2024 under Section 148-A(d) is

passed on the finding that the petitioner has not filed return of income tax for

the assessment year 2020-2021 as specified under Section 139(1) of the Act and

that, the said Robert Francis Sahayam is not covered under the definition of the

“relative” in terms of the Section 2(41) of the Act and thus, the reply filed by

the assessee in response to the notice under Section 148-A(b), was not accepted.

4. The learned Senior Standing Counsel for the respondents would

however submit that the petitioner would be issued with another show cause

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notice under Section 148 of the Act and hence no interference would be

warranted at this stage. Therefore, the present Writ Petition challenging the

impugned order and the subsequent impugned notice, both dated 30.04.2024,

issued under clause (d) of Section 148-A and Section 148 of the Act are

pre-mature.

5. Heard the learned counsels on both sides and perused the materials on

record.

6. Before proceeding further, it may be relevant to understand the scope

and purport of Section 148-A of the Act. The said section has come up for

consideration before the Hon'ble Supreme Court in the case of Union of India

Vs. Ashish Agarwal reported in (2023) 1 SCC 617, wherein, the object and

purpose of inserting Section 148-A of the Act was explained. The above

judgment was followed by the Division Bench of this Court in

W.A.Nos.1194, 1195 and 1196 of 2023 dated 10.05.2024. The relevant portion

of the decision of the Apex Court in the case of Ashish Agarwal is extracted

hereunder:

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“10.Parliament introduced reformative changes to Sections 147 to 151 of the Income Tax Act, 1961 governing reassessment proceedings by way of the Finance Act, 2021, which was passed on 28- 3-2021 .............

148-A.Conducting inquiry, providing opportunity before issue of notice under Section 148.—The Assessing Officer shall, before issuing any notice under Section 148—

(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under Section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);

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(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under Section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:

.....................

16.Further pre-Finance Act, 2021, the reopening was permissible for a maximum period up to six years and in some cases beyond even six years leading to uncertainty for a considerable time. Therefore, Parliament thought it fit to amend the Income Tax Act to simplify the tax administration, ease compliances and reduce litigation.

Therefore, with a view to achieve the said object, by the Finance Act, 2021, Sections 147 to 149 and Section 151 have been substituted.

17.Under the substituted provisions of the IT Act vide the Finance Act, 2021, no notice under Section 148 of the IT Act can be issued without following the procedure prescribed under Section 148-A of the IT Act. Along with the notice under Section 148 of the IT Act, the assessing officer (“AO”) is required to serve the order passed under Section 148-A of the IT Act. Section 148-A of the IT Act is a

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new provision which is in the nature of a condition precedent. Introduction of Section 148-A of the IT Act can thus be said to be a game changer with an aim to achieve the ultimate object of simplifying the tax administration, ease compliance and reduce litigation.

18.But prior to pre-Finance Act, 2021, while reopening an assessment, the procedure of giving the reasons for reopening and an opportunity to the assessee and the decision of the objectives were required to be followed as per the judgment of this Court in GKN Driveshafts (India) [GKN Driveshafts (India) Ltd. v. ITO, (2003) 1 SCC 72].

19.However, by way of Section 148-A, the procedure has now been streamlined and simplified. It provides that before issuing any notice under Section 148, the assessing officer shall:

(i) conduct any enquiry, if required, with the approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(ii) provide an opportunity of being heard to the assessee, with the prior approval of specified authority;

(iii) consider the reply of the assessee furnished, if any, in response to the show-cause notice referred to in clause (b); and

(iv) decide, on the basis of material available on

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record including reply of the assessee, as to whether or not it is a fit case to issue a notice under Section 148 of the IT Act; and

(v) the AO is required to pass a specific order within the time stipulated.

20.Therefore, all safeguards are provided before notice under Section 148 of the IT Act is issued. At every stage, the prior approval of the specified authority is required, even for conducting the enquiry as per Section 148-A(a). Only in a case where, the assessing officer is of the opinion that before any notice is issued under Section 148-A(b) and an opportunity is to be given to the assessee, there is a requirement of conducting any enquiry, the assessing officer may do so and conduct any enquiry. Thus if the assessing officer is of the opinion that any enquiry is required, the assessing officer can do so, however, with the prior approval of the specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment.

22.Thus, the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past

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assessment years, provided Section 148 notice has been issued on or after 1-4- 2021. We are in complete agreement with the view taken by the various High Courts in holding so.”

7. After referring to the judgment of the Hon'ble Supreme Court in the

case of Ashish Agarwal, a Division Bench of this Court in W.A.No.1194, 1195

and 1196 of 2023 dated 10.05.2024, held as follows:

“11.1. It is thus clear that the object behind issuance of notice under Section 148 A(b) of the Act is not an empty formality but is a mandatory requirement intended to put the assessee on notice of the reason on the basis of which the revenue intends to issue a notice under Section 148 of the Act. It is trite law that a notice must contain the reasons to which the notice is required to respond. In other words, it is essential to disclose the reasons to enable the notice to give a reply/ response, for, it is rudimentary that the notice should be made aware of all that which influence the decision maker and which he has to meet. If the reasons which are set out in the notice to which the notice is required to respond and the reasons contained in the order are different, the issuance of the notice would fail to serve its purpose and would be reduced to an empty formality. That means, it would neither qualify as a notice nor serve the object of issuance of notice.

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12. We are conscious that the proceedings/ order under Section 148 A(b) of the Act does not conclude the reassessment proceedings and there is still an opportunity for the assessees after issuance of notice under Section 148 to respond. However, we cannot turn a blind eye to the fact that legislature has introduced Section 148A of the Act, which is an enquiry undertaken before issuance of notice under Section 148 of the Act, and one cannot reduce the provisions under Section 148 A of the Act to an empty formality/ dead letter.”

8. In the background of the above judicial pronouncement as to the scope

and purport of Section 148-A of the Act, this Court is of the view that the

impugned order insofar as it does not disclose the basis of arriving at

unexplained credit of Rs.40,25,000/-, suffers from non disclosure of reason

which prompted the invocation of Section 148-A of the Act and the same has

resulted in denial of opportunity to the petitioner to put forthwith his

explanation. As it was held in the judgment referred supra, the procedures being

contemplated under Section 148-A of the Act is not an empty formality.

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9. In any view, the circular of the department in F.No.299/10/2022-

Dir(Inv.III)/611, dated 01.08.2022, insofar as it provides that a request for

personal hearing would be considered/dealt with is binding on the respondent

authorities. In this regard, it may be relevant to refer to the earlier order of this

Court dated 16.11.2022 passed in W.P.(MD)No.21357 of 2022, which reads as

under:

“12. In the circumstances, though this Court finds that the arguments of the learned Standing Counsel for the Respondent may have merits, I do not intend to express any view in the light of the Circulars which has prescribed the procedure to be followed if a request for personal hearing is made and which expressly provides for grant of personal hearing vide Clause viii of the Department circular in F.No.299/10/2022-Dir(Inv.III)/611, dated 01.08.2022 reads as under:

“viii. If an assessee requests for a personal hearing, the same may be dealt with following the principle of natural justice by giving a reasonable period for compliance of notice specifying the date of hearing.” I am of the view that the above Circular is binding and it may not be open to the Revenue to contend to the contrary. In this regard, it may be relevant to refer to the following judgments,

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wherein, it has been consistently held by the Supreme Court that Circulars issued by the Department are binding unless withdrawn.

(i) The apex Court in State Bank of Travancore v.

Commissioner of Income-tax, [1986] 158 ITR 102 held that even though the clarifications issued by the Revenue being executive in character cannot alter the provisions of the Act, since they are in the nature of concessions, they can always be prospectively withdrawn. In the instant case, even though the clarification dated November 9, 1989 is executive in nature, the concessions given to the assessee could be withdrawn only prospectively, but not retrospectively because, such executive circulars are binding on the authorities, as held by the apex Court in Keshavji Ravji & Co. v. Commissioner of Income-tax, [1990] 183 ITR 1. In Keshavji Ravji & Co. v. Commissioner of Income-tax, [1990] 183 ITR 1, referred supra, while dealing with section 119 of the Income-tax Act, which is pari materia to section 28-A of the Tamil Nadu General Sales Tax Act, the apex Court held that the benefits of such circulars to assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law.

(ii) In Collector of Central Excise, Patna v. Usha Martin Industries, [1998] 111 STC 254, three-Judge of the apex Court, held that when the Central Board of Excise and Customs made all others to understand a notification in a particular manner and

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when the latter have acted accordingly, it is not open to the Revenue to turn against such persons on a premise contrary to such instructions, and such circulars would be binding on the department.

(iii) The apex Court in Paper Products Ltd. v. Commissioner Of Central Excise, [1999] 112 ELT 765, while interpreting section 37-B of the Central Excise Act, 1944 which is pari materia to section 28-A of the Tamil Nadu General Sales Tax Act held that circulars issued by the Central Board of Excise and Customs are binding on the departmental authorities and they cannot take a contrary stand, and that the department cannot repudiate a circular issued by the Board on the basis that it was inconsistent with a statutory provision and further held that the assessee can contest the validity or legality of such departmental circulars or instructions; the department do not have a right to file an appeal against the correctness or binding nature of a circular; the department's actions have to be consistent with the circulars; and that consistency and discipline are of far greater importance than winning or losing court proceedings.

(iv). In UCO Bank v. Commissioner of Income-tax, [1999] 237 ITR 889, the apex Court held that the circular issued by the Revenue under section 119 of the Income-tax Act are binding on the revenue and such circulars are meant for ensuring proper administration of the statute and they are designed to mitigate the rigours of the application of a particular provision of the statute in

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certain situations by applying a beneficial interpretation to the provision in question.

(v). In Commissioner of Income-tax v. Kelvinator of India Ltd., [2002] 256 ITR 1 (Delhi), it was held that the Board has power to issue circulars under section 119 of the Income-tax Act and it is trite that circulars which are issued by the Central Board of Direct Taxes are legally binding on the Revenue.

(vi). In Commissioner of Customs, Calcutta v. Indian Oil Corporation Ltd., [2004] 165 ELT 257, the apex Court held that the circulars issued by the Revenue under section 37-B of the Central Excise Act, 1944 (which is pari materia to section 28-A of the Act) are binding primarily on basis of language of statutory provisions buttressed by need of adjudicating officers to maintain uniformity in levy of tax/duty throughout the country and not on the basis of promissory estoppel. In view of the fact that the Circular which is binding has provided for personal hearing, I do not propose to examine Section 148 A to find if personal hearing is mandatory or otherwise.”

10. Taking into account the above judgment and the fact that the

petitioner requested for an opportunity to submit his objection in person which

was not considered by the respondents, this Court is inclined to set aside the

impugned proceedings and direct the respondents to pass orders, after

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disclosing the basis on which the notice was issued stating that a sum of

Rs.40,25,000/- represents the unexplained credit, in accordance with law and

affording an opportunity of personal hearing to the petitioner.

11. In view of the above, this Writ Petition is disposed of and the

impugned order, under clause (d) of Section 148A of the Income Tax Act,1961

DIN and Notice No.ITBA/AST/F/148A/2024-25/1064475672(1) dated

30.04.2024 and impugned notice under Section 148 of the Act has been passed