Bombay HC: Section 148 notice issued by non-jurisdictional Assessing Officer was without jurisdiction
Fact and Issue of the case
Petitioner held 50% of the equity share capital of Shivum Holdings Pvt. Ltd. (Shivum) and 25% of the equity share capital of P & A Estate Pvt. Ltd. (P&A). Petitioner’s wife, Rachana Murarka (RM), petitioner in Writ Petition No.2145 of 2014, held 50% of the equity share capital of Shivum and 25% of the equity share capital of P&A. Balance 50% of the equity share capital of P&A was held by Mr. Akshat Prasad. Shivum held 85% interest in a partnership firm named Laxmi Trading Company (LTC) and petitioner held the balance 15% interest in LTC. During the previous year relevant to the assessment year 2006-2007, LTC gave an advance of Rs.1,25,00,000/- to P&A on behalf of Shivum. The accumulated profits of Shivum as on 31st March 2006 were Rs.3,38,53,410/-.
On 17th February 2009 Commissioner of Income Tax (Appeals) [CIT(A)] decided P&A’s appeal against the Revenue holding that addition under Section 2(22)(e) cannot be made in the hands of P&A since P&A was not a shareholder of Shivum. The other contentions of P&A challenging the correctness of the treatment of the amounts advanced as dividend were not adjudicated. The view of CIT(A) was not accepted by the Department and an appeal was filed by them before the Income Tax Appellate Tribunal (ITAT) contending that an addition under Section 2(22)(e) was required to be made in the hands of P&A. The ITAT dismissed Revenue’s appeal and held that the addition under Section 2(22)(e) can only be made in the hands of the shareholder and since P&A was not the shareholder, addition in its hands could not be sustained, thus deciding the issue against Revenue. Displeased with the decision of the High Court at Delhi, Revenue preferred an SLP before the Hon’ble Supreme Court contending that the dividend was taxable in the hands of P&A. That appeal is still pending.
Relying on the observations of the Delhi High Court, the Assessing Officer at New Delhi issued a notice dated 22nd March 2013 under Section 148 of the said Act to petitioner despite agitating correctness of the conclusion of the Delhi High Court before the Apex Court. By a letter dated 28th March 2013, petitioner objected to the reassessment proceedings on the ground that the Assessing Officer at New Delhi did not have jurisdiction over petitioner as petitioner was assessed to tax at Mumbai. Petitioner’s contention was that notice, if any, under Section 148 of the said Act, could be issued only by an officer at Mumbai. Initially, the Assessing Officer at New Delhi did not accept the objections of petitioner but later, on or about 13th December 2013, transferred the case records of petitioner to respondent no.1 in Mumbai, who is the Jurisdictional Assessing Officer (JAO) of petitioner.
Observation of the Court
In our view, the stand of Revenue that no fresh sanction under Section 151 of the said Act was required is also misconceived. Admittedly, no sanction has been accorded before issuance of notice by the Assessing Officer at Mumbai. The Revenue cannot seek to sustain the validity of the notice by relying on the sanction accorded to the issuance of the notice dated 22nd March 2013 by the Assessing Officer at New Delhi. The notice issued by the Assessing Officer at New Delhi was after obtaining approval of Additional Commissioner of Income Tax, Range-14, New Delhi. Even that notice is invalid because the notice dated 22nd March 2013 was issued after a period of four years from the end of the relevant assessment year and, therefore, sanction ought to have been accorded by the Commissioner of Income Tax. The sanction accorded by the Additional Commissioner of Income Tax, therefore, would render the notice issued by the Assessing Officer at New Delhi itself bad in law and without jurisdiction. A Division Bench of this Court in Miranda Tools (P.) Ltd. V/s. Income Tax Officer (Supra) in paragraph 9.
The other ground taken by respondent to oppose the petition is that since the notice has been issued under Section 148 read with Section 150 of the said Act, the approval under Section 151 of the said Act is not required to be obtained is also misconceived. As stated earlier, first of all Section 150 of the said Act has no application in the present case. In any event, Section 150, as held in Income Tax Officer V/s. Murlidhar Bhagwan Das (Supra), only lifts the bar of limitation for issuance of notice under Section 149 of the said Act and the other conditions that are required to be complied with before jurisdiction to reassess can be validly assumed must be fulfilled. The Apex Court while construing the second proviso to Section 34(3) of the Income Tax Act, 1921
Therefore, for a moment, even if accept Revenue’s contention that the present proceedings are continuation of the proceedings initiated by the Assessing Officer at New Delhi vide notice dated 22nd March 2013, the proceedings would be invalid since the notice issued by the Assessing Officer at New Delhi itself was invalid inasmuch as sanction of the appropriate authority as per Section 151 was not obtained before issuing the notice.
On the submissions of Mr. Pardiwalla that respondent had issued impugned notice under Section 148 relying on the Delhi High Court order and judgment despite agitating the conclusion of the Delhi High Court before the Apex Court, Mr. Suresh Kumar submitted that an SLP has been filed against the decision of the Delhi High Court to cover the contingency of an adverse outcome in the SLP. It is Revenue’s contention before the Apex Court that the deemed dividend under Section 2(22)(e) is assessable in the hands of P&A. This is certainly not permissible because the jurisdictional requirement is that respondents must entertain a belief that income chargeable to tax has escaped assessment in the hands of petitioner. It is not possible for respondents to entertain such belief if they are agitating the matter against P&A. On this ground also, the impugned notice should be held as invalid. The Division Bench of this Court in DHFL Venture Capital Fund V/s. Income Tax Officer5 held that where the Assessing Officer sought to make protective assessment by reopening an assessment on the ground that a contingency may arise in future resulting in escapement of income that would be wholly impermissible and would amount to rewriting of the statutory provision. Paragraph 18 of the said judgment
In the circumstances, the notice dated 10th January 2014 issued by respondent no.1 under Section 148 of the said Act to petitioner and notice dated 14th February 2014 issued by respondent no.1 to Rachna Morarka for Assessment Year 2006-2007 are quashed and set aside. Consequently, the orders rejecting petitioner’s objections are also quashed and set aside.
The court disposed off the petition and ruled in favour of the assessee