Swapna Manuel vs Assistant Commissioner Of Income Tax

W.P.Nos.349 of 2022 & 25984 of 2022

THE HIGH COURT OF JUDICATURE AT MADRAS

DATED: 05.02.2024

CORAM

THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY

W.P.Nos.349 & 25984 of 2022 & WMP Nos.388, 389, 25079 & 25080 of 2022

Swapna Manuel, 20/26, Perumal Kovil Street, Taramani, Chennai-600 113. ... Petitioner in both WPs

vs

Assistant Commissioner of Income Tax Central Circle 2(3), Room No.B-5, 'B' Wing, Investigation Building, No.46, Mahatma Gandhi Road, Nungambakam, Chennai-600 034. .. Respondent in WP.No.349 of 2022

Assistant Commissioner of Income Tax Central Circle 2(3), 1st Floor, Investigation Building, No.46 (Old No.108), Mahatma Gandhi Road, Nungambakam, Chennai-600 034. .. Respondent in WP.No.25984 of 2022

PRAYER in W.P.No.349 of 2022: This Writ Petition is filed under Article 226 of the Constitution of India to issue a writ of Certiorari, calling for the records of the Respondent in the Assessment Order

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passed under Section 147 of the Income Tax Act, 1961, bearing Identification No.ITBA/AST/M/1472021-22/1037862509(1), dated 16.12.2021, for the Assessment Year 2016-17, and the consequential Notice of Demand issued under Section 156 of the Income Tax Act, 1961, dated 16.12.2021, for the Assessment Year 2016-17, and to quash the same.

PRAYER in W.P.No.25984 of 2022: This Writ Petition is filed under Article 226 of the Constitution of India to issue a writ of Certiorari, calling for the records of the Impugned Order under Section 271(1)(c) of the Income Tax Act, 1961, dated 28.06.2022, bearing DN ITBA/PNL/F/271(1)(c)/2022-23/1043642384(1), passed by the Respondent for Assessment Year 2016-17 and the consequential Notice of Demand under Section 156 of the Income Tax Act, 1961, dated 28.06.2022, bearing DIN ITBA/PNL/S/156/2022- 23/1043643802(1), issued by the Respondent for Assessment Year 2016-17, and quash the same.

In both WPs. For Petitioner : Mr.M.V.Swaroop For Respondents: Mr.A.P.Srinivas, Senior Standing Counsel and Mr.A.N.R.Jayaprathap, Junior Standing Counsel

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COMMON ORDER

Both these writ petitions pertain to assessment year 2016-17. In

W.P.No.349 of 2022, the assessment order dated 16.12.2021 and the

consequential notice of demand dated 16.12.2021 are assailed. In

W.P.No.25984 of 2022, the order dated 28.06.2022 imposing penalty is

impugned.

2. The common petitioner is an individual engaged in the

business of running a ladies hostel in the name of M/s. Olive Castles.

The petitioner asserts that she also carries on real estate-related

business in collaboration with her husband. For assessment year

2016-17, the petitioner filed the return of income on 17.10.2016 and

declared a total income of Rs.97,08,580/-. Pursuant to a survey, a

notice under Section 148 (as it stood then) of the Income-tax Act, 1961

(the Income-tax Act) was issued to the petitioner on 31.03.2021. The

petitioner did not file a revised return in response to the said notice.

Instead, upon receipt of a notice under Section 142(1) on 24.09.2021,

the petitioner submitted the original return as an enclosure to reply

dated 27.09.2021.

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3. The assessment order dated 29.09.2021 came to be issued in

those circumstances, and such assessment order was challenged in

W.P.No.23071 of 2021. By order dated 27.10.2021, this Court quashed

the assessment order primarily on the ground that the petitioner was

not provided a reasonable opportunity to respond to the show cause

notice. Therefore, the matter was remanded for re-assessment. After

the said order was issued, the petitioner submitted a letter to the

respondent requesting for reasons for re-opening the assessment and

also forwarded various documents to the respondent. Eventually, the

impugned assessment order dated 16.12.2021 came to be issued.

4. Mr.M.V.Swaroop, learned counsel for the petitioner, assailed

the assessment order on multiple grounds. The first ground of

challenge was that reasons for re-opening the assessment were not

provided and that not doing so violates the order of the Hon'ble

Supreme Court in GKN Driveshafts (India) Ltd v. Income Tax Officer

and others(GKN Driveshafts), (2003) 1 SCC 72. The second ground of

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challenge is that statements relied upon by the assessing officer were

not provided to the petitioner. In particular, the statement made by

M/s.Meenakshi Timber & Plywood is referred to and learned

counsel contends that the said statement was relied upon at

paragraphs 21 and 26 of the impugned assessment order. The third

ground of challenge is that the petitioner's husband, Mr.Manuel

Joseph, was examined and that the petitioner was not provided an

opportunity to cross-examine Mr.Manuel Joseph. The fourth ground

of challenge is that the notice under Section 142(1) was not followed

by a notice under Section 143(2). The last contention was that the

assessment order was quashed in the first round of litigation and the

matter was remanded to the assessing officer. The assessing officer

issued the assessment order on 16.12.2021, which is merely five days

before the deadline fixed by this Court. In those circumstances, it is

contended that the matter should not be remanded for a second time

because it is no longer possible for the assessing officer to complete

re-assessment within the limited time available. It is also submitted

that a second remand was frowned on by the Hon'ble Supreme

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Court. In support of these submissions, learned counsel referred to

and relied upon the following judgments:

(i) Tiwari Kanhaiya Lal v. Commissioner of Income Tax (Tiwari

Kanhaiya Lal), MANU/RH/0071/1984, particularly paragraph 8 thereof,

for the principle that the previous return of income may be treated as

the return under Section 148.

(ii) Principal Commissioner of Income-tax v. S.G.Portfolio (P) Ltd

(S.G.Portfolio), [2023] 151 taxmann.com 307 (Delhi), particularly

paragraphs 10,11,22 and 23, for the principle that the return filed

earlier should be treated as a return in response to notice issued

under Section 148, if the assessee had so informed the assessing

officer.

(iii) Sapthagiri Finance and Investments v. ITO,

MNU/TN/2713/2012, particularly paragraphs 8, 9, 11 and 12, for the

proposition that the procedure prescribed under Section 143(2) is

applicable to proceedings pursuant to notice under Section 148.

(iv) Andaman Timber Industries v. Commissioner of Central Excise,

Kolkata-II, [2015] 62 taxmann.com 3(SC), for the principle that the

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assessee should be provided an opportunity to cross-examine and

that such opportunity should not be denied on the ground that such

cross-examination would not be of use to the assessee. The said

judgment was also relied upon to contend that a second remand

should not be made.

(v) The Commissioner of Income tax, Chennai v. Janak Shantilal

Mehta, MANU/TN/6864/2020, particularly paragraphs 10, 12 and 16,

for the proposition that the participation by the assessee in

proceedings does not obviate the need for providing reasons for re-

opening the assessment.

(vi) Sona Buildings v. Union of India, [2001] 119 Taxman 430 (SC),

paragraphs 6 and 7 thereof, with regard to the necessity to act within

the statutory time limit.

(vii) North Eastern Electric Power Corporation v. Principal

Commissioner of Income-tax, [2019] 104 taxmann.com 268 (Meghalaya),

for the proposition that the return of income submitted in response to

a notice under Section 142(1) should be treated as a return filed in

response to a notice under Section 148.

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5. These contentions were countered by Mr.A.P.Srinivas,

learned senior standing counsel. As regards the contention that

reasons for re-opening the assessment were not provided, he referred

to the notice under Section 148 and pointed out that the assessee was

directed to submit the revised return of income within 30 days from

the date of receipt of the notice. Since the return was not filed in

response to the said notice, learned counsel submitted that the

proposition laid down in Tiwari Kanhaiya Lal will not apply.

Similarly, as regards the contention that Section 143(2) should have

been complied with, he submitted that the said provision is not

applicable in the factual context of the petitioner not filing the return

of income in response to the notice under Section 148. As regards the

contention that the petitioner was not provided an opportunity to

cross-examine her husband, by referring to paragraph 14 of the

impugned order, learned counsel submitted that the petitioner's

husband stated that he had no experience in mass excavation and

sand filling. In view thereof, learned counsel submitted that the

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request for cross-examination of Mr.Manuel Joseph was not accepted

because no prejudice would be caused to the petitioner if he was not

cross-examined. Learned counsel further submitted, in this regard,

that the Evidence Act, 1872, is not applicable to these proceedings

and that the assessee cannot demand a right of cross-examination in

all circumstances. Turning to the statement of M/s.Meenakshi

Timber & Plywood, by referring to paragraph 21 of the impugned

order, learned counsel submitted that the statement of the said entity

was that M/s.Olive Castles, which is the proprietary concern of the

petitioner, front-ended the execution of the project. Therefore, he

submitted that no prejudice was caused to the petitioner by not being

provided the statement of M/s.Meenakshi Timber & Plywood. The

next contention of learned senior standing counsel was that the

petitioner did not raise any grounds, other than not providing

reasons for re-opening assessment and breach of principles of natural

justice by not providing sufficient time limit to reply to the show

cause notice, in the earlier writ petition. He submits that all other

grounds were raised for the first time in the second round of

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litigation. He concluded his submissions by stating that the petitioner

should avail of the statutory appeal since the case turns on disputed

questions of fact.

6. In light of the above contentions, the question that falls for

consideration is whether the impugned assessment order should be

interfered with in exercise of discretionary jurisdiction. The first

ground on which the petitioner urged that interference is warranted

is that reasons for re-opening the assessment were not provided. In

GKN Driveshaft, the Hon'ble Supreme Court interpreted Section 148,

as it stood then, and held that upon receipt of the return of income,

reasons should be provided for re-opening the assessment if the

assessee makes a request for such reasons. Section 148(1), as it stood

then, is as under:

“148. Issue of notice where income has escaped assessment-

(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which

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he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed;

and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139;”

7. From the above provision, it is evident that re-assessment

proceedings commence with a notice calling upon the assessee

concerned to file the return of income. Upon receipt of said notice,

the petitioner/assessee had two options. The first option was to file a

revised return of income and request for reasons for re-opening the

assessment. The second option was to inform the assessing officer

that the original return of income may be treated as the return in

response to the notice under Section 148. If the second option had

been availed of, it would still have been open to the petitioner to

request for reasons for re-opening the assessment as per principles

laid down in Tiwari Kanhaiya Lal and S.G.Portfolio. The petitioner did

not, however, resort to either option.

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8. Thereafter, the assessing officer issued notice under Section

142(1) calling upon the assessee to produce the documents specified

in such notice. The annexure to the notice indicates that the

petitioner did not comply with the notice under Section 148. Upon

receipt of this notice, the petitioner replied asking for reasons for re-

opening the assessment and attached certain documents, while

requesting for further time to submit other documents. This

communication was issued more than six months after receipt of

notice under Section 148. As contended by learned senior standing

counsel, if the petitioner had provided a revised return of income or

called upon the assessing officer to treat the original return of income

as the return in response to notice under Section 148, the petitioner

would have been entitled to challenge the proceedings on the ground

that reasons for re-assessment were not provided, but not otherwise.

This is evident from paragraph 5 of the SCC report in GKN

Driveshafts, which is set out below:

“5.We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice

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under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee 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 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 abovesaid five assessment years.”

In these facts and circumstances, I am of the view that the impugned

order does not warrant interference on the ground that principles

laid down in GKN Driveshafts were not complied with. For the same

reason, i.e. non-filing of return, and the consequential assessment on

best judgment basis under Section 144, the impugned order does not

call for interference in exercise of discretionary jurisdiction on the

ground of non-issuance of notice under Section 143(2).

9. The next ground of challenge was by referring to the

statements on which reliance was placed in the impugned order. In

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particular, learned counsel for the petitioner referred to the statement

of M/s.Meenakshi Timber & Plywood. The statement of the said

entity is referred to in paragraph 21 of the impugned order. On

examining the said statement, it appears that M/s.Meenakshi Timber

& Plywood stated that they were unable to undertake work

expeditiously and that, therefore, M/s.Olive Castle (the petitioner's

proprietary concern) decided to mobilize labourers and resources.

Thus, with regard to the execution of civil work, the petitioner stated

that she did not have the experience in mass excavation and sand-

filling. Her husband said that he too did not possess the requisite

experience and that the sub-contractors had the experience. One of

the sub-contractors, M/s.Meenakshi Timber & Plywood, issued a

statement that the work was executed by the proprietary concern of

the petitioner, thereby completing a circle leading back to the

petitioner.

10. The impugned order was also assailed on the ground that

no opportunity to cross-examine Mr. Manuel Joseph was provided.

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As stated earlier, Mr.Manuel Joseph stated that he did not have

experience in mass excavation and sand filling. In those

circumstances, the denial of the request for cross-examination does

not warrant interference under Article 226. Undoubtedly, in cases

where the assessee concerned is able to provide some indication of

real prejudice, not providing the opportunity to cross-examine would

justify interference while exercising discretionary jurisdiction, but not

otherwise.

11. The last ground on which the petitioner assailed the

impugned order was that a remand should not be made for a second

time and that the time limit for issuing the assessment order was

close to expiring when the assessment order was issued. The broad

proposition that there should be no remand for a second time is not

supported by statute or precedent and, in any event, on account of

conclusions recorded earlier, the petitioner cannot succeed on this

basis.

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12. The petitioner was provided a reasonable opportunity to

place on record evidence of execution of civil work (mass excavation

and sand-filling), such as contracts for hiring excavation and other

equipment, running account and final bill, proof of payment by the

employer, contracts with sub-contractors, running account and final

bills of sub-contractors, proof of payment to sub-contractors, and the

like. Apart from producing work orders, photographs and the offer

letter of employment of Mantri Developers Private Limited, the

petitioner did not place any other evidence on record leading to the

inference in the impugned order that no proof of carrying out work

was submitted by the assessee. In these facts and circumstances, I

conclude that there is no justification for exercising discretionary

jurisdiction.

13. For reasons set out above, the impugned assessment order

dated 16.12.2021 does not warrant interference under Article 226 of

the Constitution of India. It is, however, open to the petitioner to

assail such order by filing a statutory appeal. In view of the rejection

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of the challenge to the assessment order, the challenge to the penalty

order, which is consequential, also suffers the same fate. Hence,

W.P.Nos.349 & 25984 of 2022 are dismissed on the terms indicated

above. Consequently, connected miscellaneous petitions are closed.

05.02.2024

Index : Yes / No

Internet : Yes / No

Neutral Citation : Yes / No

kal

To

Assistant Commissioner of Income Tax

Central Circle 2(3), 1st Floor, Investigation Building, No.46 (Old No.108), Mahatma Gandhi Road, Nungambakam, Chennai-600 034

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SENTHILKUMAR RAMAMOORTHY J.

kal

W.P.Nos.349 & 25984 of 2022 & WMP Nos.388, 389, 25079 & 25080 of 2022

05.02.2024

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