In a civil writ petition filed before the Rajasthan High Court seeking a declaration that the warrant of authorization under Section 132 of the Income Tax Act, 1961 (Act), was bad in law, and to call the Director of Income Tax (INV), Chandigarh to transmit the records regarding the warrant so that the search warrant as well as proceedings can be quashed, among other things, a Division Bench of Acting Chief Justice Sanjeev Prakash Sharma and Justice Sangeeta Sharma allowed the petition and held that the re-assessment proceedings were initiated based upon an illegal notice under Section 153A of the Act.
B&B Mercantile Pvt. Ltd. (petitioner company) was involved in real estate investments and had been filing regular returns under Section 139 of the Act. A notice under Section 127(1) of the Act was issued to the petitioner on 23-10-2013, stating that a search and seizure operation was carried out in M3M India Limited Group, Gurgaon, including the premises of the petitioner company, and they were asked to show cause as to why its case should not be transferred from DCIT, Alwar to ACIT, Faridabad.
Petitioner company submitted a reply objecting to the proposed transfer as no search had been conducted on 03-08-2011, and demanded the warrant of authorisation. On 17-12-2013, another order was passed transferring the petitioner company’s case based on a search conducted on 30-06-2011. By another notice dated 18-12-2013 under Section 153A(1)(a) of the Act, the petitioner company was asked to submit a true and correct return of total income for Assessment Years 2006-2007 to 2011-2012. Aggrieved, the present petition was filed.
The petitioner company contended that neither the notice under Section 127 of the Act was issued with reasons as to why a coordinated investigation was required, nor was there any link to the alleged incriminating material.
The Court referred to the provisions of the Act and stated that after the enforcement of the faceless regime, it was apparent that there was no fundamental right of any assessee to be assessed at a particular place. It was observed that under Section 124, the assessment must be carried out at the principal place of business, whereas under Section 127, it can be done at any other place as well.
Referring to K.P. Mohammed Salim v. CIT (2008) 11 SCC 573, the Court stated that one of the grounds for transfer can be to conduct a coordinated assessment, but the power must not be exercised capriciously. It was said that if the venue is changed periodically for no apparent reason, it may be an example of abuse of power.
The Court stated that the transfer of the petitioner’s case was made for a coordinated investigation and that the department had exercised its administrative powers, taking into consideration the overall circumstances, with reference to the fact that earlier the assessee himself had sought the transfer of the case to Faridabad. It was said that there was no fault in the transfer order.
Further, the Court said that if the Revenue Department is of the view that the assessment of an assessee is to be done with reference to the assessment relating to other allegedly related companies, then such a reason is sound enough and the administrative power so exercised does not warrant interference by the Court. Thus, the Court opined that the transfer of a case for coordinated investigation cannot be objected to.
Regarding the notice issued under Section 153A, the Court found that no factual or actual search was conducted under Section 132 of the Act against the petitioner company. It was noted that the show-cause notice mentioned the search carried out on 03-08-2011, while the subsequent notice mentions the date of the search as 30-06-2011. The Court agreed that a search need not be conducted only at the registered office, but can be conducted at any other place as per information received by the department. However, it was said that the conditions laid down under Section 132 need to be satisfied before conducting a search, and merely mentioning names in the warrant is not sufficient.
Noting that no incriminating material was found during the search, the Court stated that an assessee would not be presumed to have submitted wrong returns unless there is incriminating material found. Referring to the Supreme Court’s decision in Manish Maheshwari v. ACIT (2007) 289 ITR 341 (SC), the Court held that the notice under Section 153A was illegal and deserved to be quashed.
The Court noted that during the pendency of this case, the department issued a show cause notice under Section 144, asking the petitioner company to appear on 11-11-2019, failing which, the assessment in terms of the past assessment procedure would be finalised. The petitioner company moved an application for a stay of the proceedings. It was further noted that while the Court had protected the petitioner to the extent of not insisting upon filing a return with the office to which the case had been transferred, the department was not restrained from asking the petitioner company to file a return at its original place. The Court stated that in case the petitioner company had failed to submit returns, it was incumbent upon the department to proceed further and continue with the best assessment.
The Court found that the department had not proceeded to make any assessment in terms of Section 144 despite having issued notices, and that, after 12 years, the time period for making the best assessment had also expired. The submission by the Revenue Department that actus curiae neminem gravabit would apply was refused by the Court, stating that the department had not been restrained from making any re-assessment and that proceedings cannot be allowed to continue beyond the statutory time period.
The Court concluded that even if the Section 153A notice had been approved, the re-assessment proceedings would have been time-barred and lapsed. Thus, while allowing the writ petition, the Court found that the re-assessment proceedings for Assessment Years 2006-07 to 2011-12 had been initiated on the basis of an illegal notice under Section 153A and were also time-barred.
Appearances:
For Petitioners – Mr. Sachit Jolly (Sr. Adv), Ms. Rubal Bansal Maini, Mr. Satvik Sareen
For Respondents – Mr. Siddharth Bapna, Ms. Tanushka Saxena
