Challenge to Section 153C Notice: Rajasthan HC Dismisses Writ & directs to pursue statutory remedies

Madhuri Sahai Vs DCIT (Rajasthan High Court)

In a significant ruling, the Rajasthan High Court in the case of Madhuri Sahai Vs DCIT reiterated the importance of exhausting statutory remedies before invoking the writ jurisdiction of the High Court. The petitioner, Madhuri Sahai, challenged the assessment order dated 21.03.2024 on the grounds that the initiation of proceedings under Section 153C of the Income Tax Act, 1961, was invalid. However, the court dismissed the writ petition, emphasizing that the petitioner had participated in the assessment proceedings without initially challenging the notice, thereby forfeiting her right to seek relief under Article 226 of the Constitution.

Background

The crux of the dispute lies in the application of Section 153C of the Income Tax Act, which deals with assessment in cases where assets belonging to a third party are seized during a search operation. The section was amended and subsequently repealed with effect from 01.04.2021, but the proceedings against the petitioner were initiated under its provisions prior to this date. The petitioner argued that the initiation itself was unlawful under the pre-amended section.

Petitioner’s Arguments

Madhuri Sahai filed the writ petition against the assessment order, claiming that:

1. The initiation of proceedings under Section 153C was inherently flawed, given the changes in the law.

2. She was not afforded a proper opportunity to present her case, despite responding to the show cause notice.

3. The assessment order was passed without due consideration of her submissions.

Respondent’s Defense

The counsel for the respondents countered by referring to a recent judgment by the same court in the case of Smt. Rama Gupta Vs DCIT, where the court held that if an assessee participates in the assessment proceedings without challenging the notice, they are presumed to have accepted the jurisdiction of the authority. Therefore, any challenge to the notice after the assessment order is passed should be raised through the statutory appeal mechanism rather than through a writ petition.

Court’s Ruling

The Rajasthan High Court upheld the respondent’s argument, noting that the petitioner:

• Did not challenge the initiation of proceedings at the earliest opportunity.
• Participated in the assessment process, thereby accepting the jurisdiction of the authorities.
• Only sought to challenge the proceedings after the assessment order was issued.

The court held that since there was no complete denial of the opportunity to be heard, the alleged procedural lapses could be addressed through the statutory remedy of appeal. The court further clarified that its discretionary jurisdiction under Article 226 should not be invoked when an alternative, efficacious remedy exists.

Statutory Remedy

In line with its ruling, the court dismissed the writ petition but provided relief by allowing the petitioner to file an appeal within 30 days. The court directed that the appeal, if filed within this timeframe, should be heard on its merits without the question of limitation being raised.

Conclusion: The Rajasthan High Court’s decision in Madhuri Sahai Vs DCIT serves as a crucial reminder of the importance of following the procedural hierarchy in tax litigation. By participating in the assessment proceedings without initially challenging the notice, the petitioner inadvertently weakened her position. The ruling underscores the necessity for taxpayers to be vigilant and proactive in asserting their rights at the appropriate stage of the legal process. It also highlights the court’s reluctance to exercise its writ jurisdiction when statutory remedies are available, ensuring that the legal framework established under the Income Tax Act is adhered to.

FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT

1. Heard.

2. This writ petition has been filed against assessment order dated 21.03.2024 on the submission that the very initiation of proceedings under Section 153C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was bad in law as the proceedings could not have been initiated under the scheme of Section 153C of the Act as it stood prior to its deletion with effect from 01.04.2021. It is submitted that show cause notice was issued, reply was filed, but proper opportunity of hearing was not afforded to the petitioner.

3. On the other hand, learned counsel for the respondents, referring to order dated 31.05.2024 passed by this Court in the case of Smt. Rama Gupta Vs. Deputy Commissioner of Income Tax (D.B. Civil Writ Petition No. 9309/2024), would submit that in cases where issuance of notice at the very inception was not challenged but the assessee submitted to the jurisdiction of the authority and sought to challenge only after the assessment order was passed, this Court has not exercised its discretion to entertain the petition and allowed the parties to exhaust statutory alternative remedy of appeal.

4. In the present case, on facts also, we find that notice under Section 153C of the Act was issued to the petitioner way back on 12.01.2023. The petitioner did not challenge the initiation of proceedings and submitted to the jurisdiction of the authorities and participated in the assessment proceedings. It is only when the assessment order is passed that the petitioner seeks to challenge the same by filing present writ petition. The issue with regard to opportunity of hearing can also be examined by the authorities concerned because it is not a case of total absence of opportunity of hearing and the allegation is that proper opportunity of hearing was not afforded.

5. In these circumstances, we are not inclined to exercise our discretionary jurisdiction under Article 226 of the Constitution of India to entertain this writ petition because there exists statutory alternative efficacious remedy of appeal to challenge the assessment order.

6. Writ petition is dismissed, however, with liberty to the petitioner to take recourse to the alternative remedy of appeal available to her under the law.

7. Taking into consideration that this writ petition was filed before expiry of period of limitation for filing the appeal, it is directed that in case, the petitioner prefers an appeal within 30 days, the appeal shall be heard and decided by the Appellate Authority on its own merits without going into the issue of limitation.