Nikhil Chandrakant Dharia Vs ITO (Bombay High Court)
Summary: The Bombay High Court considered a writ petition challenging a notice dated 28 March 2023 issued under Section 148A(b) of the Income-tax Act, 1961, an order dated 19 April 2023 passed under Section 148A(d), and the consequential notice dated 19 April 2023 issued under Section 148. The assessment year involved was 2019-20. The Court’s order records that the principal grounds raised by the petitioner concerned non-application of mind in granting approval under Section 151 and denial of a requested personal hearing before the order under Section 148A(d) was passed.
The Court noted that the notice under Section 148A(b) was dated 28 March 2023 and related to AY 2019-20, and therefore fell within three years. The Court recorded that the petitioner did not dispute that the Principal Commissioner of Income Tax was the appropriate authority for granting sanction in such circumstances. The petitioner’s grievance was instead that the Principal Commissioner had not applied his mind while granting approval.
In the form submitted for approval under Section 151, the time limit for the proceedings was stated to be covered under Section 149(1)(b), namely, proceedings for more than three years but not more than ten years. The Court observed that the notice was actually issued within three years and therefore the applicable provision should have been Section 149(1)(a). The Court further noted that if Section 149(1)(b) were applicable, approval could be granted only by the Principal Chief Commissioner and not by the Principal Commissioner.
The Court also examined the approval form’s entry concerning personal hearing. The form recorded that no personal hearing had been requested by the assessee. However, the order under Section 148A(d), which accompanied the approval material, recorded that a request for personal hearing had been made but was not being granted because it was considered premature. The Court held that the statement in the approval form that no request for personal hearing had been made was therefore false.
On the approval issue, the Court agreed with the petitioner that there had been total non-application of mind by the officer seeking approval, the Additional/Joint Commissioner of Income-tax who recommended the proposal, and the Principal Commissioner who granted approval. The Court observed that the time-limit classification in the approval form was inconsistent with AY 2019-20 and the 28 March 2023 notice. It held that the application for approval, recommendation and grant of approval had all been made mechanically and without application of mind.
On personal hearing, the Court rejected the Revenue’s position that Section 148A(b) contemplated an opportunity of hearing but not a personal hearing. The Court reasoned that the statutory expression “provide an opportunity of being heard to the assessee” meant personal hearing. It also noted that the approval form itself contained a specific entry asking whether personal hearing had been requested by the assessee, which, according to the Court, related to the stage of Section 148A(b).
The Court accordingly made it clear that, before passing an order under Section 148A(d), the Revenue shall give a personal hearing if requested by the petitioner. The Court ultimately quashed and set aside the order dated 19 April 2023 passed under Section 148A(d) and the consequential notice dated 19 April 2023 issued under Section 148. The petition was disposed of.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This Petition has been filed impugning a notice dated 28th March 2023 issued under Section 148A(b) of the Income-tax Act, 1961 (“Act”), an order dated 19th April 2023 passed under Section 148A(d) of the Act and consequent notice also dated 19th April 2023 issued under Section 148 of the Act.
2. One of the main grounds raised in the Petition is that there has been total non application of mind in granting approval under Section 151 of the Act and that is evident from the approval itself. In the affidavit in reply filed through one Vatslaa Zha, Principal Commissioner of Income-Tax Officer-19 affirmed on 11th September 2023, there is no denial to the specific allegation that there has been non application of mind. Only an attempt to justify the sanction is made. According to Respondent, sanction, since it pertains to Assessment Year (“AY”) 2019-20 and the notice has been issued within 3 years, sanction has to be accorded by the Principal Commissioner of Income-Tax Officer-19 (“PCIT”) and not the Principal Chief Commissioner of Income Tax (“PCCIT”). There can be no dispute on this. But it is not Petitioner’s case that the sanction has to be granted by the PCCIT. Petitioner also agrees that the sanction should have been given by the PCIT only but the PCIT has not applied his mind while according the sanction. We would agree with Petitioner.
3. The notice under Section 148A(b) of the Act dated 28th March 2023 was issued for AY 2019-2020. Therefore, it was within 3 years. In the form submitted for approval under Section 151 of the Act, in row 9, it is mentioned “Time limit for current proceedings covered under Section 149(1)(b) – for more than 3 years but not more than 10 years.” And row 22 states that the approval has been granted by one Gollapinni Mallikarjuna, PCIT on 19th April 2023. In row 16 “whether personal hearing was requested by Assessee”, the answer is shown as “No”. At page 197 is a copy of the assessment order prepared under Section 148A(d) of the Act which was annexed to the approval form as mentioned in row 18. In the order at paragraph 7.6, it is mentioned a request for personal hearing has been sought but is not being granted because it is premature. Therefore what is stated in row 16 that no request of personal hearing was made, is a false statement.
4. As regards rows 9 and 22 are concerned, we also agree with Petitioner that there has been total non application of mind by the officer seeking approval, the Additional/Joint Commissioner of Income-tax who recommended it was a fit case as well as the PCIT, who granted approval because the time limit for current proceedings should be covered under Section 149(1)(a) of the Act, i.e., for less than 3 years because the AY is 2019-20 and the notice issued under Section 148A(b) of the Act is dated 28th March 2023. In the form, in row 9 it is mentioned “under Section 149(1)(b)-for more than 3 years but not more than 10 years.” If only all three officers had bothered to read the form for approval and the order under Section 148A(d) of the Act, certainly the notice would not have been issued, the Additional/Joint Commissioner of Tax would not have recommended and the PCIT would not have granted the approval. If Section 149(1) (b) of the Act is applicable then the approval could be granted only by the Principal Chief Commissioner and not the Principal Commissioner as in this case.
5. Therefore, in our view, the application for approval, recommendation and the grant of approval have all been made by the officers mechanically and without application of mind. There is not even an attempt to explain in the affidavit in reply as to how this glaring error has been committed. Perhaps they had not explanation. We are of the opinion that if only the PCIT had read the form for approval carefully with the order that was prepared by the Assessing Officer under Section 148A(d), the PCIT would not have come to the conclusion that there is any material to treat it as a fit case to issue notice under Section 148 or pass order under Section 148A(d) of the Act. So also the Additional/Joint Commissioner of Income-tax, who recommended that it was a fit case. It is obvious that they have not bothered to read anything. It is rather unfortunate that someone of the rank of PCIT, in the affidavit in reply, is trying to justify the glaring error.
6. On the issue of personal hearing not being granted and what is stated in row 16, in ground (j) Petitioner has specifically alleged that Respondent No. 1 has refused to grant personal hearing on the ground that it was premature and it will be granted during the further assessment proceedings. In the affidavit in reply there is no specific denial to ground (j) but it is stated that the provisions of Section 148A(b) of the Act clearly states opportunity of hearing and not opportunity of personal hearing. This averment defies sense. Section 148A(b) clearly says “provide an opportunity of being heard to the assessee” and that means ‘personal hearing’. If a hearing was not envisaged at the stage after issuance of notice under Section 148A(b) of the Act then the said sub-section need not have provided for “provide an opportunity of being heard to the assessee ….”.It would have simply stated “by serving upon him a notice to showcause within such time…. as to why a notice under Section 148 should not be issued on the basis of…”
This view of ours is also the view of department because in the approval form 151, row 16 provides “Whether personal hearing requested by assessee”. This certainly pertains to the stage of 148A(b) because if what Mr. Chandrashekhar states that the personal hearing stage comes only after the notice under Section 148 of the Act is issued, the question of row 16 being put in the approval form would not arise. This also indicates total non application of mind even by the officer, who has filed the affidavit in reply.
7. Therefore we make it clear that in every case, before passing an order under Section 148A(d) of the Act, Respondents shall give a personal hearing if requested for by Petitioner. That would also be beneficial to Respondent because if a Petitioner or an assessee is able to satisfy as to why it was not a fit case to pass order under Section 148A(d) of the Act and issue notice under Section 148 of the Act, the department can close the file. We should also note that we have come across many matters where personal hearing has been given and we find it rather strange that the PCIT in the affidavit in reply has taken such an unacceptable stand.
8. We, therefore, quash and set aside the order dated 19th April 2023 passed under Section 148A(d) of the Act and the notice also dated 19th April 2023 issued under Section 148 of the Act.
9. Petition disposed.
