Bombay HC Quashes Section 148 Reassessment Over Failure to Cancel Old PAN

Kai Balkrishna R Gawade Mandai Vyapari Premises Sahakari Sanstha Maryadit Vs ITO (Bombay High Court)

Summary: The Bombay High Court allowed a writ petition filed under Article 226 challenging an order dated 29th March 2023 under Section 148A(d) of the Income Tax Act, 1961 and a notice dated 31st March 2023 under Section 148 for AY 2019-20.

The Petitioner, a registered co-operative credit society, had initially obtained a PAN as a Trust, although it was assessable as an Association of Persons. After an ex-parte assessment for AY 2011-12, the Petitioner realised the mistake and obtained a new PAN. It repeatedly requested the Income Tax Department to cancel the old PAN and migrate the new PAN to the appropriate jurisdiction. The Petitioner filed its return for AY 2019-20 under the new PAN.

A notice under Section 148A(b) was subsequently issued based on a time deposit of ₹2,56,14,097 with Punjab National Bank, formerly known as United Bank of India. The Petitioner submitted that there were no new time deposits during AY 2019-20 and that the deposits and interest had already been disclosed in the return filed under the new PAN. The explanation was rejected and the impugned Section 148A(d) order and Section 148 notice followed.

The Court noted that the Respondents were unable to identify any regulation, circular or procedure that the Petitioner had failed to follow for cancellation of the old PAN. The Court also found from the record that the Petitioner had filed returns under the new PAN and that the correspondence regarding cancellation of the old PAN had not been acknowledged.

The Court held that the Assessing Officer ought to have examined and verified the Petitioner’s contentions concerning cancellation of the old PAN and the returns filed under the new PAN before issuing the impugned order and notice. The Court therefore quashed and set aside the Section 148A(d) order and Section 148 notice, directed cancellation of the old PAN in accordance with law, and directed that the Petitioner be assessed or reassessed for AY 2019-20, if required, after considering its submissions and documents under the new PAN.

Challenge to Reassessment Proceedings

The Petition was filed under Article 226 of the Constitution seeking a writ of mandamus for quashing:

• the notice under Section 148 dated 31st March 2023 for AY 2019-20;
• the order under Section 148A(d) dated 29th March 2023; and
• the assessment proceedings taken in furtherance of the impugned notice.

The case concerned reassessment proceedings under Section 148 and the preceding proceedings under Section 148A.

Background of the Petitioner and PANs

The Petitioner was a registered co-operative credit society formed by the licensees of the Open Stall Holders of the Municipal Market situated at Worli Naka, Mumbai.

According to the supplied judgment, the Petitioner was assessable as an “Association of Persons”. However, the person in charge at the time of formation had applied for PAN as a Trust under the name and style of Balkrishna R. Gawde Mandai Vyapari Premises Co-operative Society Ltd.

An ex-parte assessment order dated 28th December 2018 for AY 2011-12 raised a demand of ₹3,80,96,940/- on the corpus received on account of redevelopment of the Municipal Market. The Petitioner subsequently realised the PAN-related mistake and applied for a new PAN.

The judgment records that the new PAN bearing No. AAGAK1258D was allotted to the Petitioner on 9th January 2019. The Petitioner had preferred an appeal against the ex-parte assessment order and demand under the new PAN, which was pending adjudication before the CIT(A).

Repeated Requests to Cancel Old PAN

The Petitioner submitted that it had repeatedly approached the Income Tax Department for cancellation of the old PAN, AABTB6263H, and migration of the new PAN.

Letters dated 2nd July 2019 and 22nd July 2019 were addressed to the concerned Assessing Officers. The Petitioner stated that it was informed that the new PAN had been migrated to Ward No. 22(2)(6), instead of Ward No. 22(1)(6), and it thereafter corresponded with Respondent No. 2 regarding correction of the jurisdiction and cancellation of the old PAN.

The Petitioner also referred to communications dated 14th November 2019, 24th September 2020, 11th November 2020 and 11th February 2023 seeking cancellation of the old PAN.

Further, letters dated 15th March 2021 and 24th March 2021 were sent to Punjab National Bank and Saraswat Bank respectively informing them to change the PAN from the old number to the new number.

Section 148A(b) Notice and Petitioner’s Response

Despite the correspondence with Respondent No. 1 and a request lodged on the income tax portal, a show cause notice under Section 148A(b) dated 12th February 2023 was issued for AY 2019-20.

The notice was based on a time deposit of ₹2,56,14,097 with Punjab National Bank, formerly known as United Bank of India.

The Petitioner submitted explanations and annexures through the income tax portal. It contended, inter alia, that there were no new time deposits in AY 2019-20 and that all deposits and interest thereon had already been disclosed in the return of income filed under the new PAN.

These contentions were rejected. Following approval of Respondent No. 3, the notice under Section 148 dated 31st March 2023 was issued for reopening the assessment for AY 2019-20.

Bombay High Court’s Observations

The Court inquired from the Respondents’ Counsel about the procedure for cancellation of PAN which the Petitioner was alleged to have failed to follow.

The Respondents’ Counsel were unable to point out any regulation, circular or procedure that could assist the assessee in cancelling the PAN.

The Court also examined the record and found that the Petitioner had filed its returns under the new PAN AAGAK1258D. The Court further noted that the notice indicated that Respondent No. 1 had failed to acknowledge the correspondence made by the Petitioner.

The Court observed that it was the duty of Respondent No. 1 to examine and verify the Petitioner’s contentions regarding cancellation of the old PAN and the returns filed under the new PAN before issuance of the impugned order and notice.

Failure to Examine PAN Cancellation Requests

The Court considered the failure to examine the Petitioner’s correspondence and PAN position to be a failure of duty on the part of Respondent No. 1. The Court observed that this failure had resulted in the filing of the Petition and could have been avoided, along with its cascading effect on the Courts.

The Court further observed that the Petitioner’s case was another instance where an assessee had sought cancellation of an old PAN and the Income Tax Department had failed to do so.

The Court stated that the Respondents ought to prominently display the steps for cancellation of a PAN on their website and also send a link for cancellation in the covering letter when a PAN is provided to an assessee.

Bombay High Court’s Decision

In the absence of a clear answer to the Court’s query and a clear stand from the Department, the Court was prima facie of the view that the Petition deserved to be allowed without further procrastination.

The Court accordingly passed the following directions:

1. The impugned order under Section 148A(d) dated 29th March 2023 for AY 2019-20 and the notice under Section 148 dated 31st March 2023 were quashed and set aside.

2. Respondent No. 1 was directed to cancel the old PAN, AABTB6263H, in accordance with law and assess/reassess the Petitioner for AY 2019-20, if required, after considering the Petitioner’s submissions and documents under the new PAN AAGAK1258D in accordance with law.

3. The Rule was made absolute in the above terms. No costs.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Rule. Rule made returnable forthwith by consent of parties. Mr. Sharma for the Respondents waives service.

2. By this Petition under Article 226 of the Constitution, the Petitioner seeks a Writ of Mandamus for quashing of the impugned notice under section (‘u/s’) 148 of the Income Tax Act, 1961 (‘Act’) dated 31st March 2023 for Assessment Year (‘AY’) 2019-20, the impugned order u/s 148A(d) dated 29th March 2023 and assessment proceedings taken in furtherance of the impugned notice.

BRIEF FACTS:

3.The Petitioner is a registered co-operative credit society under registration no.MUM/W-G-S/GEN(C)/8300/2006- 2007 formed by the licensees of the Open Stall Holders of the Municipal Market situated at Worli Naka Mumbai. As such the Petitioner would be assessable as “Association of Persons” but the person in charge at the relevant time i.e. on the formation of society, had applied for PAN as a Trust under the name & style of Balkrishna R. Gawde Mandai Vyapari Premises Co-operative Society Ltd. It was on account of an ex-parte assessment order dated 28th December 2018 for the year AY 2011-12 whereby a demand of 3,80,96,940/- was raised (on the entire corpus of ₹ 3,80,96,940/- was raised (on the entire corpus of 618,25,500/- received on account of redevelopment of the ₹ 3,80,96,940/- was raised (on the entire corpus of Municipal Market), that the Petitioner realised the mistake and applied for a new PAN on 1st September 2019. A new PAN bearing no. AAGAK1258D (new PAN) was allotted to the Petitioner on 9th January 2019. The Petitioner has preferred an appeal against the ex-parte assessment order and demand under the new PAN which is pending adjudication before the CIT(A).

4. The Learned counsel Mr. Pandit submitted that by a letter dated 2nd July 2019 the Petitioner requested the Jurisdictional Assessment Officer (JAO) Ward 34(1)(1) Bandra to cancel the old PAN i.e. AABTB6263H and requested migration of the new PAN to Ward 21(1)(6). Similar letter dated 22nd July 2019 was addressed to Assessment Officer (‘AO’) Ward 21(1)(2). He submitted that the Petitioner was informed that the new PAN was migrated to Ward No. 22(2)(6) (Respondent No. 2) instead of 22(1)(6) and initiated correspondence with Respondent No.2 to correct the same and cancel the old PAN. In the meantime the Petitioner filed its return of income for AY 2019-20 on 18th October 2019 under the new PAN and also filed its audited returns with the Registrar in accordance with the law. He submitted that despite repeated visits and communications dated 14th November 2019, 24th September 2020, 11th November 2020, 11th February 2023 for cancellation of old PAN the Respondents failed to do the needful. He submitted that the Petitioners by their letters dated 15th March 2021 and 24th March 2021 also informed their bankers viz. Punjab National Bank and Saraswat Bank respectively to change their PAN number from old to the new PAN.

5. Mr. Pandit submitted that despite corresponding with the Respondent no. 1 by letter dated 11th February 2023 and lodging the request on the income tax portal, a show cause notice u/s 148A(b) dated 12th February 2023 for AY 2019-20 came to be issued to the Petitioner on the basis of time deposit of 2,56,14,097 with the Punjab National Bank ₹ 3,80,96,940/- was raised (on the entire corpus of formerly known as United Bank of India. In response the Petitioner once again tendered explanations and uploaded annexures in support thereof, on the income tax portal and inter alia contended that there were no new time deposits in AY 2019-20 and all the deposits and interest thereon, were already disclosed in the return of income filed under the new PAN. These contentions of the Petitioner were rejected and pursuant to the approval of Respondent No. 3, a notice u/s 148 dated 31st March 2023 for reopening assessment of AY 2019 was issued to the Petitioner. Under these circumstances this Petition came to be filed on 28th April 2023.

6. Upon hearing the Counsel for the Petitioner, we inquired with the Respondent’s Counsel about the procedure for the cancellation of PAN that the Petitioner failed to follow. The Counsel were unable to point out any regulation, circular or a procedure that could help the assessee cancel the PAN. We also examined the record which evinced that, the Petitioner has filed their returns under the new PAN AAGAK1258D. The perusal of the notice also indicates that the Respondent No.1 has failed to acknowledge the correspondence by the Petitioner with the Respondent No.1.

7. In our view, it was the duty of the Respondent No. 1 to have examined and verified the contentions of the Petitioner in respect of cancellation of the old PAN and the returns filed under the new PAN before the issuance of the impugned Order and the impugned notice. A failure of duty of Respondent No. 1 has led to filing of this Petition which in our view could be easily avoided along with its cascading effect on the Courts which are already overburdened. This is yet another case 1 where the assessee has sought to cancel the old PAN and the IT department has failed to do it. The Respondents ought to prominently display the steps for cancellation of a PAN on their website apart from sending a link for cancellation in the covering letter when a PAN is provided to an assessee.

8. In the absence of any clear answer to the query and any clear stand of the department, we are prima facie of the view that the Petition deserves to be allowed without further procrastination. We deem it fit to pass the following order –

1. The impugned order u/s 148A(d) dated 29th March 2023, issued by Respondent No.1 for AY 2019-20 and notice u/s 148 dated 31st March 2023 are quashed and set aside;

2. Respondent No.1 is directed to cancel the old PAN viz. PAN – AABTB6263H in accordance with law and assess/reassess the Petitioner for AY 2019-20, if required, after considering the submissions and documents of the Petitioner under the new PAN AAGAK1258D in accordance with law;

3. Rule made absolute in above terms. No costs.

¹ In the case of Bhavna Steel v ITO-5(1)(1) Mumbai in Writ Petition No. 2852 & 2867 of 2022 decided on 9th May 2023