S R Cold Storage Vs. Union Of India And 3 Others (Allahabad High Court)
Allahabad High Court quashed order under section 148A(d), Section 148 Notice and consequential Income Tax reassessment proceedings for for violation of principle of natural justice and imposed a cost Rs. 50,00,000/- on erring Revenue Officers. High Court further directed CBDT to put the faceless assessment mechanism in place in such a manner that no harassment is faced by general public and assessee and accountability is fixed on erring Income Tax officers.
HC held that the Income Tax Department have acted arbitrarily, illegally without jurisdiction, caused harassment to the petitioner and abused power conferred under the Act, 1961, which resulted in creation of illegal demand of income Tax of Rs.16,90,61,731/-, we find it a fit case to impose cost of Rs.50,00,000/- (Rupees Fifty Lakhs) upon the respondents which shall be deposited by the respondents in the Prime Minister National Relief Fund within three weeks from today.
Also Read: Instructions for AO after Adverse observations of Allahabad HC
In result, the writ petition is allowed with cost of 50,00,000/- on the respondents, which shall be deposited in Prime Minister National Relief Fund within three weeks from today. The impugned notice dated 31.03.2021 under Section 148, the impugned order dated 24.03.2022 and the impugned reassessment order dated 31.03.2022 for the Assessment Year 2017-18 under Section 147 read with Section 144B of the Act, 1961 and all consequential proceedings are hereby quashed and following directions are issued:-
(i) The respondent No.1 shall ensure that all necessary steps are taken within one month and a mechanism is developed and is put in place within one month so that assessees may not be harassed and may not suffer on account of own fault of the department in its data-base/
(ii) The Respondent No.1 shall provide a mechanism and put it in place within one month from today that the information fed on database/ portal is verified in reality and not as an empty formality as has been done in this case by the Deputy Director of Income Tax (Inv.), Unit-III, Kanpur, before initiating proceedings under Section 148A/ 148/147 of the Act, 1961 so that on one hand bona fide assessees may not face harassment and on the other hand tax evaders may not escape due to lapses of departmental officers.
(iii) The respondent No.1 shall consider to develop a mechanism of the accountability of the officers who either do not observe stautory provisions of the Act, 1961 or fail to discharge their quasi-judicial function or act in complete breach of principles of natural justice.
(iv) A circular be issued forthwith by the respondent No.1 in the light of the direction given in paragraph-52 above.
After this judgment was delivered in open court, the learned Additional Solicitor General of India and the learned Senior Standing Counsel requested that the cost may be deferred today and they may be heard only on the question of quantum of cost.
Request is accepted. Payment of cost is deferred till the next date. Let the matter be put up on 01.09.2022 at 02:00 P.M. for arguments only on the quantum of costs.
FULL TEXT OF THE ALLAHABAD HIGH COURT JUDGMENT
1. Heard Sri Abhinav Mehrotra, learned counsel for the petitioner, Sri P. Singh, learned Additional Solicitor General of India, assisted by Sri Anant Kuma Tiwari, learned counsel for the respondent no.1 and Sri Gaurav Mahajan, learned Senior Standing Counsel for the Income Tax Department-Respondent Nos. 2,3, and 4.
2. This writ petition has been filed praying for the following relief:
“I. To issue a writ, order or direction in the nature of CERTIORARI quashing the Impugned Notice issued under Section 148 of the Income Tax Act Dated 31.03.2021 {Annexure No. 2 (coil)] r/w Order Dt. 24.03.2022 [Annexure No. 9] issued by the Respondent No.2 and the connected proceedings for Reassessment of Income for A.Y. 2017-18.
II. To issue a writ, order or direction in the nature of Certiorari Quashing the Re-Assessment Order for the Assessment Year 2017-18, Dt. 31.03.2022 [Annexure No.13I which is made in gross violation of law and principles of Natural justice.
III. To issue a writ, order or direction in the nature of MANDAMUS declaring that Amendment caused to the Income Tax Act, 1961, vide Section 42 of the Finance Act, 2022, OMITTING Sub-Section 9 of Section 144B of the Income Tax Act, is wholly unconstitutional and bad in law.
IV To issue a writ, order or direction in the nature of CERTIORARI quashing the Order Dt. 30.03.2021 issued under Section 151 of the Income Tax Act, by Respondent No.3 [Annexure No.2 (coil)] and the connected proceedings for Reassessment of Income for A.Y. 2017-18.”
3. By order dated 26.05.2022, the relief No. III has been deleted on the statement made by the petitioner’s counsel that the Relief No. III is not being
4. This writ petition was heard at length on 18.05.2022, 26.05.2022, 30.05.2022, 05.07.2022, 14.07.2022 and 05.08.2022 and the judgment was reserved on 05.08.2022.
Submissions on behalf of the petitioner:-
5. Learned counsel for the petitioner submits that according to own admission of the respondents, information on the basis of which proceeding under Sections 147/148 of the Income Tax Act, 1961 was sought to be initiated was totally unfounded and yet the misleading counter affidavits have been filed by them. The assessee has been harassed continuously by the respondents. The National Faceless Assessment Center is total failure and insight portal of the department has been made to cause harassment to the assessees. The information collected on the insight portal of the department is not correct. Even reply of the assessee has not been considered at all by the Assessing Officer. In the re-assessment order, despite every material placed by the assessee before the Assessing Officer-respondent no.4, there is no whisper in the re-assessment order about consideration of the reply. The entire proceedings under Sections 147/148 of the Income Tax Act, 1961 against the assessee is wholly without jurisdiction and the result of arbitrary exercise of power and gross abuse of power. In fact the initation of the proceedings and passing of the impugned reassessment order, is a glaring example of conscious and deliberate abuse of the powers by the respondents in the name of faceless assessment procedure. Practically the assessees are not being heard at all and they are not in a position to place and demonstrate their stand and to support it by documentary evidences, as available with them. This Court passed a detailed order dated 26.05.2022 and yet the respondents-authorities have no fear of law and are still trying to justify their action while at the same time admitting the information to be not correct. By order dated 30.05.2022 this Court required the respondents to show cause as to why exemplary cost may not be imposed upon them and yet no cause has been shown in their respective counter affidavits filed before this Court. He submits that the writ petition may be allowed with exemplary cost and accountability of the officer may be fixed so that there may be some check on arbitrary exercise of power and abuse of power by the respondents and transparency in the assessment process may be ensured.
6. Learned counsel for the petitioner has referred paragraph Nos. 6,7,8,9, and 10 of the counter affidavit dated 24.07.2022 filed on behalf of the respondent no.1 and submits that the averments made therein show complete collapse of the system in the Income Tax Department. The deponent of the counter affidavit dated 24.07.2022 filed on behalf of Union of India-respondent no.1 is the Principal Chief Commissioner and he does even know basic principles of assessment and quasi judicial function of the assessing officer. If the averments made in paragraph Nos. 6,7,8,9, and 10 of the counter affidavit filed on behalf of the respondent no.1 are accepted, then entire assessment process would be an empty formality. From the state of affairs as are prevailing presently as reflected from the paragraph Nos. 6,7,8,9, and 10 of the counter affidavit filed on behalf of the respondent 1, it is evident that even basic principles of Rule of law have been given complete goby and assessing officer are under threat of the top level or higher authorities that if they want to do justice or want to discharge quasi judicial function, they may face disciplinary action.
Submissions on behalf of respondent Nos.2, 3 and 4:-
7. Sri Gaurav Mahajan, learned Senior Standing Counsel for the respondent Nos. 2,3 and 4-Income Tax Department submits that against the impugned reassessment order, appeal lie under Section 246A of the Income Tax Act, 1961 and therefore, writ petition may be dismissed on the ground of alternative remedy. He relied upon judgment dated 09.05.2022 in Writ Tax 202 of 2022 (Katiyar Cold Storage Private Limited Versus Union of India and 2 others). He referred to paragraph nos. 4 and 5 of the counter affidavit dated 25.07.2022 filed on behalf of the respondent Nos. 2 and 3 and submits that in insight portal the cash deposited by the petitioner was shown as Rs.13,67,24,000/- in the bank account of the Bank of Baroda, Kanpur, which was 4 times of the actual cash deposit of Rs.3,41,81,000/- in Union Bank of India. In Insight portal it was shown as Rs. 13,67,24,000/-, which information was uploaded by the Deputy Director Income Tax (Inv.), Unit-III, Kanpur.
Submissions on behalf of Respondent No.1:-
8. Learned Additional Solicitor General of India submits that the information received and used against the assessee which was made basis to initiate reassessment proceeding and to pass the impugned reassessment order was the result of mistake on the part of the respondents. He referred to paragraph Nos.6,7,8,9 and 10 of the counter affidavit dated 24.07.2022 filed on behalf of the respondent no.1 and sworn by Shishir Jha, Principal Chief Commissioner of Income Tax, U.P (West) and Uttarakhand Region at Kanpur.
Discussion and Findings:-
9. Briefly stated facts of the present case are that the petitioner is a partnership firm engaged in the business of running a cold-storage. It filed its return of income on 17.10.2017 for the Assessment Year 2017-18 declaring a total income of Rs.11,55,016/-. The assessment of the petitioner was completed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act, 1961) accepting the total income as declared by the petitioner. On 31.03.2021, the Assessing officer issued a notice to initiate proceedings under Section 147/148 of the Act, 1961 alleging that an information has been received that the petitioner has deposited a sum of Rs.13,67,24,000/- in its bank account which is undisclosed income and escaped assessment to tax. The petitioner repeatedly requested the Assessing Officer to supply the reasons recorded but instead of supplying the reasons the respondent No.2 issued notice dated 11.11.2021 under Section 143(2) read with Section 147 of the Act, 1961 which was followed by his letter dated 18.11.2021. In paragraphs 4 and 6 in the aforesaid letter dated 18.11.2021, the respondent No.2 has stated as under:
“4. Enquiries made by the A.O. as sequel to information collected/received:
Information uploaded by the DDIT(Inv.), Unit-3, Kanpur regarding unexplained cash deposits of Rs.13,67,24,000/- in this case, has been examined.
Necessary verification was made from the entire details available in the ITR, on the database of ITBA and ITD and therefore, I have sufficient form of `Reason to believe’ to frame my opinion. The Information available with this office has been analyzed and I have framed my opinion after due application of all the facts and mind.
6. Basis of forming reason to believe escapement of Income:
In light of the details available on records and on the basis of above facts and findings, I have reason to believe that income of Rs.13,67,24,000/- which is chargeable to tax, has escaped the assessment. Thus, I have reasons to believe that this is a fit case for reopening and there is an escapement of income within the meaning of Explanation 2(a) to Section 147 of the Income Tax Act, 1961.”
10. The petitioner filed its detailed objections before the respondent No.2 vide letter dated 26.11.2021 in which it submitted that the reasons recorded are neither correct nor proper nor honest which may give jurisdiction to the Assessing Officer to issue notice under Section 148 of the Act, 1961. However, without disposing of the objection of the petitioner, the respondent No.4 (National Faceless Assessment Centre, New Delhi) issued a notice under Section 142(1) of the Act, 1961. Subsequently, the objection dated 26.11.2021 filed by the petitioner was rejected by the respondent No.4 by order dated 24.03.2022 and a show cause notice/ draft assessment order dated 25.03.2022 was issued requiring the petitioner as to why addition of Rs.13,67,24,000/- be not made. Paragraph 4.1 and 5 of the show cause notice/ draft assessment order, is reproduceced below:
“4.1 As per record / information available with the Department it is seen that during the financial year 2016-17 relevant to A.Y. 2017-18 there are cash deposits of Rs.13,67,24,000/- made by the assessee firm at Bank of Baroda, Kanpur, which is not commensurate with turnover and return of income filed by the assessee, firm. Hence cash deposits of Rs. 13,67,24,000/- made by the assessee is added to the total income of the assessee as income u/s. 68 of the Income lax Act, 1961 as unexplained cash credit. Penalty u/s 271AAC(1) of the I.T. Act, 1961 is initiated in respect of certain income.
[Addition: Rs. 13,67,24,000/]
5. Subject to the above discussion, total income of the assessee is computed as under:
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