RNS Infrastructure Limited Vs DCIT (Karnataka High Court)
The batch of writ petitions challenged Show Cause Notices issued for the Assessment Years 2006-07 to 2012-13, Assessment Orders dated 03.02.2017 for the Assessment Years 2006-07 to 2012-13, and Penalty Notices issued under Section 274 read with Section 271(1)(c) of the Income-tax Act, 1961. The assessment proceedings arose after proceedings before the Settlement Commission. Following a search conducted under Section 132 on 16.02.2012, the petitioner filed returns on 24.01.2014 and an application before the Settlement Commission in Form 34B. In the first round of litigation, the Revenue unsuccessfully challenged the Settlement Commission’s order admitting the application. Thereafter, the Settlement Commission passed an order on 27.05.2016, which was separately challenged on the ground that it was passed beyond the prescribed period. Subsequently, a Division Bench held that the Settlement Commission ought to have passed its order on or before 10.12.2015, whereas it was actually passed on 27.05.2016. The writ appeal was disposed of on 06.12.2021. Based on these developments, the petitioner challenged the impugned assessment orders, show cause notices and penalty notices.
The petitioner advanced three principal grounds: (i) the assessment orders were passed beyond the prescribed limitation period; (ii) they violated the principles of natural justice; and (iii) they were without jurisdiction due to non-issuance of the mandatory notice under Section 143(2) of the Income-tax Act. On limitation, it was contended that after the Settlement Commission proceedings abated, the maximum period available for completing the assessment was one year, to be reckoned from 10.12.2015, the date by which the Settlement Commission ought to have passed its order as observed by the Division Bench. Consequently, the assessment orders dated 03.02.2017 were stated to be beyond the permissible period. The petitioner relied upon the Division Bench decision in Commissioner of Income-tax, (Central) Vs. RNS Infrastructure Ltd., which computed the last permissible date for the Settlement Commission’s order as 10.12.2015 after excluding the period during which an interim stay operated. The petitioner also relied on the Division Bench judgment in Commissioner of Income-tax (Central) and another Vs. M/s. C. Ramaiah Reddy, which held that issuance of notice under Section 143(2) is mandatory and that, in the absence of such notice, an assessment under Section 143(3) read with Section 147 is void. It was further submitted that the show cause notice dated 02.02.2017, requiring a reply by 5:00 p.m. on 03.02.2017, did not provide reasonable opportunity to respond.
The Court observed that if the assessment orders were liable to be quashed, the penalty notices would also fail consequentially, and the challenge to the show cause notices would likewise become unnecessary. Examining the issue of limitation first, the Court noted that it was not disputed that, in view of the Division Bench’s decision in W.A. No. 238/2017, the maximum period available under Section 153B was one year, to be reckoned from 10.12.2015. Since the impugned assessment orders were dated 03.02.2017, they had been passed beyond the maximum permissible period. The Court held that this finding alone concluded the matter in favour of the petitioner.
Having allowed the petitions on the ground of limitation, the Court declined to examine the remaining grounds relating to natural justice and the alleged absence of notice under Section 143(2). Accordingly, the Court quashed the assessment orders dated 03.02.2017 relating to the Assessment Years 2006-07 to 2011-12 and 2012-13. The writ petition challenging the penalty notices under Section 274 read with Section 271(1)(c) was also allowed, and the penalty notices were quashed as a consequence. Further, the writ petition challenging the show cause notices was allowed by declaring the show cause notices to have become infructuous.
Cases Discussed
- Commissioner of Income-tax, (Central) Vs. RNS Infrastructure Ltd. (Karnataka High Court), 2022 136 taxmann.com 309 (Karnataka)
- Commissioner of Income-tax (Central) and another Vs. M/s. C. Ramaiah Reddy (Karnataka High Court), I.T.A. No.192/2012 decided on 24.06.2020
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
In these batch of writ petitions, the petitioner has called in question Show Cause Notices issued for the years 2006-07 to 2012-13, the Assessment Orders relevant to these years as also the penalty notices. The details of the corresponding writ petitions and the Orders/Notices challenged in these petitions are as follows.
| W.P.Nos. | Particulars |
| W.P.No.5075/2017 | Show Cause Notices for the Assessment Years 2006-07 to 2012-13 |
| W.P.No.7845/2014 | Assessment Order dated 03.02.2017 for the Assessment Years 2006-07 to 2011-12 |
| W.P.No.7857/2017 | Assessment Order dated 03.02.2017 for the Assessment Year 2012-13 |
| W.P.No.37133/2017 | Penalty Notices U/ s 274 r/ w Section 271(1)(c) for Assessment Years 2006-07 to 2011-12 |
2. This assessment is after the Settlement Commission’s Order and the proceedings related hereto. On 16.02.2012, a search is conducted under Section 132 of the Income Tax Act, 1961 [for short, ‘the IT Act, and the petitioner, who has filed returns for the Assessment Years on 24.01.2014, has filed an application with the Settlement Commission in Form 34B of the IT Act. In the first round of writ proceedings, the dispute was over the Settlement Commission’s Order accepting the application, and the Revenue has lost in this first round of litigation. Thereafter, the Settlement Commission has passed its Order on 27.05.2016, which is called in question in W.P. Nos.46275-46289/2016 on the ground that the Settlement Commission’s Order dated 27.05.2016 was time barred.
3. This writ petition is disposed of, and the Revenue has carried the Writ Court’s order dated 07.12.2016 in an Intra-Court appeal in the Writ Appeal No.238/2017. This writ appeal was pending as of the date of the impugned Assessment Orders dated 03.02.2017. Presently, the writ appeal is disposed of by the Order dated 06.12.2021. The Division Bench has observed that the Settlement Commission ought to have passed its Order on or before 10.12.2015 and admittedly the Order is passed on 27.05.2016.
4. Mr. A. Shankar, the learned Senior Counsel for the petitioner, argues for this Court’s intervention with the impugned Show Cause Notice, Assessment Orders and the Penalty Notices on the following grounds in view of the observation as aforesaid.
[A] The Assessment Orders are beyond the timeline prescribed.
[B] These Orders violate the principles of natural justice, and
[C] The Orders are without jurisdiction as mandatory jurisdictional notice under Section 143(2) of the IT Act is not issued.
5. On the first ground, the learned counsel submits that fi] the maximum time period available for assessment, after the proceedings with the Settlement Commission abated, is one year and this period must be reckoned from 10.12.2015 as observed by the Division Bench and fig if the maximum period of one year is reckoned from 10.12.2025, the impugned Assessment Orders, which are dated 03.02.2017, would be beyond 09.12.2016 and therefore cannot be sustained. The learned Senior Counsel relies upon the Division Bench’s observations in Commissioner of Income-tax, (Central) Vs. RNS Infrastructure Ltd1 which read as under:
“8. The undisputed facts are that the respondent No.1 – assessee filed an application before the Income Tax Settlement Commission under Section 245C of the Act along with the tax and interest payable thereon, on 06.02.2014. The Settlement Commission passed orders, by allowing the settlement application to be proceeded with, on 18.02.2014. Order dated 03.04.2014 was passed by the Settlement Commission under Section 245D(2)(c) of the Act declaring the application filed by the respondent No.1 –assessee as valid. W.P.No.44007/2014 and allied matters were filed by the Revenue on 08.09.2014 challenging the order of the Settlement Commission dated 03.04.2014. Interim order was granted by the writ Court on 29.04.2015 till the next date of hearing and the same was extended on 09.06.2015 but subsequently no extension of interim order was granted. Finally, the said writ petitions were dismissed on 18.01.2016. Settlement Commission passed the order under Section 245D(4) of the Act on 27.05.2016. Writ Appeal Nos.489-493/ 2016 filed by the Revenue against the order passed in W.P.No.44007/2014 and allied matters came to be dismissed as withdrawn on 28.09.2016. Period of limitation for passing the order by the Settlement Commission would be 18 months from the date of filing of the application. Considering the total number of 51 + 7 days wherein the interim order of stay in W.P.No.44007/2014 was in operation, the last date for passing the order by the Settlement Commission would be 10.12.2015. Thus, the Settlement Commission ought to have passed an order on or before 10.12.2015, but admittedly the order was passed on 27.05.2016…………… II
6. Mr. A. Shankar, on the impugned Assessment Orders being without jurisdiction on the ground of mandatory jurisdiction of notice under Section 143(2) of the IT Act, refers to the decision of a Division Bench of this Court in Commissioner of Income-tax (Central) and another Vs. M/s. C. Ramaiah Reddy2, wherein the Division Bench has held thus:
“8. It is pertinent to note that first and second proviso to Section 148 of the Act were inserted by Finance Act, 2006 with retrospective effect i.e., from 01.10.1991. The aforesaid proviso were incorporated and created a legal fiction to the effect that a notice issued under Section 143(2) after expiry of twelve months as specified in Section 143(2) but before completion of expiry of time limit for making assessment, reassessment or recomputation as specified in Section 153(2) in respect of return furnished between the period 01.10.1991 to 30.09.2005 will be valid. A legal fiction has been created in respect of issue of notice under Section 143(2) of the Act only in respect of returns furnished upto 30.09.2005. Thus, by insertion of the aforesaid provisos the legislature has made its intention manifest that notice under Section 143(2) of the Act has to be mandatorily issued for the initiation of assessment proceedings under Section 147 of the Act. In the instant case, the assessee filed the return of income on 19.09.2006. Therefore, the amendment made to Section 148 of the Act do not apply to the fact situation of the case and in absence of notice under Section 143(2) of the Act, the order of assessment under Section 143(3) read with Section 147 is ab initio void.”
The learned Senior Counsel also submits that the petitioner is issued with a Show Cause Notice dated 02.02.2017 stipulating that a reply must be submitted by 05.00 p.m. on 03.02.2017, and this is in violation because the petitioner has not been granted reasonable time.
7. Mr. Y. V. Raviraj, the learned Senior counsel for the petitioner, is heard in the light of these canvases, and this Court must opine that if the petitioner succeeds in the writ petitions in W.P.Nos.7845/2017 and W.P.No.7857/2017, which are as against the Assessment Orders of the petitioner, the petition in W.P.No.37133/2017 must consequently be allowed as the penalty notices will not survive. This Court also opines that if the petitioner succeeds against the Assessment Orders, the petitioner’s grievance as against the Show Cause Notices will also not survive.
8. The petitioner’s grievance with the Assessment Orders is first tested on the ground of limitation. It is not argued that after the Division Bench’s order in W.A.No.238/2017 the limitation as provided for under Section 153B of the IT Act will be for a maximum period of one year and that this period must be reckoned from 10.12.2015. The fact that the maximum permissible period of one year must be reckoned from 10.12.2015 must clinch the issue for the petitioner because the impugned order [which is dated 03.02.2017] is beyond the maximum period permitted.
9. As the petitioner succeeds on this ground, the merits of the other two grounds are not examined, and the petitions in W.P.No.7845/2017 and W.P.No.7857/2017 are favoured quashing the Assessment Orders dated 03.02.2017 relevant to the Assessment Years 2006-07 to 2011-12 and 2012-13. The writ petition in W.P.No.37133/2017, which is against the subsequent penalty notices, are consequentially allowed quashing the impugned penalty notices. Further, in the light of the above, the writ petition in W.P. No.5075/2017 is also allowed declaring the Show Cause Notices as having become infructuous.
Notes:
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21.T.A.No.192/ 2012 decided on 24.06.2020
