Adarsh Developers Vs DCIT (Karnataka High Court)
Karnataka High Court held that scrutiny notice issued u/s 143(2) by the Additional Commissioner of Income Tax, National Faceless Assessment Centre (NFAC) instead of jurisdictional Assessing Officer under Central Charge is sustainable in law and hence valid.
Facts- The petitioner is a partnership firm engaged in the business of real estate development. The petitioner’s case is that its jurisdictional Assessing Officer is the Deputy Commissioner of Income Tax, Central Circle 2(1), Bangalore [the first respondent] and as such, the Additional Commissioner of Income Tax, NaFAC-1(1)(2), Delhi [the second respondent] could not have assumed jurisdiction to issue notice dated 29.06.2021 under Section 143[2] of the IT Act because the jurisdiction of the first respondent has not been decentralized insofar as the petitioner. The petitioner contends that because notice dated 29.06.2021 is issued by an officer without jurisdiction, the entire proceedings culminating with the impugned Assessment Order dated 20.09.2022 are without jurisdiction, and hence, this Court must interfere notwithstanding the fact that the petitioner has availed statutory remedy against the Assessment Order.
Conclusion- Held that there is a transition from a Scheme notified under the provisions of the IT Act to a Scheme under the IT Act incorporation all the essential without material changes insofar as assessments generally and assessments in the cases of Central Charges and International Taxation Charges and there is nothing in this transition, including the provisions of Section 144B or the CBDT’s Order, to infer exclusion of the operation of CBDT’s order dated 13.08.2020. This Court must therefore conclude that the operation of the CBDT’s order dated 13.08.2020 is saved by the application of the Section 24 of the General Clauses Act, 1897.
Held that the restriction under Section 124[3] of the IT Act on the right to raise the question of jurisdiction must extend to all grounds on which jurisdiction is called in question. If the right to call in question the jurisdiction is left open to be raised at any stage, the proceedings will remain inconclusive and that could not have been the intendment of the legislature.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has impugned the first respondent’s Assessment Order dated 20.09.2022 in DIN No. ITBA /AST/S/143(3)/2022-23/1045739577(1) [Annexure-A1] under Section 143[3] of the Income Tax Act, 1961 [for short ‘the IT Act’]. In addition, the petitioner has impugned the consequential Computation and Demand Notice [Annexures-A2 and A3] as also Show Cause Notice dated 20.09.2022 [Annexure-A4] issued under Section 270A of the IT Act for the assessment year 2020-21.
2. The petitioner, a partnership firm engaged in the business of real estate development, has filed Returns of Income [ROI] under Section 139[1] of the IT Act for the Assessment Year 2020-21. The petitioner’s case is selected for scrutiny, and the Additional Commissioner of Income Tax, NaFAC-1[1][2], Delhi [the second respondent as the Prescribed Income Tax Authority] [for short, ‘the NaFAC’] has issued Notice dated 29.06.2021 [Annexure-C] to the petitioner under Section 143[2] of the IT Act. Subsequently, the first respondent has served Notices dated 23.11.2021, 09.12.2021, 03.01.2022, 11.01.2022, 19.02.2022, 28.04.2022 27.05.2022 and 12.08.2022 [the copies of these Notices are appended to the writ petition as different annexures] under Section 142[1] of the IT Act calling upon the petitioner to furnish details such as computation of income, financial statements along with all the detailed schedules with party-wise and item-wise contents, the party-wise details of sundry advances that are written off and the reasons for writing off such advances, a brief note on various receipts shown in profit and loss account with the various activities carried on during the financial year 2019-20. The petitioner has filed certain responses to each of these notices, including the response dated 20.07.2022.
3. The first respondent has passed the impugned Assessment Order dated 20.09.2022 with certain additions and disallowances. The petitioner has filed its appeal against the first respondent’s Assessment Order dated 20.09.2022 with the Commissioner of Income Tax [Appeals]-11 Bengaluru. The petitioner has also filed separate applications for rectification under Section 154 of the IT Act with the first respondent on 18.10.2022 and 06.12.2022. The aforesaid appeal and the applications for rectification are pending consideration.
4. The Principal Commissioner of Income Tax [Central], Bengaluru by the order dated 20.12.2022 has granted stay of recovery in terms of the Assessment Order subject to the petitioner depositing the disputed amount in ten installments of Rs.1,96,28,424/-. This Court, in the light of the submission that the first of the installments in Rs.1,96,28,424/- is paid under protest, and because of the question that is canvassed, has recorded that the respondents are expected not to be precipitative. It is placed on record that in due deference to this observation, the respondents have not taken any action. Presently, the pleadings are complete. The respondents have requested for early disposal of the petition emphasizing that a large number of notices have been issued by the Prescribed Income Tax Authority, and if the question for consideration remains pending for long there could be ramifications. Sri. A Shankar, the learned Senior Counsel for the petitioner, and Sri. N Venkataraman, the learned Additional Solicitor General of India, were initially heard on the following question for final disposal of the petition.
Whether the Additional Commissioner of Income Tax NaFAC-1(1)(2) could have assumed jurisdiction in respect of the petitioner’s case which belongs to central charge for issuance of notice under Section 143(2) of the Income Tax Act, 1961; and if the aforesaid officer could not have so assumed jurisdiction, whether the proceedings must fail for want of due notice under Section 143(2) of the Income Tax Act, 1961.
5. The petitioner’s case is that its jurisdictional Assessing Officer is the Deputy Commissioner of Income Tax, Central Circle 2(1), Bangalore [the first respondent] and as such, the Additional Commissioner of Income Tax, NaFAC-1(1)(2), Delhi [the second respondent] could not have assumed jurisdiction to issue notice dated 29.06.2021 [Annexure-C under Section 143[2] of the IT Act because the jurisdiction of the first respondent has not been decentralized insofar as the petitioner. The petitioner contends that because notice dated 29.06.2021 is issued by an officer without jurisdiction, the entire proceedings culminating with the impugned Assessment Order dated 20.09.2022 are without jurisdiction, and hence, this Court must interfere notwithstanding the fact that the petitioner has availed statutory remedy against the Assessment Order.
6. The respondents, who assert that the second respondent is vested with the jurisdiction to issue notice in view of the amendment to Section 143[2] of the IT Act with effect from 01.06.2016 and the insertion of Section 144B with effect from 01.04.2021, question the petitioner’s locus to maintain the writ petition relying upon the provisions of Section 124[3] of the IT Act. On the question of jurisdiction to issue notice under Section 143[2] of the IT Act, the respondents assert that the Central Board of Direct Taxes [CBDT] has authorized the second respondent to act as the ‘Prescribed Income Tax Authority’ for the purposes of Section 143[2] of the IT Act in exercise of the powers conferred thereunder and Rule 12A of the Income Tax Rules, 1962 read with Section 143[2], and that the ‘Prescribed Income Tax Authority’ is vested with jurisdiction to issue notice under Section 143[2] of the IT Act for cases to be assessed under the provisions of Section 144B of the IT Act or outside such assessment in appropriate cases.
7. The respondents, to vindicate their case that the second respondent is vested with jurisdiction in law to issue notice under Section 143[2] of the IT Act, have also, as part of their Statement of objections and convenience compilation filed during the course of hearing, given a historical background to bring out the evolution in the assessment proceedings with the elimination of the interface between Assessing Officers and Assessees by utilizing technology and the introduction of a team based assessment with dynamic jurisdiction.
8. If these are the elementary pleadings and contentions for and against the question that is framed for consideration, both Sri A Shankar and Sri. N Venkataraman have elaborated the respective contentions with detailed submissions. In the early stages of hearing, Sri. A Shankar had urged multiple grounds to vindicate the petitioner’s case that the second respondent lacked jurisdiction to issue the Notice under Section 143[2] of the IT Act, but with the completion of the pleadings and with the submissions by Sri N. Venkataraman, Sri A. Shankar acknowledges that the grounds are narrowed down substantially.
9. Sri A Shankar’s submissions in support of the petitioner’s case that the assessment proceedings are commenced with issuance of notice under Section 143[2] of the IT Act by an officer who could not have assumed such jurisdiction and therefore the entire proceedings culminating with the impugned assessment order dated 20.09.2022 [Annexure-A1] are summarized thus:
9.1 The Parliament with effect from 01.06.2016 has amended Section 143[2] of the IT Act stipulating that when an Assessing Officer or a Prescribed Income Tax Authority, as the case may be, considers it necessary or expedient to ensure that an assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him on a date specified either to attend or to produce or cause to be produced any evidence to explain the declarations in ROI. The provisions of Section 143[2] of the IT Act recognize that there will be more than one classes of cases [or incomes or businesses] for assessment, and in respect of these classes either the concerned Assessing Officer or the Prescribed Income Tax Authority, as the case may be, shall issue notice under Section 143[2] of the IT Act. As such, either the concerned Assessing Officer or the Prescribed Income Tax Authority, depending on the class of a case or income or business must issue notice.
9.2 The CBDT, with introduction of the Faceless Assessment Scheme [as e-Assessment Scheme] in the year 2019, has issued Notification dated 13.08.2020 classifying the assessment cases in two classes viz., [a] the assessments in the matters of Central Charge and International Tax Charge and [b] the scrutiny assessment otherwise with the stipulation that all the assessment orders shall be passed by the National e-Assessment Centre through the Faceless Assessment Scheme except in cases assigned to Central Charge and International Tax Charge. The CBDT has further stipulated that any assessment which is not in conformity with the afore shall be treated as non-est. The CBDT, even after the incorporation of the National Faceless Assessment Scheme under Section 144B in the IT Act, has issued orders under Section 119 of the IT Act on 31.03.2021 specifying that all assessment proceedings pending as on 31.03.2021 and the assessment proceedings initiated on or after 01.04.2021 [other than those in Central charges and International Taxation charges] shall be completed under Section 144B of the IT Act.
9.3 The CBDT, which had issued order dated 13.08.2020 in exercise of its powers under Section 119[2] of the IT Act, classifying Central Charges and International Taxation Charges as separate classes when Faceless Assessment Scheme, 2019 was in vogue, has not issued a similar order with the introduction of National Faceless Assessment Scheme with the insertion of the Section 144B of the IT Act. This order dated 13.08.2020 cannot continue with the introduction of the later Scheme, and the order dated 31.03.2021, issued under Section 119[1] of the Act, which is essentially an internal communication, cannot be effective, and as such, the arrangement under the previous Scheme ceased to operate.
9.4 The Parliament’s intent in stipulating that the concerned Assessing Officer or the Prescribed Income Tax Authority, as the case may be, shall issue notice under Section 143[2] of the IT Act is to enable separate commencement of assessment proceedings in different classes of cases. Therefore, the CBDT, both with the notification of the Faceless Assessment Scheme 2019 and incorporation of the National Faceless Assessment Scheme incorporated into the Act under Section 144B, has issued orders/notifications treating assessment under Central Charge and International Taxation Charge as separate classes of cases and excluding them from faceless assessment. In which event, the notice under Section 143[2] of the IT Act in the cases of Central Charge [and International Taxation Charge] will have to be issued by the concerned Assessing Officer and in the other cases there will have to be faceless assessment with the prescribed authority issuing such notices.
9.5 The settled law is that it must be presumed that every word in a statute is deliberately and consciously incorporated by the legislature and has to be given effect accordingly. If the expression ‘the assessing officer or the prescribed authority as the case may be’ is not accordingly read, the Parliament’s intent in enabling different classes of cases with the stipulation that the assessing officer or the prescribed authority, as the case may be, shall issue notice under Section 143[2] of the IT Act will be ignored doing violence to the statutory provision despite the settled proposition.
10. Sri N. Venkataraman submits at the outset that the petition must be dismissed on the ground of maintainability because the petitioner cannot call in question the Assessing Officer’s jurisdiction to pass the impugned Assessment Order dated 20.09.2022 [Annexure – A1] when the petitioner, upon receipt of Notice dated 29.06.2021 under Section 143[2] of the IT Act, has filed reply to such notice and to different notices issued thereafter under Section 142[1] of the IT Act leading to the culmination of the assessment proceedings with the assessment order dated 20.09.2022 [Annexure-A1].
11. Sri N. Venkataraman canvasses that, even if the petitioner could have challenged the jurisdiction to issue notice dated 29.06.2021 [Annexure-C] under Section 143[2] of the IT Act, it would have to be within one month from the date on which the petitioner was served with the aforesaid notice. In this regard, the learned Additional Solicitor General, drawing support from the Division Bench Judgment of the Delhi High Court in Commissioner of Income Tax vs. Kapil Jain¹, relies upon the provisions of Section 124[3] of the IT Act and emphasizes that the provisions of this Section stipulate that no person shall be entitled to call in question the jurisdiction of the assessing officer after the expiry of one month from the date of receipt of the notice under Section 143[2] or after the completion of the assessment, whichever is earlier.
12. Sri N. Venkataraman submits that going by the history of the law, it is self-evident that, post 01.06.2016, either the concerned Assessing Officer or the Prescribed Income Tax Authority can issue notice under Section 143[2] of the IT Act, and insofar as the history of the law, the learned Additional Solicitor General submits that the history must be seen in four phases and elaborates thus.
THE FIRST PHASE:
This phase is prior to 31.05.2016 i.e., before the amendment of Section 143[2] with effect from 01.06.2016. During this phase, the notice under Section 143[2] of the IT Act could be issued only by the concerned Assessing Officer and the Assessing Officer alone could complete the assessment.
THE SECOND PHASE:
This phase is with the amendment of Section 143[2] of the IT Act with effect from 01.06.2016. In this phase the notice under Section 143[2] of the IT Act could be issued either by the concerned Assessing Officer or the Prescribed Income Tax Authority but the assessment must only be completed by the Assessing Officer. Though this arrangement was put in place with the amendment to Section 143[2] of the IT Act, it was not given effect to.
THE THIRD PHASE:
The third phase is when Sections 143 [3A] to [3C] are inserted with effect from 01.04.2018 vide the Finance Act of 2018. These amendments empowered the Central Government to make a Scheme through notification in the Official Gazette to impart greater efficiency, transparency and accountability in assessment by
