Case Law Details
Koyambrath Puthiyapurayil Mohammed Kunhiaged Vs ITO (Kerala High Court)
Introduction: In a recent judgment, the Kerala High Court has quashed a reassessment order issued to Koyambrath Puthiyapurayil Mohammed Kunhiaged, citing a violation of mandatory provisions under the Income Tax Act. The court found that the notice issued to the petitioner did not adhere to the prescribed timeline, rendering subsequent proceedings invalid. This article provides a comprehensive analysis of the case and its implications.
Background of the Case: The petitioner, Koyambrath Puthiyapurayil Mohammed Kunhiaged, is a Non-Resident Indian employed abroad. The Income Tax Department initiated proceedings against the petitioner for the Assessment Year 2018-19 due to non-filing of income tax returns. The department issued a notice dated 19.03.2022, under Section 148A(b) of the Income Tax Act 1961, informing the petitioner that income chargeable to tax for the said assessment year had escaped assessment.
The notice mentioned that the petitioner had purchased immovable properties and a vehicle, and the source of cash utilized for these acquisitions remained unexplained. The petitioner was given until 24.03.2022, only four days, to respond to the show cause notice.
Subsequently, an ex parte assessment order was finalized on 30.03.2022, under Section 148A(d) of the IT Act, as the petitioner failed to respond within the limited timeframe. The assessment order concluded that the petitioner had not filed income tax returns and the source of funds for the property and vehicle purchases remained unexplained.
The petitioner claimed to be unaware of the issuance of the notice and assessment order. On 26.03.2023, an assessment order under Section 147, in conjunction with Sections 144 and 144B of the IT Act, was passed, adding Rs.4,39,00,000/- to the petitioner’s taxable income.
Petitioner’s Argument: The primary contention raised by the petitioner centered around the violation of statutory provisions, specifically the requirement of a minimum seven-day notice under Section 148A(b) of the IT Act. The petitioner asserted that the notice issued, granting only four days for a response, failed to adhere to this mandatory provision.
Legal Precedent: The petitioner’s argument found support in a previous judgment by the Kerala High Court in the case of Hosdurg Beedi Workers Industrial Service Type Co-operative Society Ltd. v. The Income Tax Officer, Kasaragod. In this case, the court quashed an assessment order for a similar violation where a notice provided only five days for filing a reply, contrary to the statutory mandate of seven days.
Court’s Decision: Acknowledging the violation of the minimum seven-day notice requirement, the Kerala High Court allowed the writ petition. The court quashed the notice under Section 148A(b), the subsequent order under Section 148A(d), notice under Section 148, and the assessment order. The respondents were directed to issue a fresh notice under Section 148A(b) in compliance with the law, granting the petitioner at least seven days but not exceeding thirty days to file a reply and attend the hearing. The respondents were instructed to proceed with the reassessment process accordingly.
Conclusion: The Kerala High Court’s decision in this case highlights the importance of adhering to statutory provisions, even in tax matters. The court’s emphasis on the prescribed timelines for notices under the Income Tax Act reinforces the need for strict compliance with legal requirements. This judgment serves as a reminder of the significance of procedural fairness and adherence to statutory guidelines in taxation proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Heard Mr S Arun Raj learned Counsel for the petitioner and Mr Christopher Abraham learned Standing Counsel for the Department.
2. The present writ petition under Article 226 of the Constitution of India has been filed by the petitioner for quashing Ext.P1 notice under Section 148A(b), consequential Ext.P2 order passed under Section 148A(d), and issuance of Ext.P3 notice under Section 148 of the Income Tax Act 1961 (for short, ‘IT Act’) issued by the 1st respondent.
3. The petitioner is a Non-Resident Indian working in The 1st respondent issued notice dated 19.03.2022 to the petitioner under Section 148A(b) of the IT Act for the Assessment Year 2018-19 informing the petitioner that the income of the petitioner chargeable to tax for the Assessment Year 2018-19 has escaped assessment for the reasons that the petitioner had purchased immovable properties worth Rs.1 crore, Rs.70 lakhs, Rs.2 crore and also purchased a vehicle for Rs.69 lakhs. The petitioner had not filed returns of his income. Therefore, sources of cash utilised for purchasing the immovable properties and vehicles remained unexplained.
4. The case of the petitioner is that the petitioner was unaware of the issuance of Ext.P1 notice dated 19.03.2022 under Section 148A(b) of the IT Act. So, the petitioner could not respond to the above notice. The assessment order, in the absence of the petitioner’s response, was finalised ex parte on 30.03.2022 under Section 148A(d) of the IT Act, holding that the petitioner had not filed returns of his income and the source of cash utilised for purchasing the immoveable properties and vehicle remained unexplained.
4.1 The petitioner was also issued with notice dated 30.03.2022 under Section 148 of the IT Act. The petitioner submitted that the petitioner was unaware of the issuance of the Ext.P2 order under Section 148A(d) and Ext.P3 notice under Section 148 of the IT Act. In the meantime, on 26.03.2023, the assessment order under Section 147, read with Sections 144 and 144B of the IT Act, was passed, making an addition of Rs.4,39,00,000/-.
4.2 Learned Counsel for the petitioner submits that the petitioner would confine his argument regarding violation of statutory prescription of seven days’ notice under Clause (b) of Section 148A of the IT Act. The said notice Ext.P1 is dated 19.03.2022 and the petitioner was granted time for uploading the reply to the said show cause notice on the e-portal of the Department up to 24.03.2022.
4.3 Learned Counsel for the petitioner submits that Section 148A lays down certain conditions for passing an order under Section 148. Section 148A provides for conducting the inquiry, providing an opportunity before issuing notice under Section 148. Those steps are to be adhered to. Otherwise, notice under Section 148 would be rendered illegal. Sub-clause (b) of Section 148A specifically provides that show cause notice has to be served to the petitioner by providing an opportunity to be heard within the time not less than seven days and not exceeding thirty days from the date on which such notice is issued.
4.4 In the present case, admittedly, only four days’ time was granted to the petitioner to reply to the show cause notice under Section 148A(b) of the IT Act. Learned Counsel for the petitioner therefore submits that since the mandatory provision of a minimum of seven days’ time was not adhered to by the 1st respondent, subsequent proceedings have got vitiated.
4.5 Learned Counsel for the petitioner has placed reliance on the judgment of this Court in Hosdurg Beedi Workers Industrial Service Type co-operative Society Ltd v. The Income Tax Officer, Kasaragod1. This Court had quashed the assessment order under the same circumstances where the minimum time of seven days was not provided in a notice issued under Section 148A(b). In the said case, the notice was dated 18.03.2022, and time was granted till 24.03.2022 for filing the reply to the show cause notice and hearing. This Court held that five days’ time granted in the show cause notice for filing a reply was against the statutory mandate under Section 148A(b).
5. Mr Christopher Abraham learned Standing Counsel for the Department does not dispute the fact that seven days’ time was not granted to the assessee for filing the reply to the notice under Section 148A(b) inasmuch as the notice dated 19.03.2022 and the assessee was granted time only up to 24.03.2022.
6. In view thereof, the present writ petition is allowed. Ext.P1 notice, Ext.P2 order, P3 notice and Ext.P4 assessment order are quashed. Respondents are directed to issue a fresh notice under Section 148A(b), giving seven days or more time to the petitioner, but not more than thirty days’ time as prescribed under Section 148A(b) for filing the reply and hearing. After considering the reply, the respondents may proceed in accordance with the law.
Notes:-
1 Judgment dated 23.08.2023 in WPC 13984/2023
