Hosdurg Beedi Workers Industrial Service Type Cooperative Society Ltd Vs ITO (Kerala High Court)
Introduction: The Kerala High Court recently issued an order in the case of Hosdurg Beedi Workers Industrial Service Type Cooperative Society Ltd vs. ITO (Income Tax Officer) and others. The court’s decision pertains to the quashing of Income Tax Section 148 notice and related orders due to the denial of the opportunity to file objections and the failure to meet mandatory requirements.
Background of the Case: The petitioner, Hosdurg Beedi Workers Industrial Service Type Cooperative Society Ltd, is a cooperative society registered under the Kerala Cooperative Societies Act. The case revolves around a notice issued under Section 148 A(b) of the Income Tax Act, 1961 (the Act), by the 1st respondent (Income Tax Officer). The notice alleged that the petitioner’s chargeable income for the assessment year 2018-19 had escaped assessment.
The petitioner claimed that it was unaware of the Section 148 notice (Ext.P1) and, as a result, could not file objections in response to it. Subsequently, the 1st respondent issued an order (Ext.P2) under Section 148A(d) of the Act, stating that since the petitioner did not respond to the notice, it is assumed that the petitioner has no explanation to offer. Following this finding, the 1st respondent issued another notice (Ext.P3) under Section 148 of the Act. It was only after receiving this notice that the petitioner became aware of the earlier Section 148 notice (Ext.P1). The petitioner promptly filed a return of income, declaring a total income of ‘nil’ in response to Ext.P3 notice.
The issue at hand arose when the 2nd respondent (Income Tax Officer) completed the assessment and passed an assessment order (Ext.P6), making an addition of Rs.3,33,49,052/-. Upon reviewing Ext.P6, the petitioner discovered that a show-cause notice, along with a draft assessment order, had been issued on February 15, 2023, calling for objections to be filed by March 22, 2023. Importantly, the petitioner had not received the show-cause notice as mandated by Section 144B of the Act. This section specifies that notices must be placed in the registered account of the assessee or sent to their registered email or mobile phone number, followed by a real-time alert. Failure to send the real-time alert renders the notice ineffective.
As a result, the petitioner was denied the opportunity to file objections to the show-cause notice and draft assessment order. The petitioner argued that Ext.P1 notice was issued without providing seven clear days for a response, as required by Section 148A(b) of the Act. This non-compliance rendered Ext.P1 notice and the subsequent orders (Exts.P2 and P3) illegal and invalid, leading to the filing of the writ petition.
Court’s Decision: The Kerala High Court carefully considered the arguments presented by both parties and reviewed the statutory provisions. It noted that Ext.P1 notice issued under Section 148A(b) did not comply with the statutory mandate as it allowed less than seven clear days for the petitioner to respond. Therefore, the court declared Ext.P1 notice invalid.
Consequently, the court quashed Exts.P1 to P3 and the assessment order (Ext.P6). It also ordered that the respondents have the liberty to serve a fresh notice to the petitioner following the mandate under Section 148A(b) of the Act and in accordance with the law. If such a notice is served, the petitioner is directed to place its objection, and the respondents must consider and dispose of the notice in accordance with the law.
Conclusion: The Kerala High Court’s decision in the case of Hosdurg Beedi Workers Industrial Service Type Cooperative Society Ltd vs. ITO highlights the importance of adhering to statutory requirements and providing an opportunity for objections in income tax proceedings. The court’s order to quash the earlier notice and related orders underscores the significance of procedural compliance and due process in such matters. The case serves as a reminder of the need to uphold the principles of natural justice in income tax assessments.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The writ petition is filed, inter-alia, to quash Exts.P1 notice, P2 order and P3 notice issued by the 1st respondent.
2. The petitioner’s case is that it is a Co-operative Society, registered under the Kerala Co-operative Societies Act. The 1st respondent had issued Ext.P1 notice under Section 148A(b) of the Income Tax Act, 1961 (in short, “Act”), alleging that the petitioner’s chargeable income for the assessment year 2018-19 has escaped assessment. The petitioner was unaware of Ext.P1 notice and could not file its objection. Subsequently, the 1st respondent issued Ext.P2 order under Section 148A(d) of the Act stating that as the petitioner did not respond to Ext.P1 notice, it is assumed that the petitioner has no explanation to offer. With the afore-cited finding, the 1st respondent issued Ext.P3 notice under Section 148 of the Act. The petitioner filed its return of income on 22.04.2022 declaring total income as ‘nil’ in response to Ext.P3 notice. It is then that the petitioner came to learn about the issuance of Ext.P4 notice. The petitioner submitted Ext.P5 reply to the same. Then, the 2nd respondent completed the assessment on 11.03.2023 and passed Ext.P6 assessment order making an addition of Rs.3,33,49,052/-. On a perusal of Ext.P6 order, the petitioner learnt that a show-cause notice along with a draft assessment order was issued on 15.02.2023, calling for objections to be filed on or before 22.03.2023. Ext.P7 show cause notice was not served on the petitioner as contemplated under sub-clause (ii) of sub-section (7) of Section 144B of the Act before completing Ext.P6 assessment. The said provision specifically provides that every notice has to be placed in the registered account of the assesee or sent to his registered email or mobile phone number, which is to be followed by a real time alert. The sending of the real time alert is a mandatory requirement, failing which the notice become ineffective and notice shall not be treated as served. The petitioner was denied an opportunity of filing its objection to the show cause notice and draft assessment order. Ext.P1 notice was issued by the 1st respondent without giving seven clear days time to the petitioner to reply to the show cause notice as per the mandate under Section 148A(b), which renders Ext.P1 notice and the consequential Exts.P2 order and P3 notice as illegal and invalid. Hence, the writ petition.
3. The learned Standing Counsel appearing for the respondents has filed a statement, inter-alia, fairly conceding that the contentions of the petitioner appears to be valid. A perusal of Ext.P1 notice issued under Section 148A(b) shows that the notice dated 18.03.2022 was send to the petitioner with a requirement to submit a reply on or before 24.03.2022, which is short of seven clear days and in turn is against the statutory mandate under Section 148A(b). Therefore Ext.P1 notice is to be declared invalid and the consequential Exts.P2 and P3 orders are to be set aside.
4. Heard; Sri. Arun Raj, the learned Counsel appearing for the petitioner and Sri. Christopher Abraham, the learned Standing Counsel appearing for the respondents.
5. On a consideration of the pleadings and materials on record, and particularly taking note of the stand of the respondents in the statement filed before this Court, I am of the definite view that Exts.P1 to P3 and P6 assessment order have to be quashed and the petitioner has to be served with a fresh notice following the mandate under Section 148A(b) of the Act and in accordance with law.
Resultantly, I order the writ petition as follows:
(i) Exts.P1 notice, P2 order, P3 notice and P6 assessment order are quashed.
(ii) The respondents would be at liberty to serve a fresh notice to the petitioner as per the mandate under Section 148A(b) of the Act and in accordance with law.
(iii) If such notice is served on the petitioner, the petitioner shall place its objection to the same, and the respondents shall consider and dispose of the notice in accordance with law.
