By Sri. Y v. Raviraj, Advocate

Digitallysigned byVANAMALANLocation:High CourtofKarnataka HC-KAR IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3 DAY OF JUNE, 2025 BEFORE THE HON'BLE MR JUSTICE B M SHYAM PRASAD -WRIT PETITION NO. 35252 OF 2019 (TIT)BETWEEN: M/S INESH REALTORS PRIVATE LIMITED REPRESENTED BY ITS DIRECTOR SRI S BAASKARAN SON OF SRI DEEKSHADAR SUBRAMANIA VISWANATHAN AGED ABOUT 50 YEARS NO 41, MANTRI HOUSE, VITTAL MALLYA ROAD, BENGALURU - 560001 …PETITIONER (BY SRI. S. ANNAMALAI, ADVOCATE) AND: THE INCOME TAX OFFICER WARD 3 (1) (4) BMTC BUILDING 80 FEET RAOD, KORAMANGALA BENGALURU - 560095 …RESPONDENT (BY SRI. Y. V. RAVIRAJ, ADVOCATE) THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE NOTICE ISSUED UNDER THE PROVISION OF SECTION 148 OF THE INCOME-TAX ACT, 1961 ISSUED BY THE RESPONDENT AS ENCLOSED AND MARKED AS ANNEXURE-A1 DATED 21.02.2019 FOR THE A.Y.2014- HC-KAR 15; QUASH THE NOTICE ISSUED UNDER THE PROVISION OF SECTION 148 OF THE INCOME-TAX ACT, 1961 ISSUED BY THE RESPONDENT AS ENCLOSED AND MARKED AS ANNEXURE-A2 DATED 21.02.2019 FOR THE A.Y.2015-16QUASH THE NOTICE ISSUED UNDER THE PROVISION OF SECTION 148 OF THE INCOME-TAX ACT, 1961 ISSUED BY THE RESPONDENT AS ENCLOSED AND MARKED AS ANNEXURE-A3 DATED 21.02.2019 FOR THE A.Y.2016-17; QUASH THE ORDER OF DISPOSAL OF OBJECTIONS PASSED BY THE RESPONDENT AS ENCLOSED AND MARKED AS ANNEXURE-B1 DATED 24.06.2019 FOR THE A.Y.2014-15; QUASH THE ORDER OF DISPOSAL OF OBJECTIONS PASSED BY THE RESPONDENT AS ENCLOSED AND MARKED AS ANNEXURE-B2 DATED 24.06.2019 FOR THE A.Y.2015-16; QUASH THE ORDER OF DISPOSAL OF OBJECTIONS PASSEDBY THE RESPONDENT AS ENCLOSED AND MARKED AS ANNEXURE-B3 DATED 24.06.2019 FOR THE A.Y.2016-17; DECLARE THAT THE RESPONDENT ERRED IN LAW IN INVOKING PROVISIONS OF SECTION 147 OF THE ACT ON MERE SURMISE, CONJUCTURES AND SUSPICION WHICH RESULTED IN REASONS TO SUSPECT WITHOUT HAVING ANY REASONS TO BELIEVE AS CONTEMPLATED UNDER THE PROVISIONS OF SECTION 147 OF THE ACTQUASH THE ASSESSMENT ORDER PASSED BY THE RESPONDENT U/S 143(3) R/W SECTION 147 OF THE INCOME TAX ACT. 1961 DATED 09.07.2019 FOR THE ASSESSMENT YEAR 2014-15 HEREIN MARKED AS ANNEXURE-C1; QUASH THE ASSESSMENT ORDER PASSED BY THE RESPONDENT U/S 143(3) R/W SECTION 147 OF THE INCOME TAX ACT. 1961 DATED 09.07.2019 FOR THE ASSESSMENT YEAR 2015-16 HEREIN MARKED AS ANNEXURE-C2; QUASH THE ASSESSMENT ORDER PASSED BY THE RESPONDENT U/S 143(3) R/W SECTION 147 OF THE INCOME TAX ACT. 1961 DATED 09.07.2019 FOR THE ASSESSMENT YEAR 2016-17 HEREIN MARKED AS ANNEXURE-C3; QUASH THE NOTICE OF DEMAND ISSUED U/S 156 OF THE ACT BY THE RESPONDENT IN FORM NO.7 DATED 09.07.2019 IN RESPECT OF ASSESSMENT YEAR 2014-15 FOR THE PAYMENT OF RS.67,30,160/- HEREIN MARKED AS ANNEXURE-D1QUASH THE NOTICE OF DEMAND ISSUED U/S 156 OF THE ACT BY THE RESPONDENT IN FORM NO.7 DATED 09.07.2019 IN RESPECT OF ASSESSMENT YEAR 2015-16 FOR THE PAYMENT OF RS.4,42,80,790/- HEREIN MARKED AS ANNEXURE-D2; QUASH THE NOTICE OF DEMAND ISSUED U/S 156 OF THE ACT BY THE RESPONDENT IN FORM NO.7 DATED 09.07.2019 IN RESPECT OF ASSESSMENT YEAR 2016-17 FOR THE PAYMENT OF RS.6,26,36,000/- HEREIN MARKED AS ANNEXURE-D3DECLARE THAT ASSESSMENT ORDER IN ANNEXURE-A1 TO A3 ARE PASSED IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND WITHOUT JURISDICTION. THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN B GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE B M SHYAM PRASAD ORAL ORDER The petitioner has impugned the notices issued under Section 148 of the Income Tax Act, 1961 [for short, 'the IT Act'], the orders disposing of the petitioner's objections for reassessment, the reassessment orders and the demand notices. These impugned notices and orders [Annexures - A1, A2, A3, B1, B2, B3, C1, C2, C3, D1, D2 and D3] are for the Assessment Years 2014-15 to 2016-17. The undisputed material fact for the present purposes is THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN B GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE B M SHYAM PRASAD ORAL ORDER The petitioner has impugned the notices issued under Section 148 of the Income Tax Act, 1961 [for short, 'the IT Act'], the orders disposing of the petitioner's objections for reassessment, the reassessment orders and the demand notices. These impugned notices and orders [Annexures - A1, A2, A3, B1, B2, B3, C1, C2, C3, D1, D2 and D3] are for the Assessment Years 2014-15 to 2016-17. The undisputed material fact for the present purposes is that the petitioner, which is engaged in Real Estate, has borrowed money and invested the same with its Holding Company incurring expenditure in such borrowing and earning certain interest from the monies lent to the Holding Company. 2.The reassessment proceedings are begun in the premise that upon a survey it is ascertained that the petitioner has shown the interest earned from the Borrowing Company as Income from Business by reducing from Work-in-Progress with the Assessing Officer asserting that such income must be declared as income from other sources as is being done according to the petitioner's accounting practice. 3.The petitioner has sought for the reasons to believe that income has escaped tax, and the petitioner is served with an extract of the reasons but not the reasons as recorded in the Assessment Orders. The petitioner has filed objections, and the HC-KAR petitioner inter alia has contended that it has not been shown a copy of the prior approval that has to be taken and that even if the interest received from the Holding Company is treated as Income from Other Sources, it will be entitled to allowance as an Expenditure incurred in discharging the cost of Borrowing because it is utilized to pay the lending company. 4.If Mr. Annamalai, the learned counsel for the petitioner, relies upon the afore circumstances to support the petition, Mr. Y.V. Raviraj, the learned standing counsel for the respondent, submits that the Assessing Officer is justified in disposing of the petitioner's objections and in concluding the reassessment because the petitioner cannot dispute that its Holding Company had only entered into an agreement and not begun any business, and that in which event, the interest received from the Holding Company could not have HC-KAR been treated as Income from Business and it should have been treated only as Income from other Sources. 5.However, what remain as uncontroverted are that the petitioner has not been shown prior approval [admittedly, a must for commencement of reassessment proceedings] and that the Assessing Officer has not considered whether even if the interest received from the petitioner's Holding Company is declared as Income from Other Sources, the petitioner would be entitled for allowance as an Expenditure on borrowing. 6.This Court is of the considered view that both these aspects viz., showing of the prior approval as is required and due consideration of the petitioner's case that it would be entitled for allowance as an Expenditure under the relevant provision even if the interest is brought under Income from Other Sources, will have to be duly considered for justifying an assessment. If the prior approval is HC-KAR - 7 - not by the competent, the whole proceedings must fail and if ultimately it is concluded that the petitioner indeed would be entitled for allowance as an Expenditure as now contested. This Court is also persuaded to restore the proceedings because the assessment is completed within 14 days from the date of order disposing the petitioner's objections to reassessment. In the light of the afore, the following: ORDER a.The writ petition is disposed of quashing Annexures - B1, B2, B3, C1, C2, C3, D1, D2 and D3, and the proceedings are restored to the quashing Annexures - B1, B2, B3, C1, C2, C3, D1, D2 and D3, and the proceedings are restored to the HC-KAR - 7 - not by the competent, the whole proceedings must fail and if ultimately it is concluded that the petitioner indeed would be entitled for allowance as an Expenditure as now contested. This Court is also persuaded to restore the proceedings because the assessment is completed within 14 days from the date of order disposing the petitioner's objections to reassessment. In the light of the afore, the following: ORDER a.The writ petition is disposed of quashing Annexures - B1, B2, B3, C1, C2, C3, D1, D2 and D3, and the proceedings are restored to the quashing Annexures - B1, B2, B3, C1, C2, C3, D1, D2 and D3, and the proceedings are restored to the Assessing Officer for due consideration of the petitioner's objections with liberty to the petitioner to file additional objections. consideration of the petitioner's objections with liberty to the petitioner to file additional objections. b.The petitioner shall, in terms of the liberty now reserved file additional liberty now reserved file additional HC-KAR RB - 8 - NC: 2025:KHC:18733WP No. 35252 of 2019 objections within four [4] weeks from the date of receipt of a certified copy of this order. Sd/- (B M SHYAM PRASAD) JUDGE