M.shajahan v. The Deputy Commissioner Of Income Tax, Central Circle

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 25.03.2021CORAM: THE HONOURABLE MR.JUSTICE G.R.SWAMINATHANW.P.(MD)No.26911 of 2019 andW.M.P.(MD)Nos.23255 to 23257 of 2019 M.Shajahan ... Petitioner -Vs- 1.The Deputy Commissioner of Income Tax, Central Circle 2, Income Tax Officer Quarters Complex, Kulamangalam Road, Meenambalpuram, Madurai-625 002. 2.The Income Tax Officer, Ward 5, Palakkad. ... Respondents PRAYER:Petition filed under Article 226 of the Constitution ofIndia to issue a Writ of Certiorari, to call for the recordspertaining to impugned notices issued by the first respondent inPAN:AIYPS 1815P, dated 29.03.2019 and in PAN: /CC-2/MDU/2019-20, dated 29.10.2019 and quash the same as illegal andwithout jurisdiction. For Petitioner : Mr.T.N.Seetharaman Senior Counsel for Mr.R.SubramanianFor Respondents : Mrs.S.Srimathy Standing Counsel ORDER Heard the learned Senior Counsel appearing for the petitionerand the learned Standing Counsel appearing for the respondents. 2.The petitioner is carrying on business as a trader in copra.The case on hand pertains to the assessment year 2012-13.The petitioner is carrying on his business in the name and style of“M/s.Madheena Traders”. He had filed his return of income for thesaid assessment year namely 2012-13 on 30.10.2012 admitting totalincome of Rs.6,25,210/-. Whileso, the jurisdictional assessingofficer selected his case for scrutiny assessment under Section 143(3) of Income Tax Act and passed an order on 19.03.2015 determininghis total income as Rs.21,25,210/-. The petitioner did not chooseto challenge the said scrutiny assessment order and it had becomefinal.https://hcservices.ecourts.gov.in/hcservices/ 2.The petitioner is carrying on business as a trader in copra.The case on hand pertains to the assessment year 2012-13.The petitioner is carrying on his business in the name and style of“M/s.Madheena Traders”. He had filed his return of income for thesaid assessment year namely 2012-13 on 30.10.2012 admitting totalincome of Rs.6,25,210/-. Whileso, the jurisdictional assessingofficer selected his case for scrutiny assessment under Section 143(3) of Income Tax Act and passed an order on 19.03.2015 determininghis total income as Rs.21,25,210/-. The petitioner did not chooseto challenge the said scrutiny assessment order and it had becomefinal.https://hcservices.ecourts.gov.in/hcservices/ 3.The petitioner is having transactions with a number ofpersons, one of them being M/s.V.V.D & Sons Private Limited,Tuticorin. The business premises of the said entity weresearched on 17.11.2015. Since the petitioner had sold copra tothem, assessment proceedings were initiated against the petitionerunder Section 153C of Income Tax Act. In response to the noticedated 06.12.2017, the petitioner filed a return on 14.12.2017admitting total income of Rs.21,25,250/-. The assessing officerreassessed the petitioner's income for the said year vide orderdated 31.12.2017 by adding a sum of Rs.5,45,52,015/-. Aggrieved bythe said order dated 31.12.2017, the petitioner filed an appealbefore the Commissioner of Income Tax(Appeals)-19, Chennai. TheAppellate Authority, vide order dated 29.11.2018 in ITA No.359 to362/2017-18, partly allowed the appeal, in the following terms.“9.The perusal of the above statement shows that the personsare acting on behalf of the appellant and are earning commissionfrom the services they are providing to the appellant. Even thepayments are further made to the agriculturists. It is nowherethe case of the Assessing Officer that the transaction ofpurchase of Copra from these entities is bogus or the purchasesare inflated. Thus, the obvious conclusion is that these areindeed actual transactions. The other fact is that payment forthese purchases are made by RTGS to the appellant who in turnissues self cheques to his agents who further disburse them tothe farmers. The self cheques are encashed and payments arefurther disbursed to agriculturists in a mode otherwise thanaccount payee cheques/DD, thus attracting the mischief of theSection 40A(3). However, the Section 40A(3) is to be applied bytaking the exceptions provided in Rule 6DD. The Rule 6 DD isabout cases and circumstances in which a payment or aggregate ofpayments exceeding twenty thousand rupees may be made to aperson in a day, otherwise than by an account payee cheque drawnon a bank or account payee bank draft. The case of the assesseeis that the payment through self cheques have been made toagents and these agents have made payments on behalf of theappellant to the farmers and the case of the assessee is coveredunder the exemption provided in Rule 6DD(k) that states that“where the payment is made by any person to his agent who isrequired to make payment in cash for goods or services on behalfof such person”, then such person is exempt from the applicationof the provisions of Section 40A(3). In the case underconsideration in fact that is the factual situation. A similarissue also came before the Hon'ble Madras High Court in the caseof Shanmuga Ginning Factory Vs. CIT. In that case, the Hon'bleCourt observed as follows:- “Therefore, after rendering such a factual finding on thestatus of those persons as agents, the first appellate authorityrejected the contention of the Assessing Officer. On furtherappeal, the Tribunal further found that all those persons tohttps://hcservices.ecourts.gov.in/hcservices/whom the dispute payment made by the assessee had charged 1 per “Therefore, after rendering such a factual finding on thestatus of those persons as agents, the first appellate authorityrejected the contention of the Assessing Officer. On furtherappeal, the Tribunal further found that all those persons tohttps://hcservices.ecourts.gov.in/hcservices/whom the dispute payment made by the assessee had charged 1 per cent commission from the assessee and therefore such personswere acting on behalf of the assessee in the process of auction.What that being the factual finding in respect of the status ofthose persons, concurrently, by the first appellate authority aswell as by the Tribunal by holding that those persons have actedas agents of the assessee, we have no hesitation in holding thatthe assessee is entitled to protection under Rule 6DD(i) of thesaid Rules as the disputed payments were made only to itsagents. Apart from that aspect, an element of commercialexpediency was also involved in this case, which we can takejudicial notice. There are no other materials placed before usby the Revenue to take a different view, moreover when thosefindings rendered by the first appellate authority as well asthe Tribunal is totally a finding of fact, we are not inclinedto interfere with the same. Consequently, we find no merits inthis appeal and the question of law is answered against therevenue. Accordingly, the tax case appeal is dismissed”. (2013)37 taxmann.com422(Madras). In the above Judgment though the rule referred is 6DD(i)which is an inadvertent mistake however the matter pertains torule 6DD(k) only. 10.In view of the facts in the present case and also in viewof the jurisdictional Judgment on a similar issue thedisallowance made under Section 40A(3) is not sustainable as theappellant is covered by the protection offered by the rule 6DD(k). Hence, the disallowance made by the AO is required to bedeleted.” 4.The Department, aggrieved by the said deletion made by theappellate authority, had preferred the second appeal before theIncome Tax Appellate Tribunal and it is still pending. At thisstage, the petitioner has been issued with one more notice forreopening the assessment for the said year namely 2012-13 underSection 147 of Income Tax Act, 1961. The same is questioned in thiswrit petition on a host of grounds. 5.The respondent had filed a detailed counter affidavit callingfor dismissal of the writ petition. Though the counsel on eitherside raised very many grounds, I am of the view that the issueraised in the writ petition can be answered in favour of thepetitioner on a short ground. There is no dispute that the impugnedproceedings have been initiated under Section 147 of Income TaxAct, 1961. The said provision reads as follows:- “147. If the Assessing Officer has reason to believe thatany income chargeable to tax has escaped assessment for anyassessment year, he may, subject to the provisions of Sections148 to 153, assess or reassess such income and also any otherincome chargeable to tax which has escaped assessment and whichcomes to his notice subsequently, in the course of theproceedings under this Section, or recompute the loss or thedepreciation allowance or any other allowance as the case may behttps://hcservices.ecourts.gov.in/hcservices/for the assessment year concerned: Provided that where an assessment under sub-section (3) ofSection 143 of this section has been made for the relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of the relevantassessment year, unless any income chargeable to tax has escapedassessment for such assessment year by reason of the failure onthe part of the assessee to make a return under Section 139 or inresponse to a notice issued under sub section (1) of section 142or section 148 or to disclose fully and truly all material factsnecessary for his assessment for that assessment year: Provided that where an assessment under sub-section (3) ofSection 143 of this section has been made for the relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of the relevantassessment year, unless any income chargeable to tax has escapedassessment for such assessment year by reason of the failure onthe part of the assessee to make a return under Section 139 or inresponse to a notice issued under sub section (1) of section 142or section 148 or to disclose fully and truly all material factsnecessary for his assessment for that assessment year: Provided further that nothing contained in the first provisoshall apply in a case where any income in relation to any asset(including financial interest in any entity) located outsideIndia, chargeable to tax, has escaped assessment for anyassessment year: Provided also that the Assessing Officer may assess orreassess such income other than the income involving matterswhich are the subject matters of any appeal, reference orrevision, which is chargeable to tax and has escaped assessment.”The third proviso categorically states that the Assessing Officermay assess or reassess such income other than the income involvingmatters which are the subject matters of any appeal, reference orrevision, which is chargeable to tax and has escaped assessment. 6.In the case on hand, admittedly, the Department had filed anappeal before the ITAT questioning the order passed by the appellateauthority in favour of the assessee. When the appeal proceedingsare still pending, it is clearly not open to the respondent toinitiate proceedings under Section 147 of Income Tax Act. It isbarred under third proviso to Section 147 of the Act. 7.On this sole ground, the notice impugned in the writpetition is liable to be quashed and it is accordingly quashed. Of-course, I must also record that the other contentions advanced bythe learned counsel appearing for the petitioner are having equalforce and substance. The petitioner herein is a trader in copra.He has to purchase them from the agriculturists who are based invarious places. The petitioner's place of operation is Pollachi andthe surrounding regions. Of-course, the petitioner cannot deal withthe agriculturists directly. He has to source his materials onlythrough various agents. The petitioner has been making payments tohis agents only through banking channels. The petitioner was thehabit of issuing self cheques to the agents who present the samebefore the various bank account maintained by the petitioner andencash them and thereafter, pay the agriculturists in cash directly. 8.The learned counsel appearing for the petitioner states thatsuch payments would fall under Rule 6DD(k) and therefore, deductionhas to be necessarily allowed for such expenditure. This contentionhttps://hcservices.ecourts.gov.in/hcservices/was specifically accepted by the appellate authority also in his order dated 29.11.2018. He would further point out that all thematerials, about which the assessing officer is now feigningignorance, were very much available before him during the earlierproceedings. The petitioner has today filed a typed set of papers.It can be seen therefrom that one of the petitioner's agent namelyKannan, Pollachi had given a certificate confirming that he hadacted as agent for the petitioner and that the amount required forthe payment to the farmers was received from the petitioner by selfcheque and the same was distributed to the farmers who suppliedcopra. In fact, along with the said certificate, the detailsregarding the bank transactions as reflected in the ledger accounthas also been placed. order dated 29.11.2018. He would further point out that all thematerials, about which the assessing officer is now feigningignorance, were very much available before him during the earlierproceedings. The petitioner has today filed a typed set of papers.It can be seen therefrom that one of the petitioner's agent namelyKannan, Pollachi had given a certificate confirming that he hadacted as agent for the petitioner and that the amount required forthe payment to the farmers was received from the petitioner by selfcheque and the same was distributed to the farmers who suppliedcopra. In fact, along with the said certificate, the detailsregarding the bank transactions as reflected in the ledger accounthas also been placed. 9.The learned counsel appearing for the petitioner would alsodraw my attention to the fact that even the Pollachi bank account ofthe petitioner was brought to the notice of the assessing officer inthe previous proceedings. It is obvious there is no new materialdiscovered by the respondents. On mere change of opinion, theimpugned proceedings could not have been initiated. This is all themore so because, the proceedings have been initiated after a lapseof four years from the end of the assessment year. Since theimpugned proceedings are sought to be initiated after a lapse offour years from the end of the assessment year, the authority has tonecessarily bring the case within the exceptional circumstances setout in the provision. Since it has been convincingly establishedthat the case of the respondent will not fall under any of theexceptional circumstances, I have no hesitation to quash theimpugned proceedings as totally lacking in jurisdiction. 10.In this view of the matter, the impugned proceedings arequashed. The Writ Petition is allowed. No costs. Consequently,connected miscellaneous petitions are closed. rmi Note :In view of the present lock down owing toCOVID-19 pandemic, a web copy of the order may beutilized for official purposes, but, ensuring thatthe copy of the order that is presented is thecorrect copy, shall be the responsibility of theadvocate/litigant concerned.https://hcservices.ecourts.gov.in/hcservices/ To1.The Deputy Commissioner of Income Tax, Central Circle 2, Income Tax Officer Quarters Complex, Kulamangalam Road, Meenambalpuram, Madurai-625 002.1.The Deputy Commissioner of Income Tax, Central Circle 2, Income Tax Officer Quarters Complex, Kulamangalam Road, Meenambalpuram, Madurai-625 002. 2.The Income Tax Officer, Ward 5, Palakkad. Ward 5, Palakkad. +1 CC to M/s.S.SRIMATHY, Advocate ( SR-13753[F] dated 25/03/2021 ) +1 CC to M/s.R.SUBRAMANIAN, Advocate ( SR-13876[F] dated26/03/2021 )26/03/2021 ) W.P.(MD)No.26911 of 2019andW.M.P.(MD)Nos.23255 to 23257 of 201925.03.2021 KK(03.06.2021) 6P 5C