T.s.kumaraswamy v. The Director General Of Income Tax

In the High Court of Judicature at Madras Dated : 12.12.2018 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mr.Justice N.SATHISH KUMAR Writ Appeal No.2440 of 2018 & CMP.Nos.19678 to 19682 of 2018 T.S.Kumaraswamy, Proprietor,Christy Friedgram Industry,Tiruchengode, Namakkal District. ...Appellant Vs 1.The Director General of Income Tax (Inv.), Tamil Nadu and Pondicherry, Nungambakkam, Chennai. Nungambakkam, Chennai. 2.The Principal Director of Income Tax (Inv.), Investigation Wing, Nungambakkam, Chennai. Tax (Inv.), Investigation Wing, Nungambakkam, Chennai. 3.The Additional Director of Income Tax, Investigation, Unit 3, Nungambakkam, Chennai. Tax, Investigation, Unit 3, Nungambakkam, Chennai. 4.The Deputy Director of Income Tax, Investigation Unit 3(2), Nungambakkam, Chennai. Investigation Unit 3(2), Nungambakkam, Chennai. 5.The Deputy Director of Income Tax, Investigation Unit-4 (3), Nungambakkam, Chennai. Investigation Unit-4 (3), Nungambakkam, Chennai. 6.The Assistant Commissioner of Income Tax, Circle I, Namakkal....Respondents Tax, Circle I, Namakkal....Respondents APPEAL under Clause 15 of the Letters Patent against theorder dated 01.11.2018 passed in W.M.P.No.33898 of 2018 inW.P.No.28991 of 2018. https://hcservices.ecourts.gov.in/hcservices/ Prayer in W.P.No.28991 of 2018: Petition filed under Article 226 of the Constitution of Indiapraying to issuance of Writ of Certiorarified Mandamus callingfor the records of the 4th Respondent contained in the Warrantfor Attachment of Properties dated 24/10/2018 and quash the sameas illegal arbitrary and contrary to law and consequentlyrestrain the respondents their subordinates agents andemployees from preventing the petitioner from using operatingor withdrawing sums from his bank accounts receivables and allassets and properties of the petitioner. WMP No.33898 of 2018: to pass an order of interim injunction restraining therespondents their subordinates agents and employees frompreventing the petitioner from using operating or withdrawingsums from his bank accounts and/or receivables and otherproperties. For Appellant : Mr.P.S.Raman, SC for Mr.Rahul BalajiFor Respondents: Mr.A.P.Srinivas, SSCJudgment was delivered by T.S.SIVAGNANAM,J We have heard Mr.P.S.Raman, learned Senior Counsel appearingon behalf of Mr.Rahul Balaji, learned counsel on record for theappellant and Mr.A.P.Srinivas, learned Senior Standing Counselappearing for the respondents. 2. A reference may be made to the order dated 03.12.2018passed in CMP.No.21693 of 2018 and for better appreciation, thesame is quoted as hereunder :“This petition has been filed by theDirectorGeneralofIncomeTax(Investigation) and six others who are theofficials of the Income Tax Department topermit the second petitioner, namely, thePrincipalDirectorofIncomeTax(Investigation) (hereinafter referred to as“the PDIT (Investigation)), Chennai torevoke the order dated 07.11.2018 passedpursuant to the order passed by the DivisionBench on 02.11.2018 in this appeal.2. Mr.Sathish Parasaran, learned seniorcounsel appearing for the petitioners 2. A reference may be made to the order dated 03.12.2018passed in CMP.No.21693 of 2018 and for better appreciation, thesame is quoted as hereunder :“This petition has been filed by theDirectorGeneralofIncomeTax(Investigation) and six others who are theofficials of the Income Tax Department topermit the second petitioner, namely, thePrincipalDirectorofIncomeTax(Investigation) (hereinafter referred to as“the PDIT (Investigation)), Chennai torevoke the order dated 07.11.2018 passedpursuant to the order passed by the DivisionBench on 02.11.2018 in this appeal.2. Mr.Sathish Parasaran, learned seniorcounsel appearing for the petitioners submitted that the application filed by therevenue with the prayer to permit them torevoke the order dated 07.11.2018 which isto be dismissed as not maintainable on theground that any attempt by the ExecutiveAuthority to provide itself a protectivecover against challenges or criticism to itsaction by passing the bug to the judiciaryin the official decision should be resistedand avoided. In support of such contention,the learned counsel placed reliance on thedecision of the Hon'ble Supreme Court in thecase of Priyadarshini Dental College andHospital vs. Union of India and others[reported in (2011) 4 SCC 623].3.We have heard Mr.A.P.Srinivas, learnedStanding Counsel appearing for the revenueon the above submissions.4.In our considered view, the petitionfiled by the revenue is maintainable and weare entitled to consider the same and we areof the firm opinion that it is not anattempt to pass on the bug to this Court andto obtain a protective cover against thedepartmental action. We support suchconclusion with the following reasons. 5.The Division Bench passed an order on02.11.2018 in this appeal which arose out ofa challenge to an order dismissing themiscellaneous petition filed by the appealto pass a suitable interim orders in thewrit petition which was challenging thesearch and seizure operations as well as theorders of attachment passed against theassessees. The order passed by the DivisionBench dated 02.11.2018 is quoted hereinbelow:'Heard Mr.P.S.Raman, learned SeniorCounsel appearing for the appellant andMr.A.P.Srinivas, learned Standing Counselfor the respondents for some time.2.It appears that the appellant hadmoved the writ court seeking interim reliefas against the search and seizure/attachmentin the premises of the appellant by therespondent-authoritiesandtheyareaggrieved by the order of the learned SingleJudge in dismissing the application whichsought for interim order and therefore, they are before this Court. are before this Court. 3.The learned Senior Counsel appearingfor the appellants would submit that thereis some illegality in the procedure followedby the authorities while making such searchand seizure/ attachment and because of theseizure/ attachment, the appellant is unableto run the business resulting in stalling oftheir all business activities and they arenot even able to disburse wages to theiremployees and therefore, it causes muchhardship to the appellant. The learnedSenior Counsel appearing for the appellantfairly expresses the willingness on the partof the appellant to furnish bank guaranteeas an interim measure in the matter. It isfurther submitted by the learned SeniorCounsel that out of the amount the appellantreceives from the Civil Supplies Corporationin respect of their business transactions,only 5% would be the profit of the appellantand therefore, they would furnish bankguarantee for the appropriate amount.4.In the circumstances, we hereby permitthe appellant to pursue the matter beforethe Commissioner concerned forthwith seekinghis indulgence to set right the things withregard to the illegality in the procedurealleged to have been adopted by the officerconcerned in the matter of search andseizure/attachment. In such event, theCommissioner concerned shall re-consider theissue on merits and in accordance with law.If the appellant is aggrieved eventhereafter, it is left open to them to movethe learned Single Judge or this Court.List the matter on 9.11.2018.' 6.In the order passed by the DivisionBench, the Court has recorded thesubmissions of the learned senior counselfor the appellant and in paragraph 4 of theorder, it has permitted the appellant topursue the matter before the Commissionerconcerned forthwith seeking indulgence toset right the things with regard to theillegality in the procedure alleged to havebeen adopted by the officer concerned inthe matter of search and seizure/attachment.Ontheappellantapproachingthe 7.It appears that the Departmentreceived certain information from the TamilCivil Supplies Corporation (TNCS) videcommunication dated 20.11.2018 mentioningthat the amounts payable to the assessee andotherconcernsisRs.57.11Crores.According to the assessee this letter wasvery much available with the Department evenbefore this petition was filed. Be that asit may, the Department has issued a noticeto the assessee dated 26.11.2018 among otherthings stating as follows: '3.From the communication received fromIntegrated Child Development Services andTamil Nadu Civil Supplies, Chennai it hasbeen ascertained that the amount ofreceivables is only Rs.179,75,98,248/-.However, you have reported receivables ofRs.417.46 Crores. Therefore, you havemisrepresented and furnished incorrectinformationregardthequantumofreceivables before the undersigned and hencethe said order dated 07.11.2018 requires tobe revoked. In these circumstances, you arerequired to show cause why the IntegratedChild Development Services, Chennai & TamilNadu Civil Supplies, Chennai and also whyaction as per the provisions of Income TaxAct, 1961 should not be initiated forfurnishing false information. 4.Your case stands posted for hearing on30/11/2018 at 11.00 am at Room No.207,Investigation Building, 46, Mahatma GandhiRoad, Chennai – 34.' 4.Your case stands posted for hearing on30/11/2018 at 11.00 am at Room No.207,Investigation Building, 46, Mahatma GandhiRoad, Chennai – 34.' 8.It is submitted by the learned counselappearing for the assessee that theyreceived the above referred communicationonly after the time fixed for hearing. Bethat as it may, the assessee have challengedthe order dated 07.11.2018 by a separatewrit petition which is pending before thelearned Single Judge on certain othergrounds. Considering these facts, we are ofthe considered view that the Department iswell justified in moving this Court as thereare several writ petitions pending apartfrom the direction issued in the writ appealby the Division Bench and the main writpetition has also been pending. In thefitness of things, it is appropriate on the part of the Department to seek for leavefrom this Court to revoke the order dated07.11.2018. Therefore, we find that it isnot a case where the authorities areattempting to pass on the bug to the Courtor to obtain protective orders so as to putthe assessee in disadvantage position.Therefore, the preliminary objection raisedby the assessee stands rejected.9.Now, we move to consider the reliefsought for by the assessee before us. In theopinion of the Department which is basedupon the communication received from theIntegrated Child Development Services (ICDS)and Tamil Nadu Civil Supplies (TMCS), thereceivables is only Rs.179,75,98,248/- andthe assessee had reported receivables ofRs.417.46 Crores. The Department is of theprima facie view that the assessee hasmisrepresented and furnished incorrectinformationregardthequantumofreceivables before the authorities andhence, the order dated 07.11.2018 requiresto be revoked. Therefore, the communicationdated 26.11.2018 has been issued which is inthe nature of show cause notice. Theassessee's case is that the communicationsent by the TNCS and ICDS to the authoritydated 22.11.2018 has not been reckoned whichclearly shows that the receivables are morethan Rs.350 Crores.10.Thus, considering the factual matrixthe matter definitely requires to be re-considered and the assessee should be givenan opportunity to place materials. Further,the TNCS and ICDS are also required to beheard by the authority before taking adecision and an Officer not below the rankof Managing Director should be presentbefore the concerned authority with allrecords to show as to what are thereceivables by the assessee and the otherconcerns.11.Consideringtheabovefacts,C.M.P.No. 21693 of 2018 is allowed andconsequently the order dated 07.11.2018stands revoked and the matter standsremanded to the Principal Director of IncomeTax (Investigation), Tamil Nadu andPondicherry, Investigation Wing, Chennai – 34 for taking a fresh decision after givingeffective opportunity to the assessee. Itis made clear that the above direction hasbeen issued in the light of the stand takenby the Department that the receivables arelesser than what the assessee had statedbefore them at the time when the order dated07.11.2018 was passed. The said authority isdirected to conclude the hearing and passorders within a period of one week fromtoday (03.12.2018).12.List the main writ appeal on 3. In terms of the directions issued in the said order, thePrincipal Director of Income Tax, Investigation, Tamil Nadu andPondicherry, Investigation Wing, Chennai-34 (hereinafter calledthe PDIT) was directed to take a fresh decision in the matterafter giving an effective opportunity to the assessee. Thisdirection was issued after CMP.No.21693 of 2018 was filed by therespondents herein whereby the order passed by the PDIT dated07.11.2018 stood revoked. Pursuant to the said direction, thePDIT issued the notice dated 06.12.2018 and passed the orderdated 07.12.2018. 3. In terms of the directions issued in the said order, thePrincipal Director of Income Tax, Investigation, Tamil Nadu andPondicherry, Investigation Wing, Chennai-34 (hereinafter calledthe PDIT) was directed to take a fresh decision in the matterafter giving an effective opportunity to the assessee. Thisdirection was issued after CMP.No.21693 of 2018 was filed by therespondents herein whereby the order passed by the PDIT dated07.11.2018 stood revoked. Pursuant to the said direction, thePDIT issued the notice dated 06.12.2018 and passed the orderdated 07.12.2018. 4. The learned Senior Counsel appearing for the assesseefairly submits that the Department has been very fair to theassessee and that the assessee is fully satisfied with the orderdated 07.12.2018. In the said order dated 07.12.2018, the PDITagreed that the total receivables by the assessee and othersupto 06.12.2018 are Rs.512.90 Crores and after deducting 10%towards mandatory deductions, which are stated to be normallydone by the Tamil Nadu Civil Supplies Corporation (TNCSC) namelya sum of Rs.51.29 Crores, the total receivables are arrived atto the tune of Rs.461.61 Crores. Out of the said sum ofRs.461.61 Crores, the PDIT directed the release of Rs.248.31Crores after deducting the amounts, which are stated to be paidto the suppliers, amounts towards expenses and advances requiredto procure raw materials. Thus, for the balance of Rs.213.30Crores, which are receivables from the TNCSC and the ICDS, theapprehension of the assessee and their group concern is thatthis amount is sought to be appropriated by the Department evenprior to conclusion of the assessment proceedings. 5. Per contra, the learned Senior Standing Counsel for theRevenue has vehemently contended that this Court, while passingthe order dated 03.12.2018, referred to the order passed by theother Division Bench dated 02.11.2018 and noted that there weretwo limbs to the direction/liberty issued/granted by theDivision Bench and therefore, this Court should adjudicate upon https://hcservices.ecourts.gov.in/hcservices/ that and in this regard, the learned Senior Standing Counsel hasreferred to what has been stated by us in paragraph 6 of theorder dated 03.12.2018. 6. We find that the observations contained in paragraph 6 ofthe order dated 03.12.2018 are, in fact, the submissions made bythe learned counsel and the scope of the directions issued,etc., and the same cannot be construed as an order passed by us.In any event, an interim direction issued in this appeal cannottravel beyond the final order passed and the interim ordershould and shall stand terminated with this judgment, which isthe final judgment in this appeal. However, it is well open tothe PDIT or any other Authority to proceed in accordance withlaw. Now, we are concerned with the amount of Rs.213.30 Crores,which are receivables. In our considered view, this amountcannot be appropriated by the Income Tax Department at thisjuncture since the assessment proceedings are yet to be over andwhat are the subject matters of challenge in the writ petitionsare the orders of attachment and search. Therefore, the partiesshould be left to agitate their respective rights andcontentions in the pending writ petitions. We are of the firmview that nothing would survive for adjudication in this appeal.However, we are conscious of the fact that interests of theRevenue require to be protected. 7. Hence, we dispose of this writ appeal with the followingdirections :i. A sum of Rs.213.30 Crores (Rupeestwo hundred and thirteen crores and thirtylakhs only), which is stated to bereceivables of the appellant - writpetitioner from the TNCSC and the ICDS shallbe kept in an interest bearing account inthe Indian Bank, High Court Branch to thecredit of W.P.No.28991 of 2018 filed by theappellant and the same shall remain indeposit subject to further orders to bepassed by the Writ Court in the said writpetition as well as other connected writpetitions filed by the appellant – writpetitioner. ii. The amount shall be depositedwithin a period of two weeks from the dateof receipt of a copy of this judgment. 8. The learned Senior Counsel appearing for the appellantsubmits that the first release may be effected by the TNCSC andthe ICDS to the appellant so that the suppliers can be paid, theexpenses incurred can be met and the raw materials can beprocured. 9. We find this request as reasonable and we direct that thesum of Rs.248.31 Crores (Rupees two hundred and forty eightcrores and thirty one lakhs only) shall be released to theappellant at the earliest and not later than one week from thedate of receipt of the copy of this judgment. No costs. Consequently, the connected CMPs are closed. Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant RegistrarTo1.The Director General of Income Tax (Inv.), Tamil Nadu andPondicherry, Nungambakkam, Chennai.2.The Principal Director of Income Tax (Inv.), InvestigationWing, Nungambakkam, Chennai.3.The Additional Director of Income Tax, Investigation, Unit 3, Nungambakkam, Chennai.4.The Deputy Director of Income Tax, Investigation Unit 3(2), Nungambakkam, Chennai.5.The Deputy Director of Income Tax, Investigation Unit-4 (3), Nungambakkam, Chennai.6.The Assistant Commissioner of Income Tax, Circle I, Namakkal. 7.Ms.Sudha Devi, IAS, Managing Director, Tamil Nadu Civil Supplies Corporation Limited, No.12, Thambusamy Road, Kilpauk, Chennai-10. 8.Mr.R.Kannam,IAS, Director-Cum-Mission Director, Integrated Child Development Scheme, Pammal Nallathambi Street, Taramani, Chennai-113. +1cc to Mr.A.P.Srinivas, Advocate Sr.85917+3cc to Mr.R.Parthasarathy, Advocate Sr.85618 WA.No.2440 of 2018 andCMP.Nos.19678 to 19682of 2018 srg 13/12/2018