Wp/33134/2018 Of K.rajesh v. The Assistant Commissioner Of Income Tax

THE HON'BLE MR.JUSTICE S.M.SUBRAMANIAMW.P.Nos.33134 & 33139 of 2018andW.M.P.Nos.38431 & 38436 of 2018 1.The Assistant Commissioner of Income Tax, Non-Corporate Circle – 1, 63, Race Course Road, Coimbatore – 641 018. 2.Commissioner of Income Tax (Appeals) – 3, 63, Race Course Road, Coimbatore. ... Respondents in both Wps. PRAYER in W.P.No.33134/2018: Writ Petition filed Under Article226 of the Constitution of India to issue a writ of certiorari,calling for the records relating to the notice issued by the 1strespondent under Section 148 of the Income Tax Act, 1961 dated28.02.2018 in respect of the petitioner, K.Rajesh, PANNo.ACTPR3290A, to quash the same. PRAYER in W.P.No.33139/2018: Writ Petition filed Under Article226 of the Constitution of India to issue a writ of certiorari,calling for the records relating to the order passed by the 2ndrespondent in ITA No.191/16-17 dated 18.11.2016 in the case ofM/s.B.Rangaswamy Naidu Orchards Pvt.Ltd., quash the same. The writ petition in W.P.No.33134 of 2018 is filedchallenging the notice issued by the first respondent underSection 148 of the Income Tax Act on 28.02.2018 and another writpetition in W.P.No.33139 of 2018 is filed to call for therecords relating to the order passed by the second respondent in https://hcservices.ecourts.gov.in/hcservices/ ITA No.191/16-17 dated 18.11.2016 in the case ofM/s.B.Rangaswamy Naidu Orchards Private Limited. 2. Admittedly, in the said order dated 18.11.2016, thepetitioner was not a party and he challenges a particularportion of the observations made by the second respondent, whichwould affect the interest of the petitioner. 3. The petitioner is an assessee and filed his returnof income regularly. The facts as narrated and with reference tothe shares purchased by the petitioner are not disputed.However, the learned counsel for the petitioner made asubmission that the petitioner, Mr.K.Rajesh was not a Directorof the Company, namely M/s.B.Rangaswamy Naidu Orchards PrivateLimited and without even hearing him and not providing anyopportunity to defend his case in the impugned order dated18.11.2016, the order was passed under Section 143 (3) of theAct. The second respondent made an observation in ParagraphNo.5.4, as under: “5.4 However, what is allowed as expenditure hasbeen receipt in the hands of the erstwhile directorsof the appellant company. The receipt of Rs.5.50crore do partake the character of income in the handsof erstwhile directors of the appellant company. Ithas been stated in Paragraph 4.3 of the assessmentorder that the erstwhile director of the company haveadmitted income from capital gain on sale of sharesin than Income Tax return for the Assessment Year2009 – 10. The erstwhile directors have receivedRs.2.75 crore each (by repayment of loan taken fromthe Escrow agent Shr Vikram Mohan and Rs.2.75 croreliabilities waived, when the present directors tookover the appellant company). The total amount ofRs.5.50 crore will have to be considered forassessment in their hands under Section 28 (iv) ofthe Income Tax Act, 1961. The Assessing Officer is toconsider this in their hands for assessment for theappropriate financial year. Direction is given forthis by invoking provisions of Section 150 (1) and(2) of the Income Tax Act, 1961.” 4. The contetions in the above paragraph would affectthe interest of the petitioner. Then the petitioner claims thathe was not the Director of the said Company. Such an observationmade against him without even providing an opportunity to him isin violation of principles of natural justice and based on theobservations, the first respondent issued notice under Section147 of the Act, for reopening of assessment for the AssessmentYear 2009 - 10. Thus, both the orders dated 18.11.2016 and theconsequential notice under Section 148 of the Income Tax Act on 4. The contetions in the above paragraph would affectthe interest of the petitioner. Then the petitioner claims thathe was not the Director of the said Company. Such an observationmade against him without even providing an opportunity to him isin violation of principles of natural justice and based on theobservations, the first respondent issued notice under Section147 of the Act, for reopening of assessment for the AssessmentYear 2009 - 10. Thus, both the orders dated 18.11.2016 and theconsequential notice under Section 148 of the Income Tax Act on 28.02.2018 are to be set aside. It is further contended that theimpugned notice was issued beyond the period of limitationcontemplated and on that ground also the orders areunsustainable. 5. The learned Senior Standing Counsel appearing onbehalf of the respondents disputed the said contention bystating that the order dated 18.11.2016 was passed under Section143 (3) of the Act. The observations made by the Commissioner ofIncome Tax (Appeals) in Paragraph No.5.4 are the facts whichwere considered and an observation made with reference tocertain transactions. Thus, the said observations are consideredas an information for the purpose of reopening of assessmentunder Section 147 of the Act. However, no final decision istaken directly based on the observations made in the said orderdated 18.11.2016. The Petitioner is entitled for an opportunityand the directions issued by the Hon'ble Apex Court in the caseof GKN Driveshafts India Ltd., vs. ITO reported in 2003 259 ITR19 (SC), are to be followed scrupulously. Thus, the Authoritieshave not been taken any decision based on the observations madeby the second respondent in order dated 18.11.2016 and thus theorder impugned has not caused any prejudice to the interest ofthe petitioner and he has to defend the reopening proceedings inthe manner known to law. 6. The learned counsel for the petitioner relied on thejudgment of the High Court of Delhi in the case of RuralElectrification Corporation Ltd., vs. Commissioner of Income Tax– (LTU), dated 23.04.2013. However, the said facts aredissimmilar and in the present case, this Court of an opinionthat the observations or certain considerations made in an orderpassed under Section 143 (3) of the Act, against the assesseeM/s.B.Rangaswamy Naidu Orchards Pvt.Ltd., and no direct actionwas taken against the petitioner and admittedly in the presentcase no direct orders are passed and the Assessing Officer hasreason to believe for reopening of assessment under Section 147of the Act and consequently issued a notice under Section 148 ofthe Act. Thus the petitioner is entitled for an opportunity todefend his case including the factual aspects submitted evenbefore this Court. If at all, the petitioner claims that he wasnot a director of the said Company M/s.B.Rangaswamy NaiduOrchards Pvt.Ltd., it is for the petitioner to establish thesame before the Authorities Competent. However, those disputedfacts cannot be adjudicated in writ proceedings under Article226 of Constitution of India and the only question would be anopportunity to be provided and the procedures which all are tobe followed based on the directions given by the Apex Court inthe case of GKN Driveshafts India Ltd., vs. ITO reported in 2003259 ITR 19 (SC). 7. The learned Senior Standing Counsel though disputedthe fact that the petitioner was not a director of the Company,said that the petitioner was the Ex-director of the Company.However, all such disputed facts with reference to the relevantdates and documents are to be verified by the AuthoritiesCompetent and the petitioner by availing an opportunity has toestablish the said facts. 7. The learned Senior Standing Counsel though disputedthe fact that the petitioner was not a director of the Company,said that the petitioner was the Ex-director of the Company.However, all such disputed facts with reference to the relevantdates and documents are to be verified by the AuthoritiesCompetent and the petitioner by availing an opportunity has toestablish the said facts. 8. As far as the observations / considerations recordedin Paragraph No.5.4 of the order impugned dated 18.11.2016 isconcerned, it is to be construed only as an information for thepurpose of invoking Section 147 of the Act and all furtherprocedures contemplated under the Acts as well as the directionsof the Hon'ble Apex Court in the case of GKN Driveshafts IndiaLtd., vs. ITO reported in 2003 259 ITR 19 (SC) are to followedscrupulously by the Assessing Officer, while undertaking theprocess of completion of proceedings initiated. 9. The petitioner is at liberty to raise both the legalgrounds as well as the factual grounds including the point oflimitation now raised in these writ petitions before theAuthorities Competent and the Authorities Competent shallconsider all the facts and the legal grounds raised by the writpetitioner and proceed in accordance with law. 10. With these observations, both the writ petitionsstands disposed of. No costs. Consequently, connectedmiscellaneous petitions are closed. Sd/- Assistant Registrar(CS III) //True Copy// Sub Assistant Registrar PnsTo 1.The Assistant Commissioner of Income Tax, Non-Corporate Circle – 1, 63, Race Course Road,Coimbatore – 641 018. 2.Commissioner of Income Tax (Appeals) – 3, 63, Race Course Road, Coimbatore. +1cc to Mr.G.R.Associates , Advocate SR.No. 30690+1cc to Mr.A.P.Srinivas, Advocate SR.No. 30559 W.P.Nos.33134 & 33139 of 2018and W.M.P.Nos.38431 & 38436 of 2018 pch(CO) A.SK(04.08.2021) https://hcservices.ecourts.gov.in/hcservices/