Wp/481/2020 Of Navkar Electronics v. Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated:01.07.2021 THE HON'BLE Dr.JUSTICE ANITA SUMANTH W.P. Nos.481 & 482 of 2020And WMP. Nos.3555, 3181, 561, 565, 564, 3183, 562, 3554 of 2020 Navkar Electronics,Rep by Anil Chand Kothari,No.4/11, Periyar Plaza,Wallers Road, Mount Road,Chennai – 600 002.PAN No: Income Tax Officer,Non-Corporate Ward – 9 (3),No.121, M.G. Road,Chennai – 600 034. Common Prayer: The writ petitions filed under Article 226 ofthe Constitution of India praying for the issuance of Writ ofCertiorari to call for the records of the Respondent in PANNo:AADFN4905C dt.24.12.2019 and quash the Reassessment Orderdated 24.12.2019 for AY 2016-17 & 2017-18 passed therein. Heard Ms.G.Vardini Karthik, learned counsel for thepetitioner and Mrs.Hema Muralikrishnan, learned Senior StandingCounsel for the Income Tax Department. https://hcservices.ecourts.gov.in/hcservices/ 2. The petitioner is a company and challenges two ordersof re-assessment both dated 24.12.2019, passed under theprovisions of the Income Tax Act, 1961 (in short ‘Act’) forassessment years 2016-17 and 2017-18. The legal issue arguedbefore me is the assumption of jurisdiction by the AssessingAuthority under Section 147 of the Act, which deals with re-assessment. 3. According to the learned counsel for the petitioner,the re-assessments have emanated out of search proceedings inthe case of one Laxmi Remote India Pvt. Ltd. (LRIPL), underSection 132 of the Act. In such case, the only recourse would,according to her, be the provisions of Section 153C of the Actand not Section 147. 4. LRIPL had been subject to search by the Income TaxDepartment and the Assessing Authority of LRIPL had found thepetitioner’s name appearing along with 500 other entities in theInventory Management System data base of LRIPL. That officerthus, forwarded the information in regard to this petitioners’engagement with LRIPL, under cover of communication dated21.05.2018. The aforesaid communication as well as subsequentcommunications, exchanged between that Assessing Officer and theAssessing Officer of this petitioner, constitute internalcommunications that have been provided in a sealed cover for thebenefit of the Court. 5. The documents reveal that a search was conducted onLRIPL, that was found to maintain two parallel softwares i.e.IVMS and Enterprise Resources Personnel (ERP) software forrecording transactions. It was only the details in the ERP thatwas disclosed to Government agencies whereas, according to thatAssessing Officer, the IVMS was used as a second set of accountsto record cash sales. It was in the IVMS that this petitioners’name figured along with details of sales of varying amounts forthe periods 2015-16, 2016-17 and 2017-18. A statement had alsobeen recorded in the course of that search wherein reference wasmade to the IVMS. This, according to that Assessing Officer,constituted ‘information’ which he shared with his counterpartin Chennai, the respondent herein. 6. After setting out the entire history of the search inthe case of LRIPL, he states that information over in regard to500 LRIPL customers, to whom cash sales had been made by LRIPLwas being passed on to their respective assessing officers toexamine whether undisclosed income would arise in those casesunder Section 69C or other applicable provisions of the Act. 7. The petitioner would argue that the provisions ofSection 153C constitute a complete code. It commences with a 6. After setting out the entire history of the search inthe case of LRIPL, he states that information over in regard to500 LRIPL customers, to whom cash sales had been made by LRIPLwas being passed on to their respective assessing officers toexamine whether undisclosed income would arise in those casesunder Section 69C or other applicable provisions of the Act. 7. The petitioner would argue that the provisions ofSection 153C constitute a complete code. It commences with a non-obstante clause, as it is applicable notwithstanding otherstatutory provisions, including Section 147 of the Act. Section153C is applicable not just in the case of seized materialcontaining particulars of third parties but also ‘information’found in the course of search, relatable to third parties. Thus,according to the petitioner, since information has beenallegedly found relatable to this petitioner in the course ofsearch of LRIPL, it is only jurisdiction under Section 153C thatshould have been assumed and not Section 147. 8. She relies on certain decisions of the Tribunal thatsupport this view. Though some of the Tribunal decisions didtravel to the High Court, those appeals, filed at the instanceof the revenue, came to be closed on the basis of low monetaryeffect and thus there is no High Court that has considered thisissue thus far. All the decisions cited by learned counsel forthe petitioner proceed on the basis that the provisions ofSection 153, which replace erstwhile chapter XIV-B of the Actconstitute a complete code and would stand automaticallytriggered in the course of search of a third party whereincriminating material/information has been found. 9. Per contra, the revenue counsel would argue that theprovisions of Section 147 are in fact more stringent than theprovisions of Section 153C, since they require prior sanction tobe obtained from a superior officer before issuing a notice forre-assessment. The information in this case was not specific toonly one or a few individuals but names around 500individuals/entities to whom cash sales had been made. It wasthus not practicable for the Assessing Officer at that end tohave invoked the procedure under Section 153C in so many cases.Thus, and in order to protect the interests of the revenue, heproceeded to share the information with his counterpartssuggesting that the needful be done to bring to tax any incomethat might have escaped assessment. 10. Learned revenue counsel distinguishes the decisionrelied on by the petitioner stating that those petitionsinvolved only a single or few third parties/entity whereas, thepresent case involved around 500 such entities. 11. The provisions of Section 153C and 147 are separate,distinct and independent measures that apply to differentsituations. No doubt, in the present case, the impugnedassessment is based upon materials found in the course of searchunder Section 132. Also unquestionably, the provisions ofSection 153C apply notwithstanding anything contained in otherprovisions including Section 147. This only means that theprovisions of Section 153C can be invoked irrespective of whether a regular or re-assessment order had been framedoriginally. 12. The procedure under Section 153C requires thesatisfaction of the following parameters: (a) A search in the premises of an entity/person underSection 132. (b) Incriminating material such as money, bullions,jewellery or other valuable article, which has been seized orrequisitioned in the searched premises but belongs to a thirdparty. (c) Books of accounts or documents that have been seizedor requisitioned which pertains to a third party or whichcontains information relating to a third party,(b) and (c)collectively referred to as ‘materials’. (d) The recording of satisfaction by the Assessing officerof the searched entity to the effect that the materials foundrefer to a specified third party. whether a regular or re-assessment order had been framedoriginally. 12. The procedure under Section 153C requires thesatisfaction of the following parameters: (a) A search in the premises of an entity/person underSection 132. (b) Incriminating material such as money, bullions,jewellery or other valuable article, which has been seized orrequisitioned in the searched premises but belongs to a thirdparty. (c) Books of accounts or documents that have been seizedor requisitioned which pertains to a third party or whichcontains information relating to a third party,(b) and (c)collectively referred to as ‘materials’. (d) The recording of satisfaction by the Assessing officerof the searched entity to the effect that the materials foundrefer to a specified third party. (e) The transfer of that incriminating material to theAssessing Officer of the third party. (f) The recording of a satisfaction by the Assessingofficer of the third party that the material transferred to himhas a bearing on the determination of the total income of thethird party. 13. If the conditions as set out under (a) to (f) aresatisfied, then the assessing officer of the third party wouldproceed to initiate assessment proceedings under Section 153C,as against that third party. 14. In this case, the names of around 500 persons/entitiesfigure in the IVMS data and the question of logistics orpracticable application of the provisions cannot be lost sightof. If the law offers multiple options to an officer as to howto proceed in a matter, it is for that officer to determine andcome to a conclusion as to the proper, appropriate and simplestmethod of proceeding further. 15. The provisions of Section 147 and 148 provide forassessment of income that have escaped assessment. Nowhere inSection 147 are the provisions of Section 153 excluded. 16. The Assessing Officer must, in choosing the provisionto apply, bear in mind the statutory conditions set out andarrive at a decision having regard to the logistics and theefficacy of the provision chosen. In a case such as the present,the respondent has, in my view, arrived at the properconclusion, bearing in mind the interests of revenue, to sharethe information found with the assessing officers of the thirdparties. He is in no position to arrive at statutory ‘satisfaction’ in all the cases as to whether the name of thethird party in the IVMS data is genuine/germane or otherwise. 17. The decisions relied on by the petitioner proceed onthe basis that the use of the non-obstante clause in Section153C would limit the choice of the Assessing Officers only to asearch assessment. 18. In one of the decisions, in the case of AssistantCommisioner of Income Tax Vs. Shri Srinivas Rao Hoskote(ITA.Nos.1154 and 1155/Bang/2015 dated 21.02.2018) at para 3.8of the order, the Tribunal states that ‘A satisfaction to theeffect that material seized during the search belongs to theappellant ought to have been arrived at and proceedings u/s 153Cread with section 153A ought to have been commenced against theappellant’. 19. Certainly, satisfaction cannot be thrust upon theAssessing Officer. The requirement of recording of‘satisfaction’ requires independent application of mind by theofficer upon his detailed examination of all relevant material. 18. In one of the decisions, in the case of AssistantCommisioner of Income Tax Vs. Shri Srinivas Rao Hoskote(ITA.Nos.1154 and 1155/Bang/2015 dated 21.02.2018) at para 3.8of the order, the Tribunal states that ‘A satisfaction to theeffect that material seized during the search belongs to theappellant ought to have been arrived at and proceedings u/s 153Cread with section 153A ought to have been commenced against theappellant’. 19. Certainly, satisfaction cannot be thrust upon theAssessing Officer. The requirement of recording of‘satisfaction’ requires independent application of mind by theofficer upon his detailed examination of all relevant material. 20. These writ petitions are dismissed. The petitioner ispermitted to file appeals, if it so desires, before theCommissioner of Income Tax (Appeals) agitating merits of thematter. If such appeals are filed within a period of four weeksfrom the date of uploading of this order on the official websiteof this Court, such appeals shall be taken on file by theCommissioner of Income Tax (Appeals) without reference tolimitation, heard and disposed on merits and in accordance withlaw. These writ petitions have been filed within thirty daysfrom date of impugned assessment orders and hence this liberty.Connected miscellaneous petitions are closed. No costs. Assistant Registrar(CS-IX) True Copy Sub-Assistant Registrar skaTo1.The Income Tax Officer,Non-Corporate Ward – 9 (3),No.121, M.G. Road,Chennai – 600 034. https://hcservices.ecourts.gov.in/hcservices/ 2.The Commisioner of Income Tax(Appeals)Chennai +2 Ccs to M/s.G. Vardhini Karthik, Advocate sr 30706, 30707+1 CC to M/s. Hema Muralikrishnan, Advocate sr 30511. W.P. Nos.481 & 482 of 2020andWMP. Nos.3555, 3181, 56, 565, 564, 3183, 562, 3554 of 2020 NRL(CO)SP(25/08/2021)