Wp/7647/2023 Of Mr.sanath Kumar Murali v. The Income Tax Officer

Digitally signedby VIDYA G RLocation: HighCourt ofKarnataka IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 24 DAY OF MAY, 2023 BEFORE| THE HON BLE MR JUSTICE S SUNIL DUTT YADAV%WRIT PETITION NO.7647 OF 2023 (TIT) BETWEEN: 1.MR,.SANATH KUMAR MURALI AGED 39 YEARS, SON OF MR M V SANATH KUMAR, ADDRESS AT NO.102-A, VANAKANAHALLI, BANGALORE-5627 106. .. PETITIONER (BY SRI. SANDEEP HUILGOL., ADVOCATE)| AND: 1.THE INCOME TAX OFFICER WARD 4(3)(3), BANGALORE, BMTC BUILDING, 80 FIT ROAD, 6 BLOCK, KORAMANGALA, |BENGALURU-560 O95. BENGALURU-560 O95. D2PRINCIPAL COMMISSIONER OF INCOME TAX-4BMTC BUILDING, 80 FI ROAD,BMTC BUILDING, 80 FI ROAD, 6 BLOCK, KORAMANGALA, | BENGALURU -560 O95. 3CENTRAL BOARD OF DIRECT TAXESDEPARTMENT OF REVENUE, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, NORTH BLOCK, NEW DELHI-110 002, REPRESENTED HEREIN BY ITS CHAIRPERSON. 4APRINCIPAL CHIEF COMMISSIONER OF INCOME TAXKARNATAKA AND GOA REGION,KARNATAKA AND GOA REGION, R GROUND FLOOR,CR BUILDING,|NO.1, QUEENS ROALD,BENGALURU-560 OOL. _. RESPONDENTS (BY SRI. E.I. SANMATHI, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 276)AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO.QUASH THE IMPUGNED ORDER DATED 21.03.2023 BEARINGDIN.AND|NOTICENO.ITBA/AST/F/148A/2022-23/1051072381(1) PASSED BY THE 1ST RESPONDENT UNDERSECTION 148A(D) OF THE INCOME-TAX ACT, 1961, FOR THEASSESSMENT YEAR 2016-17 (ANNEXURE-A) AND ETC. THIS WRIT PETITION COMING ON FOR PRELIMINARY|HEARING IN “B’ GROUP, THIS DAY, THE COURT MADE THEFOLLOWING: ORDER The petitioner has challenged the order at.Annexure-A’ dated 21.03.2023 passed under Section|148A(d) of the Income Tax Act, 1961 (‘I.T. Act’ for|brevity) for the Assessment Year 2016-2017 and hasalso sought for quashing of the impugned notice|dated 21.03.2023 bearing DIN and Notice No.ITBA/AST/S/148_1/2022-23/10510/76610(1)issuedby respondent No.1 under Section 148 of the I.T. Actfor the Assessment Year 2016-2017 at Annexure-'B. © -3- 2 |On 03.03.2023, the notice under Section|148A(b) of the I.T. Act came to be issued to the)petitioner stating that information was received whichSuggested that income chargeable to tax for the)Assessment Year 2016-2017 has escaped assessment.within the meaning of Section 14/7, detailing theinformation alongwith the supporting documents. The|information is detailed in the Annexure In the form of. a table, which is extracted below: This was followed up with another notice on10.03.2023. 3.|The petitioner is stated to have made out areply to the said notice dated 16.03.2023 in whicndetallsWeTe|laldOut,settingOUT.tnesaleconsideration relating to the sale deed of 22.11.2015| -4.- as Rs.55,/77,/00/- and also furnishing details of theSale deed by virtue of which the petitioner has/purcnased|the|propertyON|24.09.7011for.consideration of Rs.15,91,735/- (cost of acquisition).It was submitted that since the date of acquisition|was in the year 2011 and the sale was in the year|2015 and therefore the long term capital gain would|be as follows: 4 iThe‘CapitalGain,|accordingCO thepetitioner in terms of the reply made out isRs.33,85,/69/-. It was submitted that, as the income. -5- escaping assessment did not exceed rupees fifty lakhin terms of Section 149(1)(b) of the I.T. Act, the)notice under Section 148 could not be issued.. 5 |It is the submission of learned counsel for|the petitioner that the notice under Section 148 atAnnexure-B’ was issued on 21.03.2023 with respect|to tne Assessment Year J2016-201/7 and tne time limifor issuance of such notice in terms of Section.149(1)(a) would be three years from the end of the|relevant Assessment Year and if the Departmentseeks to justify the issuance of notice in the extendedtime provided under Section 149(1)(b) beyond three.years, Dut not more than ten years, the DepartmentwouldhaveCO demonstratethat|the‘incomechargeable to tax which has escaped assessment is |likely to amount to rupees fifty lakh or more. — -5- escaping assessment did not exceed rupees fifty lakhin terms of Section 149(1)(b) of the I.T. Act, the)notice under Section 148 could not be issued.. 5 |It is the submission of learned counsel for|the petitioner that the notice under Section 148 atAnnexure-B’ was issued on 21.03.2023 with respect|to tne Assessment Year J2016-201/7 and tne time limifor issuance of such notice in terms of Section.149(1)(a) would be three years from the end of the|relevant Assessment Year and if the Departmentseeks to justify the issuance of notice in the extendedtime provided under Section 149(1)(b) beyond three.years, Dut not more than ten years, the DepartmentwouldhaveCO demonstratethat|the‘incomechargeable to tax which has escaped assessment is |likely to amount to rupees fifty lakh or more. — 6.|It is further submitted that in the present.case, aS demonstrated in the reply since the income|chargeable to tax calculated in terms of Section 48| would be less than rupees fifty lakh, the notice issuedon 21.03.2023 in respect of the Assessment Year|2016-2017 would not fall within the extended time.provided under Section 149(1)(b) of the I.T. Act. J.|Learned counsel appearing for the Revenuewould submit that since the proceedings under|Section 148 of I.T. Act is at the initial stage and|adjudication is to take place in terms of the procedureprescribed and provided under Section 148A, it would.be premature to construe the contention relating to‘Income chargeable to tax’ as contended by the)petitioner and that the income that nas escapedassessment to be taken note of for the purpose otfSection 149(1)(b) which would be the total sale.consideration received as reflected in the sale deed.dated 22.12.2015 of Rs.55,7/7,/00/-. 8.|It is submitted that what is of relevance |for the purpose of Section 148A is the information| received and in terms of the information received, theconsideration of sale as mentioned in the sale deed.ought to be taken note of, which would reveal that anamount of Rs.55,77,/00/- has escaped assessment|anaq tne same nas peen mentioned even in tneenclosure alongwith the show cause notice dated|03.03.2023. Accordingly, it is submitted that it is theincome that has escaped assessment that has to be|taken note of, which being above Rs.50.00 lakh, the|extended period under Section 149(1)(b) would save|such notice from the bar of the period prescribed to re-open provided under Section 149(1)(a) of I.T. Act. 9.|Learned counsel appearing for the RevenueNas also relied upon the memorandum explaining theprovisions in the Finance Bill, 2021 to justify suchinterpretation.10. Heard both sides. -8- 11. What needs to be noted in the present|case is that the income stated to Nave escaped|assessment which has been taken note of seeking to|re-open the assessment for the Assessment Year2016-2017 is the sale transaction with Sri D.V..Venkatacnalapathi. The time prescribed for such) reopening of assessment by virtue of proceedingsunder Section 148 is provided under Section 149.Relevant extract of Section 149 reads as follows:- “149.(1) No notice under section 148 shall beissued for the relevant assessment year.-issued for the relevant assessment year.- (a)if three years have elapsedfromtheendof|therelevantassessment year; unless the case falls|under clause (Db);assessment year; unless the case falls|under clause (Db); (Db)if three years, but not more|than ten years, have elapsed from the.end of tne relevant assessment year.unless the Assessing Officer has in his|possession books of accounts or other.documents or evidence whicn reved]|that tne income cnargeabie to tax,|represented in the form of -| (1) an asset; | -9OQ- (11)expenditureIn|respect.of|adtransaction or in relation to an event or|occasion; OF (iii) an entry or entries in the books ofaccounts, | whichhasCSCaPedassessment.amounts to or Is likely to amount to.fifty lakn rupees or more” (a)if three years have elapsedfromtheendof|therelevantassessment year; unless the case falls|under clause (Db);assessment year; unless the case falls|under clause (Db); (Db)if three years, but not more|than ten years, have elapsed from the.end of tne relevant assessment year.unless the Assessing Officer has in his|possession books of accounts or other.documents or evidence whicn reved]|that tne income cnargeabie to tax,|represented in the form of -| (1) an asset; | -9OQ- (11)expenditureIn|respect.of|adtransaction or in relation to an event or|occasion; OF (iii) an entry or entries in the books ofaccounts, | whichhasCSCaPedassessment.amounts to or Is likely to amount to.fifty lakn rupees or more” 12. It is clear tnat there is a bar prohibiting theissuance of notice under Section 148 of I.T. Act ifthree years has elapsed from the end of the relevant|Assessment Year unless the case falls under Clause-(bp). Accordingly, no notice under Section 148 couldbe issued after three years from the end ofAssessment Year 2016-2017, is subject to the’exception of extended period of limitation of three|years, but not more than ten years from the end of|relevant Assessment Year, if the Assessing Officer hasmaterial which would reveal that "the income.chargeable to tax’ which has escaped the assessment| amounts or is likely to amount to Rs.50.00 lakh|rupees OF MOFe. 13. In the present case, the enclosure to the|snow cause notice in tne Form at Annexure to tnenotice reads as follows:- ANNEXURE The case has been flagged by the RiskManagement Strategy formulated by the Board inInsightModule|Under.HighRisk.Categoryinformation/NMS cycle under RMS in your Case. As|Perthedetailsavailablewitnthe|undersigned in this office, it is seen that qT.You have not filed the return of [Incomefor the F.Y. 7015-16 relevant to A.Y. 2016-1 7. D.The following information Is available: Since, as per the records in this office, youhave not filed the return of Income for the|aforesaid Asst. Year, you are requested to explain along with documentary evidences why a notice|u/s 148 should not be issued in order to assess|the income that nas escaped assessment. As per tne procedure laid down under|section 148A of the Income Tax Act, 1961, it|mandates that snow-cause notice is to be [Ssued|based on tne information/explanation provided byyou on the above information to this. Office.Please note that tne information provided by you|will be necessary for arriving at the final|conclusion for issuance of notice u/s 148. 14. It is clear that the notice Is issued in the)context of sale consideration from sale of immoveable|property for an amount of Rs.55,77,/700/-. As notedabove, the reply to the show cause notice, copy of|which is enclosed at Annexure- Fl would reveal] the.detailsOf sale consideration andthe|cost. ofacquisition would be the indexed cost of acquisition inlight of the sale leads to accrual of long term capitalgain. 15. In the present case on hand, clearly, theincome that has escaped assessment is the proceeds|from the sale as made out from perusal of the)Annexure to the show cause notice at Annexure-'C'.In case of income arising from the sale of property|which may fall within the purview of Section 48 so as|to amount to capital gains, it is relevant to notice thatSection 48 provides for mode of calculation of income|chargeable under the head ‘Capital Gains’. Section 48.reads as follows:-. "48, The income chargeable under thenead ‘Capital gains” snall be computed, by deductingfromthe|fullvalueOf|theconsideration received or accruing as a result ofthe transfer of the capital asset the following|amounts, namely:- (1) expenditureincurredwnollyandexclusively in connection with such.transfer, (ii) the cost of acquisition of the asset.and the cost of any improvement.thereto; (ip)n case of value of any money orcapital asset received by a specified| -13- "48, The income chargeable under thenead ‘Capital gains” snall be computed, by deductingfromthe|fullvalueOf|theconsideration received or accruing as a result ofthe transfer of the capital asset the following|amounts, namely:- (1) expenditureincurredwnollyandexclusively in connection with such.transfer, (ii) the cost of acquisition of the asset.and the cost of any improvement.thereto; (ip)n case of value of any money orcapital asset received by a specified| -13- person from a specified entity referred to in sub-section (4) of section 45, the.amount chargeable to income-tax as.income of such specified entity under.that sub-section which js attributable to the capital asset being transferred by.the specified entity, calculated in the.prescribed manner: Provided further tnat where long-term capital gain arises from the transferof a long-term capital asset, other than|capital gain arising to a non-resident fromthe transfer of shares in, or debentures|of, an Indian company referred to in the|first proviso, the provisions of clause (II)|Shall have effect as if for the words ‘cost|of.acquisition”and"cost of|dihyimprovement’, the words “indexed cost ofacquisition” and “indexed cost of anyimprovement”hadrespectivelybeensubstituted :.. 16. The words used in Section 149(1)(b) is|that the.‘Income chargeable to tax’|which has.escaped assessment amounts to or is likely to amount| to fifty lakn rupees or more for that year. The incomechargeable under the head of ‘capital gains’ which|would arise in case of sale transaction is as providedunder Section 48, which provides that income)chargeable under the head of ‘capital gains shall be|computed by deducting from the full value of the)consideration, the cost of acquisition and in the event,the property purchased has been held for a period|beyond three years in terms of second proviso toSection 48, the words, ‘cost of acquisition’ is to besubstitutedbythe|words,‘indexed.COST|ofacquisition. This material is pointed out in the reply|at Annexure-'Fl’ furnished to the show cause notice,which ought to be taken note of prior to the issuance|of notice under Section 148A of I.T. Act. | 17. It must be noticed that before issuance ot notice under Section 148 to re-open the proceedingswith respect to the Assessment Year 2016-2017. |Section 148A provides: -15- &148A.The Assessing Officer shall, beforeissuing any notice under section 148, —| (a) conduct any enguiry, if required, with the.prior approval of specified authority, with respect to.the information whicn suggests tnat the income.chargeable to tax nas escaped assessment; (b) provide an opportunity of being heard tothe assessee, witn the prior approval of specified authority, by serving upon him a notice to snow.cause within sucn time, as may be specified in the.notice, being not less than seven days and but not.exceeding thirty days from the date on which such.notice is issued, or such time, as may be extendedby nim on tne basis of an application in this benalf, as to wny a notice under section 148 should not be.issued on the basis of information which suggests|that income chargeable to tax nas escaped.assessment in his case for the relevant assessment|year and results of enquiry conducted, if any, as.per clause (a); (c) consider the reply of assessee furnisned, ifany, in response to the snow-cause notice referred|to in clause (D);| (d) decide, on the basis of material availableon record including reply of the assessee, whether|or not It Is a fit case to Issue a notice Under section| WP No. 7647 of 2023 148, by passing an order, with the prior approval of|specified authority, within one month from the end.of the month in wnich tne reply referred to in clause (c) is received by him, or where no sucn reply ts.furnished, within one month from the end of the|month in which time or extended time allowed ftofurnisn a reply as per clause (D) expires: u | (c) consider the reply of assessee furnisned, ifany, in response to the snow-cause notice referred|to in clause (D);| (d) decide, on the basis of material availableon record including reply of the assessee, whether|or not It Is a fit case to Issue a notice Under section| WP No. 7647 of 2023 148, by passing an order, with the prior approval of|specified authority, within one month from the end.of the month in wnich tne reply referred to in clause (c) is received by him, or where no sucn reply ts.furnished, within one month from the end of the|month in which time or extended time allowed ftofurnisn a reply as per clause (D) expires: u | Clearly|wnentneprocedure1S|followedculminating in an order passed under Section148(A)(d), the Authority is required to apply its mindand consider the reply of the assessee and pass ajconsidered.order.|IntnepresentCdS€,|tnerespondent Authority nas not applied its mind to thereply filed, nor noticed the legal position whiledeciding as to the application of the extended period|under Section 149(1)(b) of the I.T. Act. 18. Accordingly, in the present case, the wordsfound in Section 149 which is ‘income chargeable to tax must be read in terms of ‘income’ as arising out|of the ‘Capital Gains’ as provided under Section 48| -1/- and this is the only manner of understanding the|words, income chargeable to tax under Section|149(1)(b) of I.T. Act. 19. The contention of the Revenue that under|Section 149 what is required to be taken note of, is|the|‘Income that has escaped assessment.beingthe entirety of sale consideration of Rs.55,77,700/-|cannot be accepted, in light of the express words inthe statutory provision‘sooetincome chargeableineTaXuanwhichhasescapedassessmenr|amounts to or Is likely to amount to fifty lakh|rupees or more.It cannot be stated that since thestage at which the notice is issued is at a prematurestage, the entirety of consideration of Rs.55,77,/00/-ought to be taken note of. A plain reading of Section48wouldprovide|that|theentiretyofsaleconsideration does not constitute ‘Income. Thememorandum explaining the provisions of Finance.Act, 2021 does not in any way lead to giving a’ different.InterpretationCO thewords,‘incomechargeable to tax’. The words used under Section|149 for the purpose of extended time limit is to be|interpreted in terms of the plain wordings of Section|149 and cannot be construed differently while relyingon any executive instruction. 20. Learned counsel appearing for the Revenuehas relied on the judgment of Rajasthan High court in.the case of.Abdul Majeed v. Income Tax OfficerpassedinCivilWritPetition.No.7853/2022However, a close reading of the said judgment doesnot support the interpretation sought to be placedand the High Court of Rajasthan has also reiterated|the same position as laid down above. 21. Accordingly, the order at Annexure-A’dated 21.03.2023 passed under Section 148A(d) ofthe I.T. Act is set aside and the notice at Annexure-'B|dated 21.03.2073 issued under Section 148 of the -����'���������������������/������������'���������� 0���� !�1( !�2������������������ ����3����4������������������������������� &�%'� ()*+,� �56789#�