Wp(C)/1470/2019 Of Parakkadavil Mohammed Kunju Ansari v. The Income Tax Officer

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR FRIDAY, THE 04TH DAY OF OCTOBER 2019 / 12TH ASWINA, 1941 WP(C).No.1470 OF 2019(G) PETITIONER/S: PARAKKADAVIL MOHAMMED KUNJU ANSARIPROPRIETOR-M/S. SHERWUD TRADERS, PARAKKADAVIL HOUSE, ERUMELI P.O., KOTTAYAM -686509. BY ADVS.SRI.M.P.SHAMEEM AHAMEDSRI.CYRIAC TOM RESPONDENT/S: 1THE INCOME TAX OFFICER,WARD-1, KOTTAYAM, PUBLIC LIBRARY BUILDING, SHASTRI ROAD, KOTTAYAM-686001. 2UNION OF INDIAREPRESENTED BY REVENUE SECRETARY, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA, NORTH BLOCK NEW DELHI-110001. R1 BY SRI.JOSE JOSEPH, SC, FOR INCOME TAXR2 BY ADV. SRI.B.PRAMOD THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON04.10.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT The petitioner, an individual and an income tax assessee on the rollsof the Income Tax Officer, Ward-1, Kottayam, was engaged in timberbusiness during the financial year 2015-16, corresponding to theassessment year 2016-17. The petitioner had sold about 13 adjacentagricultural plots to the M/s Believers Church, and while filing his returnshowed the sale consideration as agricultural income which was exemptedfrom tax under the head of Capital Gains. The return submitted by thepetitioner for the assessment year in question was subjected to scrutinythrough a notice dated 07.07.2017 issued to the petitioner under Section143(2) of the Income Tax Act. This was followed by another notice dated23.4.2018, and later by Ext.P3 notice dated 10.7.2018, where the petitionerwas asked to furnish information to the queries raised in the annexure tothe said notice. While the petitioner submitted Ext.P4 reply to the saidquery, by Ext.P5 query dated 12.11.2018, the petitioner was asked toproduce documents to substantiate his claim in the return that an amountof Rs.17 crores was exempted from income tax under the head CapitalGains as the same was purportedly in respect of sale of agricultural land.The petitioner submitted Ext.P6 reply to the said query, but the departmentthereafter raised a fresh query seeking evidence in respect of all sources ofincome declared in the return of income tax for the assessment year 2016- 17 (Ext.P7 dated 27.11.2018). The petitioner responded to the said queryby Ext.P8 reply dated 6.12.2018. Thereafter, a sworn statement was takenfrom the petitioner on 10.12.2018 (Ext.P9) and on 19.12.2018, thedepartment through Ext.P10 query, sought for further documents from thepetitioner to substantiate his claim with regard to the sources of incomeand details of expense incurred during the financial year to support hisclaim in the returns filed by him. The petitioner states that the detailssought for in Ext.P10 query were furnished through Ext.P11 reply dated21.12.2018. Thereafter, an inspection was conducted for verifying thefactual aspects, disclosed by the petitioner in his various replies, tosubstantiate his claim for exemption. Pursuant to the inspection, someclarifications was sought for, which the petitioner furnished throughExt.P14 communication dated 24.12.2018. Thereafter Ext.P15 notice dated28.12.2018 was issued to the petitioner giving a summary of the proposalsof the department for completing the assessment in relation to thepetitioner, and since the time limit for completing the assessment under theIncome Tax Act was due to expire, the petitioner was asked to submit hisexplanation, if any, to the said proposal within a day, making it clear that ifno reply was received, the assessment would be completed without anyfurther notice. 2. It is not in dispute that the petitioner submitted his reply toExt.P15 notice through Ext.P16 communication of the same date. 2. It is not in dispute that the petitioner submitted his reply toExt.P15 notice through Ext.P16 communication of the same date. Thereafter, by Ext.P17 order, the assessment in relation to the petitioner forthe assessment year 2016-17 was completed by finding that the petitionerwas liable to tax in an amount of Rs.5,76,29,515/-. Ext.P18 is the notice ofdemand issued to the petitioner pursuant to the assessment order. In thewrit petition, the petitioner impugns Ext.P17 order and Ext.P18 demandnotice, solely on the ground that Ext.P17 order was passed withoutaffording the petitioner sufficient time to explain the contents of his returnto the Assessing officer in a personal hearing conducted before theAssessing Officer. It is contended that, had an opportunity been granted tothe petitioner, he could have explained the figures furnished by himthrough the various replies submitted by him, and in as much as the saidopportunity was denied to him, Ext.P17 assessment order cannot be legallysustained. 3. A statement has been filed on behalf of the respondent whereinthe sequence of events leading to the passing of the assessment order isdetailed. It is pointed out that, through the series of queries that wereraised on the petitioner by the department, the department was onlyseeking corroborative evidence for substantiating the claim of thepetitioner for exemption of a substantial portion of the income declared byhim. It is pointed out that the details sought were essentially for enablingthe petitioner to establish that the exemption claim was in respect ofagricultural income which would not fall for assessment under the head of Capital Gains. It is the stand of the department that the assessment orderconfirmed a demand of income tax on the petitioner only because he hadnot succeeded in substantiating his claim for exemption, and further, hadnot offered any satisfactory explanation for the unaccounted incomedetected, with any reliable documents and hence there was no prejudicecaused to the petitioner on account of no hearing having been extended tohim prior to passing the assessment order. It is, in particular, pointed outthat, had the petitioner disclosed the true and correct information beforethe Assessing Officer, as he was obliged to do in terms of the Income TaxAct, there would have been no necessity for the department to issue noticesto the petitioner calling for documents to substantiate his claim forexemption. The delay in completing the assessment is therefore stated tobe attributable solely to the inaction on the part of the petitioner in notfurnishing the necessary details along with the return for the assessmentyear in question. 4.I have heard the learned counsel for the petitioner and thelearned Standing Counsel appearing for the Income Tax Department. 5.On a consideration of the facts and circumstances of the caseas also the submissions made across the bar, I find that Ext.P17 is anorder passed under Section 143(3) of the Income Tax Act. It is not indispute before me that the statutory notice under Section 143(2) of the 4.I have heard the learned counsel for the petitioner and thelearned Standing Counsel appearing for the Income Tax Department. 5.On a consideration of the facts and circumstances of the caseas also the submissions made across the bar, I find that Ext.P17 is anorder passed under Section 143(3) of the Income Tax Act. It is not indispute before me that the statutory notice under Section 143(2) of the Income Tax Act was served on the petitioner on 7.7.2017. It is thereforeevident that the statutory preconditions to be adhered to before completingan assessment against the petitioner, had been complied by the departmentin the instant case. The obligation to disclose, fully and correctly, theincome that was earned by the assessee during the assessment period, wason the assessee himself, and if the department had issued notices to theassessee seeking for documents to substantiate his claim for exemption,then that cannot be treated as a new proposal by the department to fastena liability on the petitioner. Accordingly, there was no obligation on thedepartment to afford yet another hearing to the petitioner before passingthe assessment order. In the instant case, the various queries raised by thedepartment after perusing the reply given by the assessee to the noticeissued under Section 143(2) of the Income Tax Act would clearly reveal thatthe department was only seeking for the documents that would substantiatethe claim of the petitioner assessee for exemption in respect of asubstantial portion of the income that was declared by him in the return.Ultimately, by Ext.P17 assessment order, all that the department did, was todeny the claim for exemption of the petitioner assessee, and while doing so,the department was not obliged to grant any hearing to the petitioner overand above the opportunities that had already been extended to thepetitioner to respond to the specific queries raised by the department. Inmy view, there cannot be a mechanical application of the principles ofnatural justice in every case and the necessity of affording a hearing to an assessee, in order to comply with the rules of natural justice, must beexamined on the facts of each case. On the facts of the instant case, I donot find any prejudice having been caused to the petitioner through thedenial of a personal hearing since, although the petitioner has a case thathe could have submitted additional documents, he ought to have done sowithin the time granted to him by the department and, further, no suchdocuments have been produced in the writ petition. Resultantly, I do notfind Ext.P17 order to be vitiated by a non compliance with the rules ofnatural justice, or by any other jurisdictional error, so as to warrant aninterference with the said order in these proceedings under Art.226 of theConstitution of India. The writ petition in its challenge against the saidorder and Ext.P18 demand notice fails, and is accordingly dismissed. The learned counsel for the petitioner would submit that he wouldrequire some time to move the appellate authority in an appeal againstExt.P17 order. Taking note of the said submission of the learned counselfor the petitioner, I direct that if the petitioner prefers an appeal againstExt.P17 order, before the appellate authority, within six weeks from today,then the appellate authority shall consider and pass orders in the appeal,on merits, after hearing the petitioner. In order to enable the petitioner tomove the appellate authority, I direct that recovery steps for recovery ofamounts confirmed against the petitioner by Ext.P17 assessmentorder/Ext.P18 demand notice shall be kept in abeyance for the above said period of six weeks. I also make it clear that nothing in this judgment shallstand in the way of the petitioner seeking a rectification of factual mistakesin Ext.P17 assessment order before the assessing authority. Sab Sd/- A.K.JAYASANKARAN NAMBIAR JUDGE APPENDIX PETITIONER'S/S EXHIBITS: EXHIBIT P1 period of six weeks. I also make it clear that nothing in this judgment shallstand in the way of the petitioner seeking a rectification of factual mistakesin Ext.P17 assessment order before the assessing authority. Sab Sd/- A.K.JAYASANKARAN NAMBIAR JUDGE APPENDIX PETITIONER'S/S EXHIBITS: EXHIBIT P1 COPY OF THE STATEMENT OF INCOME ALONG WITH ACKNOWLEDGMENT OF FILING THE INCOME TAX RETURN FOR THE ASSESSMENT YEAR 2016-17.WITH ACKNOWLEDGMENT OF FILING THE INCOME TAX RETURN FOR THE ASSESSMENT YEAR 2016-17. EXHIBIT P2COPY OF THE NOTICE DATED 07.07.2017.EXHIBIT P3COPY OF THE NOTICE DATED 10.07.2018 ISSUED U/S 142(1) OF INCOME TAX ACT.EXHIBIT P3COPY OF THE NOTICE DATED 10.07.2018 ISSUED U/S 142(1) OF INCOME TAX ACT. EXHIBIT P4COPY OF THE REPLY DATED 18.07.2018. EXHIBIT P5COPY OF THE LETTER DATED 12.11.2018. EXHIBIT P6COPY OF THE REPLY DATED 21.11.2018 ALONG WITH E-PROCEEDINGS ACKNOWLEDGMENT.ALONG WITH E-PROCEEDINGS ACKNOWLEDGMENT. EXHIBIT P7COPY OF THE SUMMONSES DATED 27.11.2018.EXHIBIT P8COPY OF THE REPLIES DATED 16.12.2018.EXHIBIT P8COPY OF THE REPLIES DATED 16.12.2018. EXHIBIT P9COPY OF THE STATEMENT RECORDED FROM THEPETITIONER.PETITIONER. EXHIBIT P10COPY OF THE LETTER DATED 19.12.2018 ISSUED BY THE 1ST RESPONDENT.ISSUED BY THE 1ST RESPONDENT. EXHIBIT P11COPY OF THE REPLY FILED IN RESPONSE TO LETTER DATED 21.12.2018 ALONG WITH E-PROCEEDINGS ACKNOWLEDGMENT.LETTER DATED 21.12.2018 ALONG WITH E-PROCEEDINGS ACKNOWLEDGMENT. EXHIBIT P12COPY OF THE LETTER DATED 20.12.2018.EXHIBIT P13COPY OF THE EMAIL DATED 24.12.2018 WITHATTACHMENTS.EXHIBIT P13COPY OF THE EMAIL DATED 24.12.2018 WITHATTACHMENTS. EXHIBIT P14COPY OF THE REPLY TO LETTER DATED 20.1.2018 UPLOADED ON 26.12.2018.20.1.2018 UPLOADED ON 26.12.2018. EXHIBIT P15COPY OF THE SHOW CAUSE NOTICE DATED 28.12.2018. EXHIBIT P16 COPY OF THE REPLY TO SHOW CAUSE NOTICE DATED NIL. EXHIBIT P17COPY OF THE ASSESSMENT ORDER DATED 31.12.2018. EXHIBIT P18 COPY OF DEMAND NOTICE DATED 31.12.2018.