Wp(C)/33557/2006 Of Abdul Vahab v. The Asst.commissioner Of Income Tax

C.R. IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR. JUSTICE K.VINOD CHANDRAN THURSDAY, THE 22ND DECEMBER 2011 / 1ST POUSHA 1933 W.P.(C).No.33557 of 2006(T) ----------------------------------------------- PETITIONER:- --------------------- ABDUL VAHAB P., S/O.ABDUL RAHIMAN, PATTATHIL VEEDU, NEDIYANAD, PANNUR P.O., THAMARASSERY, KOZHIKODE-673 573. BY ADV. SRI.T.M.SREEDHARAN SRI.V.P.NARAYANAN RESPONDENTS:- ------------------------- 1. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), KOZHIKODE. 2. THE COMMISSIONER OF INCOME TAX, KOZHIKODE. R1 & R2 BY SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES)SRI.P.K.RAVINDRANATHA MENON & STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.JOSE JOSEPH. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 19/12/2011, THE COURT ON 22/12/2011 DELIVERED THE FOLLOWING:- APPENDIX PETITIONER'S EXHIBITS:- ------------------------------------- RESPONDENT'S EXHIBITS:- -----------------------------------------NIL. ---------------------------------------- ---------------------------------------- Dated this, the 22[nd] day of December, 2011 JUDGMENT The petitioner in the above writ petition challenges theassessment order, Exhibit P1, purportedly passed under Section 175read with Section 174(3) of the Income Tax Act (for short “the Act”) asconfirmed in revision by Exhibit P4 order. 2. The facts of the case relevant for the consideration ofthe writ petition are that the petitioner was accosted by the SubInspector of Police, Koduvally while on night patrol duty andunaccounted cash amounting to Rs.1,74,000/- was seized from him.The seized amount was deposited with the Judicial First ClassMagistrate-I, Thamarasserry which, later, was released to thepetitioner-assessee after setting apart 33% towards income tax dues.Thereafter notice under Section 142(1) was issued to the petitionerand since no return was filed, a letter was issued communicating theproposal to complete the assessment ex parte. In response to thesaid communication, the petitioner-assessee filed a reply, pursuant towhich a statement was recorded from him, wherein the petitionerfurnished some materials to explain the source, which wasdisbelieved by the income tax authorities. The return of income filed by the assessee declaring total income of Rs.36,000/- was rejectedand assessment was completed adding the unaccounted cashrecovered from the petitioner by Exhibit P1 order. The subsequentrevision filed by the petitioner was also dismissed by Exhibit P4 order. 3. The counsel for the petitioner would urge before me thatSection 175 is only with respect to attachment and Section 175postulates a prima facie satisfaction of the assessing officer that theindividual against whom assessment is proposed may leave Indiaduring the assessment year or shortly after its expiry and it definitelypostulates a notice under Section 174(4) before an assessment iscompleted. The counsel for the petitioner would contend that thenotice issued under Section 142(1) cannot lead to an assessmentunder Section 174(4) and he is prejudiced in so far as the invocation ofSection 174(4) disentitles the petitioner from pursuing the appellateremedies. 4. The counsel for the Revenue, per contra, would contendthat it was after proper notice that assessment was completed byExhibit P1 and the assessment is one completed under Section 175and not under Section 174 and, hence, the non-obstante clause ofSection 175 provides for an assessment to be completed in the event of any person appears to be likely to transfer a property to defeat thecharge under Section 4 of the Act. 4. The counsel for the Revenue, per contra, would contendthat it was after proper notice that assessment was completed byExhibit P1 and the assessment is one completed under Section 175and not under Section 174 and, hence, the non-obstante clause ofSection 175 provides for an assessment to be completed in the event of any person appears to be likely to transfer a property to defeat thecharge under Section 4 of the Act. 5. I have given anxious consideration to the contentionsraised by both sides. Admittedly notice was issued under Section 142(1) of the Act and the assessment has to be completed in such casesunder Section 143 of the Act. Section 174, in my opinion, is a distinctassessment proceeding contemplated against persons leaving India todefeat the statutory charge of income tax created under Section 4 ofthe Act. The Section creates a charge of income tax on the income ofthe assessment year itself and postulates an assessment to be madeduring the current assessment year as distinguished from the chargeof income tax created as per Section 4 “in respect of the total incomeof the previous year of every person”. Any assessment under Section174 necessarily requires a notice to be issued under Section 4 andsuch notice can be issued if it “appears to the assessing officer thatsuch individual would leave India during the current assessment yearor shortly after its expiry and has no intention to return to India”. TheSection has been enacted to charge, levy and recover income from aperson who proposes to leave the country and not return inter alia withthe object of evading payment of tax for the income derived during the current year. From the word “appears” it can be inferred that theassessing officer should be prima facie satisfied of the intention of anindividual to leave the country and not to return, thus defeating theprovisions of the Act. Such prima facie satisfaction has to be recordedand notice issued before any assessment is completed under Section174. Section 175 similarly deals with transactions resulting inalienation of assets with the object of evading recovery of income taxand makes applicable sub-section (2), (3), (4), (5) and (6) of Section174 to all proceedings under the said section. Section 175 again, hasa non-obstante clause, providing for charge of tax on the income of thecurrent assessment year to defeat evasion of tax and recovery, bysham transactions and specifically provides that sub-section (4) ofSection 174 shall apply to any proceedings in the case of any suchperson as they apply to the case of persons leaving India. Theassessment order issued under Section 175 read with Section 174(3)in the instant case is not preceded with a notice under Section 174(4)and even in the order Exhibit P1 there is no whisper about theassessee-petitioner's likelihood of attempting to alienate his assets forthe purpose of avoiding tax. Evidently by invoking powers underSection 175 read with Section 174(3) the assessing officer has invoked special provisions for assessment invoking the non-obstanteclause to create charge of income tax on the income of the assesseenot liable to charge under Section 4 of the Act. There is no doubt thatthe assessing officer if having sufficient materials and on a prima facieconsideration, can invoke such powers under Section 175 as theSection itself provides a charge of income tax on such income of thecurrent assessment year. However, while invoking the same,necessarily it has to be on the prima facie satisfaction on aconsideration of the facts and circumstances and under a specificnotice issued under Section 174(4); which are both absent in theabove proceedings. The notice, evidently, was issued under Section142(1) invoking the charge of income tax provided under Section 4 onthe income of the previous year and the same is contemplated only onthe expiry of the previous year. The charge on such incomematerialises only after the close of the previous year and the beginningof the assessment year making the levy also possible only for theincome of the previous year after the close of the said year. 6. In the circumstance of the law based on the provisions,as explained above, the assessment order passed under Section 175read with Section 174(3) of the Act cannot be sustained on account of there being no prima facie consideration or satisfaction of theassessing officer that the assessee is likely to transfer property toavoid tax; which is a pre-requisite to create the charge of income taxon the income of the current year as provided under Section 175 andalso for the absence of any notice under Section 174(4); as againspecifically provided under Section 175. 7. In the circumstances, Exhibit P4 revisional order as wellas Exhibit P1 assessment order are set aside. It is noticed that theassessing officer has issued notice under Section 142(1) in the currentyear in which the cash was seized from the assessee, which may notbe permissible, since as noticed earlier there is no charge on theincome of the current year. However, at this distance of time, I am ofthe opinion that no separate notice be issued and the said noticeissued under Section 142(1) can be proceeded with as one issued inthe assessment year 2004-05 for assessing the income of the previousyear 2003-04 in which the seizure was made. The assessment shallbe completed in accordance with law as expeditiously as possible, atany rate, within a period of three months from the date of receipt of acopy of this judgment. The petitioner shall co-operate with theassessment proceedings and shall produce a copy of this judgment before the assessing officer within two weeks from the date of receiptof a certified copy, on which date the assessing officer shall give thepetitioner a date for hearing. In the event of the petitioner failing toproduce the certified copy as directed above, Exhibit P1 shall standrevived and the demand shall stand confirmed. The writ petition is allowed, however with no order as to costs. vku/- K.Vinod Chandran, Judge.