2019 (4) TMI 957 - SC - Income Tax

Supreme Court Remands Case for Fresh Decision, Emphasizes Addressing Substantial Legal Questions

Pr. Commissioner of Income Tax, Central 2 Versus M/s A.A. Estate Pvt. Ltd.

The Supreme Court allowed the appeal, set aside the High Court's order, and remanded the case for a fresh decision. The Court emphasized the necessity for ... Mandatory procedure u/s 260A for appeal before High Court - reopening u/s 147 - no factual foundation for issue of notice - no “escaped assessment” - no valid “reason to believe” - High Court dismissed the appeal stating no substantial question of law arises - distinction between the questions proposed by the appellant for admission of the appeal and the questions framed by the Court - HELD THAT:- The questions, which are proposed by the appellant, fall under Section 260A (2) (c) of the Act whereas the questions framed by the High Court fall under Section 260A (3) of the Act. The appeal is heard on merits only on the questions framed by the High Court under subsection (3) of Section 260A of the Act as provided u/s 260A (4). In other words, the appeal is heard only on the questions framed by the Court. If the High Court was of the view that the appeal did not involve any substantial question of law, it should have recorded a categorical finding to that effect saying that the questions proposed by the appellant either do not arise in the case or/and are not substantial questions of law so as to attract the rigor of Section 260A of the Act for its admission and accordingly should have dismissed the appeal in limine. In our view, the respondent had a right to argue “at the time of hearing” of the appeal that the questions framed were not involved in the appeal and this the respondent could urge by taking recourse to subsection (5) of Section 260A of the Act. But this stage in this case did not arise because as mentioned above, the High Court neither admitted the appeal nor framed any question as required under subsection (3) of Section 260A of the Act. The expression “such question” referred to in subsection (5) of Section 260A of the Act means the questions which are framed by the High Court under subsection (3) of Section 260A at the time of admission of the appeal and not the one proposed in Section 260A (2) (c) of the Act by the appellant. High Court should have seen that substantial questions of law do arise in the appeal for being answered on their respective merits. The impugned order is set aside. The case is remanded to the High Court for deciding the appeal filed by the Commissioner of Income Tax-Mumbai afresh on merits as provided u/s 260A( 4) of the Act to answer the three questions framed by this Court under Section 260A( 3). Issues involved:1. Validity of notice issued under Section 148 of the Income Tax Act.2. Justifiability of addition made to the total income of the assessee.3. Compliance with procedural requirements under Section 260A of the Act by the High Court.Issue 1: Validity of notice under Section 148:The case involved a notice issued under Section 148 of the Income Tax Act seeking to reopen the assessment of the respondent-assessee for the assessment year 2008-09. The notice proposed an addition to the total income of the assessee based on a document seized during a search operation at the premises of another assessee. The respondent-assessee objected to the notice on grounds of lack of factual foundation, absence of 'escaped assessment' case, and absence of 'reason to believe.' Despite objections, the Assessing Officer proceeded to add the proposed sum to the total income, justifying it as a case of escaped assessment with sufficient material. The CIT (appeal) upheld the addition, but the ITAT later set aside the order.Issue 2: Justifiability of addition to total income:The Commissioner of Income Tax appealed to the High Court under Section 260A of the Act, challenging the ITAT's decision. The High Court, however, dismissed the appeal without formulating any substantial question of law as required under Section 260A. The Supreme Court found that the High Court failed to follow the mandatory procedure, emphasizing that the questions framed by the Court are crucial for hearing the appeal. The Court highlighted the necessity for the High Court to address specific substantial questions of law related to the validity of the notice, existence of escaped assessment, and the basis for adding the sum to the total income.Issue 3: Compliance with procedural requirements under Section 260A:The Supreme Court concluded that the High Court did not adhere to the prescribed procedure under Section 260A of the Act. It noted that the High Court should have framed substantial questions of law for consideration and provided a categorical finding if no substantial question arose. The Court emphasized the importance of addressing the questions framed by the Court for hearing the appeal on its merits. Consequently, the Supreme Court allowed the appeal, set aside the High Court's order, and remanded the case for a fresh decision, instructing the High Court to address the specific substantial questions of law identified by the Supreme Court.In conclusion, the Supreme Court's judgment focused on the procedural irregularities in the High Court's handling of the appeal, emphasizing the importance of framing substantial questions of law and following the prescribed procedure under Section 260A of the Income Tax Act.