2021 (4) TMI 605 - HC - Income Tax

Order set aside and appeals remanded, allowing assessee to raise non-compliance with jurisdictional parameters of section 153C

Mr. Peter Vaz, and Mr. Edgar Braz Afonso, Versus The Commissioner of Income Tax, Central Circle, Bangalore., The Assistant Commissioner of Income Tax, Central Circle, Panaji, Goa., The Principle Commissioner of Income, Panaji, Goa.

Bombay HC set aside the ITAT order and remanded the appeals to the ITAT, directing that the assessee be permitted to raise non-compliance with the ... Assessment u/s 153C - compliance or non-compliance with the jurisdictional parameters necessary to initiate action under Section 153C - Jurisdiction to initiate proceedings under Section 153C - jurisdictional issue was not permitted to be raised before the ITAT, inter alia on the ground that there was a necessity of filing cross-objections expressly raising such a jurisdictional issue and because there was no sufficient cause shown for condoning the delay of 248 days in raising such jurisdictional issue by filing cross-objections - HELD THAT:- In the present case, it is not as if the issue of non-fulfillment of jurisdictional parameters of Section 153C was raised but rejected by the CIT (Appeals). Such an issue was not raised before the CIT (Appeals). Having regard to the provisions of Rule 27 of the Appellate Tribunal Rules, 1963 as also the provisions of Section 260A(7) read with Order XLI Rule 22 of CPC as interpreted by the Hon'ble Supreme Court in S. Nazeer Ahmed [2007 (1) TMI 549 - SUPREME COURT]we think that the ITAT should not have precluded the assessees from raising the issue in the appeals instituted by the Revenue, even without the necessity of filing any cross18 objections. Accordingly, the additional substantial question of law is required to be answered in favor of the Appellants/assessees and against the Revenue. Condonation of delay of 248 days in filing cross-objections - Even otherwise in the context of the substantial question of law No.4, we think that sufficient cause was made out by the Appellants to seek condonation of delay of 248 days in filing cross-objections. The application for condonation of delay was accompanied by an affidavit and there was no necessity of filing an affidavit of a legal advisor or Chartered Accountant to the effect that they had tendered some incorrect advice to the assessees. Besides, if the impugned judgment and order made by the ITAT is perused, then, it is apparent that the ITAT has not focused on the issue of whether there was sufficient cause for explaining 248 days delay in instituting cross-objections, but rather the ITAT has faulted the assessees for not raising the issue of non-compliance with jurisdictional parameters, either soon after they received notices under Section 153C of the IT Act or before the Assessing Officer in the first instance. According to us, these were not relevant considerations at the stage of deciding whether sufficient cause was shown to explain 248 days delay in instituting cross-objections. The ITAT, in this case, has failed to advert to the principles laid down by the Hon'ble Supreme Court in N. Balakrishnan [1998 (9) TMI 602 - SUPREME COURT] and misinterpret the provisions of section 124 of the IT act. For all these reasons even the substantial question of law No.4 is required to be answered in favor of the assessee and against the Revenue. This is assuming that there was any necessity of filing the cross-objections to raise a jurisdictional issue only to support the order of CIT(appeals) that was entirely in favor of the assesses. In paragraph 27 of the impugned judgment and order made by the ITAT, there is a reference to the ITAT specifically inquiring with the departmental representative to produce the satisfaction note recorded by the Assessing Officer of the person searched. The order records that the departmental representative submitted that the assessment files are not immediately available, but in the event, the Tribunal was pleased to admit the cross-objections, then, the same will be produced as the files were split and were at the office of the Assessing Officer at Central Circle as also the Assessing Officer of the assessee. The impugned order of the ITAT also refers to verification of certain facts in the context of action under Section 153C of the IT Act. Having regard to the aforesaid, we agree with Ms. Linhares that the matter will have to be remanded to the ITAT for fresh consideration of appeals instituted by the Revenue after permitting the assessee to raise the issue of non-compliance with the jurisdictional parameters of Section 153C of the IT Act. Accordingly, we set aside the impugned judgment and order in so far as it concerns the present assessees and remand the matters to the ITAT with a direction to permit the assessee to raise the issue of compliance or non-compliance with the jurisdictional parameters necessary to initiate action under Section 153C of the IT Act. Issues Involved:1. Applicability of Section 2(22)(e) of the IT Act for deemed dividend.2. Consideration of transactions recorded in company and firm books as incriminating material.3. Interpretation of running current account between the company and the firm.4. Rejection of cross objections due to delay.5. Jurisdictional parameters under Section 153C of the IT Act.Issue-wise Detailed Analysis:1. Applicability of Section 2(22)(e) of the IT Act for Deemed Dividend:The court examined whether the amounts reflected in the books of the firm as payable to the company should be treated as 'deemed dividend' under Section 2(22)(e) of the IT Act. The Assessing Officer held that these amounts were 'loans and advances' and thus should be treated as 'deemed dividend'. However, the CIT (Appeals) set aside this view, which was later challenged by the Revenue before the ITAT.2. Consideration of Transactions Recorded in Company and Firm Books as Incriminating Material:The court reviewed whether transactions recorded in the books of the company and the firm could be regarded as incriminating material against the appellants, who were not parties to these transactions. The ITAT had previously held these transactions as incriminating, which was contested by the appellants.3. Interpretation of Running Current Account Between the Company and the Firm:The appellants argued that the account between the company and the firm was a running current account, which should not attract the provisions of Section 2(22)(e). The ITAT's interpretation of this aspect was under scrutiny.4. Rejection of Cross Objections Due to Delay:The ITAT dismissed the cross-objections filed by the assessees due to a delay of 248 days. The court analyzed whether sufficient cause was shown for the delay and whether the ITAT was justified in refusing to condone it. The court emphasized a liberal approach in condonation of delay, citing precedents that prioritize substantial justice over procedural technicalities.5. Jurisdictional Parameters Under Section 153C of the IT Act:The court framed an additional substantial question of law regarding whether the jurisdictional parameters under Section 153C were fulfilled. The appellants contended that no books of accounts belonging to them were found during the search, a precondition for invoking Section 153C. The court discussed the amendments to Section 153C and concluded that the provisions applicable were those amended up to 2013, which required the seized documents to belong to the person against whom proceedings were initiated.Conclusion and Remand:The court held that the ITAT should have allowed the assessees to raise the jurisdictional issue without the necessity of filing cross-objections, as per Rule 27 of the Appellate Tribunal Rules, 1963. The court also found that sufficient cause was shown for the delay in filing cross-objections. Consequently, the court set aside the ITAT's order and remanded the matter for fresh consideration, directing the ITAT to permit the assessees to raise the issue of compliance with jurisdictional parameters under Section 153C. All other contentions were kept open for consideration by the ITAT.Disposition:The appeals were disposed of with no order as to costs, and the ITAT was requested to expedite the disposal of the appeals by granting full opportunity to both parties.