2021 (6) TMI 296 - HC - Income Tax

Court dismisses writ petition challenging tax notices, upholds jurisdiction, and allows assessment proceedings.

6th Sense Infrastructure Pvt. Ltd., Versus The Principal Director of Income Tax (Circle 2), Chennai, The Assistant Commissioner of Income Tax Central Circle - 2 (3), The Deputy Director of Income Tax (INV) Unit 4 (1), Chennai

The court dismissed the writ petition challenging notices under Section 153C and a show cause notice, allowing assessment proceedings to proceed. The ... Validity of issuance of notice under Section 153C - non recording of satisfaction by the IO - HELD THAT:- Referring to necessity for recording of satisfaction prior to transfer of files by the Investigating Officer to the AO having jurisdiction over an assessee in the present case, the recording of satisfaction prior to issuance to notice dated 30.09.2019 is apparent from the record and the argument of the petitioner to the contrary is rejected. In the light of the confirmation furnished now to the effect that the satisfaction had been issued by the IO only on 30.09.2019, notice dated 14.06.2019 was evidently bad in law. According to the petitioner, this fact vitiates all other and subsequent proceedings including the impugned notice dated 30.09.2019. The satisfaction notes now placed on record make it clear that as in June, 2019, there had been no recording of satisfaction by the IO and thus the issuance of notice under Section 153C on 14.06.2019 was erroneous since it was without satisfaction of the condition precedent. In fact, notice dated 14.06.2019 which has been placed in the typed set filed by petitioner at page 74 has caught Mr.Srinivas by surprise and it was only after this argument was specifically urged by the petitioner, that additional counter dated 11.02.2021 has come to be filed by R2 accompanied by a typed set containing the two satisfaction notes and note for transfer of files from IO to AO. Whether the issuance of notice dated 14.06.2019 without compliance of the statutory pre-condition, would vitiate all subsequent assessment proceedings including the impugned notice. R2, in his reply to the petitioner’s rejoinder, reiterates that the procedure followed by the respondents is in accordance with law. There is no reference in any of the respondents’ pleadings to notice dated 14.06.2019. The respondents thus disavow notice dated 14.06.2019 and their case rests on the position that satisfaction notes were drawn up on 30.09.2019 and it was only parallel and pursuant thereto that the impugned notice under Section 153C dated 30.09.2019 was issued. In this context, attention is drawn to Sections 282 and 282A of the Act as well as Rules 127 and 127A of the Income Tax Rules, 1962 (Rules) to justify the issuance of the impugned notice and to state that proper procedure has been followed. The issuance of the invalid notice dated 14.06.2019 does not compromise the assessment proceedings as, the invalid notice is one that does not exist in the eyes of the law and must thus be ignored. The provisions of Section 282 deal with service of notice in general terms and Section 282A with the authentication of notices for service by electronic means. In this case, it is not in dispute that notice dated 30.09.2019 is a valid notice qua the provisions of Sections 282 and 282A read with Rules 127 and 127A. The issuance of notice dated 14.06.2019 does not vitiate the impugned proceedings in any way. Issues Involved:1. Delay in setting up the unit and extension of time.2. Shareholder exit and identification of a purchaser.3. Summons under Section 131 of the Income Tax Act.4. Provisional attachment under Section 132(9B).5. Validity of notices under Section 153C.6. Satisfaction note requirement under Section 153C.7. Jurisdictional challenge and escapement of income.Detailed Analysis:1. Delay in Setting Up the Unit and Extension of Time:The petitioner, a limited company involved in software development and other IT/ITES businesses, was allotted 11.12 acres of land by SIPCOT under a 99-year lease deed dated 11.05.2005. The setting up of the unit was delayed, and the petitioner sought extensions of time from SIPCOT. Despite efforts, the petitioner was unable to commercially exploit the premises even after a decade.2. Shareholder Exit and Identification of a Purchaser:In 2016, a group of shareholders, wishing to exit the business, authorized an individual to find buyers for the company. The individual was entrusted with original documents, including the lease deed and share certificates, for due diligence purposes. A draft MOU was prepared but left blank regarding the purchaser details.3. Summons Under Section 131 of the Income Tax Act:The petitioner received summons under Section 131, leading to the discovery that documents entrusted to the individual were seized from a third party during a search. The petitioner clarified its non-involvement with the third party and provided the necessary documents to the Income Tax Department. However, the enquiry did not proceed further.4. Provisional Attachment Under Section 132(9B):A provisional attachment order was issued under Section 132(9B) attaching the petitioner’s property. Despite objections, no action was taken to lift the attachment, leading to the filing of W.P.No.14023 of 2019. The counter filed by the respondents stated that the attachment had lapsed after six months, rendering the petition infructuous.5. Validity of Notices Under Section 153C:Notices under Section 153C were issued for various assessment years, calling for returns. The petitioner argued that the proceedings were without jurisdiction as there was no income escaping assessment. The petitioner requested the satisfaction note and other relevant documents, which were not initially provided. The court held that the question of escapement of income is a matter for the assessing officer to determine and declined to interfere with the assumption of jurisdiction.6. Satisfaction Note Requirement Under Section 153C:The petitioner contended that no satisfaction note was furnished, a precondition for initiating proceedings under Section 153C. The respondents later produced satisfaction notes dated 30.09.2019, confirming compliance with the statutory requirement. The court found that the satisfaction notes were recorded as required, rejecting the petitioner’s argument.7. Jurisdictional Challenge and Escapement of Income:The court held that the question of jurisdiction is closely linked with the issue of escapement of income, which is to be determined by the assessing officer. The petitioner’s challenge to the assumption of jurisdiction was therefore not entertained. The court also addressed the invalid notice dated 14.06.2019, stating that it does not vitiate the valid notice dated 30.09.2019.Conclusion:The court dismissed the writ petition, allowing the assessment proceedings to continue in accordance with the law. The challenge to the impugned notices under Section 153C and the show cause notice was rejected, and the connected writ miscellaneous petitions were closed with no order as to costs.