Quashment of show cause notice on the grounds of being without jurisdiction and barred limitation : High Court of Madhya Pradesh

HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 D.B.:Hon ble Shri P.K. Jaiswal Hon ble Shri Sunil Kumar Awasthi JJ Writ Petition No.536 2018 JOINT COMMISSIONER OF INCOME TAX Shri Sumeet Nema learned Senior Advocate with Shri Manoj Munshi learned counsel for the petitioner Ms. Veena Mandlik learned counsel for the respondent of the Income Tax Act 1961 on the ground that the first notice was issued by the Deputy Commissioner of Income Tax on 20.12.2016 and thus the second notice was issued under Section 274 read with Section 271 D of the Income Tax Act after a period of six months from the date of initiation of proceeding is barred by time Brief facts of the case are that the petitioner is an assessee of the respondent department and a search was conducted by the Income Tax Authority under Section 132 of HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 the Income Tax Act in the residential premises of the petitioner and after conclusion of search notice under Section 153A of the Income Tax Act was served upon the petitioner on 28.9.2015 for the block assessment for the Assessment Years 2009 10 to 2014 15. After receiving the reply from the petitioner on 26.3.2016 the Income Tax Authority commenced the assessment proceedings by issuing notice dated 2.5.2016 under Section 143(2) of the Income Tax Act. The Assessing Officer thereafter sought information by making assessment of the assessment year 2009 10 to 2015 16 and issued notice dated 5.5.2016 under Section 142 of the Income Tax Act in the form of questionnaire It is not in dispute that during the pendency of the assessment proceedings the Assessing Officer issued a show cause notice dated 20.12.2016noticing non compliances of the provisions of Section 269 SS and 269 T of the Income Tax Act seeking explanation as to why penalty for violation of provisions of Section 269 SS and 269 T shall not be attracted. The show cause notice Annexure P 5 reads as under : “To Shri Nitin Agrawal 76 Mall Road Mhow Distt. Indore 453441 Sub: Show cause notice during the course of assessment proceedings u s 153A r.w.s. 143(3 for A.Y. 2009 10 to 2014 15 and u s 143(3) for A.Y. 2015 16 reg. In connection with the pending proceedings mentioned above you are hereby show caused on the issued mentioned below the issue wise reply is required vide this show cause failing which it shall be assumed that you have nothing to say on the issue issue and HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 addition will be made on the total income in the assessment year as per the issue. The issues on which you are show caused as mentioned hereunder : 1. On the basis of seized documents and in totality of the facts Tally account in Lenovo Laptop having “XYZ 0809 2” seized during the course of search and on the strength of show cause issued in case of PATH it is clear that during A.Y. 2009 10 cash loan received by you is Rs.31 49 500 from PATH show cause as to why penalty u s 269SS shall not be attracted on this issue. Also during A.Y. 2009 10 cash loan repaid by you to PATH is Rs.15 75 700 show cause as to why penalty u s 269T shall not be attracted on this issue. Further it is clear that during A.Y. 2010 11 cash loan received by you is Rs.29 94 800 from PATH show cause as to why penalty u s 269SS shall not be attracted on this issue. Also during AY 2009 10 cash loan repaid by you to PATH is Rs.27 800 show cause as to why penalty u s 269T shall not be attracted on this You are required to attend my office on 26.12.2016 at 3.00 PM either in person or by a representative duly authorized in writing in this behalf or produce or cause there to be produced at the said time any document accounts and any other evidence on which you may rely in support of the return filed by Thereafter the Assessment Officer passed the assessment order on 28.12.2016 vide Annexure A 7. Para 8.8 of the order dated 28.12.2016 is relevant which reads as under : “On the basis of above sheet it is clear that during A.Y 2009 10 cash loan received by Shri Nitin Agrawal from PATH is Rs.31 49 500 . Also during A.Y.2009 10 cash loan repaid by Shri Nitin Agrawal to PATH is Rs.15 75 700 . Further it is clear that during A.Y. 2010 11 cash loan received by Shri Nitin Agrawal from PATH is Rs.29 94 800 . Also during AY 2009 10 cash loan repaid by Shri Nitin Agrawal to PATH is Rs.27 800. Further the matter is being referred to Joint Commissioner of Income TaxIndore for issuing notice and imposing penalty u s 271D and 271E of the Act ” From the notice Annexure P 5 as well as the assessment HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 order dated 28.12.2016 nothing was mentioned about the initiation of the proceedings under Section 271 D and 271 E of the Act. The Assessment Officer has only show cause the petitioner under Section 269 SS and 269 T to examine the violation of the above mentioned provisions of the Income Tax From the pleadings made in the writ petition it is also an admitted fact that the Deputy Commissioner of Income Tax was not competent authority in initiation of penalty proceeding under Section 271 D and 271 E of the Income Tax Act. The first notice under Section 271 D 271 E read with Section 274 of the Income Tax Act have been issued by the Joint Director of Commissioner of Income Tax on 22.9.2017. Thus the penalty proceedings under Section 271 D and 271 E have been initiated w.e.f. 22.9.2017 Section 275(1)of the Income Tax Act 1961 provides that penalty can be levied only before completion of financial year in which assessment order was passed or six months from the end of month in which penalty proceeding is initiated which ever period expired later. The stand of the respondent is that the show cause notice dated 20.12.2016 issued during the assessment proceedings by the Deputy Commissioner Income Tax Indore cannot be termed as notice under Section 271 D 271 E of the Income Tax Act in regard to initiation of penal proceeding under the aforesaid provision they Deputy Commissioner has no jurisdiction under this provision. The penalty under the aforesaid is independent from the assessment proceedings and both proceedings cannot be HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 mixed up. The Deputy Commissioner of Income Tax on the basis of Assessment Order in the case of the petitioner under Section 153 A read with Section 143(3) of the Income Tax Act on 20.12.2016 referred the case to the respondent for initiation of penalty proceeding under Section 271 D and 271 E of the Act in Assessment Year 2009 10 and 2011 vide letter dated 27.4.2017 on receiving the information from the office by the Deputy Commissioner of Income Tax the respondent issued first notice under Section 271 D and 271 E on 22.9.2017 to the petitioner. Hence the penalty proceeding has been initiated w.e.f. 22.9.2017 which is getting barred on 31.3.2018. The Deputy Commissioner of Income Tax is not empowered to pass the order under Section 271 D and 271 E read with Section 275 of the Income Tax Act. It is only Joint Commissioner of Income Tax who is empowered to initiate as well as impose the penalty under Section 271 D or 271 E of the Income Tax Act. Thus the limitation period of six months to be reckoned from the end of month of initiation of the penalty proceeding by the Joint Commissioner of Income Tax and not from the date of Learned Senior counsel for the petitioner has drawn our attention to the contents of notice dated 20.12.2016 issued by the Deputy Commissioner of Income Tax during the assessment proceedings and Section 274 269 SS 269 T 271 D 274 E and 275 of the Income Tax Act and submitted that the limitation for initiation of penalty proceeding for imposition of penalty under Section 271D 271E of the Income Tax Act HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 start from 20.12.2016 and under Section 275(1) the limitation of six months start from 20.12.2016. The second notice issued on 22.9.2017 is barred by time and the learned Joint Commissioner of Income Tax had no jurisdiction to issue the same. To support the aforesaid he has placed reliance on the decision of the Calcutta High Court in the case of CIT Central III V s. Narayani & SonsLtd. reported as CALHC)289 CTR301 decision of the Delhi High Court in the case of Commissioner of Income Tax VI V s.Worldwide Township Projects Ltd. 2014CTR 444in the case of PCIT V s. JKD Capital Finlease Ltd.378 ITR 640Commissinoer of Income Tax2 V s. Mahesh Wood Products Pvt. Ltd. 394 ITR 312the decision of the Apex Court in the case of Commissioner of Income Tax V s. Hissaria Brothers 386 ITR 719and the decision of Delhi High court in the case of CIT V s. JKD Capital & Finlease Ltd. 378 ITR 640ITR 327 Grihalakshmi Vision V s. The Additional Commissioner of Income Tax 2015 379 ITR 100Income Tax Officer V s. Ramkishore Rewaram Tada 2006 202 CTR MP) 404 and the decision of the Supreme Court in the case of Commissioner of Income tax Panchkula V s. Jai Laxmi Rice Mills Ambala City 2015taxmann.com 75the starting point HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 would be “initiation of penalty proceedings”. In the case of CIT Central III V s. Narayani & SonsLtd of the Income Tax Act. After passing of assessment order on the same date ie. 26.12.2016 itself the Assessing Officer issued a notice for imposition of penalty under Section 271(D)(1) of the Income Tax Act. The Division Bench of Calcutta High Court relied on the judgment of Rajasthan High Court in the case of Commissioner of Income Tax V s. Jitendra Singh Rathore has held that the Assessing Officer issued a notice dated 26.12.2006 on assessee for imposition of penalty under Section 271(D) and thereafter he referred the matter to the Additional Commissioner for necessary action. The Additional Commissioner issued the assessee a fresh notice dated 26.7.2007 and by order dated 21.9.2007 the learned Additional Commissioner levied penalty under Section 271of the Income Tax Act to examine vide show HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 cause notice dated 20.12.2016 ie. during the pendency of the assessment proceedings to examine the violation of these provisions of the Income Tax Act. No notice under Section 270 D or 279 E read with Section 279 of the Income Tax Act was ever issued by the Assessing Officer. The petitioner was wrongly attempted to establish the show cause notice dated 20.12.2016 as a legal notice under Section 271 D 271 E read with Section 274 of the Income Tax Act. 11. Section 271 D and 271 E provide that levy of penalty in contravention of Section 269 SS and 269 T as per sub section(2) to both these sections in penalty imposition under sub section of these provisions shall be imposed by the Joint Commissioner of Income Tax. From the statutory provision it is clear that the competent authority to levy the penalty is Joint Commissioner therefore only the Joint Commissioner can initiate proceeding for levy of penalty Insofar as the judgment of the Apex Court in D.M.Manasvi V s. Commissioner of Income Tax Gujarat II 86 ITR 557 is concerned that was a case where penalty was levied under Section 271(1)(C) and as is evident from the provision itself the proceedings under that Section are to be initiated on the basis of the satisfaction of the officers mentioned therein including the Assessing Officer Unlike the provisions of Section 271(1)(c) under the provisions of Section 271D and E the exclusive authority is conferred on the Joint Commissioner. Therefore the principles laid down in the judgment of the Apex Court cannot be called in aid to impugned the present action. Therefore the first HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 contention raised by the learned counsel for the assessee deserves to be rejected and we do so. 13. Considering the aforesaid we are of the view that first show cause notice without initiating proceedings for imposition of penalty under Section 271 D (was issued on 22.9.2017). It is also well settled that a penalty under this provision is independent under assessment. The action inviting imposition of penalty is granting of loans above the prescribed limitation otherwise then through banking channels and as such infringement of Section 269 SS of the Income Tax Act is not related to the income that may be assessed or finally adjudicated. We find no force on the contention advanced by the learned Senior counsel for the petitioner. The writ petition has no merit and is accordingly dismissed. No costs HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 HIGH COURT OF MADHYA PRADESH : INDORE BENCH D.B.:Hon ble Shri P.K. Jaiswal Hon ble Shri S.K. Awasthi JJ Writ Petition No.536 2018 JOINT COMMISSIONER OF INCOME TAX ORDER FOR CONSIDERATION (P.K. JAISWAL JUDGE 2 2018 HON BLE SHRI S.K. AWASTHI J (S.K. Awasthi JUDGE 2 2018 Post for _ 01 3 2018 JUDGE HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 Writ Petition No.536 2018 Indore dated 12.2.2018 Shri Sumeet Nema learned Senior Advocate with Shri Manoj Munshi learned counsel for the petitioner Ms. Veena Mandlik learned counsel for the respondent Reserved for orders HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE ...1... W.P.No.536 2018 Writ Petition No.536 2018 Indore dated 1.3.2018 Shri Sumeet Nema learned Senior Advocate with Shri Manoj Munshi learned counsel for the petitioner Ms. Veena Mandlik learned counsel for the respondent Order passed separately signed and dated

Summary: The question as to validity of quashing the show cause notice on grounds of being without jurisdiction was examined by THE HIGH COURT OF MADHYA PRADESH , consisting of Justice P.K Jaiswal in the matter of  Nitin Agrawal v. joint Commissioner Of Income Tax [Writ Petition No. 536 Of 2018] on 1. 03 .2018. Nitin Agrawal vs Joint Commissioner Of Income Tax on 1 March, 2018The facts of the case were that the petitioner is an assessee of the respondent department and a search was conducted by the Income Tax Authority under Section 132 of the Income Tax Act, in the residential premises of the petitioner and after conclusion of search notice under Section 153A of the Income Tax Act, was served upon the petitioner on 28.9.2015, for the block assessment for the Assessment Years 2009-10 to 2014-15. After receiving the reply from the petitioner on 26.3.2016, the Income Tax Authority commenced the assessment proceedings by issuing notice dated 2.5.2016 under Section 143(2) of the Income Tax Act. The Assessing Officer thereafter, sought information by making assessment of the assessment year 2009-10 to 2015-16 and issued notice dated 5.5.2016 under Section 142 of the Income Tax Act in the form of questionnaire. Section 275(1) (C) of the Income Tax Act, 1961 provides that penalty can be levied only before completion of financial year in which assessment order was passed or six months from the end of month in which penalty proceeding is initiated, which ever period expired later. On the basis of seized documents and in totality of the facts Tally account in Lenovo Laptop having “XYZ 0809 2”, seized during the course of search and on the strength of show cause issued in case of PATH, it is clear that cash loan received by you is Rs.31,49,500/- from PATH show cause as to why penalty u/s 269SS shall not be attracted on this issue. Also  cash loan repaid by you to PATH is Rs.15,75,700/- show cause as to why penalty u/s 269T shall not be attracted on this issue. Further it is clear that  cash loan received by you is Rs.29,94,800/- from PATH show cause as to why penalty u/s 269SS shall not be attracted on this issue. Also  cash loan repaid by you to PATH is Rs.27,800/- show cause as to why penalty u/s 269T shall not be attracted on this issue. The learned counsel for the petitioner contended  limitation for initiation of penalty proceeding for imposition of penalty under Section 271D, 271E of the Income Tax Act start from 20.12.2016 and under Section 275(1) (C), the limitation of six months start from 20.12.2016. The second notice issued on 22.9.2017 is barred by time and the learned Joint Commissioner of Income Tax had no jurisdiction to issue the same. The High Court of Madhya Pradesh held that the first show cause notice without initiating proceedings for imposition of penalty under Section 271-D was issued on 22.9.2017. It is also well settled that a penalty under this provision is independent under assessment. The action inviting imposition of penalty is granting of loans above the prescribed limitation otherwise then through banking channels and as such infringement of Section 269-SS of the Income Tax Act is not related to the income that may be assessed or finally adjudicated. We find no force on the contention advanced by the learned Senior counsel for the petitioner. The writ petition has no merit and is, accordingly, dismissed.