Vijay Nathulal Sharma vs Deputy Commissioner of Income Tax

1.An assessee filed this writ petition under Article 226 of the Constitution of India, seeking for a Writ of Mandamus or other direction seeking to declare the action of the Respondent No.1/Deputy Commissioner of Income Tax, Central Circle-1, Guntur of Andhra Pradesh in issuing impugned Orders dated 27.03.2022 and 11.03.2022, demand notices dated 27.03.2022 and 11.03.2022 and notice under Section 274 r/w. Section 271(1)(c) dated 27.03.2022 as illegal, arbitrary and violative of Article 14 and Article 21 of the Constitution of India and consequently direct the respondent authorities to decide the proceedings in accordance with law under the Income Tax Act.

2. Having found that cash receipts by writ petitioner amounting to Rs.3,05,00,000/- were not reflected in his books of account, after notice under Section 142(1) of the Income Tax Act, Respondent No.1 passed the impugned orders of assessment. In this writ petition, the challenge is on the assessment orders as well as demand notices and penalty notices, passed by respondent No.1 for the assessment years 2013- 2014 to 2020-2021.

3.This court has heard the submissions of Mr.Nerella S.V.Raviteja., learned counsel for the writ petitioner and Ms.M.Kiranmayee., Learned Senior Standing Counsel for Respondent No.1 Income Tax department.

4.From the record and from the submissions of learned counsels on both sides a few undisputed facts need a mention. The writ petitioner is an individual income tax assessee having Pan: No.AGPPS8124-A. He is aged about 75 Years and is a resident of Mumbai of State of Maharastha. He was regularly filing income tax returns at Mumbai with Assessing Officer Ward 19 (1)(3) at Mumbai. His main source of income is from investments under other income heads and claims to have never been involved in any business. An immovable property at Lancherster Road, Guntur City of Andhra Pradesh is his ancestral property in which  he had 1/6th share. He along with his family members/Sharma Group sold their respective shares in that property under a registered sale deed dated 24.07.2012 in which the petitioner, towards his share, got the sale consideration of Rs.2,10,00,000/-. The purchaser of the property was M/s.Bharathi Castles Private Limited represented by its Director Sri Polisetty Somasundaram of Guntur City. While so, on 28.01.2020 at Guntur, a search and seizure operation was conducted by the Income Tax Authorities against M/s. Polisetty Somasundaram Group in terms of Section 132 of Income Tax Act 1961. During that search and seizure operation a pen-drive was recovered and copies of its c ontents were recovered. The Income Tax Authorities found various unaccounted cash transactions between M/s.Polisetty Somasundaram Group and this writ petitioner. According to the authorities that material includes cash receipts of the financial year 2012 to 2013 relevant A.Y-2013-2014 to a tune of Rs.3,05,00,000/-. It is in that context of facts the case was centralised with DCIT, Central Circle-1, Guntur by virtue of Orders passed by Principle Commissioner of Income Tax, Vijayawada in F.No.127/Pr.CIT/VJA/2020-21 dated 16.02.2021. That Order was made under Section 127 of Income Tax Act. Thereafter the authorities proceeded under Section 153C and assessments were completed for the years 2013-2014 to 2020-2021 under Section 153C of Income Tax Act.

5.It is in the back drop of the above facts, the controversy has arisen between the assessee and the Revenue. Learned Counsel for the writ petitioner submits certain prime contentions and subsidiary contentions. Learned standing counsel for the Revenue/Respondents refuted the correctness and efficacy of such contentions.

6.The prime contentions raised for the writ petitioner are that the writ petitioner being an assessee at Mumbai, transfer of a case as provided under Section 127 of Income Tax Act could be passed by the Authorities at Mumbai, but that was not done. On the other hand, Principal Commissioner of Income Tax, Vijayawada of Andhra Pradesh transferred the case. The search and seizure proceedings that took place in the premises of M/s.Polisetty Somasundaram Group, Guntur, if disclosed material concerning writ petitioner, the proceedings for assessment should be taken up by the Authorities at Mumbai. But in this case Respondent No.1/Authorities at Guntur itself proceeded and that is in violation of Section 153C of the Income Tax Act. That the petitioner has no other efficacious alternative remedy except to seek the redressal before this court. Therefore, the impugned notices and orders can not be allowed to survive.

7.In response to the above contentions, the learned standing counsel for Revenue/respondents contended that the material obtained during search and seizure action was incriminating as it pointed out the writ petitioner avoided disclosure of income and therefore the respondent No.1 initiated scrutiny proceedings under Section 153C and this writ petitioner never questioned the jurisdiction of Assessing Officer and submitted himself to the jurisdiction of Assessing Officer and therefore he cannot now turn around and contend that the Assessing Officer had no jurisdiction to pass the Order of assessment in his case. Order under Section 127 of the Income Tax Act passed by the Principle Income Tax Officer, Vijayawada dated 16.02.2021 granted jurisdiction to DCIT, Central Circle-1, Guntur and therefore the scrutiny proceedings are valid. As against the Order of assessment an appeal lies to the Commissioner of Income Tax (Appeals) but the petitioner without availing that remedy by way of appeal approached this court and therefore this Writ petition is not maintainable.

8.The subsidiary contentions of the writ petitioner are that he had no nexus with M/s.Polisetty Somasundaram Group and there were no cash transaction and the respondents authority did not provide to him the so called seized documents or material so as to enable him to furnish appropriate reply. That the notices issued by the respondent authority are contrary to each other since at one breath they alleged that this writ petitioner paid cash to M/s.Polisetty Somasundaram but at another breath they claim that this writ petitioner received cash from M/s.Polisetty Somasundaram group. That the notices did not disclose the material. Learned counsel for the writ petitioner submits that appropriate opportunities of hearing was never given to him and the principles of natural justice were violated.

9.As against the above subsidiary contentions the learned standing counsel for the respondents submit that the relevant material was furnished through notices under Section 142(1) of the Income Tax Act and petitioner though submitted written explanation did not submit any relevant documents such as bank statements etc and despite summons issued to the petitioner on 23.03.2022 he did not appear before the Assessing Officer either personally or through an authorised representative to present his case and except submitting written explanations devoid of any supporting documents in evidence of his defence. Based on the seized pen-drive and the material contained in it, satisfaction was drawn and therefore proceedings under Section 153C of the Income Tax Act were initiated.

10.The rival contentions indicate that the writ petitioner challenges the legal competence of the orders and proceedings passed under Section 153C by Respondent No.1 as well as the legality of transfer orders passed under Section 127 based on which the proceedings under Section 153C were taken up by Respondent No.1.

11.In view of the rival contentions the following prime questions fall

for consideration before us:-

(1) Whether the Order dated 16.02.2021 of learned Principal Commissioner of Income Tax, Vijayawada transferring the Income Tax jurisdiction of writ petitioner from Mumbai of Maharastha State to Guntur of A.P.State enabling Respondent No.1 to pass the impugned orders is arbitrary and is in violation of Section 127 of Income Tax Act?

(2) Whether Respondent No.1 had no jurisdiction against the writ petitioner under Section 153C to initiate scrutiny proceedings against the writ petitioner and pass assessment Orders?

(3)Whether transfer of a case under Section 127 of Income Tax Act cannot be questioned after initiation of scrutiny proceedings under Section 153C since writ petitioner did not question the jurisdiction at that time and submitted himself to the jurisdiction of Respondent No.1?

(4)As against the Orders of assessment which are impugned only an appeal lies to the Commissioner of Income Tax (Appeals) and this writ petition is not maintainable?

12.Respondent No.1 gained input about the alleged un-accounted cash transactions between the writ petitioner and M/s.Polisetty Somasundaram Group on 28.01.2020 during the course of said search and seizure proceedings conducted at Guntur. It was then, Respondent No.1 initiated proceedings under Section 153C of the Income Tax Act. By then the writ petitioner was not within the jurisdiction of Respondent No.1 and he was an assessee at Mumbai. For convenience, Section 153C of the Income Tax Act is extracted here:

“153C. Assessment of income of any other person–

(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that-

(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or

(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to,

a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A.

Provided that in case of such other person, the reference of the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person. 

Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated.

(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date of furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year-

(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or

(b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or

(c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.

(3) Nothing contained in this section shall apply in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of April, 2021.

Thus the operating field of Section 153C of Income Tax Act is that where during the course of search if any material is found pertaining to a person other than the persons searched, the Assessing Officer who found such material is ordained to hand over the material to that Assessing Officer who holds the jurisdiction over such other person and thereafter the other Assessing Officer shall proceed against such other person and issue notices to such other person and assess or re-assess the income of such other person in accordance with provisions of Section 153(A) of the Income Tax Act, 1961.

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Vijay Nathulal Sharma

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