2023 (5) TMI 583 - HC - Income Tax

Proceedings initiated u/s 10 of Black Money Act - additions by treating the petitioner as a beneficial owner of 'Romulus Assets Ltd., ('RAL') - ITAT has set-aside the additions holding inter alia that the Assessing Officer has not discharged the burden cast on him to prove that the petitioner is a beneficial owner of RAL - HELD THAT - Before issuing notice u/s 10(1) of the BM Act, the Revenue has to determine that assessee is the beneficial owner of undisclosed assets located outside India. Findings recorded with regard to the resolution of RAL's Board meeting show that the authority under the BM Act has placed reliance on at least two distinct transactions, which were subject matter of appeal before the ITAT. This leads to an inference that the Income Tax Authorities had sent information with regard to transactions in respect of which ITAT did not agree with AO's stand. At least two transactions in respect of which assessee/petitioner has been called upon to show cause were subject matter of appeal before the ITAT. Unless the orders passed by the ITAT are reversed or modified in the manner known to law, they cannot be held against the petitioner assessee. It is settled that ordinarily, this Court shall not interfere with a show cause notice in writ proceedings under Article 226 of the Constitution of India except under rare circumstances where the notice is issued without jurisdiction or in such cases where, even if the facts stated in the notices are assumed to be correct, no case is made out against the noticee. Proceedings under BM Act entails serious civil and criminal consequences. The two transactions noted above, show that there is no proper application of mind both at the stage of sending the information by the Income Tax Department and by the Authorities under BM Act before issuing the notice under challenge. This court cannot examine all allegations/transactions in this proceeding. But the two transactions examined by us clearly show that Income-Tax Department has sent information without proper verification and the Authorities under the BM Act have acted mechanically and sent the impugned notice without application of mind. As relevant to note that the search was conducted in 2015. ITAT has decided the appeal on July 30, 2021 and the IT department has sent the information on August 06, 2021 and the impugned notice has been issued on August 11, 2021. These dates lead to an inference that Income-Tax Department sent the information hurriedly, immediately after disposal of appeal by the ITAT and the authority under BM Act has also acted hurridly. In our considered view that atleast a portion of the notice is based on the allegations set aside by the ITAT. Therefore, the impugned notice requires re-examination in the hands of authorities under the BM Act - WP allowed.

Issues Involved:

1. Jurisdiction of the JCIT under the BM Act.
2. Validity of the notice issued under Section 10 of the BM Act.
3. Impact of ITAT's findings on the proceedings under the BM Act.
4. Requirement of determining 'jurisdictional facts' before issuing the notice.
5. Proper application of mind in issuing the notice.
6. Timeliness and procedural compliance in issuing the notice.

Issue-wise Detailed Analysis:

1. Jurisdiction of the JCIT under the BM Act:

The appellant argued that the JCIT lacked jurisdiction to issue the notice under the BM Act, as the proceedings were initiated without the necessary information under Section 10 of the BM Act. The court noted that Section 10(1) authorizes the Assessing Officer to issue a notice upon receipt of information from an Income Tax Authority. It was clarified that although the officers issuing notices under the BM Act and IT Act shared the same designation, they operated under different jurisdictions.

2. Validity of the notice issued under Section 10 of the BM Act:

The appellant contended that the notice was invalid as it was based on suspicion and not on any legal evidence proving that the appellant was the beneficial owner of RAL. The court observed that the ITAT had previously set aside similar additions, holding that the Assessing Officer had not discharged the burden of proof. The court emphasized that the notice must be clear, unambiguous, and based on verified facts.

3. Impact of ITAT's findings on the proceedings under the BM Act:

The court acknowledged that the ITAT had found that the Assessing Officer failed to prove that the appellant was the beneficial owner of RAL. The court noted that the Income Tax Authority is bound by the ITAT's findings unless reversed or modified by a higher authority. The court highlighted that some transactions mentioned in the notice were already addressed by the ITAT, and thus, could not be held against the appellant in the BM Act proceedings.

4. Requirement of determining 'jurisdictional facts' before issuing the notice:

The appellant argued that the Revenue must first determine whether the appellant is the beneficial owner of the alleged undisclosed assets before issuing the notice. The court agreed that the existence of 'jurisdictional facts' is a condition precedent for assuming jurisdiction. However, it was noted that the BM Act does not explicitly require such a determination before issuing a notice.

5. Proper application of mind in issuing the notice:

The court found that there was a lack of proper application of mind by the authorities under the BM Act. The notice included transactions that were already scrutinized and set aside by the ITAT. The court emphasized the need for the Revenue to refrain from issuing notices without proper verification and application of mind, as it leads to unnecessary litigation and harassment.

6. Timeliness and procedural compliance in issuing the notice:

The court observed that the notice was issued shortly after the ITAT's decision, indicating a hurried approach by the Income Tax Department. The court stressed the importance of adhering to procedural requirements and ensuring that notices are issued within the stipulated time frame and with necessary permissions, if required.

Conclusion:

The court allowed the writ appeal, quashed the notice dated August 11, 2021, and reserved liberty for the respondents to issue a fresh notice in accordance with the law, considering the ITAT's order dated July 30, 2021. The court highlighted the need for proper verification and application of mind before issuing notices under the BM Act to avoid unnecessary litigation and ensure fair play in action.

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