Without independent application of mind by any of officer at different stages can render proceedings void. – Officers must be careful.

[DEVKUMAR KOTHARI]

Without independent application of mind by any of officer at different stages  can render proceedings void. – Officers must be careful .

Legal procedures:

In legal procedures concerned officer must comply with procedure laid down in law , as per law with care, caution and application of mind. It must also so appear from records that  he was cautious, careful and applied his mind accordingly.

In case in a particular procedure, law prescribes role of different authorities at different stages, then at each stage concerned officer must apply his mind independently and it must appear from records that he has taken due care and applied his mind. If it is not apparent then it can be a case of doing work  without  proper application of mind or in simple words it can be said as  done  absent mindedly, in mechanical manner just to show compliance with procedure prescribed.

A work done without proper /required notes writing:

If work is done without proper/ required notes and writing and just as per format, though a noting is needed, then  it can be considered as  done without proper application of mind.

A work done in haste, in superfast speed though time was available:

If a work is done in haste, in superfast speed though time was available and without proper recording and reasoning, then it can be inferred a case of non-application of mind.

Work done at last moment:

If a work is done at last moment or few days before limitation, then also it can be a case of non-application of mind, particularly if there is no recording of reasoning and seemingly, just signature is placed to show compliance. In such case also non-application of mind can be found.

Reassessment based on external information:

A large number of cases are taken up for reassessment based on information received from other authorities, in course of other  proceedings in case of assessee or other persons, investigation reports etc.

Assessment / Reassessment under Income tax Act:

In case of assessment /  reassessment under income tax Act in different proceedings for different years there can be role of different officers like Assessing officer, jurisdictional Additional  CIT,  joint CIT, Principal CIT etc.

Therefore, the assessee and concerned persons must examine   various steps and stages required to be performed by officers , obtain documents relating to the same from the Assessing Officer and / or other concerned officers.

These must be closely examined to find out whether authorities have taken reasonable time , have made proper recordings and noting in order sheets, in related communication and ultimate order or process  involved.

For example, there can be requirement as to :

At level of AO or other authority:

Receiving information and documents.

Examining such information and documents and to find out whether the same is applicable  in case of assesses in  his charge and examining with reference to particular assessee.

Finding out proper procedure to be followed in case of assessee.

Proposal, if required to senior authority for approval to take such steps.

Senior authority say JCIT to examine and forward to Pr. CIT with his recommendation.

Pr. CIT to approve action proposed and which is required in his opinion. Merely because a proposal is received from AO with recommendation of JCIT is no ground to approve, Pr. CIT must apply his mind, examine documents and then approve or disapprove.

Each stage is important, that is why law has prescribed such procedure. The procedure is to ensure fair and transparent procedure to work judiciously and properly. Therefore, officers must not consider them simple steps to be shown taken. These steps must be taken with due care and application of mind.

If at any stage concerned officer has not applied his mind, then it can be a case of non application of mind

Chain of case of Gopal Dalmia in the same matter:

Supreme Court  order dated 26.04.2024 THE PRINCIPAL COMMISSIONER OF INCOME TAX - 13, KOLKATA & ORS. VERSUS GIRDHAR GOPAL DALMIA - 2024 (4) TMI 1122 - SC ORDER herein Revenue challenged judgment of Calcutta High Court.

Cases preferred by assessee:

Calcutta HC orders in WP division bench  24.11.22 in  M.A.T No.1757 of 2022 with I.A. No.CAN 1 of 2022    GIRDHAR GOPAL DALMIA. VERSUS UNION OF INDIA AND ORS. - 2023 (2) TMI 1119 - CALCUTTA HIGH COURT

Calcutta High Court order dated 29th September, 2022 passed in W.P.A. No.22194 of 2022 - GIRDHAR GOPAL DALMIA VERSUS UNION OF INDIA AND ORS. - 2023 (2) TMI 1117 - CALCUTTA HIGH COURT

Calcutta High Court order dt. 21 June,2022 - GIRDHAR GOPAL DALMIA VERSUS THE UNION OF INDIA & ORS. - 2022 (8) TMI 53 - CALCUTTA HIGH COURT

In the Supreme Court departments, appeal was dismissed for the reason of delay of 399 days which was not explained with sufficient reason. As a consequence SLP was also dismissed.

Though the SLP has been dismissed for dismissal of delay, however, we find that on a serious issue, Department was not vigilant and delayed in filing of SLP – this shows that it was not taken seriously that can be inferred that the filing of appeal was after thought and may be it was not intended but was persuaded to file SLP.

We find that on behalf of revenue (PR CIT)  eight senior counsels appeared. The case was heard by the Supreme Court as noted in the judgment as follows:

 UPON hearing the counsel the Court made the  following. (sic orders)

There is a gross delay of 399 days in filing this special leave petition. The explanation given for condonation of the delay is not satisfactory or sufficient in law to condone the same.

Hence, the application seeking condonation of delay is dismissed.

Consequently, the special leave petition also stands dismissed.

Pending application(s), if any, shall stand disposed of.

Thus, it can be considered as if in spite of engaging eight senior counsels the petitioner  revenue could not make out and explain the merit of  issue in appeal. In such cases dismissal of COD petition  and dismissal of appeal though as a consequence, can still be considered to have a persuasive order for future reference.

 Furthermore, the honorable Supreme Court has also not specifically ordered that question of law is kept open.

Therefore, the order of the Supreme Court can be considered and argued to have a persuasive nature for other cases. In any case judgment of honorable Calcutta High Court is well reasoned and speaking judgment and it is binding in area of its jurisdiction and have persuasive precedence for other High Courts.

Judgment was on issue of no application of mind by Ld. AO:

The judgment of honorable Calcutta High Court  in intra Court appeal  No.- M.A.T No.1757 of 2022 with I.A. No.CAN 1 of 2022  dated 24.11.2022 [GIRDHAR GOPAL DALMIA. VERSUS UNION OF INDIA AND ORS. - 2023 (2) TMI 1119 - CALCUTTA HIGH COURT] was based on fact that ld. AO has not applied his mind independently and merely  relied on report of Investigation wing. That report was also based on presumption and conjecture.

Learned Single Judge has dismissed WP on the ground that it is open to the appellant to raise all contentions in the reopening proceedings, which are to follow under Section 148 of the Act. The correctness of the order passed in the writ petition  was  challenged before the Division Bench.

Analysis of facts and decisions:

1. Assessee / appellant had specifically pointed out that the PAN number mentioned in the notice does not belong to him and it appears that the notice was issued to the appellant on a wrong identity.

2. The allegations that loan transactions were done, were totally denied and the appellant had also relied upon various decisions rendered by the High Courts to justify their stand that reopening could not have been resorted to.

3. The said reply was received by the assesssing officer on 6th July, 2022.

4. In terms of the direction issued earlier by the Division Bench, it was the assessing officer, who was to conduct an enquiry and then proceed to pass an order.

5.  Unfortunately, the assessing officer, Mr. Mintu Roy, Circle – 43, Kolkata has abdicated his powers as an assessing officer.

6. he  has verbatim extracted several portions of the earlier order dated 29th March, 2022 in his order dated 25th August, 2022. The assessing officer could not have done so for more than one reasons. Firstly, the earlier order dated 29th March, 2022 could not have been referred to as the same has been set aside by the Division Bench.

7. Understanding this basic legal concept is lacking in the assessing officer.

8. By passing a non-speaking order dated 25th August, 2022, the assessing officer has violated the directions issued by the Division Bench and has indirectly interfered with the administration of justice thereby exposing himself to proceedings under the Contempt of Courts Act, 1971.

9. If the assessing office fails to obey the directions issued by the Court, stringent action should be taken and it is not clear as to whether the Principal Commissioner of Income Tax is aware that in his field formations, such officers are functioning.

10.  These were held to be  sufficient grounds to quash the order dated 25th August, 2022.

11. Considering this being a second round of litigation, Court went a step further to consider as to whether there was any justification for reopening the assessment.

12. It is observed by the Court that reopening of the assessment is alleged to have been based upon an information given by the Deputy Director of Income Tax (Inv.) Unit-2(4), Kolkata dated 21st January, 2022.

13. In paragraph 4 of the said report, it has been stated as follows:-

“Finance Broker:-Jai Bhagwan Sanwaria

26. Name: GIRDHAR GOPAL DALMIA/DALMIA LAMINATORS LTD

• Potential lender or borrower status: Borrower
• Borrower Annexure reference: GG Dalmia
• Possible financial transactions deducted and decorded from hard copies obtained from DDIT (please refer Annexure in excel version for futher details)
• Potential cash borrowed from various lenders – Rs.7.45 crore.
• Probable names grouped under the group name
• Dalmia
• GG Dalmia
• GG Dalmia A/c
• G.G Dalmia
• G.G. Dalmia
• DALMIA TEA
• GH agarwal (Anushree)
• GH agarwal A/c G.G. Dalmia
• Dalmia Laminator”

14 .  it is not clear as to how reopening of the assessment could have been resorted to. The report is as vague as possible as it states that possible financial transactions could be deduced and decoded from hard copies obtained from DDIT.

15. Report also say there is potential cash borrowed from various lenders and the probable names of the group have been mentioned and set out without any particulars. Assuming that material was available as annexures to the said report of the DDIT, such documents should have been made known to the assessee so as to enable them to give an effective reply.

16. In  several places the authority has used the word “potential” and also the word “probable”.

17. The Hon’ble Supreme Court in LUCKNOW DEVELOPMENT AUTHORITY VERSUS MK GUPTA - 1994 (11) TMI 364 - SUPREME COURT considered the meaning of the word “potential”. It was pointed out that the word “potential” has been defined in the Oxford Dictionary as “capable of coming into being, possibility. In Black’s Law Dictionary, it is defined as “extending any possibility but not in Act”. It was further pointed out that the said word would mean to be naturally and probably expected to come into existence at some future time, though not now existing. “Possibility” has been defined in “WHARTON” to mean expectation, an uncertain thing which may or may not happen. Under the provisions of the Income Tax Act, tax is levied on the actual income of the previous year and the facts must be taken as they existed during the previous year.

18.  It is relevant to take note of the decision of the Hon’ble Supreme Court in SIR KIKABHAI PREMCHAND VERSUS COMMISSIONER OF INCOME-TAX (CENTRAL) , BOMBAY - 1953 (10) TMI 5 - SUPREME COURT  page 506 wherein it was held that the State has no power to tax the potential future advantage and all it can tax is income, profits and gains made in the relevant accounting year. This decision if applied to the facts and circumstances of the case on hand, the only conclusion that can be arrived at is to hold that the reopening of the assessment was bad as it was based on certain alleged “potential” cash borrowings and certain alleged “possible” financial transactions.

19. The assessing officer did not independently apply its mind to the information furnished by the DDIT which he is required to do while exercising the power to reopen an assessment.

20. Despite direction issued earlier by the Court, only copies of two statements have been given to assessee/  appellant. Appellant  has submitted his reply taking note of the veracity of the allegations in those documents, which were supplied.

21.Therefore, the reopening proceedings could not have been done based on assumptions and presumptions as could be seen from the above material.

11. Therefore,  Court held as follows:

a. we are of the considered view that the entire reopening proceedings commencing from issuance of the notice under Section 148A(b) and culminating in the order under Section 148A(d) of the Act dated 25th August, 2022 is a clear abuse of the process of law.

b.  For the above reasons, the appeal along with the connected application were allowed and the order passed in the writ petition was set aside and consequently, the entire reopening proceedings commencing from issuance of the notice under Section 148A(b) and culminating in the order under Section 148A(d) of the Act dated 25th August, 2022 were quashed.

In this case only non application of mind by the Assessing Officer was made out.

We can find that even the order of JCIT  forwarding and  recommending  to the PCIT for  approval of  the  issue of notice u.s. 148 is recommendation given hurriedly and without application of mind.

Similarly even approval to issue notice u.s. 148 by the Pr. CIT may be without application of mind.

If it can be proved that within the chain of actions at any point concerned authority has not discharged his function and role applying mind the proceeding can be vitiated.

Therefore, closely examining all steps, processes and related  records of concerned officers is important. Furthermore, when any document is served on assessee, even by way of copy forwarded, its authenticity and DIN on it need to be checked and verified.

Thus  assessee must also be careful to find out shortcomings and lacunae in steps and processes  particularly if rights of assessee are denied for reasonable  opportunity , providing documents etc.

Learned readers are requested to share their views and experience.