Practice support -Non-application of mind- some examples.

[DEVKUMAR KOTHARI]

Related article:

Practice support:Non-application of mind by authorities- need scrutiny of procedure and documentation at each stage. Non-application of mind, if proved, can be good ground of contesting proceeding as void , devoid of merits, irregular, unsustainable, liable to quashed etc. depending on nature of proceeding and seriousness of issues.

AS discussed in earlier article, a careful perusal of documents is required for making a case of non-application of mind.

Some examples of  departmental documents showing non application of mind by authorities in communications/ notices/ approvals, order etc. are given in this article

Non application of mind can be found in several ways in any given case, depending on applicable law at given time,  facts and circumstances, case history, not following rules of procedures, ignoring binding law, processing documents in undue haste and indications of  just meeting procedural compliances  by concerned officers.

When documents are to be issued in a faceless manner, showing names and designation of authority can be an indication on non-application of mind. Even in case of documents signed digitally, one must check timing to find out whether any prerequisite document was signed after the time of signing of document which required such prior approval. If a subsequent event  e.g. order has been completed  before the time of prerequisite  prior approval, it will show that there was no prior approval as required.

Some examples from real cases  are given but names, designations actual dates etc. are not given for sake of privacy of all concerned

A. From communication for Enquiry under clause (a) of section 148A of the I.T. Act,1961. Vide notice dt. dd mm .20yy issued by   name and  designation  given .:

­­­­­­­“As per information available with the Department during the FY  xxxx  , you have lent cash loans to various parties from your end.”

Requisition sl. 6 reads as follows:

6. Copy of relevant highlighted Bank statements for all the above transactions. 

Unquote

Indicator of non-application of mind :

The notice is not issued in faceless manner. And Not by Faceless Assessing Officer (FAO)

The proceeding and enquiry is about alleged cash loans given by assessee , so  asking highlighted  bank statement for such transaction is without any  application of mind and it is contradictory of the scope of enquiry for escaped income in form of “cash Loans­­­” allegedly  given by assessee as apprehended by tax department. In case of cash loans given there will be no bank statement and it cannot be highlighted in absence.

From order under clause (d) of section 148A of the Income-tax Act,1961 dt  dd mm 20yy    passed by  shri xxx  name and designation given.

Important and Catch word found in the order with highlights added:

Status of Assessee                                                                          Individual

Date of issue of Show Cause u/s 148(A)(b)                                    0dd/ mm/ yyyy

Time allowed to respond to show cause                                         dd/mm/ yyyy

Date of reply by assessee                                                               10 dd/mm/yyyy

Name and Designation of Specified Authority      are given     

Specified Authority approval date                             14dd/ mm/yyyy

Important and Catch word found in the order with highlights added:

A tangible piece of information was received from the office of the xxxxx       through Insight portal that during search and seizure operation conducted on dd.mm.20xx ( it is about 5 years ago)   in case of  searched party SSSS  , it was found that unaccounted cash loan transactions were facilitated through the help of unregulated finance brokers in SSSS , India

Further, the above information has been disseminated to field formation with case type High Risk CRIU/VRIU information for taking necessary action u/s 148A.

From the dissemination report it is found that there are basically three types of persons involved in the unaccounted cash loan transactions i.e. Lender, Borrower & Finance Broker.

From the above, it is seen that in the above case, the assessee   Mr. xxxxx   acted as one of the directors of  XXXX Pvt. Ltd. whose activities are mainly as cash lenders and potential cash lent to brokers/borrowers in various financial years. It is evident from the dissemination report of  ....    that the assessee Mr. xxxx as a lender has lent cash loan of following amounts to the aforesaid brokers/borrowers in various financial years:-

Table is given.

From the above chart, it is seen that as a lender, the assessee has lent cash loan aggregating of Rs. xxx  it is huge sum  to brokers/borrowers in the guise of out of books transactions in various financial years

Unquote

Indicator of non-application of mind:

The approval and order both are not issued in faceless manner. Name and designations of officers are given.

The approval and order are of the same date showing undue haste and non-application of mind.

Time between Date of issue of Show Cause u/s 148(A)(b)  dt.0ddmmyyyy    and  Time allowed to respond to show caused.10ddmmyyyy    was very short total 10 days including time taken in issue and service of notice , intervening holidays thus time allowed was six - seven working days.

Assessee filed a preliminary reply on  10ddmmyyy  denied that any document pertaining to assessee individual Mr. xxxx has not been found/ provided  and asked for documents, if any, belonging to assessee and approval etc.

 Without application of mind on the preliminary reply AO has passed order and specified authority also gave his approval.  In this regard  excerpts from the preliminary reply of assessee :

“ Un quote, as discussed with reference to documents provided, by you I say that any information and material which relates to me has not been provided.this is obviously because I had not granted any cash loan.  Still if you have any such information and valid  document related to me Kindly provide me the same. Copy of prior approval is also not found anywhere. Please provide.

In my account for AY  20 xx 19 a document titled   pdf pages x xxx _F.Y.-2015-16.pdf

Is found, this contains 23 pages of rough workings any of them is not relevant to me.

Any of such rough noting or rukka does not belong to me and I have no concern with them in relation to my assessable income.

As I have not made any cash loan, there is no question of any person claiming to have received cash loan from me. I deny any cash loan given by me.

In case you have any specific, tangible and reliable material about me, please provide me the same. This will enable me to review, and take appropriate action against any person who has made such allegation, if at all, against me.

In view of above , I request you not to issue notice us.148”

Thus, in the preliminary reply assessee submitted that no document belonging to him was provided/ available in  my account for AY ... say 1. Even after considering documents placed in my account fo another  AY  say 5 nothing belonging to assesse  about cash loans given  by him was found.

A specific request was made to the Ld. AO to provide any document,  belonging to assessee Mr.x xxx .

However, without application of mind , without providing further opportunity, without providing documents belonging to assessee in any manner whatsoever, approval was sought , granted, and order was passed in utter haste and without application of mind by any authority, but simply based on compilations by investigation wing, which is based on wild guess work by relating any document where any letters of name or surname of assessee / addressee of notice was found..

This is further fortified from  the order in which  Ld. AO has noted that :

    , the assessee Mr. xxxx  acted as one of the directors of xxxx  Pvt. Ltd. whose activities are mainly as cash lenders and potential cash lent to brokers/borrowers in various financial years.

According to this it is  apprehended / alleged  that  xxxx  Pvt. Ltd. whose activities are mainly as cash lenders and potential cash lent to brokers/borrowers in various financial yeaRs.

Then issue of notice to Mr. XXXX  is without application of mind at all by any officers and at any stage.

This clearly shows non-application of mind at any of stage of proceedings including the specified authority approving processes at different stages including approval of order u.s.148A(d) dt.     and issue of order u.s.148A(d) to Mr.XXXX instead of several companies mentioned in report whose name include few letters  from name or surname of assessee/ addressee of notice.

From notice u.s. 148 dt.  issued by  Mr   xxxx name and designation of officer  are given

From Paragraph 2 with highlights:

 “2.  I, therefore, propose to assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for the Assessment Year 2016-17 and I, hereby, require you to furnish, within 30 days from the service of this notice, a return in the prescribed form for the Assessment Year 2016-17.”

Unquote:

Indicator of non-application of mind :

The notice is not issued in faceless manner.

This notice has been issued after passing an order u.s.148A (d) dt. ddmmyyy   approval is of the same   day dated  ddmmyyyy  and notice  is issued on the same day.

 Even after stages of enquiry, consideration of replies and documents ,  approvals of specified authority  at different stages, order passed u.s. 148A (d)  the notice issued is vague / omnibus and is wrong for the following reasons:

Please see use of  highlighted words in the notice like  assess or reassess,  such  income or recompute the loss  or the depreciation allowance or any other allowance or deduction.

These clearly shows non-application of mind.

The notice has been issued to  Mr. xxxx , who only acted as Director of  xxxx  Pvt. Ltd.

Simple question arises is when the alleged potential cash loan lender is  xxxx  P. Ltd, how proceedings can be initiated and continued that too ,  with prior approvals of specified authority against Mr.xxxx   who is not even alleged or apprehended to be cash loan lender.

These clearly shows undue haste and non- application of mind  at all stages ,  including approval by specified authority at different stages leading to issue of notice u.s. 148 and other notices and show cause notice  to  Mr. xxxx ,  an individual.

Non-application of mind is clearly indicated by  wrong proceeding:

From reports of investigation wing , and all  allegations made in all communications, notices etc. it is clearly case that the basis of proceeding  is result of search  and seizure operation conducted on   xx xx 20xx  in case of   xxxx  case ( not even name of searched party is given..

In case of search very senior authorities are involved as head of search team and supervisory authority. All documents are minutely examined and briefed to senior authorities. Senior authorities monitor cases. Huge sums are involved. In fact department is alleging about parallel economy run by people named in report.

Therefore, this was apprehended to be a case of huge black money managed.

Therefore, if at all any proceeding was to be initiated it should have been as per Chapter XIV-B , and particularly vide  S.158BD/ 158BC of the Income-tax Act, 1961 which contains mandatory provisions.

  Therefore,  present proceedings initiated  against assessee Mr. xxxx  u.s. 148   is without jurisdiction and is without application of mind and is also time barred due to undue delay of more than five years from the date of search at searched party.

On examination of various order sheets recorded in process of enquiries, communications between officers, order sheets of concerned authorities, it will further prove to be a case of just taking action without application of mind at different stages.

Learned readers are requested to share their experience in such matters to  enlighten other readers and authors.