Glimpses of Supreme Court Rulings

10.  Transfer of case – Where the
Income-tax/assessment file of the Assessee is transferred from one Assessing
Officer to another Assessing Officer and the two Assessing Officers are not
subordinate to the same Director General or Chief Commissioner or Commissioner
of Income-tax, u/s. 127(2)(a) of the Act an agreement between the Director
General, Chief Commissioner or Commissioner, as the case may be, of the two
jurisdictions is necessary.

Noorul Islam
Educational Trust vs. CIT (2016) 388 ITR 489 (SC)

The challenge before the
Supreme Court in the present appeal was against the order of the High Court of
Madras, Madurai Bench, dated March 20, 2015 passed in W.A. No. 98 of 2010 CIT
vs. Noorul Islam Educational Trust [2015] 375 ITR 226 (Mad) by which the
transfer of the income-tax/assessment file of the Appellant from Tamil Nadu to
Kerala as made by the jurisdictional Commissioner of Income-tax (CIT-II,
Madurai, Tamil Nadu) had been upheld.

According to the Supreme
Court, for the purpose of the appeal, it was necessary to note the provisions
of section 127(2)(a) of the Income-tax Act, 1961 (for short “the
Act”) which reads as under:

127. Power to transfer
cases.–(1) …

(2) Where the Assessing
Officer or Assessing Officers from whom the case is to be transferred and the
Assessing Officer or Assessing officers to whom the case is to be transferred
are not subordinate to the same Director General or Chief Commissioner or
Commissioner,–

(a) Where the Directors
General or Chief Commissioners or Commissioners to whom such Assessing Officers
are subordinate are in agreement, then the Director General or Chief
Commissioner or Commissioner from whose jurisdiction the case is to be
transferred may, after giving the Assessee a reasonable opportunity of
being-heard in the matter, wherever it is possible to do so, and after
recording his reasons for doing so, pass the order;

The Supreme Court held
that as the Income-tax/assessment file of the Appellant-Assessee had been
transferred from one Assessing Officer in Tamil Nadu to another Assessing
Officer in Kerala and the two Assessing Officers were not subordinate to the
same Director General or Chief Commissioner or Commissioner of Income-tax, u/s.
127(2)(a) of the Act an agreement between the Director General, Chief
Commissioner or Commissioner, as the case may be, of the two jurisdictions was necessary.

The Supreme Court noted
that the counter affidavit filed on behalf of the Revenue did not disclose that
there was any such agreement. In fact, it had been consistently and repeatedly
stated in the said counter affidavit that there was no disagreement between the
two Commissioners. The Supreme Court held that absence of disagreement could
not tantamount to agreement as visualised u/s. 127(2)(a) of the Act, which
contemplated a positive state of mind of the two jurisdictional Commissioners
of Income-tax which was conspicuously absent.

In the above
circumstances, the Supreme Court held that the transfer of the
Income-tax/assessment file of the Appellant-Assessee from the Assessing
Officer, Tamil Nadu to Assessing Officer, Kerala was not justified and/or
authorised u/s. 127(2)(a) of the Act. The order of the High Court was,
therefore, interfered with by the Supreme Court and the transfer was
accordingly set aside. The appeal was allowed in the above terms.

11.  Reassessment – Notice u/s. 147 issued on
ground that no material to show debts written off as required under provisions
of section 36 was valid.

DDIT vs. Sumitomo
Mitsui Banking Corporation (2016) 387 ITR 164 (SC)

The High Court allowed the
petition of the assessee challenging the notice dated March 30, 2010 issued
u/s. 148 of the Act seeking to reopen the assessment for assessment year
2004-05 for the reason that the assessment was sought to be reopened only on
the ground that bad debts had not been proved to have become irrecoverable
which issue had been decided by the Supreme Court in TRF Ltd. vs. CIT
[(2010) 323 of ITR 397 (SC)] against the revenue.

The Revenue challenged the
order of the High Court dated February 22, 2011 passed in Writ Petition (L) No.
140 of 2011 by which the reopening of the assessment of the Respondent-Assessee
sought to be made by issuing a notice u/s. 148 of the Income-tax Act, 1961 had
been interfered with.

The Supreme Court having regard to the fact that though the
Respondent- Assessee had disclosed that the bad debts were transferred to Kotak
Mahindra Bank Ltd. for realisation, the authority recording the reasons prior
to issuance of notice u/s. 148 of the Income-tax Act, 1961 had specifically
recorded that there was no material available on record to indicate that the
bad debts had been written off as mandatorily required u/s. 36(1)(vii) of the
Income-tax Act, 1961 as amended with effect from April 1, 1989. The Supreme
Court held that if that be so, no fault could be found with the notice issued.
Consequently, the Supreme Court allowed the appeal by setting aside the order
of the High Court and dismissing the writ petition filed by the
Respondent-Assessee challenging the said notice. The Supreme Court, however,
made it clear that it had expressed no opinion on the merits of the
reassessment, which had been made on December 24, 2010, and it would be open
for the Respondent-Assessee to urge all questions as may be open, in law, in
the event the Respondent-Assessee seeks to challenge the reassessment order
dated December 24, 2010.

12.  Offences and prosecution – The Deputy
Director of Income Tax, cannot be construed to be an authority to whom appeal
would ordinarily lie from the decisions/orders of the I.T. Os. involved in the
search proceedings so as to empower him to lodge the complaint in view of the
restrictive preconditions imposed by section 195 of the Code of Criminal
Procedure – The Supreme Court on a cumulative reading of sections 177, 178 and
179 of the Code of Criminal Procedure in particular and the inbuilt flexibility
discernible in the latter two provisions, where a single and combined search
operation had been undertaken simultaneously both at Bhopal and Aurangabad for
the same purpose, held that the alleged offence could be tried by courts
otherwise competent at both the aforementioned places.

Babita Lila & Anr v UOI (2016) 387
ITR 305

The Appellants, who are husband and
wife, were residents of both Bhopal and Aurangabad. A search operation was
conducted by the authorities under the Income-tax Act, 1961 (for short,
hereinafter referred to as “the Act”) on 28.10.2010 at both the
residences of the Appellants, in course whereof their statements were recorded
on oath u/s. 131 of the Act. In response to a query made by the authorities, it
was alleged that they made false statements denying of having any locker either
in individual names or jointly in any bank. It later transpired that they did
have a safe deposit locker with the Axis Bank (formerly known as UTI Bank) at
Aurangabad which they had also operated on 30.10.2010. The search at Aurangabad
was conducted by the Income Tax Officer, Nashik and Income Tax Officer, Dhule
and the statements of the Appellants were also recorded at Aurangabad.

Based on the revelation
that the Appellants, on the date of the search, did have one locker as
aforementioned and that their statements to the contrary were false and
misleading, a complaint was filed under provisions of the Indian Penal Code by
the Deputy Director of Income Tax (Investigation)-I, Bhopal (M.P.) on 30.5.2011
in the court of the Chief Judicial Magistrate, Bhopal, (M.P.) and the same was
registered as R.T. No. 5171 of 2011.

The Trial Court on
9.6.2011, took note of the offences imputed and issued process against the
Appellants. In doing so, the Trial Court, amongst others, noted that the search
proceedings undertaken by the authorities u/s. 132 of the Act were deemed to be
judicial proceedings in terms of section 136 and in course whereof, as alleged,
the Appellants had made false statements with regard to their locker and that
on the basis of the documents and evidence produced on behalf of the
complainant, sufficient grounds had been made out against them to proceed u/s.
191, 193, 200 of the Indian Penal Code.

The Appellants challenged
impugned this order of the Trial Court before the High Court u/s. 482 Code of
Criminal Procedure (for short hereinafter to be referred to as “the
Code”) and sought annulment thereof primarily on the ground that the
search operations having been undertaken by the I.T. O’s of Nashik and Dhule,
the complaint could not have been lodged by the Deputy Director of Income Tax
(Investigation)-I, Bhopal (M.P.) who was not the appellate authority in terms
of section 195(4) of the Code and further no part of the alleged offence having
been committed within the territorial limits of the Court of the Chief Judicial
Magistrate, Bhopal, it had no jurisdiction to either entertain the complaint or
take cognisance of the accusations. The High Court has declined to interfere in
the proceedings on either of these contentions.

Being aggrieved by the
rejection of their challenge to the initiation of their prosecution under
sections 109/191/193/196/200/420/120B/34 of the Indian Penal Code on the basis
of a complaint made by the Deputy Director of Income Tax (Investigation)-I,
Bhopal (M.P.), both on the ground of lack of competence of the complainant and
of jurisdiction of the Trial Court at Bhopal, the Appellants sought the
remedial intervention of the Supreme Court under Article 136 of the
Constitution of India.

Referring to section 195
of the Code as a whole, it has been urged on behalf of the Appellants that the
Deputy Director of Income Tax (Investigation)-I, Bhopal (M.P.), in the facts of
the case was not competent to lodge the complaint, he being not the authority
to whom appeals would ordinarily lie from the orders or actions of the I.T.
Os., Nashik and Dhule.

It was further urged on
behalf of the Appellants that having regard to the place of search, the
recording of their statements as well as of the location of the locker, no
cause of action for initiation of the criminal proceedings had arisen within
the jurisdiction of the court of the Chief Judicial Magistrate, Bhopal in terms
of sections 177 and 178 of the Code and thus the High Court had grossly erred
in deciding contrary thereto.

In refutation of the
arguments advanced on behalf of the Appellants, the learned Solicitor General
maintained that having regard to the scheme of Chapters XIII and XX and the
underlying legislative intent ascertainable therefrom, the Deputy Director of
Income Tax (Investigation)-I, Bhopal (M.P.) had the competence and jurisdiction
to lodge the complaint at Bhopal.

Vis-a-vis the competence of the court of the Chief Judicial
Magistrate, Bhopal, the learned Solicitor General insisted that as the
Appellants were the residents, both of Bhopal and Aurangabad and search
operations were conducted simultaneously at both the places, and further as
they had been filing their income tax returns at Bhopal, the Trial Court before
which the complaint had been filed, was competent to take cognisance of the
offences alleged in terms of section 178 (b) and (d) of the Code.

According to the Supreme
Court, the rival submissions stirred up two major issues pertaining to the
maintainability and adjudication of the complaint lodged before the Chief
Judicial Magistrate, Bhopal, (M.P.) by the Deputy Director, Income Tax
(Investigation)-I, Bhopal, (M.P.) in the face of the prescription of section
195(1)(b) of the Code, in particular read with the other cognate sub-sections
thereof as well as the limits of the territorial jurisdiction of the court
before which the prosecution of the Appellants had been initiated in the
context of section 177 of the Code.

The Supreme Court noted
that section 195(1)(b) of the Code, which was relevant for the instant pursuit,
prohibited taking of cognisance by a court vis-a-vis the offences
mentioned in the three Clauses (i), (ii) and (iii) except on a complaint in
writing of the Court when the offence(s) is/are alleged to have been committed
in or in relation to any proceeding before it or in respect of a document
produced or given in evidence in such a proceeding or by such officer of that
court as it may authorise in writing or by some other court to which the court
(in the proceedings before which the offence(s) has been committed) is
subordinate.

The Supreme Court held
that the search operations did constitute a proceeding under the Act before an
income tax authority and that therefore, the same was deemed to be a judicial
proceeding within the meaning inter alia of sections 193 and 196 of the
Indian Penal Code and that every income tax authority for the said purpose
would be deemed to be a civil court for the purposes of section 195. The
Supreme Court however noted that it was held that that was not an issue between
the parties.

The Supreme Court after
considering the relevant provisions and the cited judgments held that, neither
the hierarchy of the income tax authorities as listed in section 116 of the Act
nor in the notification issued u/s. 118 thereof, nor their duties, functions,
jurisdictions as prescribed by the cognate provisions, permit a deduction that
in the scheme of the legislation, the Deputy Director of Income Tax has been
conceived also to be an appellate forum to which appeals from the orders/decisions
of the I.T. Os./assessing officers would ordinarily lie within the meaning of
Section 195(4) of the Code. The Deputy Director of Income Tax (Investigation)-I
Bhopal, (M.P.), therefore could not be construed to be an authority to whom
appeal would ordinarily lie from the decisions/orders of the I.T. Os. involved
in the search proceedings in the case in hand so as to empower him to lodge the
complaint in view of the restrictive preconditions imposed by section 195 of
the Code. The complaint filed by the Deputy Director of Income Tax,
(Investigation)-I, Bhopal (M.P.), thus on an overall analysis of the facts of
the case and the law involved had to be held as incompetent.

According to the Supreme
Court, the objection on the competence of the Court of the Chief Judicial
Magistrate, Bhopal to entertain the complaint and take cognisance of the
offences alleged, though reduced to an academic exercise, required to be dealt.

The Supreme Court held
that the Appellants as assessees, had residences both at Bhopal and Aurangabad
and had been submitting their income tax returns at Bhopal. The search
operations were conducted simultaneously both at Bhopal and Aurangabad in
course whereof allegedly the Appellants, in spite of queries made, did not
disclose that they in fact did hold a locker located at Aurangabad. They in
fact denied that they held any locker, either individually or jointly.

The locker, eventually
located, though at Aurangabad, had a perceptible co-relation or nexus with the
subject matter of assessment and thus the returns filed by the Appellants at
Bhopal which in turn were within the purview of the search operations. The
search conducted simultaneously at Bhopal and Aurangabad had to be construed as
a single composite expedition with a common mission. Having regard to the
overall facts and the accusation of false statement made about the existence of
the locker in such a joint drill, it could not be deduced that in the singular
facts and circumstances, no part of the offence alleged had been committed
within the jurisdictional limits of the Chief Judicial Magistrate, Bhopal.

The Supreme Court held
that Chapter XIII of the Code sanctions the jurisdiction of the criminal courts
in inquires and trials. Whereas Section 177 of the Code stipulates the ordinary
place of inquiry and trial, Section 178 enumerates the places of inquiry or
trial. In terms of Section 179, when an act is an offence by reason of anything
which has been done and of a consequence which has ensued, the offence may be
inquired into or tried by a court within whose local jurisdiction such thing
has been done or such consequence has ensued.

The Supreme Court on a cumulative
reading of sections 177, 178 and 179 of the Code in particular and the inbuilt
flexibility discernible in the latter two provisions, held that in the
attendant facts and circumstances of the case where to repeat, a single and
combined search operation had been undertaken simultaneously both at Bhopal and
Aurangabad for the same purpose, the alleged offence could be tried by courts
otherwise competent at both the aforementioned places. To confine the
jurisdiction within the territorial limits to the court at Aurangabad would
amount to impermissible and illogical truncation of the ambit of sections 178
and 179 of the Code. The objection with regard to the competence of the Court
of the Chief Judicial Magistrate, Bhopal was hence rejected.

Thus, though the territorial
jurisdiction at the Bhopal Trial Court was held to be valid, in view of the
complainant not being competent, the proceedings were quashed by the Supreme
Court.

13.  Appeal to the High Court – Review petition
filed against the order dismissing the tax appeal on the grounds that the tax
in dispute was less than Rs.2 lakh contending that the tax effect was more than
Rs.2 lakh was dismissed by the High Court as not maintainable – Orders of the
High Court set aside holding review petition was maintainable and requesting to
decide the review petition and thereafter the appeal itself, if so required, on
the merits.

CIT vs. Automobile
Corp. of Goa (2016) 387 ITR 140 (SC)

The High Court by the
order dated August 25, 2010 has disposed of the appeal filed by the Revenue
without entering into the merits on the ground that the tax demand which formed
the subject matter of the appeal was less than Rs. 2,00,000. Thereafter, the
High Court by the order dated March 28, 2012 had dismissed the review petition
filed by the Revenue holding the same to be not maintainable against the order
passed under the provisions of section 260A of the Income-tax Act, 1961.

Before Supreme Court, an
affidavit was filed by the Revenue explaining how the notional tax effect was
far beyond the amount of Rs. 2,00,000. The Supreme Court further noted that in CIT
vs. Meghalaya Steels Ltd. [2015] 377 ITR 112 (SC), decided on August 5,
2015, a view had been taken by it that the review would be available in respect
of the orders passed u/s. 260A of the Income-tax Act, 1961.