Madras HC dismisses pleas by Karti Chidambaram, Srinidhi Chidambaram against show-cause notices for alleged non-disclosure of Rs 6.38 crores

The Madras High Court on Monday dismissed writ petitions moved by Member of Parliament from Sivaganga, Karti Chidambaram and wife Srinidhi Chidambaram against show-cause notices issued by the tax authority over an alleged non-disclosure of Rs 6.38 crores in income tax returns following a 2013 property sale (Karti P.Chidambaram v. The Principal Director of Income Tax and ors). .Justice SM Subramaniam concluded that there was no legal malice or procedural irregularity in issuing the show-cause notice under Section 153C (dealing with assessment or re-assessment of income after search and seizure under Section 132 or a requisition under Section 132A) of the Income Tax Act. .He observed that the procedures for assessment or re-assessment under this provision is yet to commence. As such, the petitioners are expected to avail the opportunity to defend their case once that process takes place, in the manner known to law, he said. .The Court proceeded to rule that it will not interfere at the stage of show-cause notice.."The authority competent must be allowed to scrutinize the searched and impounded materials and provide an opportunity to the assessee to defend their case. Such an adjudicatory process alone would provide justice to the parties to the lis and therefore, this Court is not inclined to interfere at the stage of 'show cause notice' as far as the present writ petitions are concerned," the Court said. .Interference at this stage would cause prejudice to the due process of law to be undertaken by the authorities, he added..The Court, therefore, dismissed a batch of writ petitions filed by Karti and Srinidhi Chidambaram last year assailing the show-cause notices. The respondent-authorities were directed to complete the proceedings after affording an opportunity to the petitioners to present their case as expeditiously as possible. ."No writ against a Show Cause Notice needs to be entertained by the High Court. However, a writ may be entertained, if the Show Cause Notice was issued without jurisdiction or on malafide grounds. Even in case of raising a malafide against any authority, such an authority must be impleaded as party respondent in the writ proceedings in his personal capacity. In the present case, the petitioner has raised the point of no jurisdiction and the ground of legal malice. As far as the jurisdiction is concerned, this Court is of an opinion that the lack of jurisdiction was not established by the petitioners. The application and implications of Section 153C of the Act was questioned. In view of the elaborate discussions regarding the facts and circumstances with reference to the provisions made in the aforementioned paragraphs, this Court is of an opinion that no malafide or lack of jurisdiction is identifiable nor established and thus, the point raised in this regard stands rejected," the common order stated..Case background.The matter pertains to the 2013 sale of certain land to M/s.Agni Estates and Foundations Private Limited. A search and seizure was conducted by Deputy Director of Income Tax (investigation) at the premises of the buyer, M/s.Agni Estates..On certain information obtained about the search and seizure operation being received in August 2018, the Assessing Officer initiated proceedings against the Karti Chidambaram under Section 148 (issuance of a notice wherein authority has reason to believe any income has escaped recomputation or assessment) of the Act. Assessment for the annual year (AY) 2014-15 was re-opened. It was alleged that a sum of Rs.6,38,75,000 had escaped assessment in AY 2014-15. .During the course of the hearing before the High Court, the petitioners highlighted that the limitation period for passing an order after re-opening assessment under Section 148 expired on December 31, 2019..On December 16, 2019, the Assessing Officer issued a show cause notice under Section 153C of the Act, after the material obtained following search and seizure was handed over. By this notice, Chidambaram was asked to file returns for a block of six assessment years i.e. for AY 2013-14 to AY 2018-19. On January 14, 2020, Chidambaram filed his returns for the six assessment years as sought. Further, information was sought by the Assessing Officer via six notices under Section 143 (2), IT Act on January 31. .In November 2020, the present writ petition was filed seeking to quash the December 2019 notice as well as a show cause notice dated October 21, 2020, pertaining to the AYs 2014-15 to 2015-16. .During the pendency of the writ petitions, on March 18, 2021, the Assessing officer issued another show cause notice reiterating the proposal to tax Rs. 6,38,75,000/- in the AY 2014-15 and proposing to tax the following amounts (totally Rs 3.2 crores) against their respective financial years, i.e. Rs. 2,00,00,000 in AY 2015-16; Rs.35,00,000 in AY 2017-18; Rs.64,00,000 in AY 2018-19 and Rs.21,00,000 in AY 2019-20 (Total Rs.3,20,00,000).The petitioners contended that after the Assessing Officer failed in concluding the re-assessment proceedings initiated under Section 148, IT Act within December 31, 2019, there is no scope for a further initiation of action under Section 153C of the Act. The same amounted to a colourable exercise of power, the Court was told. It was argued that by initiating proceedings under Section 153C, the respondents sought to extend time for re-assessment, since the time-limit for completing the Section 148 proceedings would expire on December 31, 2019. .The respondent-authorities countered that there was sufficient cause to take the action under Section 153C of the IT Act. It was argued that the petitioners had rushed to Court instead of following the statutory appeal process. .Since the case concerned a complicated question of law and fact, the exercise of extraordinary writ jurisdiction by the Court at this stage may not be appropriate, it was submitted. The Assessing Officer ought to be allowed to make a final factual determination, it was argued. The respondents added that the delay in concluding re-assessment proceedings were on account of the time sought by the petitioner by referring to the pending Court proceedings. .In its analysis of the case, the Court found that once proceedings under Sections 153A and 153C are initiated, all other pending proceedings (including proceedings under Section 148) would abate. .To avoid parallel proceedings, "the concerned jurisdictional Assessing Officer, upon receipt of material seized or requisitioned, can only proceed under Section 153A or 153C and they cannot proceed with any other pending assessment or proceeding," the Court explained. .The Court added that reassessment under Section 153C of the Act is wide enough to cover six assessment years. "At each stage, the Income Tax Act provides various procedures, considering the instances and developments in the matter of gathering information and during the search operations. Unless such powers are contemplated, it would be difficult for the authorities to deal with cases of tax evasions," the Court observed. .Even if at all the Assessing Officer erroneously proceeded under Section 147 or 148 of the Act earlier, on handing over materials seized or impounded during a search operation to the Assessing Officer, he is empowered to invoke Section 153C of the Act as there is an abatement clause contemplated under Section 153A and 153C, the Court went on to hold. This would be a constructive interpretation of the law, Justice Subramaniam opined. .With these, among other observations, the petitions were dismissed. .Senior Advocates Dr. Abhishek Singhvi, KV Viswanathan, RV Easwar and AR L Sundaresan, assisted by Advocates NRR Arun Natarajan, Amit Bhandari, Rubal Bansal, and C Uma appeared for the petitioners. .Additional Solicitor General R Sankaranayanan assisted by counsel AP Srinivas and ANR Jayaprakash appeared for the respondent-authorities. .[Read Common Order]