The Madras High Court has held that the order remains within the control of Income Tax Authority beyond the limitation period, there is a possibility of modification or altered.
During the year 2017, a search was conducted in the premises of Marg Group of companies and its related entities, which resulted in seizure of various documents allegedly indicating the prohibited transactions as per clause A of section 2(9) of the Act. Therefore, a show cause notice dated 26.04.2018 under section 24(1) of the Act was issued by the second appellant to the respondent herein, calling upon them to show cause as to why they should not be treated as benamidar of the parent company called M/s.Marg Limited, who is the beneficial owner of the land measuring about 17.702 acres at Muttam Village, Nagore Vattam, having been purchased in the years 2009 and 2010 by availing loan from M/s.Great Meera Finlease Private Limited, a Non-banking financial company incorporated solely for the purpose of routing the funds of Marg group of companies and such fund was also flown from the another shell company viz., M/s.Arohi Infrastructure Pvt.Ltd., which is incorporated as a subsidiary of M/s.Marg Limited.
On receipt of the show cause notice, the Managing Director of the respondent company appeared before the second appellant and submitted that the group companies are not the benamidars, as alleged. It was further submitted that the land was purchased in the name of group companies legitimately from and within their internal resource accrued / borrowings. The property so purchased was also mortgaged with the lenders to raise funds to complete the running projects. It was also submitted that several subsidiaries and associate enterprises were formed only with the intention to procure land for the purpose of overcoming the ceiling limit fixed under the Land Ceiling Act, 1961; and the subsidiaries were duly registered with the Registrar of Companies and complying with the filing of Income Tax Returns.
Since the funds are flowing from the legitimate group companies, it will not fall within the purview of the Act. Therefore, according to the respondent company, it is not a fictitious transaction, as portrayed by the Department and the same is bona fide.
The division bench of Justice R.Mahadevan and Justice Mohammed Shaffiq has noted that the Learned Judge was not correct in entertaining the writ petitions, when there being an efficacious appeal remedy under Section 46 of the Act, where all the contentions, including whether the order has been passed by the Adjudicating Authority in accordance with Section 26 (7) of the Act, could have been raised and decided. As already discussed and delved in detail above, the words “date of the order” appearing in Section 46 can only be interpreted and read to mean “date of receipt of the order” for the purpose of computing the limitation for filing the appeal under Section 46 of the Act.
The court held that the Judge without going into the question of maintainability of the writ petitions, travelled into the case on the ground of limitation raised by the respondents / writ petitioners, as prescribed under Section 26(7) of the Act and rendered a finding on the same.
“Therefore, this Court has to necessarily test the said order under appeal in the light of the provisions of the Act and the applicable legal principles. Accordingly, on such application, this Court has reached the firm conclusion that the orders passed by the first appellant do not suffer from infirmity on the ground of alleged violation of Section 26 (7) of the Act. In other words, the orders impugned in the writ petitions are well within the timeline as stated under Section 26 (7) and is immune from attack on this ground,” the court said.
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