L & T Employees Welfare Foundation,Mumbai v. The Assistant Commissioner Of Income Tax 15(1), Mumbai & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 423 OF 2011 L & T Employees Welfare Foundation,Mumbai..Petitioner versus The Assistant Commissioner of Income tax 15(1), Mumbai & Ors. ..Respondent -------- Mr. Percy Pardiwalla, Sr. Counsel alongwith Mr. Atul K. Jasani for the Petitioner.Mr. Arvind Pinto alongwith Mr. D.K.Kamwal for the Respondent. ............. CORAM : S.J.VAZIFDAR &M.S. SANKLECHA, JJ. DATE : 19 July, 2012. (JUDGMENT PER M.S.SANKLECHA, J) 1Rule. By consent, returnable forthwith. Respondent waives service. At the instance and request of the Advocates for both the parties, the Petition is taken up for final disposal. 2This petition under Article 226 of the Constitution of India was originally filed by the Petitioner against the order dated 14.01.2011 of the Assistant Commissioner of Income Tax (Assessing Officer) and the order dated 10.02.2011 of the Commissioner of Income Tax, rejecting the Petitioner's application for stay of demand pending the disposal of its appeal before the Commissioner of Income Tax (Appeals) from the order of assessment dated 30.11.2010 passed for assessment year 2008-2009. However, while the petition was pending, the Commissioner of Income Tax (Appeals) by an order dated 08.03.2011 dismissed the Petitioner's appeal on merits. Consequently, after obtaining leave from this court, the Petitioner amended the petition and also sought to challenge the order of the Commissioner of Income Tax (Appeals) dated 08.03.2011 on merits. 3The Petitioner is a private trust, registered under the Indian Trust Act, 1882 formed for the benefit and welfare of the employees of Larson & Tubro Ltd. On 23.09.2008, the Petitioner filed its return of Income for Assessment year 2008-2009 declaring a total Income of Rs.40.29 lacs. This was after exclusion of Rs.11.18 crores from its total income under Section 10 (34) and (35) of the Income Tax Act, 1961 (the said Act). The total expenditure incurred during the assessment year 2008-2009 by the Petitioner was Rs.43.14 lacs. 4 Assessing Officer by application of Section 14A of the said Act read with Rule 8D of the Income Tax Rules (Rules 1961) disallowed an amount of Rs.1.98 crores as being the expenditure incurred in earning income which does not form part of the total income. As a consequence to the above, the disallowed expenditure of Rs.1.98 crores was added to the Petitioner's income, resulting in a tax demand of Rs.86.97 lacs. 5Being aggrieved by the order of assessment the Petitioner filed an appeal before the Commissioner of Income Tax(Appeals). In the meantime, the Petitioner also sought a stay of the demand under Section 220(6) of the said Act from the Assessing Officer. By an order dated 14.01.2011, the Assessing Officer directed the Petitioner to pay 50% of the demand of Rs.86.97 lacs i.e. Rs.43.48 lacs on or before 15.02.2011 and ordered that subject to the above payment the balance amount of tax demand would be stayed till the disposal of the appeal. 6In view of the above, on 07.02.2011, the Petitioner filed an application to the Commissioner of Income Tax to stay the demand of Rs.86.97 lacs till its appeal was disposed of by the Commissioner of Income Tax (Appeals). By an order dated 10.02.2011, the Commissioner of Income Tax held that the order passed by the Assessing Officer on the stay application was reasonable and therefore 6In view of the above, on 07.02.2011, the Petitioner filed an application to the Commissioner of Income Tax to stay the demand of Rs.86.97 lacs till its appeal was disposed of by the Commissioner of Income Tax (Appeals). By an order dated 10.02.2011, the Commissioner of Income Tax held that the order passed by the Assessing Officer on the stay application was reasonable and therefore 7It was against the aforesaid orders dated 14.01.2011 and 10.02.2011 the Petitioner had filed this petition. However, during the pendency of the petition, by an order dated 08.03.2011, the Commissioner of Income Tax (Appeals) dismissed the Petitioner's appeal on merits. The aforesaid order of the Commissioner of Income Tax (Appeals) is also challenged in the present petition by an amendment pursuant to the order of this court dated 22.03.2011. 8Mr. Percy Pardiwalla, Senior Counsel for the Petitioner states that Petitioners have filed an appeal before the Income Tax Appellate Tribunal against the order of the Commissioner of Income Tax (Appeals) dated 08.03.2011 and the same is pending disposal. However, it is his submission that this court should exercise its writ jurisdiction, as the entire demand has been made on the Petitioner by adding to income a disallowance of an expenditure which had admittedly not been incurred. It is his submission that Section 14A of the Act cannot disallow expenditure in excess of the total expenditure incurred by the assessee for the assessment year. The Counsel submits that such blind application of Section 14A read with Rule 8D leads to a manifestly unjust and arbitrary result. Consequently, the entire proceedings are arbitrary and without jurisdiction. Therefore, he submits that this court should exercise its writ jurisdiction and quash the orders dated 08.03.2011 and 30.11.2010 of the Commissioner of Income Tax (Appeals) and the Assessing Officer respectively. 9Mr. Arvind Pinto, Counsel for the Respondent supports the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals). Mr. Pinto submits that being creatures of the statue, the officers are bound to apply Rule 8D of the said Rules for the purposes of arriving at expenditure to be disallowed under Section 14A of the said Act. Therefore, no fault could be found with the order passed by the Authorities. In any event, he submits that the Petitioners have an alternate remedy of filing an appeal to the Income Tax Appellate Tribunal from the order dated 08.03.2011 and the same has been exercised. Therefore, this court should not interfere in its writ jurisdiction with the orders passed by the Authorities under the said Act. However, Mr. Pinto very fairly stated that the department will not commence any recovery proceedings against the Petitioner in respect of the present demand till the disposal of its appeal by the Income Tax Appellate Tribunal. 10In view of the statement made by Mr. Pinto on behalf of the department, we feel it would be appropriate for the Petitioner to pursue its remedy of appeal before the Income Tax Appellate Tribunal. In the circumstances, we need not exercise our case. 11The petition is disposed of by recording and accepting the statement made by Counsel for the Respondent. No order as to costs. (M.S.SANKLECHA, J.) (S.J.VAZIFDAR, J.)