Marudhar Hotels Private Limited, Umaid Bhawan Palace, Jodhpurthrough Shri Gaj Singh, Director Of Marudhar Hotels Privatelimited v. Assistant Commissioner Of Income – Tax, Circle – 1, Jodhpur

HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR (1) S. B. Civil Writ Petition No. 5054 / 2013 Marudhar Hotels Private Limited, Umaid Bhawan Palace, Jodhpurthrough Shri Gaj Singh, Director of Marudhar Hotels PrivateLimited, R/o Umaid Bhawan Palace, Jodhpur ----Petitioner Versus 1.Assistant Commissioner of Income – Tax, Circle – 1, Jodhpur 2.Commissioner of Income Tax – 1, Jodhpur ----Respondents Connected with (2) S. B. Civil Writ Petition No. 5053 / 2013 Marudhar Hotels Private Limited, Umaid Bhawan Palace, Jodhpurthrough Shri Gaj Singh, Director of Marudhar Hotels PrivateLimited, R/o Umaid Bhawan Palace, Jodhpur ----Petitioner Versus 1.Assistant Commissioner of Income – Tax, Circle – 1, Jodhpur 2.Commissioner of Income Tax – 1, Jodhpur ----Respondents (3) S. B. Civil Writ Petition No. 5059 / 2013 Marudhar Hotels Private Limited, Umaid Bhawan Palace, Jodhpurthrough Shri Gaj Singh, Director of Marudhar Hotels PrivateLimited, R/o Umaid Bhawan Palace, Jodhpur ----Petitioner Versus 1.Assistant Commissioner of Income – Tax, Circle – 1, Jodhpur 2.Commissioner of Income Tax – 1, Jodhpur ----Respondents _____________________________________________________ For Petitioners : Mr. Ajay Vohra, Sr. Counsel assisted byMr. Ramit Mehta, Mr. Bhanu Pratap Singh,Mr. Gaurav Jain, Mr. Saurabh Maheshwari &Mr. Tarun Dudia Mr. Ramit Mehta, Mr. Bhanu Pratap Singh,Mr. Gaurav Jain, Mr. Saurabh Maheshwari &Mr. Tarun Dudia For Respondents : Mr. K.K. Bissa with Mr. H.G. Chanda andMr. G.S. ChouhanMr. G.S. Chouhan _____________________________________________________ HON'BLE MS. JUSTICE NIRMALJIT KAUR Reportable Order 20/03/2018 All the above mentioned writ petitions shall stand decided bythis common order as the issue involved is identical. For convenience, the facts are being taken from S.B. CivilWrit Petition No. 5053/2013. By way of present writ petition, the petitioner is seekingquashing of the Notice dated 28.03.2012 issued by the respondent No. 1 under Section 148 of the Income Tax Act, 1961 and theproceedings pursuant thereto, including and particularly Orderdated 28.03.2013 passed by the respondent No. 1 under Section147/143(3) of the Income Tax Act, 1961 reassessing the incomeof the petitioner. While praying for setting aside the impugned notice, learnedcounsel for the petitioner contended that despite the original assessments having been made by the Assessing Authority underSection 143 (3) of the Income Tax Act, 1961 (for short “the Act of1961” hereinafter) upon scrutiny of the record of the petitioner –assessee, the Assessing Authority has reopened the assessmentsunder Sections 147/148 of the Act of 1961 for the AssessmentYears 2005-06, 2006-07 and 2007-08, mainly on two reasons, viz.firstly that the interest/deduction claimed under Section 36 (iii) ofthe Act of 1961 deserves to be disallowed as there was a directnexus between the borrowed funds and the interest free advancesaccording to the Assessing Authority and secondly, thecommission was paid by the assessee to the bankers on promptpayments made by them on the use of credit-cards by thecustomers of the petitioner-hotel, whereas, the said amount wasnot paid as commission as there was no relationship of principaland agent between the assessee - petitioner and the bankers andit was only service charges paid to the bankers for promptpayment made by them earlier then the scheduled period to thepetitioner – assessee in respect of credit cards payment by thecompany. It was argued that this issue having already beenconsidered while passing impugned original assessment orderunder Section 143(3) of the Act of 1961, the Assessing Authorityon a mere change of opinion was not entitled to invoke theprovisions of Section 147 and 148 of the Act of 1961. Reply has been filed. In the reply, the preliminary objectionraised at the first instance is that the writ petition laying challengeto the notice issued for reassessment under Section 147 and 148 of the Income Tax Act, 1961 and the consequential reassessmentorder passed by the respondent No. 1 is not maintainable on theground of alternative remedy of appeal available to the petitioneras per the provisions provided in Section 246-A of the Act of 1961.Reliance was placed on the judgment rendered by the Apex Courtin the case of Commissioner of Income Tax and others Vs.Chhabil Das Agarwal reported in (2013) 357 I.T.R. 357 (S.C.)wherein it has been decided that the reassessment order passedby the competent authority challengeable under the statutecannot be challenged in the writ jurisdiction. It was furthercontended that on perusal of the assessment record, it wasnoticed that the assessee has given interest free advances to theDirectors and sister concern and on the other hand, the assesseewas paying huge amount of interest on loans and borrowings.Further, the assessee has paid commission on credit card receipt,on which T.D.S. has not been deducted, which had earlier escapedassessment. The assessee had failed to disclose all the materialfacts which were relevant for the period of assessment.Therefore, the case was reopened and the notice under Section148 of the Act of 1961 was issued on 28.03.2012 after recordingthe reasons to believe. It was further contended by the learnedcounsel for the respondents that during the course ofreassessment proceedings, the assessee has been given properopportunities to file detail/information/explanation to examine theissue under consideration. The assessee has filed thedetail/information called for and after considering the same, the disallowances have now been correctly made. Learned counsel for the parties were heard at length. Taking up the preliminary objection that the writ petition was not maintainable against the order of reassessment may have hadsome merit, in case, the case in hand did not fall under one of theexceptions. There is no dispute with the law laid down by theApex Court in the judgment rendered in the case of Commissionerof Income Tax and others Vs. Chhabil Das Agarwal (supra). TheHon’ble Supreme Court in the said case itself carved out anexception for entertaining a petition under Article 226 of theConstitution while holding that it was the discretion of the HighCourt to grant the relief under Article 226 of the Constitutiondespite the question of an alternative remedy, in case, the saidorder was without jurisdiction by observing as under :- “Before discussing the fact proposition, we would noticethe principle of law as laid down by this Court. It issettled law that non-entertainment of petitions underwrit jurisdiction by the High Court when an efficaciousalternative remedy is available is a rule of self-imposedlimitation. It is essentially a rule of policy, convenienceand discretion rather than a rule of law. Undoubtedly, itis within the discretion of the High Court to grant reliefunder Article 226 despite the existence of an alternativeremedy. However, the High Court must not interfere ifthere is an adequate efficacious alternative remedyavailable to the petitioner and he has approached theHigh Court without availing the same unless he hasmade out an exceptional case warranting suchinterference or there exist sufficient grounds to invokethe extraordinary jurisdiction under Article 226. (See:State of U.P. vs. Mohammad Nooh, AIR 1958 SC 86;Titaghur Paper Mills Co. Ltd. vs. State of Orissa, (1983)2 SCC 433;Harbanslal Sahnia vs. Indian Oil Corpn. Ltd.,(2003) 2 SCC 107; State of H.P. vs. Gujarat AmbujaCement Ltd., (2005) 6 SCC 499). …. xxxx …... …. xxxx …... Thus, while it can be said that this Court has recognizedsome exceptions to the rule of alternative remedy, i.e.,where the statutory authority has not acted inaccordance with the provisions of the enactment inquestion, or in defiance of the fundamental principles ofjudicial procedure, or has resorted to invoke theprovisions which are repealed, or when an order hasbeen passed in total violation of the principles of naturaljustice, the proposition laid down in Thansingh Nathmalcase, Titagarh Paper Mills case and other similarjudgments that the High Court will not entertain apetition under Article 226 of the Constitution if aneffective alternative remedy is available to theaggrieved person or the statute under which the actioncomplained of has been taken itself contains amechanism for redressal of grievance still holds thefield. Therefore, when a statutory forum is created bylaw for redressal of grievances, a writ petition shouldnot be entertained ignoring the statutory dispensation.” In fact, the judgment rendered by the Hon’ble Supreme Court in the case of Jeans Knit (P) Ltd. Vs. DeputyCommissioner of Income – Tax, Bangalore reported in(2017) 77 Taxmann.com 176 (S.C.) set aside the order of theHigh Court dismissing the writ petition on the ground ofalternative remedy against issuance of notice under Section 148 ofthe Act of 1961 while holding that the said view taken wascontrary to the law laid down by the Hon’ble Supreme Court in thecase of Calcutta Discount Ltd. Co. Vs. I.T.O. reported in(1961) 41 ITR 191 (S.C.) as each case should be decided on itsown merit. Applying the test laid down by the Apex Court, this Court isrequired to examine as to whether the present case falls in any ofthe exceptions for entertaining the petition under Article 226 of the Constitution of India in spite of an alternative remedyavailable. One of the main grounds on which the impugned noticeunder Section 148 of the Act of 1961 has been challenged is thelack of jurisdiction. It is stated that the reassessment proceedingsare without jurisdiction and bad in law on the ground of thirdproviso to Section 147 of the Act of 1961 which makes it clear thatAssessing Officer can assess or reassess the income only in casethe same is not subject matter of appeal, reference or revision. Intheir reply, the respondents have not denied that the impugnedreassessment proceedings on the basis of all the three issues inrespect of which the reassessment order has been passed weresubject matter of disallowances, additions in the assessmentproceedings and had, therefore, become the subject matter ofappeals before the C.I.T. (Appeal) and I.T.A.T. or revision by theC.I.T. In these circumstances, this Court does not deem it properto dismiss the writ petition pending since 2013 on account of theavailability of alternative remedy, in which the impugned notice ischallenged being without jurisdiction. An order withoutjurisdiction is a sufficient ground to interfere in the extraordinaryjurisdiction under Article 226 of the Constitution of India. On perusal of the reasons for issuing the notice underSection 148 of the Act of 1961 for the assessment year 2007-08,the first reason is that the closing balance of these advances isRs.22,84,59,804/-andtheopeningbalanceisRs. 21,03,00,472/-. The average balance is Rs. 21,93,80,138/-on which interest at the rate of 12% comes to Rs. 2,63,25,616/- On perusal of the reasons for issuing the notice underSection 148 of the Act of 1961 for the assessment year 2007-08,the first reason is that the closing balance of these advances isRs.22,84,59,804/-andtheopeningbalanceisRs. 21,03,00,472/-. The average balance is Rs. 21,93,80,138/-on which interest at the rate of 12% comes to Rs. 2,63,25,616/- which is to be disallowed out of interest expenses claimed. In theassessment, interest was disallowed to the tune ofRs. 94,56,000/- only. The rest amount of Rs. 1,68,69,616/- isalso to be disallowed under Section 36(1)(iii) because the interestwas not paid for the purpose of business. The reply to this noticeunder Section 148 was filed by the petitioner – assessee bringingto the notice of the Assessing Authority that the assesseecompany had filed an appeal against the additions/disallowancesmade by the Assessing Officer. Although, the C.I.T. (Appeals)confirmed the said additions/disallowances made by the AssessingOfficer, the assessee filed second appeal before the Income TaxAppellate Tribunal (I.T.A.T.), Jodhpur Bench, Jodhpur and thesame has been decided in favour of the assessee. Thus, it wasclarified to respondent No. 1 that in view of the originalassessment order and the issue raised in the notice being thesubject matter of the appeals to the C.I.T. (A) and the I.T.A.T.,which stood decided, the respondent No. 1 had no jurisdiction toinitiate reassessment with regard to the said issue. The second reason for issuing the notice under Section 148of the Act of 1961 was that the assessee has claimed commissionexpenses of Rs. 40,34,980/- which includes the commission paidto banks on credit card payments. Tax on source was required tobe deducted under Section 194H on these payments but no suchtax was deducted. Expenses of Rs. 40,34,980/- are disallowableunder Section 40(a)(ia). In the reply to the said notice underSection 148 qua the second reason, it was specifically submitted by the petitioner – assessee that amount retained by the banksfor rendering credit card processing services was not liable toT.D.S. and consequently, no disallowance under Section 40(a)(ia)of the Act of 1961 was permissible in view of the NotificationNo. 56/2012 (F.No. 275/53/2013-IT (B) dated 31.12.2012. Thesame was a subject matter of the revision proceedings underSection 263 of the Act initiated by the C.I.T. - 1, Jodhpur in thecase of M/s Marudhar Hotels Pvt. Ltd., Jodhpur for the AssessmentYear 2007-08, who vide its Order dated 30.03.2012 under Section263 of the Act of 1961 set aside the assessment order of theAssessing Officer dated 29.12.2009. However, the said order wasset aside by the I.T.A.T., Jodhpur Bench, Jodhpur vide Order andJudgment dated 14.12.2012 in I.T.A. No. 237/JU/2012 (A.Y. 2007-08). From the above, it is evident that the issue of disallowanceof interest having been considered and decided by the C.I.T.(Appeal), the order of Assessing Officer disallowing the interesthad merged into the order of the C.I.T. (Appeal). As such, it wasbeyond the jurisdiction of the Assessing Authority to reopen thecase on an issue, which has already been decided by the C.I.T.(Appeal). However, the respondent No. 1 disposed off objectionsraised by the petitioner in its reply without dealing with such legalobjections and passed the final reassessment Order dated28.03.2013 under Section 147/148 of the Act of 1961 vide whichhe reassessed the income of the petitioner on merits. While doingso, the respondent No. 1 decided a third issue of classification of From the above, it is evident that the issue of disallowanceof interest having been considered and decided by the C.I.T.(Appeal), the order of Assessing Officer disallowing the interesthad merged into the order of the C.I.T. (Appeal). As such, it wasbeyond the jurisdiction of the Assessing Authority to reopen thecase on an issue, which has already been decided by the C.I.T.(Appeal). However, the respondent No. 1 disposed off objectionsraised by the petitioner in its reply without dealing with such legalobjections and passed the final reassessment Order dated28.03.2013 under Section 147/148 of the Act of 1961 vide whichhe reassessed the income of the petitioner on merits. While doingso, the respondent No. 1 decided a third issue of classification of profit from sale of property. No reasons for reopening this issuewas mentioned in the reasons to issue notice under Section 148.In spite of the same, the respondent No. 1 reassessed the incomeof the petitioner on the issue with respect to the classified profiton sale of immoveable property pursuant to DevelopmentAgreement with EGR Developers as business income, as opposedto capital gains returned by the petitioner thereby, makingaddition, for the second time, in respect thereof amounting to Rs.10,67,10,381/-. However, the said issue too stood decided by theI.T.A.T. vide its Order dated 15.02.2013 passed in I.T.A. Nos. 75 to77/JU/2011 (Assessment Years 2006-07 to 2008-09) in favour ofthe petitioner. The High Court of Gujarat in the case of Gujarat EnviroProtection & Infrastructure Ltd. Vs. Deputy Commissionerof Income Tax reported in (2018) 91 taxmann.com 186(Gujarat) while dealing with an issue where reassessment noticewas issued on the grounds that amount on which the assesseehad claimed deduction included interest income assessable underhead ‘Income from other sources’ and the same was not derivedfrom infrastructure development activity of the assessee and thus,could not be considered for deduction under Section 80-IA,quashed the notice after taking into consideration that theCommissioner (Appeals) had allowed the assessee’s claim ofdeduction in its entirety after the assessee’s claim was denied bythe Assessing Officer by observing as under :- “9. The second reason which we referred to in the previous paragraph is of merger. The Assessing Officerhaving rejected the claim of deduction under Section80IA [4] of the Act, the issue we may recall was carriedin appeal by the assessee. The Commissioner [Appeals]allowed the claim in its entirety. It would thereafter benot open for the Assessing Officer to reopen this veryclaim for possible disallowance of part thereof. Whenthe Commissioner [Appeals] was examining theassessee's grievance against the order of AssessingOfficer disallowing the claim, it was open for theRevenue to point out to the Commissioner [Appeals]that even if in principle the claim is allowed, a partthereof would not stand the scrutiny of law. It wasopen for the Commissioner to examine such an issue,even suo motu. If we allow the claim in its entirety, theAssessing Officer thereafter cannot re-visit such a claimand seek to disallow part thereof. This would becontrary to the principle of merger statutorily providedand judicially recognized. Even after the Commissioner[Appeals] allow such a claim and the Revenue was ofthe opinion that he has not processed it and committedan error, it was always open for the Revenue to carrythe matter in appeal. At any rate, reopening of theassessment would simply not be permissible.Reassessment carries an entirely different connotation.Once an assessment is reopened, the same gives widerjurisdiction to the Assessing Officer to examine theclaims which had been formed part of the reasonsrecorded, but which were not originally concluded. In the result, impugned Notice is quashed. Petition isallowed and disposed of accordingly.” In the result, impugned Notice is quashed. Petition isallowed and disposed of accordingly.” The reopening of the assessment proceedings in the facts ofthe present case, therefore, is without jurisdiction in view of thethird proviso to Section 147 of the Act of 1961 which reads asunder :- “[Provided also] that the Assessing Officer may assessor reassess such income, other than the incomeinvolving matters which are the subject-matter of anyappeal, reference or revision, which is chargeable totax and has escaped assessment.]” Hence, as discussed above, the writ petition deserves to beallowed on this very ground alone as the very grounds on whichthe reassessment notice was issued were subject matter of theappeal either on the same having been allowed in favour of thepetitioner or on account of its still pending in an appeal before theHigh Court. Learned counsel for the petitioner raised yet another ground.It was contended that the order giving reasons for reassessmentis not a speaking order. Since this Court is inclined to allow thewrit petition on the ground of merger as discussed above, it neednot go into the other arguments. However, this Court would like tonote the settled principle of law that the reassessment cannot beinitiated on the basis of change of the opinion alone. Forreassessment, the reasons based on fresh material should begiven. The Hon’ble Supreme Court in the case of Commissioner of Income – Tax, Delhi Vs. Kelvinator of India Ltd. reportedin (2010) 187 Taxman 312 (SC) wherein the specific questionwhich arose for determination was whether the concept of ‘changeof opinion’ stands obliterated with effect from 01.04.1989 i.e.after substitution of Section 147 by the Direct Tax Laws(Amendment) Act, 1987, observed in Para 4 of the judgment asunder :- “4. On going through the changes, quoted above,made to Section 147 of the Act, we find that, prior toDirect Tax Laws (Amendment) Act, 1987, re-openingcould be done under above two conditions andfulfillment of the said conditions alone conferredjurisdiction on the Assessing Officer to make a backassessment, but in section 147 of the Act [with effect of Income – Tax, Delhi Vs. Kelvinator of India Ltd. reportedin (2010) 187 Taxman 312 (SC) wherein the specific questionwhich arose for determination was whether the concept of ‘changeof opinion’ stands obliterated with effect from 01.04.1989 i.e.after substitution of Section 147 by the Direct Tax Laws(Amendment) Act, 1987, observed in Para 4 of the judgment asunder :- “4. On going through the changes, quoted above,made to Section 147 of the Act, we find that, prior toDirect Tax Laws (Amendment) Act, 1987, re-openingcould be done under above two conditions andfulfillment of the said conditions alone conferredjurisdiction on the Assessing Officer to make a backassessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and onlyone condition has remained, viz., that where theAssessing Officer has reason to believe that income hasescaped assessment, confers jurisdiction to re-open theassessment. Therefore, post-1st April, 1989, power tore-open is much wider. However, one needs to give aschematic interpretation to the words "reason tobelieve" failing which, we are afraid, Section 147 wouldgive arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change ofopinion", which cannot be per se reason to re-open. Wemust also keep in mind the conceptual differencebetween power to review and power to reassess. TheAssessing Officer has no power to review; he has thepower to re-assess. But reassessment has to be basedon fulfillment of certain pre-condition and if the conceptof "change of opinion" is removed, as contended onbehalf of the Department, then, in the garb of re-opening the assessment, review would take place. Onemust treat the concept of "change of opinion" as an in-built test to check abuse of power by the AssessingOfficer. Hence, after 1st April, 1989, Assessing Officerhas power to re-open, provided there is "tangiblematerial" to come to the conclusion that there isescapement of income from assessment. Reasons musthave a live link with the formation of the belief. Ourview gets support from the changes made to Section147 of the Act, as quoted hereinabove. Under theDirect Tax Laws (Amendment) Act, 1987, Parliamentnot only deleted the words "reason to believe" but alsoinserted the word "opinion" in Section 147 of the Act.However, on receipt of representations from theCompanies against omission of the words "reason tobelieve", Parliament re-introduced the said expressionand deleted the word "opinion" on the ground that itwould vest arbitrary powers in the Assessing Officer.” Thus, the Assessing Authority does not have the power toreopen unless there is "tangible material" to come to theconclusion that there is escapement of income from assessment.In the present case, there is no fresh material to reopen the case.Not a word has been mentioned about such material in thereasons for reopening of the assessment proceedings. Thereasons recorded made no mention of the aforesaid issue of Thus, the Assessing Authority does not have the power toreopen unless there is "tangible material" to come to theconclusion that there is escapement of income from assessment.In the present case, there is no fresh material to reopen the case.Not a word has been mentioned about such material in thereasons for reopening of the assessment proceedings. Thereasons recorded made no mention of the aforesaid issue of classification of profit from sale of property and nor was the same,in any manner, connected with the issues with respect to whichthe reassessment proceedings had been initiated. In order tosustain reopening of a concluded assessment under Section 148 ofthe Act, fresh/new material/information must come to thepossession of the Assessing Officer, subsequent to the conclusionof the original assessment/reassessment leading the AssessingOfficer to believe that income of the assessee has escapedassessment. In the reasons recorded nor in the reply, therespondents have pointed out the new material that come to theirpossession leading to initiation of reassessment proceedings. Theaforesaid silence only goes to show that the impugnedreassessment proceedings were initiated on mere change ofopinion on the basis of existing material on record without anynew information or material coming to the possession of theRevenue. Accordingly, the present writ petitions are allowed. Theimpugned notices under Section 148 of the Income Tax Act, 1961as well as proceedings initiated pursuant thereto under Section147/143(3) reassessing the income of the petitioner by therespondents are set aside. (NIRMALJIT KAUR), J.