Wp/3047/2012 Of M/S.andhra Pradesh Beverages Corporation Ltd v. The Income-Tax Officer

THE HON’BLE SRI JUSTICE GODA RAGHURAMANDTHE HON’BLE SRI JUSTICE N. RAVI SHANKAR WRIT PETITION No.3047 and 13542 of 2012 Date : June 29, 2012 Between : M/s. Andhra Pradesh Beverages Corporation Ltd.,Rep. by its Managing Director,Dr. Sameer Sharma. … Petitioner And The Income Tax Officer, Ward 1(I),3[rd] Floor, Aayakar Bhavan,Basheerbagh, Hyderabad … Respondent THE HON’BLE SRI JUSTICE GODA RAGHURAMANDTHE HON’BLE SRI JUSTICE N. RAVI SHANKAR WRIT PETITION No.3047 and 13542 of 2012 COMMON ORDER: [Per JUSTICE GODA RAGHURAM] These two writ petitions are filed by the Andhra PradeshBeverages Corporation Limited (the ‘Corporation’), engaged in thebusiness of importing, exporting and carrying on the wholesaletrade and distribution of Indian made foreign liquor, foreign liquor,wine and beer, in the State. In W.P.No.3047 of 2012 the order ofassessment dated 28-12-2011 passed by the respondent for theassessment year 2009-10, raising a demand of Rs.865,60,88,900/-; and in W.P.No.13542 of 2012 the consequent notice issued underSection 266(3) of the Income Tax Act, 1961 (the ‘Act’) by the 1[st] respondent - Assessing Officer to the 2[nd] respondent - Bank inter aliadirecting the said respondent to deposit the amountrepresenting tax liability of the petitioner as assessed intoGovernment account and further directing the said respondent –Bank not to permit any withdrawal of the petitioner’s monies indeposit with the said bank until further instructions, are assailed. The order of assessment is assailed as being contrary toprovisions of Section 143(2) of the Act. The petitioner corporation filed its return of income for theAssessment Year 2009-10 on 26/09/2009 admitting ‘nil’ incomeand Rs.3,89,560/- under the provisions of Sec.115 JB of the Act,as book profit. The respondent – Assessing Officer initiatedproceedings u/Sec. 143(2) and issued a notice dt. 26.08.2010informing that the return is selected for scrutiny under theComputerized Aided System of Selection (‘CASS’) and called uponthe petitioner to furnish certain information. The petitionersubmitted its objections. The respondent however passed theimpugned order of assessment on 28.12.2011. The order of assessment is assailed on several grounds butprincipally on two. The first is that in view of provisions of Sec. 4of the AP (Regulation of Trade in Indian Liquor and Foreign Liquor)Act, 1993 and Sec.68A of AP Excise Act, 1968, the petitioner -Corporation is acting as an agent of the State and the income ofthe State Government is not therefore liable to be taxed, in view ofArt. 289(1) of the Constitution. The second principal ground of challenge, which alone iscanvassed by the learned counsel for the petitioner Mr.K.Vasantha Kumar is a reiteration of what is pleaded in para-9 ofthe writ petition. On this aspect of the matter it is contended thatthe respondent initiated proceedings u/Sec. 143(2) of the Act not by reason of the assessing officer’s own belief that there areaspects in the return of income that is filed, requiring scrutiny butsince the case is taken up for scrutiny on the basis ofidentification by CASS and on the basis of a circular of the CBDT(the Board). Consequently there is abdication of the statutoryfunctions and discretion by the respondent. At the hearing of this writ petition we clearly indicated to thelearned counsel for the petition that this Court is not inclined toconsider and adjudicate upon the issue whether the petition isimmune to liability to tax under the provisions of the Act in view ofthe provisions of Art.289 of the Constitution and provisions of thevarious State enactments referred to above and other relevantprovisions; and we are not inclined to judicially review theimpugned order of assessment on its merits. At the hearing of this writ petition we clearly indicated to thelearned counsel for the petition that this Court is not inclined toconsider and adjudicate upon the issue whether the petition isimmune to liability to tax under the provisions of the Act in view ofthe provisions of Art.289 of the Constitution and provisions of thevarious State enactments referred to above and other relevantprovisions; and we are not inclined to judicially review theimpugned order of assessment on its merits. Whether the petitioner - Corporation is immune to the matrixof taxation provisions under the Act does not merely depend onreference to relevant constitutional or statutory provisions but onthe nature of the business enterprise of the petitioner and severalother critical factual aspects including whether the incomereceived by the petitioner constitutes income of the State. Evaluation of the appropriate synthesis of the relevant facts andapplicable principles of law is more appropriately processed by afact finding authority, in the first instance. Since the petitionerhas an available, effective, statutory appellate remedy, we declineto adjudicate upon the merits of the order of assessment. Therefore, the only issue that we proceed to consider is whethertaking up for scrutiny of the petitioner’s return of income for theassessment year 2009-10 under CASS tantamounts to abdicationof statutory discretion, inhering in the respondent u/Sec.143. On the above aspect of the matter the respondent pleadedin his counter that earlier the department was issuing manualguidelines specifying certain criteria for selection of cases forscrutiny. With the advent of computerization of returns and otherrecords and as part of its continuing effort to minimize theindividual discretion and improve transparency, the departmenthas adopted the methodology of selecting cases for scrutinythrough CASS. Under CASS, returns which are eitherelectronically filed as in the case of the petitioner or fed into thesystem through manual entry of physical returns, are examined bythe computer programme and identified for scrutiny, when certaincriteria are met. According to the respondent in the case of thepetitioner since the turnover exceeded the parameters specified inCASS, one of the programmed criteria for scrutiny was met andthe return was selected to scrutiny u/Sec. 143. It is furtherpleaded that once scrutiny proceedings are initiated, opportunity isprovided u/Sec. 142(2), specific information is gathered and afterdetailed examination of the identified return of income and therelevant facts, assessment is made. There is thus no denial offair and reasonable opportunity to the petitioner - assessee. It isfurther asserted by the respondent that Sec. 119 of the Actempowers the Board to issue orders in the nature of instructions/guidelines/principles of procedure to be followed while makingassessment or collection of revenue. The Board is authorized toissue guidelines and instructions for efficient administration of theprovisions of the Act and these cannot be faulted. Therespondent concludes that the circular issued by the Board fortaking up scrutiny on the basis of identification of a case by CASSis intended to ensure fair enforcement of the provisions of the Actand does not constitute interference with the course of assessment of any particular assessee nor interferes with thediscretion of the assessing authority in the matter of assessment. The petitioner refers to certain precedents to buttress thecontention that the circular of the Board directing assessingofficers to take up for scrutiny cases identified by the CASS isillegal, violative of the authority of the Board and is productive of achilling effect on the statutory discretion of the assessing officeru/Sec. 143. assessment of any particular assessee nor interferes with thediscretion of the assessing authority in the matter of assessment. The petitioner refers to certain precedents to buttress thecontention that the circular of the Board directing assessingofficers to take up for scrutiny cases identified by the CASS isillegal, violative of the authority of the Board and is productive of achilling effect on the statutory discretion of the assessing officeru/Sec. 143. It requires to be noticed that the circular of the Board whosevalidity is challenged in oral arguments on behalf of the petition isneither placed before us for consideration nor specificallychallenged and a relief sought in that behalf. Even particulars ofthe allegedly offending Board’s circular are not before us forconsideration. In the absence of the circular being placed beforeus, it is neither proper nor appropriate to consider the validity ofsuch circular nor is it legitimate to record a pronouncement on itsvalidity qua the provisions of the Act. It is however the contentionon behalf of the petitioner that the Board’s circular instructsofficers of the department including the respondent – AssessingOfficer, to take up for scrutiny those cases identified by CASS. Ifthat be the only trajectory of the Board circular, we are unable toconclude that issuance of instructions to take up for scrutiny,cases identified by CASS transgresses the authority of the Boardu/Sec. 119 or such instructions have a chilling effect on thediscretion of the assessing officers u/Sec. 143 of the Act. Mr. Vasanthkumar has referred to Pahwa Chemicals Pvt Ltd[1]vs Commissioner of Central Excise, Delhi (); Dedicated Health CareServices TPA (India) (P) Ltd & Ors vs Assistant Commissioner of[2]Income Tax & Ors (); Sirpur Paper Mill Ltd vs Commissioner of [3]Wealth Tax () and J.K. Synthetics Ltd & Ors vs Central Board of[4]Direct Taxes & Ors (). In Pahwa Chemicals(1 supra) the Supreme Court ruled thatthe Board (in this case the Central Board of Central Excise) hasno power to issue instructions or orders contrary to the provisionsof the Act or in derogation of provisions of the Act; and could issueonly such directions as are necessary for the purposes and infurtherance of provisions of the Act. I n Dedicated Health Care Services(2 supra) a learnedDivision Bench of the Bombay High Court considered the validityof circular No. 8/09 dt. 24.4.2009 issued by the Board. Thelearned Bench after consideration and analysis of the provisions ofSec. 119 of the Act and the proviso to sub-sec. (1) thereofobserved that the view taken by the Board (in the impugnedcircular), that payments made by Third Party Administrator (TPA)to the hospitals fall within the purview of Sec. 194J, since this isconsistent with the interpretation placed on the said provision inthe course of the judgment. The Bench however held that in sofar as the Board’s circular postulates a liability u/Sec. 271C forfailure to make a deduction u/Sec. 194J, the same interferes withthe quasi judicial discretion of the assessing officer or as the casemay be the appellate authority and forecloses the statutorydefence available to an assess u/Sec. 273B. The court held thatsuch a direction of the Board transgresses the restraint upon itspower placed by the proviso to sub-sec. (1) of Sec. 119. In Sirpur Paper Mill (3 supra) the Supreme Court restated theestablished principle that the power u/Sec. 25 of the Wealth TaxAct on the Commissioner of Wealth Tax is not administrative butquasi judicial; that though Sec. 13 provides that all officers and In Sirpur Paper Mill (3 supra) the Supreme Court restated theestablished principle that the power u/Sec. 25 of the Wealth TaxAct on the Commissioner of Wealth Tax is not administrative butquasi judicial; that though Sec. 13 provides that all officers and other persons employed in execution of the Act shall observe andfollow the orders, instructions and directions of the Board, suchinstructions may control the exercise of the power of the officersof the department in administrative but not quasi judicial areas andaspects. In the facts of the case the Supreme Court held thatfrom the inception of proceedings the Commissioner of Wealth Taxhad put himself in communication with the Central Board ofRevenue; sought instructions from that authority as to how therevisions filed before him have to be decided; and exercised noindependent decision. On this analyses the order of theCommissioner was quashed. J.K.Synthetics (4 supra) is again a reiteration of the settledprinciple that powers of the CBDT do not extend to givingdirections regarding exercise of judicial power by subordinates. We have referred to the above precedents since they arecited by the learned counsel for the petition. An idle parade offamiliar authority on this aspect of the matter is however notwarranted. The proviso to sub-sec. (1) of Sec.119 of the Act itselfcategorically enjoins that no orders, instructions or directions shallbe issued by the CBDT as would require any Income Tax authorityto make a particular assessment or to dispose of a case in aparticular manner; or so as to interfere with the discretion of theCIT (A) in exercise of his appellate function. Suffice to notice thatthe CASS appears to be a fair and transparent methodologyevolved by the department, harnessing technological evolution toensure a comprehensive, fair and transparent method ofidentifying cases for scrutiny u/Sec. 143 of the Act; on the basis ofcertain markers/indices programmed into the CASS methodology,which automatically identify a case as justifying scrutiny, wherever one or more of the markers are present in the return ofincome filed, either electronically or manually. If the board haddirected that cases identified by CASS ought to be taken up forscrutiny, we fail to see how such instructions interfere with theassessing officer’s discretion. The CASS methodology evolved and currently employed bythe department as revealed from the rival contentions andpleadings on record, is but an efficient methodology for properexercise of discretion by the assessing officer u/Sec.143. On the aforesaid analyses we find no violation of provisionsof the Act; or abdication of statutory discretion by the respondent,in taking up the petitioner’s case for scrutiny on the basis ofCASS. As we have already indicated we decline to consider themerits of the impugned order of assessment in view of availabilityof an alternative appellate remedy. Accordingly, W.P.No.3047 of2012 is dismissed with liberty to the petitioner to pursue theappellate remedy, in accordance with law. For reasons alike as recorded in respect of W.P.No.3047 of2012, W.P.No.13542 of 2012 is also dismissed, since invocation ofthe power under Section 226(3) of the Act is not assailed on anyindependent ground or on grounds of lack of competence. Theinterim order dated 09-05-2012 granted in W.P.No.13542 of 2012is consequently dissolved. No costs however. ___________________ Justice G. Raghuram _____________________ Justice N. Ravi Shankar [1]AIR 2055 SC 1532AIR 2055 SC 1532 [2](2010) 324 ITR 345 (SC)(2010) 324 ITR 345 (SC) [3](1970) 77 ITR 6 (SC)(1970) 77 ITR 6 (SC) [4](1972) 83 ITR 335 (SC)(1972) 83 ITR 335 (SC)