Wp/7464/2006 Of M/S. Vinbros & Co v. The Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 22.03.2006 CORAM: THE HON ‘BLE MR. JUSTICE K.MOHAN RAM Writ Petition No.7464, 7465 and 7472 of 2006 and W.P.M.P.No.8203, 8204 and 8210 of 2006 M/s. Vinbros & Co.,23, Romain Rolland StreetPondicherry - 605 001Rep. By its Managing partnerSri V.C.Raamsukaesh. … Petitioner in all Writ petitions.-Vs- 1. The Income Tax Officer Ward I (1) Pondicherry. 2. The Commissioner of Income Tax D.P.Thottam, M.G.Road Pondichery - 605 003. … Respondents in all Writ petitions. PRAYER : Petitions filed under Article 226 of the Constitution of Indiafor the issuance of a Writ of Certiorari calling for the records in GIRNo.4301-V/1(1)/PDY/2005-06 PAN :AAFV0610R dated 13.03.2006, relating tothe assessment years 2001-02, 2003-04 and 2004-05 respectively of the 1[st]respondent and quash the same. For Petitioner : Mr. V.Ramachandran, Senior Counsel for M/s. Dr.Anitha Sumanth.For Respondents: Mrs. Pushya Seetharaman Sr. Standing Counsel for Income Tax. Mrs. Pushya Seetharaman, learned Senior Standing Counsel for IncomeTax takes notice for the respondents. By consent of both parties, thewrit petition itself is taken up for final disposal. https://hcservices.ecourts.gov.in/hcservices/ 2. The short facts for deciding the issue involved, and as set out inthe affidavit, are as follows: In respect of the year 2001-02, the petitioner filed its return ofincome on 30.10.2001. The return was processed and thereafter, after dueenquiry, the Assessing Authority made an assessment on the petitioner on31.03.2004, under Section 143(3) of the Income Tax Act (hereinafterreferred to as 'the Act'). In the assessment order, the AssessingAuthority concluded that the activity of the petitioner constitutedmanufacture within the meaning of Section 80IB of the Income Tax Act and,accordingly, the petitioner's claim for relief under Section 80IB wasgranted. According to the petitioner the tax based on the above saidassessment has been duly paid by the petitioner and the proceedings havebecome final. 3. While so, the Commissioner of Income Tax, the second respondentherein, initiated proceedings under Section 263 of the Income Tax Act onthe ground that the assessment made by the first respondent is erroneous,in so far as he had granted relief to the petitioner under Section 80IB ofthe Act. The second respondent revised the order of the first respondentby an order, dated 02.03.2006. By the said order, the second respondentheld that the petitioner is not engaged in the manufacture and,consequently, deduction under Section 80IB has been wrongly allowed.Consequently, the second respondent directed the first respondent to re-compute the total income of the petitioner, ignoring the deduction underSection 80IB and determine the tax and interest payable on the re-computedincome and raise a demand accordingly issuing a notice under Section 156of the Income Tax Act. The order of the second respondent was served onthe petitioner on 03.03.2006. Along with the said order of the secondrespondent, an order of the first respondent made on 02.03.2006,determining the revised total income of the petitioner and tax thereon,along with a notice of demand under Section 156 of the Income Tax Act, wasalso served on the petitioner. As per the contention of the petitioner,the order dated 02.03.2006 made by the first respondent constitutes afresh assessment of the total income of the petitioner and it has beenmade in gross violation of the Act and the principles of natural justiceunder Section 156. A notice of demand is liable to be served only alongwith an order determining the tax, interest or other sums payable by theassessee. 4. In the notice of demand attached to the said order, the firstrespondent has directed the petitioner to pay the disputed demand within30 days from the date of the service of the notice. On receipt of thesame, the petitioner addressed a letter to the first respondent informinghim that the said order has been made without giving the petitioner anopportunity and, accordingly requested him to withdraw the said order andmake a proper order after giving an opportunity as required by law. The petitioner has also stated in the letter that it has not accepted theorder dated 02.03.2006 made by the first and second respondents and thepetitioner shall not be treated as an assessee in default. According tothe petitioner, the said request was made in terms of Section 220 of theIncome Tax Act. 5. It is the further case of the petitioner that on receipt of theaforesaid letter, the first respondent addressed a letter to thepetitioner on 07.03.2006, rejecting the request made by the petitioner fornot treating the petitioner an assessee in default. In the said order thefirst respondent directed the petitioner to pay the demand in accordancewith the notice of demand viz., within 30 days from the date of service.Immediately thereafter, the first respondent suo motu, addressed anotherletter on 13.03.2006 directing the petitioner to pay the entire demandwithin a period of 2 days and the said letter was served on the petitioneron 14.03.2006 in the afternoon and the petitioner was directed to pay theentire disputed demand on or before 5.00 pm on 15.03.2006 instead of the30 days period allowed earlier. The said notice dated 13.03.2006 isimpugned in W.P.No.7464 of 2006. 6. It is the further case of the petitioner that not satisfied withthe above demand the first respondent also made an arbitrary assessmentfor the assessment year 2003-2004 in respect of which period theassessment proceedings were in progress on day-to-day basis; thepetitioners Chartered Accountant was also making regular appearance;various details were called for by the first respondent and the petitionerhad requested for time for production of these details. Suddenly, byletter dated 10.03.2006, the first respondent issued a letter stating thathe would not grant the time asked for and made an order of assessmentdated 13.03.2006; along with the aforesaid order of assessment. a noticeof demand was issued under Section 156 and in the said notice of demand,the first respondent directed the petitioner to pay the entire demandwithin a period of 2 days. 7. The further case of the petitioner is that in respect ofassessment year 2004-2005 also, the first respondent made an arbitraryassessment without affording an opportunity as required by law; alongwith the said assessment also, he issued a demand notice demanding thepayment of the entire demand within 2 days. Letters of identical naturewere issued in respect of these demands for reducing the period forpayment from 30 days to 2 days. 8. The petitioner challenges the abovesaid three impugned proceedingson the ground that the proviso to Section 220(1) permits the AssessingAuthority to reduce the time limit below 30 days, only if thecircumstances of the case justify a reason to believe that it would bedetrimental to afford 30 days to the assessee. According to thepetitioner, the petitioner's clean history with the Income Tax authoritieswould clearly establish that there could not be a reason for such belief. https://hcservices.ecourts.gov.in/hcservices/ It is the further contention of the petitioner that the impugned orderdoes not set out any reason as to how it would be detrimental to allow thepetitioner 30 days time, which is granted by the statute. According tothe petitioner, the reasons stated by the first respondent in the impugnednotice cannot be a reason for exercise of the discretion under Section 220(1) of the Act. https://hcservices.ecourts.gov.in/hcservices/ It is the further contention of the petitioner that the impugned orderdoes not set out any reason as to how it would be detrimental to allow thepetitioner 30 days time, which is granted by the statute. According tothe petitioner, the reasons stated by the first respondent in the impugnednotice cannot be a reason for exercise of the discretion under Section 220(1) of the Act. 9. The further contention of the petitioner is that the proviso toSection 220(1) is an exceptional circumstance, which can be invoked, onlyif the assessee is likely to alienate its asset or leave the country oract with a view to defeat the interests of the Revenue and such interestsare likely to be jeopardized by any overt act that could be done by theassessee and no such allegation or even a whisper to that effect is madeagainst the petitioner in the impugned proceedings. 10. A detailed common counter affidavit has been filed by therespondents. In paragraph No.3, it is stated as follows:"It is submitted that the second respondent is placingstrong reliance on the decision of the Special Bench(Calcutta) of the Income Tax Appellate Tribunal in thecase of Shaw Scott Distilleries P Ltd Vs. ACIT 255 ITR 14(AT). The decision of the Special Bench is on identicalissue as in the case of the assessee. This decisionremains unchallenged before any Court and thus has apervading effect. In view of the law laid down in thedecision, the assessee was not eligible to claim deductionunder Section 801B and the Commissioner therefore, held inhis order under Section 263 that the deductions claimed bythe assessee was wrongly allowed by the assessing officer.The assessee was, therefore, asked to pay the consequentdemand specified in the notice under Section 156 by anorder under Section 220(1) of the Income Tax Act dated13.03.2006 in the assessee's case for the assessment year2001-02, before 15.03.2006, the notice of demand beingserved on the assessee on 03.03.2006. As such this is theonly decision which is available on the subject which hasalmost reached the finality as the decision of the specialbench has not yet been challenged before the Hon'bleCourt. Hence the submission of the Assessee thoughunnecessary in the context involved in the present Writ ismisleading and misinterpreting the law on the subject. Asthe order of the 2nd respondent passed under Section 263is not challenged in these Writ petitions, there is nocause of action that arises out of this order here."In paragraph No.7, it is stated as follows: "It is submitted that the subject matter of the presentWrit is the order dated 13.3.2006 passed under Section 220(1) of the Income Tax Act by the first respondent and thepetitioner has no right to raise any issue pertaining to any other order or communication of this respondent by thepetitioner itself in the present proceedings. Thecontention are therefore to be dismissed in limine and sonot maintainable at all". In paragraph No.8, it is stated as follows: "As regards the petitioner stating that the suo motoletter dated 13.03.2006 issued by the first respondent, itis submitted that this is not an ordinary letter but anorder passed under Section 220(1) of the Income Tax Act,1961 which the petitioner is deliberately labeling as asuo moto communication. This respondent has passed aspeaking order giving the basis and justification forreducing the time for payment of dues from the petitionerspecified in the notice of demand under Section 156. Thisrespondent has given lawful and valid reasons clearlystated in his order, reduced the period from 30 days to 13days expiring on 15.03.2006. A plain reading of the orderwhich again the petitioner is referring differently as anotice, was a validly passed order and was not passedarbitrarily or with a view to harass the petitioner". It is further stated in paragraph No.11 of the counter affidavit thatthere is no financial difficulty on the part of the petitioner at present,and also since the matter has been decided on merits by the Special Benchof the Tribunal, the petitioner cannot be said to have a prima facie case,unless the order of the Special Bench is reversed by the High Court orSupreme Court. As things stand as on this date, the issue is coveredagainst the petitioner by the order of the Special Bench cited above. Itis the further contention of the respondents that the impugned orders havebeen passed only in the exceptional circumstances and the first respondenthas passed valid and speaking orders, after giving sufficient reasons,which formed basis for passing such orders. On the above said grounds,the respondents seek the dismissal of these writ petitions. 11. The Learned Senior Counsel appearing for the petitioner invitedmy attention to Section 220(1) of the Income Tax Act and its proviso.Section 220(1) of the Income Tax Act, reads as follows:- "220 (1) Any amount, otherwise than by way of advance tax,specified as payable in a notice of demand under Section156 shall be paid within (thirty) days of the service ofthe notice at the place and to the person mentioned in thenotice:Provided that, where the Assessing Officer has any reasonto believe that it will be detrimental to revenue if thefull period of thirty days aforesaid is allowed, he may,with the previous approval of the Joint Commissioner,direct that the sum specified in the notice of demandshall be paid within such period being a period less thanthe period of thirty days aforesaid, as may be specifiedby him in the notice of demand". Learned Senior counsel submitted that if the assessing officer has anyreason to believe that it will be detrimental to the Revenue, if the fullperiod of 30 days itself is allowed, he may, with the previous approval ofthe Joint Commissioner, direct that the sum specified in the notice ofdemand shall be paid within a period less than the period of 30 days. Heemphasised that to reduce the time of 30 days, there should be reason tobelieve that it will be detrimental to Revenue, if the full period of 30days is allowed. 12. According to the learned Senior Counsel, initially the firstrespondent granted 30 days time by applying his mind to the facts of thecase and at that time, the first respondent had no reason to believe thatit will be detrimental to give a lesser time than 30 days. Butsubsequently, after the petitioner sent its reply disputing its liabilityto pay, the impugned proceedings have been issued reducing the time of 30days to 13 days and granting only 2 days time for paying the amountsdemanded in respect of the assessment years 2003-2004 and 2004-2005.According to the learned Senior Counsel, after granting the time of 30days, no material facts have come to the notice of the first respondent tobelieve that if the 30 days time is allowed to the petitioner, it will bedetrimental to the interest of the Revenue and on that basis, the timegranted already was revised. 13. Per contra, the Learned Standing Counsel for the Income Taxdepartment while reiterating the contentions raised in the counteraffidavit submitted that the impugned proceedings contain sufficientreasons justifying the grant of lesser time than 30 days and furthercontended that the first respondent has exercised his discretion underSection 220 (1) of the Act, after taking into consideration all therelevant materials and circumstances available in the case. In the background of the said contentions, this Court has to consider as to whetherthe impugned proceedings of the first respondent are strictly inaccordance with the provisions contained in Section 220 (1) of the Act. 13. Per contra, the Learned Standing Counsel for the Income Taxdepartment while reiterating the contentions raised in the counteraffidavit submitted that the impugned proceedings contain sufficientreasons justifying the grant of lesser time than 30 days and furthercontended that the first respondent has exercised his discretion underSection 220 (1) of the Act, after taking into consideration all therelevant materials and circumstances available in the case. In the background of the said contentions, this Court has to consider as to whetherthe impugned proceedings of the first respondent are strictly inaccordance with the provisions contained in Section 220 (1) of the Act. 14. It will be useful to extract the relevant part of the impugnedproceedings and in paragraph 2 of the impugned proceedings it is stated asfollows:"... In view of the binding nature of decision of theSpecial Bench of the Tribunal, the assessee has no chanceof success in challenge of the order of the Commissionerof Income Tax atleast upto the Tribunal. Therefore, thecircumstances necessitate that the assessee should not beallowed full time of 30 days as provided under Section 220(1) for making payment of the demand raised. It istherefore detrimental to revenue to allow such full timefor payment".In paragraph No.3 of the impugned proceedings, it is stated as follows:"Besides, any collection of demand or any other taxesetc. during the relevant financial year is only in https://hcservices.ecourts.gov.in/hcservices/ furtherance to mobilisation of revenue committed to theParliament during the Budget exercise. Every yearcollection of taxes etc. under the Income Tax Act is thusalso part of the public policy. The circumstances of thepresent case also shows that it is not in consonance withthe public policy to permit full period of thirty days forallowing the assessee to make payment of the demandraised". The words "reason to believe" suggest that the belief must be that of anhonest and reasonable person based upon reasonable grounds, relevant andavailable materials on record. The Income Tax Officer would be actingwithout jurisdiction if the reason for his belief that the conditionscontemplated under Section 220 (1) of the Act are satisfied does not existor is not material or relevant to the belief required by the Section. TheCourt can always examine this aspect. 15. It is abundantly clear that the two reasons which have been givenin the impugned proceedings for the belief which was found by the IncomeTax Officer hopelessly failed to satisfy the requirements of the statute.In my considered view, eventhough the assessee may or may not have achance of success in challenging the order of the Commissioner of IncomeTax, as on today, as stated by the Income Tax Officer, the view taken bythe Tribunal may at any time be changed by the higher forum and hence thatmay not be considered to be a relevant ground for reaching such belief.The other reason given by the Income Tax Officer namely, it is not inconsonance with the public policy to permit full period of 30 days forallowing the assessee to make payment of the demand raised, can also notbe considered as a relevant circumstance to reduce the period of 30 daysallowable under Section 220 (1) of the Act. 16. The reasons extracted supra were already available before thefirst respondent while granting the 30 days time to the petitioner, butyet he did not chose to reduce 30 days time at the first instance. Thesereasons cannot be said to be reasons which will enable the firstrespondent to reduce the 30 days time granted in respect of Assessmentyear 2001-02 or to fix 2 days time for payment the tax demanded in respectof assessment years 2003-04 and 2004-05. The first respondent couldreduce 30 days time, if there were compelling circumstances. But in thiscase, in my considered view, no such compelling circumstances wereavailable and the impugned proceedings does not reveal such compellingcircumstances. There is absolutely nothing in the impugned proceedings toshow that by granting 30 days time, some detriment will be caused to theRevenue and even in the counter affidavit, nothing is stated which, willjustify the reduction of time. 17. In grounds (k) and (d), it is stated as follows:"(k) The 1st respondent ought to have seen that thepetitioner not only files returns in time and pays taxesregularly, but even for the current year the advance tax has been paid regularly and the final instalment has alsobeen paid on the due date. These facts have been totallyignored by the 1st respondent in making the aforesaidimpugned order. In fact there is no arrears of tax due bythe petitioner as on today or the date on which theimpugned orders were made" (d) "... that the 1st respondent was acting solely inretaliation to the submissions made by the petitioner thatthe order was not made in accordance with law."But these averments have not been specifically denied in the counteraffidavit filed by the respondents. 18. In paragraph 11 of the counter affidavit it is stated that 'thereis no financial difficulty on the part of the petitioner at present'. Inparagraph 16 of the counter affidavit it is stated that 'there is noprovision under Section 220 (1) to consider the history or background ofthe petitioner before passing that order and the petitioners areadmittedly rich enough to meet the demand at any point of time'. In paragraph 17 of the counter affidavit it is stated as follows: "The petitioner says that paying the demand under thereduced period which has been extended by the Hon'ble Courttill the 22nd of this month would cause irreparable loss andhardship whereas it admittedly has substantial assets by wayof immovable properties including two major industrial unitswhich are worth many the times the demand in question". In the same paragraph it is also stated that the petitioner has not madeout any case as to how the interest of revenue would not suffer in termsof provisions of Sec. 220 (1) if it is allowed full time for payment. In paragraph 3 of the affidavit, the petitioner has stated as follows:"The petitioner has impeccable records with the IncomeTax Department and has always been recognized as one of thebest assesses in the Union Territory of Pondicherry,affording full cooperation to the Department in the matterof Income Tax assessment." 19. The respondents, without specifically denying the above saidaverments, have only stated that there is no provision under Section 220(1) to consider the history or background of the petitioner before passingthat order. No past conduct or likely future conduct governed the passingof the order and that is only the interest of revenue which governs theorder. 20. Though it is a matter of discretion for the Income Tax Officer tofix a time less than 30 days to pay the amount demanded, it is not anuncanalised power or discretion to fix the lesser period than 30 days andif in any particular case the discretion is not exercised in a judicialmanner, it is open to the High court to interfere and set aside suchorders of the Income Tax Officer passed in abuse of the powers underSection 220(1) of the Act. In this context, it is pertinent to point out 20. Though it is a matter of discretion for the Income Tax Officer tofix a time less than 30 days to pay the amount demanded, it is not anuncanalised power or discretion to fix the lesser period than 30 days andif in any particular case the discretion is not exercised in a judicialmanner, it is open to the High court to interfere and set aside suchorders of the Income Tax Officer passed in abuse of the powers underSection 220(1) of the Act. In this context, it is pertinent to point out that even according to the respondents the petitioner has got substantialassets by way of immovable properties including two major industrial unitswhich are worth many the times the demand in question. In the counteraffidavit it is stated that the petitioners are admittedly rich enough tomeet the demand at any point of time. Had the Income Tax Officer / thefirst respondent kept the above said material facts in his mind beforeexercising his discretion under Section 220(1) of the Act, neither hewould have reduced 30 days time granted in respect of the assessment year2001-02 nor fixed 2 days time in respect of the assessment years 2003-04and 2004-05. The first respondent instead of justifying the grounds basedon which he has reached the reason to believe has wrongly cast the burdenon the assessee to show as to how the interest of Revenue would not sufferin terms of provisions of Section 220(1) if it is allowed full time forpayment. 21. I am satisfied that the so called reasons stated by the firstrespondent in the impugned proceedings for coming to the conclusion thatif the full period of 30 days time is allowed to the petitioner, it willbe detrimental to Revenue are not material or relevant to the beliefrequired by the Section. Therefore, I am of the considered view that theimpugned proceedings issued by the respondents are unsustainable andliable to be quashed. 22. Accordingly, the impugned proceedings are set-aside. Buthowever, the notice of demand dated 02.03.2006 issued under Section 156 ofthe Act allowing 30 days time to the petitioner in respect of AssessmentYear 2001-02 shall stand. In respect of Assessment Years 2003-04 and2004-05, the petitioner shall have 30 days time from 03.03.2006 to pay theamounts covered by the respective demands. 23. In the result, the writ petitions are allowed. No order as tocosts. Consequently, the connected WPMPs are closed. srk Sd/Asst.Registrar /true copy/ Sub Asst.Registrar 1. The Income Tax Officer Ward I (1) Pondicherry. Pondicherry. 2. The Commissioner of Income Tax D.P.Thottam, M.G.Road Pondichery - 605 003. D.P.Thottam, M.G.Road Pondichery - 605 003. 3 cc To M/S.Dr.Anitha Sumanth, Advocate, SR14321. 1 cc To M/S.Pushya Sitaraman, Advocate, SR.14654. Writ Petition No.7464, 7465 and 7472 of 2006 and W.P.M.P.No.8203, 8204 and 8210 of 2006 MAB(CO)RVL 31.03.2006