2003 (9) TMI 67 - HC - Income Tax

Order passed by the Additional Commissioner of Income-tax power - The Additional Commissioner does not sit in appeal under any provision of the Income-tax Act against the orders passed under section 144A. The only power to set aside an order of the Inspecting Assistant Commissioner (or Deputy Commissioner as the case may be) is under section 263 of the Income-tax Act but that power has admittedly not been exercised and the power under section 263 can only be exercised after giving opportunity of hearing to the petitioner. Admittedly no such hearing was given. It may be noted that section 263 specifically mentions about giving opportunity of hearing. Hence the impugned orders are wholly arbitrary illegal and without jurisdiction.

Summary

Issues Involved:
1. Validity of the impugned orders dated July 31, 1997, passed by the Additional Commissioner of Income-tax.
2. Whether the petitioner was denied an opportunity of hearing before passing the impugned orders.
3. Legality of the directions issued by the Inspecting Assistant Commissioner/Deputy Commissioner under Section 144A of the Income-tax Act.
4. Authority of the Additional Commissioner to recall orders under Section 144A of the Income-tax Act.
5. Arbitrary exercise of power by the Additional Commissioner.

Issue-wise Detailed Analysis:

1. Validity of the Impugned Orders:
The petitioner challenged the impugned orders dated July 31, 1997, passed by the Additional Commissioner of Income-tax, Muzaffarnagar, which rescinded earlier orders determining the fair rental value of quarters and furniture provided to employees. These orders were alleged to have been passed without issuing any show cause notice to the petitioner and without giving it an opportunity of hearing. The court held that the impugned orders had civil consequences and thus, were invalid as they were passed without giving an opportunity of hearing.

2. Opportunity of Hearing:
The petitioner argued that it was not given an opportunity of hearing before the impugned orders were passed. This allegation was not denied in the counter affidavit. The court referenced the Supreme Court's decision in State of Orissa v. Binapani Dei, which established that any order with civil consequences is invalid if passed without giving an opportunity of hearing. Therefore, the court decided that the petition deserved to be allowed on this ground alone.

3. Legality of Directions Under Section 144A:
The petitioner contended that the directions issued by the Inspecting Assistant Commissioner/Deputy Commissioner under Section 144A were valid. The court examined Section 144A, which allows the Inspecting Assistant Commissioner or Deputy Commissioner to issue directions for the guidance of the Income-tax Officer to complete the assessment. The court concluded that the directions referred to in annexures 8 to 12 of the writ petition were valid and issued by the competent authority under Section 144A.

4. Authority to Recall Orders Under Section 144A:
The court found that there was no provision in the Income-tax Act allowing the Additional Commissioner to recall orders issued under Section 144A. The Additional Commissioner does not have appellate jurisdiction over orders passed under Section 144A. The only provision for setting aside such orders is under Section 263 of the Income-tax Act, which requires giving an opportunity of hearing to the petitioner. Since no such hearing was given, the court held that the impugned orders were arbitrary, illegal, and without jurisdiction.

5. Arbitrary Exercise of Power:
The court addressed the arbitrary exercise of power by the Additional Commissioner. It emphasized that even if the Additional Commissioner had the power to pass the impugned orders, such power cannot be exercised arbitrarily. The court highlighted the principle that existence of power is distinct from its exercise. The court referenced the decision in Shaukat Ali v. Allahabad Development Authority, which held that arbitrary exercise of power violates Article 14 of the Constitution. The court concluded that the impugned orders caused unnecessary hardship and harassment to the petitioner and its employees, leading to uncertainty in tax administration. Consequently, the court quashed the impugned orders as arbitrary, illegal, and without jurisdiction.

Conclusion:
The court allowed the petition, quashing the impugned orders dated July 31, 1997, passed by the Additional Commissioner of Income-tax. The court found that the orders were passed without giving an opportunity of hearing, were beyond the jurisdiction of the Additional Commissioner, and constituted an arbitrary exercise of power.