2013 (12) TMI 845 - HC - Income Tax

Power of CIT(A) to reopen the assessment and enhance the income liable to tax u/s 251(1)(a) during appellate proceedings - Held that - It is seen that the CIT (Appeals) had not only stated to reopen the assessment in which the appeals are pending but also for the assessment in which either no appeal is pending or already stands disposed. In our considered view, the impugned show cause notices seeking to reopen the assessment in respect of all the years seems to be in excess of the power of the CIT (Appeals) under Section 251(1)(a). Since the CIT (Appeals) has expressed doubts that the petitioner is not a company and is seeking to reopen assessment of the petitioner-company over the years, we are of the view that the impugned show cause notices are in excess of jurisdiction and are liable to be quashed. However, it is open to the CIT (Appeals) to issue a fresh show cause notice in accordance with law. - Writ petition allowed - Decided in favor of assessee.

Issues Involved:

1. Challenge to show cause notices issued under Section 251(1)(a) of the Income Tax Act, 1961.
2. Status of the petitioner-company as a "Company" under the Income Tax Act and Companies Act.
3. Jurisdiction and power of the Commissioner of Income Tax (Appeals) under Section 251(1)(a).
4. Maintainability of writ petitions challenging the show cause notices.

Detailed Analysis:

1. Challenge to Show Cause Notices Issued Under Section 251(1)(a) of the Income Tax Act, 1961:

The writ petitions were filed to challenge the show cause notices issued by the Commissioner of Income Tax (Appeals) under Section 251(1)(a) of the Income Tax Act for multiple assessment years. The notices directed the petitioner-company to explain why the provisions of Section 251(1)(a) should not be invoked to enhance the income liable to tax and reject the books of accounts.

2. Status of the Petitioner-Company as a "Company":

The petitioner contended that it has been assessed as a "Company" since its inception in 1956, and the books of accounts have been audited by statutory auditors and the Comptroller and Auditor General (CAG). The petitioner argued that the status as a "Company" under Sections 2(17) and 2(26) of the Income Tax Act had been consistently accepted by the Income Tax Department.

3. Jurisdiction and Power of the Commissioner of Income Tax (Appeals) Under Section 251(1)(a):

The petitioner argued that the CIT (Appeals) exceeded its jurisdiction by doubting the status of the petitioner as a "Company" and attempting to reopen settled assessments. The CIT (Appeals) issued show cause notices based on the Supreme Court's restoration of an FIR by the CBI, which questioned the correctness of the books of accounts. The petitioner contended that Section 251(1)(a) powers are limited to the scope of the order under appeal and cannot be used to reopen assessments en masse. The court noted that the CIT (Appeals) expressed doubts about the status of the petitioner as a "Company" and stated that the petitioner had been "incorrectly and unlawfully assessed" as a company, indicating a predetermined view.

4. Maintainability of Writ Petitions Challenging the Show Cause Notices:

The Revenue argued that the writ petitions were premature and not maintainable as they challenged show cause notices. However, the court held that in exceptional cases where the authority acts beyond its statutory power or jurisdiction, writ petitions can be entertained. The court found this case to be exceptional, warranting intervention as the CIT (Appeals) exceeded its jurisdiction by questioning the settled status of the petitioner as a "Company."

Conclusion:

The court quashed the impugned show cause notices, stating that the CIT (Appeals) acted in excess of jurisdiction by reopening assessments for years where no appeal was pending or had already been disposed of. However, the court allowed the CIT (Appeals) to issue fresh show cause notices in accordance with the law. The writ petitions were allowed, and the impugned show cause notices were quashed.

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