2014 (7) TMI 45 - HC - Income Tax

Availability of alternate remedy - Opportunity of being heard - Whether high court was justified in interfering with the order passed by the assessing authority u/s 148 of the Act in exercise of its jurisdiction under Article 226 of the Constitution of India when equal efficacious alternative remedy was available to the assessee under the Act Held that - The assessee had submitted a submission note, the same has not been considered by the respondent with reference to the survey conducted u/s 133 of the Act nor he has referred to the documents produced by the assessee - the assessee has produced information about the filing of returns by the recipient of the amount from the Society and thus, assessee rightly opposed action - if returns has been filed by the recipient and he has computed tax liability and/or has paid the tax, the payer referred to u/s 201 of the Act is not liable for payment of tax or to deduct TDS - These are all factual issues and there is no reason why the respondent-Officer should hesitate or shy from enquiring into this issue - When the Statute creates liability, there has to be a fact finding on the issue - Though the assessee has not produced the certificate from the accountant with respect to the income of the recipient, it is hard to accept that benefit of the provision will not be available to the assessee - there has to be a realistic assessment of the fact situation and in that any material information regarding filing of returns/ payment of tax by recipient furnished by the petitioner should receive consideration. The officer should have examined the truth or otherwise of the statement made by the petitioner that the recipient of the amount had filed its returns for tax assessment - Had the assessee been given an opportunity of personal hearing as sought for, a realistic assessment could have been done the order of assessment has no reference to the information furnished by the assessee regarding filing of returns by the recipient of the amount nor does it contend any opinion as to why such statement of the assessee was not considered. The order passed by the authority is an order without granting due opportunity to the assessee which has resulted in treating the assessee as assessee in default - the assessee has been saddled with not only the tax liability but even penalty - The officer has also proceeded in haste to resort to coercive steps to freeze the bank account to paralyze its function - The manner in which proceedings are initiated and culminated by the impugned order and demand notice, speaks of arbitrariness and no judicious approach - as the main ground in the order is passed without giving any opportunity to the assessee, the order is seriously impacted the AO is directed to commence fresh proceedings after giving due opportunity to the assessee - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the respondent to pass the impugned orders.
2. Violation of principles of natural justice.
3. Requirement of TDS deduction under Section 194(c) of the Income Tax Act.
4. Availability and adequacy of alternative remedy of appeal.
5. Impact of the attachment order on the petitioner's operations.

Detailed Analysis:

Jurisdiction of the Respondent:
The petitioner challenged the jurisdiction of the respondent in passing the impugned orders under Sections 201(1) and 201(1A) of the Income Tax Act. The petitioner argued that the respondent's orders were without jurisdiction and in violation of the mandatory provisions of the Act, particularly the proviso to Section 201. The petitioner contended that the orders were passed without proper verification of the material documents and information furnished by the petitioner, proving payment of taxes by the recipient, which absolves the petitioner of the liability of deducting TDS.

Violation of Principles of Natural Justice:
The petitioner asserted that the orders passed were in violation of principles of natural justice. The respondent, despite receiving a detailed submission from the petitioner explaining that they were not liable for TDS deduction, proceeded to pass the order without considering the petitioner's explanation. The court noted that the assessing officer failed to consider the petitioner's submission and the documents provided, including the information about the filing of returns by the recipient of the amount. The court emphasized that the respondent should have given the petitioner a reasonable opportunity to substantiate its defense.

Requirement of TDS Deduction under Section 194(c):
The petitioner argued that the payments made to the developers did not attract the provisions of Section 194(c) of the Act, as there was no bilateral transaction of service or contract between the parties. The petitioner claimed that the money was paid by the members of the Society, which was then passed on to the developers for the development of layouts. The court noted that the petitioner had informed the respondent that the recipient of the amount had filed returns, and this should have been taken into consideration to determine the tax liability.

Availability and Adequacy of Alternative Remedy of Appeal:
The respondent's counsel argued that the petitioner had an alternative and efficacious remedy of appeal under Section 246 of the Income Tax Act. However, the court referred to several precedents, including the decision in Vodafone India Ltd. Vs. Union of India, which allowed writ action despite the availability of an alternative remedy, particularly when there was a breach of principles of natural justice. The court concluded that non-suiting the petitioner from this writ action to resort to an appeal remedy would be unjust, given that the impugned order was passed without giving any opportunity to the petitioner.

Impact of the Attachment Order on the Petitioner's Operations:
The petitioner described the steps taken by the authority as harsh and unjustified, particularly the freezing of the bank account, which paralyzed its day-to-day functions and resulted in incompensable hardship to the workers who could not be paid their salaries. The court found that the manner in which the proceedings were initiated and culminated in the impugned order and demand notice was arbitrary and lacked a judicious approach.

Conclusion:
The court quashed the impugned orders at Annexures A-1 to A-7 dated 11.3.2014 and directed the assessing officer to commence fresh proceedings after giving due opportunity to the petitioner. The attachment order freezing the bank account of the petitioner was also quashed. The court emphasized the need for a realistic assessment of the fact situation and consideration of any material information regarding the filing of returns/payment of tax by the recipient furnished by the petitioner. The rule was made absolute, and no order as to costs was issued.

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