2020 (1) TMI 356 - HC - Income Tax

Alternative remedy available to the writ applicant by preferring an appeal before the CIT (Appeals) - Section 44AD applicability - best judgement assessment u/s 144 - Rate of profit determination - HELD THAT - Having regard to the basic infirmity in the impugned order passed by the Assessing Officer, we are of the view that we should not reject this writ application only the ground that the writ applicant has an alternative efficacious remedy of preferring an appeal before the CIT (Appeals). As decided in CHHABIL DASS AGARWAL 2013 (8) TMI 458 - SUPREME COURT although the Act provides complete machinery for the assessment / reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities, yet the remedy under the statute, however, must be effective and not a mere formality with no substantial relief. It is true that when a statutory forum is created by law for redressal of grievance, a writ petition should not be entertained ignoring the statutory dispensation. But, such principles, in a given case, may be given a go bye, if the Court is convinced that on the face of it, the impugned order is not sustainable in law. We are of the view that we should look into the matter on merits while overruling the preliminary objection raised on behalf of the Revenue. We are convinced that the impugned order passed by the Assessing Officer is not sustainable in law. We once again fall back on the directions issued by the Appellate Tribunal. The directions are plain and simple. The Tribunal takes the view that Section 44AD of the Act is not applicable. It directed the assessee to attend the assessment proceedings and justify its case on lower rate of profit in accordance with its books of account. The Assessing Officer was directed to verify the same and decide the issue a fresh (the Tribunal says that decide the issue a fresh means the issue with regard to the claim of lower rate of profit). If the appeal would have been dismissed without there being any direction of remitting the matter to the Assessing Officer, then the effect would have been as if the Tribunal has accepted that the case would fall within the Section 44AD of the Act thereby justifying 8% rate of profit. Here is a case where the Assessing Officer, by its impugned order, has absolutely created new liability for the writ applicant and that too, contrary to the directions issued by the Appellate Tribunal. For the foregoing reasons, we are convinced that the impugned order passed by the Assessing Officer is not sustainable in law. In the result, this writ application succeeds and is hereby allowed. The matter is remitted to the Assessing Officer for fresh consideration of the issue as specifically directed by the Appellate Tribunal. We once again clarify that the Assessing Officer now needs to reconsider the issue with regard to claim of the writ applicant for lower rate of profit and not at the rate of 8%.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer.
2. Applicability of Section 44AD of the Income Tax Act, 1961.
3. Interpretation of the Appellate Tribunal's directions.
4. Availability of alternative remedy.
5. Principles of natural justice and judicial procedure.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer:
The primary issue raised by the writ applicant was that the Assessing Officer acted beyond his jurisdiction by assessing aspects not remitted by the Appellate Tribunal. The Tribunal had specifically directed the Assessing Officer to reconsider the claim of lower profit rates in accordance with the assessee's books of accounts. However, the Assessing Officer expanded the scope of assessment, including disallowances and unexplained investments, which was beyond the Tribunal's directive.

2. Applicability of Section 44AD of the Income Tax Act, 1961:
The Tribunal had previously ruled that Section 44AD, which prescribes an 8% profit rate for certain businesses, was not applicable to the assessee as the return was accompanied by an audit report under Section 44AB. The Tribunal’s directions were clear that the Assessing Officer should verify the claim of lower profit rates based on the assessee’s books of accounts and not apply the 8% rate under Section 44AD.

3. Interpretation of the Appellate Tribunal's Directions:
The Tribunal's directions were specific: the Assessing Officer was to verify the lower profit rate claim and decide the issue afresh. The Tribunal explicitly stated that Section 44AD was not applicable due to the audit report under Section 44AB. Despite this, the Assessing Officer assessed additional income on various grounds, which was not within the scope of the Tribunal’s remittance. The High Court emphasized that the Assessing Officer’s task was limited to verifying the lower profit rate claim.

4. Availability of Alternative Remedy:
The Revenue argued that the writ applicant should have pursued an appeal before the CIT (Appeals) instead of filing a writ petition. However, the High Court decided to entertain the writ application, citing the Supreme Court’s decision in Commissioner of Income Tax vs. Chhabil Dass Agarwal, which allows for bypassing alternative remedies in cases of clear legal errors or breaches of natural justice. The High Court found that the Assessing Officer’s order was not sustainable in law and thus, chose to exercise its jurisdiction under Article 226.

5. Principles of Natural Justice and Judicial Procedure:
The High Court noted that the Tribunal’s directions were not followed, thereby violating principles of natural justice. The Assessing Officer’s expansion of the assessment scope without proper jurisdiction was seen as a procedural irregularity. The High Court referenced the Supreme Court’s decision in MCorp Global P. LTD vs. Commissioner of Income Tax, which held that the Tribunal cannot enhance an assessment or create new liabilities not originally assessed.

Conclusion:
The High Court quashed the impugned order passed by the Assessing Officer, directing him to reassess the issue strictly in line with the Tribunal’s original directions, focusing solely on the assessee’s claim of lower profit rates and not applying the 8% rate under Section 44AD. The writ application was allowed, and the rule was made absolute to this extent.