INVOKING WRIT JURISDICTION FOR INCOME TAX MATTERS

[Mr. M. GOVINDARAJAN]

Assessment under Income Tax Act

The assessee, coming under the purview of Income Tax Act, 1961 (‘Act’ for short) is under an obligation to assess the tax himself and pay to the credit of the Central Government and he is liable to file the return of income tax in the prescribed form and within the prescribed time and in the prescribed manner.   If there is a default in the payment of income tax or if any money is escaped of  assessment the assessing officer can assess the tax and pass order directing to pay the due tax along with interest and impose penalty.

Appeal before Commissioner (Appeals)

Section 246 to Section 251 of the Act provide for the procedure for filing appeal before Commissioner of Income Tax (Appeals) against the order of the Adjudicating Authority below the rank of Principal Commissioner or Commissioner, within 30 days from the date of communication of the order.    After the hearing is concluded, Commissioner (Appeals) passes order in writing, disposing of the appeal and stating the decision on each ground of appeal with reasons in case of reduce or enhance it. Before enhancing the tax, Commissioner of Income-tax (Appeals) has to provide reasonable opportunity to the tax payer for showing cause against such enhancement. While disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which order appealed against was passed, even if such matter was not raised by the tax payer.  The Commissioner (Appeals) may confirm, modify or set aside the order of the lower authority against which appeal is filed.

Appeal before Tribunal

Appeal, against an order of Commissioner (Appeals), lies with the Income Tax Appellate Tribunal (‘Tribunal’). Section 252 to Section 255 of the Act provides the procedure for filing appeal before the Tribunal.  Both tax payer and the Assessing Officer can file appeal before the Appellate Tribunal.   Appeal is to be filed before the Appellate Tribunal within 60 days of the date on which order appealed against is communicated to the taxpayer or the Commissioner, as the case may be.   The tax payer or the Assessing Officer on receipt of notice that an appeal has been filed before the Appellate Tribunal against order of Commissioner (Appeals) by the other party can, within 30 days of receipt of notice, file a memorandum of cross objections in Form No. 36A. Such memorandum of cross objections can be filed even if no appeal is filed by the tax payer or the Assessing Officer himself. The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

Appeal before High Court

Section 260A and 260B provides for the procedure for filing appeal before the High Court.  Appeal, against Appellate Tribunal’s order, lies with the High Court. Where the High Court is satisfied that the case involves a substantial question of law it may admit the appeal.   Appeal to the High Court against Appellate Tribunal’s order can be filed by the tax payer or the Chief Commissioner/Commissioner within 120 days of receipt of the order and in the form of memorandum of appeal, precisely stating the substantial question of law involved.

Appeal before Supreme Court

Section 261 and 262 of the Act provides for the procedure for filing appeal before the Supreme Court of India.  Appeal against High Court’s order in respect of Appellate Tribunal’s order lies with the Supreme Court in those cases, which are certified to be fit one for appeal to the Supreme Court.  Special leave can also be granted by the Supreme Court under Art. 136 of the constitution of India against the order of the High Court.

Writ jurisdiction

The Constitution of India has conferred on High Courts and Supreme Court under Article 226 and Article 32 of the Constitution to issue writs.  Writ jurisdiction of these courts extends not only to inferior courts and Tribunals but also to the State of any authority or person endowed with State Authority.  The High Courts have wide powers as to compare to Supreme Court in issuing writs.  The Supreme Court can issue writ only in case of violation of any of the fundamental rights contained in Part III of the Constitution, while the High Courts can issue writs only in case of violation of fundamental rights but also in case of violation of any legal rights of the citizens provided that a writ is a proper remedy in such cases, according to well-established principles.

The exercise of jurisdiction by High Court under Article 226 of the Constitution is discretionary and not obligatory without being exhaustive.  The Court would not ordinarily issue a writ in favor of a person, -

• Who has an adequate alternate remedy;
• who is guilty of delay which is unexplained;
• who is guilty of conduct disentitling him to relief;
• where the interest of justice do not require that relief should be granted;
• where the petitioner raises a disputed question of fact;
• where the grant of writ would be futile; and
• where the impugned law has not come into force.

In ‘Joshi Technologies International Inc V. Union of India and others’ – 2015 (5) TMI 521 - SUPREME COURT the Supreme Court held that in purely contractual matters the extraordinary remedy of writ under Article 226 or Article 32 of the Constitution of India cannot be invoked.  There is no bar to the maintainability of the writ petition even in contractual matters or where there are disputed questions of fact or even when a monetary claim is raised.  At the same time, discretion lies with the High Court which under certain circumstances, it can refuse to exercise.   Under the following circumstances, ‘normally’ the Court would not exercise such a decision-

• the Court may not examine the issue unless the action has some public law character attached to it;
• whenever a particular mode of settlement is provided in the contract, the High Court would refuse to exercise its discretion under Article 226 of the Constitution and relegate the party to the said mode of settlement, particularly when settlement of disputes is to be resorted through by means of arbitration;
• if there are very serious disputed questions of fact which are complex nature and require oral evidence for their determination; and
• money claims per se particularly arising out of contractual obligations are normally not to be entertained except in exceptional circumstances.

Alternative remedy

The writ jurisdiction cannot be invoked when there is an alternative remedy is available.  If the order, which is challenged in the writ petition, is not sustainable, the High Court will entertain a petition under its writ jurisdiction.     In ‘Anand Transport Private Limited V. Assistant Commissioner of Income Tax’ – 2014 (2) TMI 434 - MADRAS HIGH COURT the Revenue has raised a point as against the impugned order, appeal remedy is available and therefore the present writ petition is not maintainable.  The High Court held that in the light of the orders passed by the Revisional Authority, the stand taken by the Department that tax should be deducted at service in respect of payment made to M/s Jaldhi Overseas Private Limited, Singapore, on the face of it, it is unsustainable and, therefore, for the said reason, the non availment of the appeal remedy cannot put against the appellant.

In ‘Kaira District Co-operative Milk Producers Union Limited V. Deputy Commissioner of Income Tax’ – 2015 (11) TMI 302 - GUJARAT HIGH COURT  the High Court held that the assessee had already availed of the remedy of the appeal before the Commissioner (Appeals) against the order in relation to several points, including the point involved in the present case, the Court would not exercise its extraordinary jurisdiction, inasmuch, interference by the Court would result in examination of the same order may be on different points by the Commissioner (Appeals) as well as the High Court, leading to an anomalous situation.

Writ petition on factual issues

The High Court will not invoke the writ jurisdiction if the disputed question of fact is involved as discussed in the above para.  In ‘Charanjit Singh V. Central Board of Direct Taxes and others’ – 2015 (12) TMI 977 - PUNJAB AND HARYANA HIGH COURT the assessee failed to give satisfactory explanation for the sources and the nature of credit of ₹ 120 crores in his bank account.  The said amount was added to his total income.  The assessee filed a revision petition before the Commissioner.   The Commissioner upheld the order of Assessing Officer.  Against this the assessee filed this writ petition.  The High Court dismissed the petition since the assessee has failed to produce sufficient material either before the Assessing officer or Commissioner in revision proceedings.  The factual matrix was required to be established by producing material evidence.  The assessee was unable to get any one good or sufficient reason which prevented him to produce material evidence.   In such a situation the petitioner under Article 226 could not be entertained.   Moreover it was evident that disputed question of fact were involved.  It would, thus, not be appropriate in writ jurisdiction to adjudicate them.  The High Court held that the writ petition is not maintainable.

In ‘PVP Ventures Limited V. Income Tax Officer’ – 2016 (7) TMI 969 - MADRAS HIGH COURT the company was dissolved prior to issuance of notice.  The notice calling for details is relating to assessment year prior to dissolution.  The High Court held that the assessee is liable to clarify all issues raised by the department with necessary documents.  The High Court held that notice for calling clarification on factual issues cannot be challenged in writ petition.

Section 10(23C) (vi) of the Act grants exemption to educational institutions.   If a surplus is generated year after year the institution cannot be said to exist solely for educational purposes.  It is required that an application is to be made with copies of audited accounts and balance sheet for the last three years along with an affidavit reflecting the accounts and annual receipts of income.  In ‘Bhupesh Kumar Sikrhen Evam Vikes Sansthan V. Deputy Commissioner of Income Tax (Investigations)’ – 2015 (5) TMI 3 - PATNA HIGH COURT the assessee failed to furnish the audited accounts and balance sheet for the last three years.  The assessee, despite given opportunity, did not come forward to file the same.  The High Court held that the facts cannot be considered in the Writ petition.   In writ jurisdiction the High Court is not really concerned with the final decision of the authority.   Judicial review is concerned essentially with the process of decision making.

Limitation

The High Court will not ordinarily entertain a petition on the prayer to direct the authorities below to condone the delay involved in filing appeal with that authority.  In ‘All Angles Educational Society V. Chief Commissioner of Income Tax’ – (2016) 388 ITR 475 (Mad) the assessee, an educational institution, filed an application in Form No. 56D seeking exemption under Section 10(23C) (vi) of the Act.  The Chief Commissioner of Income Tax issued a show cause notice calling upon the assessee to show cause why the application should not be rejected on the ground that the application was not filed within the period specified in the fourth proviso to Section 10(23C) (vi) for the assessment year 2012-13 and that the assessee society could not be said to be existing solely for educational purposes.  The assessee represented with relevant documents and sought condonation of the delay or to consider the application for exemption for the subsequent Assessment year 2013 – 14.  The application was rejected on the grounds that there was no power for condoning the delay and could not be treated as application for subsequent year.  The assessee filed the present writ petition before the High Court.  The High Court held that High Court would not exercise its extra ordinary jurisdiction to condone the delay.

In ‘Aroni Commercials Limited V. Assistant Commissioner of Income Tax and another’ – 2014 (8) TMI 390 - BOMBAY HIGH COURT the High Court held that the mere issue of notices by the Revenue would not bar the assessee from moving the High Court in its writ jurisdiction.  The Limitation Act per se is not applicable to petitions under Article 226 of the Constitution of India.

In ‘C.M. Smith and Sons V. Assistant Commissioner of Income Tax’ – 2014 (5) TMI 9 - GUJARAT HIGH COURT the High Court held that the writ petition could not be dismissed on the grounds of delay because the application for rectification remained pending before the Settlement Commission for a number of years.  There was nothing on record to show that the assessee was responsible for such delay nor had any such ground been raised by the Revenue.

bona fide of the appellant

The filing of writ petition requires that the applicant is to come to court with clean hands.   In ‘Tax Recovery Officer and another V. Bhishma Pithamaha’ – 2015 (9) TMI 392 - KARNATAKA HIGH COURT the High Court held that while invoking the writ jurisdiction of the High Court, the bona fide of the petitioner approaching the Court is to be considered and even if the law may be, to some extent, in favor of the petitioner, yet if the  bona fides of the petitioner himself are doubtful or the petitioner has not come with clean hands, meaning thereby, that equity is not in favor with the petitioner, the Court will always refuses to exercise its extra ordinary jurisdiction under Article 226 of the Constitution of India in favor of such petitioner.

In ‘Soignee R. Kothari V. Deputy Commissioner of Income Tax and others’ – 2016 (12) TMI 59 - BOMBAY HIGH COURT the High Court held that in the normal course, if the assessee had nothing to hide and serious allegations or questions were being raised by the Department about the funds, the assessee would have co-operated in obtaining the necessary documents from the banks which would have revealed or given clues as to the source of monies in the foreign bank.  The conduct on the part of the assessee and her uncle, led to the conclusion that it was not a fit case to interfere with the orders of statutory authorities in exercise of writ jurisdiction.

Mistakes in the notice

In ‘Rastriya Ispat Nigam Limited V. Assistant Commissioner of Income Tax and another’ – 2015 (5) TMI 587 - ANDHRA PRADESH HIGH COURT the High Court held that the question whether the mistake pointed out in the notice was an obvious and patent mistake and whether to establish such a mistake a long drawn process and reasoning would be required could not be and need not be gone into the writ jurisdiction under Article 226 of the Constitution of India.

In ‘Union of India and others V. Agarwal Iron Industries’ – 2014 (11) TMI 854 - SUPREME COURT  the assessee preferred a writ petition before the High Court against a search conducted by the Department at both the business premises of the assessee as well as the residential premises of the proprietor.  The assessee contended that there was no information in the possession of the officer which could have persuaded any reasonable person to form an opinion about the existence of undisclosed assets of the assessee.  The warrant of authorization was issued mechanically and arbitrarily.  The Department contended that it has enough material against the assessee as it had suppressed vital information pertaining to products and sale.  The High Court quashed the search and seizure on the principles of non traverse.  The Supreme Court held that the denial by the department could not have been treated as an admission by implication to come to a conclusion that no reason was ascribed for search and seizure.  The relevant confidential file, if required and necessary, could have been called for and examined.  The High Court had not even remotely tried to see the reasons whether or not the competent authority had formed the opinion on the basis of any acceptable material.   The Supreme Court remanded the matter to the High Court for a fresh decision.

Assessment on non existing company

In ‘Jitendra Chandralal Navlani and another V. Union of India and others’ – 2016 (9) TMI 60 - BOMBAY HIGH COURT the High Court held that the notice had been issued in respect of a non existing entity as the company, which had been dissolved, had been struck off the rolls of Registrar of Companies as a non existing company.  Consequently the assessment has been framed also in respect of the non existing entity.  This defect in issuing a reopening notice to a non existing company and framing an assessment consequent there to is a issue which goes to the root of jurisdiction of the Assessing Officer to assess the non existing company.  Thus, prima facie, both the impugned notice and the assessment order without notice, the writ jurisdiction are invoked.

Writ against Settlement Commission

In ‘Principal Commissioner of Income Tax V. Settlement Commission and another’ – 2016 (1) TMI 137 - GUJARAT HIGH COURT the High Court held that the findings of the Settlement Commission on the fulfillment of the requirements of a valid offer were merely tentative and it would be open for the Settlement Commission to examine these aspects before passing final order.  The writ would not issue to quash the proceedings.

In ‘Commissioner of Income Tax V. Income Tax Settlement Commissioner and another’ – 2015 (5) TMI 826 - BOMBAY HIGH COURT the High Court held that if the conditions regarding the threshold limits for the quantum of tax for additional income, payment of tax and interest thereupon and pendency proceedings are fulfilled, then the Settlement application is not liable to be rejected on any technical ground.  There are limits on the Court’s jurisdiction under Article 226 of the Constitution of India in entertaining a writ petition challenging a preliminary or prima facie opinion of the Settlement Commission.

In ‘Commissioner of Income Tax V. Settlement Commission (IT &WT) and another’ – 2014 (11) TMI 734 - KERALA HIGH COURT the High Court held that the power of judicial review is not to be exercised to decide the issue on facts or an interpretation of the documents available before the Court.  Therefore, the enquiry by the Court can only be with regard to whether or not the Settlement Commission exercised a jurisdiction that it did not have or alternatively, if it did have the jurisdictional whether it erred in the exercise of that jurisdiction.  In the latter event, the Court would also have to bear in mind that the nature of jurisdiction exercised by the Settlement Commission which is akin to a statutory arbitration.

Reassessment on audit objection

In ‘P.C. Patel and Co V. Deputy Commissioner of Income Tax’ – 2015 (8) TMI 722 - GUJARAT HIGH COURT the High Court held that when the reopening of the assessment was found to be invalid and not justifiable and the re-assessment was solely based on the audit objection raised by the audit party, this was a fit case to exercise the powers under Article 226 of the Constitution.

Harassment to the assessee

In ‘Hemant Traders V. Income Tax Officer and another’ – 2015 (4) TMI 445 - BOMBAY HIGH COURT the High Court held that neither the survey report nor any other material indicated that any income chargeable to tax for relevant assessment years had escaped assessment.  The reasons recorded and which pertains to all the assessment years prior and subsequent to the survey could not satisfy the requirement of law.  This was not how the power under Section 147 should be exercised.  It is to be exercised in exceptional cases.   It should not be exercised as a manner of routine and merely because some survey of this nature had taken place.  Something more was required in law for the Assessing Officer to exercise his powers.  The Assessing Officer could not be allowed to continue the proceedings which may cause undue harassment and embarrassment to the assessee.  When there was absolutely no material to institute the proceedings or issue the notices proposing reassessment of income then it is the duty of the Court to invoke the writ jurisdiction and quash the proceedings at the threshold.

Conclusion

The various reasons for invoking of writ jurisdiction for income tax matters have been discussed in this article.  These are not exhaustive.  The High Court will entertain the writ petition after considering all aspects that it has jurisdiction to invoke and the appellant has no other way to get relief except filing this writ petition.  If the writ jurisdiction is wrongly or without merit invoked, then there is the possibility of imposing cost and penalty on the petitioner.