2003 (11) TMI 32 - HC - Income Tax

Issuance of notices under section 148 - notice for reassessment does not disclose any suppression of any income or materials in support of the return filed by the petitioners - there is neither any substance in the preliminary objection raised by the respondents to the maintainability of the petitions nor is there any case made out for exercise of powers u/s 148 by the authority nor can it be said that the authority had jurisdiction under section 148 in the facts and circumstances of the case. The said notices are ex facie bad in law and clearly in the absence of powers vested in it under section 148, and hence cannot be sustained

Summary

Issues Involved:
1. Legality and validity of notices issued under section 148 of the Income-tax Act, 1961.
2. Preliminary objection regarding non-maintainability of the petitions due to the availability of an alternative remedy.
3. Jurisdiction of the High Court under Article 226 of the Constitution of India to entertain the petitions.

Detailed Analysis:

1. Legality and Validity of Notices Issued Under Section 148 of the Income-tax Act, 1961:
The petitioners challenged the issuance of notices dated January 28, 2003, under section 148 of the Income-tax Act, 1961, seeking to reassess the income for the assessment years 1998-99, 1999-2000, and 2000-2001. The primary ground for the challenge was that the action was ex facie illegal and without jurisdiction, as revealed from the reasons appended to the notices. The notices alleged that the petitioners had not filed invoice-wise details of purchases of trading goods exported, did not correlate the trading export sales with invoice-wise purchase of trading goods exported, and thus suppressed the purchases, leading to an increased profit and excess deduction under section 80HHC. However, the court found that the reasons for issuing the notices were contrary to the materials placed before the Department, as the petitioners had disclosed the necessary details. The court concluded that there was no material to justify the reopening of the case under section 148, making the notices ex facie bad in law and without jurisdiction.

2. Preliminary Objection Regarding Non-Maintainability of the Petitions Due to the Availability of an Alternative Remedy:
The respondents raised a preliminary objection, arguing that the petitions were premature as the petitioners had an efficacious alternative remedy by filing a reply to the notices and raising objections regarding jurisdiction before the adjudicating authority. They relied on the apex court decision in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19, which stated that the proper course of action for the noticee is to file a return, seek reasons for issuing notices, file objections to the issuance of notice, and have the Assessing Officer dispose of the objections by passing a speaking order. However, the court noted that the apex court's decision did not bar the High Court's jurisdiction under Article 226 when the exercise of powers under section 148 ex facie appeared to be without jurisdiction. The court held that mere availability of an alternative remedy is not a sufficient reason to refuse relief by a writ when the authority acts without jurisdiction, subjecting a person to lengthy proceedings and unnecessary harassment.

3. Jurisdiction of the High Court Under Article 226 of the Constitution of India to Entertain the Petitions:
The court referred to several decisions, including Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 and N.D. Bhatt, IAC of I.T. v. I.B.M. World Trade Corporation [1995] 216 ITR 811, to emphasize that the High Court has the power to issue orders prohibiting an executive authority from acting without jurisdiction. The court reiterated that when the reasons for reopening an assessment do not disclose any suppression of income or materials in support of the return filed, the exercise of powers under section 148 is without jurisdiction. The court found that the reasons given for the notices were based on erroneous assumptions and did not justify the conclusion about escapement of income. Therefore, the court held that the petitions were maintainable, and the notices issued under section 148 were quashed and set aside.

Conclusion:
The High Court concluded that the notices issued under section 148 of the Income-tax Act, 1961, were ex facie bad in law and without jurisdiction. The preliminary objection regarding non-maintainability of the petitions was rejected, and the court exercised its jurisdiction under Article 226 of the Constitution of India to quash the impugned notices. The petitions succeeded, and the rule was made absolute in terms of prayer clause (a) in each of the petitions with no order as to costs.