MS CENTRAL COALFIELDS LIMITED THROUGH ITS GENERAL MANAGER FINANCE SRI TAPAN KUMAR SEN V. Commissioner Of Income Tax Appeals

WPC/1497/2013

AI Insights

The case involves multiple writ petitions filed by Central Coalfields Limited (CCL) and Central Mine Planning & Design Institute Limited (CMPDI) against the Commissioner of Income Tax (Appeals), Ranchi, challenging show cause notices issued for various assessment years. The notices questioned the status of CCL and CMPDI as companies under the Income Tax Act, 1961, and sought to enhance the income liable to tax based on alleged incorrect and erroneous books of accounts. The petitioners argued that they had been consistently assessed as companies and their accounts audited, thus the CIT (Appeals) erred in law by doubting their status and reopening assessments. The court agreed with the petitioners, noting that the CIT (Appeals) had exceeded its jurisdiction and the show cause notices were not merely for verification but sought to fundamentally alter the assessed status of the companies.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 763707 (HC-JHARKHAND)
• Appeal Type: Others
• Pronouncement Date: 10-12-2013
• Assessment Year: misc
• Other Referred Cases: Union of India & Ors. Vs. Ramesh Gandhi, Parashuram Pottery Works Co. Ltd. Vs. ITO, Union of India Vs. Hindalco Industries
• Laws Referred To: Income Tax Act, 1961, Companies Act, 1956
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: D ROSHAN; S S C REVENUE; R KUMARI
• Assessee Lawyers: B PODDAR; D PODDAR; P PODDAR; A SINHA
• Keywords: Income tax assessment; Jurisdictional Error; Public sector undertaking; Show cause notice; Status of company
• Section: 2(26); 251(1)(a); 2(17); 2(31); 227(2); 619(2)

Judgement Text

"1 IN THE HIGH COURT OF JHARKHAND AT RANCH W.P (T) NO. 1293 OF 2013 With W.P (T) NO. 1488 OF 2013 With W.P (T) NO. 1491 OF 2013 With W.P (T) NO. 1492 OF 2013 With W.P (T) NO. 1497 OF 2013 With W.P (T) NO. 1900 OF 2013 With W.P (T) NO. 1877 OF 2013 ----- M/s. Central Coalfields Limited Petitioner (In WP(T) Nos.1293, 1488, 1491, 1492, 1497 of 2013) M/s. Central Mine Planning & Design Institute Limited (Petitioner In W.P (T) No.1900 & 1877of 2013) Versus Commissioner of Income Tax(Appeals)Ranchi Respondent In All Cases ----- CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE APARESH KUMAR SINGH ------ For the Appellant/Petitioner : M/s. B.Poddar, Senior Advocate, D.Poddar,P.Poddar, A.Sinha For the Respondents : M/s. D.Roshan, S.S.C(Revenue), R.Kumari ------ Dated 10 ,December,2013 R.Banumathi, CJ. These writ petitions have been filed challenging the show cause notices, F.No.CIT(A)/RAN/Notice/2012-13/374-75 dated 8/10.1.2013 and F.No. CIT(A)/RAN/Notice/2012-13 dated 24.1.2013 issued under section 251(1)(a) of the I.T Act, 1961, by which the 2 Commissioner of Income Tax (Appeals) directed the petitioner-company to show cause as to why the provisions of section 251(1)(a) of the I.T Act should not be invoked for the Assessment Years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 and the income liable to tax should not be enhanced and why the books of accounts of the petitioner-company should not be rejected and also directed the petitioner-company to show the status of the petitioner as a company. 2. On behalf of the writ petitioner, it is contended that Central Coalfields Limited (CCL) is a public sector undertaking and registered as a company in the year 1956. In view of sub-section (17) and (26) of Section 2 of the I.T Act, 1961, the Income Tax Department had rightly assessed the status of the petitioner as a “Company”. The petitioner, right from its inception till date, i.e. 1956-57 to 2010-11, had filed its returns and had been assessed to income. The books of accounts are subject to various audits including the statutory audit, C.A.G audit etc. 3. In the case of Union of India & Ors. Vs. Ramesh Gandhi in Criminal Appeal No.1356/2004, Hon'ble Supreme Court, holding that there was no direction or order by the Calcutta High Court fixing the price of the coal sold by M/s. CCL to various concerns, set aside the order of the Calcutta High Court and restored the FIR lodged by the CBI for causing wrongful loss to the assessee. Referring to the order of the Hon'ble Supreme Court restoring the FIR lodged by the CBI, the CIT (Appeals) issued the impugned show cause notices dated 8/10.1.2013 for the assessment years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, directing the petitioner-company to show 3 cause as to why the provisions of Section 251(1)(1)(a) of the I.T Act should not be invoked and the income liable to tax should not be enhanced and why the books of accounts of the petitioner-company be not rejected. The impugned show cause notice reads as under:- “Hon'ble Supreme Court has set-aside the order of Hon'ble Calcutta High Court and restored the FIR by the CBI for causing wrongful losses to the assessee. In view of that the Balance Sheet and P&L A/C as prepared by the assessee did not correctly reflect the affairs of the assessee. The same was because of the incorrect books of accounts maintained by the assessee and the failure and inability of the assessee and its management to maintain its books of accounts correctly and appropriately. Because of such failure of assessee and its management during the period covered by the CBI FIR,the accounts of the assessee are incorrect and erroneous and are therefore unreliable. The Books of Accounts of the assessee for the years for which appeals are pending before this office are based upon and are the continuation of the incorrect and erroneous Books of Accounts of earlier period and because of that is also incorrect and erroneous and cannot be relied upon as a basis to determine and compute the true and correct income of the assessee. In view of that the same are liable to be rejected and the correct income of appellant is required to be determined as per applicable provisions of law.” 4. In W.P (T) No.1877/2013, Central Mine Planning & Design Institute Ltd. (CMPDI), is a subsidiary of CCL and CCL is the holding company. CMPDI Ltd. was incorporated as a company in 1975 and in terms of Sections 2(17) and 26 of the Income Tax Act, 1961, CMPDI Ltd. has been assessed by the Income Tax authorities as a company. Like in the case of CCL, a show cause notice has been issued to CMPDI Ltd. raising doubts about its status as a company. Since the issue involved in W.P (T) No.1877/2013 is one and same, the writ petition is taken up along with other writ petitions. 5. Learned Senior Counsel, Mr.B.Poddar, appearing for the petitioner, inter alia, submitted that since the inception of the petitioner- company, Income Tax Department has rightly assessed the status of the 4 petitioner as a “Company” in terms of sub-section (17) and (26) of Section 2 of the I.T Act and by issuing the show cause notice, CIT (Appeals) committed serious error in doubting the status of the petitioner as a “Company”. Learned Senior Counsel, inter alia, raised the following contentions:- (i) The petitioner is assessed as a company under the Income Tax Act and the returns filed by the petitioner-company has been duly considered under the relevant provisions and over the year and the Department has also accepted the order of assessment so made. (ii) Under Section 148 of the I.T Act, the Assessing Officer has the power to issue notice in case of escaped assessment and can pass orders for reassessment and Section 263 of the I.T Act empowers the Commissioner to reopen the assessment if the Commissioner is of the view that the order of the Assessing Officer is erroneous or prejudicial to the interest of the Revenue. Over the years the returns filed by the petitioner-company was accepted by the Department and after lapses of time, settled issues should not be allowed to be reactivated. (iii) Section 251(1)(a) deals with the issuance of show cause notice on a particular set of facts. The power under Section 251(1)(a) is limited by the scope of the order from which the appeal has been preferred and on the basis of restoration of the FIR registered by the CBI, the CIT (Appeals) cannot seek to reopen the assessment under Section 251(1)(a) and exercising power under Section 251(1)(a), there cannot be en masse reopening of the assessment made over the years. Reliance was placed on the decision rendered in the case of Parashuram Pottery 5 Works Co. Ltd. Vs. ITO reported in (1977) 106 ITR 1(SC) to contend that the stale issues should not be reopened beyond a particular stage. (iv) The writ petition is filed challenging the show cause notice and the writ petition filed is well maintainable, since, in the impugned show cause notice, the CIT (Appeals) had exceeded the jurisdiction and the CIT (Appeals) cannot go beyond the statutory powers. 6. On behalf of the Revenue, learned counsel submitted that the writ petition filed challenging the show cause notice is not maintainable and the writ petition is a premature one. Learned counsel further submitted that if the writ petition challenging the show cause notice is entertained, it will open Pandora's box, which cannot be permitted. 7. The challenge in these writ petitions is against the impugned show cause notice issued by the CIT (Appeals). In (2003) 5 SCC 194 (Union of India Vs. Hindalco Industries), Hon’ble Supreme Court held that in matters of taxation, it is inappropriate for the High Court to interfere in exercise of jurisdiction under Article 226 of the Constitution either at the stage of the show cause notice or at the stage of assessment where alternative remedy by way of filing a reply or appeal, as the case may be, is available. It was further held that these are the limitations imposed by the Courts themselves in exercise of their jurisdiction and they are not matters of jurisdictional factors. 8. It is well settled that the writ petition challenging the show cause notice is not to be entertained in taxation matters, but in exceptional cases, where the authority goes beyond the statutory power or acts in excess of its jurisdiction, in those facts and circumstances, the writ 6 petition can be entertained. The case in hand is one such exceptional case, warranting entertainment of the writ petition for the reasons indicated infra. 9. The petitioner-company was incorporated in the year 1956 and enjoying the status of a “Company” under the Companies Act, 1956 and also under the Income Tax Act. The petitioner-company is maintaining Books of Accounts/Balance Sheet, Profit & Loss Account and other documents every year in compliance of the provisions of the Companies Act, 1956. Learned Senior Counsel had drawn our attention to some of the assessment orders to contend that the petitioner-company has always been assessed every year under the status of a “Company”. It is stated that the Books of Accounts is audited by the statutory auditor (appointed by the Comptroller & Auditor General of India under Section 619(2) of the Companies Act, 1956) every year and the Balance Sheet and Profit & Loss Account of the petitioner-company are certified every year by the Statutory Auditors of the Company under the provisions of Section 227(2) of the Companies Act, 1956. As is seen from the assessment orders for different years, the petitioner-company also enjoys the status of a “Company” under the I.T Act, 1961 under Section 2(17)(i) read with sub- section (26) of the 2 and is regularly assessed to income tax as a “Company” under the relevant I.T Act since the financial year 1956-57. 10. In the counter affidavit filed by the Revenue, it is stated that through the show cause notice, the petitioner, CMPDI Ltd., had been asked to submit documents and materials in support of its claim of a status of a company for the purpose of Income Tax Act, 1961 and at this 7 stage it is only a verification exercise, the result of which will be clear only after examination of the relevant documents and materials which the petitioner is required to submit in support of its claim of being a company for the purpose of Income Tax Act, 1961. It is further averred that the status of the petitioner for the purpose of working out taxable income for the assessment years pertaining to their pending appeals will be decided after verification exercise is complete and the writ petitions challenging the show cause are not maintainable. 11. On the part of the petitioners, it was submitted that CCL/CMPDI Ltd. are enjoying the status of the company under the Companies Act, 1956 and also under the Income Tax Act, 1961, which is evident from the assessment orders of different years passed by the Income Tax Department. According to CCL/CMPDI, the accounts of the petitioner-company is audited and certified by the Statutory Auditor and also audited and certified by the CAG India every year in pursuance of Section 619(3)(b) of the Companies Act, 1956. According to the petitioners, CCL/CMPDI Ltd. are enjoying the status of the company over several decades and the CIT (Appeals) is not justified in raising doubt about the status of the petitioner-company and the respondents cannot contend that the show cause notice has been issued as only for verification exercise. 12. The tenor of the show cause notice does not appear to be a notice merely for verification of the status of the petitioner-company. The CIT (Appeals) issued impugned show cause notices raising doubts regarding the status of the petitioner as a “Company”. By careful reading 8 of the impugned show cause notices, it is seen that the CIT (Appeals) has expressed the view that the petitioner-company, a public sector company, will not be a company either under the Companies Act or under the I.T Act, 1961, stating that the petitioner appears to be 'not a company' either under the provisions of the Companies Act or under the I.T Act, 1961. The relevant portion of the impugned show cause notice, expressing view that the petitioner is not a company, reads as under:- “ 5.Before adjudicating the correctness or otherwise of the claims and counter-claims of the Ld. A.O and the appellant, it is absolutely necessary to first determine the correct status of M/s.CCL in terms of provisions of sub-sec. 31 of sec. 2 read with sub- sections 17, 26 and 36A of sec. 2 of the I.T Act, 1961 further read with sec.12 of the Companies Act, 1956 as that will have very serious bearing on the full and correct income of the assessee. 6. It is seen that M/s.CCL appears to be formed in the status of a company by only one legal person i.e. the Central Government acting through the President of India and his delegatee the Hon'ble Minister in charge and the officers working on behalf of the Hon'ble Minister in terms of the provisions of the Government of India (Transaction of Business) Rules, 1961 and therefore it cannot be said that the requirements of sec.12 of the Companies Act, 1956 were fulfilled. 7. There is no material on material on record to show that M/s.CCL has been granted the status of company under the provisions of the I.T Act, 1961 either and by virtue of the status and nature of its ownership, M/s.CCL is a public sector company but appears not to be a company either under the provisions of Companies Act, 1956 or the I.T Act, 1961 and has been incorrectly and unlawfully assessed in the status of a company.” 13. By perusal of the above, it appears that the CIT (Appeals) has not only expressed the doubt regarding the status of the petitioner- company but also expressed the view that the petitioner is not a company and the petitioner has been incorrectly and unlawfully assessed in the status of a company. We are of the view that the CIT (Appeals), by expressing the reasoning, indicates that CIT (Appeals) has predetermined 9 the matter that the petitioner-CCL is not a company, had committed a serious error and exceeded jurisdiction in upsetting the settled status of the petitioner-company. 14. The impugned show cause notices were issued under Section 251(1)(a) and Section 251(1)(a) sets out various powers which can be exercised by the appellate authority in appeal against different orders. Under Section 251(1)(a), the appellate authority, while deciding an appeal, is clothed with very wide power so as to do justice to the assessee and also in the interest of the Revenue. In an appeal against the order of assessment, the CIT (Appeals) may confirm, reduce, enhance or annul the assessment. As per Section 251(1)(a), the CIT (Appeals), in any other case, may pass such orders in the appeal as it thinks fit. By reading of Section 251(1)(a), it is seen that the power under Section 251 could be exercised by the CIT (Appeals) only in respect of the appeals pending before it or appeals stand disposed. In the impugned show cause notices, the CIT (Appeals) seems to have reopened the assessment of all the years, as is seen from the proceedings, which is reproduced below:- “10. In these facts and circumstances, I am satisfied that prima facie a case for enhancement of income of the assessee is made out in all the Assessment years in which appeals are pending as well as in those years where either no appeal is pending or stands disposed.” 15. 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 10 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). 16. 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. 17. For the foregoing reasons, the impugned show cause notices F.No.CIT(A)/RAN/Notice/2012-13/374-75 dated 8/10.1.2013 and F.No. CIT(A)/RAN/Notice/2012-13 dated 24.1.2013 for the assessment years, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 are quashed and these writ petitions are allowed. The CIT (Appeals) is at liberty to issue fresh show cause notices in accordance with law and to proceed in accordance with law. (R.Banumathi, C.J.) (Aparesh Kumar Singh, J.) dey "