Marudhar Hotels Private Limited V. Assistant Commissioner of Income \\u2013 Tax, Circle \\u2013 1, Jodhpur and Commissioner of Income Tax \\u2013 1, Jodhpur

CW/5054/2013

AI Insights

Marudhar Hotels Private Limited filed multiple writ petitions challenging the notices issued under Section 148 of the Income Tax Act, 1961, and the subsequent reassessment orders for the assessment years 2005-06, 2006-07, and 2007-08. The primary contention was that the issues for which reassessment was initiated had already been decided in earlier assessments and were subject to ongoing appeals, thus barring further reassessment. The respondents argued that new material had come to light justifying the reassessment. However, the court found that the reassessment was based on issues already decided and thus lacked jurisdiction.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 798456 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 20-03-2018
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax and others Vs. Chhabil Das Agarwal, Jeans Knit (P) Ltd. Vs. Deputy Commissioner of Income \\u2013 Tax, Bangalore, Calcutta Discount Ltd. Co. Vs. I.T.O., State of U.P. vs. Mohammad Nooh, Titaghur Paper Mills Co. Ltd. vs. State of Orissa, Harbanslal Sahnia vs. Indian Oil Corpn. Ltd., State of H.P. vs. Gujarat Ambuja Cement Ltd., Gujarat Enviro Protection & Infrastructure Ltd. Vs. Deputy Commissioner of Income Tax, Commissioner of Income \\u2013 Tax, Delhi Vs. Kelvinator of India Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K K BISSA; H G CHANDA; G S CHOUHAN
• Assessee Lawyers: AJAY VOHRA; RAMIT MEHTA; BHANUPRATAPSINGH; GAURAV JAIN; SAURABH MAHESHWARI; TARUN DUDIA
• Keywords: Alternative remedy; Change of opinion; Income Tax; Jurisdiction; Reassessment
• Section: 147; 148; 143(3); 263; 36 (1) (iii); 40(a)(ia); 194H

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR (1) S. B. Civil Writ Petition No. 5054 / 2013 Marudhar Hotels Private Limited, Umaid Bhawan Palace, Jodhpur through Shri Gaj Singh, Director of Marudhar Hotels Private Limited, R/o Umaid Bhawan Palace, Jodhpur ----Petitioner Versus 1. Assistant Commissioner of Income – Tax, Circle – 1, Jodhpur 2. Commissioner of Income Tax – 1, Jodhpur ----Respondents Connected with (2) S. B. Civil Writ Petition No. 5053 / 2013 Marudhar Hotels Private Limited, Umaid Bhawan Palace, Jodhpur through Shri Gaj Singh, Director of Marudhar Hotels Private Limited, R/o Umaid Bhawan Palace, Jodhpur ----Petitioner Versus 1. Assistant Commissioner of Income – Tax, Circle – 1, Jodhpur 2. Commissioner of Income Tax – 1, Jodhpur ----Respondents (3) S. B. Civil Writ Petition No. 5059 / 2013 Marudhar Hotels Private Limited, Umaid Bhawan Palace, Jodhpur through Shri Gaj Singh, Director of Marudhar Hotels Private Limited, R/o Umaid Bhawan Palace, Jodhpur ----Petitioner Versus (2 of 14) [CW-5054/2013] 1. Assistant Commissioner of Income – Tax, Circle – 1, Jodhpur 2. Commissioner of Income Tax – 1, Jodhpur ----Respondents _____________________________________________________ For Petitioners : Mr. Ajay Vohra, Sr. Counsel assisted by Mr. Ramit Mehta, Mr. Bhanu Pratap Singh, Mr. Gaurav Jain, Mr. Saurabh Maheshwari & Mr. Tarun Dudia For Respondents : Mr. K.K. Bissa with Mr. H.G. Chanda and Mr. G.S. Chouhan _____________________________________________________ HON'BLE MS. JUSTICE NIRMALJIT KAUR Reportable Order 20/03/2018 All the above mentioned writ petitions shall stand decided by this common order as the issue involved is identical. For convenience, the facts are being taken from S.B. Civil Writ Petition No. 5053/2013. By way of present writ petition, the petitioner is seeking quashing of the Notice dated 28.03.2012 issued by the respondent No. 1 under Section 148 of the Income Tax Act, 1961 and the proceedings pursuant thereto, including and particularly Order dated 28.03.2013 passed by the respondent No. 1 under Section 147/143(3) of the Income Tax Act, 1961 reassessing the income of the petitioner. While praying for setting aside the impugned notice, learned counsel for the petitioner contended that despite the original (3 of 14) [CW-5054/2013] assessments having been made by the Assessing Authority under Section 143 (3) of the Income Tax Act, 1961 (for short “the Act of 1961” hereinafter) upon scrutiny of the record of the petitioner – assessee, the Assessing Authority has reopened the assessments under Sections 147/148 of the Act of 1961 for the Assessment Years 2005-06, 2006-07 and 2007-08, mainly on two reasons, viz. firstly that the interest/deduction claimed under Section 36 (iii) of the Act of 1961 deserves to be disallowed as there was a direct nexus between the borrowed funds and the interest free advances according to the Assessing Authority and secondly, the commission was paid by the assessee to the bankers on prompt payments made by them on the use of credit-cards by the customers of the petitioner-hotel, whereas, the said amount was not paid as commission as there was no relationship of principal and agent between the assessee - petitioner and the bankers and it was only service charges paid to the bankers for prompt payment made by them earlier then the scheduled period to the petitioner – assessee in respect of credit cards payment by the company. It was argued that this issue having already been considered while passing impugned original assessment order under Section 143(3) of the Act of 1961, the Assessing Authority on a mere change of opinion was not entitled to invoke the provisions of Section 147 and 148 of the Act of 1961. Reply has been filed. In the reply, the preliminary objection raised at the first instance is that the writ petition laying challenge to the notice issued for reassessment under Section 147 and 148 (4 of 14) [CW-5054/2013] of the Income Tax Act, 1961 and the consequential reassessment order passed by the respondent No. 1 is not maintainable on the ground of alternative remedy of appeal available to the petitioner as per the provisions provided in Section 246-A of the Act of 1961. Reliance was placed on the judgment rendered by the Apex Court in the case of Commissioner of Income Tax and others Vs. Chhabil Das Agarwal reported in (2013) 357 I.T.R. 357 (S.C.) wherein it has been decided that the reassessment order passed by the competent authority challengeable under the statute cannot be challenged in the writ jurisdiction. It was further contended that on perusal of the assessment record, it was noticed that the assessee has given interest free advances to the Directors and sister concern and on the other hand, the assessee was paying huge amount of interest on loans and borrowings. Further, the assessee has paid commission on credit card receipt, on which T.D.S. has not been deducted, which had earlier escaped assessment. The assessee had failed to disclose all the material facts which were relevant for the period of assessment. Therefore, the case was reopened and the notice under Section 148 of the Act of 1961 was issued on 28.03.2012 after recording the reasons to believe. It was further contended by the learned counsel for the respondents that during the course of reassessment proceedings, the assessee has been given proper opportunities to file detail/information/explanation to examine the issue under consideration. The assessee has filed the detail/information called for and after considering the same, the (5 of 14) [CW-5054/2013] disallowances have now been correctly made. Learned counsel for the parties were heard at length. Taking up the preliminary objection that the writ petition was not maintainable against the order of reassessment may have had some merit, in case, the case in hand did not fall under one of the exceptions. There is no dispute with the law laid down by the Apex Court in the judgment rendered in the case of Commissioner of Income Tax and others Vs. Chhabil Das Agarwal (supra). The Hon’ble Supreme Court in the said case itself carved out an exception for entertaining a petition under Article 226 of the Constitution while holding that it was the discretion of the High Court to grant the relief under Article 226 of the Constitution despite the question of an alternative remedy, in case, the said order was without jurisdiction by observing as under :- “Before discussing the fact proposition, we would notice the principle of law as laid down by this Court. It is settled law that non-entertainment of petitions under writ jurisdiction by the High Court when an efficacious alternative remedy is available is a rule of self-imposed limitation. It is essentially a rule of policy, convenience and discretion rather than a rule of law. Undoubtedly, it is within the discretion of the High Court to grant relief under Article 226 despite the existence of an alternative remedy. However, the High Court must not interfere if there is an adequate efficacious alternative remedy available to the petitioner and he has approached the High Court without availing the same unless he has made out an exceptional case warranting such interference or there exist sufficient grounds to invoke the extraordinary jurisdiction under Article 226. (See: State of U.P. vs. Mohammad Nooh, AIR 1958 SC 86; Titaghur Paper Mills Co. Ltd. vs. State of Orissa, (1983) 2 SCC 433;Harbanslal Sahnia vs. Indian Oil Corpn. Ltd., (2003) 2 SCC 107; State of H.P. vs. Gujarat Ambuja Cement Ltd., (2005) 6 SCC 499). (6 of 14) [CW-5054/2013] …. xxxx …... Thus, while it can be said that this Court has recognized some exceptions to the rule of alternative remedy, i.e., where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case, Titagarh Paper Mills case and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.” In fact, the judgment rendered by the Hon’ble Supreme Court in the case of Jeans Knit (P) Ltd. Vs. Deputy Commissioner of Income – Tax, Bangalore reported in (2017) 77 Taxmann.com 176 (S.C.) set aside the order of the High Court dismissing the writ petition on the ground of alternative remedy against issuance of notice under Section 148 of the Act of 1961 while holding that the said view taken was contrary to the law laid down by the Hon’ble Supreme Court in the case of Calcutta Discount Ltd. Co. Vs. I.T.O. reported in (1961) 41 ITR 191 (S.C.) as each case should be decided on its own merit. Applying the test laid down by the Apex Court, this Court is required to examine as to whether the present case falls in any of the exceptions for entertaining the petition under Article 226 of (7 of 14) [CW-5054/2013] the Constitution of India in spite of an alternative remedy available. One of the main grounds on which the impugned notice under Section 148 of the Act of 1961 has been challenged is the lack of jurisdiction. It is stated that the reassessment proceedings are without jurisdiction and bad in law on the ground of third proviso to Section 147 of the Act of 1961 which makes it clear that Assessing Officer can assess or reassess the income only in case the same is not subject matter of appeal, reference or revision. In their reply, the respondents have not denied that the impugned reassessment proceedings on the basis of all the three issues in respect of which the reassessment order has been passed were subject matter of disallowances, additions in the assessment proceedings and had, therefore, become the subject matter of appeals before the C.I.T. (Appeal) and I.T.A.T. or revision by the C.I.T. In these circumstances, this Court does not deem it proper to dismiss the writ petition pending since 2013 on account of the availability of alternative remedy, in which the impugned notice is challenged being without jurisdiction. An order without jurisdiction is a sufficient ground to interfere in the extraordinary jurisdiction under Article 226 of the Constitution of India. On perusal of the reasons for issuing the notice under Section 148 of the Act of 1961 for the assessment year 2007-08, the first reason is that the closing balance of these advances is Rs. 22,84,59,804/- and the opening balance is Rs. 21,03,00,472/-. The average balance is Rs. 21,93,80,138/- on which interest at the rate of 12% comes to Rs. 2,63,25,616/- (8 of 14) [CW-5054/2013] which is to be disallowed out of interest expenses claimed. In the assessment, interest was disallowed to the tune of Rs. 94,56,000/- only. The rest amount of Rs. 1,68,69,616/- is also to be disallowed under Section 36(1)(iii) because the interest was not paid for the purpose of business. The reply to this notice under Section 148 was filed by the petitioner – assessee bringing to the notice of the Assessing Authority that the assessee company had filed an appeal against the additions/disallowances made by the Assessing Officer. Although, the C.I.T. (Appeals) confirmed the said additions/disallowances made by the Assessing Officer, the assessee filed second appeal before the Income Tax Appellate Tribunal (I.T.A.T.), Jodhpur Bench, Jodhpur and the same has been decided in favour of the assessee. Thus, it was clarified to respondent No. 1 that in view of the original assessment order and the issue raised in the notice being the subject matter of the appeals to the C.I.T. (A) and the I.T.A.T., which stood decided, the respondent No. 1 had no jurisdiction to initiate reassessment with regard to the said issue. The second reason for issuing the notice under Section 148 of the Act of 1961 was that the assessee has claimed commission expenses of Rs. 40,34,980/- which includes the commission paid to banks on credit card payments. Tax on source was required to be deducted under Section 194H on these payments but no such tax was deducted. Expenses of Rs. 40,34,980/- are disallowable under Section 40(a)(ia). In the reply to the said notice under Section 148 qua the second reason, it was specifically submitted (9 of 14) [CW-5054/2013] by the petitioner – assessee that amount retained by the banks for rendering credit card processing services was not liable to T.D.S. and consequently, no disallowance under Section 40(a)(ia) of the Act of 1961 was permissible in view of the Notification No. 56/2012 (F.No. 275/53/2013-IT (B) dated 31.12.2012. The same was a subject matter of the revision proceedings under Section 263 of the Act initiated by the C.I.T. - 1, Jodhpur in the case of M/s Marudhar Hotels Pvt. Ltd., Jodhpur for the Assessment Year 2007-08, who vide its Order dated 30.03.2012 under Section 263 of the Act of 1961 set aside the assessment order of the Assessing Officer dated 29.12.2009. However, the said order was set aside by the I.T.A.T., Jodhpur Bench, Jodhpur vide Order and Judgment dated 14.12.2012 in I.T.A. No. 237/JU/2012 (A.Y. 2007- 08). From the above, it is evident that the issue of disallowance of interest having been considered and decided by the C.I.T. (Appeal), the order of Assessing Officer disallowing the interest had merged into the order of the C.I.T. (Appeal). As such, it was beyond the jurisdiction of the Assessing Authority to reopen the case on an issue, which has already been decided by the C.I.T. (Appeal). However, the respondent No. 1 disposed off objections raised by the petitioner in its reply without dealing with such legal objections and passed the final reassessment Order dated 28.03.2013 under Section 147/148 of the Act of 1961 vide which he reassessed the income of the petitioner on merits. While doing so, the respondent No. 1 decided a third issue of classification of (10 of 14) [CW-5054/2013] profit from sale of property. No reasons for reopening this issue was mentioned in the reasons to issue notice under Section 148. In spite of the same, the respondent No. 1 reassessed the income of the petitioner on the issue with respect to the classified profit on sale of immoveable property pursuant to Development Agreement with EGR Developers as business income, as opposed to capital gains returned by the petitioner thereby, making addition, for the second time, in respect thereof amounting to Rs. 10,67,10,381/-. However, the said issue too stood decided by the I.T.A.T. vide its Order dated 15.02.2013 passed in I.T.A. Nos. 75 to 77/JU/2011 (Assessment Years 2006-07 to 2008-09) in favour of the petitioner. The High Court of Gujarat in the case of Gujarat Enviro Protection & Infrastructure Ltd. Vs. Deputy Commissioner of Income Tax reported in (2018) 91 taxmann.com 186 (Gujarat) while dealing with an issue where reassessment notice was issued on the grounds that amount on which the assessee had claimed deduction included interest income assessable under head ‘Income from other sources’ and the same was not derived from infrastructure development activity of the assessee and thus, could not be considered for deduction under Section 80-IA, quashed the notice after taking into consideration that the Commissioner (Appeals) had allowed the assessee’s claim of deduction in its entirety after the assessee’s claim was denied by the Assessing Officer by observing as under :- “9. The second reason which we referred to in the (11 of 14) [CW-5054/2013] previous paragraph is of merger. The Assessing Officer having rejected the claim of deduction under Section 80IA [4] of the Act, the issue we may recall was carried in appeal by the assessee. The Commissioner [Appeals] allowed the claim in its entirety. It would thereafter be not open for the Assessing Officer to reopen this very claim for possible disallowance of part thereof. When the Commissioner [Appeals] was examining the assessee's grievance against the order of Assessing Officer disallowing the claim, it was open for the Revenue to point out to the Commissioner [Appeals] that even if in principle the claim is allowed, a part thereof would not stand the scrutiny of law. It was open for the Commissioner to examine such an issue, even suo motu. If we allow the claim in its entirety, the Assessing Officer thereafter cannot re-visit such a claim and seek to disallow part thereof. This would be contrary to the principle of merger statutorily provided and judicially recognized. Even after the Commissioner [Appeals] allow such a claim and the Revenue was of the opinion that he has not processed it and committed an error, it was always open for the Revenue to carry the matter in appeal. At any rate, reopening of the assessment would simply not be permissible. Reassessment carries an entirely different connotation. Once an assessment is reopened, the same gives wider jurisdiction to the Assessing Officer to examine the claims which had been formed part of the reasons recorded, but which were not originally concluded. In the result, impugned Notice is quashed. Petition is allowed and disposed of accordingly.” The reopening of the assessment proceedings in the facts of the present case, therefore, is without jurisdiction in view of the third proviso to Section 147 of the Act of 1961 which reads as under :- “[Provided also] that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.]” (12 of 14) [CW-5054/2013] Hence, as discussed above, the writ petition deserves to be allowed on this very ground alone as the very grounds on which the reassessment notice was issued were subject matter of the appeal either on the same having been allowed in favour of the petitioner or on account of its still pending in an appeal before the High Court. Learned counsel for the petitioner raised yet another ground. It was contended that the order giving reasons for reassessment is not a speaking order. Since this Court is inclined to allow the writ petition on the ground of merger as discussed above, it need not go into the other arguments. However, this Court would like to note the settled principle of law that the reassessment cannot be initiated on the basis of change of the opinion alone. For reassessment, the reasons based on fresh material should be given. The Hon’ble Supreme Court in the case of Commissioner of Income – Tax, Delhi Vs. Kelvinator of India Ltd. reported in (2010) 187 Taxman 312 (SC) wherein the specific question which arose for determination was whether the concept of ‘change of opinion’ stands obliterated with effect from 01.04.1989 i.e. after substitution of Section 147 by the Direct Tax Laws (Amendment) Act, 1987, observed in Para 4 of the judgment as under :- “4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect (13 of 14) [CW-5054/2013] from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words \"reason to believe\" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re- open assessments on the basis of \"mere change of opinion\", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of \"change of opinion\" is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of \"change of opinion\" as an in- built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is \"tangible material\" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words \"reason to believe\" but also inserted the word \"opinion\" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words \"reason to believe\", Parliament re-introduced the said expression and deleted the word \"opinion\" on the ground that it would vest arbitrary powers in the Assessing Officer.” Thus, the Assessing Authority does not have the power to reopen unless there is \"tangible material\" to come to the conclusion that there is escapement of income from assessment. In the present case, there is no fresh material to reopen the case. Not a word has been mentioned about such material in the reasons for reopening of the assessment proceedings. The reasons recorded made no mention of the aforesaid issue of (14 of 14) [CW-5054/2013] classification of profit from sale of property and nor was the same, in any manner, connected with the issues with respect to which the reassessment proceedings had been initiated. In order to sustain reopening of a concluded assessment under Section 148 of the Act, fresh/new material/information must come to the possession of the Assessing Officer, subsequent to the conclusion of the original assessment/reassessment leading the Assessing Officer to believe that income of the assessee has escaped assessment. In the reasons recorded nor in the reply, the respondents have pointed out the new material that come to their possession leading to initiation of reassessment proceedings. The aforesaid silence only goes to show that the impugned reassessment proceedings were initiated on mere change of opinion on the basis of existing material on record without any new information or material coming to the possession of the Revenue. Accordingly, the present writ petitions are allowed. The impugned notices under Section 148 of the Income Tax Act, 1961 as well as proceedings initiated pursuant thereto under Section 147/143(3) reassessing the income of the petitioner by the respondents are set aside. (NIRMALJIT KAUR), J. Inder/Jr.P.A. "