In The Matter Of Shivji Palace ... vs Commissioner Of Income Tax & ...
2013 Latest Caselaw 5119 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

					   Judgment reserved on   09.7.2013						   Judgment delivered on  20.08.2013
 

 
1. CIVIL MISC. WRIT PETITION (TAX) NO. 167 OF 2005
 
  M/s Shivji Palace Hotel & Club (P) Ltd vs. the CIT and another
 
				Connected with
 
2.  CIVIL MISC. WRIT PETITION (TAX) NO. 1082 OF 2005
 
  M/s Shivji Palace Hotel & Club (P) Ltd vs. the CIT and another
 

 
3.  CIVIL MISC. WRIT PETITION (TAX) NO. 1083 OF 2005
 
  M/s Shivji Palace Hotel & Club (P) Ltd vs. the CIT and another
 

 
4.  CIVIL MISC. WRIT PETITION (TAX) NO. 1084 OF 2005
 
  M/s Shivji Palace Hotel & Club (P) Ltd vs. the CIT and another
 

 
5.   CIVIL MISC. WRIT PETITION (TAX) NO. 1085 OF 2005
 
  M/s Shivji Palace Hotel & Club (P) Ltd vs. the CIT and another
 

 
6.   CIVIL MISC. WRIT PETITION (TAX) NO. 1086 OF 2005
 
  M/s Shivji Palace Hotel & Club (P) Ltd vs. the CIT and another
 

 
Hon'ble Sunil Ambwani, J.

Hon'ble Surya Prakash Kesarwani, J.

1. We have heard Shri Dhruv Agrawal, Senior Counsel assisted by Shri Nikhil Agrawal for the petitioner. Shri Dhananjay Awasthi appears for the Income Tax department.

2. In the leading Writ Petition No.167 of 2005 the petitioner has prayed for setting aside the assessment order dated 31.12.2004 passed by the Assistant Commissioner of Income Tax, Circle Saharanpur, for the assessment years 1998-99 to 2002-03. In the connected writ petitions the petitioner has challenged the orders of penalty dated 29.6.2005 under Section 271 (1) (b) and Section 271 (1) (c) of the Income Tax Act, 1961 for the assessment years 1998-1999 to 2002-03 consequential to the assessment orders of the corresponding assessment years, and for non-compliance of the notices dated 29.6.2005, under Section 142 (1) of the Act dated 17.12.2004.

3. By an interim order dated 3.2.2005, the operations of the impugned assessment orders dated 31.12.2004, and the orders, by which penalties were imposed under Sections 271 (1) (b) and 271 (1) (c) of the Act pertaining to assessment years 1998-99 to 2002-2003, were stayed by this Court.

4. Brief facts giving rise to these writ petitions are that M/s Shivji Palace Hotel and Club (P) Ltd., the petitioner-assessee was registered as a private limited company on 6.5.1997. At the time of its incorporation the company had authorized share capital of Rs.85 lacs divided into 8,50,000 equity shares of Rs.10/- each. Shri Dharam Pal, Shri Sandip Grover, Shri Surjit Singh and Shri Rajinder Kaur were the directors of the company. On 7.11.2001 Shri Harjeet Singh Nalwa and Shri Gurjeet Singh Nalwa purchased 1,50,000 equity shares each constituting 25% of the total paid up capital as on that date. Shri Gurjeet Singh Nalwa further purchased 1,05,000 shares on 4.3.2002 together constituting 37.5% shares of the petitioner as on 4.3.2002. Shri Harjeet Singh Nalwa and Shri Gurjeet Singh Nalwa later on purchased further shares on 8.5.2003 increasing their stake in the company to 62.5%. They thus became the successors of the erstwhile shareholders on 8.5.2003. It is alleged that on due diligence they were informed by the then Managing Director of the company, that on the date of purchase of shares on 8.5.2003, there were no income tax dues outstanding against the company and that all the returns were filed in time.

5. The Assessing Officer took up the assessments for the assessment year 1998-99 under scrutiny and passed an assessment order under Section 143 (3) on 14.12.2000 raising demand against the erstwhile Directors of the company. It is alleged that the notice was issued under Section 148 of the Act for the assessment year 1998-99 on 18.3.2004, despite the fact that the assessment was complete under scrutiny and assessment orders were passed on 14.12.2000.

6. The petitioner replied through its Chartered Accountant on 15.4.2004 stating that the return already filed by the petitioner company on 25.11.1998 be deemed to be in compliance of the said notice. The Assessing Officer in purported exercise of the powers under Section 143 (2) and 142 (1) of the Act sent a questionnaire requiring the details and evidences in respect of the returns filed by the petitioner for the assessment years 1998-99 to 2001-02. Similar notices were issued on 27.8.2004 in respect of assessment year 2002-03.

7. The Assessing Officer again issued notices under Section 142 raising queries under Section 142 (1) of the Act on 26.10.2004 for the assessment years 1998-99 to 2002-03. The petitioner - company vide its letter dated 9.12.2004 filed a detailed reply to the said notices stating that the proceedings relate to the period when Shri D.P. Grover and Mrs. Veena Grover were looking after the affairs of the company. The majority shareholders of the petitioner-company have succeeded to the erstwhile Directors and as such no liability for the said assessment years fell upon them, in view of Section 170 of the Act. The petitioner also in its reply dated 9.12.2004 requested to the Assessing Officer to supply the documents on which he was relying for issuing notices.

8. The Assessing Officer by his order dated 13.12.2004 rejected the prayer of the petitioner stating that since he had to finalise the assessment proceedings for the assessment years 1998-99 to 2002-03 by 31.12.2004, as per the directions issued by the CBDT, no further time could be granted.

9. It is alleged that the books of accounts of the petitioner company were seized under Section 131 (3) of the Act and by letter dated 24.12.2003 of the Assessing Officer informed the company that he has been authorised to retain the documents in his office upto 31.12.2004.

10. The petitioner company filed a Writ Tax No.1827 of 2004 with prayer to quash the notices dated 19.8.2004 (collectively), 27.8.2004 (collectively), 26.8.2004 (collectively) and 13.12.2004 for the assessment years 1998-99 to 2002-03, with further prayers that the respondents be prohibited to proceed in any manner in pursuance to the aforesaid notices. The writ petition was disposed of on 23.12.2004 with following observations/directions:-

"Heard learned counsel for the parties and perused the record.

Petitioner sole grievance as argued, before us, is that vide letter dated 13.12.2004 written by Assistant Commissioner of Income Tax Circle, Saharanpur (Annexure No.10 to the writ petition the said authority has refused to extend time sought by the petitioner and rejecting the request for supplying photostat copies of the certain documents in possession of the office of the said authority as not being relevant. Reasoning is misconceived. It is for the petitioner to decide how he wants to submit his reply.

It is to be noted the said authority had seized the original accounts books of the petitioner under Section 131 (3) of the Income Tax Act, 1961.

Considering facts and circumstances of the case, we are of opinion that the petitioner should be allowed to have photostat copies of the documents asked for.

For this purpose, petitioner may approach the concerned authority along with a certified copy of this order on or before 30.12.2004. The petitioner shall clearly indicate the details particulars and other, if any, of the documents whose photocopy he requires. The concerned authority shall supply the same within two weeks of receipt of copy of this order.

This order shall become in operative, in case petitioner fails to file certified copy of this order as stipulated above i.e., on or before 30.12.2004 in case petitioner approaches for obtaining photostat copies of the documents as stipulated above, the same may be given in two weeks of receipt of request.

The writ petition is disposed of finally subject to the above observations/directions.

No order as to cost."

11. In pursuance to the aforesaid order the petitioner-company requested the Assessing Authority by a letter dated 29.12.2004 to supply the copies of documents mentioned therein.

12. It is submitted by Shri Dhruv Agarwal that the Assessing Officer in contempt of the order of this Court dated 23.12.2004, in an arbitrary manner without application of mind, passed the impugned assessment orders for the assessment years 1998-98 to 2002-03 making huge additions. The Assessing Officer did not even refer to the order of the High Court dated 23.12.2004 in the assessment order. The additions made by the Assessing Authority for the assessment years 1998-99 to 2002-03 are as follows:-

Assessment year

Additions by learned ACIT

Additional income tax demand

1998-99

95,69,704/-

72,05,967/-

1999-2000

61,84,660/-

41,12,771/-

2000-01

1,44,63,657/-

67,12,136/-

2001-02

1,17,77,512/-

46,48,707/-

2002-03

1,19,96,052/-

56,49,723/-

13. By an interim order dated 3.2.2005 passed in Writ Petition No.167 of 2005, this Court stayed the assessment order dated 31.12.2004 passed by respondent no.2 pertaining to assessment years 1998-99 to 2002-2003.

14. It is submitted by Shri Dhruv Agarwal, that the impugned assessment order is in the teeth of the order passed by this Court by which the Assessing Officer was required to supply the documents of which the details/particulars may be given by the petitioner. This Court on 23.12.2004 gave two weeks' time to the Assessing Officer to provide photocopies of the documents. The certified copy of the order was filed along with the requests giving details of the documents. The letter/representation dated 29.12.2004 reads as follows:-

"Dear Sir,

Please find enclosed herewith certified copy of judgment of Hon'ble High Court of Allahabad dated 23rd December, 2004 for your kind reference and records.

We once again request you to kindly release us the Books of Accounts of the company along with Bills, Vouchers, other documents etc in terms of your Letter No.F.No.131 (3)/132(8)/ACIT/Circle/SRE/2003-2004 dated 24.12.2003.

In addition to the above, you are requested to provide us copies of following documents;

(i)Copies of agreement as stated by your goodself between the management and employees of the assessee company for different years ESI Judgment copy which has been taken into consideration by your goodself for the purpose of calculation of enhanced figure of salary for respective years and also assuming the number of employees as 129.

(ii)Copies of false/forged documents submitted by Mr. Dharampal Grover, (Previous/resigned working Director of the company).

(iii)Copy of any other documents which are being taken by your goodself into consideration in preparing the assessment order of the company for different assessment years and against which copy of document is required by the assessee company to offer its explanation and to file its counter reply.

(iv)Copy of Statement of Accounts/other information obtained from PICUP.

(v)Copy of Sale Deed referred to during Assessment year 1999 - 2000, purchased on 25th may, 1998 for approx. Rs.450000/- which is adjacent to hotel as stated by your goodself.

(vi)Books of Accounts along with necessary bills, voucher etc.

(vii)Copy of details obtained from Sales Tax Department.

Your goodself will appreciate the fact that the assessee company cannot reply to your various queries in regard to aforesaid assessment years in the absence of information & documents asked for as above. We request you to kindly provide us the above documents so that necessary replies may be submitted to your utmost satisfaction.

Thanking you,

Yours faithfully,

FOR SHIVJI PALACE HOTEL & CLUB (P) LTD

(HARJEET SINGH NALWA)

DIRECTOR"

15. Shri Dhruv Agarwal submits that the Assessing Officer committed contempt of the order of the High Court dated 23.12.2004, by which he was required to provide the details of the seized documents to the petitioner for want of which the petitioner could not give effective reply to the notice.

16. It is submitted that the Assessing Authority did not even refer to the order of the High Court. Under Section 170 of the Income Tax Act, the petitioner-company being successor in business could not be assessed for the years when they were not looking after the business and that in any case the principles of natural justice were grossly violated in failing to provide the documents, which were seized and which were in possession of the Assessing Authority and for which the petitioner could not give effective reply in the assessment proceedings. He submits that even if the limitation was going to expire on 31.12.2004, it got extended by the order passed by the High Court giving two weeks' time to the Assessing Officer on 23.12.2004 to be operative from the date when the petitioner requested for the copies of the documents and on which the representation was required to be filed within two weeks. Having received the order of the High Court the Assessing Authority could have provided these documents either on the same day or on any other day upto 31.12.2004, before framing the assessment orders.

17. Shri Dhruv Agarwal submits that the Assessing Officer adopted an arbitrary procedure in which he, having possession of accounts books of the petitioner-company, asked to submit reply to the notice of a period prior to the date when the petitioners came to assume the control of the company and made assessment orders without referring to the judgment of the High Court, saddling the petitioner-company with a huge tax liability and thereafter issuing notice under Section 271 (1) (b) and 271 (1) (c) of the Act and in levying penalties, in a wholly unjustified manner.

18. In the connected writ petitions, the petitioner-company has challenged the penalty orders under Sections 271 (1) (b) and 271 (1) (c) on the same grounds in respect of assessment year 1998-99 to 2002-03 as in the main writ petition challenging the assessment orders.

19. Shri Dhananjay Awasthi, appearing for the revenue submits that the petitioner had misled the Court in placing in correct facts in Writ Petition No.1827 of 2004, on which the Court passed an order to provide the documents, which were alleged to be seized and were in custody of the Assessing Officer within two weeks from the date on which he makes a representation. He submits that the books of accounts were not seized by the Assessing Officer. He was never in possession of the original books of accounts. The earlier writ petition was disposed of without giving an opportunity to the Income tax department to bring full facts on record.

20. Shri Dhananjay Awasthi submits relying on the counter affidavit of Shri N.K. Varma, Inspector in the office of Assistant Commissioner of Income Tax, Circle, Saharanpur that the petitioner was in possession of the original books of accounts as it is evident from the copy of the ordersheet/letter from the Trade Tax Department, where these books of accounts were produced by the petitioner from 31.7.2004 to 29.1.2005. The Trade Tax authorities had signed the order on 29.1.2005, in which he has referred to production of cash books, purchase registers etc. In paragraph-6 of the counter affidavit it is stated that some copies of books of accounts/documents were impounded by the respondents on 17.11.2003 by issuing summons under Section 131 of the Income Tax from Shri Dharampal Singh Grover, Ex-Director of the Company. The petitioner-company had given a letter of request on 13.12.2004 to the Commissioner of Income Tax to produce the accounts books along with the supporting bills etc, since they are making their best efforts to look for them and produce them before the Assessing Authority. On this request the Income tax officer passed an order that enough time has been granted. He has not made compliance of the notices. It is evident that the assessee was offering a lame excuse. If the assessee was ready to produce the books of accounts, vouchers, bills etc., they could have produced these documents on 16.12.2004.

21. Shri Dhananjay Awasthi has relied on the request of the petitioner-company in its letter dated 13.12.2004 to the Commissioner of Income tax to submit that books of accounts were with the petitioner-company. The relevant paragraph of the letter is quoted as below:-

"We request your goodself to kindly give us 10 (ten) days time to produce books of account along with supporting bills etc. since we are making our best efforts to locate them and produce before your goodself."

22. Shri Dhananjay Awasthi states that books of accounts were always with the petitioner, who had produced them before the Trade Tax authorities. Some books were seized from the Ex-Directors of the Company, which were in possession of the Assessing Officer. The petitioner was fully aware of the facts and thus he had made a request on 13.12.2004 to the Commissioner of Income tax to produce these documents on which he was allowed time upto 16.12.2004. Taking advantage of the letter dated 24.12.2003 in which the Assessing Officer informed the petitioner about retention of the books of accounts, the Writ Tax No.1827 of 2004 was filed and in which the final order dated 23.12.2004 was obtained, without giving time to the department and waiting for its reply to bring full and correct facts on record.

23. Shri Dhananjay Awasthi also refers to the letter of the Assistant Commissioner of Income tax, Circle Saharanpur dated 13.12.2004, in response to the application of the petitioner dated 9.12.2004, by which the petitioner-company was informed that so far as the matter pertaining to the returns of the income tax filed in his office, no extra query was raised by the office and therefore, the photocopy of the documents referred by him could not be supplied, as the same were not relevant.

24. So far as request for granting more time beyond 31.12.2004 is concerned, Shri Awasthi states that the petitioner was informed that the cases are continuing for last five months in which the compliances were incomplete. The Assessing Officer also wrote in his letter that even on 13.12.2004, when the assessee was present, no compliance of the remaining queries was made by him nor any books of accounts were produced and since the cases were getting barred by limitation, in which the assessment was to be finalised upto 31.12.2004 as per directions issued by CBDT, no further time could be allowed.

25. After hearing the submissions and perusing the records, we do not find that the petitioner-company had made out any case for interference in these writ petitions. The department has denied that the books of accounts were in their possession, and has relied on the request made by the petitioner-company through its Chartered Accountant on 13.12.2004 for giving it time to produce the books of accounts. If the books of accounts were in possession of the Assessing Officer since 24.12.2003, there was no question of writing a letter to the Commissioner of Income Tax for giving more time to produce the said documents. Further we find that in the rejoinder affidavit, a reply has been given that in the assessment order passed under the Trade Tax Act on 29.1.2005, it is mentioned at internal page-5 that the trader does not want to get the seized accounts books of 2001-02 verified. Thereafter in the same paragraph-5 of the rejoinder affidavit Shri Harjeet Singh Nalwa has stated:-

"Even assuming without admitting that the books of account for the Assessment Year 2001-02 were with the petitioner, but nothing has been brought on record regarding the availability of the books of account or other documents relating to the other assessment years i.e. 1998-99-2000, 2000-2001 and 2002-03. Even by their own admission as averred in various paragraphs of the present counter affidavit, which establish the fact that the answering respondents had impounded the books of account and other documents of the petitioner in exercise of the powers under Section 131 (3) of the Income Tax Act, 1961 and which were retained by them as per the permission granted by the Commissioner till 31.12.2004 which is also established by letter dated 24.12.2003 enclosed as Annexure-X as appended to the writ petition. It may be further stated therein that the contents of paragraph 6 of the counter affidavit are highly misleading and are emphatically denied."

26. From the reply given in the counter affidavit, we find that a letter was sent from the office of the Assistant Commissioner of Income Tax, Circle, Saharanpur dated 7.1.2005 to the Directors of the Company, in response to its letter dated 29.12.2004, clearly stating that the contention of the petitioner before the High Court that the original accounts books were seized by the office of the Assessing Officer under Section 131 (3) of the Act to be factually wrong. The original books of accounts were not in possession of the department and therefore, the assessee had asked time to produce the same before the Assessing Officer during the course of assessment proceedings. This letter clarifies the facts as follows:-

"In this regard, it is clarified that only few photocopies of some documents are in the possession of Department which mostly relate to A.Y. 2000-01. These documents have been impounded u/s 131 (3) of the IT Act from Sh. Dharampal Grover, Ex-Director. Even then, respecting the verdict of Hon'ble Court, this office has no hesitation in providing you the photocopies of these documents. You may take photocopies of the same on 11.1.2005.

Moreover, it is brought to your notice that as these documents have been impounded u/s 131 (3) of the IT Act, the same cannot be released without prior approval of Ld. Commissioner of Income tax, Muzaffarnagar.

Besides the above, you have also requested for providing copies of some other documents which are available in the records of this office. In this regard also, you are at liberty to take photocopies of the same as directed by the Hon'ble High Court, Allahabad on 11.1.2005.

Sd/-

(Y.P.B. SINGH)

Asstt. Commissioner of Income tax,

Circle, Saharanpur"

27. The receipt of the letter dated 7.1.2005 has not been denied. This letter has been annexed as Annexure-12 of the writ petition. The petitioner-company has not explained as to which of the documents were seized by the department, in respect of which a letter was sent on 24.12.2003 conveying the approval of the Commissioner of Income tax for retention upto 31.12.2004 vide letter dated 8.12.2003. This letter dated 8.12.2003, was made the basis of demand in the earlier writ petition and which is also the basis of challenging the assessment order on the ground of violation of the principles of natural justice. The details of the books of account, which were retained by the department, has not been given. In the letter dated 7.1.2005 and the counter affidavit it is stated by the department that the documents referred to in the letter are the documents which were impounded under Section 131 (3) of the Act from Shri Dharampal Grover, Ex-Director. The petitioner-company has not cared to reply or to establish that the documents seized from the possession of Shri Dharampal Grover were relevant for assessment.

28. We have perused the assessment order dated 31.12.2004, which refers to the protracted correspondence with the petitioner for producing the documents in his possession. The Assessing Officer has explained in the assessment order that the request for supply of the photocopies of some of the documents in possession of the office as well as granting more time for collection and submission of documents vide petitioner's letter dated 9.12.2004 was not acceptable, the reasons thereof were mentioned in the letter dated 13.12.2004 to Shri H.S. Nalwa, Director, after which a final show cause notice was given on 17.12.2004 under Section 144 for completing the assessment fixing 24.12.2004. No one attended the hearing nor any submission was made on that date. A written submission was left at the dak counter of the Office of Income Tax department, on 29.12.2004, which establishes that the assessee was not prepared to discuss the additions proposed to be made in the show cause notice dated 17.12.2004.

29. The submissions of learned counsel appearing for the petitioner are based on the fact that the petitioner-company was not given adequate opportunity of representation in the assessment proceedings as the relevant documents were in possession of the department and were not given to the assessee. The record, however, does not establish the facts on which the arguments are based. The details and relevancy of the documents seized from the custody of Shri Dharampal Grover has not been explained. The petitioner is capitalising on the seizure and retention of such documents without giving their details, and establishing whether they were relevant for assessment.

30. Shri Dhruv Agarwal submits that after the High Court had passed an order on 23.12.2004 directing petitioner's representation for providing the photocopies of the documents to be decided within two weeks, the limitation for making assessment got automatically extended. We are unable to appreciate the contention inasmuch the statutory limitation does not get extended unless the attention of the High Court was drawn to the facts that the assessment was going to be barred by time on 31.12.2004 and that the High Court had consciously applied its mind to accept the request or make such extension. In fact the orders were passed disposing of the writ petition on 23.12.2004, without calling for or waiting for the reply from the department and ascertaining whether the assessments were to get barred by time during such period.

31. From the aforesaid discussion based on the affidavits enclosing the documents filed on record, we are of the view that the petitioner was fully aware that the limitation for assessment was going to expire on 8.12.2004. Taking advantage of the letter of the Assessing Officer dated 24.12.2003, which was more than a year old and did not give any details of the books of accounts, which were seized from the previous director of the company, filed the earlier writ petition and obtained an order without disclosing the contents and nature of the documents, which were retained by the department and whether they were relevant for assessment. The petitioners were aware of the date fixed by the Assessing Officer in his last notice dated 17.12.2004, which was served on the petitioner on 20.12.2004. Inspite of appearing before the Assessing Officer and participating in the assessment proceedings the petitioner left a letter on the dak counter of the department on 29.12.2004, requesting to provide them documents. The petitioner-company refused to cooperate with the Assessing Officer in the assessment proceedings. They deliberately absented from the proceedings as they could not have faced the Assessing Officer, who was aware of the facts and from whom they had taken time to produce the books of accounts.

32. We may observe here that an appeal was maintainable against the assessment and the penalty orders, which have been challenged in these writ petitions. Instead of filing statutory appeals, the petitioner-company took the risk of approaching this Court and obtained interim orders, which have continued for nine years. We are not inclined to go into the reasons as to why the writ petitions were not listed and heard for such a long time.

33. We do not find any merit in the writ petitions.

34. The orders imposing penalties under Section 271 (1) (b) and 271 (1) (c) in respect of assessment years 1998-99 to 2002-03 have been challenged on the same facts and grounds, which have been considered by us. We do not find any merits in the connected writ petitions as well, challenging the orders imposing penalty to cause any interference.

35. All the writ petitions are dismissed.

Dt.20.08.2013

RKP/