M/S Meerut Roller Flour Mills Pvt. ... vs Commissioner Of Income Tax And ...
2013 Latest Caselaw 2702 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

	RESERVED
 
(AFR)
 

 

 
Case :- WRIT TAX No. - 546 of 2013
 

 
Petitioner :- M/S Meerut Roller Flour Mills Pvt. Ltd.
 
Respondent :- Commissioner Of Income Tax And Another
 
Petitioner Counsel :- Rakesh Ranjan Agrawal,Suyash Agarwal
 
Respondent Counsel :- C.S.C., It
 

 
Hon'ble Prakash Krishna,J.

Hon'ble Manoj Kumar Gupta,J.

(Delivered by Prakash Krishna, J)

The petitioner, a company, incorporated under the Companies Act is carrying on the business of manufacture and sale of Ata, Maida and Sooji. The dispute relates to the Assessment Year 2008-2009 for which the petitioner filed its return of income on 27th of September, 2008 declaring an income of Rs.28,23,090/-. The return was picked up for scrutiny and the assessment proceedings under section 143(3) of the Act was taken out and it was completed on the total income of Rs.29,53,540/-. The said assessment order dated 22.3.2013 has been revised by the Commissioner of Income Tax/Respondent no.1 in exercise of power conferred on it under section 263 of the Income Tax Act. Being aggrieved by the order dated 22.3.2013 of the respondent no.1, the present writ petition has been filed claiming a writ of certiorari quashing the order dated 22.3.2013 and writ in the nature of prohibition has also been claimed prohibiting the respondent no.2 to proceed further for the Assessment Year 2008-2009 consequent of the impugned order dated 22.5.2013.

Heard Sri Rakesh Ranjan Agrawal, learned counsel for the petitioner and Sri Ashok Kumar, learned standing counsel for the respondents.

The learned counsel for the petitioner primarily submitted that the impugned order passed by the respondent no.1 is incorrect on merits. Elaborating the argument, it was submitted that the approach of the respondent no.1 that proper inquiry before finalizing the assessment proceeding was not done by the Assessing Officer is factually incorrect. Number of queries were raised by the Assessing Officer which were replied by the petitioner. The reply of the petitioner which consists of approximately one thousand pages is indicative of the fact that the Assessing Officer had applied his mind to the reply submitted by the petitioner and it does not matter if the assessment order is brief or it does not contain reasons, if any, accepting the reply of the petitioner, is of little consequence as the Assessing Officer was satisfied with the reply. A distinction in between the cases where no inquiry before completing the assessment was conducted or inquiry in details was not conducted, was pointed out by the petitioner's counsel to lay emphasis that it is a case where the inquiry was conducted. It is not a case of total lack of inquiry and therefore, it cannot be said that the assessment order was erroneous and prejudicial to the interest of the revenue. Further, the alternative remedy by way of appeal before the Tribunal is not adequate and efficacious as the Income Tax Appellate Tribunal does possess only power to stay the recovery of tax, fine, penalty etc. but has no power to stay the proceedings consequent upon the order of remand as in the present case the Commissioner of Income Tax restored the matter back to the Assessing Officer. The Assessing Officer is under legal obligation to complete the assessment proceedings in view of section 153 (2A) of the Income Tax Act within a period of one year. Therefore, the submission is that the writ court should exercise its discretion in entertaining the present petition.

In reply, the learned counsel for the department submits that the disputed and complicated questions of fact are involved in the present writ petition. These questions can more appropriately be addressed by the statutory forum i.e. the Income Tax Appellate Tribunal in the present case being an Appellate Authority. On merits, it was submitted that the findings recorded in the impugned order are well considered findings. Even otherwise also, the petitioner cannot be treated as an aggrieved person as the matter has been restored back to the Assessing Authority to pass a fresh assessment order after giving an opportunity of hearing to the petitioner. There is no concluded assessment and the Assessing Officer has been directed to carry out an appropriate verification and pass a fresh assessment order.

Considered the respective submissions of the learned counsel for the parties and perused the record.

The record reveals that before passing of the impugned order, the respondent no.1 had issued a point-wise show cause notice asking the petitioner to give the reply.

(2) On examination of the records, it is evident that the said assessment order was passed without proper enquiry in view of the following points:-

a) Grounds on which the case was selected for scrutiny have not been examined. Even the records are silent about the same.

b) Negligible profit has been returned which is merely a part of 'rebate & discount' while assessee has shown income under other heads and huge turnover of over Rs.59.42 crores which suggested gross suppression of profits. A.O. has accepted the same without any enquiry or examination.

c) Trade Creditors of Rs.2,41,93,214 and Loan Creditors of Rs.1,14,04,894/- has been accepted by the A.O. without any enquiry or verification.

d) Cartage outward of Rs.15,85,102/- and some other expenses have been debited to P & L account and allowed by A.O. without any findings whether this expenditure is allowable as per provisions of section 40(1) (ia).

The petitioner filed a reply. In the reply, the petitioner also took the stand that the similar kind of query with regard to the trade creditors and loan creditors was raised by the Assessing Officer which was replied by the petitioner. A look to the assessment order for the relevant Assessment Year 2008-2009 would show that it is a brief document and consists of three paragraphs in all. Paragraph Nos. 1 and 2 are introductory in nature. Its paragraph-3 contains some discussion. For the sake of convenience, the paragraph-3 is reproduced below:-

3. "During the course of examination of books of account it was noticed that the assessee has claimed expenses of Rs.4761348/- under the head Packing Material Consumed but it has not maintained any stock register of packing material. It has also not shown any stock of packing material. It is impractical that all the packing material purchased during month of March, 2008 would have been consumed in the same month and there is no closing stock as on 31.03.2008 of this material. It is estimated that there must be closing stock of packing material on 31.03.2008 for at least 10 days. Therefore if the expenses of packing material debited by the assessee at Rs.4761348/- are divided by 365 days, average closing stock for 10 days comes to Rs.130448/- which is estimated at the end of the relevant financial year. Thus there is undervaluation of closing stock. In view of this, an addition of Rs.130448/- is being made to the income of the assessee on account of closing stock of packing material not shown by the assessee.

(Addition: Rs.130448/-)

The total income of the assessee is, thus, computed as under:

 

 
Total income as declared by the assessee as per 
 
computation of income					          Rs.    2823094
 
Add:	     i. 	Addition as discussed above			Rs.      130448
 

 
                                                            Total income 	 Rs.   2953542
 
                                                             Rounded off        Rs.   2953540
 

 
	Assessed on total income of  Rs.2953540/-.  Calculate tax accordingly.  Charge interest u/s 234B, 234C and 234D  of the I.T.  Act.  Withdraw excess interest u/s 244A.  Give credit of  prepaid taxes.  Issue notice of  demand and challan." 
 

 

Thereafter, the Assessing Authority has computed the income. Evidently, the assessment order is completely silent and is bereft of any discussion on material points with regard to the creditors and trade creditors in particular. Assuming what the petitioner says is correct, that query was raised by the Assessing Officer and it was replied by the petitioner. In absence of any discussion in the assessment order, the raising of query is meaningless. It is one thing to say that the reply has been considered and has been accepted. But it is altogether a different thing to say that since the reply has been filed and in absence of any discussion it shall be deemed to have been taken as correct. This is one of the instance to demonstrate that the view taken by the Commissioner of Income Tax that the assessment order is erroneous and prejudicial to the interest of revenue is perfectly justified. Similarly, on other points touching the merits of the case were argued by the learned counsel for the petitioner at length and the Court was taken through the questionare raised by the Commissioner of Income Tax and the reply filed by the petitioner but in view of the order we are proposing to pass, it is not necessary to consider them in detail.

Much emphasis was laid by the learned counsel for the petitioner that there is difference in between a case where an inquiry has been conducted and a case where inadequate inquiry had been conducted. Reliance has been placed by him on Commissioner of Income Tax Vs. Sunbean Auto Limited (2011) 332 ITR 167 wherein a distinction has been pointed out by Delhi High Court between lack of inquiry and inadequate inquiry. It was pointed out that the aforesaid decisions had been relied upon by Delhi High Court in subsequent decision reported in Income Tax Officer Vs. D.G. Housing Project Ltd., 343 ITR 329.

The Commissioner may consider an order to be "erroneous" for the purpose of section 263 even if error of law may not be apparent on the face of the order. The Commissioner may consider an order of the Assessing Authority to be erroneous not only if it contains some apparent error of reason or of law or of fact on the face of it but also because it is stereotype order which simply accepts what the assessee has stated in his report and fails to make inquiry which are called for in the circumstances of the case.

In the case of Ram Pyari Devi Saraogi Vs. Commissioner of Income Tax West Bengal, (1968) 67 ITR 84 the Apex Court while examining the question of revisional power of the Commissioner of Income Tax under the old Act held that where assessment was completed by the Income Tax Officer with undue haste, without holding necessary inquiry it is sufficient to hold that the assessment order is erroneous.

The aforesaid decision has been followed by the Apex Court in Tara Devi Agrawal Vs. Commissioner of Income Tax, (1973) 88 ITR. The facts of this case are interesting. Here, it was contended that the assessee made a voluntary return of her income which cannot be said prejudicial to the Revenue. Repelling the said argument, the Apex Court has held that even where income has not been earned and is not assessable merely because the assessee wants it to be assessed in his or her end in order to assist someone else who would have been assessed to a larger amount, the assessment so made can certainly be erroneous and prejudicial to the interest of the revenue.

In GEE VEE Enterprizes Vs. Additional Commissioner of Income Tax, (1975) 99 ITR 375 following the aforesaid two judgments of the Apex Court it has been held that the position and function of the Income Tax Officer is very different from that of a Civil Court. The statements made in a pleading proved by minimum amount of evidence may be accepted by a Civil Court in absence of any rebuttal. The Civil Court is neutral. It simply gives decision on the basis of the pleadings and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparent in the order but call for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.

In CIT Vs. Smt. Rambha Devi, (1987) 164 ITR 658, the Patna High Court has laid down that where the necessary facts had not been gone into, a case for exercise of jurisdiction under section 263 of the Act is made out. In this case, the crucial question, what is the source of initial capital, had been explained by the assessee or not, was left unexamined. It was held that it is a case where prejudice is writ large.

It is not necessary for us to multiply the precedents for the simple reason that the assessment order does not contain the necessary discussion with regard to the various aspects of the case indicated in the revisional order by the Commissioner of Income Tax.

It was incumbent upon the Assessing Officer to have examined the cash credit entries appearing in the accounts of the petitioner assessee in detail keeping in view the explanation furnished by the petitioner. Having failed to do so, it is but obvious that the assessment order is erroneous and prejudicial to the interest of the Revenue. Mere filing of the reply by the assessee to which the attention of the Court was invited is not sufficient. We find that with regard to the trade creditors, copies of their account books were filed vide letter dated 9th of November, 2010, ; that is all. There is no application of mind by the Assessing Authority with regard to the genuineness of the credit entries including that of trade creditors. Reference was made by the learned counsel for the respondents to the assessment order for the assessment year which is enclosed in the connected writ petition ( has been dismissed on 15th of May, 2013 on the ground of availability of statutory remedy) wherein on examination, it was found by the Assessing Authority that the assessee was not able to prove the genuineness of certain cash credits. Be that as it may, in view of the order which we are proposing to pass, it is not necessary to dwell upon the merits of the case. Prima facie findings have been recorded by us just to meet the argument of the petitioner.

Sri Rakesh Ranjan Agrawal tried to justify the assessment order by referring the reply to the show cause notice and expected that the writ court should examine the veracity and correctness of the reply, which we are afraid is not proper exercise of writ jurisdiction, specially when the statutory forum in the form of Income Tax Appellate Tribunal has been already provided for. We refrain ourselves to express any opinion on the merits of the case and have indicated only some of the features of the case to show that the exercise of jurisdiction by the Commissioner of Income Tax under section 263 is perfectly justified and calls for no interference.

We are not at all impressed by the argument of the learned counsel for the petitioner that either the Income Tax Appellate Tribunal has no power to stay further proceedings consequent upon the assessment order or a time limit is prescribed to complete the assessment after remand, are the grounds for exercise of writ jurisdiction. Time and again, the Apex Court has reminded the High Courts not to entertain writ petition against the assessment order or by-pass statutory remedy by way of appeal or revision in respect of fiscal statutes in particular. Reference can be made to a Three Judges Bench decision in Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 2 SCC 433 : (AIR 1983 SC 603).

The aforesaid view has been reiterated recently by the Apex Court in United Bank of India Vs. Satyawati Tandon and others, 2010 SC 3413, The relevant paragraphs 20 and 21 are reproduced below:-

20. In Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 2 SCC 433 : (AIR 1983 SC 603), a three-Judge Bench considered the question whether a petition under Article 226 of the Constitution should be entertained in a matter involving challenge to the order of the assessment passed by the competent authority under the Central Sales Tax Act, 1956 and corresponding law enacted by the State Legislature and answered the same in negative by making the following observations:

"Under the scheme of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before the Prescribed Authority under subsection (1) of Section 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer a further appeal to the Tribunal under subsection (3) of Section 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of the High Court under Section 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford in the following passage:

"There are three classes of cases in which a liability may be established founded upon statute. . . . But there is a third class, viz. where a liability nor existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it. . .the remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to."

The rule laid down in this passage was approved by the House of Lords in Neville v. London Express Newspapers Ltd. and has been reaffirmed by the Privy Council in Attorney-General of Trinidad and Tobago v. Gordon Grant & Co. Ltd. and Secretary of State v. Mask & Co. (AIR 1940 PC 105). It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. The High Court was therefore justified in dismissing the writ petitions in limine."

21. The views expressed in Titaghur Paper Mills Co. Ltd. v. State of Orissa (AIR 1983 SC 603) (supra) were echoed in Assistant Collector of Central Excise, Chandan Nagar, West Bengal v. Dunlop India Ltd. and others (1985) 1 SCC 260 : (AIR 1985 SC 330) in the following words:

"Article 226 is not meant to short-circuit or circumvent statutory procedures. It is only where statutory remedies are entirely ill-suited to meet the demands of extraordinary situations, as for instance where the very vires of the statute is in question or where private or public wrongs are so inextricably mixed up and the prevention of public injury and the vindication of public justice require it that recourse may be had to Article 226 of the Constitution. But then the Court must have good and sufficient reason to bypass the alternative remedy provided by statute. Surely matters involving the revenue where statutory remedies are available are not such matters. We can also take judicial notice of the fact that the vast majority of the petitions under Article 226 of the Constitution are filed solely for the purpose of obtaining interim orders and thereafter prolong the proceedings by one device or the other. The practice certainly needs to be strongly discouraged."

Having regard to what has been said above, we are of the opinion that there is no justifiable reason for the petitioner not to approach the Income Tax Appellate Tribunal by way of statutory remedy of appeal or to invoke the extra-ordinary jurisdiction of this Court under Article 226 of the Constitution of India. At the present moment, there is no tax liability for the Assessment Year in question. According to the petitioner, it has already submitted the reply to the queries raised by the Assessing Officer which are sufficient. Only, an assessment order has to be framed after giving an opportunity of hearing. Still there is ample time provided the petitioner cooperates with the Assessing Authority and if need be, the proceedings may take place out of turn, on day to day basis. It is for the Assessing Authority to respect the time limit for completing the assessment proceedings. The case on hand does not fall in either of exceptions as provided for by the Apex Court in the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and others, (1998) 8 SCC 1 for exercise of writ jurisdiction.

The explanation given to the queries is sufficient or not lies in the realm of the Assessing Authority or the Appellate Authority but certainly it does not lie within the realm of the writ jurisdiction. The Income Tax Authorities are well trained to appreciate the intricacies of accounting and we find no reason not to relegate the petitioner to statutory forum.

The upshot of the above discussion is that in view of the availability of the alternative remedy by way of appeal before the Tribunal, we decline to entertain the present writ petition and it is dismissed on the ground of availability of the alternative remedy, summarily.

No order as to costs.

(M.K. Gupta, J) (Prakash Krishna, J)

Order Date :- 24.5.2013

LBY