Calcutta High Court

Merlin Projects Limited vs Joint Commissioner Of Income Tax ... on 22 May, 2025

                                     1




                      IN THE HIGH COURT AT CALCUTTA
                     EXTRAORDINARY CIVIL JURISDICTION
                               ORIGINAL SIDE

BEFORE:
HON'BLE JUSTICE RAJA BASU CHOWDHURY


                                  WPO/287/2025

                          MERLIN PROJECTS LIMITED
                                    VS
                 JOINT COMMISSIONER OF INCOME TAX CENTRAL
                  CIRCLE CENTRAL RANGE -2 KOLKATA AND ORS



For the petitioner               :       Mr. S. N. Mookherjee, Sr. Adv.
                                         Mr. Abhratosh Majumder, Adv.
                                         Mr. Pratyush Jhunjhunwala, Adv.
                                         Mr. Naman Choudhury, Adv.
                                         Ms. Akshara Shukla, Adv.
                                         Mr. Aritra Nag, Adv.

For the respondent               :       Mr. Soumen Bhattacharjee, Adv.

Mr. Ankan Das, Adv.

Ms. Shradhya Ghosh, Adv.

Heard on                         :       22.05.2025.

Judgment on                      :       22nd May, 2025.


RAJA BASU CHOWDHURY, J:

1. The above writ petition has been filed, inter alia, challenging the show

cause notice dated 4th January, 2025 issued under Section 274 read

with Section 271D of the Income Tax Act, 1961 (hereinafter refer to said

'Act') and the consequential demand cum order dated 29 th March, 2025

issued under Section 271D of the said Act.

2. The date of the show-cause notice, the corresponding date of the order

with relevant section and the corresponding assessment year is extracted

hereinbelow:

 WPO No.           Date of show-             Date of           Assessment
                      cause               order/demand            Year
                                     with relevant section
287 of 2025         04.01.2025           29.03.2025 under        2016-17

                                           Section 271D

3. The central issue for consideration in the above writ petition is whether

the Assessing Officer is bound to record satisfaction in the assessment

order as regards the contravention of the provisions of Section 269SS of

the said Act for initiation of proceeding under Section 271D of the said

Act. Records would reveal that an assessment order under Section 143(3)

read with Section 153A of the said Act dated 31 st March, 2022, in respect

of the assessment year 2016-17 was passed in the petitioner's case.

Following the aforesaid, the show-cause notice as aforesaid had been

issued under the provisions of Section 271D of the said Act, on account

of contravention of the provisions of Sections 269SS of the said Act.

4. Immediately upon receipt of such show-cause notice, the petitioner by

response in writing had called upon the department to disclose the

certified copy of the order-sheet recording the reasons/satisfaction of the

Assessing Officer, which promoted issuance of show-cause notice.

Records would reveal that the department by a written response had,

inter alia, held out that all penalty proceedings initiated against the

assessee had been carried out through ITBA system of the department,

which is also visible to the assessee.

5. Records would also reveal that the petitioner had contradicted the same

by a written communication enclosing therein screen shots from the

portal to demonstrate that no order or satisfaction had been uploaded on

the portal.

6. It is the petitioner's case that the department without adhering to the

petitioner's request to disclose the satisfaction note had proceeded to

pass the order under Sections 271D of the said Act in respect of the

relevant assessment year as noted above.

7. Mr. Mookherjee, learned Senior Advocate appearing in support of the writ

petition has drawn the attention of this court not only to the show-cause

notice but also to the response filed by the petitioner thereto, to highlight

the fact that the recording of satisfaction, contrary to the claim made by

the respondents was not available on the portal. He would submit that

by a CBDT Circular No.09/DV/2016 dated 26 th April, 2016, a

clarification has been provided not only with regard to the departmental

view as regards initiation of penalty proceeding but to bring an

uniformity and to remove conflict in the procedure to be followed by the

Assessing Officers below the rank of Joint Commissioner of Income Tax,

while making a reference to the Range Head regarding any violation of

provisions of Section 269SS and 269T of the said Act, as the case may

be, in course of the assessment proceeding or any other proceeding

under the said Act.

8. According to him, in absence of the satisfaction being recorded by the

Assessing Officer regarding contravention of Section 269SS of the said

Act for initiation of penalty proceedings under the provisions of section

271D of the said Act, independent penalty proceeding, independent of

such satisfaction could be initiated. In support of his aforesaid

contention that in absence of satisfaction regarding contravention of the

provisions of Section 269SS of the said Act, by the Assessing Officer, no

penalty proceeding can be initiated under section 271D of the said Act

and no penalty could be levied, he has placed reliance on the judgment

delivered by the Hon'ble Supreme Court in the case of Commissioner of

Income Tax, Panchkula vs. Jai Laxmi Rice Mills Ambala City

reported in (2015) 64 taxman.com 75 (SC). He has also placed reliance

on the judgment delivered by the Hon'ble High Court at Andhra Pradesh

in the case of Grandhi Sri Venkata Amarendra vs. Joint

Commissioner of Income Tax reported in (2024) 167 taxman.com 352

(Andhra Pradesh).

9. On the question whether this Hon'ble Court is competent to entertain the

writ petition, notwithstanding there being an alternative remedy in the

form of an appeal he has placed reliance on a judgment delivered in the

case of Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai

reported in (1998) 8 SCC page 1 and the judgment delivered by the

Hon'ble Supreme Court in the case of Godrej Sara Lee Ltd. vs. Excise

of Taxation Officer-cum-Assessing Authority And Others reported in

(2023) 109 GSTR 402 : 2023 SCC Online SC 95. In the facts of the

case hereinabove, he would submit that the order impugned as also the

penalty proceeding cannot be sustained and the same be quashed.

10. Per contra, Mr. Bhattacharjee learned advocate representing the

respondents, at the very outset, would submit that the petitioner has an

alternative efficacious remedy in the form of an appeal from the order

passed in the penalty proceeding under Section 271D of the said Act,

before the appellate authority in terms of the provisions contained in

246A of the said Act. He would submit that ordinarily when an

efficacious alternative remedy is available, a Court exercising writ

jurisdiction under Article 226 of the Constitution of India should not

entertain the same. According to Mr. Bhattacharjee since the matter

would require examination of the assessment order in the form of

evidence, this Court should not entertain the writ petition. In support of

his aforesaid contention, he has placed reliance on the Constitutional

Bench judgment delivered by the Hon'ble Supreme Court in the case of

Thansingh Nathmal vs. Superintendent of Taxes, Dhubri & Ors.

reported in AIR 1964 SC 1419, the judgment delivered in the case of

Commissioner of Income Tax vs. Chhabil Dass Agarwal reported in

(2013) 36 taxman.com 36 (SC) taxman and the judgment delivered in

the case of Whirlpool Corporation (supra). Independent of the aforesaid,

by placing reliance on the circular issued by the CBDT (supra), he would

submit that paragraph 4 of the aforesaid circular clarifies the position,

that the advisory is not confined to the assessment proceeding but is also

in respect of other proceeding under the said Act. According to him, the

assessment proceeding under the said Act are distinct and different from

the penalty proceeding and independent of the assessment proceeding a

penalty proceeding cannot be initiated. As such in ordinary course there

is no requirement for recording satisfaction by the Assessing Officer as

regards contravention of the provisions of Section 269SS of the said Act

for initiating proceedings under Section 271D of the said Act. In the facts

noted hereinabove, he would submit that this Court should not entertain

the writ petition. In addition to the above, it is submitted that the point

raised by the petitioner does not constitute a jurisdictional issue for this

Court to entertain the same and in any event, if the Hon'ble Court by

overruling the objection raised by the respondents admits the writ

petition, the petitioner should be put to terms especially having regard to

the fact that the petitioner had not cooperated with the Department in

the penalty proceeding and had not offered any explanation on merits.

11. Heard the learned advocates appearing for the respective parties

and considered the materials on record including the supplementary

affidavit filed in Court today which is taken on record. From the

argument advanced by the advocates representing the respective parties,

it would transpire that the primary issue that falls for consideration in

the present writ petition is whether the Department was competent to

initiate the penalty proceedings under Section 271D of the said Act

without there being a satisfaction of the Assessing Officer as regards the

contravention of the provision of Section 269SS of the said Act. However,

before a proceeding to adjudicate the above issue, having regard to the

objection raised by the respondents with respect to the maintainability of

the writ petition, I am of the view, such issue should be considered first.

12. I find that it is the respondents' contention that having regard to

the statutory remedy in the form of an appeal available to the petitioner,

this Court should not exercise the jurisdiction. There is no dispute that

the petitioner has an alternative remedy in the form of an appeal from

the order impugned. It is equally true that the petitioner had raised the

jurisdictional issue as regard the competence of the Department to

initiate a penalty proceeding under Sections 271D of the said Act. I find

that Mr. Bhattarcharjee by placing reliance on the judgment delivered in

the case of Thansingh Nathmal (supra) has tried to impress upon this

Court that when an alternative remedy in the form of a statutory appeal

is available ordinarily this Court should not entertain the writ petition. I

am of the view, that there cannot be any doubt that an alternative

remedy would stand in the way of a Writ Court exercising its jurisdiction

unless the petitioner is in a position to demonstrate that either the

alternative remedy is inefficacious or the petitioner comes within the

exception, as enumerated in the judgment delivered in the case of

Whilpool Corporation (supra). I find that the Hon'ble Supreme Court in

the case of Thansingh Nathmal (supra) had refused to entertain the

petition not merely on the ground that an alternative remedy was

available but on the ground that the question of facts which were raised

before the Hon'ble Supreme Court were not canvassed before the

appropriate taxing authority. In fact as highlighted in paragraph 8 of

such judgment the assessee in such case had attempted to reopen the

decision of the taxing authorities on the question of fact, by invoking the

jurisdiction under Article 226, which jurisdiction by the statute

constituting them is exclusively vested in the taxing authorities. The

above judgment thus, does not assist the respondents. Mr. Bhattacharjee

next relied on a judgment delivered in the case of Chhabil Dass

Agarwal (supra) where in the matter dealt with a challenge to a notice

issued under section 148 of the said Act under the old regime that is

prior to introduction of the Finance Act, 2021 with effect from 1 st April

2021. Following the aforesaid an assessment order was passed, aggrieved

the assessee without exhausting the statutory remedy had approached

the writ Court. In the said case the Hon'ble Supreme Court had held that

a complete machinery for the assessment/reassessment of tax,

imposition of penalty had been provided in the statute and having regard

thereto the Hon'ble Court has refused to entertain the writ petition. In

my view, challenge to an assessment order ordinarily would require

detailed enquiry on facts. Such is not the case here. The above judgment

does not assist the respondents as well.

13. In so far as the judgment delivered in the case of Whirlpool

Corporation (supra) is concerned, the Hon'ble Supreme Court in

paragraph 15 of such judgment has been inter alia pleased to observe as

follows:

"15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. Bu the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed nfor the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case -law on this point but to cur down this circle or forensic whirlpool, we would rely on some old decision s of the evolutionary era of the Constitutional law as they still hold the field"

14. From the above it will be aptly clear that in case the jurisdictional

issue is raised the Court ordinarily does not refuse but accept the

challenge to the same. Before proceeding further I must note that the

Hon'ble Supreme Court in the recent judgment delivered in the case of

Godrej Sara Lee Ltd. (Supra) in paragraph 8 has observed as follows:

"8. That apart, we may also usefully refer to the decisions of this Court reported in (1977) 2 SCC 724 (State of U. P. v. Indian Hume Pipe Co. Ltd.)** and (2000) 10 SCC 482 (Union of India v. State of Haryana). What appears on a plaint reading of the former decision is that whether a certain item falls within an entry in a sales tax statute, raises a pure question of law and if investigation into facts is unnecessary, the High Court could entertain a writ petition in its discretion even though the alternative remedy was not availed of ; and, unless exercise of discretion is shown to be unreasonable or perverse, this Court would not interfere. In the latter decision, this court found the issue raised by the appellant to be pristinely legal requiring determination by the High Court without putting the appellant through the mill of statutory appeals in the hierarchy. What follows from the said decision si that where the controversy is a purely legal one and it does not *(2021) 93 GSTR 1 (SC) ** (1977) 39 STC 355 (SC).

involve dispute question of fact but only questions of law then it should be decided by the High Court instead of dismissing the writ petition on the ground of an alternative remedy being available."

15. From the nature of challenge presented by the petitioner in the

present writ petition it does not appear that there is any scope to embark

on any enquiry on any disputed question of fact or to consider any

evidence. The controversy at hand is a purely legal one. The question as

to whether the satisfaction of the Assessing Officer is necessary as

regards contravention of Section 269SS of the said Act, for initiating a

penalty proceeding noted above would not require any detailed enquiry

since there is no dispute at least on the basis of materials on record that

there is no satisfaction recorded in the assessment order with regard to

the violation of the provisions of section 269SS of the said Act. Thus, by

overruling the objection as to maintainability of the writ petition, I

proceed to decide on the primary question of law raised in the writ

petition.

16. I find that Mr. Mookherjee by placing reliance on the judgment

delivered by the Hon'ble Supreme Court in the case of Jai Laxmi Rice

Mills (supra) has submitted that without the satisfaction of the Assessing

Officer being recorded regarding the contravention of Section 269SS of

the said Act, no penalty proceeding can be initiated. In this context it

would be relevant to extract the observation made by the Hon'ble

Supreme Court in paragraphs 2 to 5 of the above judgment.

"2. The assessee carried out this order in appeal. The Commissioner of Income Tax (Appeals) allowed the appeal and set aside the assessment order with a direction to frame the assessment de novo after affording adequate opportunity ot the assessee.

3. After remand, the Assessing Officer passed fresh assessment order. In this assessment order, however, no satisfaction regarding initiation of penalty proceedings under Section 271E of trhe Act was recorded. It so happened that

on the basis of the ori9ginal assessment order dated 26.02.1996, show cause notice was given to the assessee and it resulted in passing the penalty order dated 23.09.1996. Thus, this penalty order was passed before the appeal of the assessee against the original assessment order was heard and allowed thereby setting aside the assessment order itself. It is in the backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of original assessment order and when that assessment order had been set aside, could still survive.

4. The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under section 271E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order.

5. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. These appeals are, accordingly, dismissed."

17. I find that the aforesaid issue has also been considered by the

Hon'ble High Court of Andhra Pradesh in the case of Grandhi Sri

Venkata Amarendra (supra) wherein the Hon'ble High Court of Andhra

Pradesh has in paragraphs 8 and 9 pleased to observe as follows:-

"8. We have gone through the material placed on record. The Assessing Officer, except to base his addition on the letter of the assessee dated 02-06-2014, did not record any finding that there has been any violation of the provisions of Sec.269SS of the Act by the assessee, nor was any satisfaction recorded to the effect that the alleged transaction of acceptance of loan would attract penal consequences. In the absence of any finding to the said effect, in our considered view, the penalty cannot be levied. A presumption can be drawn, in the absence of a finding by the Assessing Officer to the effect that the petitioner has violated the provisions of Sec.269SS of the Act, that the department has accepted the explanaction furnished by the petitioner denying allegation of loan in cash. Therefore, it can unhesistently be said that, having satisfied with the explanation of the assessee, the Assessing Officer did not record any satisfaction in the assessment order to the effect that the provisions of Section 269SS of the Act, are violated and did not contemplate levy of penalty under Sec.271D of the Act.

9. In our view, the satisfaction of the Assessing Officer is required to be recorded because the officer, who passed the assessment order would not be levying the penalty under Sec.271D of the Act, unless it is record in the assessment order, he cannot refer the file to superior officer i.e. Joint Commissioner, for initiating levy of penalty. Unless the Assessing Officer, who is the primary authority, based on the material before it, during assessment proceedings, arrives at a finding that there has been a violation of the provisions, like in the present case, of Section 269SS, there will not be any occasion to the Joint Commissioner, who is not the

Assessing Officer, to exercise his jurisdiction to levy Penalty under Section 271D. Following the decision of the Hon'ble Supreme Court in the case of Jai Laxmi Rice Mills referred supra, we set aside the order passed under Sec.271D of the Act."

18. Having regard thereto, and in absence of the assessment order

recording the satisfaction of contravention of provisions of Section 269SS

of the said Act, consequential penalty proceeding is a nonstarter and

could not have been proceeded with. However, since the respondents

insist on filing opposition, to bring on record additional materials, the

respondents shall be at liberty to use affidavit-in-opposition to the

aforesaid writ petition so as to disclose any additional material regarding

satisfaction of the assessing officer within a period of two weeks after the

summer vacation. Reply thereto, if any, be filed on or before the matter is

taken up next. Pending hearing of this petition, there shall be stay of the

order impugned in the above writ petition till the end of August, 2025 or

until further order whichever is earlier. List this writ petition in the