Micro Marbles Private Limited vs Income Tax Officer Ward-1
2023 Latest Caselaw 68 Raj

(1 of 14) [CW-13719/2021]

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. Civil Writ Petition No. 13719/2021

Micro Marbles Private Limited, having its registered office at E-5, RIICO Ind. Area, Chittorgarh 312001 Rajasthan Through Its Authorised Representative Mr. Keerti Dhiliwal S/o Sh. Roshan Lal Dhiliwal Aged About 53 Years R/o "Dhiliwal House", Chandanpura, Chittorgarh-312001.

----Petitioner Versus Office of the Income Tax Officer Ward-1, Chittorgarh, Rajasthan.

----Respondent

For Petitioner(s) : Mr. Sanjay Jhanwar, Senior Advocate assisted by Mr. Prakul Khurana through VC Mr. Abhinav Mathur, Mr. Pushkar Taimni Mr. Pranav Bhardwaj For Respondent(s) : Mr. Kamal Kishore Bissa, Mr. G.S. Chouhan

HON'BLE THE CHIEF JUSTICE MR. PANKAJ MITHAL (THROUGH VC JAIPUR) HON'BLE MS. JUSTICE REKHA BORANA

Order

Reserved on :: 14/11/2022 Pronounced on :: 04/01/2023

By the Court (Per Hon'ble the Chief Justice):

1. Petitioner is a private limited company engaged in

manufacturing of marble slabs and tiles. It filed its income tax

return for the assessment year 2017-2018 and the same was

processed under Section 143(1) of the Income Tax Act, 1961

(hereinafter referred to as 'the Act') and an intimation regarding

acceptance of 'nil' tax liability was issued to it on 22.06.2018 by

the Centralized Processing Centre of the Income Tax Department.

(2 of 14) [CW-13719/2021]

2. The petitioner received a notice dated 30.03.2021 under

Section 148 of the Act for reopening of its assessment for the year

2017-2018 on the ground that there are reasons to believe that its

income for the relevant year has escaped assessment.

3. On petitioner's request, it was supplied with the reasons for

issuing the said notice vide letter dated 24.05.2021. The said

reasons stated that the petitioner had received bogus

loan/sale/purchase amount of Rs.93,21,520/- (Rs.89,97,520+

Rs.3,24,000) from M/s. Sanmati Gems Private Limited as per the

information received from the Deputy Director of Income Tax,

Investigation, Unit-4(4), Mumbai.

4. The petitioner on receipt of the above reasons for reopening

its case under Section 148 of the Act filed objections on

09.06.2021 stating that the revenue is proposing to reopen its

case not for reason to believe but for reason to suspect. The

petitioner also contended that it has not been provided with the

necessary documents such as the account books of M/s. Sanmatri

Gems Private Limited showing the alleged bogus entries in its

name or the statement of Deepak Jain purported to have been

recorded under Section 132(4) of the Act. The said objections

were disposed of vide order dated 18.08.2021 holding that the

same have no force.

5. It is in the above backdrop that the petitioner invoked the

writ jurisdiction of this Court for the purposes of quashing of the

notice dated 30.03.2021 issued under Section 148 of the Act and

the order dated 18.08.2021 by which its objections against the

said notice were disposed of.

6. The writ petition was entertained by the High Court and vide

order dated 30.03.2022, it was provided that if in respect of the

(3 of 14) [CW-13719/2021]

assessment year 2017-2018 any reassessment order is or has

been passed, the same shall remain subject to outcome of the writ

petition.

7. The petitioner was furnished with the re-assessment order

dated 29.03.2022 pursuant to the notice under Section 148 of the

Act. Accordingly, the petitioner questioned the said assessment

order by seeking necessary amendment in the writ petition which

was duly allowed. Thus, in the writ petition the challenge is not

only to the notice under Section 148 of the Act or the order

disposing of the objections of the petitioner, but also to the re-

assessment order dated 29.03.2022.

8. Shri Kamal Kishore Bissa, learned counsel for the revenue

has raised a preliminary objection that against the re-assessment

order the petitioner has a statutory remedy of appeal under the

Act. Therefore, the writ petition is not maintainable and that the

challenge to the notice under Section 148 of the Act is now

meaningless in view of the re-assessment order. He has relied

upon the decision rendered in Commissioner of Income Tax &

Ors. vs. Chhabil Dass Agarwal [(2014) 1 SCC 603] wherein it

has been held that the Act provides for a complete machinery for

assessment/re-assessment of tax and for the scrutiny thereof by

means of appeal. Therefore the assessee is not supposed to

surpass the mechanism provided thereunder and to invoke the

extra-ordinary jurisdiction of the High Court, if no exceptional

ground exists for invoking such a power.

9. It is true that where a statutory remedy is provided under

the Act itself more particularly in matters of tax, the assessee is

not supposed to jump the said remedy and invoke the writ

jurisdiction of the Court. In the case at hand, no doubt the

(4 of 14) [CW-13719/2021]

petitioner has assailed the re-assessment order also by getting the

writ petition amended but the thrust of its challenge is to the very

basis of the said re-assessment order i.e. the notice issued under

Section 148 of the Act and the order disposing of its objections

thereto. In the event the challenge to the said notice or the order

is accepted and either of them are quashed, the assessment order

passed on their basis would automatically fall to the ground.

Therefore, for the time being presuming that there is no challenge

to the re-assessment which is subsequent in nature, if we focus on

the validity of the notice under Section 148 of the Act and the

order dated 18.08.2021, by which the objections of the petitioner

were disposed of, we find that there is no remedy under the Act

for challenging the above notice and the order. Therefore, a writ

petition against them is certainly maintainable subject to the

scope of the judicial review.

10. Additionally, the petitioner had brought the re-assessment

order to the notice of the writ court by seeking amendment so as

to challenge it. The Court not only permitted the amendment but

vide order dated 30.03.2022 also directed that the re-assessment

shall be subject to the decision of the writ petition. Therefore, the

Court was conscious of the fact that if the challenge to the notice

under Section 148 of the Act and to the order disposing of the

objections is accepted, the assessment would obviously pale into

insignificance.

11. Shri Sanjay Jhanwar, learned Senior Counsel for the

petitioner in this connection referred to the decision of the Division

Bench of the Allahabad High Court dated 08.09.2022 passed in a

bunch of writ petitions, in which Writ Tax No.554 of 2022-

Vikas Gupta vs. Union of India & Ors. was a leading case. In

(5 of 14) [CW-13719/2021]

the said case also, there was a challenge to the notice under

Section 148 of the Act. Subsequently, an order of re-assessment

came to be passed. The High Court in quashing the impugned

notice under Section 148 of the Act further directed that the re-

assessment order, if any, passed by the assessing officer and all

consequential proceedings thereof would also stand quashed;

meaning thereby that where the notice under Section 148 of the

Act is found to be invalid, the re-assessment proceedings would

not be sustainable in law.

12. A five Judge Constitution Bench of the Supreme Court in

Calcutta Discount Company Limited Vs. Income Tax Officer,

Companies District, I & Ors., AIR 1961 SC 372, while dealing

with a similar situation where proceedings had started on the

basis of the impugned notices and subsequently assessment

orders came to be passed with the understanding that those

orders would be without prejudice to the rights of the petitioner in

the writ petition, held that the passing of the assessment orders

does not affect the right of the petitioners to obtain the relief

under Article 226 and thus directed for quashing of the

assessment orders also when the impugned notices were found to

be bad in law. The relevant paragraph of the aforesaid decision in

this regard is reproduced herein below:-

"31. We are informed that assessment orders were in fact made on March 25, 1952, by the Income-tax Officer in the proceedings started on the basis of these impugned notices. This was done with the permission of the learned Judge before whom the petition under article 226 was pending, on the distinct understanding that these orders would be without prejudice to the contentions of the parties on the several questions raised in the petition and without prejudice to the orders that may ultimately be passed by the Court. The fact that the assessment orders have already been made does not therefore

(6 of 14) [CW-13719/2021]

affect the company's right to obtain relief under article 226. In view however of the fact that the assessment orders have already been made we think it proper that in addition to an order directing the Income-tax Officer not to take any action on the basis of the impugned notices a further order quashing the assessment made be also issued."

13. In view of the above decision, the case law pointed out by

Shri Bissa including the recent decision of the Supreme Court in

State of Madhya Pradesh & Anr. Vs. Commercial Engineers

and Body Building Company Limited, 2022 0 Supreme (SC)

1053 in context with the maintainability of the writ petition as

against the assessment order, are of no consequence. In all the

above decisions, it has been held that when the taxing statutes

provide for a complete mechanism, the said mechanism has to be

followed and if there is a provision for appeal, it cannot be

bypassed to invoke the writ jurisdiction against the order of

assessment. The aforesaid decisions are confined to assessment

orders only and where there is no challenge to any notice or any

order deciding the objections thereto forming the basis for the

assessment orders. The assessment orders may not be assailable

in writ jurisdiction, but there is no dictum of law which provides

that even the notice or order passed in pursuance thereto, against

which there is no remedy, would also be barred from being

assailed in the writ jurisdiction.

14. In the light of the above discussion, we are of the firm

opinion that the writ petition as filed by the petitioner cannot be

thrown out on the ground that the petitioner has a statutory

remedy against the re-assessment order ignoring the fact that

against the notice issued under Section 148 of the Act and the

(7 of 14) [CW-13719/2021]

order deciding objections to it, there is no remedy available to it

other than the writ jurisdiction.

15. Leaving aside the re-assessment order, as there is no

remedy available to the petitioner against the notice under Section

148 of the Act or the order disposing of the objections thereto, the

writ petition to the extent of challenging the same is maintainable.

The successful challenge to the said notice and the order being

germane to the re-assessment order would automatically result in

nullifying the same. Accordingly, the preliminary objection as

raised by the Revenue is not tenable and stand rejected.

16. On merits, the submission of Shri Sanjay Jhanwar, learned

Senior Counsel for the petitioner is that 'reason to believe' that

income has escaped assessment is a mandatory condition for

reopening the assessment by notice under Section 148 of the Act,

but the reason to believe must not be confused with the reason to

suspect. The respondents have tried to reopen the assessment

proceedings on the ground of mere suspicion, that too without

supplying to the petitioner proper and necessary material which

formed the basis for issuing the notice. The petitioner was not

supplied with the copy of the statement of Deepak Jain recorded

under Section 132(4) of the Act. In fact, a search and seizure was

carried out in the business premises of one Deepak Jain. It was

during the investigation of his case that his statement under

Section 132(4) of the Act was recorded. The petitioner was

identified as one of the beneficiaries of the bogus entries,

therefore, his statement becomes material and so is his books of

accounts to enable the petitioner to respond to the notice in an

effective manner. The petitioner being a third party was not liable

to be proceeded on the basis of such investigation under Section

(8 of 14) [CW-13719/2021]

148 of the Act, rather the respondents ought to have, if necessary,

initiated proceedings under Section 153C which provides for a

complete mechanism to check evasion of tax by a party alien to

search and seizure.

17. Shri Kamal Kishore Bissa, learned counsel for the Revenue in

defence simply reiterated the submissions made by him while

raising the preliminary objections that the assessment order is not

open to challenge before the writ court and that the information

furnished by the Deputy Director of Income Tax, Investigation,

Unit-4(4), Mumbai is sufficient to reopen the assessment. The

Court in exercise of its extraordinary jurisdiction cannot go into

sufficiency of the material relied upon for reopening the case, as

has been held by the Supreme Court in Raymond Woollen Mills

Limited vs. Income Tax Officer, Centre Circle XI, Range

Bombay & Others [(2008) 14 SCC 218].

18. The notice dated 30.03.2021 served upon the petitioner

under Section 148 of the Act simply states that the officer

concerned has reason to believe that its income chargeable to tax

for the Assessment Year 2017-18 has escaped assessment within

the meaning of Section 147 of the Act and, therefore, he is called

upon to file response to the notice within 30 days. The said notice

in no specific terms states about any material, on the basis of

which the officer may have formed the opinion that he has

reasons to believe that income chargeable to tax has escaped

assessment.

19. The reasons to believe dated 24.05.2021, as supplied to the

petitioner, categorically state that on the information available on

the Insight Portal of the Department of Information and the

information received from the Deputy Director of Income Tax,

(9 of 14) [CW-13719/2021]

Investigation, it is gathered that a search and seizure operation

was carried out in connection with one Deepak Jain and during

investigation it was revealed that petitioner is one of the

beneficiaries to whom entries were provided on commission basis.

The said information received was verified with the material

available on record. The report of the Investigation Wing and the

statement of Deepak Jain recorded under Section 132 (4) of the

Act had been examined and it is on such examination that the

officer has reason to believe that income of the petitioner

chargeable to tax has escaped assessment.

20. In the light of the reasons to believe so conveyed to the

petitioner, it is implicit that the action for reopening of the

petitioner's assessment has been taken, namely:-

(i) On the information available on the Insight Portal of the

Department of Information;

(ii) Information received from the Deputy Director of Income Tax,

Investigation, Mumbai;

(iii) Investigation material covering Deepak Jain, who is said to

have revealed that he was an entry provider and had provided

entry of bogus loan/purchase/sale amounting to Rs.93,21,520/- to

the petitioner from M/s Sanmatri Gems Pvt. Ltd.; and

(iv) The statement of Deepak Jain recorded under Section 132 (4)

of the Act.

21. The aforesaid material, which formed the basis for forming

opinion that the officer has reason to believe that the income

chargeable to tax has escaped assessment in the hands of the

petitioner for the relevant year, do not appear to have been

supplied to the petitioner to enable it to file a proper and effective

reply/objections to the reasons to believe.

(10 of 14) [CW-13719/2021]

22. Accepting that as per the decision of the Supreme Court in

GKN Driveshafts (India) Ltd. Vs. Income-tax Officer, (2002)

125 Taxman 963 (SC), dated 25.11.2002, the Assessing

Officer is bound to furnish reasons within a reasonable time and

on receipt of the same, the noticee is entitled to file objections to

the issuance of such notice and the Assessing Officer is bound to

consider and dispose of the objections, so filed, by a speaking

order, we are of the opinion that supply of the material which

forms the basis for forming such opinion becomes sine qua non to

enable the noticee to effectively participate in the proceedings by

filing objections.

23. We are also conscious of the decision rendered in Raymond

Woollen Mills Limited (supra), which provides that the

sufficiency and correctness of the material cannot be considered

at the stage of dealing with the validity of the notice, or the order

passed on the objections thereon. Notwithstanding the above, the

crucial aspect is whether the relevant material, on the basis of

which an opinion is formed that the income chargeable to tax has

escaped assessment, needs to be supplied to the noticee along

with the reasons to believe or what would be the result if it is not

made available.

24. A Division Bench of the High Court of Delhi in SABH

Infrastructure Ltd. Vs. Assistant Commissioner of Income

Tax, (2017) 398 ITR 198 (Delhi), observed that large number

of writ petitions are coming up before the Court challenging the

reopening of assessment by the Revenue under Section 147/148

of the Act and despite numerous judgments on the point the same

errors are being repeated while issuing such notices. It, therefore,

laid down the guidelines inter-alia that where "reasons to believe"

(11 of 14) [CW-13719/2021]

make a reference to another document, whether as a letter or

report, such document and/or relevant portion of such report

should be enclosed along with the reasons and that the exercise of

considering the objections to the reopening of the assessment is

not a mechanical ritual but a quasi-judicial function.

25. In view of the above decisions and one of the guidelines laid

down therein, the supply of documents referred to in the reasons

to believe becomes inevitable and in the event such documents

are not supplied, it would be flagrant violation of the principles of

natural justice.

26. A Division Bench of the Bombay High Court in Tata Capital

Financial Services Limited Vs. Assistant Commissioner of

Income Tax Circle & Ors., while deciding Writ Petition

No.546/2022 vide judgment and order dated 15.02.2022,

reiterated the above proposition of law, as laid down by the Delhi

High Court. It directed the Revenue to adhere to certain guidelines

in reopening the assessment proceedings. It emphasized that the

Assessing Officer shall not merely state the reasons to believe in

the letter addressed to the assessee, but if the reasons make

reference to any other document or a letter or a report, such

document or letter or report should be enclosed to the reasons.

Therefore, in view of the aforesaid decision also, it appears to be

mandatory on the part of the Assessing Officer to supply the

petitioner with all relevant documents, referred to in the reasons

to believe so that the petitioner may file proper objections

opposing reopening of the assessment.

27. In the case at hand, as previously mentioned, reason to

believe supplied to the petitioner refers to information received

from the Deputy Director of Income Tax, Investigation as also to

(12 of 14) [CW-13719/2021]

the statement of Deepak Jain recorded under Section 132 (4) of

the Act during the course of the investigation pursuant to the

search and seizure carried out at his premises as also the entries

in the form of bogus loan/purchase/sale of Rs.93,21,520/-

appearing in the books of M/s Sanmatri Gems Pvt. Ltd. for the

Assessment Year 2017-18. Neither of the above documents have

allegedly been supplied to the petitioner. The petitioner in the

grounds to the petition has taken a categorical stand that the

respondents failed to furnish the information which formed the

basis for reopening the assessment. It was not even provided with

the statement of Deepak Jain, on which heavy reliance was being

placed. There is no averment in the reply of the respondents

anywhere that any such information or a copy of the statement

was supplied to the petitioner along with the reasons to believe.

28. In view of the above, the reasons to believe, as supplied to

the petitioner, on the face of it are incomplete and do not afford

the petitioner due and proper opportunity to file objections against

such reassessment. The non-supply of the above material is within

the teeth of the directions of the Division Bench of the Delhi and

Bombay High Courts.

29. The submission of Shri Bissa that reasons to believe cannot

be equated with the final conclusion and as long as the Assessing

Officer has sufficient material to demonstrate that he had

bonafidely formed the opinion that the income chargeable to tax

has escaped assessment, the requirement of law stands satisfied

is of no avail as there are no two opinions on the above aspect.

Sufficiency of material is one thing and supply of the same is

another, which is mandatory in nature. Therefore, the non-supply

of the material referred to in the reasons to believe would be

(13 of 14) [CW-13719/2021]

enough to render the proceedings bad, even though the material

for forming the opinion may be sufficient.

30. The argument of Shri Bissa is that information furnished by

the Deputy Director of Income Tax, Investigation, by itself is

sufficient for reopening the proceedings, more particularly when

the said information was confirmed from other sources. Again the

sufficiency of the information is not in question, nor its

confirmation. What is questionable is the effect of its non-supply,

to which there is no answer.

31. Thus, in the light of the decisions of the Delhi and the

Bombay High Courts, as referred to above, the non-supply of the

material, especially the documents of entry in the books of M/s

Sanmatri Gems Pvt. Ltd. and the statement of Deepak Jain

recorded under Section 132 (4) of the Act, is sufficient to vitiate

the proceedings.

32. It may be noted that the statement recorded under Section

132 (4) of the Act can be used in evidence for making the

assessment only if such statement is made in context with other

evidence, or material discovered during search. A statement of a

person, which is not relatable to any incriminating document or

material found during search and seizure operation cannot, by

itself, trigger the assessment.

33. In view of the aforesaid facts and circumstances, we are of

the opinion that shorn of all other technical aspects which may

have been raised before us, the very fact that the material

referred to in the "reasons to believe" was not supplied to the

petitioner, the entire proceedings for the reopening of the

assessment and leading to the consequential assessment stand

vitiated in law.

(14 of 14) [CW-13719/2021]

34. Accordingly, the impugned notice dated 30.03.2021 and the

order dated 18.08.2021 dismissing the objections of the petitioner

are hereby quashed and all consequential proceedings including

the assessment order dated 29.03.2022 are declared to be illegal,

null and void with liberty to the respondents to take up a fresh

exercise for reassessment, if necessary, in accordance with law.

35. In view of the above, the writ petition is allowed. Pending

application, if any, stands disposed of.

                                   (REKHA BORANA),J                                      (PANKAJ MITHAL),CJ


                                    Mohit Tak/-









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