Mandakini Travels And Tours vs The Union Of India & Others
2024 Latest Caselaw 1328 UK

Uttarakhand High Court

Mandakini Travels And Tours vs The Union Of India & Others on 8 July, 2024

Author: Manoj Kumar Tiwari

Bench: Manoj Kumar Tiwari

 IN THE HIGH COURT OF UTTARAKHAND
                        AT NAINITAL
 HON'BLE SHRI JUSTICE MANOJ KUMAR TIWARI


        WRIT PETITION (M/S) No. 1721 of 2024


Mandakini Travels And Tours
Private Limited.                                   ...Petitioner

                               Versus
The Union of India & others.                      ...Respondent

Present:-
  Mr. Pulak Raj Mullick, learned counsel for the petitioner.
  Mr. Manoj Kumar, learned Central Government Standing Counsel for
  the Union of India/respondent no. 1.
  Mr. Hari Mohan Bhatia, learned counsel for respondent nos. 2 & 3.

                                             Dated: 08.07.2024
                           JUDGMENT

(1) By means of this writ petition, petitioner has sought the following relief:-

(i) Issue a writ, order or direction, in the nature of certiorari quashing all the assessment proceedings for the Assessment Year 2017-18 in respect of the notices u/s 148A(b) dated 21.03.224, notice u/s 148A(b) dated 29.03.2024 and notice u/s 148A(b) dated 03.04.2024 (Annexure Nos. 4, 5 & 7); Order u/s 148A(d), notice u/s 148 (issued by respondent no. 3), along with approval u/s 148 (accorded by respondent no. 2) (Annexure No. 8 (colly)); and to hold that the same are unconstitutional, without jurisdiction, void ab-initio, without proper opportunity of hearings and therefore against the principles of natural justice and fair play;

(ii) issue a writ, order or direction in the nature of mandamus directing the respondent nos. 2 & 3 to order de-nova assessment proceedings for the Assessment Year 2017-18, by following the procedures enshrined u/s 148A(a), 148A(b), 148A(c) & 148A(d) in letter and spirit; and allow reasonable opportunities of hearing, adhering to the principles of natural justice and fair play.

(2) In this writ petition, petitioner has challenged three notices issued under Section 148A(b) of Income Tax, in respect of Assessment Year 2017-2018. He has

also challenged the order under Section 148A(d) passed by Assistant Commissioner, Income Tax (respondent No. 3) and also the approval granted by Principal Chief Commissioner of Income Tax, Kanpur, (respondent No. 2) under Section 151.

(3) Petitioner is a private limited company, which owns a Hotel at Rishikesh, District Dehradun known as Hotel Ganga View. According to petitioner, the said Hotel is being managed and operated by another Private Limited Company, namely, ELLBEE Hospitality Worldwide Private Limited (for short 'EHWPL'), as per an operation and management agreement executed between him and EHWPL in 2013, which was extended on 17.02.2017. Petitioner contends that as per the agreement, EHWPL had to bear the expenses for operating the Hotel, including payment of statutory duties and taxes, day-to-day running of business, payment of bank loans, raising of loans for incurring the day-to-day direct and indirect expenditures, including Operations, Management, Business Development and marketing activities of the Hotel. However, Financial Costs, Property Tax, Insurance Premium etc. (i.e., all direct expenditures attributable to the assets of the petitioner) are mutatis mutandis to be borne by the petitioner, excluding the cost of depreciations, and EHWPL was entitled to 10% share in the operating profit and 90% of the operating profit was to be transferred to the petitioner.

(4) Learned counsel for the petitioner contends that procedure prescribed in clause (a) and clause (b) of Section 148A has not been followed by the Assessing Officer while issuing notice, as such, the proceeding

initiated against the petitioner is vitiated and the order passed under clause (d) of Section 148A thus is liable to be set aside. He contends that no enquiry was conducted regarding the information received and approval of the specified authority was also not obtained for conducting enquiry, as required by clause

(a), therefore, the order passed under clause (d) is unsustainable. He further submits that only 7 days time was given to petitioner to submit reply to the notice dated 21.03.2024; while, clause (b) contemplates 30 days notice. He further submits that personal hearing was also not given to petitioner by the Assessing Officer, therefore, the provision contained in clause (b) has been violated.

(5) The aforesaid submissions are bereft of merit. Clause (a) of Section 148A is an enabling provision, which empowers the Assessing Officer to conduct enquiry, if needed. In cases where conducting enquiry is found desirable, approval of specified authority would be necessary. Holding of enquiry thus is not mandatory, but discretionary. As such, the provision contained in clause (a) cannot be said to be violated, merely on account of non-holding of enquiry. From perusal of documents enclosed with the writ petition, it is revealed that petitioner was given notice under Section 148A(b) on 21.03.2024 and, thereafter, on his request, time for submitting reply was extended by another day vide notice dated 29.03.2024 and, thereafter, one more notice under clause (b) of Section 148A was issued to him, on 03.04.2024, asking the petitioner to submit all documents, on which he relies, on or before 13.04.2024. Thus, petitioner's complaint that time given to him was not sufficient, cannot be

accepted. Clause (b) provides that minimum 7 days time has to be given to an assessee to reply to a show cause notice, which may extend to 30 days. Thus, the contention that the notice is bad because 30 days time was not given to petitioner, is without any substance.

(6) The first notice under Section 148A(b) of Income Tax Act, 1961 was issued to petitioner on 21.03.2024 calling upon him to submit his reply on or before 28.03.2024, electronically. Alongwith the said notice, not only the information received by Income Tax Department was supplied, but copy of the investigation report was also supplied to the petitioner. In Annexure to the said notice, it is mentioned that petitioner had claimed deduction of the expenses of Rs.2,27,03,505/- against the earning received from EHWPL and no expenses were incurred by the petitioner, so the same is not allowable under Section 37 of the Act.

(7) Petitioner sought adjournment by making an application and, on his request, another notice was issued to him on 29.03.2024, asking him to submit reply on or before 30.03.2024 electronically. Petitioner submitted reply on 30.03.2024. Thereafter, on 03.04.2024, another notice under Section 148A(b) of Income Tax Act was issued to the petitioner, asking him to submit his reply alongwith supporting documents, if any, on or before 13.04.2024. In the annexure to the said notice, it was stated that petitioner and EHWPL are running two Hotels, one at Rishikesh and another at Mussoorie; actual owner of both the Hotels are from a single family and, in the detailed enquiry, investigation wing found that EHWPL

had claimed all the business running expenses in its profit and loss account and, from the net profit, transferred the share of profit as per the agreement to the petitioner, during financial year 2016-17; it was found that petitioner and EHWPL have claimed certain business expenses, which are not allowable expenses under Section 37 of Income Tax Act. Petitioner was called upon to submit complete reply electronically with supporting evidence. In response to the said notice, petitioner submitted reply on 13.04.2024. Respondent no.3, thereafter, passed an order under Section 148A(d) of the Income Tax Act, on 19.04.2024, holding that it is a fit case to issue notice under Section 148 of Income Tax Act, in respect of Assessment Year 2017- 2018. A notice under Section 148 was also issued to petitioner by respondent no.3 on 19.04.2024, asking him to furnish a return in the prescribed form for the Assessment Year 2017-2018, within 90 days.

(8) Even otherwise also, the first notice was issued to petitioner on 21.03.2024 and, by the last notice dated 03.04.2024, petitioner was allowed time to file reply till 13.04.2024, therefore, petitioner had more than three weeks to submit complete reply. Learned counsel for the petitioner also contended that personal hearing was not given to petitioner by the Assessing Officer before issuing notice, however, from perusal of record, it is revealed that petitioner had not demanded personal hearing. Learned counsel for the petitioner also contended that the information was not shared with the petitioner by the Assessing Officer, while issuing notice under clause (b) of Section 148A. Perusal of the notice dated 21.03.2024, however, reveals that not only the information, but the

investigation report was also shared with him. The information disclosed in Annexure to the notice dated 21.03.2024 is extracted below:-

ANNEXURE Information has been received in terms of clause (i) to the Explanation 1 to the Section 148 of the Income Tax Act, 1961 (the Act) in your case for the Financial Year 2016-17 relevant to the Assessment Year 2017-18 that, M/s Mandakini Travels & Tours Pvt. Ltd. Had claimed deduction of the expenses of Rs. 2,27,03,505/ against the earning received from Ellbee Hospitality Worldwide Private Limited (PAN-AAACW5645C). As the expenses were already booked by the EHWPL and no expenses were incurred by the assessee MTTPL. So the same is not allowable u/s 37 of the Act. The information was uploaded by the JDIT (OSD) (Inv.) Unit 3(1), Delhi which is reproduced here as under:

(9) The subsequent notice issued to petitioner on 03.04.2024 gives details of expenses claimed by petitioner and the expenses claimed by EHWPL during Financial Year 2016-17 and it was alleged that petitioner and EHWPL are running different hotels at Rishikesh and Mussoorie, respectively, however, actual owner of both the hotels are from a single family.

Thus, the submission that information was not shared by the Assessing Officer to the petitioner does not appear to be correct.

(10) Learned counsel for the petitioner contended that the expression 'suggests' used in Section 148 of Income Tax Act, 1961, after amendment by Finance Act, 2021, is pari materia to the expression 'reason to believe' earlier used in the Act. Thus, he submits that there has to be definite information with the Assessing Officer that income chargeable to tax has escaped assessment and, in the absence of definite information, re-assessment cannot be initiated on the ipse dixit of the Assessing Officer. This Court is not impressed by the said submission. Use of the word 'suggests' in first proviso to Section 148, signifies the legislative intent that no conclusion at that stage is required to be

arrived at by the Assessing Officer, but there has to be some material for forming a prima facie opinion that income chargeable to taxes has escaped assessment.

(11) A Division Bench of Hon'ble Allahabad High Court in Writ Tax No. 799 of 2024, ' Rahul Sachan v. Income Tax Officer', 2024 SCC OnLine ALL 2926 has held as under:-

"11. What is now required by way of a pre-condition to initiate reassessment proceedings is : the information / objective material that 'suggests' escapement of income; the conduct of an 'enquiry', if required, with respect to that; issue of a show cause notice to grant the assessee an opportunity to respond to the information/objective material that income chargeable to tax had escaped assessment in his case; a 'decision' of the assessing officer (on the basis of that material and the reply furnished by the assessee), that the material that may have come to the hands of the assessing authority 'suggests', it is a 'fit case' to initiate reassessment proceedings under Section 148 of the Act.

12. Thus, the legislature has carefully departed from the strict test of recording of 'reason to believe' and substituted the same with a lighter and more subjective 'decision' of the assessing officer that it is a 'fit case' to reassess the assessee, based on the 'suggestion' (emerging from perusal of the 'information' i.e. objective/relevant material), that income had escaped assessment at the hands of the assessee.

13. True, in reaching such 'decision', the assessing authority is obligated to consider only that material that may be relevant (and not extraneous) and the reply that may have been furnished by the assessee, at the same time, it is not the statutory law that he must record specific/objective reasons to deal with each and every objection, that may be raised. The statute only requires an overall or broad consideration of the reply furnished by the assessee, to reach a 'decision' that it is 'fit case' to initiate reassessment proceedings. To read-recording of exact reasons (to reject any objection), into the language of Section 148A of the Act would be to indirectly reintroduce the requirement to record "reasons to believe", as a precondition to initiate reassessment proceedings. That requirement of law has been specifically and completely, done away.

14. Thus, read in conjunction, Section 148A(b), (c) and

(d) would require that assessing authority may not act whimsically or capriciously or on extraneous material or in ignorance of the reply that may have been furnished by the assessee (to the show cause notice issued under

Section 148A(b) of the Act), at the same time, that provision does not obligate the assessing authority to specifically deal with the individual objections, pointwise, or to record detailed reasons while making the 'decision' that it is a 'fit case' to initiate reassessment proceedings, in the case of an assessee.

15. Therefore, the new statutory test laid down under Section 148A requires-in essence, the concern voiced by the assessee [in his reply to notice under Section 148A(b)], either as to absence of 'information'/relevant material or as to lack of bonafide/prudent 'suggestion' arising therefrom, has to be addressed, upon requisite application of mind, seen to exist on a plain reading of the 'decision' [contained in the order passed under Section 148A(d) of the Act, that it is a 'fit case' to initiate reassessment proceedings, for reason of 'suggestion' arising therefrom, that income had escaped assessment.

Thereafter, as before, all merit issues/defences may remain open to consideration in the reassessment proceedings. The 'decision' that it is a 'fit case', to initiate reassessment proceedings is-as the language plainly suggests a reflection of desirability perception/evaluation of the assessing authority-to initiate reassessment proceeding. To that extent it is a provision to arm the revenue authority, to expose an assessee to a proceeding to reassess him.

16. So long as that exercise is bona fide and not mindless, perverse or patently contrary to the law etc., and so long as that 'decision' made by the assessing authority-to initiate such reassessment proceedings is not unconnected/disjuncted or contrary to the 'suggestion' directly arising from the 'information'/relevant material received by him-that income has escaped assessment, no minute/detailed examination of that 'decision' is required to be made."

(12) Learned counsel for petitioner then submitted that the order under Section 148(A) (d) of the Act was passed by respondent no. 3, without obtaining prior approval of the specified authority, i.e. Principal Chief Commissioner of Income Tax, and ex post facto approval was obtained after passing the order under clause (d) of Section 148(A). However, from perusal of record, it is revealed that Principal Chief Commissioner of Income Tax had granted approval on 19.04.2024 and the order under clause (d) of Section 148(A) was passed by respondent no. 3, the same day. Thus, the Statutory requirement of prior approval is also met,

and the order passed by respondent no. 3 cannot be faulted on this count.

(13) Learned counsel appearing for revenue contended that the writ petition is premature, which is filed against a notice under Section 148 of the Income Tax Act, and instead of giving reply to the notice, petitioner has approached this Court bypassing the forums available under the Statute. He contended that Income Tax Act is a complete code in itself, which provides remedies and also hierarchy of forums for redressal of grievances of assessee, therefore the writ petition deserves to be dismissed on the ground of alternate remedy. He relied on a judgment rendered by Hon'ble Supreme Court in CIT v. Chhabil Dass Agarwal, (2014) 1 SCC 603. Para nos. 14, 16, 17 & 18 of the said judgment are reproduced below:-

"14. In Union of India v. Guwahati Carbon Ltd. [(2012) 11 SCC 651] this Court has reiterated the aforesaid principle and observed: (SCC p. 653, para 8) "8. Before we discuss the correctness of the impugned order, we intend to remind ourselves the observations made by this Court in Munshi Ram v. Municipal Committee, Chheharta . In the said decision, this Court was pleased to observe that: (SCC p. 88, para 23) '23. ... [when] a revenue statute provides for a person aggrieved by an assessment thereunder, a particular remedy to be sought in a particular forum, in a particular way, it must be sought in that forum and in that manner, and all the other forums and modes of seeking [remedy] are excluded.'"

16. In the instant case, the Act provides complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities, and the assessee could not be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Commissioner of Income Tax (Appeals). The remedy under the statute, however, must be effective and not a mere formality with no substantial relief. In Ram and Shyam

Co. v. State of Haryana [(1985) 3 SCC 267] this Court has noticed that if an appeal is from "Caesar to Caesar's wife" the existence of alternative remedy would be a mirage and an exercise in futility.

17. In the instant case, neither has the writ petitioner assessee described the available alternate remedy under the Act as ineffectual and non- efficacious while invoking the writ jurisdiction of the High Court nor has the High Court ascribed cogent and satisfactory reasons to have exercised its jurisdiction in the facts of the instant case. In light of the same, we are of the considered opinion that the writ court ought not to have entertained the writ petition filed by the assessee, wherein he has only questioned the correctness or otherwise of the notices issued under Section 148 of the Act, the reassessment orders passed and the consequential demand notices issued thereon.

18. In view of the above, we allow this appeal and set aside the judgment and order passed by the High Court in Chhabil Dass Agarwal v. Union of India [Chhabil Dass Agarwal v. Union of India, WP (C) No. 44 of 2009, decided on 5-10-2010 (Sikk)] . We grant liberty to the respondent, if he so desires, to file an appropriate petition/appeal against the orders of reassessment passed under Section 148 of the Act within four weeks' time from today. If the petition is filed before the appellate authority within the time granted by this Court, the appellate authority shall consider the petition only on merits without any reference to the period of limitation. However, it is clarified that the appellate authority shall not be influenced by any observation made by the High Court while disposing of Writ Petition (Civil) No. 44 of 2009, in its judgment and order dated 5- 10-2010 [Chhabil Dass Agarwal v. Union of India, WP (C) No. 44 of 2009, decided on 5-10-2010 (Sikk)] ."

(14) Learned counsel for the revenue also relied upon a judgment dated 02.09.2022 rendered by Hon'ble Supreme Court in Anshul Jain v. Pr. CIT, (2022) 449 ITR 256. Relevant extract of the said judgment is reproduced below:-

"1. What is challenged before the High Court* was the reopening notice under section 148A(d) of the Income-tax Act, 1961. The notices have been issued, after considering the objections raised by the petitioner. If the petitioner has any grievance on merits thereafter, the same has to be agitated before the Assessing Officer in the reassessment proceedings.

2. Under the circumstances, the High Court has rightly dismissed the writ petition."

(15) Be that as it may, since this Court does not find any illegality or infirmity in the notice issued to the petitioner under Section 148(A)(b) and the order passed under Section 148(A)(d) of the Income Tax Act, therefore, any interference in the matter would be unwarranted.

(16) Accordingly, the writ petition fails and is dismissed. No order as to costs.

(MANOJ KUMAR TIWARI, J.) 08.07.2024 Aswal