TMI Blog2000 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... d for writ of mandamus for refund of Rs. 1,69,80,360 with interest at the rate of 15 per cent. per annum, from April 1, 1999, till the date of refund. Facts : In this case, we are concerned with the assessment year 1996-97. The petitioner has filed return on November 30, 1996, showing taxable income of Rs. 5,13,86,320. The return was processed under section 143(1)(a) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), after making some prima facie adjustment on October 7, 1997. Thereafter, notices under sections 143(1) and 142(2) of the Act came to be issued and the petitioner came to be assessed under section 143(3) of the Act by order dated March 31, 1999. The Assessing Officer by his order has held that though the total income of the assessee was Rs. 2,11,81,620, the assessee was liable to pay tax on the total income of Rs. 5,13,86,320 on the ground that in accordance with Circular No. 549, para. 5.12, dated October 31, 1989, the assessed income shall not be less than the returned income. Statutory background : Before we appreciate the contentions raised, we take into consideration the relevant statutory provisions in this behalf : Section 119 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, served on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return : Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished. (3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 119 of the Act provides that the highest executive authority is the Central Board of Direct Taxes which is constituted under the Central Boards of Revenue Act, 1963. Its powers of administration, supervision and control extend over the whole Department, it has power to make rules and to issue orders, instructions and directions to all officers and persons employed in the execution of this Act with two exceptions : (a) it cannot interfere with the discretion of the Commissioner of Income-tax (Appeals) or the Deputy Commissioner of Income-tax (Appeals) in the exercise of his appellate functions (proviso (b) to section 119(1)) and (b) it cannot direct any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner. The latter principle was implicit in section 119 prior to its amendment. However, the Board has the power to issue general circulars which are binding on the Department. In other words, the quasi-judicial functions of an income-tax authority cannot be controlled by the Board in a particular case, but they can be so controlled to the extent that general directions are issued by the Board. Under section 143, as amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia and A. R. Dave JJ.) issued rule which was made returnable on May 3, 1999. After the long delay, on behalf of the respondent one Sushilkumar Agarwal, joint Commissioner of Income-tax, Special Range-8, has filed affidavit, wherein in para. 2 it has been contended as under : "2. I submit that in view of Circular No. 549, dated October 31, 1989, a copy of which is annexed hereto and marked annexure 1, the petitioner is not entitled to the reliefs prayed for in the petition, I submit that the Assessing Officer has acted as per the circular issued by the Central Board of Direct Taxes, under section 119 of the Income-tax Act. In the humble submission of the deponent, a writ cannot be issued so as to direct the Assessing Officer to do an act which is in contravention of the circular." It was further contended that the petitioner has already availed of the alternative remedy by way of filing an appeal before the Commissioner of Income-tax (Appeals), and, therefore, the present petition is not maintainable. Nothing more is stated than extracted above by the respondent. Learned counsel for the petitioner, Mr. J. P. Shah, has stated that sometimes an authority entrusted with a power d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have taken there has been no valid order of cancellation." and thereby the honourable court has allowed the petition. Mr. J. P. Shah, learned advocate for the petitioner, relied upon the judgment of the Supreme Court in the case of B. Rajagopala Naidu v. State Transport Appellate Tribunal, AIR 1964 SC 1573. The Supreme Court in para. 19 of the judgment observed as follows : 19. In reaching this conclusion, we have been influenced by certain other considerations which are both relevant and material. In interpreting section 43A, we think, it would be legitimate to assume that the Legislature intended to respect the basic and elementary postulate of the rule of law, that in exercising their authority and in discharging their quasi-judicial function the Tribunal constituted under the Act must be left absolutely free to deal with the matter according to their best judgment. It is of the essence of fair and objective administration of law that the decision of the judge or the Tribunal must be absolutely unfettered by any extraneous guidance by the executive or administrative wing of the State. If the exercise of discretion conferred on a quasi-judicial Tribunal is controlled b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper". Up to, February 28, 1961, the date on which the Finance Bill of that year was introduced in Parliament, printing and writing paper and packing and wrapping paper were subject to excise duty at the rate of 22 up. per kilogram though the former was chargeable under item 17(3) and the latter under item 17(4) of the First Schedule to the Act. The Finance Act, 1961, raised the excise duty payable under item 17(4) to 35 np. per kilogram with effect from March 1, 1961. From March 1, 1961, to August 1, 1961, the excise officers levied duty on "M. G. poster paper" under item 17(3) at the rate of 22 np. per kilogram. In other words, during that period the excise authorities treated "M. G. poster paper" as "printing and writing paper". Subsequently, the excise authorities began to treat this paper as "packing and wrapping paper" and insisted on the appellant paying duty thereon under item 17(4). The appellant paid duty at that rate under protest and thereafter applied to the Assistant Collector for refund on the ground that the duty on that paper should have been levied under item 17(3) and consequently the duty collected was in excess of that leviable under law. The Assistant Collecto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the petition and the matter came before the Supreme Court. In para. 55 of the said judgment, the Supreme Court after relying on a passage from the well-known book of De Smith on Judicial Review of Administrative Action has held as follows (at page 1009 of AIR 1989 SC) : "It is true that in exercise of powers of revoking or cancelling the permission is akin to and partakes of a quasi-judicial complexion and that in exercising of the former power the authority must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party and decide the matter consistent with the principles of natural justice. The authority cannot permit its decision to be influenced by the dictation of others as this would amount to abdication and surrender of its discretion. It would then not be the authority's discretion that is exercised but someone else's. If an authority 'hands over its discretion to another body it acts ultra vires'. Such an interference by a person or body extraneous to the power would plainly be contrary to the nature of the power conferred upon the authority. De Smith sums up the position thus : 'The relevant principles formulated by the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to act only in one way, namely, to sanction the prosecution of the appellant. The Secretary was not allowed to consider whether it would be feasible to prosecute the appellants, whether the complaint of Harshadrai of illegal gratification which was sought to be supported by 'trap' was false and whether the prosecution would be vexatious particularly as it was in the knowledge of the Government that the firm had been blacklisted once and there was demand for some amount to be paid to the Government by the firm in connection with the contract. The discretion not to sanction the prosecution was thus taken away by the High Court." It was further observed (on page 636) by the Supreme Court that "The High Court put the secretary in a piquant situation. While the Act gave him the discretion to sanction or not to sanction the prosecution of the appellant, the judgment gave him no choice except to sanction the prosecution as any other decision would have exposed him to an action in contempt for not obeying the mandamus issued by the High Court. The High Court assumed the role of sanctioning authority, considered the whole matter, formed an opinion that it was a fit case in which sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of policy, disable itself from exercising its discretion in individual cases. It may not fetter its discretion. A body that does fetter its discretion in that way may offend against either or both of two grounds of judicial review ; the ground of legality and the ground of procedural propriety. It offends against legality by failing to use its powers in the way they were intended, namely, to employ and to utilise the discretion conferred upon it. It offends against procedural propriety by failing to permit affected persons to influence the use of that discretion. By failing to keep its mind 'ajar' by shutting its ears to an application the body in question effectively forecloses participation in the decision making process. 11-003. The rule against fettering discretion by no means forbids bodies upon which, discretionary power has been conferred to guide the implementation of that discretion by means of a policy or a rule. It directs attention to the attitude of the decision maker, who must simply be prepared to make an exception to that rule or policy in a deserving case. Nor does the rule against fettering discretion focus upon the content of the hearing which must be afford ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been consistently assessed to excise duty on yarn at spindle point and they maintained a personal ledger account as provided by the Act and the Rules under the relevant self-assessment procedure. This trade notice was challenged as totally null and void and of no legal effect in these petitions where a further relief was claimed restraining the respondents authorities from collecting or debiting any excise duty from the petitioners or in their personal ledger account on the basis of the weight of yarn manufactured by the petitioners after sizing instead of at the spindle point, or from enforcing the letter at annexure A, dated October 19, 1976. On behalf of the Revenue it was submitted that the trade notice was for determining the general principles as to how the duty was to be levied under tariff item No. 18-E and it was contended that the said general principles in the trade notice were not binding on the assessing authority. It was for the assessing authority to determine the question of assessment and while assessing, the assessing authority may follow the guidelines given in the trade notice. Therefore, it was contended that the trade notice did not give any cause of action bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions is that when the petitioner is to be asked to exhaust his alternative remedies provided under the Act, before entertaining the writ petition, this distinction would always be material where the order is a nullity as being ex facie without jurisdiction or due to non-compliance with the provisions of the Act or the essential principles of justice or on any another ground as explained in Tarachand Gupta's case, AIR 1971 SC 1558, or Bhopal Sugar Industries' case, AIR 1967 SC 549 or Mohd. Nooh's case, AIR 1958 SC 86, and therefore, is a purported order or a nullity. In such a context the alternative remedy would be a futile remedy because it did not affect the inherent nullity in the challenged decision, which would result in the material distinction that the party may appeal against such decision but he was not bound to do so." (page 731 of 18 GLR) (page 127 of AIR 1977 (Guj). "27. The aforesaid discussion clearly reveals that every Act would have to be examined when such a question of the existence of alternative remedy arises and it would have to be found out as to what is the amplitude of the normal Act remedies for appeal or revision so that the question of real or purport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this action being ex facie without jurisdiction and in breach of the principles of natural justice by seeking to implement such executive instructions.' (page 735 of 18 GLR) (page 129 of AIR 1977 (Guj)). After relying on the case of Orient Paper Mills Ltd., AIR 1969 SC 48, page 51, the court has observed as under (page 736 of 18 GLR) (page 130 of AIR 1977 (Guj)) : "32. Mr. Vakharia is right that the assessing authority would, have to reach its decision without the constraint of any such trade notice as even under rule 233 what could be issued would be administrative instructions and not such a direction to change the basis of assessment. The question at this stage is that a prima facie case does exist when such an outsider like the Deputy Collector who was not an original assessing authority has issued such a direction in the form of a trade notice to all units stating that on this question it was decided that the accounting of the yarn in R. G. 1. Register shall be made at the spindle point but for E.B. 4 Register or assessment of duty the weight of the yarn at the stage of cone, bobbins and beams, etc., should be taken into account. The Superintendent, who is the assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26(3) does not come in the way of the petitioners so far as the present group is concerned. We are clarifying that our observations are only to determine the prima facie case and they should not be construed as being on the merits of the question before us." (page 737 of 18 GLR) (page 131 of AIR 1977 (Guj)). Contentions of Revenue : Mr. B. B. Naik, learned counsel appearing for the Revenue, made the following submissions : Mr. Naik submitted that all these cases are not applicable to the facts of the instant case particularly in the case of Ahmedabad Cotton Mfg. Co. Ltd. v. Union of India, AIR 1977 Guj 113 ; [1977] 18 GLR 714 [FB], as the petitioners have not only challenged the assessment order but also challenged the provisions of the trade notice/circular whereas in this case the petitioner has challenged only the assessment order and has not challenged the circular. Therefore, these decisions are not applicable to the facts of the instant case. Mr. Naik, learned counsel, further contended that looking to the prayers made in the petition, even if the court comes to a conclusion that the writ of certiorari is required to be issued, a writ of mandamus cannot be issued look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extraneous to the power would be plainly contrary to the nature of the power conferred upon the authority. In our view, from the assessment order itself, it becomes clear that though the Assessing Officer arrived at a conclusion that the taxable income when rounded off comes to Rs. 2,11,81,620, however, in view of the circular held that the income shall not be less than the returned income, i.e., the income will be at Rs. 5,13,86,320. Thus, no room is left for exercise of discretion by the circular. The authority invested with the power has to act on its own but when the concerned authority does not apply its mind and take action, it would amount to non-exercise of power by the authority and the action would be bad. Mr. Naik, learned counsel, contended that as pointed out by the apex court in the case of Bombay Metropolitan Region Development Authority v. Gokak Patel Volkart Ltd. [1995] 1 SCC 642, that where there is not only the existence of an alternative remedy but the writ petitioner actually had availed of that remedy, the writ petitioner's appeal before the statutory authority was pending and the petition should not be entertained. Reliance was placed on the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct as if furnishing a bank guarantee would meet the ends of justice. No governmental business or for that matter no business of any kind can be run on mere bank guarantees. Liquid cash is necessary for the running of a Government as indeed any other enterprise. We consider that where matters of public revenue are concerned, it is of utmost importance to realise that interim orders ought not to be granted merely because a prima facie case has been shown. More is required. The balance of convenience must be clearly in favour of the making of an interim order and there should not be the slightest indication of a likelihood of prejudice to the public interest. We are very sorry to remark that these considerations have not been borne in mind by the High Court and an interim order of this magnitude had been granted for the mere asking." The court in that case by an interim order allowed the benefit of exemption to the tune of Rs. 2,93,85,000 for which amount, the company was directed to furnish the bank guarantee. In an appeal, the L. P. A. court granted liberty to encash 30 per cent. of the bank guarantee. In the instant case there is no question of granting any interim relief. Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel relying on the decision of the apex court in the case of Sri Ramdas, Motor Transport Ltd. v. Tadi Adhinarayana Reddy, AIR 1997 SC 2189 ; [1997] 90 Comp Cas 383, submitted that the petition is not maintainable more particularly when in that case the shareholder has a very effective remedy under the Companies Act for prevention of oppression and mismanagement. The court pointed out that the petition filed under sections 397 and 398 cannot be an excuse for a shareholder to bypass the express provisions of the Companies Act. Under the Companies Act, more satisfactory solution is available. Before the learned single judge, the grievance of the petitioner was that no orders have been passed despite the applications. The learned single judge rejected the contention and the appellate court entertained the appeal on the ground that the petition raised many serious issues as the falsification. of the accounts of a public limited company. In para. 13 of the judgment, the court pointed out the public interest and the court directed as under : "... an investigation into the affairs of the company, bypassing the detailed provisions with inbuilt safeguards under the Companies Act, desig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the petitioner, has relied upon following authorities in respect of the contentions of the assessee : In the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC); AIR 1961 SC 372, the Income-tax Officer issued notices under section 34 of the Indian Income-tax Act, 1922, who had no material before him for believing that there had been no material non-disclosure by reason of which an underassessment had taken place. The apex court pointed out as under (headnote of ITR) : "The Income-tax Officer had no jurisdiction to issue notices after the expiry of four years from the end of the assessment years." In that case, the petition under article 226 of the Constitution of India was filed. The Division Bench of the Calcutta High Court, reversed the order made by the learned single judge and rejected the petitioner's petition under article 226 of the Constitution of India an hence the apex court was approached. Before the apex court, it was argued on behalf of the Assessing Officer that at the stage when the Income-tax Officer issued notices, he was not acting judicially or quasi judicially and so a writ of certiorari or prohibition cannot be issued. The apex court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior courts subordinate to it and ordinarily the superior court will decline to interfere until the aggrieved party has exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law. The superior court will readily issue a certiorari in a case where there has been a denial of natural justice before a court of summary jurisdiction." The apex court further pointed out that : "If, therefore, the existence of other adequate legal remedies is not per se a bar to the issue of a writ of certiorari and if in a proper case it may be the duty of the superior court to issue a writ of certiorari to correct the errors of an inferior court or Tribunal called upon to exercise judicial or quasi-judicial functions and not to relegate the petitioner to other legal remedies available to him and if the superior court can in a proper case exercise its jurisdiction in favour of a petitioner who has allowed the time to appeal to expire or has not perfected his appeal, e.g., by furnishing security required by the statute, it cannot then be laid down a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Taxes is concerned, which is alleged to have been issued under section 119 of the Act it is also required to be considered from another angle. That refers to assessments which are to be made under section 143(3) of the Act. Thus, in particular types of cases, direction is given to the Assessing Officers as to how the assessment is to be made, i.e., in scrutiny cases under section 143(3) of the Act, neither the income can be assessed at a figure lower than the returned income nor the loss can be assessed at a figure higher than the loss nor further refund can be given except what was due on the basis of the returned income. Thus, in all cases of scrutiny, direction is given despite the fact that the section mandates that no such order, instruction or direction shall be issued to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner. The income-tax authority thus by issuance of the circular directed the quasi-judicial officer to assess cases of particular nature in a particular manner. In the case of J. K. Synthetics Ltd. v. O. S. Bajpai, ITO [1976] 105 ITR 864 (All), the Division Bench considered the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all cases cannot be said to provide in all situations an alternative effective remedy keeping aside the nice distinction between jurisdiction and merits." The apex court in the case of Champalal Binani v. CIT [1970] 76 ITR 692, indicating that the petition should not be entertained, pointed out as under : "Where the aggrieved party has an alternative remedy, the High Court would be slow to entertain a petition challenging an order of a taxing authority which is, ex facie, with jurisdiction. A petition for a writ of certiorari may lie to the High Court where the order is on the face of it, erroneous or raises the question of jurisdiction or of infringement of fundamental rights of the petitioner. The Income-tax Act provides a complete and self-contained machinery for obtaining relief against improper action taken by the departmental authorities and normally the party feeling aggrieved by such action cannot be permitted to refuse to have recourse to that machinery and to approach the High Court directly against the action." In the case of Whirlpool Corporation v. Registrar of Trade Marks, AIR 1999 SC 22, the apex court pointed out in para. 20 as under : "Much water has since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the order of assessment made by the Assessing Officer on March 27, 1992, was also contrary to the instructions of the Central Board of Direct Taxes in Reference No. 549, dated October 31, 1989. Therefore, the Commissioner of Income-tax initiated revisional proceedings under section 263 of the Act for setting aside the assessment made under section 143(3). The assessee contended that the assessment order dated March 27, 1992, was in accordance with law and the Assessing Officer had rightly allowed the deduction being the differential value of opening and closing stocks by following consistently the method of valuation and the interests of the Revenue had not suffered. The assessee also contended that in terms of section 237 of the Income-tax Act, the assessee was entitled to the refund arising on the assessment or otherwise of the amount which had been paid in excess of tax payable by it under the Act. The Commissioner of Income-tax, however, rejected the objections raised by the assessee-company and by his order dated March 17, 1993, directed the Assessing Officer to modify the assessment order in such a way that the income determined would not be less than the returned income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to notwithstanding the fact of the assessment made under section 143(1)(a) of the Act. On a careful examination of the words so used in clause (b) of sub-section (4) of section 143 of the Act, we cannot borrow a different meaning than the one intended by the Legislature to say that the Legislature did not visualise a situation permitting the assessing authority to grant refund also under regular assessment in favour of an assessee." Thereafter, referring to the judgment in the case of LML Ltd. v. M. K. Venkataraman, Asst. CIT [1994] 205 ITR 585 (Bom), the court has observed as under : "The Division Bench in the said decision had no occasion to deal with a question as to whether the assessing authority had the power to order refund while making a regular assessment under section 143(3) of the Act. We are, therefore, of the view that this decision cannot render any assistance to the Revenue to say that the decision of the Bombay High Court is in line with the thinking of the Revenue. Merely because there are certain departmental instructions as provided in Circular Reference No. 549, dated October 31, 1989, issued by the Central Board of Direct Taxes, we are of the view, such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entertaining the petition, it would fail in the discharge of its duties. Thus, it is clear that ordinarily when an alternative remedy is provided, the High Court should not exercise jurisdiction but it does not mean that when the order passed by the authority is bad and illegal, the court cannot exercise the jurisdiction. The remedy must not be only alternative but it must be efficacious also. In the instant case, the Assessing Officer has not passed the order independently as pointed out earlier, but in fact, jurisdiction is exercised by the Central Board of Direct Taxes by issuing the circular and, therefore, the order is without jurisdiction. The Division Bench of the Andhra Pradesh High Court in the case of CIT v. Bakelite Hylam Ltd. [1999] 237 ITR 392, held that the Assessing Officer rightly refunded the amount. We are in agreement with the views expressed by the Andhra Pradesh High Court and therefore also, it would amount to unnecessary harassment if the assessee is asked to stand in queue. It is also required to be noted that the appeal in the instant case would not be a proper remedy. The appeal would lie against the real order and not purported orders and, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstituted under the Central Boards of Revenue Act, 1963 (54 of 1963), may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the said Board : Provided that no such orders, instructions or directions shall be issued--- (a) so as to require any Central-Excise Officer to make a particular assessment or to dispose of a particular case in a particular manner ; or (b) so as to interfere with the discretion of the Collector of Central Excise (Appeals) in the exercise of his appellate functions." The proviso to section 37B is in pari materia with the provisions of section 119 of the Income-tax Act and, therefore, the view which we are taking is in consonance with the view taken by the Legislature in the amending Act. In this case, according to us, the Assessing Officer was not bound by the said circular and yet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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