Travancore Electro Chemical Industries Ltd. v. Deputy Commissioner Of Income-Tax And Another.

T.L Viswanatha Iyer, J.:— The petitioner is a company incorporated under the Companies Act, 1956. It is an assessee to income-tax on the files of the first respondent. The petitioner had submitted returns for the assessment years 1979-80 to 1982-83, pursuant to which assessments were completed as per exhibits P-5 to P-8. The petitioner had furnished statements containing details of the brokerage and commission paid by it at the time of these assessments and copies thereof are marked as exhibits P-1 to P-4.

2. The petitioner states that they have engaged commission agents for sale of their products and the commission paid to these persons is duly debited in the commission account. According to the petitioner, none of these selling agents are persons in any way connected with the petitioner or its directors or major shareholders. These agents have rendered substantial service to the petitioner. The commission paid to them has, therefore, gone into the profit and loss account. It is the details of these payments that were furnished to the first respondent at the time the assessments for 1979-80 to 1982-83 were completed as per exhibits P-1 to P-4. The assessments for 1983-84 to 1987-88 were also completed making certain additions/disallowances. When the assessment for 1986-87 was taken up for consideration, the first respondent raised a question whether the commission paid by the petitioner was liable to be allowed. Prolonged discussions took place pursuant to which, it is stated, the petitioner agreed to have 40% of the commission added back to the petitioner's income. This was done to avoid long drawn litigation. Nevertheless, the first respondent completed the assessments disallowing the payments made towards commission. The petitioner had, in the meanwhile, made an application to the Settlement Commission constituted under the Income-tax Act for settlement of the petitioner's assessments.

3. Thereafter, the first respondent issued two notices dated March 29, 1990, under section 147 of the Act, for reopening the assessments for the years 1979-80 and 1982-83, Similar notices relating to the intermediate years 1980-81 and 1981-82 were issued on October 25, 1990. True copies of these notices are exhibits P-10 to P-13.

4. The petitioner replied to the first two notices on April 16, 1990, requesting disclosure of the reasons for the reopening of the assessments. According to the petitioner, there was no escape of any income for any of these years. Nevertheless, they filed returns in response to the notices reiterating what had been stated in their original returns. The same process was repeated in relation to the subsequent notices received in October, 1990, also. The petitioner's letters sent in reply to the notices received on the two occasions are exhibits P-14 and P-15.

5. The matter is pending and fresh assessments are yet to be made. The petitioner has filed this original petition challenging the aforesaid notices received by them, alleging that the notices have been issued illegally and without jurisdiction and without application of mind. It is also stated that there are errors apparent on the face of the record in issuing these notices to the petitioner. The petitioner states that the two conditions precedent for the issue of notices under section 147(a), namely, that the assessing authority had reason to believe that income chargeable to tax had escaped assessment, and (2) that such escape was by reason of omission on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment, are not satisfied in this case. It is stated that, if the reasons for the reopening and for the issue of the impugned notices are disclosed to this court, it will be found that there are no reasons justifying issue of such notices.

6. The assessee also points out that the approval of the Commissioner of Income-tax which is necessary for the issue of these notices has not been obtained; so also the approval of the Central Board of Direct Taxes. For these and other reasons set forth in the original petition, the petitioner challenges exhibits P-10 to P-13.

7. Having heard counsel for the petitioner, I am not inclined to entertain this original petition; on the other hand, I am of the opinion that the petitioner must pursue the proceedings before the first respondent, if they are against them, and pursue the statutory remedies available to them. Firstly, the original petition is considerably delayed. The notices relating to the assessment years 1979-80 and 1982-83 were, admittedly, served on the petitioner on March 29, 1990. The other notices were served in October, 1990, being dated October 25, 1990. This original petition is filed on January 6, 1992, long after the conventional period of three months for approaching this court with a petition under article 226 of the Constitution. Proceedings pursuant to exhibits P-10 to P-13 have got to be completed before March 31, 1992, by virtue of the mandate contained in section 153 of the Act. Apart from writing the letters, exhibits P-14 and P-15, the petitioner did not choose to challenge the proceedings, exhibits P-10 to P-13, at any anterior time and has come forward with this petition at the last moment, when only less than three months' time is left for completion of the proceedings. I do not think that such a delayed approach to this court should be encouraged or that this petition should be entertained, particularly when the petitioner cannot complain of any prejudice by pursuing the proceedings before the departmental authorities.

8. It is true that a notice under section 147 can be issued only if certain conditions precedent are satisfied. But then, the points raised by the petitioner are such as could be raised before the first respondent himself. It is also open to the first respondent to deal with the same in accordance with law, if and when any such points are raised before him. It is not as if the first respondent is disabled in any manner from going into these questions. The question of jurisdiction or the alleged illegality in the exercise of jurisdiction are all matters which could properly be raised and could properly be agitated before the first respondent by the petitioner. It is also noteworthy that the adjudication by the first respondent is subject to appeal before the Commissioner of Income-tax, a second appeal before the Income-tax Appellate Tribunal (both on questions of fact and of law) and also subject to reference on questions of law to this court. The petitioner has, therefore, got adequate remedies to agitate their rights and their contentions under the provisions of the Income-tax Act, 1961. This court need not exercise its jurisdiction when such adequate remedies are available to the petitioner, particularly when the petitioner himself is guilty of laches in approaching this court by well nigh two years.

9. Counsel for the petitioner however alleged that if the reassessments are completed, the petitioner may not be given adequate time to make payment of the tax due and that they may be coerced into paying the amounts of tax assessed. There is hardly any substance in this contention. It had been held by the Supreme Court as early as in 1969 in ITO v. M.K Mohammed Kunhi, [1969] 71 ITR 815, that the appellate authority functioning under the Income-tax Act is vested with the power to stay the collection of disputed demands pending the appeal, despite the absence of a specific power in the Act. This court has repeatedly held that this power is to be exercised reasonably and with reference to relevant facts and circumstances and not arbitrarily or capriciously. This court can, therefore, presume that the appellate authority will execute his power to grant stay reasonably and legally, if any approach is made by the petitioner for that purpose. This court has interfered under article 226 in cases where the authority does not exercise his discretion in accordance with law or where he acts arbitrarily in exercising his discretion. The apprehension of the petitioner that they may be coerced into paying the disputed amounts if the reassessments are completed is, therefore, unfounded. If they have a case to put forward, certainly, the appellate authority will consider it while dealing with any motion for stay made before him. In the circumstances, I am of the view that this is not a fit case for interference under article 226 of the Constitution. The petitioner has to pursue his remedies under the statute by way of objections to the first respondent and then by way of appeal, if any adverse order is passed by the first respondent.

10. The original petition is dismissed in limine.