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Commissioner Of Income Tax, Gujarat v. Vijaybhai N. Chandrani .
Factual and Procedural Background
The respondent-assessee, Shri Vijay H. Chandrani, purchased land from Samutkarsh Cooperative Housing Society, developed by Savvy Infrastructure Ltd. In 2008 the Income-tax Department conducted a search under Section 132 of the Income-tax Act, 1961 (“the Act”) at the Society and Savvy Infrastructure Ltd. Documents seized during the search mentioned the assessee’s name. These documents were transmitted to the jurisdictional Assessing Officer, who on 6-10-2009 recorded a “satisfaction note” stating that income chargeable to tax appeared to have escaped assessment for Assessment Years 2001-02 to 2006-07. Consequently, on 7-10-2009 six show-cause notices under Section 153-C were issued to the assessee, directing him to file returns for the said years.
The assessee sought copies of the seized material, received them, and instead of replying to the notices, filed a writ petition before the Gujarat High Court. The High Court quashed the notices on the ground that the seized documents did not “belong” to the assessee, a statutory pre-condition for invoking Section 153-C.
The Revenue appealed to the Supreme Court. Connected civil appeals (CA No. 5896 of 2013 and batch) stemmed from separate Gujarat High Court decisions in which the Tribunal and High Court had, on facts, set aside assessments made under the Act.
Legal Issues Presented
- Whether the Gujarat High Court should have entertained a writ petition challenging show-cause notices issued under Section 153-C without the assessee first exhausting the statutory remedy of responding to the notices and pursuing appellate forums under the Act.
- Whether, on the merits, the condition precedent for invoking Section 153-C—namely that the seized documents must “belong” to the assessee—was satisfied (issue kept open by the Supreme Court).
Arguments of the Parties
Revenue/Appellant
- The High Court erred in quashing the notices; it should not have exercised writ jurisdiction when an adequate alternative remedy existed.
- The seized documents justified initiation of proceedings under Section 153-C.
Assessee/Respondent
- Supported the High Court’s conclusion that the statutory pre-condition under Section 153-C was not met because the documents did not belong to the assessee.
- Contended that the notices were without jurisdiction and liable to be quashed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bellary Steels & Alloys Ltd. v. CCT (2009) 17 SCC 547 | Court should ordinarily decline to interfere under Article 226 against a mere show-cause notice when statutory remedies are available. | Used to reinforce that the High Court should have directed the assessee to respond to the Section 153-C notices instead of entertaining the writ petition. |
| Indo Asahi Glass Co. Ltd. v. ITO (2002) 10 SCC 444 | Assessee must first reply to a show-cause notice and invoke remedies under the Act before approaching writ jurisdiction. | Cited to fortify the view that the assessee’s writ petition was premature. |
Court's Reasoning and Analysis
1. The Supreme Court examined the satisfaction note and notices and found that, at the notice stage, the assessee had an adequate opportunity to raise all objections before the Assessing Officer.
2. Relying on Bellary Steels and Indo Asahi Glass, the Court reiterated the settled principle that writ jurisdiction should not be invoked when a statutory alternative remedy exists, especially against a show-cause notice.
3. It concluded that the High Court transgressed this principle by quashing the notices without insisting that the assessee first file a reply and pursue remedies under the Act.
4. The Court deliberately refrained from adjudicating the substantive interpretation of Section 153-C (“belong to”) and left the question open for an appropriate case.
5. Regarding the connected appeals (Megamani Organics Ltd., Amrish R. Patel, Gambhir Silk Mills), the Court noted that the Tribunal and High Court had decided them purely on facts and found no substantial question of law warranting Supreme Court interference.
Holding and Implications
CA No. 5888 of 2013: Appeal Allowed. The Supreme Court set aside the Gujarat High Court judgment and restored the Section 153-C proceedings. The assessee is granted 15 days to file objections; the Assessing Officer shall consider them uninfluenced by High Court observations. Subsequent appellate remedies under the Act remain open.
Connected Appeals (CA No. 5896 of 2013 and batch): Disposed of. The Court found no substantial question of law and affirmed the factual conclusions of the lower forums.
Implications: The decision reinforces the doctrine of exhaustion of alternative remedies, signalling that writ courts should rarely intervene against show-cause notices under tax statutes. No new substantive precedent on Section 153-C was established; that interpretative question is expressly left open.
Order
1. Delay in filing and refiling the special leave petitions is condoned. Leave granted.
CA No. 5888 of 2013 @ SLP (C) No. 8947 of 2011
2. This appeal is directed against the judgment and order passed by the High Court of Gujarat in Vijaybhai N. Chandrani v. CIT, dated 30-3-2010, whereby and whereunder the High Court has set aside the show-cause notices issued by the assessing authority under Section 153-C of the Income Tax Act, 1961 (for short “the 1961 Act”) dated 7-10-2009.
3. Brief facts of the case are: the respondent assessee purchased a plot of land from “Samutkarsh Cooperative Housing Society” (for short “the Society”) being developed by one Savvy Infrastructure Ltd. In 2008, a search was conducted under Section 132 of the 1961 Act in the premises of the Society and also at the office of Savvy Infrastructure Ltd. During the search, certain documents were seized under Section 132-A of the 1961 Act. Upon scrutiny, it was found that the seized documents reflected names of certain individuals including the assessee. Accordingly, for further proceedings the assessing authority had transmitted the seized documents to the jurisdictional assessing authority in whose jurisdiction the assessee was being assessed.
4. After receipt of the said information/documents, the assessing authority has recorded a satisfaction note dated 6-10-2009, that, he has reason to believe that a case of escapement of income may exist and therefore the assessee's case requires to be reassessed for Assessment Years 2001-2002 to 2006-2007 under Section 153-C of the 1961 Act. The relevant paragraphs of the said satisfaction note read as under:
“Satisfaction Note for Initiation of Proceedings under Section 153-C of the Income Tax Act, 1961
Name of the assessee : Shri Vijay H. Chandrani Assessment Years : 2001-2002 to 2006-2007 under Section 153-C and 2007-2008 under Section 143(3)
DCIT Central Circle 1(1), Ahmedabad, vide his Letter No. DCIT/CC.1(1)/Vijay Chandrani/Samutkarsh dated 30-3-2009 had intimated ITO Ward No. 7(4), Ahmedabad that the abovementioned assessee is one of the member of the cooperative society, namely, Samutkarsh Cooperative Housing Society, in the case of Samutkarsh Cooperative Housing Society as well as in the case of Sa' Infrastructure Ltd., Ahmedabad, proceedings under Section 132 were carried out by the Department. During the course of search, certain incriminating documents pertaining to the assessee were also found….”
5. Accordingly, the assessing authority has issued six show-cause notices under Section 153-C of the 1961 Act to the assessee for reassessment of income of the aforesaid six assessment years and directed him to furnish return of income in respect of the said assessment years in prescribed form within thirty days of the receipt of the said notices dated 7-10-2009.
6. Upon receipt of the said notices, the assessee by letter dated 11-11-2009 requested the assessing authority to furnish him with the copies of seized documents on the basis of which the said notices were issued. The assessing authority had provided the said documents to the assessee, whereafter the assessee had approached the High Court in a writ petition questioning the six show-cause notices dated 7-10-2009.
7. The High Court has elaborately examined the case at hand and delved into the statutory scheme for assessment in case of search and requisition as prescribed under Sections 153-A, 153-B and 153-C of the 1961 Act and reached the conclusion that the documents seized by the assessing authority under Section 132-A do not belong to the assessee and therefore the condition precedent for issuance of the notice under Section 153-C is not fulfilled. Accordingly, the High Court has allowed the writ petition filed by the assessee and quashed the said notices issued by the assessing authority by the impugned judgment and order. Aggrieved by the aforesaid judgment and order passed by the High Court, the assessing authority is before us in this appeal.
8. We have heard Shri Prasad, learned counsel for the assessing authority and Shri Amar Dave, learned counsel appearing for the respondent at considerable length.
9. Shri Prasad besides questioning the impugned judgment and order on merits would also submit that the High Court ought not to have entertained the writ petition filed by the assessee against the show-cause notices issued by the assessing authority under Section 153-C. Au contraire Shri Amar Dave justifies the impugned judgment and order.
10. We have gone through the documents on record including the satisfaction note recorded by the assessing authority and the show-cause notices. We have also perused the impugned judgment and order of the High Court.
11. In the instant case, it transpires from the record that the jurisdictional assessing authority, upon having a reason to believe that the documents seized indicate escapement of income, has issued show-cause notices under Section 153-C to the assessee for reassessment of his income during Assessment Years 2001-2002 to 2006-2007. Thereafter, upon request of the assessee, the assessing authority has furnished him with the copies of documents seized under Section 132-A. The assessee being dissatisfied with the said documents instead of filing his explanation/reply to the show-cause notices, has filed a writ petition before the High Court impugning the said notices.
12. In our considered view, at the said stage of issuance of the notices under Section 153-C, the assessee could have addressed his grievances and explained his stand to the assessing authority by filing an appropriate reply to the said notices instead of filing the writ petition impugning the said notices. It is settled law that when an alternate remedy is available to the aggrieved party, it must exhaust the same before approaching the writ court. In Bellary Steels & Alloys Ltd. v. CCT (2009) 17 SCC 547, this Court had allowed the assessee therein to withdraw the original writ petition filed before the High Court as the said proceedings came to be filed against the show-cause notice and observed that the High Court should not have interfered in the matter as the writ petition was filed without even reply to the show-cause notice. This Court further observed as follows:
“3. … In the circumstances, we could have dismissed these civil appeals only on the ground of failure to exhaust statutory remedy, but for the fact that huge investments involving the large number of industries is in issue.”
13. We are fortified by the decision of this Court in Indo Asahi Glass Co. Ltd. v. ITO (2002) 10 SCC 444 wherein the assessee had approached this Court against the judgment and order of the High Court which had dismissed the writ petition filed by the assessee wherein challenge was made to the show-cause notice issued by the assessing authority on the ground that alternative remedy was available to the assessee. This Court concurred with the findings and conclusions reached by the High Court and dismissed the said appeal with the following observations:
“5. This and the other facts cannot be taken up for consideration by this Court for the first time. In our opinion, the High Court was right in coming to the conclusion that it is appropriate for the appellants to file a reply to the show-cause notice and take whatever defence is open to them.”
14. In the present case, the assessee has invoked the writ jurisdiction of the High Court at the first instance without first exhausting the alternate remedies provided under the Act. In our considered opinion, at the said stage of proceedings, the High Court ought not have entertained the writ petition and instead should have directed the assessee to file reply to the said notices and upon receipt of a decision from the assessing authority, if for any reason it is aggrieved by the said decision, to question the same before the forum provided under the Act.
15. In view of the above, without expressing any opinion on the correctness or otherwise of the construction that is placed by the High Court on Section 153-C, we set aside the impugned judgment and order. Further, we grant time to the assessee, if it so desires, to file reply/objections, if any, as contemplated in the said notices within 15 days' time from today. If such reply/objections is/are filed within time granted by this Court, the assessing authority shall first consider the said reply/objections and thereafter direct the assessee to file the return for the assessment years in question. We make it clear that while framing the assessment order, the assessing authority will not be influenced by any observations made by the High Court while disposing of the writ petition. If, for any reason, the assessment order goes against the assessee, he/it shall avail and exhaust the remedies available to him/it under the 1961 Act.
16. The appeal is disposed of accordingly. No costs.
CA No. 5896 of 2013 @ SLP (C) No. 29038 of 2011 etc. etc.
17. These appeals arise from the judgment and orders passed by the High Court of Gujarat in CIT v. Megamani Organics Ltd. Tax Appeals Nos. 2077-86 of 2009, (2013) 1 ITR-OL 386 dated 27-4-2011, CIT v. Amrish R. Patel Tax Appeals Nos. 444-49 of 2010, (2013) 1 ITR-OL 398 dated 26-7-2011 and CIT v. Gambhir Silk Mills Tax Appeals Nos. 1493 & 1498 of 2010, (2013) 1 ITR-OL 392 dated 21-12-2011, respectively.
18. In these appeals the Tribunal and the High Court, after going through the facts and circumstances of each case, have reached the conclusion that the assessing authority was not justified in computing the assessments and thereafter fastening liability on the assessee to pay tax and interest. Since these appeals are primarily decided on facts by the first appellate authority, the Tribunal and the High Court, we do not find any substantial question of law which requires to be decided by this Court.
19. We make it abundantly clear that we have not expressed any opinion on the correctness or otherwise of the observations made by the High Court insofar as the interpretation of Section 153-C of the 1961 Act is concerned. The said question is kept open to be agitated in an appropriate matter.
20. Accordingly, all these appeals are disposed of with no order as to costs.
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