(a) Income-tax---

----Revision---Writ---Notice under S.263---Writ petition maintainable against notice if it were issued without jurisdiction or mala fide or under circumstances which were not reasonable---Auditor's note that assessee had borrowed funds paying huge interest and advanced amounts without charging interest ---CIT issuing notice under 5.263 directing Assessing Officer to enquire whether there was a nexus between borrowings and interest-free advances---Notice was valid---Indian Income Tax Act, 1961, S.263-- Constitution of India, Art.226.

(b) Writ-

--Existence of alternate remedy---Not a bar to issue of writ---Constitution of India, Art.226

The mere existence of an alternative remedy is not enough to throw out the writ petition in limine or even refuse to pass interim orders.

If it appears to the Court that a notice under section 263 of the Income Tax Act, 1961, was issued without jurisdiction, or mala fide, or under circumstances in which no reasonable Commissioner could ever issue such a notice, then in that event a writ could be issued against such a notice, and that, too even at the very preliminary stage of issuance of notice.

The Commissioner of Income-tax found from the note of the auditor that the assessee had taken loans from different financial units and paid huge interest and had given interest-free loans to its subsidiaries. The Commissioner of Income-tax opined that the Assessing Officer should have made enquiries about the existence of any possible nexus between the borrowed fund and the interest-free advances. He issued a notice under section 263. On a writ petition to quash the notice:

Held, (i) that the writ petition was maintainable.

(ii) that, in the instant case, the Commissioner of Income-tax had applied his mind to the facts and he had jurisdiction to issue the notice. There was no indication that the notice had been issued mala fide. It could not also be said that the jurisdiction was exercised on circumstances and grounds, which cannot reasonably be used by any Commissioner ever to issue a notice under section 263. The notice was valid.

B.K. Roy (Pvt.) Ltd. v. CIT (1995) 211 ITR 500 (Cal.); Brooke Bond Lipton India Ltd. v. CIT (1996) 222 ITR 540 (Cal.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Indo-Asahi Glass Co. v. ITO (1996) 222 ITR 534 (Cal.); Jeewanlal (1929) Ltd. v. Addl. CIT (1977) 108 ITR 407 (Cal.) and Russell Properties (Pvt.) Ltd. v. A. Chowdhury (Addl. CIT) (1977) 109 ITR 229 (Cal.) ref

Dr. Pal for Petitioner.

Agarwal for Respondent

JUDGMENT

Dr. Pal, appearing for the assessee, moves for rule and interim order in respect of a notice dated, December 24, 1998, issued by the Commissioner of Income-tax (Revision) under section 263 of the Income Tax Act, 1961, seeking to revise the assessee writ petitioner's assessment in regard to the assessment year 1994-95.

Mr. Agarwal, appearing for the respondents, has submitted that the writ application is against a mere notice and thus, the writ application should not be entertained and it should be dismissed. He has submitted that it is not a case of I ; or refusing an interim order, but a case deserving dismissal in limine.

The arguments of the parties, therefore, have to be considered in some details.

Dr. Pal placed the impugned notice (page 69 of the writ petition) and drew my attention to the terms of section 263. That section need not be set out, as it is easily available. He submitted that the power to revise is based upon two conditions precedent and those are that the Commissioner must be satisfied that the assessment order is erroneous and that is also prejudicial to the interests of the Revenue. -

Dr. Pal submitted that there are cases showing that the writ Court can interfere even at the preliminary stage where only notice has been issued. He gave the case of Jeewanlal (1929) Ltd. v. Addl. CIT (1977) 108 ITR 407 (Cal.) and drew my attention to the passage at page 412. In that case, Sabyasachi Mukharji, J., as his Lordship then was, passed an order even as against the notice under section 263 opining that the order was passed by the Commissioner "at the suggestion of the audit department of the Revenue and not by the Additional Commissioner in exercise of his quasi-judicial discretion".

The notice was thus, quashed. On the basis of this case, Dr. Pal submitted that in the present impugned notice also a mention is made to the auditor's report.

The Commissioner has mentioned that the assessee gave interest-free loans to two of its named subsidiaries, for the respective sums of Rs.3,355.96 and Rs.1,629.71 (figures in rupees lakhs). He has also remarked that the assessee took loans from different financial institutions to the extent of Rs.19,323.82 (same unit) and paid huge interest. These were seen by the Commissioner from the auditor's remarks.

Dr. Pal and Mr. Agarwal have waged-battle before me even as to whether these auditors are the company, auditors or the Department's auditors. Be that as it may, the note of the company's auditor in regard to the giving of interest-free loans is before me even in the Annexures to the petitioner.

On the basis of these notes from the audit; the Commissioner of Income-tax has opined that the Assessing Officer should have made enquiries about the existence of any possible nexus between the borrowed fund and the interest-free advances. Thus, he invoked his jurisdiction under section 263.

On the facts as apparent from the notices itself, it is impossible to opine in any view of the matter that the Commissioner did not apply his own mind or exercise his own jurisdiction.

Dr. Pal then gave me the case of B.K. Roy (P.) Ltd. v. CIT (1995) 211 ITR 500 (Cal.). From the passage placed by him, which appears at page 505, it appears that the Court opined that the existence of an alternative,, remedy in a case like the one before the Court was meaningless, because the. Commissioner, even if allowed to exercise his jurisdiction, would be bound by a judgment of the Allahabad High Court; whether the decision of the Allahabad High Court was to be applied or not, could be decided only by the Court and not by the Commissioner. Then Suhas Chandra Sen, J., as his Lordship then was, said as follows:

"Although as a matter of rule, I do not intervene at this stage of issuance of a notice under section 263, I am of the view that in a case like this there is no adequate alternative remedy for the petitioner. "

Dr. Pal also relied on the well-known case of Russell Properties (Pvt.) Ltd. v. A. Chowdhury, (Addl. CIT) again a decision of Sabyasachi Mukharji, J., as his Lordship then was, which is reported at (1977) 109 ITR 229 (Cal.). Passages were placed from pages 240 and 241 of the report. His Lordship remarked that (page 241) "where reasonable conduct is required, the criterion of reasonableness is not subjective but objective".

This was also said in connection with section 263.

In my opinion, if it appears to the Court that a notice under section 263 was issued without jurisdiction, or mala fide or under circumstances in which no reasonable Commissioner could ever issue such a notice, then and in that event a writ could be maintained against such a notice, and that too even at the very preliminary stage of issuance of notice.

Mr. Agarwal submitted that the exercise of jurisdiction as to the issuance of notice under section 263 in the instant case is not vitiated in any manner. He relied on the Division Bench decision of our Court given in Brooke Bond Lipton India Ltd. v. CIT (1996) 222 ITR 540.

The Division Bench there opined that the assessee had an adequate alternative remedy to the notice issued under section 263 because the assessee could reply thereto and have his case heard out by the Commissioner.

Mr. Agarwal also submitted that where disputed questions of fact were involved like the existence of nexus between the lenders to the company and the borrowers from the company, a writ would not be an adequate or proper remedy. He emphasized that in this case also the assessee can and should reply to the notice, which is impugned here. The records show that the. first date of hearing before the Commissioner was on January 11, 1999, which, Dr. Pal informs me, has been adjourned at the Instance of the assessee.

In replying, Dr. Pal pointed out that if the notice under section 263 is vitiated because of lack of jurisdiction or non-existence of any reasonable grounds for seeking to initiate revisional proceedings, then and in that event the bar of alternative remedy by way of making a representation to the Commissioner cannot oust the jurisdiction of the writ Court.

In support of this proposition he relied on the classic case of Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191, a decision of the Supreme Court of India by a Bench of strength of five, where it has been pointed out at page 207 that "where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well-settled, will issue appropriate orders or directions to prevent such consequences".

Dr. Pal submitted that the decision of the Division Bench in Brooke Bond Lipton India Ltd 's case (1996) 222 ITR 540 (Cal.), notwithstanding this, is still good law, which must be applied. If this is applied, according to him, the notice, which is impugned should not further be proceeded with.

He further pointed out that in Brooke Bond Lipton India Ltd.'s case (1996) 222 ITR 540 (Cal.), the Division Bench relied upon its earlier decision in Indo-Asahi Glass Co. v. ITO (1996) 222 ITR 534. Dr. Pal submitted that although that case referred to section 201, the Division Bench itself has expressly stated the cases to be similarly circumstanced. The Supreme Court has seen it fit to admit an appeal by way of a special leave from the Indo-Asahi order and has also been pleased to grant appropriate interim orders in aid of such appeal. Dr. Pal gave me copies of the Supreme Court order passed on March 17, 1997 in S.L.P. (Civil) No. (S) 859 of 1997.

Dr. Pal, therefore, submitted that, them ere existence of an alternative remedy by way of making representations to the Commissioner against the impugned notice is not enough to throw out the writ in limine or even refuse to pass interim orders.

In so far as this last submission of Dr. Pal is concerned, with due respect to all concerned, and in view of Calcutta Discount Co: Ltd.'s case (1961) 41 ITR 191 (SC), I am compelled to agree.

However, examine the impugned notice as I might, it does not appear . to me to be possible to opine even at this stage that there is the slimmest or the slightest likelihood at any stage for any Court to come to the conclusion in any view of the matter that the Commissioner did not apply his own mind.

If the Commissioner did apply his own mind his jurisdiction to issue notice gets supported, although not in full.

Again, if the text of the notice is examined, it cannot ever be said that the jurisdiction was exercised on circumstances and grounds, which cannot reasonably be used by any Commissioner ever to issue a notice under section 263.

If these are borne in mind, then one would search in vain even in the petition and the Annexures thereto for the existence of some indication of the Commissioner issuing the notice mala fide or, as alleged in paragraph 19 of the writ petition "as a mere cloak or pretence to start a fishing enquiry".

In view of these conclusions the writ application has to be rejected in limine. I must emphatically make it clear, however, that I have not entered into the merits of the case and it might well be, as ever Mr. Agarwal had to" concede, that upon representations from the assessee the Commissioner himself will find the explanation to be satisfactory and will not find any necessity of revision; that is a possibility which exists equally with the other possibility and with these possibilities on the merits I am not concerned .at this stage. The writ application is, therefore, dismissed in limine. Mr. Agarwal is permitted to put it on record that the allegations in the petition are not formally admitted or submissions conceded; such permission has to be granted as I have not called for affidavits.

All parties and all others concerned to act on a signed xerox copy of this dictated order on the usual undertakings.

M.B.A./82/FCApplication dismissed.