Bombay HC Quashes Section 154 Demand for Failure to Produce Rectification Order

Bharat Serums and Vaccines Limited Vs DCIT (Bombay High Court)

Demand Under Section 154 of Income Tax Act, 1961 Quashed After Department Failed to Produce Rectification Order: Bombay HC

Material Facts

The petitioner challenged a demand of Rs.46,84,750 allegedly arising from an order dated 31 March 2021 passed under Section 154 of the Income-tax Act, 1961. According to the petitioner, no rectification order had been served, no show cause notice had been issued, and no intimation of any proceedings under Section 154 had been received. The Income Tax Portal reflected only the pending demand and not the alleged order. An application under the Right to Information Act, 2005 resulted only in the supply of a computation sheet.

The erstwhile Bharat Serums and Vaccines Limited had merged with Aksipro Diagnostics Private Limited pursuant to an NCLT order dated 2 August 2021, after which the transferee company changed its name to Bharat Serums and Vaccines Limited.

For Assessment Year 2013-14, the erstwhile company had filed its return declaring book profits under Section 115JB and nil income under the normal provisions. An assessment order under Section 143(3) dated 29 March 2016 determined book profits after making an addition under Section 14A, against which an appeal had been filed before the Commissioner of Income Tax (Appeals).

Procedural History

After discovering the demand on the portal in April 2021, the petitioner repeatedly sought a copy of the alleged Section 154 order from the Department. Following an RTI application and a first appeal under Section 19(1) of the RTI Act, 2005, the First Appellate Authority directed the Department to furnish complete information. Despite this direction, the petitioner again received only the computation sheet, while the emailed copy of the alleged order was illegible.

Legal Issue

Whether the demand raised pursuant to the alleged Section 154 rectification order could be sustained when the Department was unable to produce any notice, rectification order or supporting records.

Relevant Statutory Provisions

• Section 154, Income-tax Act, 1961
• Section 143(3), Income-tax Act, 1961
• Section 14A, Income-tax Act, 1961
• Section 115JB, Income-tax Act, 1961
• Section 19(1), Right to Information Act, 2005

Submissions

Petitioner’s submissions

• No notice or order under Section 154 was ever served.
• The alleged order was not available on the Income Tax Portal.
• Only a computation sheet was furnished despite repeated requests and RTI proceedings.

Department’s submissions

• The Department informed the Court that the demand had been uploaded by the erstwhile Deputy Commissioner of Income Tax.
• It had no records showing that any notice under Section 154 had been issued or that any order under Section 154 had been passed.
• The Department stated it would remove the pending demand from the portal if directed by the Court.

Findings

The Court recorded the Department’s statement that it possessed no documents evidencing issuance of a notice or passing of an order under Section 154. In view of this statement, the Court held that the demand and the computation sheet dated 31 March 2021 could not be sustained.

Directions

The Court directed:

• The demand of Rs.46,84,750 for Assessment Year 2013-14 and the computation sheet under Section 154 dated 31 March 2021 to be quashed and set aside.
• The pending demand to be removed from the Income Tax Portal within two weeks.
• The Principal Chief Commissioner of Income Tax, Mumbai to conduct an enquiry through an officer not below the rank of Additional Commissioner of Income Tax to ascertain how the demand came to be uploaded and, if negligence or lapse was found, to take appropriate action.

Final Decision

The writ petition was disposed of. There was no order as to costs.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

Petitioner is challenging a demand of Rs.46,84,750/- raised as per the alleged order dated 31^st March 2021 passed under Section 154 of the Income Tax Act, 1961 (the Act).

2. It is petitioner’s case that no order has been served on petitioner, no show cause notice was ever issued to petitioner and at no stage was petitioner even intimated about any action being taken by the Department suo motu under Section 154 of the Act. Ms. Vyas states that even the order is not reflected in the Income Tax Portal of petitioner and what is reflected is only a pending demand notice. Ms. Vyas further states that even when petitioner applied under the Right to Information Act, 2005 (RTI Act, 2005), petitioner was provided only with the computation sheet and nothing else.

3. One Bharat Serums and Vaccines Limited (Bharat Serums) was merged with one Aksipro Diagnostics Private Limited vide order dated 2nd August 2021 passed by the National Company Law Tribunal, Mumbai. Subsequently, the name of Aksipro Diagnostics Private Limited was changed to Bharat Serums and Vaccines Limited as evident by the certificate of incorporation dated 10^th November 2021 issued by the Registrar of Companies, Mumbai.

4. The erstwhile Bharat Serums had filed, for Assessment Year 2013-2014, return of income on 30^th November 2013 returning total income of Rs.36,47,36,323/- under Section 115JB of the Act. The income under the normal provisions of the Act was shown as Nil. The erstwhile entity’s case was picked up for scrutiny and an assessment order dated 29^th March 2016 under Section 143(3) of the Act came to be passed determining the book profits at Rs.37,16,67,868/- after adding a sum of Rs.69,31,645/- under Section 14A of the Act. The erstwhile entity challenged the assessment order by filing an appeal before the Commissioner of Income Tax (Appeals).

5. On perusal of the portal sometime in April 2021, it was found that a demand of Rs.46,84,750/- was appearing in the portal as against the erstwhile entity. It appeared that the demand arose out of an order passed under Section 154 of the Act on 31^st March 2021 for Assessment Year 2013-14. As no communication had been received with regard to the said order, representations were made to respondent no.1 to provide copy of the rectification order dated 31^st March 2021 passed under Section 154 of the Act. As no response was received, petitioner even filed an application under the RTI Act, 2005. In response to the application, petitioner was served with a copy of the computation sheet. Petitioner, therefore, preferred an appeal under Section 19(1) of the RTI Act, 2005 before the First Appellate Authority. Petitioner’s application was disposed by the First Appellate Authority by an order dated 18^th July 2023 and respondents were directed to re-examine the matter and furnish full and appropriate information sought within 15 days from the date of receipt of the order. Notwithstanding this direction by the First Appellate Authority, petitioner received from the Assessing Officer, by a letter dated 4^th August 2023, the same documents which were provided earlier. Though the forwarding letter dated 4^th August 2023 provides for copy of order passed under Section 154 of the Act, it is petitioner’s case, and which has not been controverted, that only the same computation sheet was provided but not an order. Even the screenshot of the order sent through email is illegible.

6. No affidavit in reply has been filed. Mr. Gupta appearing for respondents informed the Court that he has instructions from respondent no.1 – Mr. Basant Kumar Arya that the demand has been uploaded by the erstwhile Deputy Commissioner of Income Tax on the portal but the Department does not have any file relating to that matter. Mr. Gupta states that his instructions are to inform the Court that respondent no.1 or the Department has no document to show that any notice was issued under Section 154 or even an order was passed under Section 154 of the Act. Mr. Gupta also states that if the Court directs respondents, they shall remove the pending demand from the Income Tax Portal pertaining to petitioner.

7. In view of the statement made by Mr. Gupta as recorded above, we have to quash and set aside the demand of Rs.46,84,750/- for Assessment Year 2013-2014 as appearing on petitioner’s portal and the computation sheet under Section 154 of the Act dated 31^st March 2021, which we hereby do. The demand appearing on the portal shall also be removed. This has to be completed within two weeks of this order being uploaded.

8. At the same time, we would direct the Principal Chief Commissioner of Income Tax, Mumbai (PCCIT) to have an enquiry conducted by a person not below the rank of Additional Commissioner of Income Tax to ascertain how such a demand came to be uploaded in the portal pertaining to petitioner and if there has been any negligence or lapse on the part of any officer, to take such action as the PCCIT will feel necessary against the said officer.

9. Petition disposed. No order as to costs.