Writ petition cannot be accepted if issue raised is already pending before any appellate forum

HIGH COURT OF MADRAS

Super Spinning Mills Ltd.

Versus

Assistant Commissioner of Income-tax, Co. Circle-I(2), Coimbatore

W.P. No. 29285 of 2012

JANUARY  8, 2013

ORDER

1. The subject matter of the writ petition is the letter dated 15.10.2012 issued by the Assistant Commissioner of Income Tax, Company Circle I(2), Coimbatore, which reads as follows:-

“ACIT/CC-I(2)/Cbe/AADCS0672G Dated: 15.10.2012

To

The Principal Officer

M/s Super Spinning Mills Ltd.,

No.737-D, Elgi Towers

Green Fields, Puliyakulam

Coimbatore 641 045

Sir,

Sub: Payment of tax Arrear demand in the case of M/s Super Spinning Mills Ltd., Coimbatore-reg.

Ref: Your letter dated 15.10.2012

With reference to above, the latest arrear demand position of your company is 2286.72 lakhs. You are directed to pay the entire arrear demand on or before 22.10.2012 to avoid coercive action under Income Tax Act.

Yours faithfully,

Sd/-

Assistant Commissioner of Income Tax Company Circle I(2), Coimbatore”

2. The petitioner’s case has a chequered history and deals with several assessment years under the Income Tax Act. When the writ petition was filed, details relating to several assessment periods were not filed as annexures to the writ petition. Subsequently, pursuant to the orders of this Court dated 27.11.2012, the assessment orders relevant to the case as well as assessment orders not relevant to the case were filed by way of a common additional typed-set of papers and were perused.

3. The facts of the case, in brief, are as follows. The petitioner is engaged in the manufacture of cotton yarn and allied products. The issue for consideration is the petitioner’s claim on the expenditure incurred for replacement of machinery in the spinning mills as revenue expenditure was disallowed by the assessing Income Tax Officer. The assessment periods together with the corresponding demand which are relevant to the present case are as below:-

In respect of assessment years 1993-94, 1994-95 and 1998-99, the issue relating to disallowing the claim as revenue expenditure was the subject matter of statutory appeal and thereafter, it reached the High Court in T.C.A.Nos.1073 to 1075 of 2010. It is not in dispute that the Division Bench of this Court, by judgment dated 10.1.2011, set aside the orders of the lower authorities and remitted the matter back to the Commissioner of Income Tax (Appeals) to reconsider the issue in the light of the Supreme Court decision. The Commissioner of Income Tax (Appeals) considered the issue on remand and, by an order dated 14.12.2011 in I.T.A.Nos.412, 413 & 414 of 2010-11, decided the issue against the petitioner and held that the expenditure incurred on replacement of machinery is a capital expenditure and allowed depreciation thereon as per the provisions of the Income Tax Act (for short, “the Act”). The Assessing Officer on his part, by order dated 25.7.2012 in respect of assessment years 1993-94 & 1994-95 and by order dated 26.7.2012 in respect of assessment year 1998-99, reworked the assessment by treating the replacement of machinery as capital expenditure and allowed depreciation thereon and determined the income. He also demanded the balance tax payable including interest under sections 234-B and 220 (2) of the Act. The petitioner claims that he has preferred appeals in I.T.A.Nos.414/Mds/2012, 415/Mds/2012 and 416/Mds/2012 before the Income Tax Appellate Tribunal and the same are pending. Insofar as the assessment years 2005-06 and 2006-07 are concerned, it is stated that the Income Tax Appellate Tribunal, vide order dated 13.7.2010 and 25.3.2010 respectively, set aside the order of the Commissioner of Income Tax (Appeals) and remanded the matter to reconsider the issue in the light of the direction of the Supreme Court. Thereafter, it appears that the Assessing Officer had passed orders on 14.11.2011 treating the expenditure incurred on replacement of machinery as capital expenditure and allowed depreciation thereon. He also demanded the balance tax payable including interest under sections 234B, 234C and 234D of the Act. Aggrieved by the said orders, the petitioner has preferred appeals before the Commissioner of Income Tax (Appeals) and the same are pending.

4. It is not in dispute that the petitioner has preferred appeals in respect of the five assessment years in question before the Income Tax Appellate Tribunal or the Commissioner of Income Tax (Appeals), as the case may be, and the learned counsel for the respondent states that no order of stay has been granted so far in the appeals. In the light of the above factual matrix of the case, for the five assessment years, namely, 1993-94, 1994-95, 1998-99, 2005-06 and 2006-07, an amount of Rs.2286.72 lakhs, which includes tax and interest, has been demanded by the impugned letter and the same is under challenge in this writ petition.

5. The learned counsel for the petitioner contended that the department failed to take note of the fact that a demand under Section 156 of the Act could be made only if the mandatory provisions of the Act are followed. It is the case of the petitioner that the assessment orders do not reflect the interest portion now demanded from the petitioner. Therefore, the demand itself is bad and the letter directing to pay arrears is unsustainable. The learned counsel relied upon two decisions, one by the Division Bench of Allahabad High Court made in CIT v. Deep Awadh Hotels (P) Ltd., I.T. Appeal Nos. 81 and 82 of 2002 dated 3.8.2011 and another by the Division Bench of Uttarakhand High Court in CIT v. Dehradun Club Ltd. [2012] 209 Taxman 27 (Mag.) in support of his submissions. In the first case, the Division Bench has held as follows:-

“In CIT v. Ranchi Club Ltd., [2001] 247 ITR 209 decided by the three Judges of the Supreme Court, the SLP was dismissed on merits. The facts stated in the note published in ITR demonstrate that the High Court had held that the order of the assessing authority in the assessment order to charge interest is to be specific and clear and the assessee must be made to know that the Assessing Officer after applying its mind has ordered charging of interest. We do not find that the judgment in Ranchi Club Ltd., has either been expressly overruled or any different view has been taken in Anjum M.H. Ghaswala’s case. We also do not find force in the argument advanced by Shri Mahajan that even if assessment order or computation sheets do not provide for interest, since interest is mandatory, it can be charged in the demand notice, which according to Shri Mahajan is signed by the Assessing Officer.

Even if any provision of law is mandatory and provides for charging of tax or interest, the view taken in Ranchi Club Ltd., is that such charge by the Assessing Officer should be specific and clear and assessee must be made to know that the Assessing Officer has applied its mind and has ordered charging of interest. The mandatory nature of charging of interest and the actual charging of interest by application of mind and the mention of the proviso of law under which such interest is charged are two different things.

In the present case although it is stated by Shri Mahajan that in the demand notice there was charging of interest, there is no such pleading or ground taken, nor do we find that any such point was raised in the Tribunal.

The third question is thus decided against the department and in favour of the assessee.

Both the income tax appeals are dismissed.” [Emphasis supplied]

In the second case, the Division Bench has held as follows:-

“16. The learned counsel for the appellant submitted that the provision of charging interest under Section 234A, 234B & 234C of the Act is mandatory as held by the Supreme Court in Commissioner of Income Tax v. Anjum M.H. Ghaswala & others, 252 ITR 1. There is no quarrel with the aforesaid proposition laid down by the Supreme Court, but, at the same time, the assessment order must contain the imposition of interest and, only thereafter, a notice of demand could be issued under Section 156 of the Act. To elucidate the matter, a notice of demand is somewhat like a decree in a civil suit, which must follow the order. When the judgment in a civil suit does not specify any amount to be recovered, the decree could not contain such amount. Similarly, when the assessment order under Section 143(3) of the Act does not indicate that interest would be leviable, the notice of demand under Section 156 of the Act levying interest would be wholly illegal since interest is payable in consequence of an order passed as is clear from Section 156 of the Act. Consequently, the notice of demand cannot go beyond the assessment order and the assessee cannot be served with any such notice demanding interest. There is another aspect of the matter. The assessee must know that he has been charged with interest under a particular section of the Act. That must be specified in the assessment order and, only thereafter, a notice of demand under Section 156 of the Act could be issued.

17. In the light of the aforesaid, the court is of the opinion that if the assessment order does not specify charging of interest, then it could not be charged or levied under Section 156 of the Act. The question of law is answered accordingly. In the light of the aforesaid, the appeal filed by the appellant fails and is dismissed. In the circumstances of the case, parties shall bear their own cost.” [Emphasis supplied]

6. This argument of the petitioner’s counsel by relying on the above two decisions is repelled by Mr.Pramod Kumar Chopda, learned counsel for the respondent department, on the basis of counter affidavit, by contending that in the assessment order passed by the Assessing Officer for the year 2005-06, (internal page 8) at page 46 of the typedset, there is a demand amounting to Rs.2,45,56,972/- including the interest under Sections 234B, 234C and 234D of the Act followed by the notice under section 156 of the Act at page 54 of the same typed set. Similarly, in respect of the assessment order for the year 2006-07, (internal page 8) at page 55 of the typedset, there is a demand amounting to Rs.4,15,34,650/- including the interest under sections 234B and 234C of the Act followed by the notice under Section 156 of the Act at page 63 of the same typedset. Similarly, the assessment orders for the years 1993-94, 1994-95 and 1998-99 which have not been produced by the petitioner deliberately or otherwise will also contain the details of interest under section 234B and 220 (2) of the Act. Therefore, the learned counsel contended that if the original assessment orders are produced, it will establish that interest had been actually demanded at the time of passing of the assessment orders, as in the case of assessment years 2005-06 and 2006-07. In any event, when the assessment orders give the details of interest demanded, it cannot be said that there was an omission, which calls for interference by this Court. He also repelled the further plea of the petitioner that the demand for interest under sections 234B and 234C does not form part of the original assessment order and it is found only in the annexure, by contending that the annexure to the assessment order forms part and parcel of the assessment order. It cannot be separated. In any event, the assessment orders are not under challenge and the petitioner has no order of stay in the appeals said to have been filed.

7. This Court is not inclined to accept the legal plea of the petitioner that the demand of interest under sections 234B and 234C of the Act is not sustainable in law, for the following reasons:-

(i)            Admittedly, it is the case of the petitioner that the assessment orders passed on remand are the subject matter of appeals before the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal, as the case may be. It is, therefore, for the petitioner to work out its remedy in the said forum including appropriate interlocutory orders as against tax and interest. The writ petition filed challenging the letter demanding payment of arrears is, per se, not maintainable for the abovesaid reason. The petitioner, having availed the statutory remedy, has to seek indulgence in the appeals said to have been filed.

(ii)           In any event, on the merits of the contention that the assessment order does not include the demand of interest under sections 234B and 234C of the Act is concerned, it is an issue which has to be raised by the petitioner in the appeals said to have been filed challenging the orders of assessment. At this stage, this Court is not inclined to go into the veracity of the legal plea taken, since what has been challenged before this Court is not the fine assessment orders, but only a letter demanding the payment of arrears of tax and interest accrued. The two decisions which have been relied upon by the petitioner’s counsel are the income tax appeals challenging the order on merits, whereas, in the present case, a mere letter demanding arrears of tax and interest has been challenged. Therefore, the Court is not inclined to go into the merits of the contentions raised, as the substantial issue challenging the assessment orders is admittedly pending before the appellate forum. The consequences of the order that will be passed in appeals will flow automatically. The petitioner cannot be heard to argue on merits on the issue relating to the demand of interest under sections 234B and 234C of the Act, when admittedly the appeal on substantial plea is pending before the appellate forum. Whether the petitioner has raised such a plea before the appellate forum is also not evident, as appeal memorandums have not been filed. The petitioner has not chosen to file copies of appeals said to have been filed before the appellate forum for reasons best known to the petitioner. In any event, if the petitioner failed to pursue the said plea before the appellate forum, petitioner cannot be allowed to make such a plea before this Court at this juncture. In any event, the petitioner cannot ride two horses on the same issue. Further, when appeal on substantial plea is pending, the writ petition raising certain legal pleas based on a letter is totally untenable and misconceived. The petitioner is trying to achieve something through the writ jurisdiction, having failed to get interim or final relief before the appellate forum.

(iii)          The two decisions are also of no avail to the petitioner’s case, as the two assessment orders produced consequent to the direction of this Court clearly show a claim for interest and it is set out in the annexure. The decisions do not further the case of the petitioner even on merits. In any event, by suppressing assessment orders for three years, the plea of no interest liability is made. This establishes petitioner’s deviant conduct to some how snatch an interim order on hyper-technical pleas.

(iv)          In ground (b) of the grounds raised in the writ petition, it is stated that when the petitioner company is entitled to depreciation benefit for the assessment years in question, the impugned demand would be unsustainable. This factual plea cannot be raised before this Court and it has to be urged before the appellate authority if such plea is raised. To clarify this position, Mr. Chopda referred to a letter dated 15.10.2012 sent by the petitioner to the Assistant Commissioner of Income Tax, Company Circle-I(2) setting out objections to the demand. Therefore, the petitioner has to pursue the matter before the said authority and cannot pre-empt the issue by filing this writ petition and dispute the factual aspects. While challenging the letter demanding arrears, factual plea is raised without any just or reasonable grounds. It is not the petitioner’s case or the counsel’s plea that the letter is wholly unjust, arbitrary, illegal or contrary to law. It is based on assessment orders.

(v)           Similarly, the plea in ground (c) relating to the depreciation benefit for other assessment years is a matter to be considered by the appellate forum and not by this Court, because the appeal on substantial issue is admittedly pending before the appellate forum.

(vi)          The plea in ground (d) relating to financial loss and hardship can very well be canvassed before the appellate forum if and ever an application is filed for stay of demand of tax or interest pending appeal, as the case may be. Admittedly, the petitioner, having not pursued the same, is not entitled to raise that plea before this Court and to tide over the demand for payment of arrears. What the petitioner failed to achieve directly is trying to achieve indirectly. The petitioner’s attempt before this Court lacks bona fide and the writ petition is filed raising irrelevant legal plea only to delay the payment of tax and interest. The writ petition, therefore, lacks bona fide and amounts to abuse of process of Court.

(vii)         One another plea taken in the writ petition is that the Board’s Circular No. 530 dated 6.3.89 has not been strictly followed. Admittedly, it is a case of exercise of discretion under section 220 (6) by the Assessing Officer to grant the benefit, pending appeal. It is not the case of the petitioner that any application is pending before the Assessing Officer on this plea and, therefore, the question of considering the Circular No. 530 dated 6.3.89 does not arise. The petitioner has to work out its remedy in the appeals. No case is made out to approach this Court under Article 226 of the Constitution. Insofar as the present case is concerned, raising the said ground is totally irrelevant to the case and intended to confuse the Court so as to get some interim order and consequently stall the recovery. Hence, the writ petition filed with mala fide intention with an object of delaying recovery of tax is condemned. The writ petition is filed in a cursory manner without proper document relevant to the case. It clearly establishes the lack of bona fides which deserves to be viewed seriously. No other plea is argued by the learned counsel for the petitioner.

8. For all the abovesaid reasons, this Court finds no merit in the writ petition and the same is dismissed. When the Court was about to impose cost, the learned counsel for the petitioner earnestly pleaded that cost may not be imposed, as it would reflect on the counsel. Taking note of the said plea, this Court is not inclined to impose the cost. Accordingly, the writ petition stands dismissed with no order as to costs. Consequently, M.P.No.1 of 2012 is also dismissed.