JCIT vs. Kalanithi Maran (Madras High Court)

S. 147: In view of the verdicts of the Supreme Court in GKN Driveshafts & Chhabil Dass Agarwal a s. 148 notice & order on objections cannot be challenged in a Writ Petition

The Court had to consider whether an order passed by the AO on the objections of an assessee can be assailed before the Court under Article 226 of the Constitution of India. HELD by the High Court in the negative:

(i) A challenge to an order passed on the objections of the assessee is in effect a challenge to a notice u/s 148 of the Act. Such an order passed by the AO is only at the stage of process of determination and not a determination by itself. The process of assessment is not required to be challenged before Court of law, as it is a still born child. Therefore, the assessee cannot have a legal right as there is no legal injury suffered by them at that stage. A Writ can be filed to the limited extent in cases where an assessment is sought to be reopened by an Officer who is not competent to do so or where on the face of it would appear that the reopening is barred by limitation or lacks inherent jurisdiction i.e. cases where no adjudication is required on facts (Chhabil Dass Agarwal (2014) 1 SCC 603) followed);

(ii) As held in G.K.N. Driveshafts 259 ITR 19 (SC), once a notice u/s 148 is issued, the assessee has to file a return and can seek the reasons for issuing notice. The AO is bound to furnish the reasons within a reasonable time and the assessee is entitled to file objections over which the AO has to pass a speaking order. The Supreme Court adapted a novel method to make way for the statutory authorities to deal with the adjudication covering assessments. In other words, in clear terms, the Supreme Court has indicated that an assessee is not required to run to the Court before the passing of the assessment order by challenging a notice issued u/s 148. However, in order to provide an element of fairness in the process of adjudication and create an atmosphere of transparency, a mechanism, which was not found in the Statute was evolved by asking the AO to pass a reasoned order. It is only a part of the procedural law. Such an order is only a preliminary order, which can only be said to be an expansion of the reasons which are supposed to be assigned u/s 148(2) of the Act. It neither creates a right nor takes away the one accrued. It is not an adjudication in the strict sense of the term. It is only meant for the purpose of understanding the basis of the notice. Therefore, GKN Driveshafts has to be understood to mean that a pre-adjudication proceedings not deciding the issues shall not be put into challenge while exercising the discretionary power under Article 226 of the Constitution of India, which in the process, takes away the right of the AO to proceed further. Therefore, the Order passed, as directed by the Supreme Court, cannot be termed as a substitute to the assessment order. To put it differently, it does not take away the power of the AO to decide the issue on the plea of the assessee or on a consideration of the records. It is to be remembered that the AO was directed to pass orders only on the objections given by the assessee. The further fact that such an order is required to be passed before proceeding with the assessment would make the said position clear. Furthermore, if the order on the objections can be entertained, then the Supreme Court would not have directed the appeals to be disposed of by the appellate authority instead of setting them aside. This also indicates that the assessee could raise all the pleas including those considered against him by the AO while passing orders on his objections. Hence, such a preliminary order, which does not have a statutory flavour not deciding the dispute between the parties, cannot be challenged by invoking the extraordinary jurisdiction before us. The Supreme Court merely provided safeguards to the assessee at the pre-adjudicative stage. The decision has been given to make sure that the AO complies with s. 148(2) in letter and spirit. There is no certainty in the order passed by the AO. If the order passed is set aside, it would only mean the notice issued u/s 148 is liable to be interfered with. The object of the decision of the Supreme Court is not only to avoid interference by the Courts but not to give way for it. Any other interpretation would make the entire remedial mechanism provided under the Act as redundant.

(iii) Calcutta Discount Co.Ltd 41 ITR 191 (SC) was rendered was much prior to the judgment in G.K.N. Driveshafts 259 ITR 19 (SC). Further, the then fact situation at the time of rendering the said judgment is no longer in existence today.

(iv) The legislative intent is to allow the AO to go through the process of assessment. Even u/s 147, a Court of law cannot presume a lack of jurisdiction, when a fact in issue requires an adjudication. It has to be exercised in terms of sections 139, 143(2) and 143(3). Therefore, considering the scheme of the enactment, particularly, with reference to sections 147 to 153 of the Act, we are of the view that an order passed on the objections of the assessee over adjudicating facts is not open to challenge by way of filing a writ petition.