Jurisdictional Overreach: Lucknow Tax Notice Quashed for Delhi-Based Assessee

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Case Name:

Prashant Chandra Vs. Commissioner of Income Tax and Another (High Court of Allahabad)

Writ Petition No.9525 (MB) of 2013

Date: 31st March 2015

Key Takeaways:

• The court emphasized the importance of jurisdiction in tax matters, particularly when an assessee has shifted their principal place of business.
• The decision underscores the necessity for tax authorities to adhere to jurisdictional boundaries as defined under Section 124 of the Income Tax Act, 1961, 1961.
• The ruling highlights the court’s discretion to entertain writ petitions even when alternative remedies exist, especially in cases of jurisdictional overreach.

Issue:

Did the Deputy Commissioner of Income Tax, Range – II, Lucknow, have the jurisdiction to issue a notice under Section 143(2) of the Income Tax Act, 1961 to the petitioner, who had shifted his principal place of business to New Delhi?

Facts:

The petitioner, a legal professional, had been filing his tax returns in Lucknow until the assessment year 2011-12. From the assessment year 2012-13, he shifted his principal place of business to New Delhi and filed his returns there. Despite this, the Deputy Commissioner of Income Tax in Lucknow issued a notice under Section 143(2) of the Income Tax Act, 1961, prompting the petitioner to challenge the notice on jurisdictional grounds.

Arguments:

• Petitioner: Argued that the notice was issued without jurisdiction as his principal place of business was now in New Delhi, and the Lucknow tax authority had no jurisdiction over him. He contended that the notice was a result of extraneous considerations and was arbitrary.
• Revenue: Claimed that the petitioner’s PAN was still under the jurisdiction of the Lucknow office, and no formal order under Section 127 (of Income Tax Act, 1961) had been passed to transfer jurisdiction to New Delhi.

Key Legal Precedents:

• Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai and others [(1998) 8 SCC 1]: Discussed the discretion of the High Court to entertain writ petitions despite the availability of alternative remedies.
• Harbanslal Sahnia & another vs. Indian Oil Corporation Ltd. & others [(2003) 2 SCC 107]: Highlighted that the rule of exclusion of writ jurisdiction due to alternative remedies is discretionary.
• Section 124 of the Income Tax Act, 1961, 1961: Defines the jurisdiction of Assessing Officers based on the principal place of business or residence of the assessee.

Judgement:

The court quashed the notice issued by the Deputy Commissioner of Income Tax, Range – II, Lucknow, ruling that it was issued without jurisdiction. The court found that the petitioner had appropriately shifted his principal place of business to New Delhi and had filed his returns there. The court also noted procedural lapses by the tax authority in not referring the jurisdictional question to the appropriate higher authority as required under Section 124(2) (of Income Tax Act, 1961).

FAQs:

Q1. Why was the notice quashed?

A1. The notice was quashed because it was issued by a tax authority that did not have jurisdiction over the petitioner, who had shifted his principal place of business to New Delhi.

Q2. What does this mean for the petitioner?

A2. The petitioner is not required to comply with the notice from the Lucknow tax authority, and any proceedings based on that notice are invalid.

Q3. What are the implications for tax authorities?

A3. Tax authorities must ensure they have the correct jurisdiction before issuing notices, especially when an assessee has changed their principal place of business.

Q4. Can the petitioner still be assessed?

A4. Yes, but only by the tax authority in New Delhi, where his principal place of business is now located.

Supplementary affidavit filed by the petitioner is taken on record.

Heard Mr. J.N. Mathur, Senior Advocate duly assisted by Mr.Mudit Agarwal and Mr. Anand Prakash Sinha, learned Counsel for the petitioner and Mr.Alok Mathur, learned Counsel for the Revenue.

Through the instant writ petition, the petitioner assails the impugned notice dated 11.9.2013 issued by the opposite party No.2/Deputy Commissioner of Income Tax, Range -2, Lucknow, contained in Annexure No.1 to the writ petition.

The petitioner is an assessee with the Income Tax

Department and has been discharging his obligations under

Income-tax Act, 1961. The petitioner had filed his returns at

Lucknow upto the Assessment Years 2011-12 as his place of

principal business was within the territorial area which was

assigned to the Assessing Officer, Range- 2, Lucknow by the

competent authority in exercise of the powers under Section 120 (of Income Tax Act, 1961)

(3) of the Income-tax Act, 1961. From the Assessment Year

2012-13, related to Financial Year 2011-12, the petitioner has

shifted his place of business at New Delhi and accordingly filed

his income-tax return at Delhi. Later on, a notice under Section

143 (2) of the Income-tax Act was issued by the Assessing

Officer, Range – 2, to which the petitioner tendered his reply that

he had already filed his return through e-filing at New Delhi, as

he has shifted his place of principal business from Lucknow to

New Delhi, copy whereof has been annexed as Annexure No.SA3

to the supplementary affidavit. Thus, it has been contended that

the Assessing Authority at Lucknow has no jurisdiction to issue

the impugned show cause notice dated 11.9.2013 in view of the

provisions of Section 124 of the Income Tax Act, 1961.

Mr.Alok Mathur, learned Counsel for the Revenue raised a

preliminary objection regarding maintainability of the writ

petition against the show-cause notice. According to petitioner,

writ petition against show cause notice is not maintainable. He

further pointed out that during pendency of the instant writ

petition, the demand has also been created and as such the

petitioner has an equally efficacious alternative remedy by

assailing the said order in Statutory Appeal.

Before dealing with the merits of the case, first of all, we

would like to deal with the preliminary objection regarding

maintainability of writ petition. In the case of Whirlpool

Corporation Versus Registrar of Trade Marks, Mumbai and

others [(1998) 8 Supreme Court Cases 1], the Hon'ble Suprme

Court in Para-15 of the judgment has held as follows :-

“15. Under Article 226 of the Constitution, the

High Court, having regard to the facts of the

case, has a discretion to entertain or not to

entertain a writ petition. But the High Court

has imposed upon itself certain restrictions one

of, which is that if an effective and efficacious

remedy is available, the High Court would not

normally exercise its jurisdiction. But the

alternative remedy has been consistently held

by this Court not to operate as a bar in at least

three contingencies, namely, where the writ

petition has been filed for the enforcement of

any of the fundamental Rights or where there

was been a violation of the principle of natural

justice or where the order or proceedings are

wholly without jurisdiction or the vires of an

Act is challenged.”

In Harbanslal Sahnia & another v. Indian Oil

Corporation Ltd. & others [(2003) 2 SCC 107], the Apex

Court opined that the rule of exclusion of writ jurisdiction by

availability of alternative remedy is a rule of discretion and not

one of compulsion and the Court must consider the pros and

cons of the case and then may interfere if it comes to the

conclusion that the writ seeks enforcement of any of the

fundamental rights; where there is failure of principle of natural

justice or where the orders or proceedings are wholly without

jurisdiction or the vires of an Act is challenged. While deciding

the said case, the Apex Court placed reliance upon its earlier

judgment in Whirpool Corporation (supra).

In M. P. State Agro Industries Development

Corporation Ltd. v. Jahan Khan [(2007) 10 SCC 88], the

Apex Court again reiterated held that the rule of exclusion of writ

jurisdiction due to availability of an alternative remedy is a rule

of discretion and not of compulsion. In an appropriate case, in

spite of the availability of an alternative remedy, a writ court

may still exercise its discretionary jurisdiction of judicial review,

in at least three contingencies, namely (i) where the writ petition

seeks enforcement of any of the fundamental rights; (ii) where

there is failure of principles of natural justice; or (iii) Where the

orders or proceedings are wholly without jurisdiction or the vires

of an Act is challenged. In these circumstances, an alternative

remedy does not operate as a bar.

In Kamlakar Bhimrao Patil v. Maharashtra Industrial

Development Corporation [(2009) 2 SCC 655], the Apex

Court, while considering a question as to whether a matter under

Specific Relief Act, 1963 is entertainable by a writ Court, held

that the writ petition is maintainable.

It is settled law that non-entertainment of petitions under

writ jurisdiction by the High Court when an efficacious

alternative remedy is available is a rule of self-imposed

limitation. It is essentially a rule of policy, convenience and

discretion rather than a rule of law. Undoubtedly, it is within the

discretion of the High Court to grant relief under Article 226

despite the existence of an alternative remedy. However, the

High Court must not interfere if there is an adequate efficacious

alternative remedy available to the petitioner and he has

approached the High Court without availing the same unless he

has made out an exceptional case warranting such interference

or there exist sufficient grounds to invoke the extraordinary

jurisdiction under Article 226. (See: State of U.P. vs. Mohammad

Nooh, AIR 1958 SC 86; Titaghur Paper Mills Co. Ltd. vs. State of

Orissa, (1983) 2 SCC 433; Harbanslal Sahnia vs. Indian Oil

Corpn. Ltd., (2003) 2 SCC 107; State of H.P. vs. Gujarat Ambuja

Cement Ltd., (2005) 6 SCC 499).

The Constitution Benches of the Apex Court in K.S. Rashid

and Sons vs. Income Tax Investigation Commission, AIR 1954

SC 207; Sangram Singh vs. Election Tribunal, Kotah, AIR 1955

SC 425; Union of India vs. T.R. Varma, AIR 1957 SC 882; State

of U.P. vs. Mohd. Nooh, AIR 1958 SC 86 and K.S. Venkataraman

and Co. (P) Ltd. vs. State of Madras, AIR 1966 SC 1089 have

held that though Article 226 confers a very wide powers in the

matter of issuing writs on the High Court, the remedy of writ is

absolutely discretionary in character. If the High Court is satisfied

that the aggrieved party can have an adequate or suitable relief

elsewhere, it can refuse to exercise its jurisdiction. The Court, in

extraordinary circumstances, may exercise the power if it comes

to the conclusion that there has been a breach of principles of

natural justice or procedure required for decision has not been

adopted.

In the instant case, admittedly, the procedure as per

provisions of the Income-tax Act is adhered too. In view of series

of judgments, the plea of the respondents regarding

maintainability of writ petition is rejected.

Now, we proceed to deal with the controversy involved in

the instant writ petition. We have considered the rival

contentions made by the parties' counsel to the lis.

The petitioner in the instant writ petition has assailed the

notice issued by the Deputy Commissioner of Income-tax, Range

– II, Lucknow under Section 143(2) of the Income Tax Act, 1961,

1961 in respect of Assessment Year 2012-13 inter-alia on the

ground that the said notice is de hors the provisions contained in

Section 124 (of Income Tax Act, 1961) and in excess of the jurisdiction vested in

opposite party No.2 (Deputy Commissioner of Income-tax,

Range – II, Lucknow). According to the petitioner, he is

practicing legal profession at Hon'ble Supreme Court and Delhi

High Court besides having practice at Lucknow. He has offices at

New Delhi and Lucknow; and has a right to choose his principal

place of profession, which he has chosen and shifted to Delhi

where he has taken premises on lease and his address is D-27,

East of Kailash, New Delhi.

Elaborating his submissions, learned Counsel for the

petitioner has pointed out that after shifting of the place of

profession, the petitioner has filed the return of income for the

Assessment Year 2012-13 at New Delhi. Even the return of

income for the Assessment Year 2013-14 has been filed at New

Delhi. It has also been pointed out that the petitioner has carried

out all the formalities for shifting the place of profession from

Lucknow to New Delhi and requisite amendment in the PAN

details has also been made.

Inviting our attention towards Section 143 (of Income Tax Act, 1961),

learned Counsel for the petitioner has submitted that a notice

can be issued by the Assessing Officer having jurisdiction over

the assessee. According to him, since the petitioner is assessee

having its principal place of profession at New Delhi, the Deputy

Commissioner of Income-tax, Range – II, Lucknow has no

jurisdiction over the petitioner as the Assessing Authority at New

Delhi has territorial jurisdiction over the principal place of

profession of the petitioner. It has been contended that once the

notice itself is without jurisdiction, the opposite party No.2 has

no jurisdiction to conduct any proceedings in pursuance of the

same but to transfer the file to New Delhi. The impugned notice

does not record the satisfaction of the Assessing Officer and also

does not specify the particulars in respect of which evidence is to

be produced by the petitioner in support of his claim. Suffice to

submit, the opposite party No.2 is not vested with the

jurisdiction to hold a roving enquiry and to fish-out material

against the petitioner by requiring him to place all possible

records before him, even while he does not have the jurisdiction

to enquire into the matter as he is not the Assessing Officer of

the petitioner.

It has also been pointed out that from a reading of the

notice dated 11.9.2013, it is apparently clear that the opposite

party No.2 was aware that the petitioner is an assessee at New

Delhi, which is apparent from the address incorporated in the

said notice but has been scored out and Lucknow address has

mischievously been mentioned on account of extraneous

consideration and in an arbitrary manner.

To strengthen his above assertions, Mr.J. N. Mathur, Senior

Advocate has relied upon the legal proposition laid down in

Commissioner of Income-tax v. All India Children Care

and Educational Development Society [2013] 357 ITR 134

(All); Commissioner of Sales Tax v. M/s Moti and Jawahar,

Varanasi 1981 U.P.T.C. 428; and Bidi Supply Co. v. Union of

India and others AIR 1956 SC 479.

In contrast, learned Counsel for the Revenue submitted

that the case of the petitioner falls under the jurisdiction of the

Deputy Commissioner of Income Tax, Range – II, Lucknow as

the PAN of the petitioner is lying in the jurisdiction of Deputy

Commissioner of Income-tax, Range – II, Lucknow and also his

last known office address 26/I-G, Wazir Hasan Road, Near

Gokhale Marg, Lucknow falls under the territorial jurisdiction of

Deputy Commissioner of Income-tax, Range – II, Lucknow. Mere

change in address in the return of income does not give any

right to the petitioner to change his jurisdiction. It has further

been argued that the case of an assessee can be transferred

from one Assessing Officer to another by the Competent

Authority only after passing order under the provisions of

Section 127 (of Income Tax Act, 1961) and the Deputy Commissioner

understands that no such order has been passed in this case so

far. Therefore, it is evident from the above that the case of the

assessee falls in the jurisdiction of Deputy Commissioner of

Income-tax, Range – II, Lucknow and notice under Section 143 (of Income Tax Act, 1961)

(2) was rightly issued by him under the provisions of the Act.

At this juncture, it would be useful to reproduce Section

124 of the Act on which much emphasis has been laid:-

124. Jurisdiction of Assessing Officers

(1) Where by virtue of any direction or order issued under sub-

section (1) or sub-section (2) of section 120 (of Income Tax Act, 1961), the

Assessing Officer has been vested with jurisdiction over

any area, within the limits of such area, he shall have

jurisdiction --

(a) in respect of any person carrying on a business

or profession, if the place at which he carries on

his business or profession is situate within the

area, or where his business or profession is

carried on in more places than one, if the

principal place of his business or profession is

situate within the area, and

(b) in respect of any other person residing within

the area.

(2) Where a question arises under this section as to whether

an Assessing Officer has jurisdiction to assess any person,

the question shall be determined by the Director General

or the Chief Commissioner or the Commissioner, or where

the question is one relating to areas within the jurisdiction

of different Directors General or Chief Commissioners or

Commissioners, by the Directors General or Chief

Commissioners or Commissioners concerned or, if they are

not in agreement, by the Board or by such Director

General or Chief Commissioner or Commissioner as the

Board may, by notification in the Official Gazette, specify.

(3) No person shall be entitled to call in question the

jurisdiction of an Assessing Officer --

(a) where he has made a return [under sub-

section (1) of section 115WD (of Income Tax Act, 1961) or] under sub-

section (1) of section 139 (of Income Tax Act, 1961), after the expiry of

one month from the date on which he was

served with a notice under sub-section (1) of

section 142 (of Income Tax Act, 1961) or sub-section (2) of section

115WE or sub-section (2) of section 143 (of Income Tax Act, 1961) or

after the completion of the assessment,

whichever is earlier;

(b) where he has made no such return, after the

expiry of the time allowed by the notice under

sub-section (2) of section 115WD (of Income Tax Act, 1961) or sub-

section (1) of section 142 (of Income Tax Act, 1961) or under sub-section

(1) of section 115WH (of Income Tax Act, 1961) or under section 148 (of Income Tax Act, 1961) for

the making of the return or by the notice under

the first proviso to section 115WF (of Income Tax Act, 1961) or under the

first proviso to section 144 (of Income Tax Act, 1961) to show cause why

the assessment should not be completed to the

best of the judgment of the Assessing Officer,

whichever is earlier.

(4) Subject to the provisions of sub-section (3), where an

assessee calls in question the jurisdiction of an Assessing

Officer, then the Assessing Officer shall, if not satisfied with

the correctness of the claim, refer the matter for

determination under sub-section (2) before the

assessment is made.

(5) Notwithstanding anything contained in this section or in

any direction or order issued under section 120 (of Income Tax Act, 1961), every

Assessing Officer shall have all the powers conferred by or

under this Act on an Assessing Officer in respect of the

income accruing or arising or received within the area, if

any, over which he has been vested with jurisdiction by

virtue of the directions or orders issued under sub-section

(1) or sub-section (2) of section 120 (of Income Tax Act, 1961).]

On perusal of the aforesaid statutory provisions of Section

124 (1) (a) and (b), it is abundantly clear that the territorial

jurisdiction which has to be vested with the Assessing Authority

is to be determined by the Chief Commissioner/Commissioner on

the basis of principal place at which the assessee carrying his

business or profession and in respect of others, the person

residing within the area. In case where the assessee raises any

dispute, with regard to jurisdiction of any Assessing Officer, then

the Assessing Officer shall, if not satisfied with the correctness of

claim, refer the matter for determination under Section 124(2) (of Income Tax Act, 1961)

before the assessment is made in view of provisions of Section

124 (4).

As regard the question of determining the jurisdiction, we

may be point out that in Commissioner of Sales Tax v. M/s

Moti and Jawahar, Varanasi, 1981 U.P.T.C. 428, which has

been relied upon by the petitioner, the Court observed that a

point which goes to the root of the matter and which affects the

very existence of the jurisdiction of an authority can be raised at

any time, be it in appeal or revision. In the instant case the

assessee was claiming total exemption that he was not making

any sales at all but whatever he was preparing he was serving it

at his own premises and hence in respect of the same sales tax

was not eligible. This contention goes to the very root of the

matter and certainly it could be taken for the first time even in

revision.

Thus, the question of jurisdiction with regard to place of

assessment is to be decided first. In the case of Commissioner

of Income-tax v. All India Children Care and Educational

Development Society; 1981 U.P.T.C. 428, a Division Bench

of this Court observed that no benefit can be given when the

question regarding jurisdiction is not raised at the first instance.

The Division Bench observed as under:-

“The question of jurisdiction could have been

raised before the Assessing Officer within the period

of one month from the date of filing of return as

envisaged under sub-section (3) (a) of Section 124 (of Income Tax Act, 1961),

but it was not raised. Even after assessment before

the first appellate authority, any such plea was not

put forward. This fact finds mention in paragraph 5

of the order of Commissioner of Income-tax that no

objection regarding jurisdiction or otherwise was

raised during all these proceedings.”

In the instant case, admittedly, on receiving the notice

under Section 143(2) (of Income Tax Act, 1961), the petitioner tendered his

reply, contained in Annexure No.SA1 to the supplementary

affidavit, and the same has not been controverted by the

department by filing an affidavit. In the reply, it has been

specifically stated by the petitoner that he has shifted his place

of business to Delhi and as such, the Assessing Authority at

Lucknow, has no jurisdiction to issue notice under Section 143 (of Income Tax Act, 1961)

(2) of the Act at Lucknow. In case, the Assessing Officer was not

satisfied with the reply then he should have referred the matter

as required under Section 124(2) (of Income Tax Act, 1961). Thus, in absence of

any return for income, the Assessing Authority cannot proceed

further by passing an assessment order and creating a demand.

It may be added that, as per Scheme of Income-tax Act,

after filing of return, the same has to be processed under

Section 143(1) (of Income Tax Act, 1961) within one year from the date of filing

and if there is any concealment of income or the income is

exorbitant, then a notice under Section 143(2) (of Income Tax Act, 1961) has to

be issued. In absence of return, no such exercise was carried out

by the Assessing Authority prior to issuing notice under Section

143 (2) of the Act. Further, no notice requiring the assessee to

file returns under Section 148 (of Income Tax Act, 1961) has been issued. Thus,

we are of the opinion that the Assessing Authority has exceeded

its jurisdiction while issuing notice under Section 143(2) (of Income Tax Act, 1961) of the

Act.

The issuance of notice dated 11.9.2013 by the opposite

party No.2 is palpably without jurisdiction inasmuch as a perusal

of notice itself indicates that the address of petitioner has been

printed as D/27, East of Kailash, New Delhi which has been

scored out and substituted by the Lucknow address of the

petitioner. We are also of the view that the assertion of the

respondents that the assessment can be transferred from one

Assessing Officer to another pursuant to orders passed by the

competent authority under Section 127 (of Income Tax Act, 1961) is in respect of

proceedings which may be transferred from one Assessing

Officer to another subordinate to the same CIT. The said Section

is not attracted in respect of matters falling beyond the

jurisdiction of the CIT.

It may be pointed out that from the record, it emerges out

that during pendency of writ petition, a notice dated 3.11.2014

was sent to the petitioner by the present Assessing Officer in

which information has been required to be submitted on several

points. The said notice is cyclostyled format which is reportedly

sent to the assessees who are manually selected for scrutiny and

does not conform to requirements as prescribed in Section 142 (of Income Tax Act, 1961)

and 143 and seek to hold a roving enquiry to fish out the

material against the assessee.

A perusal of Annexure SA-3 annexed with the

supplementary affidavit dated 31.3.2015 shows that in response

to the notice dated 3.11.2014, the petitioner preferred written

objection to the Assessing Officer bringing to his notice the

pendency of the aforesaid writ petition and also apprising him

that Section 127 (of Income Tax Act, 1961) was not even remotely attracted. Therefore, it

was incumbent upon the opposite party No.2 to have waited for

the outcome of the writ petition, but he proceeded with the

matter which shows prejudicial and impartial attitude of the

authority. It may be noted that transparency and fairness is the

essence of the state action. Therefore, the authorities are

expected to proceed in disciplined manner without creating any

doubt in the mind of the asseessees. As averred above, it was

the duty of the Assessing Officer to have referred the question of

jurisdiction to the Chief Commissioner or the Commissioner as

the case may be under sub-section (2) of Section 124 (of Income Tax Act, 1961)

and not doing so, this vitiated the further proceedings.

Here, there is complete departure from the settled

procedure. It comes out from the record that when the

petitioner refused to submit to the jurisdiction of the said

Assessing Officer at Lucknow, the authority/respondent No.2

proceeded ex parte and dispatched a demand of almost Rs.52

lacs. At the cost of repetition, we would like to mention that in

the notice dated 11.9.2013, which is computer generated clearly

reveals that the Delhi address of the petitioner was scored out

and in handwriting, the local address has been added. Therefore,

it is incorrect to say that the Delhi Address was not in the

knowledge of the respondents and we find force in the

submissions of the petitioner that local address was inserted

deliberately to create jurisdiction, which, in fact, legally was not

vested with the opposite party No.2. Therefore, the opposite

party No.2 exceeded its jurisdiction, which not only vitiates the

impugned show cause notice but the entire proceedings. In

these circumstances, the entire proceedings being ab initio

illegal, without jurisdiction and in violation of Section 143(1)(a) (of Income Tax Act, 1961)

of the Income-tax Act.

For the reasons aforesaid, the writ petition is allowed and

the impugned notice dated 11.9.2013 is quashed. As the notice

notice has already been quashed, consequential orders, if any,

are also quashed.

Dt.31.3.2015

lakshman