Jurisdictional excess in tax review: Bombay HC quashed disallowance beyond notice and barred table-based deduction without statutory preconditions.

The Bombay HC held that a tax review order cannot exceed the scope of the show cause notice: where the notice targeted only the profit element under Rule 58(1)(h), a broader disallowance of all deductions under Rule 58(1)(a) to (h) violated fair procedure and natural justice, and the order was quashed. It further held that resort to the lump sum table under the proviso to Rule 58(1) is permissible only when the statutory preconditions are specifically invoked and satisfied; absent such a foundation, substitution of actual deductions by table-based valuation was without jurisdiction. The writ petition was maintainable notwithstanding an alternative appeal because the challenge involved jurisdictional defect and breach of natural justice.

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Issues: (i) Whether the review order was vitiated because it travelled beyond the scope of the show cause notice and invoked a wider disallowance than the notice proposed; (ii) Whether the application of the lump sum deduction under the table to Rule 58(1) was permissible without the foundational preconditions in the proviso to Rule 58(1); (iii) Whether the writ petition was maintainable despite the alternative statutory appeal, in view of the alleged jurisdictional defect and breach of natural justice.

Issue (i): Whether the review order was vitiated because it travelled beyond the scope of the show cause notice and invoked a wider disallowance than the notice proposed.

Analysis: The notice proposed disallowance only in relation to the profit element falling under Rule 58(1)(h), quantified at a specific amount, whereas the review order disallowed all deductions claimed under Rule 58(1)(a) to (h). An adjudicatory order cannot exceed the grounds and subject matter set out in the notice. Where a party is not confronted with a broader basis of liability, expanding the disallowance in the final order offends fair procedure and natural justice.

Conclusion: The review order was bad in law for travelling beyond the show cause notice and was liable to be quashed.

Issue (ii): Whether the application of the lump sum deduction under the table to Rule 58(1) was permissible without the foundational preconditions in the proviso to Rule 58(1).

Analysis: The proviso permits resort to the table only where proper evaluation of deductions is not possible because accounts were not maintained for that purpose or were not sufficiently clear or intelligible. The materials on record showed that the accounts had been examined in assessment and audit proceedings and the deduction on actual basis had earlier been accepted after verification. In the absence of a notice or finding establishing the statutory preconditions, substitution of actual deductions by a percentage-based table deduction was without jurisdiction.

Conclusion: The invocation of the table rate under Rule 58(1) was impermissible and could not sustain the review order.

Issue (iii): Whether the writ petition was maintainable despite the alternative statutory appeal, in view of the alleged jurisdictional defect and breach of natural justice.

Analysis: The availability of an appeal does not bar writ jurisdiction where the impugned action is alleged to be wholly without jurisdiction or in breach of natural justice. The challenge here went to the authority's competence to enlarge the notice and to apply a different statutory basis without confronting the assessee. Such defects justify exercise of writ jurisdiction rather than relegation to an alternative remedy.

Conclusion: The writ petition was maintainable and the alternative remedy did not preclude interference.

Final Conclusion: The impugned review and rectification orders were set aside, and the assessee succeeded on the jurisdictional and procedural challenges to the levy.

Ratio Decidendi: An order of tax review cannot go beyond the scope of the show cause notice, and statutory discretion to apply a lump sum valuation method can be exercised only when the prescribed preconditions are specifically invoked and satisfied; where jurisdictional error and violation of natural justice are shown, writ jurisdiction is maintainable notwithstanding an alternative appeal.

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