2025 (5) TMI 215 - HC - Income Tax

Petition dismissed for bypassing statutory remedy under Section 263 revision without extraordinary circumstances

The HC dismissed a petition challenging a revision u/s 263 regarding discrepancies between declared turnover and cash deposits. The petitioner sought to ... Revision u/s 263 - huge difference in the turnover declared and the cash deposited, regarding which, no inquiry was made by the assessing authority and as such the petitioner was required to show cause as to why the assessment order be not treated as erroneous insofar as the same was prejudicial to the interest of the revenue - HELD THAT:- The determination made by the authority is based on the material available on record. The view taken by the authority is open to appeal. The petitioner with regard to the availability of alternative remedy, has made cursory submissions indicating in para 26 of the petition that there is no alternative much less efficacious remedy available to the petitioner but to approach this Court and invoke its extraordinary jurisdiction under Article 226 of the Constitution of India. The parameters for exercising jurisdiction under Article 226 of the Constitution of India are well settled, wherein it can be exercised sparingly and only in exceptional circumstances despite availability of statutory remedy. Recently, in Jaipur Vidyut Vitran Nigam Limited vs. MB Power (MP) Limited [2024 (1) TMI 1459 - SUPREME COURT] after referring to the judgement in Radha Krishan Industries vs. State of H.P. [2021 (4) TMI 837 - SUPREME COURT] has laid down that though availability of an alternative remedy is not a complete bar in the exercise of power of judicial review by the High Courts, the recourse to such a remedy would be permissible only if extraordinary and exceptional circumstances are made out. It was observed that when a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution of India. In the present case, the petitioner has failed to point out any extraordinary and exceptional circumstance for bypassing the statutory alternative remedy. Neither there has been a failure of principles of natural justice nor it is the case of the petitioner that proceedings were without jurisdiction, which are the grounds under which the bar of statutory remedy does not come in the way of entertaining the petitions under Article 226 of the Constitution of India. The petition is, therefore, dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court include:- Whether the assessment order dated 21.04.2021 under Section 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of revenue for failing to verify the discrepancy between declared turnover and cash deposits in bank accounts.- Whether the addition of unexplained cash credits under Sections 68 and 69A of the Income Tax Act was justified based on the evidence and explanations provided by the petitioner.- Whether the petitioner's explanation that the excess cash deposits corresponded to VAT/GST collections not included in turnover was acceptable without further verification.- Whether the petitioner's failure to maintain stock registers and produce conclusive proof of GST/VAT payments and purchases invalidated the genuineness of sales and justified addition to income.- Whether the petitioner could bypass the statutory remedy of appeal and invoke the High Court's extraordinary writ jurisdiction under Article 226 of the Constitution of India.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Assessment Order under Section 143(3) and the Subsequent Revision under Section 263Relevant legal framework and precedents: Section 143(3) of the Income Tax Act empowers the assessing officer to complete assessment after scrutiny. Section 263 allows revision of an assessment order if it is found to be erroneous and prejudicial to the interest of revenue. The Supreme Court has held that revision under Section 263 requires that the original order be erroneous and prejudicial, and the revising authority must conduct proper inquiry before revising.Court's interpretation and reasoning: The Court noted that the Principal Commissioner of Income Tax (PCIT) issued a revision order under Section 263 on the ground that the assessing officer had accepted the petitioner's declared turnover without verifying the large difference between turnover and cash deposits. The PCIT concluded that the assessment order was erroneous as it was passed without proper inquiry into this discrepancy.Key evidence and findings: The petitioner declared turnover of Rs. 19,86,02,939/- but deposited Rs. 27,85,96,000/- in bank accounts. No inquiry was made initially to reconcile this difference. The PCIT's order directed further investigation and verification.Application of law to facts: The Court found the PCIT's exercise of power under Section 263 justified as the assessing officer failed to verify material discrepancies, making the original order erroneous and prejudicial.Treatment of competing arguments: The petitioner argued that the revision order was unjustified as the excess cash deposits pertained to VAT/GST collections not included in turnover. The respondents contended that the failure to verify was prejudicial and warranted revision. The Court accepted the latter view.Conclusions: The revision under Section 263 was valid and necessary to safeguard revenue interests.Issue 2: Justification for Addition of Unexplained Cash under Sections 68 and 69ARelevant legal framework and precedents: Section 68 deals with unexplained cash credits, requiring the assessee to satisfactorily explain the nature and source of such credits. Section 69A addresses unexplained money found during search or otherwise. The burden lies on the assessee to prove the genuineness of cash deposits.Court's interpretation and reasoning: After the revision, the assessing officer issued notices under Section 142(1) and 68/69A to probe the unexplained cash. The petitioner submitted audited financial statements, GSTR-9C, VAT payment details, purchase invoices, and transportation receipts to explain the cash deposits.The assessing officer rejected these explanations, holding that purchase invoices and transport receipts alone do not prove actual physical stock or sales. The petitioner admitted to not maintaining stock registers. Moreover, the petitioner failed to produce proof of GST/VAT/Cess payments to the government, which undermined the genuineness of claimed sales and ITC credits.Key evidence and findings: The absence of stock registers and lack of documentary proof of tax payments were critical. The assessing officer found a difference of Rs. 7,99,93,061/- between cash deposited and declared turnover, treating it as unexplained money under Section 69A.Application of law to facts: The Court upheld the assessing officer's conclusion that the unexplained cash deposits represented unaccounted sales or undisclosed income. The petitioner's failure to furnish conclusive evidence justified the addition to taxable income.Treatment of competing arguments: The petitioner argued that the excess cash was VAT/GST collected on sales and hence not part of turnover, supported by statutory forms and documents. The assessing officer and respondents countered that without proof of payment of these taxes, the explanation was insufficient. The Court sided with the assessing officer.Conclusions: The addition of unexplained cash under Sections 68 and 69A was legally sustainable.Issue 3: Availability and Exercise of Extraordinary Jurisdiction under Article 226Relevant legal framework and precedents: The High Court's writ jurisdiction under Article 226 is discretionary and exercised sparingly, especially where alternative statutory remedies exist. The Supreme Court has clarified that availability of an effective statutory remedy ordinarily bars writ jurisdiction except in exceptional circumstances such as failure of natural justice or lack of jurisdiction.Court's interpretation and reasoning: The petitioner sought to invoke writ jurisdiction to challenge the assessment order and additions, bypassing the statutory appellate remedy. The Court examined whether exceptional circumstances existed to warrant such interference.Key evidence and findings: The petitioner's submissions on lack of alternative remedy were cursory and unsubstantiated. There was no allegation of violation of natural justice or jurisdictional error.Application of law to facts: The Court reiterated that since the petitioner had an effective remedy of appeal under the Income Tax Act, the writ jurisdiction could not be invoked in absence of exceptional grounds.Treatment of competing arguments: The petitioner contended the statutory remedy was ineffective; the respondents emphasized the availability and adequacy of appeal. The Court agreed with the respondents.Conclusions: The writ petition was not maintainable and was dismissed, leaving the petitioner free to pursue statutory remedies.3. SIGNIFICANT HOLDINGS- 'Having purchase invoices and transportation receipts does not prove beyond doubt that physical stock was actually held. Further the assessee has only admitted that even stock registers are not maintained. Assessee's failure to produce proof of deposit of GST/VAT/Cess in Govt account in the garb of ITC also renders the genuineness of said sales as unproven, as again the purchases on which ITC is claimed are unproven. Hence, it is established that the differential amount of Rs. 7,99,93,061/- between cash deposited in bank account and turnover/sales shown is nothing but unaccounted sales/undisclosed income and is hereby added to the total income as unexplained money u/s 69A of the I.T. Act, 1961.'- The Court emphasized that revision under Section 263 is justified when the original assessment order is passed without proper inquiry and is prejudicial to revenue.- The Court reaffirmed that the burden of proving the source and nature of cash credits lies on the assessee, and failure to maintain proper records and produce conclusive evidence justifies additions under Sections 68 and 69A.- The Court held that extraordinary writ jurisdiction under Article 226 cannot be exercised to bypass statutory appeal remedies unless exceptional circumstances exist, such as violation of natural justice or jurisdictional errors.- The final determination was to dismiss the writ petition and leave the petitioner to avail statutory remedies in appeal.