2026 (4) TMI 129 - HC - Income Tax

Territorial writ jurisdiction and unproved tax demand: cause of action and missing assessment records can defeat recovery

Article 226(2) permits writ jurisdiction where a material part of the cause of action arises within the High Court's territory, even if the originating ... Territorial jurisdiction under Article 226(2) - arising of cause of action - Transfer of case under Section 127 - Recovery of non-existent tax demand - erstwhile entity had amalgamated Territorial jurisdiction of Bombay Court to entertain the present Petition - Part of cause of action - Transfer of case under Section 127 - erstwhile entity had amalgamated with the petitioner having its registered office in Pune - as argued that the demands in question pertain to the erstwhile entity which was assessed in Delhi - HELD THAT: - The Court held that after the insertion of Article 226(2), territorial jurisdiction is not confined to the situs of the authority passing the order, but extends to a High Court within whose territory the cause of action wholly or in part arises. More recently, in Teleperformance Global Services Pvt. Ltd. [2021 (4) TMI 550 - BOMBAY HIGH COURT] a Division Bench of this Court dealt with a case where the assessment order was passed in Delhi against a non-existent entity which had amalgamated with the Petitioner in Mumbai. The Court held that since the successor company was in Mumbai and the impact of the order was felt in Mumbai, a part of the cause of action arose in Mumbai. In the present case, the erstwhile entity had amalgamated with the petitioner having its registered office in Pune; the recovery notice was received there; the consequences of the demands would operate against the petitioner there; and, importantly, jurisdiction over the case had already been transferred under Section 127 to the Pune officer. By reason of that transfer, all proceedings in respect of the relevant years stood with the transferee officer, the Delhi officer became functus officio, and any effective relief in relation to the impugned demands could be granted only by the Pune officer. The reliance placed by the Revenue on Lt. Col. Khajoor Singh [1960 (12) TMI 84 - SUPREME COURT] was held to be misplaced because that decision pre-dated Article 226(2), while ABC Papers Limited [2022 (8) TMI 863 - SUPREME COURT] was found inapplicable as it concerned the scheme of section 260A and not the meaning of cause of action under Article 226(2). The objection that Article 226(2) was merely supplemental to Article 226(1) was also rejected, the Court holding that Article 226(2) furnishes an alternative jurisdictional basis. [Paras 38, 39, 40, 41, 42] The preliminary objection to territorial jurisdiction was rejected and the writ petition was held maintainable before this Court. Recovery of non-existent tax demand - Absence of underlying assessment or rectification orders - Adverse inference for non-production of records - HELD THAT: - The Court found that, despite RTI proceedings, directions of the First Appellate Authority under the RTI Act, and specific directions of the Court to file affidavits on merits and disclose the status of records, the respondents failed to place on record any assessment order, rectification order, intimation, or proof of service giving rise to the impugned demands. Only illegible computation screenshots were furnished for two years, and for the remaining year records were stated to be unavailable. The affidavit of the Pune officer merely stated that physical records had not been transferred from Delhi, while the Delhi officer, though served, did not file any reply at all. On these facts, the Court held that there was no material to substantiate the existence of valid demand-creating orders, and an adverse inference necessarily arose against the Revenue. Old demands could not be permitted to surface on the portal and be enforced without the underlying orders being available and served. Applying the principle stated in Bharat Serums and Vaccines Limited [2024 (9) TMI 1126 - BOMBAY HIGH COURT] and Udayan Bhaskaran Nair [2026 (1) TMI 1045 - BOMBAY HIGH COURT] the Court held that recovery of such non-existent demands was impermissible. In the present case, there is absolutely no material on record to substantiate the existence of valid orders giving rise to the impugned demands. The Respondents have failed to produce the orders and service records, despite repeated opportunities. The failure of Respondent No. 2 to respond and the inability of the Pune Officer to locate records leads to the inevitable conclusion that no such valid orders exist or were ever served upon the Petitioner. [Paras 44, 45, 46, 47, 48] Final Conclusion: The Court held that part of the cause of action had arisen within its territorial jurisdiction and that, after transfer of the case to Pune, the writ petition was maintainable before it. On merits, since the Revenue failed to produce the underlying orders or service records supporting the impugned demands, the demands, recovery notice, and related computation sheets were quashed. Issues: (i) whether the High Court had territorial jurisdiction under Article 226(2) despite the impugned demand notice having originated from an officer outside its territory, and (ii) whether recovery could be sustained when the Department failed to produce the assessment or rectification orders giving rise to the demand.Issue (i): whether the High Court had territorial jurisdiction under Article 226(2) despite the impugned demand notice having originated from an officer outside its territoryAnalysis: Article 226(2) permits exercise of writ jurisdiction where the cause of action, wholly or in part, arises within the territorial limits of the High Court, even if the authority is located elsewhere. The transfer of jurisdiction under Section 127 of the Income-tax Act, 1961 to the Pune officer meant that the current jurisdictional officer was within the Court's territory, and the petitioner received and had to the recovery action in Pune. The effect of the impugned notice and consequential recovery therefore constituted part of the cause of action within the territorial jurisdiction of the Court. The objection founded on the location of the original Delhi officer and on pre-amendment authority was rejected.Conclusion: The High Court had territorial jurisdiction and the objection was rejected in favour of the assessee.Issue (ii): whether recovery could be sustained when the Department failed to produce the assessment or rectification orders giving rise to the demandAnalysis: The petitioner had repeatedly sought the orders creating the demand, but the respondents did not produce any valid assessment or rectification order, and the records were not forthcoming even after judicial directions. The material placed before the Court consisted only of incomplete or illegible system screenshots. In the absence of the foundational orders and service records, and in view of the failure of the Department to substantiate the demand despite opportunity, an adverse inference was warranted. A recovery action cannot stand on an unproved and unsupported demand.Conclusion: The impugned demands and recovery notice were unsustainable and were quashed in favour of the assessee.Final Conclusion: The petition succeeded on both jurisdiction and merits, and the recovery action based on the alleged outstanding tax demands was set aside.Ratio Decidendi: After the 1963 amendment to Article 226, a writ petition is maintainable where a material part of the cause of action arises within the Court's territory, including where the transferee jurisdictional officer and the practical consequences of the impugned tax action are situated there; a tax recovery demand cannot be sustained unless the foundational order creating the demand is produced and proved to exist.