Law: Income Tax Act, 1961

Section: 263,226

(a) Income-tax---Revision---Writ---Notice under S.263---Writ petition maintainable against notice if it were issued without jurisdiction or mala fide or under circumstances which were not reasonable---Auditor's note that assessee had borrowed funds paying huge interest and advanced amounts without charging interest ---CIT issuing notice under 5.263 directing Assessing Officer to enquire whether there was a nexus between borrowings and interest-free advances---Notice was valid---Indian Income Tax Act, 1961, S.263--­Constitution of India, Art.226. (b) Writ- --Existence of alternate remedy---Not a bar to issue of writ---Constitution of India, Art.226 The mere existence of an alternative remedy is not enough to throw out the writ petition in limine or even refuse to pass interim orders. If it appears to the Court that a notice under section 263 of the Income Tax Act, 1961, was issued without jurisdiction, or mala fide, or under circumstances in which no reasonable Commissioner could ever issue such a notice, then in that event a writ could be issued against such a notice, and that, too even at the very preliminary stage of issuance of notice. The Commissioner of Income-tax found from the note of the auditor that the assessee had taken loans from different financial units and paid huge interest and had given interest-free loans to its subsidiaries. The Commissioner of Income-tax opined that the Assessing Officer should have made enquiries about the existence of any possible nexus between the borrowed fund and the interest-free advances. He issued a notice under section 263. On a writ petition to quash the notice: Held, (i) that the writ petition was maintainable. (ii) that, in the instant case, the Commissioner of Income-tax had applied his mind to the facts and he had jurisdiction to issue the notice. There was no indication that the notice had been issued mala fide. It could not also be said that the jurisdiction was exercised on circumstances and grounds, which cannot reasonably be used by any Commissioner ever to issue a notice under section 263. The notice was valid. B.K. Roy (Pvt.) Ltd. v. CIT (1995) 211 ITR 500 (Cal.); Brooke Bond Lipton India Ltd. v. CIT…

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