Madras High Court
The Principal Commissioner Of Income ... vs Santech Solutions Pvt. Ltd on 17 July, 2018
Author: P.T.Asha
Bench: Indira Banerjee, P.T.Asha
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 17.07.2018 CORAM THE HON'BLE MS. INDIRA BANERJEE, CHIEF JUSTICE AND THE HON'BLE MS.JUSTICE P.T.ASHA T.C. (A) No.435 of 2018 The Principal Commissioner of Income Tax 6 No.121, Mahatma Gandhi Road Chennai. .. Appellant Vs Santech Solutions Pvt. Ltd. Old No.268, New No.25 Lloyds Road, Royapettah Chennai 600 014. .. Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal 'B' Bench, Chennai, dated 7.12.2017 made in I.T.A.No.1036/Mds/2016. For Appellant : Mr.T.R.Senthil Kumar Senior Standing Counsel JUDGMENT
(Delivered by Ms.Indira Banerjee, Chief Justice) This appeal is against an order dated 7.12.2017 passed by the Income Tax Appellate Tribunal, 'B' Bench, Chennai, allowing the appeal, being I.T.A.No.1036/Mds/2016, filed by the respondent assessee against an order dated 22.1.2016 passed by the Commissioner of Income Tax (Appeals)-15, partly allowing I.T.A.No.11/CIT(A)-15/14-15 against an impugned order of reassessment dated 12.3.2014.
2. The respondent assessee filed return of income on 30.9.2008 for the assessment year 2008-2009 showing Nil income. The case was selected for scrutiny and assessment was completed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the IT Act), accepting the returned income.
3. It was later noticed that an advance of Rs.1,05,93,698/-received by the respondent assessee had not been credited to the profit and loss account, but to the software development account. It was also noticed that income on software development had not been offered on accrual basis. Having reason to believe that income had escaped assessment, notice was issued under Section 148 of the IT Act, to which the respondent assessee filed an e-return on 22.4.2013. Thereafter, income was reassessed and reassessment completed under Section 143(3) read with Section 147 of the IT Act on 12.3.2014, assessing the income of the respondent assessee at Rs.1,34,63,304/-.
4. Aggrieved by the order of reassessment, the respondent assessee appealed to the Appellate Commissioner, inter alia, contending that the notice under Section 148 of the IT Act was bad in law, as the same was based on change of opinion on the same set of facts and in any case, barred by limitation.
5. By an order dated 22.1.2016, the Appellate Commissioner upheld the action of the Assessing Officer in reopening assessment. The contention of the Revenue that the Assessing Officer had not formed any opinion and there could not be change of opinion was accepted. The Appellate Commissioner, in effect, held that assessment under Section 147 of the IT Act had been reopened on the basis that advance of Rs.1,05,93,698/- had not been credited to the profit and loss account, but in the software development account and that income on software developed had not been offered on accrual basis.
6. In appeal, the Appellate Tribunal, however, found that the assessment was completed under Section 143(3) of the IT Act on 19.11.2010 by accepting the return. In course of the assessment proceedings, a revised return was filed claiming depreciation, which the Assessing Officer did not accept. Notice under Section 148 of the IT Act was issued on 27.3.2013. The reassessment was challenged on the ground that the case had been reopened based on a change of opinion on the same set of facts, there being no fresh materials.
7. The learned Tribunal found that the assessee had given an annexure, where it had furnished the details of recovery of Rs.1,05,93,698/- on semi-finished software. The Assessing Officer while framing the original assessment was aware of the recovery of Rs.1,05,93,698/- made by the assessee on its semi-finished M/s.Health Q Software product from its joint venture parties. It could not be said that the Assessing Officer was not aware or not informed of this. It could not also be said that the learned Assessing officer had not applied his mind on the treatment of the said amount by the assessee.
8. The learned Tribunal, relying on the judgments of the Supreme Court in CIT v. Kelvinator India Ltd., reported in 320 ITR 561 and the Delhi High Court in CIT v. Kelvinator India Ltd., reported in 256 ITR 1, held that when there was no fresh material available with the learned Assessing Officer for harbouring a doubt that income had escaped assessment, reopening of assessment was purely based on change of opinion.
9. Section 147 of the IT Act along with Explanation 1 thereto, is set out herein below for convenience:
Section 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
Explanation 1.Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
10. The learned Standing Counsel emphasized on Explanation (1) to Section 147 of the IT Act, which states that production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer, would not necessarily amount to disclosure within the meaning of the foregoing proviso. In this case, it is not just production of account books, the receipts were separately indicated in the income tax returns and as such Explanation (1) is not attracted.
11. When primary facts were disclosed in the return, it cannot be said that income chargeable to tax which had escaped assessment came to the notice only subsequently. There is no infirmity with the order of the learned Tribunal, which calls for interference of this Court.
12. Section 260A of the 1961 Act provides:
Section 260A. Appeal to High Court.
(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law.
(2) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner or an Assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be-
(a) filed within one hundred and twenty days from the date on which the order appealed against is received by the Assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
(b) [***];
(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.
(2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period.
(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.
(4) The appeal shall be heard only on the question so formulated, and the respondents shall at the hearing of the appeal, be allowed to argue that the case does not involve such question:
Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.
(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.
(6) The High Court may determine any issue which -
(a) has not been determined by the Appellate Tribunal; or
(b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1).
(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908) relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.
13. An appeal lies under Section 260A of the 1961 Act, only when there is a substantial question of law. We find that there is no question of law involved in this appeal much less any substantial question of law.
14. In Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. & Mfg. Co. Ltd., reported in AIR 1962 SC 1314, the Supreme Court agreed with and approved a Full Bench Judgment of this Court in Rimmalapudi Subba Rao vs Noony Veeraju And Ors reported in AIR 1951 Mad 969 and laid down the principles for deciding when a question of law becomes a substantial question of law.
15. In Hero Vinoth Vs. Seshammal reported in (2006) 5 SCC 545, the Supreme Court followed Sir Chunilal V. Mehta & Sons (supra) and other judgments and summarized the tests to find out whether a given set of questions of law were mere questions of law or substantial questions of law.
16. The relevant paragraphs of the judgment of the Supreme Court in Hero Vinoth (supra) are set out herein below :
In Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] the Constitution Bench expressed agreement with the following view taken by a Full Bench of the Madras High Court in Rimmalapudi Subba Rao v. Noony Veeraju [AIR 1951 Mad 969 : (1951) 2 MLJ 222 (FB)] : (Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] , SCR p. 557) When a question of law is fairly arguable, where there is room for difference of opinion on it or where the Court thought it necessary to deal with that question at some length and discuss alternative views, then the question would be a substantial question of law. On the other hand if the question was practically covered by the decision of the highest court or if the general principles to be applied in determining the question are well settled and the only question was of applying those principles to the particular fact of the case it would not be a substantial question of law. This Court laid down the following test as proper test, for determining whether a question of law raised in the case is substantial: (Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] , SCR pp. 557-58) The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law. .......
23. To be substantial a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law involving in the case there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case or not, the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis. (See Santosh Hazari v. Purushottam Tiwari [(2001) 3 SCC 179] .)
24.The principles relating to Section 100 CPC relevant for this case may be summarised thus :
(i) An inference of fact from the recitals or contents of a document is a question of fact. But the legal effect of the terms of a document is a question of law. Construction of a document involving the application of any principle of law, is also a question of law. Therefore, when there is misconstruction of a document or wrong application of a principle of law in construing a document, it gives rise to a question of law.
(ii) The High Court should be satisfied that the case involves a substantial question of law, and not a mere question of law. A question of law having a material bearing on the decision of the case (that is, a question, answer to which affects the rights of parties to the suit) will be a substantial question of law, if it is not covered by any specific provisions of law or settled legal principle emerging from binding precedents, and, involves a debatable legal issue. A substantial question of law will also arise in a contrary situation, where the legal position is clear, either on account of express provisions of law or binding precedents, but the court below has decided the matter, either ignoring or acting contrary to such legal principle. In the second type of cases, the substantial question of law arises not because the law is still debatable, but because the decision rendered on a material question, violates the settled position of law .
(iii) The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well-recognised exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to decision based on no evidence, it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding.
17. In M.Janardhana Rao Vs. Joint Commissioner of Income Tax, reported in [2005] 273 ITR 50 (SC), the Supreme Court held that the principles contemplated under Section 100 of the Code of Civil Procedure would apply to Section 260-A of the 1961 Act too.
18. Right of appeal is not automatic. Right of appeal is conferred by statute. When statute confers a limited right of appeal restricted only to cases which involve substantial questions of law, it is not open to this Court to sit in appeal over the factual findings arrived at by the Appellate Tribunal.
19. The questions raised in this appeal do not meet the tests laid down by the Supreme Court for holding that the questions are substantial questions of law. We are constrained to hold that there is no question of law, let alone any substantial question of law, involved in this appeal.
The appeal is, thus, not entertained and the same is dismissed.
(I.B., CJ.) (P.T.A., J.)
Index : No
Internet : Yes
sasi
To:
1. The Registrar
Income Tax Appellate Tribunal
'B' Bench, Chennai.
2. The Commissioner of Income Tax (Appeals) - 15
Chennai 600 034.
3. The Deputy Commissioner of Income Tax
Company Circle VI(1)
Chennai.
THE HON'BLE CHIEF JUSTICE
AND
P.T.ASHA,J.
(sasi)
T.C. (A) No.435 of 2018
17.7.2018