Madras High Court
M/S. T.Stanes & Company Limited vs The Deputy Commissioner Of Income Tax on 19 May, 2020
Author: C.Saravanan
Bench: C.Saravanan
W.P.Nos.30564 & 32477 of 2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved On 31.01.2020
Pronounced On 19.05.2020
CORAM
THE HON'BLE MR.JUSTICE C.SARAVANAN
W.P.Nos.30564 & 32477 of 2016
and
W.M.P.Nos.26506 & 28176 of 2016
M/s. T.Stanes & Company Limited,
8/23-24, Race Course Road,
Coimbatore – 641 018,
Rep. by its Whole time Director
Shri P.S.Bopaiah. ... Petitioner
in both W.Ps.
Vs.
The Deputy Commissioner of Income Tax
Corporate Circle I(2),
Income Tax Department,
Race Course, Coimbatore – 641 018. ...Respondent
in both W.Ps.
Writ Petitions filed under Article 226 of the Constitution of India
praying to issue a Writ of Certiorarified Mandamus, to call for the
records of the respondent and quash the impugned notices under Section
148 of the Act in PAN:AAACT7126P dated 08.09.2015 and 21.09.2015
____________
http://www.judis.nic.in
Page No 1 of 13
W.P.Nos.30564 & 32477 of 2016
and the consequential orders in PAN No: AAACT7126P dated
20.07.2016 & 26.08.2016 respectively and direct the respondent to drop
the reassessment proceedings for the Assessment Years 2010-2011 &
2011-2012.
For Petitioner : Mr.Vikram Vijayaraghavan
for Mr.Subbaraya Aiyar Padmanabhan
in both W.Ps.
For Respondent : Mr. A.N.R. Jayaprathap
Standing Counsel, in both W.Ps.
COMMON ORDER
By this common order both the Writ Petitions are being disposed.
2. In these Writ Petitions, the petitioner has challenged the impugned notices dated 08.09.2015 and 21.09.2015 issued by the respondent under Section 148 of the Income Tax Act, 1961 seeking to reopen of the assessments for the Assessment Years 2010-2011 & 2011- 2012 and consequential communications dated 20.07.2016 and 26.08.2016 for the respective Assessment Years overruling the objections of the petitioner. The petitioner has prayed for directing the respondent to ____________ http://www.judis.nic.in Page No 2 of 13 W.P.Nos.30564 & 32477 of 2016 drop the proposed re-assessment proceedings initiated by the respondent.
3. The petitioner is engaged in the manufacture of fertilizers, mixtures, micro nutrient fertilizers, bio pesticides, high quality seeds, and marketing of agro inputs, marketing of consumer industrial products, distributors of agro chemicals, Estate stores, Bata products, Tarpaulins etc. It is also engaged in manufacture of coffee powder, purchase and sale of coffee seeds and tea and retreading of automobile tyres.
4. According to the petitioner, pursuant to the order dated 05.03.2010 of this Court, M/s.Stanes Tyre& Rubber Products Limited (Transferror Company) merged with the petitioner (M/s.Stanes & Company limited) with effect from 01.04.2009.
5. The petitioner filed its Income Tax Return of the for the Assessment Years 2010-2011 and 2011-2012 and declared income after setting off the carry forward loss and unabsorbed depreciation of M/s. StanesTyre and Rubber Products Ltd. (Transferror Company), on the book profit under Section 115JB of the Act was determined. ____________ http://www.judis.nic.in Page No 3 of 13 W.P.Nos.30564 & 32477 of 2016
6. The returns were scrutinized and assessment orders were passed as detailed below:-
W.P.No.30564/2016 W.P.No.32477/2016 Assessment Year 2010-2011 2011-2012 Date or Return 13.10.2010 14.3.2013 Income Returned under normal Provisions for Nil 5,72,38,789/- payment of Tax under Section 115JB of the Income Tax Act, 1961.
Book Profit as per Return 7,35,89,144/- Nil Assessment Order 31.03.2013 25.03.2014 Taxable Income returned in 11,09,65,797/- 7,32,73,599/- the Assessment Order.
Tax Paid before Assessment. 1,25,06,475/- * Nil Tax payable after 1,66,44,870/- 2,43,39,658/- Assessment.
rounded off to rounded off to Rs.83,81,851/- after Rs.61,22,650/- after the adjustments. the adjustments.
* Under Section 115JB of the Income Tax Act, 1961.
7. These returns were sought to be re-opened under Section 148 of the Income Tax Act, 1961. To which the petitioner was also filed its ____________ http://www.judis.nic.in Page No 4 of 13 W.P.Nos.30564 & 32477 of 2016 objections. By the impugned orders, the respondent has rejected/ overruled the objections of the petitioner against the reopening of the assessments. The details are as follows:-
W.P.No. Assessment Notice Objection Impugned Year u/s.148 of date communications the Act date overruling the objections 30564/2016 2010-2011 08.09.2015 19.01.2016 20.07.2016 32477/2016 2011-2012 21.09.2015 19.01.2016 26.08.2016
8. The reasons for re-opening the assessments of the respective Assessment Years as communicated are as follows:-
For Assessment Year 2010-11 For Assessment Year 2011-2012 "The assessment in this case was "The assessment in this case was completed u/s 143(3) of the IT completed u/s 143(3) of the IT Act, 1961 on 31.03.2013 by Act, 1961 on 25.03.2014 by assessing book profit of assessing total income of Rs.11,09,65,797/- u/s.115JB of Rs.7,32,73,599/- under Normal the IT Act. Provisions of the IT Act. Subsequently it is noticed that on Subsequently it is noticed that on 05.03.2010 the assessee company 05.03.2010 the assessee company has obtained an order from has obtained an order from Hon'ble Madras High Court Hon'ble Madras High Court approving the scheme of approving the scheme of ____________ http://www.judis.nic.in Page No 5 of 13 W.P.Nos.30564 & 32477 of 2016 amalgamation between the amalgamation between the Holding company T. Stanes& Co. Holding company T. Stanes& Co.
Ltd. (Assessee company) and Ltd. (Assessee company) and fully fully owned subsidery company owned subsidery company M/s. M/s. Stanes Tyre and Rubber Stanes Tyre and Rubber Products Products Ltd., w.e.f. 1.04.2009. In Ltd., w.e.f. 1.04.2009. In consequence of the amalgamation consequence of the amalgamation the assessee company has the assessee company has adjusted adjusted a sum of a sum of Rs.2,98,02,930/- as loss Rs.7,02,40,408/- as loss brought brought forward from the forward from the amalgamating amalgamating company, by virtue company, by virtue of of amalgamation u/s.72A of the IT amalgamation u/s.72A of the IT Act, 1961. Act, 1961. In this connection it was observed For adjusting the brought forward that as per the provisions u/s. loss u/s.72A of the amalgamating 72A(1)(a) and 72A97)(aa) for company, the assessee company adjusting the brought forward loss should be an Industrial of the amalgamating company, it undertaking engaged in should be an industrial manufacture or processing of undertaking engaged in goods. In this case, the Stanes manufacture or processing of Tyre and Rubber Producers were goods. In this case, the Stanes engaged in the business of tyre Tyre and Rubber Producers retreading only. As per the were engaged in the business of judicial decision of Hon'ble tyre retreading only. As per the Kerala High Court in the case of judicial decision of Hon'ble CIT Vs. Vijaya Retreders (2001) Kerala High Court in the case of no manufacturing is involved in CIT Vs. Vijaya Retreders (2001) tyre retreading. Therefore, the no manufacturing is involved in assessee company is not eligible tyre retreading. The supreme to adjust the brought forward Court also held that tyre loss of amalgamating retreading is not an industrial company." undertaking in CIT Vs. T.N.State Transport Corporation 252 ITR 883 (SC). Therefore, the assessee ____________ http://www.judis.nic.in Page No 6 of 13 W.P.Nos.30564 & 32477 of 2016 company is not eligible to set off the brought forward loss of Rs.2,98,02,930/- pertaining to the amalgamating company."
9. Challenging the same, the learned counsel for the petitioner relied on the following decisions:-
i. Additional Commissioner of Income Tax Vs. Kalsi Tyre (P) Ltd., (1981) 131 ITR 0636. ii. Fenner (India) Ltd. Vs. Deputy Commissioner of Income Tax, (2000) 241 ITR 0672.
iii. Commissioner of Income Tax Vs. Vijaya Retreaders, (2002) 253 ITR 0053.
10. Defending the impugned notices and impugned communications issued for the respective Assessment Years, it is submitted that mere production of documents before the Assessing Officer the books of account or other document from which material evidence could be gathered with due diligence by the assessing officer will not amount to disclosure contemplated in Section 147 of the Income Tax Act, 1961. It is further submitted that Explanation 2 to Section 147 of the Income Tax Act, 1961 is attracted. It is further submitted that it is ____________ http://www.judis.nic.in Page No 7 of 13 W.P.Nos.30564 & 32477 of 2016 open for the petitioner to make all submissions before the respondent and in case there is a case for dropping on merits, the proceedings will be dropped on merits.
11. From a reading of the above it is evident that the only reason for reopening the assessment of the petitioner was that it was not entitled to adjust the loss of the transferor company as the said company was not engaged in the “manufacturing activity” within the meaning of Section 72A(1)(a) of the Income Tax Act, 1961.
12. In this connection, reliance has been placed on the decision of the Kerala High Court in CIT Vs. Vijaya Retreaders, (2002) 253 ITR 53 and that of the decision of the Hon’ble Supreme Court in CIT Vs. Tamil Nadu State Transport Corporation (2001) 252 ITR 883. For the Assessment Year 2010-11, the tax was paid under Section 115JB of the Income Tax Act, 1961 and it has been proposed to be recomputed by denying the adjustment of loss brought forward from the said company amounting to Rs.7,02,40,408/- similarly for the Assessment Year 2011-12 a sum of Rs.2,98,02,930/- is sought to be added back to the taxable ____________ http://www.judis.nic.in Page No 8 of 13 W.P.Nos.30564 & 32477 of 2016 income.
13. However, it is noticed that the petitioner disclosed this aspect in the return of income and it is pursuant to which the respective assessment orders dated 31.03.2013 and 25.3.2014 were passed by the Assessing Officer. Thus, there was no material suppression of facts on the part of the petitioner to either truly or fully furnish the information that were required for completing the assessment. Therefore invocation of Section 148 of the Income Tax Act, 1961 for the purpose of proviso to Section 147 is clearly without jurisdiction.
14. The impugned communication dated 20.07.2016 for the Assessment Year 2010-11 and the impugned communication dated 26.08.2016 for the Assessment Year 2011-2012 issued pursuant to the decision of the Supreme Court in GKN Drive Shafts indicates that invocation of Section 148 for the purpose of proviso to Section 147 qua denial of adjustments under Section 72A(1)(a) of the Income Tax Act, 1961 is inspired from the change of opinion as the petitioner has disclosed the basis on which the petitioner was claiming deductions. ____________ http://www.judis.nic.in Page No 9 of 13 W.P.Nos.30564 & 32477 of 2016 Thus, the proposal in the impugned communications would clearly be in violation of the decision of the Honourable Supreme Court in CIT Vs. Kelvinator of India Ltd, (2010) 2 SCC 723.
15. The issue as to whether the petitioner was entitled to adjust the loss of the brought forward from the books of accounts of the transferor company was subject matter of discussion before the assessment orders were passed for the respective Assessment Years.
16. Reopening of the assessment to deny the adjustments made under is therefore without jurisdiction. Therefore, the proviso to Section 147 of the Income Tax Act, 1961 puts an embargo on the respondent from proceeding further as 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.
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17. At the same time, if in the course of such proceedings the respondent comes to a conclusion that there were other grounds on which assessment can be reopened, the respondent can assess or reassess such income in the light of Explanation 3 to Section 147 of the Income Tax Act, 1961.
18. In the light of the above discussion, I direct the petitioner to participate in the proceedings before the respondent. The respondent is however precluded from disturbing the adjustments made by the petitioner and allowed in their respective assessment orders under Section 72A(1)(a) of the Income Tax Act, 1961.
19. The respondent may however look for such other aspects which may come within the purview of Explanation 3 to Section 147 of the Income Tax Act, 1961, for them to demand while passing orders.
20. Since the dispute pertains to the Assessment Years 2010-2011 & 2011-2012, in the light of the above observations, the respondent is ____________ http://www.judis.nic.in Page No 11 of 13 W.P.Nos.30564 & 32477 of 2016 directed to bring a closure to the proceedings within a period of three months from the date of receipt of a copy of this order through videoconferencing, if situation so warrants on account of Covid19 Pandemic.
21. The present Writ Petitions stand disposed with the above observations. No cost. Consequently, connected Miscellaneous Petitions are closed.
.05.2020 Index : Yes/No Internet :Yes/No jen C.SARAVANAN, J.
jen To The Deputy Commissioner of Income Tax Corporate Circle I(2), Income Tax Department, Race Course, Coimbatore – 641 018.
____________ http://www.judis.nic.in Page No 12 of 13 W.P.Nos.30564 & 32477 of 2016 Pre-Delivery Common Order in W.P.Nos.30564 & 32477 of 2016 and W.M.P.Nos.26506 & 28176 of 2016 .05.2020 ____________ http://www.judis.nic.in Page No 13 of 13