Madras High Court
Nlc India Limited vs Assistant Commissioner Of Income Tax on 27 June, 2022
Author: Anita Sumanth
Bench: Anita Sumanth
WP Nos.30017, 30019 and 30020 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 27.06.2022
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
WP Nos.30017, 30019 and 30020 of 2019
& W.M.P.Nos.29928, 29931 & 29934 of 2019
& WMP Nos.32215, 32218 and 3220 of 2019
NLC India Limited,
Represented by its Company Secretary
Block-1, Corporate Office,
Neyveli Township, Cuddalore District,
Neyveli – 607 801. ...Petitioner in all W.Ps.
Vs
1.Assistant Commissioner of Income Tax, Large
Taxpayer Unit, Wanaparthy Block, No.121,
Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034.
2.Joint Commissioner of Income Tax Circle 2 LTU,
Wanaparthy Block, No.121, Mahatma Gandhi Road,
Nungambakkam, Chennai – 600 034.
3.Deputy Commissioner of Income Tax LTU -2,
Wanaparthy Block, No.121, Mahatma Gandhi Road,
Nungambakkam, Chennai – 600 034.
4.Union Of India, Represented by Revenue Secretary,
North Block, New Delhi – 110 001. …Respondents in all W.Ps.
Prayer in W.P.No.30017 of 2019: Writ Petition filed under Article 226 of the
Constitution of India, for the issuance of a Writ of Certiorari, calling for the
https://www.mhc.tn.gov.in/judis
1
WP Nos.30017, 30019 and 30020 of 2019
records pertaining to the impugned order No.ITBA/AST/F/17/2019-
20/1017720392(1) dated 03.09.2019 for the AY 2013-14 passed by the 1st
respondent.
Prayer in W.P.No.30019 of 2019: Writ Petition filed under Article 226 of the
Constitution of India, for the issuance of a Writ of Certiorari, calling for the
records pertaining to the impugned order No.ITBA/AST/F/17/2019-
20/1017587661(1) dated 27.08.2019 for the AY 2014-15 passed by the 1st
respondent.
Prayer in W.P.No.30020 of 2019: Writ Petition filed under Article 226 of the
Constitution of India, for the issuance of a Writ of Certiorari, calling for the
records pertaining to the impugned order No.ITBA/AST/F/17/2019-
20/1017569349(1) dated 26.08.2019 for the AY 2015-16 passed by the 1st
respondent.
In all W.Ps.
For Petitioner : Mr.Raghavan Ramabadran
For Respondents : Mrs.Hema Muralikrishnan
Senior Standing Counsel
COMMON ORDER
The petitioner challenges proceedings for re-assessment in terms of the provisions of the Income Tax Act, 1961 (in short ‘Act’) in respect of three Assessment Years (AY), viz., AY 2013-14 (W.P.No.30017 of 2019), AY 2014- 15 (W.P.No.30019 of 2015 and AY 2015-16 (W.P.No.30020 of 2019). The re- https://www.mhc.tn.gov.in/judis 2 WP Nos.30017, 30019 and 30020 of 2019 assessment for the first year has been initiated beyond the period of 4 years from the end of the relevant assessment year, whereas the subsequent two have been initiated within a period of 4 years from the end of relevant assessment year. That apart, the issues that sought to be addressed remain one and the same.
2. Since the veracity or otherwise of the impugned proceedings would have to be tested on the strength of the reasons and as to whether the statutory conditions have been complied/satisfied by the revenue, the reasons for AY 2013-14 are extracted herein:
‘Subject: Reasons for Re-opening of Assessment – furnishing of – Reg
(i). The assessee during the year relevant to AY 2013-2014 has claimed employee benefit expenses amount to Rs.1952.42 Crore.
As noticed from Note 28(e) to the Annual accounts, pending pay revision settlement, a provision of Rs.139.70 crore has been made towards arrears of salaries and other benefits revision in respect of Non-executives.
Any expenditure debited to the profit and loss account under the head provision is unascertained liability and not an allowance deduction u/s.37. Omission to disallow the unascertained liability has resulted in under assessment of Rs.139.70 Crores. Excess deduction claimed:Rs.139.70 Crores
(ii) The assessee has claimed deduction u/s 35E in respect of the mining business as follows:
Mine 2 Expansion Rs.19,08,44,358 Rajasthan Mine Rs.40,17,65,579 https://www.mhc.tn.gov.in/judis 3 WP Nos.30017, 30019 and 30020 of 2019 TABLE AY/Rs.In 2009- 2010-11 2011-12 2012-13 2013-14 2014-
Crores 10 15
RAJASTHAN
Eligible 12.31 24.62 36.94 49.94 60.04 32.17
Claimed 0 0 0 1.53 40.18 32.17
MINE II EXPANSION
Eligible 0 19.08 38.16 29.22 19.08 19.08
Claimed 0 0 28.02 29.22 19.08 19.08
Total 35E 0 0 28.02 30.75 59.26 51.25
claimed
As per the provisions of sec 35E, the amortization of the qualifying expenditure is allowed in equal installments over a period of 10 years. The amount deductible each year is (i) one–tenth of qualifying expenditure or (ii) Income (before giving deduction u/s 35E) of the previous year arising from commercial exploitation of any mine (i.e not only the mine in respect of which commercial exploitation resulted from the operation of development in question but also where commercial production has been established as a result of operations undertaken earlier) Whichever is less.
Further where, the instalment of amortizable expenditure cannot be wholly absorbed by the profits, the unabsorbed amount is to be carried forward to the subsequent year and added to that years instalment and so on for the succeeding previous year.
As noticed from the annual accounts for the relevant previous years starting from the year of claim , the assessee year wise income form mining business was follows :
TABLE AY/Rs.In 2009-10 2010-11 2011-12 2012-13 2013-14 2014- Crores 15 Segment 493.67 891.94 947.17 960.85 1122.49 986.72 https://www.mhc.tn.gov.in/judis 4 WP Nos.30017, 30019 and 30020 of 2019 Result in respect of mining Depreciation 322.15 184.04 293.65 267.78 244.17 283.96 Income 171.52 707.87 635.52 693.07 878.32 702.76 Thus form the above details, it could be observed that, though the assessee had earned profits from mining business sufficient enough to wholly absorb the amortizable expenditure, it chose not to claim such expenditure for the AYs 2009-10 to 2011-12 and opted to carry forward the same to subsequent AYs 2012-13 to 2014-15 . As the intention of the Act is to allow carry forward only in circumstances where there was not income, the carry forward and claim of expenditure as in the instant case is not permissible. Hence the assessee is eligible for deduction u/s 35E for the AY 2013-14 in respect of Rajasthan Mine amounting to Rs.12.31 crore as against Rs.40.18 crore claimed and allowed .
This has resulted in excess allowance of deduction of Rs.27.87 crores.
Excess deduction claimed u/s 35E: Rs.27.87 Crores.' Barring the assessment years and the amount in question, the reasons for reassessment for the other assessment years remain one and the same.
3. The facts as are common to the three years in question are:
i) Returns of Income (ROI) were filed in time.
ii) Returns were accompanied by audited accounts with all required annexures.
https://www.mhc.tn.gov.in/judis 5 WP Nos.30017, 30019 and 30020 of 2019
iii) Notices under Section 143(2) of the Act were issued by the Assessing Authority seeking various particulars from the petitioner.
iv) Questionnaires under Section 142(1) were also issued, in compliance to which, responses were filed by the petitioner.
v) The reasons for re-assessment are two-fold; in regard to the claim of employee benefit expenses and deduction claimed under Section 35E in respect of the mining business carried on by the petitioner.
vi) As regards the claim of employee benefit expenses, the following disclosures have been made by the assessee in the course of assessment.
a) The Annual Report contains Note in Sl.No.27 thereof, whereunder the expenses incurred on employee benefits have been detailed.
b) The Note at 27(e) reads ‘Pending pay revision settlement provision of Rs.139.70 crore has been made towards arrears of salaries and other benefits revision in respect of Non-executives’.
vii) The Annual Report, admittedly, forms part of the records of assessment, available before and with the Assessing Authority from inception.
viii) Secondly, in regard to deduction under Section 35E, a disclosure has been made vide Annexure VII (relating to paragraph 15(b) of Form 3CD), whereunder a detailed tabulation of the development expenditure claimed for https://www.mhc.tn.gov.in/judis 6 WP Nos.30017, 30019 and 30020 of 2019 various years, commencing from financial year 2008-09 in respect of the mines at Rajasthan are set out. Admittedly, Form 3CD is also form part of the original records.
ix) Identical documents as above also form part of the records for the later two years as well.
x) That apart, Tax Audit Report and Annual Report were separately called for under the questionnaire issued and a specific query was raised in regard to the deduction claimed under Section 35E as well as the other expenses in the Profit and Loss account.
xi) The queries at points 9 and 14 of the 142(1) questionnaire dated 07.04.2015 read thus:
9.Details of deductions claimed under the provisions of Income Tax Act along with the relevant documents and audit report in support of the claim of deduction.
......
14.If any expenses were debited provisionally in the P & L account, please clarify whether the same is added back to the total income. If not, substantiate, whether the said expenditure is an ascertained liability and show scientific basis for arriving at such provision. Also produce the provisioning made in respect of each expenditure in four previous years prior to relevant year.
xii) The petitioner has filed a detailed reply dated 11.05.2015 answering both the above queries in the following terms:
https://www.mhc.tn.gov.in/judis 7 WP Nos.30017, 30019 and 30020 of 2019 a.Deduction u/s 35E:
During the Financial Year 2012-13 the Company claimed deduction u/s 35E to the extent of Rs.59,26,09,936/-. Details are enclosed in page number 97 of Tax audit report i.e., (Annexure –5). b. Deduction u/s 801A:
During the F.Y 2012-13 the Company claimed deduction u/s 801A to the extent of Rs.254,73,74,736/- and the details are enclosed (page-19 of Annexure-8) The provisions debited in the P&L accounts are offered as income and the details are enclosed. (Annexure-7)
xiii) Admittedly, identical questionnaires and responses of the assessee have been filed in respect of the other years as well.
xiv) Order of assessment under scrutiny came to be passed by the Assessing Officer under Section 143(3) of the Act. Since no additions were proposed by the Assessing Officer in respect of the two points dealt with in the reasons for re-assessment, though details had been sought for and supplied by the petitioner, evidently, there is no discussion in that regard in the orders themselves.
xv) It is in the aforesaid circumstance that notices under Section 148 came to be issued for AY 2013-14 on 03.09.2014, beyond the period of 4 years from the end of relevant assessment year, for AY 2014-15 on 28.09.2016 and for AY 2015-16 on 03.09.2014, both within the period of 4 years.
https://www.mhc.tn.gov.in/judis 8 WP Nos.30017, 30019 and 30020 of 2019
4. The submissions of Mr.Raghavan Ramabadran, learned counsel for the petitioner are that for the first year, the assessment is barred by limitation, insofar as the statutory condition set out under the proviso to Section 147 has not been complied with in that case. The proviso to Section 147 requires the Income Tax Department to establish that in a case where re-assessment has been initiated beyond a period of four years from the end of the relevant assessment year, the escapement of income has been occasioned on account of an incomplete and untrue disclosure on the part of the assessee concerned.
5. As far as the other two years are concerned, wherein the re-assessment has been initiated within the period of 4 years, though the bar of limitation would not arise, the impugned proceedings constitute a review of the original assessment proceedings, both completed under scrutiny, as all material available in respect of the two reasons form part of the original records and have been discussed in the course of the original assessment itself.
6. The Assessing Authority has deliberately and consciously not thought it necessary to make any additions/disallowance in that regard. Thus, for the subsequent Officer to take a contrary stand on the basis of the same material, since admittedly nothing new or tangible has come to his notice thereafter would https://www.mhc.tn.gov.in/judis 9 WP Nos.30017, 30019 and 30020 of 2019 constitute a mere review of the original proceedings that are impermissible in law.
7. For this purpose, he relies on the following decisions:
1.ICICI Securities Ltd. Vs. Assistant Commissioner of Income Tax 3 (2), Mumbai (W.P.No.1919 of 2006 dated 22.08.2006).
2.CIT Vs. Kelvinator of India and Anr. [2010] 320 ITR 561 (SC)e
3.CIT Vs. Eicher Ltd. (2007) 163 Taxman 259 (Delhi)
4.M/s.Dailmer India Commercial Vehicles Private Limited Vs. Deputy Commissioner of Income Tax Corporate Circle-1(1) and another (W.P.No.43435 of 2016 dated 30.01.2015)
5.Commissioner of Income Tax, Chennai Vs. Arvind Remedies Ltd. (2015) 378 ITR 547 (MAD)
6.Madras Suspensions Limited Vs. Deputy Commissioner of Income-tax, Company Circle-1, Madurai ([2017] 88 taxmann.com 256 (Madras))
7.Fenner (India) Limited Vs. Deputy Commissioner of Income-tax ([1999] 107 Taxman 53 (MAD))
8.Commissioner of Income-tax, Chennai Vs. Schwing Stetter India (P.) Limited ([2015] 61 taxmann.com 19 [Madras])
9.Asianet Star Communications (P.) Limited Vs. Assistant Commissioner of Income-tax ([2019] 106 taxmann.com 293 (Madras)
10.Bharti Infratel Ltd. V. Deputy Commissioner of Income-tax ([2019] 101 taxmann.com 285 (Delhi))
11.Kaira District Co-operative Milk Producers Union Ltd. Vs. Asst. Commissioner of Income-tax (No.1) ([1995] 216 ITR 371 (Guj.))
12.State Bank of India Vs. Assistant Commissioner of Income-tax, Circle 2(2)(1), Mumbai ([2019] 103 taxmann.com 164 (Bombay)) https://www.mhc.tn.gov.in/judis 10 WP Nos.30017, 30019 and 30020 of 2019
8. Per contra, Mrs.Hema Muralikrishnan, learned Senior Standing Counsel appearing for the respondents, while not very seriously contesting the argument of limitation as far as the impugned proceedings for AY 2013-14 are concerned, puts up a spirited defence in respect of the remaining two AYs.
9. Heard learned counsel and perused the materials placed on record.
10. Before proceeding to the re-assessments initiated within 4 years, I would first deal with the re-assessment for AY 2013-14. The proviso to Section 147 of the Act casts a statutory burden upon the respondents to complete the re- assessment within four years from the end of the relevant assessment year. A further extension of two years would be available only in a case of suppression of material/furnishing of incomplete material at the time of original assessment.
11. Evidently, the two issues, upon which the impugned proceedings have been initiated, deduction under Section 35E and allowance on employee benefit expenses, have not escaped the attention of the Assessing Officer at the original instance. He has sought material in relation to the deduction as well as the claim of expenditure and has been duly supplied the same.
12. Even in the reasons for re-assessment, there is no other material that has come to his notice post original assessment prompting him to take an alternate view. As for whether a view was itself has taken at the first instance, it https://www.mhc.tn.gov.in/judis 11 WP Nos.30017, 30019 and 30020 of 2019 would suffice, to establish full and true disclosure, that all material in relation to that issue must be seen to have been placed before the Assessing Officer, either at his specific instance or suo motu by the assessee concerned.
13. In this case, the materials are clearly, and admittedly available at the time of original assessment, and the Assessing Officer could very well have found a lacunae in the same, warranting additions/disallowances even at that stage. Having not done so, he was still at liberty to re-open the same within the time permissible, though that ship has sailed. Having not done so, the reopening of the assessment is after nearly six years, when there has clearly been a complete disclosure by the assessee at the initial stage.
14. In the case of ICICI Securities Primary Dealership Ltd. (Supreme Court), wherein re-assessment proceedings had been initiated beyond a period of four years, thus attracting the bar under Section 147, the order of the Bombay High Court in ICICI Securities Ltd. V.Assistant Commissioner of Income –tax 3(2), Mumbai (W.P.No.1919 of 2006 dated 22.08.2006) reads thus:
3. We have noted the submissions of both the parties. The Petitioner is a public limited company engaged in the business of carrying on various non-banking financial activities. The present petition is concerning the assessment year 1999-2000. The assessment of the petitioner for that year had been finalised under section 143 of the Income Tax Act. An order in that behalf was passed earlier on 28th March, 2002 determining the income of the https://www.mhc.tn.gov.in/judis 12 WP Nos.30017, 30019 and 30020 of 2019 Petitioner as Rs.27.72 crores. Thereafter the 1st Respondent sought to reopen the assessment and the reasons for reopening the assessment recorded vide his letter dated 27th March, 2006 disclose that it is essentially after having another look at the annual accounts which had been furnished earlier. The officer records that now it is noticed that during that year the assessee company had incurred a loss in trading in share. The officer thereafter discusses the various entries appearing in the opening and closing stocks and purchases and sales of those stocks. Thereafter the officer has concluded that there is a loss of Rs.19.86 crores and that the loss was speculative one. He has therefore come to a conclusion that the income chargeable to tax to the extent of Rs.19.86 crores has escaped the assessment and that is how he has passed the order under section 147 of the Income Tax Act although almost 4 years have gone after the assessment of the concerned year.
4. Mr. Mistry, learned counsel for the Petitioner, points out that the reasons given by the 1st Respondent in his order dated 27th March, 2006 are clearly based on the documents, which the Petitioner had already furnished, containing the accounts tendered by the Petitioner. There is nothing new that has come to the notice of the revenue at this point of time. It is only a different analysis which is now being done and the conclusion is being drawn that its income to the extent of Rs.19.86 crores has escaped the assessment. In his submission, this is impermissible under the powers that are available to the revenue under section 147 of the Income Tax Act. It can only be where there is a failure on the part of the assessee to make a true return which is what provided in proviso to section 147 and wherein such a reopening would be permissible after the expiry of four years. In the instant case, nothing of the kind has happened.
5. Mr.Kotangale, learned counsel for the Respondents, has drawn our attention to a judgment of the Apex Court in the case of Sri Krishna P.) Ltd. v. Income Tax Officer - 221 I.T.R. 538. In this case, what is held by the Apex Court is that where certain loan https://www.mhc.tn.gov.in/judis 13 WP Nos.30017, 30019 and 30020 of 2019 transactions were relied upon and which were subsequently discovered to be false, reassessment proceedings were validly initiated. What is however material to note is that in that particular case the Court has given a clear finding that the assessee had created and recorded bogus entries of loan and, therefore, the Court held that the assessee could not say that it had truly and fully disclosed all material facts necessary for the assessment for the concerned year.
6. The second judgment relied upon by Mr.Kotangale is in the case of Phool Chand Bajrang Lal v. Income Tax Officer – 2003 I.T.R. 456.In this case, the reopening was permitted in view of subsequent information which was found to be definite, specific and reliable. This subsequent information included the confession of the Managing Director that the company had not advanced any loan to any person during the period covered and for which certain cash loans were supposed to have been advanced. It was in the facts of this particular development that the Apex Court held that the reopening was justified.
7. In the facts of the present case, there is nothing new which has come to the notice of the revenue. The accounts had been furnished by the Petitioner when called upon. Thereafter the assessment was completed under section 143(3) of the Income Tax Act. Now, on a mere relook, the officer has come to the conclusion that the income has escaped assessment and he is of course justified in his analysis. In our view, this is not something which is permissible under the proviso to section 147 of the Income Tax Act which speaks about a failure on the part of the assessee to make a proper return. In the present case, no such case is made out on the record.
8. In the circumstances, we allow this petition in terms of prayer (a) and quash and set aside the notice dated 27th March, 2006 directing reopening of the assessment for the year 1999-2000.
https://www.mhc.tn.gov.in/judis 14 WP Nos.30017, 30019 and 30020 of 2019
15. The above order has been confirmed by the Hon’ble Supreme Court by way of the following order:
‘The assessee had disclosed full details in the Return of Income in the matter of its dealing in stocks and shares. According to the assessee, the loss incurred was a business loss, whereas, according to the Revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the re-opening of the assessment by the Assessment Officer vide his Order dated 23rd June, 2006, is clearly a change of opinion. In the circumstances, we are of the view that the order re-opening the assessment was not maintainable.
The civil appeal is, accordingly, dismissed.’
16. Accordingly, and as the statutory condition has not been satisfied, the impugned proceedings for AY 2013-14 are barred by limitation and are set aside. W.P.No.30017 of 2019 is allowed.
17. As regards the reassessments for AY 2015-16 and 2015-16, a distinction is sought to be made by the learned Standing counsel drawing attention to the Explanations to Section 147 of the Act. The Explanations reads thus:
SECTION 147 Income Escaping 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.
https://www.mhc.tn.gov.in/judis 15 WP Nos.30017, 30019 and 30020 of 2019 Explanation 2.- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-
(a)where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to in-
come- tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under Section 92E;
(c) where an assessment has been made, but-
(i) income chargeable to tax has been underassessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;
(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income tax authority, under sub section (2) of section 133 C, it is noticed by the assessing officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understand the income or has claimed excessive loss, deduction, allowance or relief in the return; https://www.mhc.tn.gov.in/judis 16 WP Nos.30017, 30019 and 30020 of 2019
(d) where a person is found to have any asset (including financial interest in any entity) located outside India.
18. Explanation (1) states that the mere filing of account books and other financial details before the Assessing Authority at the time of original assessment would not, by itself, lead to an inference of full and complete disclosure. The key words are ‘due diligence’ and ‘discovered by the Assessing Officer’.
19. The Explanation addresses a situation where the assessee seeks to take the benefit of the fine print embedded in the books of accounts or other material evidence. The process of assessment necessarily entails filing of material, sometimes voluminous, before the Assessing Officer and it is humanly impossible for the Officer to peruse every number and word on every page.
20. Thus, it is the duty of the Assessing Officer to peruse the primary documents, including the ROI and accompanying statutory documents, such as the financial statements including Annual Report. There are however instances where the officer misses some information, on account of the sheer volume thereof, or on account of it being so ingrained in the material that noticing such material itself becomes an exercise in deduction. It is the latter situation that the statute protects the officer from.
21. Thus, and for clarity, where the critical/key information is so embedded amongst a mass of information and evidences so as it render it https://www.mhc.tn.gov.in/judis 17 WP Nos.30017, 30019 and 30020 of 2019 virtually invisible, the assessee is estopped from relying upon the proviso to section 147 and claiming that it has made a ‘full and true disclosure’. A disclosure, to be construed ‘full’ and ‘true’ must also be reasonably transparent and not so disguised in facts and figures so as to facilitate it being obscured altogether.
22. The information in relation to deduction under Section 35E and claim of employee benefit expenses form part of the primary documentation filed by the petitioner. The presentation is clear and transparent and thus could well have raised a flag, if at all such a flag were required. Hence, reliance on Explanation (1) is of no assistance to the revenue in this case.
23. Now coming to Explanation (2), six situations have been adumbrated to also constitute cases where income shall be deemed to have escaped assessment. The present case is sought to be brought in under the cover of Clause (c), (iii) and (iv) of Explanation (2) to Section 147. Learned Standing Counsel argues that the deeming fiction brought in by Explanation (2) is specifically to address a situation such as the present, where the petitioner has been granted excessive relief under Section 35E and excessive allowance of employee benefit expenditure. With the fiction being complete, nothing more is https://www.mhc.tn.gov.in/judis 18 WP Nos.30017, 30019 and 30020 of 2019 necessary as these are cases where income is deemed to have escaped assessment.
24. For this purpose, she relies on the following decisions:
1.Raymond Woollen Mills Ltd. Vs. Income-tax Officer ((1999) 236 ITR 34 (SC))
2.Kalyanji Mavji & Co. Vs. C.I.T., West Bengal-II ((1976) 1 SCC 985)
3. Virundhunagar Co-operative Milk Supply Society Ltd. Vs. Commissioner of Income-tax ((1989) 48 Taxman 13 (Madras))
4.Girilal & Co. Vs. Income-tax Officer, Mumbai ((2016) 75 Taxmann.com 172 (SC))
5. Jayaram Paper Mills Ltd. Vs. Commissioner of Income-tax, Chennai ((2010) 191 Taxman 38 (Madras))
6. Eleganza Jewellery Ltd. Vs. Commissioner of Income-tax ((2014) 52 Taxmann.com 46 (Bombay))
7.Sumitoma Mitsui Banking Corporation Vs. Deputy Director of Income Tax (IT)-2(1) and Others (2011 SCC Online Bom 1973)
8. Deputy Director of Income-tax Vs. Sumitomo Mitsui Banking Corporation ([2016] 76 taxmann.com 135 (SC))
9.Deputy Commissioner of Income Tax, Corporate Circle-1(1) and another Vs. M/s.Daimler India Commercial Vehicles Private Ltd. (W.A.No.1616 of 2018 dated 19.08.2021).
25. The judgment in the case of Raymond Woollen Mills Ltd. (supra) is relied upon for the proposition that the sufficiency or correctness of the material, on the basis of which re-assessment was initiated, is not a matter that should concern the Court in Writ jurisdiction and that the appropriate course of action in such case would be to relegate the assessee concerned to statutory appellate https://www.mhc.tn.gov.in/judis 19 WP Nos.30017, 30019 and 30020 of 2019 remedy. This judgement would not advance the case of the revenue as the issues that have been raised are purely legal in nature, touching upon the validity or otherwise of the proceedings for reassessment. They do not deal with the sufficiency of the reasons recorded.
26. In Kalyanji Mavji & Co. (supra), the Hon’ble Supreme Court was concerned with what constituted ‘information’ to validate the re-opening of assessment. While balancing the ambit and application of the terms ‘information’ and ‘reason to believe’, certain tests and principles were formulated and the Court concludes that the provisions of reopening would apply to the following category of cases.
13.On a combined review of the decisions of this Court the following tests and principles would apply to determine the applicability of s.34(1)(b) to the following categories of cases:
(1) Where the information is as to the true and correct state of the law derived from relevant judicial decisions;
(2) Where in the original assessment the income liable to tax has escaped assessment due to oversight, in advertence or a mistake committed by the Income-tax officer. This is obviously based on the principle that the tax-payer would not be allowed to take advantage of an oversight or mistake committed by the Taxing Authority;
(3) Where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment;
(4) Where the information may be obtained even from the record of the original assessment from an investigation of the https://www.mhc.tn.gov.in/judis 20 WP Nos.30017, 30019 and 30020 of 2019 materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law.
27. In the case of Virudhunagar Co-operative Milk supply Society Ltd. (supra), a Division Bench of this Court noticed the position that of the 4 categories enumerated in Kalyanji Mavji (supra), category (2), i.e., escapement on account of a mistake committed by the Income Tax Officer, would be setting a proposition too broadly, stepping beyond what was envisaged by Statute. Thus, a mere error discovered later would not vest jurisdiction in the Officer to take resort to the provisions of reopening.
28. The Hon’ble Supreme Court in Girilal & Co. (supra) rejected the assessee’s appeal, wherein the assessee had contended that information relating to a deduction claimed by it under Section 80 IB(10) of the Act had been contained in a valuation report that had been supplied at the time of original assessment and thus there had been a full disclosure on its part.
29. This case is distinguishable from the present one for the reason that the information in the present case relating to deduction under Section 35E and employee benefit expenses were not contained in an incongruous private document, but a statutory document mandated to accompany the ROI. In my considered view, Explanation (1) to Section 147 envisages a difference between a document to be compulsorily and mandatorily studied by the Assessing Officer https://www.mhc.tn.gov.in/judis 21 WP Nos.30017, 30019 and 30020 of 2019 and one which is only supplemental and which may command a lesser degree of his attention. This distinction applies squarely in the present case.
30. The Bombay High Court in the case of Eleganza Jewellery Ltd. (supura) concludes against the assessee relying on an earlier decision of that Court in Export Credit Guarantee Corpn. Of India Ltd. V. Addl. CIT (350 ITR
651) to the effect that re-opening is permissible when the original order of assessment was silent in respect of the issue based on which the re-assessment is premised.
31. It is to be noted, that this decision, though of the year 2014, does not refer to the Full Bench decision of the Delhi High Court in the case of CIT V. Kelvinator (256 ITR 1) to the effect that no re-assessment is permissible unless the officer has some new or tangible material in his possession. A reassessment initiated on the basis of the same material as available on record is a mere review, impermissible in law.
32. In Sumitoma Mitsui Banking Corporation (supra) , the Bombay High Court allowed the Writ Petition filed by the assessee recording the concession of both the parties to the effect that the issue on merits in that case stood covered by the judgment of the Hon’ble Court in the case of T.R.F. Ltd. V. Commissioner of Income Tax (323 ITR 397).
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33. This decision was reversed by the Hon’ble Supreme Court noting that the reasons for re-assessment had specifically indicated in that case that there was no material available on record to indicate that the bad debts had been written off as mandatorily required under Section 36(1)(vii) of the Act, as amended with effect from 01.04.1989. The judgement in the case of T.R.F. Limited was thus inapplicable and the High Court was in error in assuming so.
34. In the case of T.R.F. Limited (supra), the Apex Court had held that where a bad debt had been written off, then the same may be claimed for the purposes of computation of tax. However, the pre-condition was the event of ‘write off’. It appears in that case, as noticed by the Hon’ble Supreme Court that the Assessing Authority had initiated the re-assessment on the ground that there was no material available before the Assessing Authority to indicate such write off and therefore the allowance of claim of bad debts was bad in law.
35. Evidently, the disclosure made by the petitioner therein was found to be incomplete and the Department had satisfied the burden of establishing that no full and true disclosure had been made by the petitioner therein. The reversal of the Bombay High Court judgment was on the specific point of fact as noticed by the Hon’ble Apex Court and this distinguishes this judgment from the facts and circumstances in the present case.
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36. She then relies upon a decision of a Division Bench of this Court in M/s.Daimler India Commercial Vehicles Pvt. Ltd. (supra), which refers to an order of the learned single Judge on the ground that there was no clarity, in fact, as to the date of commencement of the assessee’s business in that case.
37. The issue on merits was the allowance of expenses which the Department had categorised as pre-commencement expenses, liable to be capitalised. The Division Bench was of the view that the matter requires examination and on the aspect of assumption of jurisdiction, agreed with the Department that since there was nothing on record to indicate that both a full and true disclosure has been made by the petitioner in regard to the commencement of its business, it would be critical to determine whether the expenses incurred were pre-operative or liable to be accepted as revenue.
38. The assessee was thus relegated to alternate remedy and was given opportunity to raise all objections before the Officer. This case is also distinguishable for the reason that the revenue has discharged its obligation of establishing that there was no complete disclosure by that assessee.
39. I have kept for last the decision of the learned single Judge of this Court, (as he then was) upon which substantial reliance has been made by the learned Senior Standing counsel, which is Jayaram Paper Mills (supra). In this https://www.mhc.tn.gov.in/judis 24 WP Nos.30017, 30019 and 30020 of 2019 case, the re-assessment had been initiated within a period of 4 years and the issue in re-assessment was whether the expenditure unconnected with earning of interest had been claimed and whether the set-off of brought forward business loss was in line with the prescription of Section 72 of the Act.
40. The learned Judge discussed a slew of decisions, concluding that the Writ Petition was not maintainable, since there was no error made out in the assumption of jurisdiction by the Officer. In arriving at this conclusion, it is Explanation (2) that has found favour with the Court. After extracting Explanation (2), the learned Judge states at paragraph 27 as follows:
27.In the light of the above deeming fiction, if we now look at the order dated 31.08.2009, passed by the second respondent, overruling the objections of the petitioner to the initiation of proceedings, it is seen that the petitioner admittedly earned income solely from interest on fixed deposits and intercorporate deposits and debited significant amount of expenditure. The Assessing Officer has taken a stand, prima facie, that the expenditure debited to the profit and loss account under various heads is not incidental to the earning of interest income. Therefore the stand taken by the second respondent, that he has reason to believe that certain income chargeable to tax has escaped assessment, cannot be said to be vague, irrational or devoid of any basis.
41. Learned counsel for that petitioner had relied upon the decision of the Full Bench of the Delhi High Court in the case of CIT V. Kelvinator (supra), but this was distinguished on the ground that Explanation (2) was not in issue in that https://www.mhc.tn.gov.in/judis 25 WP Nos.30017, 30019 and 30020 of 2019 case. This Court was persuaded to reject the challenge on the grounds that the reasons recorded by the Officer were not vague or doubtful, but categoric and in any event, the proceedings were nascent and the petitioner could well put forth all its contentions before the Officer.
42. The Court held that the deeming fiction in Explanation 2 was clearly attracted to the facts of that case, since, admittedly, the claim of interest and the set off of loss were events that were reflected in the ROI.
43. In Kelvinator (supra), the Full Bench was concerned with re- assessment initiated within 4 years. The Full Bench quotes from the decision of the Delhi High Court in Jindal Photo Films Ltd. V. Deputy CIT (238 ITR 170), to following effect:
"The power to reopen as assessment was conferred by the Legisla- ture not with the intention to enable the Income-tax Officer to re- open the final decision made against the Revenue in respect of questions that directly arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unre- stricted power of review in the hands of the assessing authorities depending on their changing moods."
It was further held by the Bench that:
"Reverting back to the case at hand, it is clear from the reasons placed by the Assessing Officer on record as also from the state- ment made in the counter affidavit that all that the Income-tax Of- ficer has said is that he was not right in allowing deduction un- der Section 80I because he had allowed the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase "reason to believe" in https://www.mhc.tn.gov.in/judis 26 WP Nos.30017, 30019 and 30020 of 2019 his order, admittedly, between the date of the orders of assessment sought to be reopened and the date of forming of opinion by the In- come-tax Officer nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the origi- nal orders of assessment the order dated February 28, 1994, passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stands till today. What the As- sessing Office has said about the order of the Commissioner of In- come-tax (Appeals) while recording reasons under Section 147 he could have said even in the original orders of assessment. Thus, it is a case of mere change of opinion which does not provide juris- diction to the Assessing Officer to initiate proceedings under Sec- tion 147 of the Act.
It is also equally well settled that if a notice under Section 148 has been issued without the jurisdictional foundation under Section 147 being available to the Assessing Officer, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction of this court. If "reason to believe" be available, the writ court will not exercise its power of judicial review to go into the sufficiency or adequacy of the ma- terial available. However, the present one is not a case of testing the sufficiency of material available. It is a case of absence of ma- terial and hence the absence of jurisdiction in the Assessing Offi- cer to initiate the proceedings under Section 147/148 of the Act."
44. While dealing with the argument of the revenue that was dealt with by the Gujarat High Court in Praful Chunilal Patel V. M.J.Makwana, Asst. CIT (236 ITR 832), the Full Bench differed with the conclusion of the Gujarat High Court. The argument that was advanced by the revenue was that the use of the word ‘assessment’ would mean that there has to be an ascertainment of taxable income and deliberation of the issue in that regard. https://www.mhc.tn.gov.in/judis 27 WP Nos.30017, 30019 and 30020 of 2019
45. If there was no discussion/deliberation in the order, then an incumbent Assessing Officer, who is of the view that a particular item even though reflected on the record had not been subjected to assessment and had been omitted in the working of the taxable income that would initiate proceedings in that record. This view was specifically dissented from in the following terms:
We are, with respect, unable to subscribe to the aforementioned view. If the contention of the Revenue is accepted the same, in our opinion, would confer an arbitrary power upon the Assessing Officer. The Assessing Officer who had passed the order of assessment or even his successor officer only on the slightest pretext or otherwise would be entitled to reopen the proceeding. Assessment proceedings may be furthermore reopened more than once. It is now trite that where two interpretations are possible, that which fulfils the purpose and object of the Act should be preferred. It is a well settled principle of interpretation of statute that the entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word.
It is not in dispute that the Assessing Officer does not have any jurisdiction to review his own order. His jurisdiction is confined only to rectification of mistakes as contained in Section 154 of the Act. The power of rectification of mistake conferred upon the Income Tax Officer is circumscribed by the provisions of Section 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income Tax Appellate Tribunal has limited jurisdiction under Section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order https://www.mhc.tn.gov.in/judis 28 WP Nos.30017, 30019 and 30020 of 2019 cannot be changed by way of exercising the jurisdiction of rectification of mistake.
It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income Tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake.
In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue.
46. The Bench relies upon a Notification issued by the Board in Notification No.F.No.400/234/95-IT(B) dated 23.05.1996, at the time of amendment of Section 147 on 01.04.1989, taking a cue therefrom to state that even according to the Central Board of Direct Taxes a mere change of information cannot form the basis for reopening of a completed assessment. A note of caution that was sounded to state that if the ‘reason to believe’ of the Assessing Officer is founded upon information which might have been received by the Assessing Officer after completion of assessment, this may be a sound basis for initiation of re-assessment.
47. The argument of the learned Senior Standing Counsel on the merits of the two issues sought to re-assessed are that as regards the claim of employee benefit expenses, a portion of claim was unascertained and this had not been taken note of in the original assessment. In this regard, the Note in the Audited https://www.mhc.tn.gov.in/judis 29 WP Nos.30017, 30019 and 30020 of 2019 Financials, extracted in the earlier portion of this order, specifically throws light on the fact that only one portion of the expenditure was ascertained, despite which the Assessing Authority at the first instance chose not to interfere with the claim.
48. The second issue relates to deduction under Section 35E which permits one tenth of the expenditure to be allowed as a deduction over a period of years. The tabulation of expenditure is fashioned in a particular way by the assessee that, according to the learned Standing Counsel, does not reflect the proper methodology for the claim of deduction.
49. Rather than test the correctness or otherwise of a methodology adopted by the petitioner for a claim of expenditure, it would, in my view, be appropriate to test whether such claim, and the methodology adopted for making such a claim, had been placed before the Authority even at the first instance. The answer in this case is in the affirmative. The successor officer has not come into possession any other information to indicate escapement of income but merely relies upon the methodology adopted by the petitioner to apprehend escapement of tax. In such circumstances, resort to Section 147 is, in my view, impermissible.
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50. In dealing with re-assessments and challenge there to, Courts have formulated principles over time, one of which is that an assessment being a quasi-judicial proceeding, is expected to have been formulated by an officer after due application to all issues that arise from the ROI. Useful reference may be made to Section 114(e) of the Indian Evidence Act that raises a statutory presumption in this behalf.
51. No doubt, there are situations where errors occur, either on fact or on law. It is for this reason that the Income Tax Act provides for multiple measures that may be resorted to by the revenue to address the situation appropriately.
52. The provisions of Section 154 enable an Officer to rectify a mistake apparent from the record, Section 263 vests authority in a superior officer to revise an order of the subordinate officer, if the order is both erroneous and prejudicial to the interests of the revenue and Section 147 provides for reopening of assessment to bring to tax escaped turnover upon satisfaction of the conditions set out therein.
53. Each of these remedial measures are to address specific situations and must not trespass or transgress into the territory earmarked for the other measures. While Section 154 address those errors that are patent and evident from the record, Section 263 addresses those situations where there is concurrent https://www.mhc.tn.gov.in/judis 31 WP Nos.30017, 30019 and 30020 of 2019 compliance with the twin conditions of an order being ‘erroneous’ and ‘prejudicial’ to the revenue.
54. Likewise, Section 148 must be resorted to only in those cases where the reasons disclose prima facie satisfaction that there is escapement of turnover. In a case where orders of assessment have been passed under scrutiny, the specific issues set out in the reasons have been identified at the time of original assessment and information in that regard has been solcited and furnished by the assessee, the legal assumption is that these orders have taken note of the ROI and accompanying statutory forms and all the material available on that account.
55. All the more, in a case where the officer has been careful in his analysis of the issues that arise and has raised queries that relate to the issues in question, the only conclusion to be arrived at is that the proceedings constitute a review and not re-assessment.
56. The Hon’ble Supreme Court in the case of Parashuram Pottery Works Ltd. V. Income Tax Officer (106 ITR 1) has reiterated the importance of finality in matters of revenue assessments. In fact, they say that finality is the hallmark of a civilised society. In the present situation, it is not the revenue’s case, and the reasons do not so disclose, that there was anything available to the officer https://www.mhc.tn.gov.in/judis 32 WP Nos.30017, 30019 and 30020 of 2019 over and above what the assessee has clearly, categorically and conspicuously disclosed in the primary documents accompanying the ROI.
57. In such an event, it is my considered view, Explanation (2) would be of no avail to the Department. Explanation (2) cannot be read in isolation, but has to be read harmoniously with other propositions that are equally applicable in determining the veracity of a re-assessment.
58. In light of the discussion as above, the impugned proceedings for AYs 2014-15 and 2015-16 are found to constitute merely a review of the original assessment proceedings, impermissible in the context of Section 147, and the same are set aside. W.P.Nos.30019 and 30020 of 2019 are also allowed. No costs. Connected Miscellaneous Petitions are closed.
27.06.2022 Index : Yes/No Speaking Order/Non speaking Order Sl To
1.Assistant Commissioner of Income Tax, Large Taxpayer Unit, Wanaparthy Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034.
2.Joint Commissioner of Income Tax Circle 2 LTU, Wanaparthy Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034.
https://www.mhc.tn.gov.in/judis 33 WP Nos.30017, 30019 and 30020 of 2019
3.Deputy Commissioner of Income Tax LTU -2, Wanaparthy Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034.
4.Union Of India, Represented by Revenue Secretary, North Block, New Delhi – 110 001.
https://www.mhc.tn.gov.in/judis 34 WP Nos.30017, 30019 and 30020 of 2019 Dr.ANITA SUMANTH, J.
Sl WP Nos.30017, 30019 and 30020 of 2019 &W.M.P.Nos.29928, 29934 & 29931 of 2019 & WMP Nos.32215, 32218 and 3220 of 2019 27.06.2022 https://www.mhc.tn.gov.in/judis 35