Madras High Court
M/S. Paypal India Private Limited vs Additional/Joint/Deputy/Assistant ... on 29 July, 2022
Author: R. Mahadevan
Bench: R. Mahadevan, Mohammed Shaffiq
WA No. 1356 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 29.07.2022
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
Writ Appeal No. 1356 of 2022
and
CMP.No.8658 of 2022
---
M/s. PayPal India Private Limited
rep. by its Authorised Signatory
No.334, Block A, Futura IT Park
Rajiv Gandhi Salai
Sholinganallur
Kanchipuram - 600 119 .. Appellant
Versus
1. Additional/Joint/Deputy/Assistant Commissioner
of Income Tax/Income Tax Officer
National Faceless Assessment Centre
New Delhi
2. Assistant Commissioner of Income Tax
Circle 1, LTU Wanaparthy Block
No.121, Mahatma Gandhi Road
Nungambakkam
Chennai - 600 034 .. Respondents
Appeal filed under Clause 15 of Letters Patent against the Order dated
31.03.2022 passed in WP No. 7907 of 2022.
https://www.mhc.tn.gov.in/judis
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WA No. 1356 of 2022
For Appellant : Mr. Srinath Sridevan
For Respondents : Mr. Prabhu Mukunth Arunkumar
JUDGMENT
R. MAHADEVAN, J.
This intra-court appeal is filed by the appellant/assessee questioning the validity of the order dated 31.03.2022 passed by the learned Judge in WP No. 7907 of 2022.
2.The necessary facts leading to the filing of this appeal are as follows:
2.1. The appellant is engaged in the business of software development.
For the assessment year 2014-2015, they filed their return of income on 28.11.2014 disclosing all the details relating to software expenses incurred by them. Upon scrutiny of the same, the second respondent issued notices under Sections 143 (2) and 142 (1) of the Income Tax Act, 1961, (in short, 'the Act') on 28.08.2015 and 06.09.2016 respectively, to which, the appellant submitted their reply on 28.10.2016.
2.2. Thereafter, the second respondent referred the case to the Transfer Pricing Officer (TPO) inasmuch as there were international transactions involved. On 30.10.2017, the TPO submitted his report, based on which, the second respondent passed an order of assessment on 19.01.2018 accepting the return of income submitted by the appellant.
https://www.mhc.tn.gov.in/judis 2/12 WA No. 1356 of 2022 2.3. However, on 31.03.2021, the second respondent issued a notice under Section 148 of the Act for reopening the assessment. On receipt of the same, the appellant re-submitted their return of income on 20.04.2021 and sought reasons for reopening the assessment.
2.4. After a period of seven months, the second respondent issued a notice dated 13.12.2021 under Section 143 (2) read with Section 147 of the Act, providing a single line reply stating that "Capitalization of software expenses". Aggrieved over the same, the appellant submitted their objections on 27.12.2021 for reopening the assessment.
2.5. Without adverting to the fact that the appellant had fully and completely disclosed the software expenses incurred by them, the objections filed by the appellant were rejected by the first respondent, by order dated 06.01.2022. Along with the said order dated 06.01.2022, the first respondent furnished the approval for initiating the reassessment proceedings, which contained a lengthy reason that was never furnished to the assessee. Upon receipt of the same, the appellant by letter dated 07.02.2022, requested the first respondent to dispose of the objections raised by them for reopening the assessment by way of a speaking order.
2.6. While so, the first respondent issued a show cause notice dated 27.03.2022 proposing variation as per the draft assessment order and directed https://www.mhc.tn.gov.in/judis 3/12 WA No. 1356 of 2022 the appellant to submit their response by 23.59 hours of 28.03.2022. According to the appellant, they neither received a copy of the draft assessment order nor the computation sheet, but they attempted to file their response in the income tax portal of the first respondent on 28.03.2022 well before the time line mentioned in the show cause notice dated 27.03.2022. However, the option to file the submission in the online portal was disabled on 28.03.2022 at 17.30 hours itself, thereby denying their right to submit response.
2.7. In those circumstances, the appellant invoked the jurisdiction under Article 226 of the Constitution of India by filing WP.No.7907 of 2022 to quash the notice dated 31.03.2021 issued by the second respondent and the consequential order dated 06.01.2022 passed by the first respondent rejecting the objections filed by the appellant.
2.8. By order dated 31.03.2022, the learned Judge dismissed the said writ petition. Challenging the same, the appellant is before this court with the present appeal.
3.The learned counsel for the appellant would submit that the appellant had truly and correctly disclosed the income pertaining to software development expenses incurred by them. However, the second respondent https://www.mhc.tn.gov.in/judis 4/12 WA No. 1356 of 2022 issued the notice dated 31.03.2021 for reopening the assessment relating to the assessment year 2014-15, to which, the appellant filed its objections on 27.12.2021 stating that there is no failure on the part of the assessee to disclose truly and fully all material facts and in the absence of any new/tangible material, the reassessment proceedings is based on mere change of opinion of the assessing officer. However, the objections were rejected by the first respondent by order dated 06.01.2022. Challenging the notice issued under section 148 of the Act and the order rejecting the objections filed by the appellant, WP.No.7907 of 2022 came to be filed. During the pendency of the same, the second respondent issued a show cause notice dated 27.03.2022, proposing to pass the reassessment order, following which, assessment order dated 28.03.2022 came to be passed relating to the reassessment proceedings for the assessment year in question, which was challenged in WP.No.7929 of 2022. The learned Judge, after having found the assessment order to be exfacie void, since it was issued before the time limit permitted for filing reply, rightly allowed WP.No.7929 of 2022 by setting aside the reassessment order and remanding the matter to the assessing officer for fresh consideration, after issuing a show cause notice and providing an opportunity to the assessee, but erred in dismissing WP.No.7907 of 2022. It is further submitted by the learned counsel that the learned Judge failed to see that the appellant provided the https://www.mhc.tn.gov.in/judis 5/12 WA No. 1356 of 2022 details and the breakup of the sum of Rs.4,24,07,076/- in relation to software expenses, which was considered, but the assessment order came to be passed without any adjustments; and the reopening sought to be initiated, beyond the period of four years from the end of the relevant assessment year, is based on already available materials and on the basis of a change of opinion, which is not permissible. It is also submitted that without adverting to the detailed objections raised by the appellant for reopening the assessment, the first respondent rejected the same. The learned Judge also failed to consider the grounds made by the assessee against the reassessment proceedings and the legal effect of setting aside the assessment order to restore the status quo ante, and simply dismissed the writ petition by observing that the other writ petition filed by the appellant challenging the reassessment order was allowed. Therefore, the learned counsel sought to allow this appeal by quashing the order of the learned judge as well as the orders impugned in the writ petition.
4.Per contra, the learned counsel for the respondents would submit that after taking note of the fact that once the reassessment order came to be set aside, the notice issued for reopening the assessment, does not survive and the reasons for reopening the proceedings have no relevance, the learned Judge has rightly dismissed the writ petition challenging the reassessment notice as https://www.mhc.tn.gov.in/judis 6/12 WA No. 1356 of 2022 well as the order rejecting the objections raised by the assessee. It is also submitted by the learned counsel that while setting aside the reassessment order, the learned Judge directed the respondent authorities to pass fresh orders, after issuing due show cause notice and providing opportunity to the assessee and therefore, the appellant can very well raise all their contentions before the assessing officer, at the time of fresh reassessment proceedings. Thus, according to the learned counsel, there is no requirement to interfere with the order of the learned Judge.
5.We have heard the learned counsel appearing for both sides and perused the materials placed on record.
6.The issue involved herein is relating to the assessment year 2014-15. The facts remain undisputed are that originally, the assessment was completed on 25.01.2018, which was subsequently reopened by issuing notice dated 31.03.2021 under section 148 of the Act, stating that there are reasons to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. At the request of the assessee, notice dated 13.12.2021 under section 143(2) r/w section 147 of the Act, came to be issued along with a single line reason for reopening the assessment, to which, the https://www.mhc.tn.gov.in/judis 7/12 WA No. 1356 of 2022 appellant raised objections in detail on 27.12.2021. By order dated 06.01.2022 the objections were rejected by the first respondent. Feeling aggrieved, the appellant filed WP.No.7907 of 2022 to quash the reassessment notice as well as the order passed rejecting the objections filed by them. In the mean while, after issuing notice and without giving sufficient time to the assessee to respond to the same, the first respondent passed the reassessment order dated 28.03.2022, which was challenged by the assessee by filing WP.No.7929 of 2022.
7.It is further seen that the learned Judge took up both the writ petitions, along with the writ petitions filed for the very same relief in respect of the assessment year 2016-17, for consideration on the same day i.e., on 31.03.2022. The writ petition bearing no.7929 of 2022 challenging the reassessment order, was ordered and the relevant passage of the said order is usefully extracted below:
"6. Thus, the evidences would show clearly that the time granted to the petitioner to reply was not made fully available to the petitioner to utilize and in fact even before the closing time of filing the reply, the very impugned assessment orders were passed. On that ground itself, it can easily be construed that the principles of natural justice has been violated. Therefore, on that ground, this Court is inclined to set aside these orders and remit the matter back to the respondents for reconsideration.
7. Accordingly, the following orders are passed in these writ petitions:
(i) That the respective impugned orders of assessment are set aside and the matters are remitted back to the respondents for reconsideration.
https://www.mhc.tn.gov.in/judis 8/12 WA No. 1356 of 2022 While reconsidering the same, a fresh show cause notice may be issued by the Revenue to the petitioner / assessee, giving a clear cut time limit, not less than atleast one week to the petitioner to reply and after completing the time, based on the reply if any to be supplied or filed by the petitioner, thereafter, considering the same, orders of assessment may be passed by the respondents.
8. With these observations and directions, both the writ petitions are ordered accordingly. However, there shall be no order as to costs. Consequently, connected miscellaneous petitions are closed." Referring to the aforesaid order passed in WP.No.7929 of 2022, the learned Judge dismissed the writ petition challenging the reassessment notice and the order rejecting the objections filed by the appellant (WP.No.7907 of 2022) in the following terms:
"10. As has been rightly pointed out by the learned Senior Standing Counsel appearing for the respondent Revenue, assessment orders were passed under Section 147 of the Act, prior to which, 148 notice was issued and the objections were raised, which were rejected through the impugned order. Challenging the assessment orders writ petitions were filed and the same were allowed by a separate order passed by this Court today, where, after setting aside those assessment orders, matters were remitted back to the Assessing Authority with a direction to issue fresh show cause notice by giving not less than one week time to the petitioner assessee to respond.
11. Therefore, the said directions issued by this Court shall be scrupulously followed and executed punctually by the respondent Assessing Authority. Therefore, at this juncture, the present challenge made against the 148 notice or the rejection order with regard to the objections raised by the petitioner for the proposed opening of assessment under Section 147 may not stand in the way.
12. In this regard, if any additional reasons have been given by the Assessing Authority, the same can also be objected to, for which, reply can be given with supporting documents and inputs by the petitioner assessee along with the reply to be given to the show cause notice which is going to be issued by the respondent Assessing Authority pursuant to the orders passed in the other writ petitions referred to above. After considering all these reply or inputs to be supplied by the petitioner, the Assessing Authority can go ahead with the assessment process and complete the same by passing an order of assessment, if need arises. Therefore, the present challenge made against these orders https://www.mhc.tn.gov.in/judis 9/12 WA No. 1356 of 2022 in these writ petitions may not hold good for the purpose of legal scrutiny and decision.
13. In view of the aforestated reasons and discussions, both the writ petitions with the above observations are liable to be dismissed. Accordingly are dismissed. No costs. Consequently, connected miscellaneous petitions are closed."
8.Thus, it is evident from the above facts that the appellant / assessee has not challenged the order passed by the learned Judge in WP.No.7929 of 2022 setting aside the reassessment order passed by the first respondent and remanding the matter for fresh consideration and hence, the said order has attained finality. In view of the same, there is no requirement to interfere with the order of the learned Judge passed in WP.No.7907 of 2022, which was filed challenging the notice and the order rejecting the objections raised by the appellant.
9.However, this court cannot lose sight of the contentions raised by the learned counsel for the appellant / assessee in this appeal that the legal effect of the setting aside the reassessment order was to restore the status quo ante, thereby wiping the slate clean for consideration of the challenge to the section 147/148 notice on de novo basis and therefore, the learned Judge, while rightly permitted the appellant to submit objections to the reasons that were provided on 06.01.2022, ought to have disposed the said writ petition, instead of dismissing, so as to enable the assess to submit their objections to the real https://www.mhc.tn.gov.in/judis 10/12 WA No. 1356 of 2022 reasons for reopening as provided in the order dated 06.01.2022, in the reassessment proceedings.
10.Therefore, this court, without setting aside the order of the learned Judge, which is impugned herein, modifies the same to the following limited extent:
"The appellant / assessee shall raise all the contentions including limitation aspect as well as the objections for reopening the assessment with regard to the reasons furnished along with the order dated 06.01.2022, in the reassessment proceedings to be carried on by the assessing officer, as per the order of the learned Judge in WP.No.7929 of 2022. The assessing officer shall consider the same during the reassessment proceedings and pass orders afresh, on merits and as per law, after providing due opportunity of hearing to the appellant / assessee".
11.This writ appeal stands disposed of accordingly. No costs. Consequently, connected miscellaneous petition is closed.
(R.M.D.,J.) (M.S.Q.J.)
29.07.2022
rsh
Index : Yes / No
Internet : Yes / No
https://www.mhc.tn.gov.in/judis
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WA No. 1356 of 2022
R. MAHADEVAN, J.
and
MOHAMMED SHAFFIQ, J.
rsh/rk
1. Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer National Faceless Assessment Centre New Delhi
2. Assistant Commissioner of Income Tax Circle 1, LTU Wanaparthy Block No.121, Mahatma Gandhi Road Nungambakkam, Chennai - 600 034 WA No. 1356 of 2022 29.07.2022 https://www.mhc.tn.gov.in/judis 12/12