Delhi High Court
Pr. Commissioner Of Income Tax Delhi - 8 vs M/S Samsung India Electronics Pvt. Ltd. on 30 May, 2024
Author: Purushaindra Kumar Kaurav
Bench: Yashwant Varma, Purushaindra Kumar Kaurav
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 19 March 2024
Judgment pronounced on: 30 May 2024
+ ITA 1445/2018
PR. COMMISSIONER OF INCOME TAX DELHI - 8
..... Appellant
Through: Mr. Sanjay Kumar, Sr. SC.
Versus
M/S SAMSUNG INDIA ELECTRONICS PVT. LTD.
..... Respondent
Through: Mr. Sachit Jolly and Ms. Disha
Jham, Advocates
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
JUDGMENT
PURUSHAINDRA KUMAR KAURAV, J.
1. The present appeal has been preferred by the Revenue against
the order dated 23.02.2018, passed by the Income Tax Appellate
Tribunal ["ITAT"], whereby, the reassessment proceedings against
the respondent-assessee have been invalidated on account of being
initated in the absence of any fresh tangible material for the
Assessment Year ["AY"] 2002-03.
2. Shorn of unnecessary details, the facts would manifest that the
respondent-assessee filed its Income Tax Return ["ITR"] on
31.10.2002, declaring a loss of Rs.4,63,27,044/-. However, the book
profit as per Section 115JB of the Income Tax Act, 1961 ["Act"] was
shown to be Rs.80,47,676/-. The ITR was processed as per Section
143(1) of the Act and the case of the respondent-assessee was selected
for scrutiny assessment.
3. Subsequently, notices under Sections 143(2) and 142(1) of the
Act were issued to the respondent-assessee alongwith a detailed
questionnaire and an assessment order dated 21.03.2005 was passed
under Section 143(3) of the Act. In the assessment order, the
Assessing Officer ["AO"] made various additions under different
heads and assessed the business income of the respondent-assessee at
Rs.67,97,24,064/-.
4. Thereafter, a notice dated 25.03.2009 was issued under Section
148 of the Act for reopening assessment proceedings in accordance
with the provisions enshrined in Section 147 of the Act. On
10.08.2009, the reasons recorded for reassessment were supplied to
the respondent-assessee and the same were duly replied vide letter
dated 16.12.2009. In the said reply, the respondent-assessee contended
that there was no fresh material to reopen the assessment.
5. However, on 16.12.2009 itself, an assessment order under
Section 147/143(3) of the Act was passed by the AO after making
certain additions and the total taxable income was computed at
Rs.73,71,78,670/-.
6. Aggrieved by the said order, the respondent-assessee preferred
an appeal before the Commissioner of Income Tax (Appeals)
["CIT(A)"], who vide order dated 27.06.2011, held that the
reassessment proceedings were validly initiated by the Revenue.
However, the CIT(A) found that the additions made by the AO did not
have any merit and the same were accordingly deleted.
7. Thereafter, the Revenue preferred an appeal before the ITAT
against the order of the CIT(A) deleting additions made by the AO on
account of prior period expenses, receivables etc. Subsequently, a
cross objection was also filed by the respondent-assessee against the
finding of the CIT(A) that the reassessment proceedings were
sustainable as per law. Vide order dated 23.02.2018, the said cross
objection was decided in favour of the respondent-assessee and the
appeal of the Revenue came to be dismissed by the ITAT.
8. It is in the aforesaid backdrop that the Revenue has proposed
the following substantial questions of law for our consideration: -
"A. Whether, in the facts and circumstances of the case, the ITAT
was justified in concluding that the reassessment proceedings were
not validly initiated?
B. Whether, in the facts and circumstances of the case, the ITAT
was justified in upholding the ClT(A)‟s order in deleting additions
made by the AO on account of „prior expenses‟, „receivables‟ and
„advertisement expenses‟ on the ground that no tangible material
outside the record formed the basis of reassessment proceedings?"
9. Learned counsel for the Revenue, at the outset, submitted that
the case at hand is squarely covered in favour of the Revenue by the
decision of the Supreme Court in the case of CIT v. P.V.S. Beedies
(P) Ltd. [(1998) 9 SCC 272] inasmuch as the ratio laid down in the
said decision permits reopening of assessment on the basis of a factual
error pointed out by the revenue audit party report. He contended that
the moment the audit objection is accepted by the Revenue, it is
implied that there is no true disclosure by the respondent-assessee.
According to him, at the stage of issuance of notice under Section 148
of the Act, the AO is required to make only a prima facie opinion,
which is duly discernible from the report of the revenue audit party. It
was, therefore, submitted that the ITAT had erroneously held that the
reassessment proceedings were bad in law.
10. Learned counsel further contended that the said report forms a
tangible material, which is imperative for initiating reassessment
under Section 147 of the Act. He submitted that the factum regarding
the delivery of 75 vehicles to its dealers as commission for achieving
sales targets and the incentives being provided thereto was not
disclosed by the respondent-assessee and the same impedes the
requirement of true and full disclosure at the time of original
assessment. According to him, the said fact was only disclosed after
the proceedings under Section 201/201(1A) of the Act were initiated
against the respondent-assessee. He lastly contended that there is no
elementary requirement to categorically mention the escapement of
income on account of failure to truly and fully disclose the primary
facts.
11. On the contrary, learned counsel appearing on behalf of the
respondent-assessee vehemently opposed the submissions made by the
learned counsel for the Revenue. He submitted that the initiation of
reassessment proceedings is based upon the reasons recorded by the
concerned authority, which cannot be subsequently allowed to
improve or supplement the said reasons at the stage of appellate
proceedings. According to him, the reasons recorded in the present
case does not mention any failure upon the respondent-assessee to
fully or truly disclose the material facts. He also asserted that the
CIT(A) has traversed beyond its mandate to sustain the reassessment
proceedings on the ground which is not even mentioned in the reasons
recorded for reopening.
12. While drawing our attention towards the reasons recorded for
reopening the assessment, learned counsel submitted that the notice
under Section 148 of the Act could not have been issued after a lapse
of four years since there is no tangible material which could allow the
Revenue to proceed with the reassessment. He contended that as per
decision of P.V.S. Beedies (supra), the report provided by the revenue
audit party is only an information and the same does not lead to an
unassailable inference that there was a failure on the part of the
respondent-assessee to disclose the material facts truly and fully. It
was, therefore, urged that the said case lacks applicability in the
instant appeal and does not favour the Revenue.
13. He relied upon the decision of this Court in the case of Willmar
Schwabe India (P) Ltd. v. CIT [2023 SCC OnLine Del 3757] to
submit that it is necessary for the Revenue to highlight in the reasons
recorded that there was no full and true disclosure on behalf of the
assessee.
14. We have heard the learned counsel appearing for the parties and
perused the record.
15. The short controversy which forms the subject matter of the
present lis relates to whether there was any fresh tangible material
which could have allowed the Revenue to proceed with the reopening
of the assessment?
16. At the threshold, before we advert to the merits of the case, it is
pertinent to determine whether the report provided by the revenue
audit party could be considered to be a sole basis to infer that the
respondent-assessee had not adhered to the two-fold requirement of
true and full disclosure at the time of original assessment proceedings.
Paragraph no.3 of the decision in the case of P.V.S. Beedies (supra),
which has been heavily relied upon by the Revenue, reads as under: -
3. We are of the view that both the Tribunal and the High Court
were in error in holding that the information given by internal audit
party could not be treated as information within the meaning of
Section 147(b) of the Income Tax Act. The audit party has merely
pointed out a fact which has been overlooked by the Income Tax
Officer in the assessment. The fact that the recognition granted to
this charitable trust had expired on 22-9-1992 was not noticed by
the Income Tax Officer. This is not a case of information on a
question of law. The dispute as to whether reopening is permissible
after audit party expresses an opinion on a question of law is now
being considered by a larger Bench of this Court. There can be no
dispute that the audit party is entitled to point out a factual error or
omission in the assessment. Reopening of the case on the basis of a
factual error pointed out by the audit party is permissible under law.
In view of that we hold that reopening of the case under Section
147(b) in the facts of this case was on the basis of factual
information given by the internal audit party and was valid in law.
The judgment under appeal is set aside to this extent.
17. It is undoubtedly settled by the aforesaid decision that the
revenue audit party is duly entitled to signify a factual error or
omission in assessment and reopening of the case on the said grounds
is permissible under law. However, the said decision is only
concerned with sub-section (b) to Section 147 of the Act, as it then
stood, which read as under: -
"(b) Notwithstanding that there has been no omission or failure as
mentioned in Clause (a) on the part of the assessee, the Income-tax
Officer has in consequence of information in his possession reason
to believe that income chargeable to tax has escaped assessment for
any assessment year, he may assess or reassess such income for the
assessment year concerned."
18. However, in the instant case, it has been contended by the
Revenue that the respondent-assessee had failed to fully and truly
disclose the material facts, which ostensibly relates to Section 147(a)
of the Act, as it then stood. Thus, under the facts of the present case,
the said decision cannot be construed to be an authority on the
amended provision to reopen assessment.
19. In the case of CIT v. Simbhaoli Sugar Mills Ltd. [2011 SCC
OnLine Del 1241], this Court, while relying upon various judicial
pronouncements, has held that the reassessment proceedings cannot be
solely based upon audit report objections. The relevant paragraphs of
the said decision read as under: -
"11. There is also a catena of judgments to the effect that
initiation of reassessment proceedings on the basis of audit
report objections is bad in law. A reference in this regard can be
made to the judgment of our High Court titled Transworld
International Inc. v. Joint CIT (2005) 273 ITR 242 (Delhi) and also
the judgments of the Supreme Court in Indian and Eastern
Newspaper Society v. CIT (1979) 119 ITR 996 (SC) and CIT v.
Lucas T.V.S. Ltd. (2001) 249 ITR 306 (SC).
12. The sum and substance of the discussion is that
reassessment proceedings under section 147 read with section
148 of the Act cannot be initiated merely based on the audit
report. An audit is principally intended for the purpose of
satisfying the auditor with regard to the sufficiency of rules and
procedures prescribed for the purpose of securing an effective
check on the assessment, collection and proper allocation of
revenue. As per paragraph (3) of the circular issued by the Board
on July 28, 1960, also an audit department should not in any way
substitute itself for the Revenue authorities in the performance of
their statutory duties."
20. Further, the Supreme Court in the case of CIT v. Kelvinator of
India Ltd. [(2010) 2 SCC 723] has expressly held that the AO can
exercise the power to reassess only if it can satisfactorily conclude on
the basis of the „tangible material‟ that the income has escaped
assessment. The relevant paragraphs of the said decision are
reproduced as under: -
"6. We must also keep in mind the conceptual difference between
power to review and power to reassess. The assessing officer has no
power to review; he has the power to reassess. But reassessment has
to be based on fulfilment of certain precondition and if the concept
of "change of opinion" is removed, as contended on behalf of the
Department, then, in the garb of reopening the assessment, review
would take place.
7. One must treat the concept of "change of opinion" as an in-built
test to check abuse of power by the assessing officer. Hence, after 1-
4-1989, the assessing officer has power to reopen, provided there is
"tangible material" to come to the conclusion that there is
escapement of income from assessment. Reasons must have a live
link with the formation of the belief. Our view gets support from
the changes made to Section 147 of the Act, as quoted hereinabove.
Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not
only deleted the words "reason to believe" but also inserted the
word "opinion" in Section 147 of the Act. However, on receipt of
representations from the companies against omission of the words
"reason to believe", Parliament reintroduced the said expression and
deleted the word "opinion" on the ground that it would vest
arbitrary powers in the assessing officer."
21. In the case of Donaldson India Filters Systems v. Deputy
CIT [2015 SCC OnLine Del 6614], this Court took a view that the
AO is saddled with a responsibility to disclose the „tangible material‟
based upon which the action has been taken under Section 147 of the
Act. The relevant paragraphs of the said decision read as under: -
"24. It is clear from a bare reading of the aforementioned
satisfaction note recorded by the assessing authority for reopening
the assessment five years after the assessment had been completed
under section 143(3) (on November 30, 2005) that the only
indication set out as to the grounds which had triggered such action
is through the words "after going through the records". The
assessing authority would not elaborate as to which records had
been adverted to and what was the event which had occurred
that had impelled such perusal of the records for a fresh view to
be taken. Noticeably, the Assessing Officer while recording his
satisfaction by note dated March 19, 2010, that a case had been
made out for the income to be reassessed would not attribute any act
of commission or omission on the part of the assessee so as to
constitute a failure to discuss fully and truly of the material facts.
Indeed, the assessing authority expressed that reasons to believe
existed that a part of the income had escaped assessment. But, it
would not clarify even remotely as to how the said failure had
occurred.
***
28. The reopening of the assessment in the case at hand through a
notice under section 148 of the Income-tax Act issued on March 22,
2010, fails to pass the muster on both the tests. The satisfaction
note does not disclose the foundation of "reasons to believe" as
it vaguely refers to the perusal of "the records" without
specifying the fresh "tangible material" that had come to light
giving rise to a need for such action. Since the assessment had
earlier been concluded under section 143(3) by the order dated
September 21, 2007, the restrictions on the exercise of the power of
reassessment as contained in the first proviso to section 147 would
inhibit further action in the absence of material showing default by
the assessee to fully or truly disclose."
22. Recently, while dealing with a challenge laid to the initiation of
reassessment proceedings, this Court vide order dated 18.03.2024 in
the case of S.B. Packagings Ltd. v. Asstt./Dy. Commissioner of
Income Tax, Circle 22(2), New Delhi & Ors. [W.P. (C) 13743/2018]
has held that the authority to reassess income under Section 147 of the
Act is circumscribed with a predominant condition that the AO must
be in possession of reasons to believe that any income chargeable to
tax has escaped assessment.
23. In the instant case, the reasons recorded by the AO while
issuing notice under Section 148 of the Act on 25.03.2009, which
finds mention in the assessment order dated 16.12.2009 at Annexure-
A2, are reproduced as under:-
"On perusal of records it reveals that capital expenditure amounting
to Rs. 1,40,22,335/- was not allowable u/s 37 of the IT Act, 1961.
Further, Rs. 1,79,44,942/- was receivable from different sources
which were included in the expense head, as per section 5 of the IT
Act, 1961, the total income of a person for any previous year
includes income from whatever sources derived which is received
or which accrue or arise during such previous year unless it is
specifically exempt from tax by the other provision of the Act, have
been disallowed and added back. Further, adjustment pertaining to
earlier year amounting to Rs. 29,91,085/- are also liable to be
disallowed. Further, TDS on Payment of commission and brokerage
on the amount of Rs. 1,11,30,250,/ is to be deducted but the same
was escaped which resulted charging of interest u/s 201 (14)
Interest u/s 234B is to be charge on the above anjounts accordingly.
Further, Rs. 6,04,991/- was paid to Directors excess of amount
payable under schedule XIII of the companies ACT."
24. A perusal of the reasons extracted above would evince that the
AO had failed to make any specific reference to the circumstances
which had triggered the Revenue to take a fresh view. The satisfaction
note in the instant case finds a close resemblance with the factual
matrix in Donaldson India (supra) as the reasons herein also vaguely
refer to the expression "on perusal of records", rather than disclosing
the foundation of "reasons to believe".
25. It is seen that the primary contention of the Revenue hinges on
the premise that the revenue audit report was the fresh tangible
material which had triggered the initiation of reassessment
proceedings. However, the information provided by the said report
finds mention for the first time in the order of the CIT(A), which reads
as under: -
"2.7. The second objection raised by the Ld. A.R. was that
appellant's case is not covered even by explanation 1 to section 147
which reads as under;
"S.147, 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."
It had been submitted by him that all materials facts relevant to the
issues under re-assessment had been fully and truly disclosed in the
original assessment proceedings. This contention of the Ld. A.R.
is not found to be correct as it has come to notice subsequently
that the fact of giving away of 75 vehicles to its dealers as
"commission" for achieving the sales targets, given in the guise
of incentive reward was not disclosed before the A.O. in the
original assessment proceedings. Only after the proceedings in
this regard were initiated u/s 201/201/(1A) of the I.T. Act by
ACIT, Circle 51 (1) that this fact has come to light and
necessary TDS liability and interest thereon amounting to Rs.
45,89,513/- has been determined u/s 194H of the I.T. Act. It is
observed that this primary fact of distribution of 75 vehicles as
commission or brokerage to those dealers who achieve the set
targets of the company had not been disclosed at the time of
original assessment proceeding. Therefore, the contention of the
Ld. A.R. that all primary facts relevant to the assessment had been
fully and truly disclosed, does not cut ice. Hence, re-opening
beyond 4 years from the end of the assessment year is justified in
this regard."
26. A plain reading of the aforesaid extract of the order of the
CIT(A), which has sustained the reopening of assessment on the basis
of revenue audit report, in juxtaposition with the reasons to believe
would manifest that there is apparently no live link between the
reasons recorded and the formation of belief to take action under
Section 147 of the Act. Interestingly, while deleting the additions on
merits, the CIT(A) has upheld the action of reassessment by the
Revenue on the ground that the factum of giving away of 75 vehicles
to dealers for achieving sale targets under the guise of incentives was
not disclosed in the original assessment proceedings. However,
according to the CIT(A), the said fact came to the light only after the
proceedings in this regard were initiated under Section 201/201(1A) of
the Act.
27. At this juncture, it is apposite to refer to the order dated
22.03.2011 passed under Section 201/201(1A) of the Act, which reads
as under: -
"2. Based on the information received by the Assessing Officer of
the assessee company i.e. SIEL regarding the expenditure of
Rs.2,11,00,000 on account of incentive reward to its dealers
without deducting the tax thereon U/s 194H of the Act, proceedings
U/s 201 of the Income Tax Act 1961 (hereinafter referred to as the
Act) were initiated to verify the facts by way of issue of a letter
dated 09-02-2011 and thereby asking the SIEL to show cause as to
why it should not be treated as an assessee in default within the
meaning of Section 201 of the Act."
28. Evidently, the proceedings under Section 201 of the Act, which
have been the bedrock for reaching the conclusion that there was no
full and true disclosure by the respondent-assessee, were initiated vide
letter dated 09.02.2011. It is noteworthy that the notice under Section
148 of the Act, which recorded the reasons for reassessment, was
issued way back on 25.03.2009. Thus, by no prudent stretch of
imagination, the alleged non-disclosure could have formed a part of
the satisfaction which was recorded to issue notice under Section 148
of the Act. Put otherwise, the finding of the CIT(A) which had
sustained the action solely on the basis of the aforesaid fact, is
blatantly perverse.
29. Undisputedly, the reassessment proceedings were initiated after
passing of the period of four years from the relevant AY. An upshot of
the above discussion would suggest that the Revenue did not have in
its possession any fresh tangible material, which is otherwise sine qua
non for initiating reassessment proceedings after a lapse of the said
statutorily prescribed period. Notably, the findings of the ITAT in the
cross-objection of the respondent-assessee in this regard are
reproduced as under: -
"4.1. Admittedly, the addition made by the Ld. AO in reassessment
proceedings is on account of prior period expenses and claim of
receivables. There was no tangible material outside the record
which was the basis of reassessment proceedings. And further
admittedly there is no reason to believe that income has escaped
assessment, as assesse has not claimed the amount that has been the
addition in the reassessment proceedings. The observations of Ld.
AO in the original assessment proceedings are very much pertinent
at this juncture. Ld. AO therein has given categorical finding
regarding the expenditure not been considered for the purposes of
deduction in the P&L account.
The decisions relied upon by Ld. DR in the written submissions
filed mostly relate to situations where there was tangible material
available outside the record based on which Hon'ble Supreme Court
and various High Courts have held reassessment proceedings to be
valid.
4.2. In our considered opinion there was no tangible material in
the possession of Ld. AO to initiate the reassessment
proceedings and the additions made by Ld. AO was based on
the materials already on record which has failed to stand the
test of law as the same has been deleted by Ld. CIT (A) by
observing categorically that they were never considered for the
purposes of deduction in the original assessment proceedings
itself.
4.3. On the basis of the above discussions we allow the legal ground
raised by assessee in its cross objection and quash and set- aside the
notice issued under section 147 of the act. Accordingly the
reassessment proceedings also stands consequentially cancelled."
30. Additionally, this Court has recently held in Willmar Schwabe
(supra) that the concerned officer is required to make a reference to
the fact that the assessee had failed to disclose all the material facts
necessary for carrying out assessment. It is discernible from the facts
of the present case that the reaons recorded by the AO do not allude to
any such non-disclosure. The relevant extract of the decision in
Willmar Schwabe (supra) is culled out as under: -
"15. A perusal of the reasons furnished by the AO for triggering the
reassessment proceeding would show that there is no reference to
the fact that the petitioner had failed to disclose, fully and truly, all
material facts necessary for carrying out the assessment.
16. Since the proceeding was triggered after the expiry of four (4)
years from the end of the relevant AY, the concerned officer, i.e.,
the Additional Commissioner of Income Tax, was required to assert
that income chargeable to tax has escaped assessment on account of
the failure on the part of the petitioner to disclose truly and fully all
material facts necessary for assessment qua the concerned AY, as
stipulated in the first proviso appended to Section 147 of the Act.
17. In our view, this is sufficient to set aside the impugned order."
31. In view of the aforesaid, we find that the initiation of
reassessment proceedings after a lapse of four years herein, is dehors
the settled position of law as no new tangible material can be said to
have been discovered by the Revenue which would warrant reopening
the assessment for the AY in question. Thus, we do not find any
reason to intermeddle with the order of the ITAT.
32. Consequently, the present appeal does not raise any substantial
question of law and stands dismissed. Pending application(s), if any,
are also disposed of.
PURUSHAINDRA KUMAR KAURAV, J.
YASHWANT VARMA, J.
MAY 30, 2024/MJ
