Gujarat High Court

Troikaa Pharmaceuticals Limited vs Additional/Joint/Deputy/Assistant ... on 27 September, 2023

Bench: Bhargav D. Karia

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    C/SCA/15118/2021                               CAV JUDGMENT DATED: 27/09/2023

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               IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                R/SPECIAL CIVIL APPLICATION NO. 15118 of 2021


FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE BIREN VAISHNAV

and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA

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1 Whether Reporters of Local Papers may be allowed Yes to see the judgment ?

2 To be referred to the Reporter or not ? Yes

3 Whether their Lordships wish to see the fair copy No of the judgment ?

4 Whether this case involves a substantial question No of law as to the interpretation of the Constitution of India or any order made thereunder ?

========================================================== TROIKAA PHARMACEUTICALS LIMITED Versus ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX ========================================================== Appearance:

MS NUPUR D SHAH(10233) for the Petitioner(s) No. 1

MR. KARAN SANGHANI, STANDING COUNSEL FOR MRS KALPANA K

==========================================================

CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 27/09/2023

CAV JUDGMENT

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(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)

1 Rule returnable forthwith. Mr.Karan Sanghani,

learned Standing Counsel, waives service of rule

on behalf of the respondent. With consent of the

learned advocates appearing for the respective

parties, the matter is taken up for final hearing

today.

2 By way of this petition under Article 226 of

the Constitution of India, the petitioner has

prayed for quashing and setting aside the notice

dated 06.03.2020 under Sec.148 of the Income Tax

Act, 1961, ("the Act" for short) along with the

orders dated 31.08.2021 disposing off the

objections and also set aside the impugned

Assessment Order dated 19.09.2021 and the

subsequent Demand Notice u/s 156 of Act.

3 Facts in brief are as under:

3.1 The petitioner filed the return of income for

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the Assessment Year 2013-14 on 28.11.2014

declaring total income of Rs.86,020/-.

Thereafter, the case of the petitioner was

selected for scrutiny assessment and notice under

Sec.142(1) of the Act was issued on 26.06.2015.

The petitioner-assessee, in response to such

notice submitted various details.

3.2 During the course of assessment proceedings,

vide Order Sheet Entry dated 23.07.2015, the

petitioner was asked to submit the details of all

'outward remittances' - Party wise, and 'TDS'

deducted if any. If no TDS / low TDS was

deducted, then reason / document justifying the

same was also called for.

3.3 The petitioner-assessee, by the letter dated

03.11.2015, provided the details called for by

the Assessing Officer regarding all "outward

remittances" made during A.Y 2013-14. The

petitioner also provided the chart containing the

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detailed breakup of all the foreign remittances

made during the previous year 2012-13 along with

details of TDS deducted and if not deducted,the

reason for the same at Exh.1 to the said reply.

3.4 The Assessing Officer, after considering the

Order Sheet Entry dated 23.07.2015 and the reply

submitted by the petitioner, as well as on the

basis of the verification of the record of the

petitioner, passed the Assessment Order under

section 143(3) of the Act on 23.03.2016.

3.5 The respondent issued notice under Sec.148

of the Act on 06.03.2020. The petitioner-assessee

by letter dated 11.03.2020, challenged the

validity of the said notice followed by a letter

dated 30.05.2020 stating that the petitioner has

filed the return of income in response to the

notice under sec.148 of the Act with a request to

provide the copy of the reasons recorded for

reopening of the case.

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3.6 Thereafter, reasons recorded for reopening of

the case were supplied to the petitioner vide

letter dated 03.06.2020, wherein, it was

mentioned that the respondent - Assessing Officer

has reason to believe that income of

Rs.63,74,736/- has escaped assessment as TDS was

not deducted and the same should be disallowed

under Sec.40(a)(i) of the Act for non-deduction

of TDS on foreign remittance.

3.7 Despite anomalies carried out by the

respondent, the petitioner made due compliance

against the reasons recorded by raising the

objections against the reasons recorded within

the requisite time frame vide letter dated

16.07.2020.

3.8 The respondent did not dispose off the

objections dated 16.07.2020 and rather proceeded

to issue notice dated 05.02.2021 u/s. 142(1) of

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the Act.

3.9 The petitioner challenged the issuance of the

notice u/s. 142(1) of the Act without the

issuance of the speaking order disposing off the

objections against reasons recorded dated

16.07.2021 by the respondent vide letter dated

12.02.2021 and duly complied with the factual

details sought in said notice without prejudice

to the legal contentions highlighting the blatant

irregularities in the present case at hand.

3.10 The petitioner, thereafter filed objections

on July 16, 2020, against the reopening of the

assessment contending inter alia that the

petitioner submitted all the factual information

at the time of original assessment proceedings by

filing exhaustive submissions before the

Assessing Officer and he has formed his opinion

on the basis of the facts so provided. It was

also contended that the specific issue was raised

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in the Order Sheet Entry 23.07.2015 and the

assessee submitted the reply on 03.11.2015, which

was again annexed with the objections filed by

the assessee-petitioner.

3.11 The respondent subsequently issued the show

cause notice as contemplated under Sec.144B of

the Act along with a draft assessment order for

the proposed addition and fixed the date of

submission by 23:59 hours of 17.09.2021 by E-

mail.

3.12 The petitioner-assessee, in view of the show

cause notice received late in the evening of

15.09.2021, made an on-line application dated

16.09.2021 seeking reasonable time of 8 days to

provide a satisfactory, detailed and thorough

reply. However, without response to the

application for adjournment, the respondent

passed Assessment Order dated 19.09.2021 under

Sec.143(3) of the Act, making addition of

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Rs.63,74,736/- on the ground that the commission

paid to foreign nationals / agents was without

deduction of tax (TDS) and raised the demand of

Rs.5,13,54,720/-. The petitioner, therefore,

being aggrieved by the stand and though there was

full and true disclosure in filing the return as

well as in the thorough scrutiny assessment

framed under Sec.143(3), as a result of such

reopening is constrained to file the present

petition.

3.13 The petitioner, therefore, filed a draft

amendment in the petition. This Court permitted

the draft amendment and issued notice in the

petition vide order dated 11.10.2021.

3.14 The petitioner-assessee has, thus

challenged the assessment order not only in the

context of Sec.148 of the Act but also in the

context of lack of procedural formalities of not

giving an opportunity of hearing as provided

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under Sec.144B of the Act.

4. Ms. Nupur Shah, learned counsel for the

petitioner, in addition to making oral

submissions, filed written submissions. The

submissions are as under:

(1) She would submit that there was a change

of opinion inasmuch as all the details

relating to the issue under consideration for

which the case of the petitioner is reopened

was already examined by the then Assessing

Officer, for which a query was raised and

supporting documents were furnished to the

then Assessing Officer. Therefore, once

having given all the details to the then

Assessing Officer for forming an opinion and

once the Assessing Officer has formed such

opinion and having passed an order, any

revisit to the said facts is merely "change

of opinion".

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(2) She would further submit that though the

petitioner had revised objections against

reasons recorded, without disposing of the

same, a notice u/s. 142(1) was issued on

05.02.2021. The objections were disposed off

on 31.08.2021 after a delay of over a year.

There was a violation of the guidelines laid

down in the decision in the case of GKN

Driveshafts (India) Ltd vs. ITO, reported in

(2003) 259 ITR 19 (SC).

(3) That there was no tangible material for

reopening the issue. Reading the reasons, she

would submit that the case was reopened on

the basis of the "assessment record". The

recording of reasons was on the basis of

details already supplied. She would rely on a

decision in the case of C.I.T Delhi vs. M/s.

Kelvinator of India Ltd., reported in 320 ITR

561 (SC).

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(4) That the reopening of the assessment

proceedings sought is for A.Y. 2013-14, was

beyond a period of four years. It was evident

that unless it is found that there was no

fully and truly disclosure of material facts

on the part of the petitioner, it would not

be open to reopen the assessment proceedings.

What is evident here is that there was a full

and true disclosure as the reopening was not

based on any fresh tangible material.

(5) The order of assessment dated 19.09.2021

was passed in violation of principles of

natural justice.

(5) Mr.Karan Sanghani, learned counsel appearing

for Mrs. Kalpana Raval, learned counsel for the

respondent, would submit as under:

5.1 The assessee filed its return of income for

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AY 2013-14 declaring total income at

Rs.4,48,23,770/- on 10.10.2013. Again, the

assessee filed revised return of income on

24.03.2014 declaring total income as nil.

Thereafter, the case was selected for scrutiny

assessment and vide assessment order u/s. 143(3)

dated 23.03.2016, the total income was determined

at Rs.15,30,76,690/-. Subsequently, on further

scrutiny of record, it was found that the

assessee made foreign remittance of

Rs.63,74,736/- on account of legal and

professional fees. It was also noticed that no

TDS was deducted from this payment. As per

section 195(1) of the Act, the assessee was

required to deduct TDS on such payments.

Therefore, this expense was not allowable as per

section 40(a)(i) of the Act. As the same was not

disallowed by the assessee suo-moto in the

return, nor the same was offered for disallowance

during the assessment proceedings, the income of

the assessee to the extent of Rs.63,74,736/- was

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under assessed. In other words, the income to the

extent of Rs.63,74,736/- had escaped assessment.

Therefore, the reasons for re-opening were

recorded by the Assessing Officer on 28.01.2020

and approval of the Pr.CIT was taken which was

communicated on 03.03.2020. Thereafter, notice u/

s. 148 of the Act was issued on 06.03.2020.

5.2 Mr.Sanghani, learned counsel, would further

submit that as the assessee had not filed the

return of income, the reason could not be

provided to the assessee. Thereafter, objection

of the assessee was duly disposed vide order

dated 31.08.2021 and intimated. That without

filing the return, reason for re-opening was not

to be supplied. However, in the meantime, the

assessee had emailed a copy of return filed on

30.05.2020, therefore, the reasons for re-opening

were provided to the assessee on 03.06.2020.

5.3 Mr.Sanghani, learned counsel, submitted that

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notice u/s. 142(1) was issued on 05.02.2021. The

assessee had filed further objections vide

letters dated 16.07.2020 and 12.02.2021 which

were disposed vide order dated 31.08.2021.

Finally, show cause notice dated 15.09.2021 was

issued to the assessee and the addition of

Rs.63,74,736/- was proposed to be made on account

of non-deduction of TDS on legal and professional

fees paid to non-residents. The assessee was

given time till 17.09.2021 to furnish any

objection to the proposed addition. However, no

objection was filed within the given time.

Finally, the assessment was completed on

19.09.2021 with the addition as per show cause

notice.

5.4 It is further submitted by Mr.Sanghani,

learned counsel, that from the reasons recorded

by the Assessing Officer, it is clear that

assessee has not made requisite full and true

disclosure of all material facts necessary for

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assessment. As per reasons recorded by Assessing

Officer, it is clear that the requisite material

facts as noted above in the reasons for reopening

were embedded in such a manner that material

evidence could not be discovered by the Assessing

Officer and could have been discovered with due

diligence, accordingly attracting provisions of

Explanation 1 of section 147 of the Act.

5.5 Mr.Sanghani, learned counsel, would further

submit that the expenses of Rs.63,74,736/- was

not allowable for the reason of non-deduction of

TDS on legal and professional fee paid to non-

residents. However, the same was neither

disallowed by the assessee suo-moto in the

return, nor the same was offered for disallowance

during the assessment proceedings.

6 Having considered the submissions made by the

Learned Advocates for the respective parties, the

perusal of the reasons to believe indicate that

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it is the case of the revenue that the scrutiny

of the assessment records reveal that the

assessee made foreign remittance of Rs.63,74,736

on account of legal and professional fees. As per

Section 195(1) of the Act, the assessee was

required to deduct TDS on such payments. However,

it was observed that no deduction of TDS was made

and hence the same is required to be disallowed

u/s 40(a)(i) of the Act. According to the

revenue, though the petitioner had filed a copy

of the annual report and audited Profit and Loss

Accounts and Balance-sheet along with the return,

no full and requisite disclosure was made of all

material facts, vis-a vis the contention raised

by the petitioner with respect to the twin

challenge on the concept of "change of opinion"

and that no tangible material was available so as

to reopen the assessment.

6.1 Certain events preceding the notice under

Section 148 need to be gone into.

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1) After filing the return of income for

the AY 2013-2014, on 28.11.2014, the case of

the petitioner was selected for scrutiny

assessment u/s. 143(3) of the Income Tax Act

and notice under section 142(1) was issued on

26.6.2015.

2) Reading the notice would indicate that

explanation was sought whether TDS has been

deducted on all payments where TDS is

deductible under Chapter XVII-B of the Income

Tax Act,1961. The petitioner was also called

upon to give details of TDS deducted in the

format set out. Via an order sheet, the

petitioner was asked to submit details. The

order sheet dated 23.7.2015 filed separately

indicates that the petitioner was asked to

submit the details of all the "outward

remittances"- party-wise and "TDS" deducted,

if any. Even the Assessment Order dated

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23/3/2016 records that a detailed

questionnaire was issued on 23.6.2015 fixing

hearing on 23.7.2015. Question 15 of the

questionnaire reads as under:

"15.Your honour had called for details of "Outward Remittances" partywise and "TDS" if any. If no TDS/ low TDS was deducted then reason/document justifying the same."

3) The petitioner by a letter dated

3.11.2015 had provided the details to the

Assessing Officer regarding outward

remittances. The explanation was provided. A

chart was also provided to the reply dated

3.11.2015 containing a breakup of all foreign

remittances made during the year along with

the details of the TDS deducted or if not

deducted the reasons for not doing so.

4) After considering the submissions and on

the basis of the verification of records the

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Assessing Officer passed the assessment order

under Section 143(3) of the Act. The notice

under Section 148 of the Act and the reasons

for reopening the case on the assumption or

reason to believe that the income of

Rs.63,74,736/ has escaped assessment and same

be disallowed is based on the very same

records which were placed at the time of the

original assessment. The details regarding

the issue under consideration was already

examined by the then Assessing Officer for

which a specific query was raised and

therefore it was not open for the Assessing

Officer to reopen the same or revisit his

opinion because of a "change of opinion".

7. The Supreme Court in the case of Principal

Commissioner of Income Tax vs Fibres and

Fabrics International (P) Ltd reported in 139

taxmann.com 592 has held as under:

"2. Facts leading to filing of this appeal briefly stated are that assessee

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is a company which is engaged in the business of manufacture and export of garments. The assessee filed the return of income for the Assessment Year 2005- 06 on 31-10-2005. The return filed by the assessee was selected for scrutiny under section 143(2) of the Act. The assessee furnished the details pertaining to liabilities which included details relating to sale commissions paid to certain foreign companies and tax deducted at source on such sale commissions. The Assessing Officer after examining the details furnished by the assessee passed an original order of assessment on 31-12-2008 without making any disallowance pertaining to sales commission. The contention of the assessee that payments were made the assessee to non-residents and since, the services were rendered outside India, therefore, no income accrued or arose in India and therefore, sales commission were not exigible to tax was rejected.

3. The Assessing Officer issued a notice dated 12-3-2010 under section 148 of the Act proposing to reassess the income of the assessee on the ground that he has reasons to believe that income chargeable to tax had escaped assessment. The assessee sought reasons for reopening the assessment which was supplied to it and thereafter, the assessee filed objections to the notice for reopening assessment on the ground that the same was based on a mere change of opinion. The Assessing Officer passed an order of reassessment under section 143(3) read with section 147 of the Act

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disallowing the deduction claimed by the assessee towards sales commission to the tune of Rs. 16,93,91,847/- and added the same to the total income of the assessee....

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              10.   During    the   course     of   original
              assessment        proceeding,          details

pertaining to expenditure incurred by the assessee towards sales commission were furnished. Thus, the assessee had furnished all primary facts before the Assessing Officer and the Assessing Officer on the basis of facts available with him had passed an original order of assessment without making any disallowance of the aforesaid expenditure. The reassessment proceeding are based on the basis of same information which was available with the Assessing Officer at the time of original order of assessment and inferences drawn by the Assessing Officer on the same set of facts cannot be said to be tangible material. It is also noteworthy that mere fact that expenses were huge in the opinion of the Assessing Officer cannot be a ground for reopening the assessment and necessity of incurring expenditure cannot be gone into by the Assessing Officer.

11. It is pertinent to mention that no material was gathered in the survey proceeding to suggest that expenditure incurred towards sales commission is not

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an allowable expenditure and disallowance made in respect of the expenditure for the subsequent Assessment Year 2006-07 cannot be a ground for reopening the assessment. The tribunal has therefore, rightly recorded the findings of fact that there is no tangible material on the basis of which assessment for Assessment Year 2005-06 was reopened and the assessment of the subsequent Assessment Year is based on the inferences drawn from certain facts which cannot be construed as tangible material. The reasons mentioned in the notice for reassessment are based on mere change of opinion and therefore, the reopening of the assessment proceeding is not permissible in the facts and circumstances of the case. The aforesaid finding cannot be said to be perverse. For the aforementioned reasons, the substantial questions of law involved in this appeal are answered against the revenue and in favour of the assessee.

In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed."

8. It is also worth noting that the petitioner

lodged its objections to the reasons recorded

vide letter dated 3.6.2020 on 16.7.2020.

Without disposing of the objections, notice

under Section 142 was issued on 5.2.2021.

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This was in violation of the principles set

out in the decision of the Hon'ble Supreme

Court in the case of GKN Driveshafts (India)

Limited v.ITO , reported in (2003) 259 ITR 19

(SC). The objections were disposed of after

over a year by an order passed on 31.8.2021

which indicates that there was a clear case

of procedural violations.

9. Answering the question of the reassessment

being bad as no tangible material was

available, as is analysed in the aforesaid

paras, it is evident that while issuing

notice under Section 148 of the Act, the

revenue has relied on the very same

assessment records where it is pointed out

that there was no fresh material to hold so

and therefore the notice under Section 148

and the consequential orders are bad on this

ground too. Reading the reasons indicate that

what was relied upon was the very same record

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of assessment and therefore on this count too

the notice and the order disposing off the

objections is bad.

10. The reassessment has been done for the year

2013-14. The notice for such reassessment is

dated 6.3.2020 i.e. beyond a period of four

years. The law prescribes that in such cases,

unless and until it is found that there was

no full and true disclosure of material

facts, the assessment cannot be reopened. On

the facts of the present case, it has been

found that the very same material and the

assessment records are sought to be revisited

and therefore it is not the case of the

authority that there was a failure to fully

and truly disclose all facts that led to the

escapement of income so as to warrant an

exercise of reassessment under Section 148 of

the Act.

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11. In the case of Jivraj Tea vs Assistant

Commissioner Of Income-Tax,Circle 1(1)(2)

(Gujarat), this Court has held that in

absence of any tangible material available,

reopening beyond the period of four years is

bad in law. Relevant paragraph of the

decision read as under:

"10. The Coordinate Bench, while allowing the writ application, has observed in clear terms that full separate accounts of both the divisions were maintained and also presented before the Assessing Officer during the course of assessment. This Court recorded a clear finding that there was no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. In such circumstances, the Coordinate Bench, ultimately, held that the notice for reopening which was issued beyond a period four years should fail.

11. The writ applicant pointed out while raising his objections that there was no failure on his part to disclose truly and fully any material fact. He pointed out that his assessments were being examined by the Assessing Officer for the original assessment. The reopening on the basis of re-analysis of the existing material was nothing, but a

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change of opinion and the same is not permissible. He pointed out that no specific information has been received by the Assessing Officer to firmly believe that the income chargeable is escaped the assessment and as noted above, at the cost of repetition, he pointed out that reassessment was sought for in the assessee's own case for A.Y. 2008-09 which came to be questioned by this Court in the Jivraj Tea Ltd. (supra).

12. Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are of the view that the case on hand is one of change of opinion. There is hardly anything on record to indicate that there was failure on the part of the assessee to disclose truly and fully all material facts. There was no tangible material available for the purpose of issuing the notice for reopening beyond the period of four years."

Therefore what is evident is that the

notice dated 6.3.2020 and the order disposing

off objections dated 31.08.2021 are bad in

law and deserve to be quashed and set aside.

12. Post the order disposing off objections, the

respondent issued a show cause notice dated

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15.09.2021 under Section 144(B) of the Act

seeking reasons as to why the assessment

should not be completed as per the Draft