Mak Plywood Industries Pvt Ltd vs Union Of India
2023 Latest Caselaw 11629 Ker

                IN THE HIGH COURT OF KERALA AT ERNAKULAM
                                 PRESENT
          THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH
    THURSDAY, THE 16TH DAY OF NOVEMBER 2023 / 25TH KARTHIKA, 1945
                          WP(C) NO. 15458 OF 2022
PETITIONER/S:

             MAK PLYWOOD INDUSTRIES PVT LTD.
             MP III 130A, PADAV, KUNJATHUR POST, MANJESWARAM,
             KASARGOD-671 323, REPRESENTED BY ITS DIRECTOR - MR. ABDUL
             MUNEER.K.

             BY ADVS.M.GOPIKRISHNAN NAMBIAR; K.JOHN MATHAI; JOSON
             MANAVALAN; KURYAN THOMAS; PAULOSE C. ABRAHAM; RAJA
             KANNAN



RESPONDENT/S:

     1       UNION OF INDIA, REPRESENTED BY ITS REVENUE SECRETARY,
             MINISTRY OF FINANCE, NEW DELHI 110 004.

     2       THE ASSISTANT COMMISSIONER OF INCOME TAX,
             CIRCLE-1, KANNUR RANGE, AYAKAR BHAVAN, KANNOTHUMCHAL,
             CHOVVA P.O., KANNUR-670 006.

     3       THE INCOME TAX OFFICER, WARD-1 & TPS, AYAKAR BHAVAN,
             KANNOTHUMCHAL, CHOVVA P.O., KANNUR-670 006

     4       THE ADDITIONAL/ JOINT/DEPUTY/ ASSISTANT COMMISSIONER OF
             INCOME TAX/INCOME TAX OFFICER,
             NATIONAL FACELESS ASSESSMENT CENTRE, DELHI- 110 003.

             BY ADV CHRISTOPHER ABRAHAM


         THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON
16.11.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
 W.P.(C) No.15458/2022
                                    -2-




                        JUDGMENT

The present writ petition has been filed by the petitioner

impugning Ext.P8 notice issued by the 3rd respondent, Exts.P21

order and Ext.P22 penalty notice issued by the 4th respondent.

The petitioner is also seeking a writ of mandamus to declare

the re-assessment proceedings initiated by the 3rd and 4th

respondents as without jurisdiction.

2. The petitioner, an assessee under the provisions of

the Income Tax Act 1961 (for short, 'the IT Act'), filed returns

of its income for the Assessment Year 2014-15 on 26.11.2014.

The petitioner's case was selected for scrutiny under the

Computer Aided Scrutiny System (CASS), and a notice under

Section 143(2) of the IT Act was issued to the petitioner on

18.09.2015. According to the petitioner, the petitioner had

acquired the business of 'National Wood Products' as a going

concern, against the issuance of sharers of the petitioner at a W.P.(C) No.15458/2022

premium.

2.1 The petitioner was issued a notice dated 17.08.2016

in Ext.P1 directing it to produce certain documents. In

response to the said notice, the petitioner had produced the

documents vide covering letter dated 06.09.2016 in Ext.P2. The

petitioner was directed to submit additional documents,

which, according to the petitioner, he submitted vide covering

letter dated 05.10.2016 (Ext.P3). These documents would

include a certificate of valuation of shares issued by the

Chartered Accountant (Statutory Auditor). The 2nd respondent

completed the assessment for the Assessment Year 2014-15 on

21.10.2016 under Section 143(3) of the IT Act.

2.2 The 3rd respondent thereafter issued a notice

(Ext.P8) under Section 148 of the Act proposing to assess/re-

assess the income of the petitioner under the provisions of

Section 147 of the IT Act. The said notice was issued beyond

four years from the end of the relevant assessment year by W.P.(C) No.15458/2022

taking recourse to Section 149 of the IT Act.

2.3 In response to Ext.P8 notice dated 31.03.2021, the

petitioner filed its return of income and sought 'reasons for re-

opening' the assessment of the petitioner. The 3rd respondent

issued a letter dated 18.06.2021 providing the reasons for re-

opening of the assessment vide Ext.P10 letter. The reasons for

re-opening as per Ext.P10 letter is consideration of the issue of

shares on the acquisition of 'National Wood Products', which

exceeded the face value of the shares, and the aggregate

consideration received for such shares exceeds the fair market

value of the shares and the same would be chargeable to

income tax as 'Income from Other Sources'. It was also said

that the Certificate issued by the Chartered Accountant

(Ext.P6) was dated 31.03.2013, whereas the net asset value of

the Company adopted was on the date 30.06.2013, and

therefore, the valuation made by the external Chartered

Accountant was not correct.

W.P.(C) No.15458/2022

2.4 The 3rd respondent was of the view that there was

no full and true disclosure made by the petitioner at the stage

of assessment, which had led to the escapement of income

from the assessment in the relevant Assessment Year. The 3 rd

respondent issued a notice dated 05.07.2021 under Section

143(2) of the IT Act, again communicating the reasons for re-

opening. The jurisdiction of assessment proceedings was

transferred to the Faceless Assessment Unit on 11.11.2021 for

completion of the proceedings as prescribed under the

National Faceless Assessment Scheme. After the said transfer,

the 4th respondent issued a communication dated 09.12.2021

(Ext.P13) wherein the reasons for re-opening recorded in the

approval under Section 151 of the Act were intimated. The

petitioner filed its objection to the said Ext.P13 notice vide

Ext.P14. The 4th respondent issued an order dated 20.01.2022

disposing of the objections filed by the petitioner vide Ext.P15

order.

W.P.(C) No.15458/2022

2.5 The 4th respondent thereby issued a notice (Ext.P17)

dated 04.02.2022 under Section 142(1) of the IT Act seeking the

working of the valuation of the shares as well as the copy of

the Audit Report, Profit and Loss Account and the Balance

Sheet along with Annexures. The petitioner filed a reply to the

said notice in Ext.P18. Draft Assessment Order was passed on

25.03.2022 proposing variation as per the show cause notice

dated 25.03.2022 (Ext.P19). The petitioner submitted a

response to the said proposed assessment and notice vide

letter dated 27.03.2022. The 4th respondent passed the final

assessment order on 30.03.2022, along with the computation

sheet and demand notice in Ext.P21. The penalty proceedings

were initiated under Section 274, read with Section 271(1)(c)

of the IT Act.

3. Learned Counsel for the petitioner submits that the

issue of valuation of shares was the subject matter of the

Original Assessment under Section 143(3) of the IT Act, which W.P.(C) No.15458/2022

was concluded vide Ext.P7 order. After examination of the

Share Valuation Certificates, the Assessing Authority decided

not to make any assessment with reference to Section 56 of the

IT Act while passing the Ext.P7 original Assessment Order. It

is submitted that when the subject matter of fair valuation of

shares at the time of original assessment proceedings, re-

opening in respect of shares valuation would amount to a

change of opinion by the Assessing Authority. And, on the

basis of a change of opinion, a notice under Section 148 of the

IT Act for re-opening the assessment proceedings cannot be

issued. In support of the said submission, learned Counsel for

the petitioner has placed reliance on the judgment in

Commissioner of Income Tax v. Kelvinator of India Ltd1.

3.1 It is further submitted that merely on the ground

that the Assessing Authority did not record any discussions

and findings for not making additions under Section 56 of the

(2010) 2 SCC 723/(2010) 320 ITR 561 (SC) W.P.(C) No.15458/2022

IT Act in the Original Assessment Order would not make any

difference as the issue was raised during the assessment

proceedings and the assessee answered the said issue.

Thereafter, having satisfied with the response of the assessee,

the assessment proceedings were finalised. For this

proposition, learned Counsel for the petitioner has placed

reliance on the judgment in the case of Marico Ltd v. Assistant

Commissioner of Income Tax2 and Assistant Commissioner of Income

Tax v. Marico Limited3.

3.2 Learned Counsel for the petitioner further submits

that the valuation reports/certificates produced at the time of

the original assessment were on record of the assessment files

and re-opening of assessment on the issue of valuation of

shares would be beyond the jurisdiction of the respondents

under Section 147 of the IT Act. The correctness or otherwise

(2020) 425 ITR 177 (Bom.)

(2020) 16 SCC 354 W.P.(C) No.15458/2022

of the mode of valuation cannot be a reason for invoking the

larger period of limitation (beyond four years) under the

proviso to Section 147 of the IT Act. For invocation of a larger

period of limitation, twin conditions are to be satisfied: (i)

escapement of income and (ii) non-disclosure on the part of

the assessee. In the present case, the petitioner has made all

disclosures before the Assessing Authority. In view thereof,

even if the inferences drawn by the Assessing Authority at the

time of the original assessment based on the disclosures made

by the petitioner are inconsistent with the statutory

provisions, re-opening of the assessment is not permitted,

invoking the larger period of limitation. In support of the said

submission, learned Counsel for the petitioner has placed

reliance on the judgment in the case of The Parashuram Pottery

Works Co. Ltd. v. The Income Tax Officer, Cirlce-14.

3.3 Furthermore, learned Counsel for the petitioner

(1977) 1 SCC 408 W.P.(C) No.15458/2022

also submits that when the Assessing Authority has acted

beyond the jurisdiction and/or the Assessing Authority has

assumed the jurisdiction erroneously, the petitioner can

approach this Court under Article 226 of the Constitution of

India for a writ of certiorari. The petitioner's Counsel has

placed reliance in respect of the said submission in the case of

Raza Textiles Ltd. v. Income Tax Officer5.

4. Sri Christopher Abraham, learned Standing Counsel

for the Revenue, has submitted that the learned Counsel of the

petitioner's submission that the petitioner had disclosed fully

and truly all material and relevant facts for completion of the

assessment does not appear to be correct. The petitioner had

produced its account and valuation certificate of Chartered

Accountant estimating the fair market value of the share of

the petitioner-Company indicating that no income under

Section 56(2)(viib) of the IT Act would be assessable in its hand.

(1973) 1 SCC 633 W.P.(C) No.15458/2022

The valuation of the shares of the petitioner was not done on

the date when the petitioner had acquired 'National Wood

Products', but the valuation of the shares of the petitioner was

done after acquiring the assets of 'National Wood Products'. In

this sense, there was a failure on the part of the assessee in

disclosing fully and truly all material facts of the assessee for

the computation of its income.

4.1 Sri Christopher Abraham further submits that

Explanation 1 to Section 147 of the IT Act provides that the

production of books of accounts or other evidence before the

Assessing Officer from which material evidence could, with

due diligence, be discovered by the Assessing Officer will not

necessarily amount to disclosure within the meaning of the

'proviso' to Section 149. The petitioner's case is one falling

within the meaning of 'proviso' to Section 147 in the light of

Explanation 1 to Section 147, and therefore, there is no

substance in the submission that the assessment has been re- W.P.(C) No.15458/2022

opened merely on the basis of 'change of opinion'.

4.2 Sri Christopher Abraham furthermore submits that

the re-assessment proceedings have now culminated in the

passing of the impugned Ext.P21 assessment order against

which the statutory remedy of appeal under Section 246A of

the IT Act is available to the petitioner, and the petitioner is

free to assail the assessment order taking all the grounds

regarding the validity of re-opening of the assessment order

as well as on merits against the additions made in the

assessment. When there is an equally efficacious remedy of

appeal available to the petitioner, filing of the present writ

petition under Article 226 of the Constitution of India for

invoking the extraordinary writ jurisdiction is not permitted.

Learned Counsel for the Revenue has placed reliance on the

judgment in the case of Commissioner of Income Tax v. Chhabil

Dass Agarwal6 and prayed for dismissal of the writ petition.

Order dated 08.08.2013 in Civil Appeal No.6704/2013 [357 ITR 357 (SC) W.P.(C) No.15458/2022

5. The question which needs to be considered in the

present writ petition is whether the re-assessment proceedings

initiated are vitiated in any manner inasmuch as the same is said to

be based on a change of opinion?

6. The petitioner had not filed the return of his

income under Section 56(2)(viib) of the IT Act. Considering the

provisions of Explanation 1 to Section 147 of the IT Act, the

mere submission of books of accounts and other material

would not discharge an assessee from the obligation of

disclosing fully and truly all material facts necessary for the

assessment of the income. The question whether the

petitioner had discharged his duty of disclosing fully and truly

all material facts is to be considered while coming to the

conclusion that whether the re-opening of the assessment is

based on a mere change of opinion or the Assessing Authority

has reason to believe that the income in the hands of the

assessee has escaped assessment because of the non-disclosure W.P.(C) No.15458/2022

of fully and truly all material facts necessary for assessment.

The reasons recorded by the Assessing Officer would disclose

that the Assessing Officer has formed an opinion and has the

belief that the income in respect of the transfer of the

petitioner's shares while acquiring 'National Woods Products'

had escaped assessment under Section 56(2)(viib) of the IT Act.

The reasons recorded by the Principal Commissioner of

Income Tax to accord sanction for the issue of notice under

Section 148 cannot be said that the sanction was granted

mechanically and without application of the mind.

6.1 From the facts narrated above, the mere submission

of books of accounts and the certificate issued by the Statutory

Auditor would not amount to the fact that the petitioner has

disclosed fully and truly all material facts in his returns for

completion of the assessment proceedings in respect of his

income. I, therefore, find that there is no error of jurisdiction

committed by the authorities by re-opening the assessment. W.P.(C) No.15458/2022

The petitioner has participated in the re-assessment

proceedings, and now the final order has been passed. The

petitioner has the remedy of approaching the Appellate

Authority under Section 246A of the IT Act against the said

assessment order.

6.2 In view thereof, the present writ petition is

dismissed. However, liberty is granted to the petitioner to file

an appeal against the assessment order in Ext.P21 within a

period of three weeks from today, and if such an appeal is filed,

the Appellate Authority shall decide the appeal in accordance

with the law, without being influenced by any of the

observations made herein above. If the appeal is filed within

a period of three weeks, the Appellate Authority shall proceed

to decide the appeal on merit without going into the question

of limitation. Sd/-

DINESH KUMAR SINGH JUDGE jjj W.P.(C) No.15458/2022

APPENDIX OF WP(C) 15458/2022

PETITIONER EXHIBITS

Exhibit P1 THE TRUE COPY OF THE NOTICE DATED 17.08.2016 ISSUED BY THE 2ND RESPONDENT.

Exhibit P2 THE TRUE COPY OF THE REPLY (WITHOUT ANNEXURES) DATED 06.09.2016 SUBMITTED BEFORE THE 2ND RESPONDENT.

Exhibit P3 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 05.10.2016 SUBMITTED BEFORE THE 2ND RESPONDENT.

Exhibit P4 THE TRUE COPY OF THE CERTIFICATE OF THE CHARTERED ACCOUNTANT DATED NIL, WHICH WAS SUBMITTED BEFORE THE 2ND RESPONDENT.

Exhibit P5 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 20.10.2016 SUBMITTED BEFORE THE 2ND RESPONDENT.

Exhibit P6 THE TRUE COPY OF THE CERTIFICATE DATED 30.06.2013 ISSUED BY THE EXTERNAL CHARTERED ACCOUNTANT.

Exhibit P7 THE TRUE COPY OF THE ASSESSMENT ORDER (WITHOUT ANNEXURES) DATED 21.10.2016 ISSUED BY THE 2ND RESPONDENT.

Exhibit P8 THE TRUE COPY OF THE NOTICE DATED 31.03.2021 ISSUED BY THE 3RD RESPONDENT UNDER SECTION 148 OF THE ACT.

Exhibit P9 THE TRUE COPY OF THE LETTER DATED 28.04.2021 SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT. (WITHOUT ENCLOSURES)

Exhibit P10 THE TRUE COPY OF THE LETTER DATED 18.06.2021 ISSUED BY THE 3RD RESPONDENT.

W.P.(C) No.15458/2022

Exhibit P11 THE TRUE COPY OF THE NOTICE DATED 05.07.2021 ISSUED BY THE 3RD RESPONDENT.

Exhibit P12 THE TRUE COPY OF THE OBJECTION DATED 02.08.2021 SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT

Exhibit P13 THE TRUE COPY OF THE COMMUNICATION DATED 09.12.2021 (ALONG WITH ITS ATTACHMENT). ISSUED BY THE 4TH RESPONDENT

Exhibit P14 THE TRUE COPY OF THE OBJECTION (WITHOUT ANNEXURES) DATED 31.12.2021 SUBMITTED BEFORE THE 4TH RESPONDENT

Exhibit P15 THE TRUE COPY OF THE ORDER DATED 20.01.2022 ISSUED TO THE PETITIONER BY THE 4TH RESPONDENT.

Exhibit P16 THE TRUE COPY OF THE ORDER DATED 04.02.2022 ISSUED BY THE 4TH RESPONDENT TO THE PETITIONER.

Exhibit P17 THE TRUE COPY OF THE NOTICE DATED 04.02.2022 ISSUED BY THE 4TH RESPONDENT UNDER SECTION 142(1).

Exhibit P18 A TRUE COPY OF THE REPLY (WITHOUT ANNEXURES) DATED 09.02.2022 SUBMITTED BY THE PETITIONER BEFORE THE 4TH RESPONDENT ALONG WITH THE E- ACKNOWLEDGMENT.

Exhibit P19 THE TRUE COPY OF THE SHOW CAUSE DATED 25.03.2022, ALONG WITH THE DRAFT ASSESSMENT ORDER DATED 25.03.2022. ISSUED BY THE 4TH RESPONDENT.

Exhibit P20 THE TRUE COPY OF THE LETTER DATED 27.03.2022 SUBMITTED BEFORE THE 4TH RESPONDENT.

Exhibit P21 THE TRUE COPY OF THE ASSESSMENT ORDER DATED 30.03.2022 PASSED BY THE 4TH RESPONDENT ALONG W.P.(C) No.15458/2022

WITH THE COMPUTATION SHEET AND DEMAND NOTICE.

Exhibit P22 THE TRUE COPY OF THE PENALTY NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271 (1)(C) DATED 30.03.2022 ISSUED BY THE 4TH RESPONDENT.

Exhibit P23 THE TRUE COPY OF THE APPLICATION DATED 14.04.2022 SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT.

Exhibit P24 THE TRUE COPY OF THE CERTIFICATE COMMUNICATION DATED 21.04.2022 ISSUED BY THE 3RD RESPONDENT.

Exhibit P25 THE TRUE COPY OF THE STANDARD OPERATING PROCEDURE (SOP) DATED 19.11.2020 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, FUNCTIONING UNDER THE FIRST RESPONDENT

Annexure-H Raza Textiles Ltd. Vs. Income Tax Officer (1973) 1 SCC

Annexure-G ACIT v. Kalpataru Land Pvt. Ltd [2022] 447 ITR 364 (SC) and State Bank of India v. ACIT [2019] 418 ITR 485 (Bom) affirmed in PCIT and Others v. State Bank of India [2022] 447 ITR 368 (SC)

Annexure-F Calcutta Discount Co. Ltd ITO AIR 1961 SC 372

Annexure-E The Parashuram Pottery Works Co. Ltd v. Income Tax Officer (1977) 1 SCC 408

Annexure-D ACIT v. Marico Limited (2020) 16 SCC 354

Annexure-C Marico Ltd v. ACIT reported in (2020) 425 ITR 477 (Bom)

Annexure-B CIT Vs. Kelvinator of India Ltd, reported in (2010) 2 SCC 723 W.P.(C) No.15458/2022

Annexure-A GKN Driveshafts' case 2003 (1) SCC 72