Madras High Court
M/S.Citadel Fine ... vs The Deputy Commissioner Of ... on 22 April, 2021
W.P.No.36522 & 35630 of 2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 22.04.2021
CORAM
THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM
W.P.Nos.36522 & 35630 of 2016
W.M.P.Nos.31430 of 2016 & 10193 of 2021
M/s.Citadel Fine Pharmaceuticals Limited,
Represented by Mr.K.Rajiv, Director,
No.43, Main Road, Velacherry,
Chennai-600 042. .. Petitioner in both W.Ps
vs.
1.The Deputy Commissioner of Income-Tax.
Corporae Circle-1(2),
Chennai-600034. ...R1 in W.P.No.35630 of 2016
2.The Assistant Commissioner of Income-Tax,
Corporate Circle-1(2),
121, Mahatam Gandhi Road,
Aayakar Bhavan-Wanaparthy Block,
6th Floor, Chennai-600 034. .. Respondent in W.P.No. 36522 of 2016
& R2 in W.P.No.35630 of 2016
PRAYER IN W.P.No.36522 of 2016 : Writ Petition filed under Article 226
of the Constitution of India, praying for the issue of a Writ of Certiorari
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calling for the records of the respondent in respect of the assessment order
passed under Section 143(3) read with Section 147 of the Income-Tax Act,
1961 in PAN No.AAACC1356N dated 04.10.2016 and quash the same.
PRAYER IN W.P.No.35630 of 2016 : Writ Petition filed under Article 226
of the Constitution of India, praying for the issue of a Writ of Certiorari
calling for the records of the 1st respondent in respect of the assessment
notice issued for the assessment year 2009-10 under Section 148 of the
Income-Tax Act, 1961 in PAN No.AAACC1356N dated 05.01.2016 and the
consequential order disposing off the objections to the reasons dated
19.09.2016 passed by the second respondent and to quash the same.
In both W.P's
For petitioner :Mr.M.V.Swaroop
For Respondents :Mr.D.Prabhu Mukunsh Arunkumar
Standing Counsel for Income Tax
COMMONORDER
The writ petition in W.P.No.36522 of 2016 is filed to call for the
records of the respondent in respect of the assessment order passed under
Section 143(3) read with Section 147 of the Income-Tax Act, 1961 in PAN
No.AAACC1356N dated 04.10.2016 and quash the same.
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2. The writ petition in W.P.No.35630 of 2016 is filed to call for the
records of the 1st respondent in respect of the assessment notice issued for
the assessment year 2009-10 under Section 148 of the Income-Tax Act,
1961 in PAN No.AAACC1356N dated 05.01.2016 and the consequential
order disposing off the objections to the reasons dated 19.09.2016 passed by
the second respondent and to quash the same.
3. The petitioner is M/s.Citadel Fine Pharmaceuticals Limited.
4. At the first instance, the learned counsel appearing for the respondent
raised the maintainability question on the ground that during the pendency
of the writ petition, the assessment order has been passed with reference to
initiation of proceedings under Section 147 of the Income Tax Act, 1961. In
view of the fact that the order of assessment has already been passed, the
assessee must have to approach the Appellate Authority for re-dressal of his
grievances. Therefore, the writ petition is liable to be dismissed.
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5. In this regard, the learned counsel appearing for the petitioner cited the
judgment of the Hon'ble Division Bench of this Court in the case of
P.V.P.Ventures Limited vs. Assistant Commissioner of Income Tax,
Corporate Circle 5(2), Chennai reported in [2016] 65 taxmann.com 221
(Madras), wherein the similar ground was taken by the Department by
stating that the assessment order was passed during the pendency of the writ
petition filed by the assessee challenging the notice issued under Section
148 of the Act. The Hon'ble Division Bench of this Court made an
observation that even in such cases, the Courts are empowered to adjudicate
the true and correct disclosure whether made or not. If the very initiation is
found to be not in consonance with the provisions of the Act, then the
contention raised by the petitioner may be considered by the writ Court
under Article 226 of the Constitution of India. Relying on the said
judgment, the learned counsel appearing for the petitioner reiterated that the
petitioner has disclosed full and true facts before the Assessing Officer at
the first instance and the Department initiated proceedings for reopening of
the assessment only on change of opinion and not based on any facts as
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revealed by the assessee at the first instance. Therefore, the writ petition is
to be adjudicated on merits.
6. The learned counsel appearing for the petitioner in nutshell contended
that the reasons stated for reopening of the assessment are not in
consonance with the requirements contemplated under the provisions of the
Act. The reasons enumerated in proceedings dated 11.08.2016 reveal that
the said facts were considered by the Assessing Officer and a finding was
given in the assessment order. In this regard, the learned counsel appearing
for the petitioner relied on the assessment order passed on 23.12.2011 under
Section 143(3) of the Income Tax Act with reference to the assessment year
2009-2010. In the said assessment order, the Assistant Commissioner
considered the claim of bad debts and a finding was arrived which reads as
under:
3.1. Out of the total bad debts of Rs.4,99,12,188/-, the
assessee has during the year written off bad debts of
Rs.4,94,91,343/- thereby reducing the taxable long-term
capital gain. The entire Bad debts relate to the amounts
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receivable from M/s.Polaris Health Care Pvt.Ltd. The
assessee Company had been doing certain job works for
M/s.Polaris Health Care Pvt. Ltd. and the volume of job
undertaken during FY 2003-04 & 2004-05 for a value of
Rs.3,21,37,707/- & Rs.3,09,37,577/- respectively. In
Financial Year 2005-06, further job contract for a value of
Rs.1,10,89,224/- was undertaken. In FY 2004-05, itself,
the assessee knew that the amount due from M/s.Polaris
Health Care Pvt.Ltd. (PHCPL for brevity) would not be
recoverable and therefore, created a provision of
Rs.4,07,03,328/- as at 31.03.2005. The provision was
added back in the memo of computation of total income.
Though the assessee realized that such amounts are
irrecoverable, it continued to have business with the said
person and claims to have undertaken job work for
M/s.PHCPL even during Financial Year 2005-06. The
ledger folios of M/s.PHCPL as appearing in the books of
the Company from 01.04.2004 to 31.03.2009 were
examined. Till 31.03.2005, there had been some receipts in
respect of services rendered and even TDS had been
deducted on such service while making the payment.
However, from 01.04.2005, the transactions are one sided
and though the assessee was fully aware that the amounts
could not be retrieved, it claims to have provided services
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to PHCPL. Notice u/s.133(6) was issued to the Principal
Officer of PHCPL, on 04.10.2011 and since there was no
response, a reminder was issued again on 20.10.2011,
which met with same fate. It is clear from the ledger folio
of PHCPL as appearing in the books of the assessee for
the period from 01.04.2005 to 31.03.2006 that the
transactions are in a sense, an unilateral booking which
the recipient has not acknowledged. Therefore, the claim
of bad debts is restricted to the period ending 31.03.2005
which amounts to Rs.4,07,03,328/- and such values of bad
debts beyond the period from 01.04.2005 and beyond this
value of Rs.4,07,03,328/- is not entertained.
7. Relying on the said findings made by the Assessing Officer in order
dated 23.12.2011, the petitioner reiterated that the same findings are
extracted in order dated 11.08.2016 for reopening of the assessment year
2009-10. Thus, the initiation of proceedings under Section 147 of the Act is
nothing but change of opinion and not based on any disclosure of true and
full facts. Thus, it is contended that the very reason is unsustainable and not
in consonance with the mandatory provisions. There is no reason to sustain
the subsequent assessment order and all further actions. In support of the
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said arguments, the learned counsel for the petitioner solicited the attention
of this Court with reference to reply to the objections decided by the
Assistant Commissioner of Income Tax dated 19.09.2016. It is contended
that there is no whisper about non-disclosure of full and true facts and there
was no such allegation found in the order. In the absence of any such
allegation, the initiation of 147 proceedings beyond four years is untenable
and liable to be quashed.
8. The learned counsel for the petitioner is of the opinion that the issues,
which were already adjudicated and decided in the original assessment
order dated 23.12.2011, are now sought to be re-adjudicated by way of
reopening of assessment which is impermissible under law. The original
assessment order elaborately reveals the fact that "in the absence of any
business activity, expenditure akin to business including depreciation
u/s.37(1) is not allowable. On the same fact situation elaborately discussed
in 2007-08 & 2008-09, this claim of expenditure had similarly been
disallowed. Further, the P& L Account for the year exhibits profit on sale of
fixed assets, taxable interest income, and exempt dividend income. The
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write-back of provision of Rs.93,44,509/- and sale of scrap written-off do
not in any way impart the characteristic of business activity during the year.
The receipts on sale of fixed assets chargeable under capital gains and
interest fall under the head 'income from other sources'. It is for the same
reason, that the assessee company has not got its accounts audited as
stipulated u/s.44AB". It is further observed that "the claim of bad debts is
restricted to the period ending 31.03.2005 which amounts to
Rs.4,07,03,328/- and such values of bad debts beyond the period from
01.04.2005 and beyond this value of Rs.4,07,03,328/- is not entertained".
9. Relying on the said findings made by the Assessing Officer, the
petitioner has reiterated that the very same reason has been considered for
reopening of the assessment in the year 2009-10. Paragraph No.2 of the
order providing reasons for reopening is nothing but the extraction of the
paragraph made available in the original assessment order and further
reason given was also discussed and a finding was arrived by the
Assessment Officer, while making original assessment. Thus, there is no
reason to sustain the reasons as furnished for reopening of the assessment
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for the year 2009-10.
10. The learned counsel appearing for the respondent/Department
objected the said contention by stating that undoubtedly, the similarity of
the subject matter dealt with in the original assessment order as well as the
orders subsequently furnished reasons for reopening of the assessment may
be same but certain true facts were noticed for initiation of proceedings
under Section 147 of the Act. To substantiate the said contention, the
learned counsel appearing for the respondent relied on the proceedings
dated 19.09.2016 issued by the Assistant Commissioner of Income Tax,
which is reply to the objections for reopening of the assessment under
Section 147 of the Act. The learned counsel appearing for the respondent,
relying on the said order, made a submission that non-disclosure of true and
full facts were elaborately considered by the Competent Authority and the
reasons are also furnished. The petitioner is relying on the findings
regarding the claim of bad debts which was restricted to the period ending
31.03.2005 which amounts to Rs.4,07,03,328/-. With reference to the said
contention, there is a clear answer provided in paragraph No.5 of the order
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dated 19.09.2016, which is reply to the objections for reopening of the
assessment and the said paragraph reads as under:
"5.At the outset, it has to be mentioned that there is no
change of opinion as stated by the assessee. It is relevant to
produce the following from order dated 23.12.2011 "Para
3.1...The ledger folios of M/s.PHCPL as appearing in the books
of the company from 01.04.2004 to 31.03.2009 were examined.
Till 31.03.2005, there had been some receipts in respect of
services rendered and even TDS had been deducted on such
service while making the payment, However, from 01.04.2005,
the transactions are one-sided and though the assessee was
fully aware that the amounts could not be retrieved, it claims to
have provided services to PHCL. Notice u/s 133(6) was issued
to the Principal Officer of PHCPL on 04.10.2011 and since
there was no response, a reminder was issued again on
20.10.2011, which met the same fate. It is clear from the ledger
folio of PHCPL as appearing in the books of the assessee for
the period from 01.04.2005 to 31.03.2006 that the transactions
are in a sense an unilateral booking which the recipient has not
acknowledged".
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11. This apart, the said order categorically dealt with non-disclosure of
true and full facts. The learned counsel appearing for the respondent relied
on the observations made that "the Assessing Officer had no time to verify
with PHBL about the genuineness of the transactions. Write of bad debts is
relating to business and is not eligible for set off against Capital Gains. As
per Section 71, Current year Loss under any head can be set off against
under any head with exceptions. In this case, the loss has not arisen on
account of business activities during the current year 01.04.2008 to
31.03.2009. Bad debts relate to business done before 01.04.2005. The
indent of legislature is to provide judicial relief to assessee when it had
incurred bad debts during the course of business activities and the same
may be deducted from income from business. Moreover, for deduction from
LTCG/STCG, there should be attendant expenses relating to the subject
Capital asset, this is not in the assessees case. Moreover, the assessee has
waited for 4 years and conveniently claimed bad debts to be deducted from
Capital Gains. It is a fact that if there had been no STCG/LTCG, the bad
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debts might not have been claimed for the AY 2009-10.
12. Thus, it seems that the Authorities could able to draw an inference
with reference to the disclosure made by the assessee during the original
assessment. Undoubtedly, the facts appears to be similar but certain
intricacies regarding transactions were identified by the Income Tax
Department as narrated above and they formed an opinion that there is a
reason to believe regarding escape of income.
13. This Court is of the opinion that the payment of Income Tax is the
law. Provisions of Tax laws are to be interpreted in its strict sense. A
constructive interpretation is imminent to ensure that the purpose and object
of the tax laws are met with.
14. Certain inferences or doubts based on facts raised regarding the
assessment may provide a cause for reason to believe. "The reason to
believe" contemplated under the Act provides wider power to the
Competent Authority to reopen the assessment in order to adjudicate the
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facts, which were not disclosed at the first instance by the assessee. As
pointed out, the Income Tax Department, relying on the disclosures made
by the assessee, passed an assessment order. That exactly is the reason for
enacting provisions for reopening of the assessment. It is based on the
information provided by the assessee and believing on the same, the
assessment orders are passed. Only when the Department is able to receive
some information or able to draw some inference from and out of the
information provided and some materials are made available, then alone,
they will get an opportunity for reopening the assessment for the purpose of
proceeding with reopening of assessment. Thus, the concept of reason to
believe cannot be restricted in a narrow compass so as to cripple the power
of the competent authority for invoking the provisions of Section 147 of the
Act. Even new informations not considered if causes a reason to believe,
then the Authority must be permitted to go for reassessment. The object of
the provision is to ensure that the asseesee discloses the true and full
income and the tax paid in accordance with the provisions. In order to meet
out the purpose and object, the assessee should not be allowed to escape
from the clutches of law on certain flimsy reasons. Undoubtedly, the
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assessee gets an opportunity even after reopening of the assessment
proceedings and such opportunities are to be availed for the purpose of
clarifying doubts, reasons or informations gathered by the Department to
establish non-disclosure of true and full facts by the assessee. When all
these opportunities are provided to the assessee under the provisions of the
Act, the High Court is expected to be slow in exercising the power under
Article 226 with reference to certain disputed facts. When there are disputes
regarding the disclosure, the best Authority would be the Income Tax
Department and certainly, not the High Court under Article 226 of the
Constitution of India.
15. The power of High Court under Article 226 is to scrutinize the
process through which a decision is taken in consonance with the
provisions of the Act and certainly, not the decision itself. This being the
principles to be borne in mind, while considering the writ proceedings
under Article 226 of the Constitution of India, a doubt raised by the
Department regarding full and true disclosure of the facts by the assessee
and if there are some materials to establish the same, the Authorities have to
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initiate action based on the concept of reason to believe and the assessee
must co-operate for the assessment by defending his case and by availing
the opportunities contemplated under the provisions of the Act.
16. Contrarily, if the High Court takes an exception with reference to
certain facts and circumstances, then there is a possibility of escape from the
clutches of Tax proceedings, which is certainly not preferable. Further, the
Income Tax Authorities are experts and they must be provided with an
opportunity to consider the defence as well as the materials identified, by
affording an opportunity to the assessee. In the present case, in proceedings
dated 19.09.2016 which is reply to the objections for reopening of the
assessment under Section 147, there is a clear finding by the Authority that
"the Assessing Officer had no time to verify with PHBL about the
genuineness of the transactions. Write of bad debts is relating to business
and is not eligible for set off against Capital Gains. Further, a finding is
made that the assessee has waited for 4 years and conveniently claimed bad
debts to be deducted from Capital Gains". These are all certain contra facts,
which are all raised as grounds for reopening of the assessment as the
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Authorities have reason to believe that there was no true and full disclosure
by the assessee, at the time of the original assessment.
17. This being the facts and circumstances, this Court is of the considered
opinion that the respondents, after initiation of proceedings under Section
147 of the Act, proceeded with reassessment and the assessment order was
also passed on 04.10.2016 itself. Now four years lapsed and further, in
respect of said assessment order, the petitioner has to approach the
competent authority for redressal of grievances if any exists.
18. The learned counsel appearing for the petitioner made a submission
that in view of pendency of the writ petition, the assessee has not initiated
any action against the assessment order. Therefore, he must be provided
with an opportunity as the assessment order was passed without providing
any opportunity to the petitioner.
19. This being the grievances of the writ petitioner, this Court is of the
opinion that the petitioner has to prefer an appeal contemplated under the
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Act and in the event of filing any such appeal, the Appellate Authority may
consider the case on merits and in accordance with law.
20. With these observations, the writ petitions stand dismissed. No costs.
Consequently, connected miscellaneous petitions are also closed.
22.04.2021
ssb
Index: Yes/No
Internet:Yes/No
Speaking order/Non-Speaking Order
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S.M.SUBRAMANIAM, J.
ssb
To
1.The Deputy Commissioner of Income-Tax.
Corporae Circle-1(2),
Chennai-600034.
2.The Assistant Commissioner of Income-Tax,
Corporate Circle-1(2),
121, Mahatam Gandhi Road,
Aayakar Bhavan-Wanaparthy Block,
6th Floor, Chennai-600 034.
W.P.Nos.36522 & 35630 of 2016
22.04.2021
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