Madras High Court
M/S.Sutherland Global Services ... vs The Commissioner Of Income Tax on 29 April, 2021
W.P.No.31352 of 2014
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 29.04.2021
CORAM
THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM
W.P.No.31352 of 2014
and
M.P.No.1 of 2014
M/s.Sutherland Global Services (P) Ltd,
Rep.by its Authorised Signatory, Mr.V.N.Achutarama Gupta
No.45A, Velachery Main Road,
Velachery,
Chennai-600 042. .. Petitioner
vs.
1.The Commissioner of Income Tax,
Chennai-VI
Income Tax Department
121 Mahatma Gandhi Road,
Nungambakkam,
Chennai-600 034.
2.The Deputy Commissioner of Income Tax/
The Assistant Commissioner of Income Tax,
Company Circle VI(4),
Income Tax Department
121 Mahatma Gandhi Road,
Nungambakkam,
Chennai-600 034.
3.The Income Tax Offier (OSD-III)
Range-VI,
Income Tax Department
121 Mahatma Gandhi Road,
Nungambakkam,
Chennai-600 034. .. Respondents
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W.P.No.31352 of 2014
PRAYER : Writ Petition filed under Article 226 of the Constitution of India,
praying for the issue of a Writ of Certiorarified Mandamus, to call for the
records of the second respondent in PAN:AAECS8093A to quash the
impugned notice dated 26.03.2014 issued in terms of Section 148 of the Income
Tax Act, 1961 on the assumption of jurisdiction u/s 147 of the said Income Tax
Act, 1961 for framing re-assessment for the Assessment Year 2007-08 and
further direct the second and third respondents to drop the proceedings initiated
under 147 of the Act for the said Assessment year 2007-08.
For Petitioner : Mr.N.V.Balaji
For Respondents :Mr.A.P.Srinivas
Senior Standing Counsel
for Income Tax
ORDER
The Notice issued under Section 148 of the Income Tax Act in
proceedings dated 26.03.2014 for reopening of the assessment for the
assessment year 2007-08 is sought to be quashed in the present writ petition.
2. The petitioner/Company was incorporated under the Companies Act,
1956, with the main object to carry on the business of providing information
technology enable services and such other activities morefully described in the
Memorandum and Articles of Association.
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3. The writ on hand is filed mainly on the ground that the reopening of
the assessment by the respondents under Section 147 and issuance of notice
under Section 148 are untenable, which is based on change of opinion and there
is no reason to believe as mandated under Section 147 of the Act. In order to
substantiate the said ground, the learned counsel appearing for the petitioner
elaborately contended that several circumstances in the present case would
establish that it is a case of change of opinion. In fact, similar issues now raised
in the impugned proceedings were already adjudicated and a finding in specific
was provided. In this regard, the learned counsel appearing for the petitioner
contended that the question is about the Business Development Commission.
Regarding the Business Development Commission, the petitioner has already
provided information, details and documents even during the original
assessment and the assessment order was passed with a specific finding in this
regard. Thus, the facts as well as the informations and the documents provided
with reference to the Business Development Commission which is raised as
grounds for reopening assessment were adjudicated in depth by the Assessing
Officer and a finding was also given. Thus, there is no reason to believe for
invoking Section 147 of the Act and it is nothing but change of opinion. The
petitioner contended that with reference to the assessment year 2007-08, the
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assessment order dated 15.12.2010 passed under Section 143(3) read with
92CA(4) of the Income Tax Act, 1961 elaborately provides answer and the
Business Development Commission was also considered. This apart, even in
the appeal filed by the petitioner/Company, the Income Tax Appellate Tribunal,
Chennai made a reference with regard to the Business Development
Commission and with reference to the assessment year 2012-13. A specific
finding was also given in this regard by the Income Tax Appellate Tribunal
holding that "therefore the question of deduction of tax at source does not arise
u/s 195. I find, in this regard, that the AO has not succeeded to lawfully declare
the business development commission under discussion as taxable in the hands
of the recipient". Relying on the findings of the order passed by the Income Tax
Appellate Tribunal, the learned counsel appearing for the petitioner reiterated
that the respondents, in the present case, have exceeded their jurisdiction by
superseding the findings given by the Appellate Authorities, more specifically,
in the appeal wherein the petitioner itself is a party. In other words, it is
contended that in the case of the petitioner itself, the specific finding is made
with reference to the subsequent assessment order and even, the said findings
are not taken into consideration. Thus, the very exercise made by the
respondents in this case is futile and cannot be considered as within the
provisions of Section 147 of the Act. It is contended that the above order
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passed by the Commissioner of Police became final and no further appeal is
preferred.
4. The learned counsel appearing for the petitioner reiterated that the
concept of reason to believe is the statutory mandate, wherein the officer for
reopening the assessment must have new material on hand to invoke the
provision. It is not sufficient, if there is any suspicion. Suspicion only if
supported with any evidence, then alone, the Authority is empowered to invoke
Section 147 of the Act and not otherwise. This apart, the authority have not
formed an opinion nor recorded that the assessee has not made full and true
disclosure. It is contended that the impugned notice does not contain the term
"full and true disclosure" which is mandatory.
5. The learned counsel appearing for the petitioner made a submission
that the case of the petitioner falls beyond four years and within six years.
Thus, under proviso to Section 147 of the Act, the Authority must state in clear
terms that the assessee has not made full and true disclosure. Only in such
circumstances, the initiation of notice under Section 148 may be validated and
in the present case, there is no such mentioning in the impugned order and non-
mentioning of the mandatory term "true and full disclosure" would vitiate the
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entire proceedings.
6. The petitioner referred the impugned notice which merely states that
the Authority has reason to believe that "the income chargeable to tax for the
assessment year 2007-08 has escaped assessment". However, there is no
mentioning even in 148 notice or in respect of order dated 11.04.2014,
providing reasons for reopening, regarding mandatory requirement and true and
full disclosure as contemplated under proviso to Section 147 of the Act. Thus,
the order impugned is void as the mandatory conditions stipulated for invoking
Section 147 remain absent. Thus, the writ petition is to be allowed.
7. The learned counsel appearing for the petitioner further relied on the
circular issued by the CBDT dated 23.07.1969. It is contended that "non-
residents-Income accruing or arising through or from business connection in
India-Liability to tax-Section 9 of the Income-Tax Act, 1961 was clarified in
the said circular". Even the contentions and the directions issued in the said
circular have not been followed by the respondents while invoking powers
under Section 147 of the Act. Paragraph No.3 of the circular contains the
clarifications with reference to Section 9. The specific situations are also
narrated and the case of the petitioner is falling under the said circular and the
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Competent Authority has failed to consider even the circular and the Hon'ble
Apex Court as well as the High Court have repeatedly held that the circulars
issued by the CBDT are binding on all the Authorities of the Income Tax
Department and the same is to be implemented scrupulously. It is further
contended that in various judgments, the scope of reopening of assessment has
been elaborated by the Courts and in the event of change of opinion, reopening
of assessment is impermissible. It is contended that none of the principles laid
down in those judgments were not taken into consideration by the respondents
as well as the circulars issued by the CBDT were also violated. Thus, the
impugned orders are to be declared as non-est and the writ petition is to be
allowed.
8. The learned Senior Standing Counsel appearing on behalf of the
respondents objected the contention raised on behalf of the petitioner by stating
that all the judgments in the matter of reopening of assessment under Section
147 and issuance of notice under Section 148 are decided based on particular
facts and circumstances. There are many number of judgments that the
initiation of proceedings under Section 147 and 148 must be based on
particular facts and circumstances of each case. Therefore, the findings in
certain judgments selectively would not be of any avail to the writ petitioner.
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The learned Senior Standing Counsel further contended that for and against
judgments are available in the present case. However, all such judgments are to
be considered with reference to those facts and circumstances and the facts
prevailing in the present writ petition are to be considered with reference to the
provisions of the Income Tax Act, more specifically, Sections 147 and 148 of
the Act.
9. It is reiterated that with reference to the facts and circumstances of the
case on hand, the provisions are to be considered as the petitioner has raised a
ground that the mandatory requirement under proviso to Section 147 is missing
in the impugned order. Therefore, the order is liable to be set aside. Mere non-
quoting the word "true and full disclosure" would not vitiate the entire
proceedings. Whether the requirement of non-disclosure of true and full income
is established or not is the fact, which is to be considered for the purpose of
arriving a decision. Thus, the very argument in this regard deserves to be
rejected.
10. The learned Senior Standing Counsel further made a submission that
the scope of Section itself is self-explanatory and it is sufficient, if the
Authorities are able to find a reason to believe and such a reason to believe
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must be based on evidence or new materials not considered earlier. However, if
all such materials, informations, documents are identified for initiation of
proceedings by reopening the assessment, it is for the Assessee to submit his
returns explaining the stand taken and to defend his case by availing the
opportunities to be provided. Contrarily, at the initiation stage itself, the
assessee cannot expect that the entire discussions are to be made. If the entire
adjudication made by the assessee prior to issuance of notice, the same would
violate the principles of natural justice. Therefore, the Section contemplates
that if there is any reason to believe, then the reopening is permissible and after
reopening, the opportunities are to be provided to the assessee and by availing
the opportunity, the assessee is at liberty to defend his case by producing
documents, evidence and statements etc., This being the scope of the
provisions, the contentions raised regarding the merits, more specifically,
Business Development Commission etc., are to be adjudicated by the Assessing
Officer and those documents, information, and materials are not made available
before this Court for an adjudication and such an exercise need not be done by
the High Court.
11. The learned Senior Standing Counsel solicited the attention of this
Court with reference to the proceedings dated 11.04.2014 providing reasons for
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reopening of the case of the petitioner. In the said proceedings, it is stated that
"Hence, I have reasons to believe that income has escaped assessment within
the meaning of Section 147 of the Income Tax Act". Relying on the said
submission made in proceedings dated 11.04.2014, the learned Senior Standing
Counsel reiterated that the Authorities Competent has specifically mentioned
that the true and full disclosure is the term contemplated under Section 147.
Therefore, it is suffice, if the provision is mentioned in the order. Admittedly, it
is stated that the reason to believe that the income chargeable to tax has escaped
assessment within the meaning of Section 147 would indicate that the assessee
has not disclosed the true and full disclosure. Therefore, mere absence of very
word "true and full disclosure" would not vitiate the entire proceedings.
12. Relying on the order passed in proceedings dated 07.10.2014, it is
contended that as per Section 9(i) of the Income Tax Act, necessary tax has not
been deducted on the business development commission paid to non-resident.
Therefore, the said information provide a cause for reopening of the assessment
for the year 2007-08. During the course of assessment proceedings under
Section 143(3), the matter of non-deduction of tax on business development
commission paid to a non-resident was not looked into. This matter was not
discussed in the Assessment Order. Therefore, there is no change of opinion but
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clearly there was an escapement of income to be brought to tax. The said
provision indicates that the matter of non-deduction on the business
development Commission paid to a non-resident was not even considered in the
original assessment order and therefore, it is a new material to be considered
for the purpose of tax. Thus, the reopening of assessment is necessary, which
resulted initiation of proceedings under Section 147. Thus, there is no infirmity
as such. Consequently, the writ petition is liable to be dismissed.
13. In reply, the learned counsel appearing for the petitioner referred
another Circular No.786 dated 07.02.2000 issued by the CBDT, wherein
deduction of tax u/s 195 and the taxability of export commission payable to
non-resident agents rendering services abroad was considered and a
clarification was issued in detail by the CBDT. The learned counsel appearing
for the petitioner in this regard relied on the judgment of the Hon'ble Supreme
Court of India in the case of Commissioner of Income Tax vs. Toshoku
Limited [1980] 125 ITR 525(SC). The said judgment was followed by the
Hon'ble Division Bench of this Court. The Hon'ble Supreme Court of India
held that "amount of commission was later remitted to non-resident agents-
Whether, since non-resident assessees did not carry on any business operations
in India, amounts earned for services rendered outside India could not be
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deemed to be incomes which had either accrued or arisen in India,-held yes". It
is held that "the assessee could not be charged to tax on basis of receipt of
income, actual or constructive, in taxable on basis of receipt of income, actual
or constructive, in taxable territories during relevant accounting period as they
neither received nor could be deemed to have received sums in question when
their accounts with Indian exporter were credited-Held yes". Relying on the
said judgment, the learned counsel for the petitioner contended that the
propositions laid down by the Hon'ble Supreme Court are violated by the
respondent. The circular relied on by the petitioner is important, vital and those
two circulars were not even looked into by the respondents for the purpose of
taking a decision regarding the initiation of proceedings under Section 147 of
the Act. It is further contended that the Hon'ble Division Bench of this Court is
also relied on the said judgment and passed an order and those orders were not
considered. In this regard, the learned Counsel for the petitioner expressed his
anguish by saying that the Income Tax Authorities are violating not only the
CBDT circulars but violating the Judgment of the Hon'ble Supreme Court of
India.
14. The learned Senior Standing counsel contended that the Circulars
issued by the CBDT are in the nature of guidelines issued to the authorities to
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take a decision with reference to the particular facts and circumstances. The
clarifications are to be followed in consonance with the provisions of the
Income Tax Act regarding the facts and circumstances. Thus, mere circular
would not be of any avail to the writ petitioner and the authorities competent
are bound by the provisions of the Income Tax Act in the matter of reopening
of assessment. Regarding the judgments relied on by the petitioner, the learned
Senior standing counsel is of an opinion that the principles laid down in the
case would be applicable to the facts and circumstances of those cases, which
all are not comparable. Thus, this Court has to consider the facts and
circumstances as well as the reasonings furnished for reopening of assessment
in the context of Sections 147 and 148 of the Income Tax Act. Thus, the facts
and circumstances raised on merits by the petitioner need not be considered by
this Court for the purpose of Section 147 of the Act.
15. Considering the arguments, this Court would prefer to look into the
effect of Sections 147 and 148 of the Income Tax Act. The case of the
petitioner is falling under proviso clause as the reopening of assessment is
made beyond four years but within 6 years. Thus, the Authorities have to satisfy
the requirements contemplated in proviso to Section 147.
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16. In this context, Section 147 stipulates that "if the Assessing Officer
has reason to believe that any income chargeable to tax has escaped assessment
for any assessment year, he may, subject to the provisions of sections 148 to
153, assess or reassess such income and also any other income chargeable to
tax which has escaped assessment and which comes to his notice subsequently
in the course of the proceedings under this section, or recompute the loss or the
depreciation allowance or any other allowance, as the case may be, for the
assessment year concerned ".
17. The spirit of Section 147 would reveal that the reason to believe is a
wider term so as to cover the circumstances which would provide some
materials or informations for the Authorities to invoke Section 147 of the Act.
The word "reason" would indicate that the reason must be based on certain
information, materials or evidences etc. Such reason must result in a belief and
only in such eventuality, the Authority Competent would invoke Section 147 of
the Act.
18. The dictionary meaning of the word "belief" is that "a state of mind
that regards the existence or truth of something as likely or relatively certain;
conviction about the truth of something."
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19. With reference to the phrases adopted under Section 147 of the Act,
belief should not be superstitious, but must be reasonable and such reason must
be based on certain materials or informations or otherwise for the purpose of
reopening of assessment.
20. The meaning of the term “reasonable belief” is that a sensible belief
that accords that with or result from using the faculty of reason. Thus, the belief
must be based on reasons and the said reasons must be sensible and results
from using the faculty of reasons.
21. Thus, the phraseology of “reason to believe” is to be interpreted, so
as to understand that the reasons must be not only be satisfactory, but based on
certain materials, informations, documents, etc., which all are acceptable for the
purpose of reopening of assessment. The belief must be reasonable and such
reasonable belief must be in consonance with the reasons identified by the
authorities. Only if these ingredients are satisfied, then alone, the authorities
competent is empowered to form an opinion that there is a reason to believe for
invoking Section 147 of the Act.
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22. Section 147 contemplates that the Assessing Officer may assess or
reassess. Thus, Section 147 provides the scope for assessment and for
reassessment. Assessment would arise in cases, where no return of income is
filed. Reassessment would arise, if the assessment order is passed under the
provisions of the Income Tax Act. Even in such cases, the Assessing Officer is
empowered to invoke Section 147, if any other income chargeable to the tax,
which has escaped assessment. Thus, even after initiation of proceedings under
Section 147 of the Act, if the Assessing Officer identified that any other income
chargeable to tax has escaped assessment, and such informations, comes to his
notice, subsequently during the course of the proceedings, then also, the
authority is empowered to exercise the powers. Thus, the provision
contemplates that during the course of the proceedings, if any other information
is identified regarding the tax, which has escaped assessment, then also, he can
recompute the loss or the depreciation allowance or any other allowance, as the
case may be, for the assessment year concerned. The language employed in
Section 147 of the Income Tax Act would provide not only wider meaning and
power to the competent authority, but the provision adopts a holistic approach,
so as to confer powers to the Assessing Officer to cull out the truth with
reference to certain informations, documents, evidences, which were either
provided by the assessee or not provided by the assessee or not considered
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during the original assessment. Various complex circumstances prevailing can
be fit in with the provision, in view of the wider concept contemplated under
Section 147 of the Act.
23. Let us now consider the proviso to Section 147 of the Income Tax
Act which contemplates that "where an assessment under sub- section (3) of
section 143 or this section has been made for the relevant assessment year, no
action shall be taken under this section after the expiry of four years from the
end of relevant assessment year". Thus, four years time is granted for initiation
of reopening proceedings under proviso to Section 147 of the Act. However,
the proviso further contemplates that "if any income chargeable to tax has
escaped assessment for such assessment year by reason of the failure on the
part of the assessee to make a return under section 139 or in response to a
notice issued under sub- section (1) of section 142 or section 148 or to disclose
fully and truly all material facts necessary for his assessment for that
assessment year". Therefore, beyond four years, the Assessing Officer is
empowered to invoke Section 147 of the Act within a period of six years, if any
income chargeable to the tax has escaped assessment on account of failure on
the part of the assessee to make return under Section 139 or in response to a
notice issued under sub- section (1) of section 142 or section 148. This apart, if
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the assessee failed to disclose truly and fully all materials facts necessary for
his assessment, then, the power is provided to the Assessing Officer for
reopening under Section 147 of the Act. Thus, it is made clear that if any
assessee failed to disclose fully and truly all material facts necessary for
assessment, then Section 147 may be invoked by the Assessing Officer.
24. In respect of the case on hand, the same falls beyond the period of
four years and within a period of six years. Thus, the ingredients contemplated
for invoking Section 147 beyond four years are to be complied with. The
contention of the writ petitioner is that the materials, which are all now forms
part and parcel of the reopening proceedings, had already been disclosed by the
assessee and those materials were considered and a finding was given by the
Assessing Officer and with reference to same facts, the Appellate
Commissioner has also adjudicated and made a finding which became final.
Thus, there is no reason to institute an action under Section 147, in view of the
fact that the element of true and full disclosure of all materials would not arise
at all.
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25. It is further contended by the writ petitioner that the notice issued
under Section 148 as well as the reasons furnished for reopening did not speak
anything about non-disclosure of true and full disclosure of materials.
Therefore, there is no specific search mentioning and the order impugned
cannot be sustained. It is contended that the non-disclosure of fully and truly all
material facts is not established. Therefore, there cannot be any reason to
believe for reopening beyond the period of four years.
26. This Court is of the considered opinion that mere non-quoting of
provision of law would not vitiate the entire proceedings. Undoubtedly, the
Authorities Competent are expected to quote the provisions of law. However,
by mistake or omission, if the provisions or statute are mentioned in the order
of notice, per se would not vitiate the entire proceedings. Thus, it is to be
established whether there is a true and full disclosure of all materials by the
assessee or not. Such an adjudication cannot be done in entirety in a writ
proceedings under Article 226 of the Constitution of India. The power of the
High Court is to scrutinize the process through which a decision is taken by the
Authorities Competent in consonance with the Statute and not the decision
itself. Thus, how to test the component of true and full disclosure. Thus, if such
non-disclosure of true and full income by the assessee provide a reason to
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believe to the Assessing Officer, then it is to be construed that the provision of
Section 147 is satisfied and thereafter, the Assessing Officer is empowered to
issue notice under Section 148.
27. It is pertinent to note that Section 147 is only initiation of
proceedings for reopening of assessment. Reopening of assessment can be
questioned, but on certain limited grounds. Mere reopening would not provide
a cause for adjudication of all material facts. If any reopening of the assessment
is made without jurisdiction or no prima facie material available for such
reopening, then alone, the High Court can intervene and not otherwise. Thus,
the scope of writ petition under Article 226 of the Constitution of India in
respect of reopening of assessment under Section 147 is limited and only on
certain jurisdictional grounds or non-availability of any prima facie case with
reference to ingredients contemplated under Section 147, then alone, writ can
be entertained and not otherwise.
28. Let us now consider the Deemed accruing contemplated in
Explanations 1 and 2 to Section 147 of the Income Tax Act. Explanation 1 to
Section 147 contemplates that "Production before the Assessing Officer of
account books or other evidence from which material evidence could, with due
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diligence, have been discovered by the Assessing Officer will not necessarily
amount to disclosure within the meaning of the foregoing proviso". Explanation
1 clarifies that certain 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. Deemed accruing is
contemplated in order to extend the power of the Assessing Officer to cull out
certain material, evidence or facts with reference to the account books or other
evidence produced by the assessee even at the time of original assessment. For
instance, certain information or account books or other evidences are produced
by the assessee and from and out of such evidences or account books, the
Assessing Officer could able to cull out certain new materials or information or
otherwise which resulted that any income chargeable to the tax has escaped
assessment, then also, the power under Section 147 shall be invoked. Therefore,
an assessee cannot raise a contention that the facts resulted in initiation of
reopening proceedings were already adjudicated in the original assessment
order and cannot be a valid ground per se for the purpose of quashing the entire
proceedings initiated under Section 147 of the Act.
29. Explanation 2 contemplates various circumstances which are all
considered as deemed cases where income chargeable to tax has escaped
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assessment. Circumstances are self-explanatory and even sub-clause (c)(i) to
Explanation 2 contemplates income chargeable to tax has been under- assessed.
Thus, even under-assessment is a ground for reopening of the assessment.
Various circumstances contemplated under the Deemed accruing clause are
also to be taken into consideration, while dealing with the cases for reopening
of assessment.
30. Therefore, an assessee cannot come forward by stating that the
materials, which are all forming part and parcel of reopening of assessment are
already adjudicated in the original assessment. Therefore, the reopening of
assessment is impermissible. Such a ground cannot be entertained per se, in
view of the fact that from and out of any such materials already produced by the
assessee during the original assessment, the Assessing Officer is able to cull out
some new materials or fresh informations, then also, it is to be construed that
the Assessing Officer has reason to believe that the income chargeable to the
tax has escaped assessment, which may result in initiation of proceedings under
Section 147 of the Act.
31. Plain reading of the provision would throw light on the legislative
intention. Importantly, various amendments are introduced under the provisions
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of the Act one after another and periodically, in view of the reasons that Income
Tax Department and its authority experienced practical difficulties in dealing
with the cases, where large scale evasions of tax were being traced out on many
occasions.
32. Evasion of tax is a common phenomena in our great Nation. On
account of erroneous mindset of certain greedy people, undoubtedly, dealing
with such evasions and the evaders are difficult and a challenging job for the
authorities competent of the Income Tax Department. The original assessments
are made based on the return of income filed by the assessee and believing the
documents and evidences produced by the assessee, the assessments are made
by the Revenue. Thus, the Income Tax Department must be conferred with
ample provisions and powers to the authorities to deal with such cases, where
non-payment of tax or otherwise due to non-production of true and full
disclosure of income in a genuine manner. Amendments after amendments are
introduced to fill up the lacuna and the gaps, which all were created by legally
trained and accountancy brains of this great Nation. Thus, legislative intention
for such amendments are made to ensure that the evasion and falsified
informations are crippled down to the extent possible, so as to send a message
to the citizen that they are liable to pay tax in the interest of Nation and for the
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welfare of the society at large. We, the people of India, resolved to achieve the
constitutional goals, Philosophies and Ethos and such achievements of
constitutional goals are possible only when the people respect the law of the
land. Mostly, greediness leads to non-payment of taxes and lack of Nationalism
also is a reason for such violations.
33. Section 148 denotes issuance of notice, where the income tax
chargeable to the tax has escaped assessment. Once the Assessing Officer
satisfies himself regarding the ingredients contemplated under Section 147,
then he is empowered to issue notice under Section 148 of the Act. Once a
notice under Section 148 is served on the assessee, then he is bound to
cooperate for reassessment in respect of reasons to be furnished by the
Competent Authority. In this context, the principles laid down by the Hon'ble
Supreme Court of India in the case of DKN Driveshafts (India) Limited vs.
ITR and others, [2003] 259 ITR 19(SC), are to be followed. The reasons are to
be furnished to the assessee and the assessee must be provided with an
opportunity to submit their objections and such objections submitted are to be
disposed of and all such procedures are to be completed by following the
principles laid down in the case cited supra and in compliance with the
mandatory requirements of the provision of the Act.
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34. Considering the scope of Sections 147 and 148 of the Act, it is to be
borne in mind that interference by the High Court at the initiation stage without
any strong and acceptable ground, would create a situation, wherein the Income
Tax Department would be deprived of exercise of their rightful powers to deal
with certain facts and circumstances, which were not adjudicated during the
original assessment and with reference to the non-disclosure of true and full
disclosure of income by the assessees. The purpose and object of Section 147
providing wider powers to the authorities competent is to cull out the truth and
deal with suppression, evasion, under assessment etc., in the matter of payment
of Income tax. Thus, the High Courts are expected to be cautious, while
exercising the powers under Article 226 of the Constitution of India, more
specifically, for interfering in such matters at the initiation stage. At the
initiation stage, the entire facts and circumstances, may not be made available
even before the High Court. Certain facts placed by the assessees before the
High Court cannot be wholly trusted upon. The Department without conducting
an enquiry and scrutinizing the documents, may not be in a position to place all
the facts before the High Court. Thus, the scope of interference on initiation of
reopening of assessment proceedings is certainly limited and therefore, the
High Court in such circumstances are expected to exercise restraint in
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W.P.No.31352 of 2014
preventing the authorities competent to conduct further enquiry by following
the procedures as contemplated on initiation of proceedings under Section 147
of the Act. As discussed earlier, interference is permissible, if there is no
absolute jurisdiction or the Revenue could not able to establish a prima facie
case for reopening of assessment. Once a prima facie case is made available,
then it is not preferable for the High Courts to go into the facts and
circumstances, which requires a deeper adjudication by the authorities
competent of the Income Tax Department.
35. A balancing approach is required. One can presume that in the event
of allowing the Department to proceed with the reopening proceedings by
affording opportunity to the assessee, there is a possibility of culling out the
truth with reference to any suppression, evasion, under assessment etc.,
Equally, the rights of the assessee is also protected as the assessee is at liberty
to defend their case in the manner known to law and by availing the
opportunities to be provided. Contrarily, in the eventuality of not allowing the
Income Tax Department to proceed with the reopening proceedings, the same
would cause prejudice to the interest of the Revenue and the Department is
loosing its opportunity from probing the issues further. This exactly is the
reason, where the High Court is expected to exercise restraint in the matter of
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W.P.No.31352 of 2014
reopening of assessment by the Department when they could able to establish
that there is a prima facie material available on record for such reopening.
36. It is needless to state that High Court under Article 226 of the
Constitution of India, cannot adjudicate the facts and circumstances with
reference to the documents and evidences. This apart, the High Court is not an
expert body, so as to go deeper into the intricacies of the accounting system and
the manner, in which, the returns are filed and the materials are taken out by the
Department for the purpose of reopening of assessment. In the event of
establishing a prima facie case that some materials are made available on
record for reopening of the assessment, then High Court must allow the
authority to go on with such materials by following the procedures as
contemplated and the assessee will get an opportunity to defend his case and
establish his innocence or otherwise. Thus, only on exceptional circumstances,
where the authorities have exercised jurisdiction erroneously or there is no
material on record, which would provide cause for reason to believe the
question of entertainability of the writ petition would arise.
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W.P.No.31352 of 2014
37. As far as the writ on hand is concerned, Section 148 notice received
by the assessee was responded by an application seeking reason for reopening.
The respondents furnished reasons for reopening, wherein they have clearly
stated that there is reason to believe that the income chargeable to tax has
escaped assessment within the meaning of Section 147 of the Act, which would
reveal that the case falls under beyond four years. This apart, the reasons stated
in the said proceedings dated 11.04.2014 reveals that no TDS has been made on
the Business Development Commission and the same needs to be disallowed as
per Section 40(a)(ia). The objections submitted by the writ petitioner on
29.04.2014 in detail was also disposed of by the respondents in vide
proceedings dated 07.10.2014. In the said proceedings, the respondents have
clearly stated that "the matter of non-deduction of tax on business development
commission paid to a non-resident was not looked into. This matter was not
discussed in the Assessment Order.” Further, relying on Section 9(1), the
respondents have stated that “necessary tax has not deducted on the business
development commission paid to non-resident. The business development
commission is in the nature of technical services fees paid to the parent entity.
The non-deduction of tax in the above payment, raised the liability to tax,
which is escaped to assessment”. This Court is of the opinion that the reasons
furnished for reopening of the assessment cannot be gone into disputed facts
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W.P.No.31352 of 2014
and circumstances in the writ petition. Sufficiency of reasons cannot be gone
into by the High Court. If there is a reason to believe and such reason to believe
is sensible, then it is sufficient to invoke the provisions of Section 147 of the
Income Tax Act and the High Court cannot go into 'sufficiency' of the reasons
provided for reopening of such assessment. Sufficiency of the reasons deserves
complete adjudication of the disputed facts, which cannot be gone into. Thus,
this Court has no hesitation in arriving a conclusion that the Revenue has to
establish the reason to believe for reopening of assessment and it is for the
petitioner to establish that such reasons are insufficient for reopening or he has
already disclosed truly and fully all materials facts necessary for assessment or
under the provisions of the Act, he has got enough defence to rebut the reasons
furnished for reopening of the assessment. The writ petitioner is at liberty to
avail the opportunities to be provided under the provisions of the Income Tax
Act, to do so.
38. This being the factum established, this Court do not find any
acceptable reason for the purpose of interfering with the initiation of
proceedings under Section 147 of the Act for reopening of assessment and
accordingly, the respondents are empowered to proceed with the process of
assessment and conclude the same as expeditiously as possible.
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W.P.No.31352 of 2014
39. With these observations, the writ petition stands dismissed. No costs.
Consequently, connected miscellaneous petition is also closed.
29.04.2021
ssb/kak
Index:Yes/No
Internet:Yes/No
Speaking Order/Non-Speaking Order
To
1.The Commissioner of Income Tax,
Chennai-VI
Income Tax Department
121 Mahatma Gandhi Road,
Nungambakkam,
Chennai-600 034.
2.The Deputy Commissioner of Income Tax/
The Assistant Commissioner of Income Tax,
Company Circle VI(4),
Income Tax Department
121 Mahatma Gandhi Road,
Nungambakkam,
Chennai-600 034.
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W.P.No.31352 of 2014
3.The Income Tax Offier (OSD-III)
Range-VI
Income Tax Department
121 Mahatma Gandhi Road,
Nungambakkam,
Chennai-600 034.
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W.P.No.31352 of 2014
S.M.SUBRAMANIAM, J.
ssb/kak
W.P.No.31352 of 2014
29.04.2021
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