Madras High Court
M/S.Cognizant Technology ... vs The Deputy Commissioner Of Income ... on 10 August, 2021
W.P.No.31962 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 10.08.2021
CORAM
THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM
W.P.No.31962 of 2017
and
W.M.P.No.35112 of 2017
M/s.Cognizant Technology Solutions India P. Ltd.,
6th Floor, New No.165/Old No.110,
Menon Eternity Building,
St.Mary's Road,
Chennai – 600 018. ...Petitioner
Vs
1.The Deputy Commissioner of Income Tax,
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extension,
Chennai – 600 101
(Now at 7th Floor, Wanaparthy Block,
Aayakar Bhavan, Chennai – 600 034.
2.The Joint Commissioner of Income Tax,
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extension,
Chennai – 600 101
(Now at 7th Floor, Wanaparthy Block,
Aayakar Bhavan, Chennai – 600 034. ... Respondents
1/38
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
PRAYER : Writ Petition filed Under Article 226 of the Constitution of
India to issue of Writ of Certiorari, calling for the records of the 1st
respondent pertaining to the reopening notice bearing
No.PAN:AAACD3312M/2011-12 dated 28.03.2016 for the Assessment
Year 2011-12 and consequential order bearing No. PAN:AAACD3312M
dated 25.10.2017 issued by the 1st respondent herein and quash the same.
For Petitioner : Mr.Srinath Sridevan
For Respondents : Mr.A.P.Srinivas
Senior Standing counsel
[For Income Tax]
ORDER
The writ on hand is instituted, questioning the legal validity of the
notice issued under Section 148 of the Income Tax Act, 1961 [hereinafter
referred to as the 'Act'] to the petitioner and also the order, disposing of the
objections filed by the writ petitioner in proceedings dated 25.10.2017.
2. The petitioner is a Private Limited company engaged in the
business of development of computer software and related services and its
export. It provides various software solutions to a variety of industries. The
petitioner carried out the business activities through various units set up in
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
Software Technology Parks (STPs) and Special Economic Zones (SEZ's)
and claims deduction under Section 10A and 10AA of the Act. Certain SEZ
Units of the petitioner had incurred losses, which were set-off against other
taxable income of the petitioner.
3. The petitioner had filed its return of income for the Assessment
Year 2011-12 on 30.11.2011, which was subsequently revised on
28.03.2013. The return of income was processed under Section 143(1) of
the Act on 06.07.2012. The case of the petitioner was selected for scrutiny
under Section 143(2) of the Act on 02.08.2012 and details were called for
by the respondents under Section 142(1) of the Act on 24.09.2014 and
08.01.2015. Detailed submissions were made by the petitioner before the
Assessing Officer from time to time. The case of the petitioner was referred
to the Transfer Pricing Officer for necessary verification under Section
92CA of the Act, as the petitioner had international transactions with its
group companies abroad. The Transfer Pricing Officer accepted the arm's
length price of the international transactions entered into by the petitioner
company for the subject year. Consequently, no Transfer Pricing
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
adjustments were made by the second respondent. The second respondent
thereafter took up the case of the petitioner for assessment and an
assessment order was passed on 26.03.2015 under Section 143(3) read with
Section 92CA of the Act for the Assessment Year 2011-12.
4. Suddenly, the first respondent issued a notice dated 28.03.2016
under Section 148 of the Act to initiate proceedings for reassessment under
Section 147 of the Act. The petitioner responded to the notice requested for
reasons, which were furnished by the Assessing authority. Detailed
objections were submitted by the petitioner regarding the reasons furnished
and the said objections were also disposed of by the Assessing authority.
Challenging the said disposal of objections, the petitioner is constrained to
move the present writ petition.
5. The learned counsel appearing on behalf of the writ petitioner
mainly raised three grounds, stating that there is absolutely no application of
mind on the part of the Assessing authority, while initiating reopening
proceedings under Section 147 of the Act. Secondly, the materials relied
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
upon including the Audit party objection for the purpose of reopening of
assessment, is nothing but change of opinion. Thirdly, the audit objection
perse cannot be a reason for reopening of assessment. In the present case,
the audit objection verbatim is taken into consideration for the purpose of
reopening of assessment, which amounts to non-application of mind and
further, impermissible under the provisions of the Act. Thus, the
jurisdictional notice issued under Section 148 of the Act is untenable.
6. To substantiate the said grounds, the learned counsel for the
petitioner drawn the attention of this Court with reference to the notice
issued under Section 141(1) of the Act and the details regarding the scrutiny
assessment proceedings in the case of the petitioner assessee.
7. In respect of deduction claimed under Section 10A and 10AA of
the Act for the Assessment Year 2011-12, the Assessing authority sought
for details from the petitioner in proceedings dated 24.09.2014. In the said
letter, there is a specific query on the point that in earlier Assessment
Year(s), loss of 10A / 10AA units were not allowed to be set off against
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
profits of other units. Show cause why similar stand should not be taken for
the year under consideration. In Sl.No.14, another clarification is sought for,
which the petitioner to provide the details of current year losses in
connection with all STPI and SEZ units of Cognizant Technology Solutions
India Private Limited. When the details are called for in respect of the
disallowances and lossess in connection with STPI and SEZ units of the
petitioner and the petitioner has submitted details as well as the relevant
documents and the Assessing Officer had taken note of all the details during
the scrutiny proceedings and passed the final assessment order on merits
and in accordance with law on 26.03.2015. While so, the very same material
as well as the questions raised is relied on for the purpose of reopening of
assessment under Section 147/148 of the Act and therefore, the very
initiation amounts to change of opinion. It is contended that the assessment
order also speaks about all these details and further, out of 10 units, except 1
Unit at Pune, all other units had incurred loss. Therefore, for the Unit at
Pune, Section 10A is to be considered and in respect of other units incurred
losses, Section 10AA is to be taken into consideration for disallowance of
loss for the computation of total income.
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
8. The learned counsel for the petitioner relied on the assessment
order originally passed and the issues decided by the Assessing authority
and contended that the initiation of reopening proceedings establishes total
non-application of mind on the part of the respondents and the materials
relied upon is change of opinion. Further, audit objections perse cannot be a
source for reopening of assessment as the Assessing authority has not pulled
out any new materials from and out of the said audit objections relied on for
the purpose of reopening of assessment.
9. The reasons furnished in proceedings dated 14.07.2016 as well as
the objections submitted by the petitioner on issue basis are relied upon. The
disposal of objection is questioned by the petitioner on the ground that the
last, but one paragraph itself would show that the authority has not applied
their mind, while considering the objections. There is no independent
opinion formed by the respondents for the purpose of reopening of
assessment. They have extracted the objections and has stated simply that
the income chargeable to tax has escaped assessment and therefore, the
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
reopening proceedings are to be continued. In the absence of any
independent opinion for reopening of assessment, the proceedings itself is
untenable as the mandatory requirements contemplated under Section 147
of the Act is to be complied with. In the present case, the pre-requisite
condition contemplated has not been complied with by the respondents.
Contrarily, they have relied upon the audit objections and further, the
materials already adjudicated and considered by the Assessing Officer at the
time of passing the original assessment order and reopened the assessment
and therefore, the exercise in entirety is bad in law.
10. In support of the contentions, the learned counsel for the
petitioners relied on the judgments in the case of Income Tax Officer Vs.
Techspan India Private Limited and another, reported in (2018) 6 SCC
685, wherein it is held as follows:
“14. The language of Section 147 makes it clear that the
assessing officer certainly has the power to reassess any income
which escaped assessment for any assessment year subject to
the provisions of Sections 148 to 153. However, the use of this
power is conditional upon the fact that the assessing officer has
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
some reason to believe that the income has escaped assessment.
The use of the words “reason to believe” in Section 147 has to
be interpreted schematically as the liberal interpretation of the
word would have the consequence of conferring arbitrary
powers on the assessing officer who may even initiate such
reassessment proceedings merely on his change of opinion on
the basis of same facts and circumstances which has already
been considered by him during the original assessment
proceedings. Such could not be the intention of the legislature.
The said provision was incorporated in the scheme of the IT Act
so as to empower the assessing authorities to reassess any
income on the ground which was not brought on record during
the original proceedings and escaped his knowledge; and the
said fact would have material bearing on the outcome of the
relevant assessment order.
15. Section 147 of the IT Act does not allow the
reassessment of an income merely because of the fact that the
assessing officer has a change of opinion with regard to the
interpretation of law differently on the facts that were well
within his knowledge even at the time of assessment. Doing so
would have the effect of giving the assessing officer the power
of review and Section 147 confers the power to reassess and not
the power to review.
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
16. To check whether it is a case of change of opinion or
not one has to see its meaning in literal as well as legal terms.
The words “change of opinion” imply formulation of opinion
and then a change thereof. In terms of assessment proceedings,
it means formulation of belief by an assessing officer resulting
from what he thinks on a particular question. It is a result of
understanding, experience and reflection.”
(b) In the case of Cholamandalam Investment and Finance
Company Limited Vs. Assistant Commissioner of Income Tax, the
Hon'ble High Court of Madras passed an order on 12.12.2017 in
W.P.No.19375 of 2017, wherein the following observations are made:
“4.The impugned re-opening proceedings is on the basis
of an audit objection, which was communicated to the
Department. On receipt of the audit objection, the Central
Board of Direct Taxes vide letter dated 10.06.2015, addressed
the Director (RA), office of the C&AG of India, New Delhi,
stating that the audit objection made by their Department has
not been accepted by the Ministry (Ministry of Finance) for the
reasons given in Annexure-A to the said letter dated
10.06.2015. The Annexure-A is a note submitted by the
assessing officer of the petitioner. In the said Annexure, the
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
assessing officer has clearly stated as to how the claim of the
Revenue audit that Rs.323.53 crore was to be treated as a
revenue receipt is not correct and unacceptable. Thus, the
matter should have been allowed to rest at that stage, but
however, the assessing officer thought fit to issue the impugned
notice under Section 148 of the Act. The petitioner sought for
reasons for re-opening vide letter dated 03.03.2017. On such
request, the assessing officer furnished the reasons for
reopening vide communication dated 10.03.2017.
5.What is interesting to note is that the reasons for
reopening is verbatim repetition of the audit objections filed by
the audit party. This position was clearly demonstrated by the
learned counsel for the petitioner by comparing the audit
objection and the reasons for re-opening. Thus, it is clear that
the assessing officer did not have any independent material to
re-open the assessment, but merely proceeded to re-open the
assessment on the ground that there was an audit objection.
Thus, two issues arise for consideration. Firstly, whether the
re-opening proceedings have been made solely based upon the
audit objection. Secondly, when CBDT had taken a stand that
they do not accept the audit objection whether the respondent
could proceed to initiate re-opening proceedings.”
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
(c) In the case of Principal Commissioner of Income Tax Vs.
K.R.Jayaram, reported in 2020 SCC Online Mad 1511, the Hon'ble High
Court of Madras made the following observations:
“26. It would be worthwhile to remind ourselves about
the decision of the Hon'ble Supreme Court in the case of
Calcutta Discount Co., Ltd., vs. ITO [1961] 41 ITR 191 (SC),
wherein the Hon'ble Supreme Court held that the duty of the
assessee is to make full and true disclosure of all primary facts
and once it is done, it is for the Assessing Authority to decide
what inference of fact or law could be drawn there from. The
law does not require the assessee to state the conclusion that
could reasonably be drawn from the primary facts and if there
were, in fact, some reasonable grounds for thinking that there
had been any non-disclosure as regards any primary facts,
which could have a material bearing on the question of “under
assessment”, that would be sufficient to give jurisdiction to the
ITO to issue notices under Section 34 (1922 Act) and whether
these grounds are adequate or not for arriving at a conclusion
that there was a non-disclosure of material facts could not be
opened for the Court's investigation.”
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
(d) In the case of M/s.Seshasayee Paper & Boards Limited Vs.
Commissioner of Income Tax, the Hon'ble Division Bench of this Court
delivered a judgment on 21.12.2020 in W.A.Nos.1632, 1633 & 1635 of
2019 and the paragraph relied on by the petitioner is as follows:
“36. In the decision of this Court in the case of Fenner
(India) Ltd., it was pointed out that the duty of an assessee is
limited to fully and truly disclose all material and he is not
required to prepare a draft assessment order. We find that the
assessee disclosed all relevant facts and the Assessing Officer
considered them and after the search, which was conducted on
08.7.1996, the block assessment was framed, which was
ultimately set aside. Parallelly, the regular scrutiny
assessments were done under Section 143(3) of the Act and
thereafter the CIT exercised his power under Section 263 of the
Act and passed an order, which was also set aside.
37. Therefore, the material, which was already placed on
record, and considered in earlier two rounds of litigation can
hardly be a reason to reopen the assessment and all that we can
say is that the attempt of the Department is to reopen a settled
issue solely based upon change of opinion. The Department is
silent and has not disclosed as to what is the tangible material,
which is now available with them more than those that were
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
available with the Department in the earlier two rounds of
litigation. Therefore, we can safely hold that what the
Department seeks to do is not to reopen the assessment, but to
review the earlier orders, which had attained finality. That
apart, the tax case appeals filed by the assessee having been
allowed by judgment dated 03.12.2013, the decision is binding
upon the Department and the same reasons, for which, the CIT
exercised his power under Section 263 of the Act, cannot be
used for issuing the notices for reopening.”
11. Relying on the above judgments, the learned counsel for the
petitioner reiterated that the case on hand and its facts squarely falls under
the principles laid down in the above judgments and the writ petition is to
be allowed.
12. The learned Senior Standing counsel appearing on behalf of the
respondents opposed the contentions raised by the petitioners by stating that
the case of the petitioner is a regular case, where the authority has 'reason to
believe' for reopening of assessment and by following the procedures, the
reopening proceedings are progressed. Thus, there is no irregularity or
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
illegality in reopening the assessment proceedings and the grounds raised by
the petitioners in their objections are considered by the authority competent
and reasons are also furnished.
13. The learned Senior Standing counsel contended that, if the
Assessing Officer has 'reason to believe' that the income chargeable to tax
has escaped assessment, such reason would be sufficient for the purpose of
initiation of proceedings under Section 147/148 of the Act. In the present
case, the reasons furnished are independent and cannot be construed as
verbatim of the audit objections. The Assessing Officer could able to trace
out certain reasons for reopening of assessment and such reasons are
formulated independently by considering the informations and materials
made available. The audit objections undoubtedly may be a source for
reopening of assessment. However, the requirement would be that the
Assessing Officer must have 'reason to believe' that the income chargeable
to tax has escaped assessment. In the present case, the reasons are furnished
to the petitioner, which would reveal that the authority has taken an
independent decision for reopening of assessment. The reasons furnished
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
perse reveals that the information gathered by the Assessing Officer
recorded in the first four lines and thereafter, findings of the Assessing
Officer is recorded and finally, the effect and consequences and the
implications under the provisions of the Act was also considered. Thus,
there is a definite 'reason to believe' for the purpose of reopening of
assessment by the competent authority. Once the reasons furnished reveals
that the informations received by the Assessing Officer is considered and he
could able to give a finding, which is to be construed as new material and
the effect and consequences under the Act finally and if these three are
satisfied, then the reopening is to be held as valid and rest of the grounds
raised are to be adjudicated during the course of the proceedings.
14. The learned Senior Standing counsel emphasized that the
complete adjudication of facts at the stage of reopening in a writ
proceedings may not be proper and the assessee has to avail the opportunity
and establish his case on merits before the Assessing Officer. Once the
Assessing Officer has 'reason to believe', such reasons are within the ambit
of Section 147 of the Act, then it is sufficient for the purpose of the
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
continuance of reopening proceedings and rest of the grounds on merits are
to be adjudicated by the Assessing Officer during the course of proceedings
for forming a final opinion and to pass assessment / reassessment orders.
15. The objections submitted by the petitioner would reveal that they
have not raised any vital grounds, except by stating that the reasons are
change of opinion and the audit objections verbatim relied upon and there is
no application of mind on the part of the assessee. Such general grounds are
raised commonly, and the petitioner has not substantiated the said grounds
with sufficient materials. However, the Assessing Officer has considered all
such grounds independently and disposed of the objections filed by the
petitioner. What is required is the consideration to be deliberated, while
disposing of the objections and not adjudication of the entire facts and
evidences. Therefore, in the present case, the petitioner has not established
any valid ground for the purpose of assailing the reopening proceedings and
thus, the writ petition is to be rejected.
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
16. The learned Senior Standing counsel relied on the very same
judgments cited by the writ petitioner i.e., Techspan India Private Limited
(Cited supra), wherein in paragraph 13, the Hon'ble Supreme Court made a
finding is as follows:
“13. To appreciate the present controversy between the
parties, it would be appropriate to refer to Sections 147 and
148 of the IT Act. For ready reference, relevant portions of
Sections 147 and 148 of the Act are reproduced below:
“147. Income escaping assessment.— 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 (hereafter in this section and in Sections 148 to 153
referred to as the relevant assessment year):
Provided 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
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
after the expiry of four years from the end of the relevant
assessment year, unless 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:
***
148. Issue of notice where income has escaped assessment.—
(1) Before making the assessment, reassessment or
recomputation under Section 147, the assessing officer shall
serve on the assessee a notice requiring him to furnish within
such period, as may be specified in the notice, a return of his
income or the income of any other person in respect of which
he is assessable under this Act during the previous year
corresponding to the relevant assessment year, in the
prescribed form and verified in the prescribed manner and
setting forth such other particulars as may be prescribed, and
the provisions of this Act shall, so far as may be, apply
accordingly as if such return were a return required to be
furnished under Section 139:
***
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
(2) The assessing officer shall, before issuing any notice under
this section, record his reasons for doing so.”
17. Relying on the above judgment, the learned Senior Standing
counsel contended that the Income Tax officer must determine for himself
what is the effect and consequences of law mentioned in the audit note and
whether any consequences, which is now comes to his notice and the
income has escaped assessment. Therefore, the audit objection is also a
ground for initiation of reopening proceedings. What is required is the
satisfaction of the Assessing Officer and if he has 'reason to believe', then
reopening is permissible.
18. The learned Senior Standing counsel referred the case of
Raymond Woollen Mills Vs. Income Tax Officer, reported in [1999] 236
ITR 34 (SC), wherein the Hon'ble Supreme Court of India made the
following observations:
“In this case, we do not have to give a final decision as
to whether there is suppression of material facts by the assessee
or not. We have only to see whether there was prima facie some
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
material on the basis of which the Department could reopen the
case. The sufficiency or correctness of the material is not a
thing to be considered at this stage. We are of the view that the
court cannot strike down the reopening of the case in the facts
of this case. It will be open to the assessee to prove that the
assumption of facts made in the notice was erroneous. The
assessee may also prove that no new facts came to the
knowledge of the Income-tax Officer after completion of the
assessment proceeding. We are not expressing any opinion on
the merits of the case. The questions of fact and law are left
open to be investigated and decided by the assessing authority.
The appellant will be entitled to take all the points before the
assessing authority. The appeals are dismissed. There will be
no order as to costs.”
19. Finally, in the case of Jayaram Paper Mills Limited Vs.
Commissioner of Income Tax, Chennai, reported in [2010] 191 Taxman
38 (Madras), the following observations are made:
“25. Thus it is clear that the scope of the deeming fiction
which was found in Explanation 1 under section 147, before its
amendment, was enlarged in the form of Explanation 2, by the
amendment under Act No. 4 of 1988. The effect of this deeming
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
fiction did not fall for consideration in any of the decisions that
arose even up to Sri Krishna Private Ltd.. Therefore, even
while keeping in mind the elementary principles laid down in
the aforesaid decisions, we may have to apply them to the
extent that they are now permissible in view of Explanation 2.
27. In the light of the above deeming fiction, if we now
look at the order dated August 31, 2009, passed by the second
respondent, overruling the objections of the petitioner to the
initiation of proceedings, it is seen that the petitioner
admittedly earned income solely from interest on fixed deposits
and intercorporate deposits and debited significant amount of
expenditure. The Assessing Officer has taken a stand, prima
facie, that the expenditure debited to the profit and loss
account under various heads is not incidental to the earning of
interest income. Therefore the stand taken by the second
respondent that he has reason to believe that certain income
chargeable to tax escaped assessment, cannot be said to be
vague, irrational or devoid of any basis.
31. In any event, the petitioner is only at the threshold.
Once it is found that the Assessing Officer had reason to
believe that there was income escaping assessment, it is not
open to this court to make a roving enquiry, since the reasons
are not justiciable. All that can happen, by allowing the
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
proceedings to continue, is that the Assessing Officer may pass
an order of assessment or reassessment. The petitioner would
then have a spate of statutory remedies. Therefore, the case on
hand, in my opinion, is not one that warrants interference at
this stage.”
20. Relying on the above judgments, the learned Senior Standing
counsel is of an opinion that the case on hand is also a regular case of
reopening of assessment based on the tangible materials available on record
and therefore, the Assessing Officer may be allowed to continue the
proceedings and pass assessment / reassessment orders by following the
procedures as contemplated.
21. Considering the arguments as advanced by the respective learned
counsels appearing on behalf of the petitioner as well as the learned Senior
Standing counsel, this Court is of the considered opinion that the case on
hand is a case, wherein reopening proceedings are initiated within a period
of four years. Therefore, the conditions stipulated in Proviso Clause to
Section 147 are not applicable. Thus, it is sufficient if the Assessing Officer
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
has 'reason to believe' that any income chargeable to tax has escaped
assessment. However, whether the Assessing Officer has 'reason to believe'
or the reasons furnished for reopening of assessment has no substance for
the purpose of continuance of reopening of proceedings are the
consideration to be shown in the present writ petition.
22. Let as now consider the reasons furnished for reopening of
assessment in proceedings dated 14.07.2016 and the reasons are recorded as
under:
Reasons for Reopening
“Perusal of the records revealed that as per sec.115JB(6),
provisions of Sec.115JB will not apply to the income from
business carried on by an entrepreneur in an SEZ. Claiming
deduction u/s 10AA or opting out of benefit of sec.10AA is not a
criterion to enforce this section. In line with the above sub-
section, while computing income u/w115JB, you have added
back expenses related to some SEZ units and reduced the
revenue from such units. However expenses and revenue in
relation to the 9 SEZ units were not given similar treatment.
Since loss incurred by these 9 units amount to Rs.13,06,30,230,
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
adding back of expenses incurred by these 9 units and reducing
revenue from such units will result in income u/s.115JB going
up by sum of 13,06,30,230.
Therefore, I have a reason to believe that Income has
escaped assessment within the meaning of Sec.147 of the IT Act,
1961.
The reasons for reopening the assessment as per the
records of this office were not provided verbatim to the assessee
but the reasons communicated to the assessee vide letter dated
14.07.2016 didn't change the content or meaning of the reasons
to believe formed by the erstwhile officer. Thus, as the notice
was issued and the reasons for reopening were formed by the
erstwhile officer there is no lack of 'reason to believe'. The
successor is duty bound to continue the assessments initiated by
his predecessors and thus the objection of the assessee is
rejected.”
23. The petitioner submitted their objections and the objections were
disposed of by the authority in proceedings dated 25.10.2017. The reasons
furnished would reveal that perusal of the records revealed that as per
Section 115JB(6), provisions of Sec.115JB will not apply to the income
from business carried on by an entrepreneur in an SEZ. Claiming deduction
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
u/s 10AA or opting out of benefit of sec.10AA is not a criterion to enforce
this section.
24. Therefore, the Assessing Officer has considered the issue relating
to the claiming of deduction under Section 10AA and based on the
informations collected from the records, he forms an opinion that claiming
of deduction under Section 10AA or opting out of benefit of Section 10AA
is not a criterion to enforce this section. Further, he proceeds by stating that
in line with the above sub-section, while computing income u/w115JB, the
petitioner have added back expenses related to some SEZ units and reduced
the revenue from such units.
25. This exactly is the findings of the Assessing Officer with
reference to the informations collected for the purpose of reopening. Thus,
the informations are made available and based on the informations, clear
findings are also given. Thereafter, the Assessing Officer states that Since
loss incurred by these 9 units amount to Rs.13,06,30,230/- adding back of
expenses incurred by these 9 units and reducing revenue from such units
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
will result in income u/s.115JB going up by sum of 13,06,30,230/-. The
effect and consequences, which resulted income chargeable to tax has
escaped assessment is also recorded in the order, furnishing reasons. Thus,
the three components are made available in the reasons furnished for
reopening of assessment. Regarding the informations, an independent
finding is recorded and thereafter, the effect and consequences of the
income escaped assessment was also taken into consideration for the
purpose of reopening of assessment. On these reasons, the Assessing
Officer arrived a conclusion that he has 'reason to believe' that the income
has escaped assessment and accordingly, issued notice under section 148 of
the Act.
26. Regarding the objections submitted, no doubt the petitioner has
raised the ground of change of opinion and the audit objections as well as
the non-application of mind. The objections raised in this regard were also
considered by the authority, while disposing of the objections. The disposal
of the objections would reveal that the reason for reopening of assessment
was considered and the petitioner's/assessee's objections, raising four
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
grounds are specifically recorded and considered by the respondents in the
impugned order, disposing of the objections. Thereafter, the impugned
order, proceeds by stating that the ground taken by the assessee regarding
change of opinion is untenable.
27. In this regard, a finding is given that at the time of finalizing the
assessment under section 143(3) read with Section 92CA on 26.03.2015,
the then Assessing Officer had not formed any opinion on this issue leading
to reassessment under Section 147 and thus, it does not amount to change of
opinion and also to review of the assessment already completed. The
findings are given with reference to the reasons furnished for reopening of
assessment. Further, the findings in the order impugned proceeds by stating
that it is clear that the reassessment is permissible, when Assessing Officer
did not form opinion on any issue during first assessment and if any reason
to believe is formed for escapement of income chargeable to tax that itself is
sufficient enough to initiate reassessment proceedings. Recording the
findings, the respondents came to the conclusion that the ground raised
regarding change of opinion is untenable. Regarding the second ground
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
raised by the petitioners, reassessment proceedings based on audit
objections is bad in law, the objections are recorded and the respondents
arrived a conclusion that the assessee's objection is carefully considered,
however, it is not accepted as the reopening was initiated on the basis of
factual information and the same had been communicated to the assessee
vide letter dated 14.07.2016. In this regard, the Revenue relied on the
judgment of the Hon'ble Supreme Court of India in the case of CIT Vs. PVS
Beedies P Ltd (SC), 237 ITR 3, wherein the Apex Court made the
following observations:
“.............There can be no dispute that the audit party is
entitled to point out a factual error or omission in the
assessment. Reopening of the case on the basis of a factual
error pointed out by the audit party is permissible under law.
In view of that we hold that reopening of the case under Section
147(b) in the facts of this case was on the basis of factual
information given by the internal audit party and was valid in
law. The judgment under appeal is set aside to this extent.”
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
27a. Further, in the case of M/s.Larsen & Toubro Limited Vs. State
of Jharkhand and Ors (SC), in Civil Appeal No.5390 of 2007, the Hon'ble
Supreme Court has held that:
“...........The contention whether finding the information
from the very facts that were already available on record
amounts to information for the purpose of Section 19 of the
State Act, it would be sufficient to refer to a judgment of this
Court in Anandjiharidas & Co. vs. S.P. Kasture AIR 1968 SC
565 wherein it was held that a fact which was already there in
records doesn’t by its mere availability becomes an item of
“information” till the time it has been brought to the notice of
assessing authority. Hence, the audit objections were well
within the parameters of being construed as ‘information’ for
the purpose of section 19 of the State Act.
(27) The expression ‘information’ means instruction or
knowledge derived from an external source concerning facts or
parties or as to law relating to and/or after bearing on the
assessment. We are of the clear view that on the basis of
information received and if the assessing officer is satisfied
that reasonable ground exists to believe, then in that case the
power of the assessing authority extends to re-opening of
assessment, if for any reason, the whole or any part of the
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
turnover of the business of the dealer has escaped assessment
or has been under assessed and the assessment in such a case
would be valid...............”
28. Relying on the above judgment of the Hon'ble Apex Court of
India, the Assessing Officer arrived a conclusion that the reassessment is
permissible when assessing officer has factual information indicating the
escapement of income. In the instant case, the reasons for reopening have
been duly recorded and they have also been conveyed to the assessee. In
view of the above discussion, the said objection was also rejected.
29. Regarding the other ground raised that reasons on reopening has
not been provided within a reasonable time that was also not substantiated.
The learned counsel for the petitioner states that the findings in this regard
are vague. However, this Court is of the considered opinion that the order,
disposing of the objections, cannot be construed as a final order of
assessment and the mandatory requirement of 'reason to believe' if satisfied
with reference to Section 147 of the Act, then the authority shall be allowed
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
to continue the reassessment proceedings. The reasons to the satisfaction
are contemplated and the 'sufficiency' of the reasons need not be gone into
by the High Court. Thus, if the Revenue could able to establish that the
Assessing Officer has 'reason to believe' that the income chargeable to tax
has escaped assessment, the same would be sufficient for reopening of
assessment and rest of the grounds on merits may be adjudicated elaborately
during the course of proceedings. Thus, High Court cannot conduct an
elaborate enquiry in respect of such disputed facts and circumstances
relatable to the documents and evidences. Only if any jurisdictional error is
established on reopening of assessment, then alone, a writ proceedings are
entertainable and not otherwise. Regarding the ground raised by the
assessee that the condition of 'reason to believe' is not satisfied, the
Assessing Officer has made a finding that the reasons for reopening was
recorded by the erstwhile officer as per the records of the office:
Reasons for Reopening
“Perusal of the records revealed that as per sec.115JB(6),
provisions of Sec.115JB will not apply to the income from
business carried on by an entrepreneur in an SEZ. Claiming
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
deduction u/s 10AA or opting out of benefit of sec.10AA is not a
criterion to enforce this section. In line with the above sub-
section, while computing income u/w115JB, you have added
back expenses related to some SEZ units and reduced the
revenue from such units. However expenses and revenue in
relation to the 9 SEZ units were not given similar treatment.
Since loss incurred by these 9 units amount to Rs.13,06,30,230,
adding back of expenses incurred by these 9 units and reducing
revenue from such units will result in income u/s.115JB going
up by sum of 13,06,30,230.
Therefore, I have a reason to believe that Income has
escaped assessment within the meaning of Sec.147 of the IT Act,
1961.
The reasons for reopening the assessment as per the
records of this office were not provided verbatim to the assessee
but the reasons communicated to the assessee vide letter dated
14.07.2016 didn't change the content or meaning of the reasons
to believe formed by the erstwhile officer. Thus, as the notice
was issued and the reasons for reopening were formed by the
erstwhile officer there is no lack of 'reason to believe'. The
successor is duty bound to continue the assessments initiated by
his predecessors and thus the objection of the assessee is
rejected.”
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
30. However, in this regard, the learned Standing counsel made a
submission that the said paragraph may not be relevant as far as the case of
the petitioner is concerned. However, the same would not cause any
prejudice to the interest of the petitioner in the reopening proceedings.
Since the reopening proceedings are initiated for other assessment years, the
said paragraph is adopted in this case and therefore, the said ground cannot
be a valid ground for the purpose of setting aside the entire reopening
proceedings. The learned Senior Standing counsel has made a submission
that though such paragraph is unnecessary, recording the same would not
cause any prejudice and therefore, the writ petitioner has not established
that the said ground affected the right of the assessee.
31. This Court is of the considered opinion that the 'reason to believe'
has contemplated if complied with or not, is to be examined with reference
to the reasons furnished and once, the reasons furnished based on certain
informations or materials, then it is sufficient for the continuance of
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
reopening proceedings. The sufficiency of the reasons need not be gone into
at the stages of reopening. Thus, if prima facie the Revenue could able to
establish that the Assessing Officer has 'reason to believe' and such reasons
are sufficient enough, then this Court is of the considered opinion that the
assessee must co-operate for the completion of reassessment proceedings.
The other grounds raised on merits are to be adjudicated elaborately by the
authority competent and High Court cannot venture into an adjudication of
those disputed facts in a writ proceedings under Article 226 of the
Constitution of India. Even after such adjudication, further avenues are
available for redressal of his grievances under the provisions of the Act.
This being the redressal mechanism as contemplated under the Act, the
initiation of reopening proceedings are to be tested strictly with reference to
the conditions as contemplated under Section 147 of the Act.
32. In the present case, admittedly, the reopening is made within a
period of four years. Thus, the reasons furnished for reopening, if satisfied,
would be sufficient for continuance of reassessment proceedings and for its
conclusion. Perusal of the reasons furnished as well as the objections raised
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
and the disposal of such objections, as discussed above, would reveal that
the petitioner has not substantiated the grounds raised for the purpose of
setting aside the impugned order and therefore, this Court has no hesitation
in arriving a conclusion that the reopening of assessment is made in
consonance with the provisions of 147 of the Act and there is no infirmity
or perversity as such. As far as the judgments relied on by the petitioners are
concerned, the principles laid down by the Apex Court are not in dispute.
However, the application of principles with reference to the facts and
circumstances of the case are of paramount importance. Even the
respondents have not seriously disputed on the principles relied upon, but
perusal of the reasons furnished, objections raised and the disposal of
objections by the authority competent are sufficient enough to meet out the
mandatory requirements as contemplated under Section 147 of the Act and
thus, the reassessment proceedings are to be allowed and the said
proceedings are to be concluded as expeditiously as possible.
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
33. With these observations, the writ petition stands dismissed. No
costs. Consequently, connected miscellaneous petition is closed.
10.08.2021
Speaking order/Non-speaking order
Index : Yes/No
Kak
To
1.The Deputy Commissioner of Income Tax,
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extension,
Chennai – 600 101
(Now at 7th Floor, Wanaparthy Block,
Aayakar Bhavan, Chennai – 600 034.
2.The Joint Commissioner of Income Tax,
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extension,
Chennai – 600 101
(Now at 7th Floor, Wanaparthy Block,
Aayakar Bhavan, Chennai – 600 034.
https://www.mhc.tn.gov.in/judis/
W.P.No.31962 of 2017
S.M.SUBRAMANIAM, J.
Kak
W.P.No.31962 of 2017
10.08.2021
https://www.mhc.tn.gov.in/judis/
