Madras High Court
M/S.Lifecell International ... vs 2 Principal C Ommissioner Of ... on 25 January, 2021
W.P. No.34575 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 25.01.2021
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
W.P. No.34575 of 2019
and
WMP.Nos.35298, 35300 and 35302 of 2019
and WMP No.13887 of 2020
M/s.Lifecell International Private Limited
Represented by Mr.S.Abhaya Kumar Srisrimal
No.26, Vandalur Kelambakkam Main Road,
Keelakottaiyur Village, Chennai – 600 048.
…Petitioner
Vs.
1 Assistant Commissioner of Income Tax
Corporate Circle – 4(1) (“AO”)
121 Uthamar Gandhi Salai,
Chennai – 600 034.
2 Principal C ommissioner of Income Tax
PCIT – 4, Chennai,
121 Uthamar Gandhi Salai,
Chennai – 600 034.
...Respondent
PRAYER: Writ Petition filed under Article 226 of the Constitution of India
praying for the issuance of Writ of Certiorari to call for the records on the file
1
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W.P. No.34575 of 2019
of the first respondent and quash the impugned order bearing
No.ITBA/AST/F/17/2019-20/1021512082(1) dated 02.12.2019 along with the
impugned notice in PAN AAECA7997B bearing No.ITBA/AST/S/148/2018-
19/101348398(1) dated 16.03.2019 issued under Section 148 of the Income
Tax Act for the AY 2012-13.
For Petitioner : Mr.N.V.Balaji
For Respondent : Mrs.Hema Muralikrishnan
Senior Standing Counsel
------------
ORDER
The petitioner challenges order dated 02.12.2019 rejecting the objections
to the assumption of jurisdiction for re-assessing income in relation to
assessment year (A.Y.) 2012-13, in terms of the provisions of the Income Tax
Act, 1961 ( in short ‘Act’).
2. Heard Mr.N.V.Balaji, learned counsel for the petitioner and Mrs.Hema
Muralikrishnan, learned Senior Standing Counsel for the respondents.
3. Five issues have been identified for re-assessment. Upon instructions
from the Assessing Authority, learned Senior Standing Counsel would fairly
state that issues at 1 and 5 are not seriously pressed.
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W.P. No.34575 of 2019
4. As far as Issue No.1 is concerned, income from storage of stem cells
have been offered to tax in the Vivad se Vishwas Scheme and as such, the
question of re-assessment in regard to such incomes does not arise.
5. As far as Issue No.5 in relation to the payment of tax on Provident
Fund and ESI contributions is concerned, the issue stands covered by a decision
of this Court in the case of Industrial Securities and Intelligence India V. CIT
in T.C.(A)Nos.585 and 586 of 2015 dated 24.07.2015. Hence, the re-
assessment initiated on this score would not be pursued.
6. As far as Issue No.4 is concerned, refund was granted to the assessee
while processing the return under Section 143(1) which was omitted to be
added back in the regular assessment. The amount is sought to be added back
now. The question of re-assessment would not arise in such a situation, insofar
as there is no escapement of income per se. The Assessing Authority could well
have addressed this issue under Section 154 of the Act. The proposal for re-
assessment on this score fails.
7. What survives for consideration are Issue Nos. 2 and 3. Issue No.2
relates to re-assessment of processing fee. The petitioner is engaged in the
business of stem cell research and storage of stem cells collected from the
umbilical cord of a new born child. At the time of delivery, a fee is collected
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W.P. No.34575 of 2019
for processing of the services offered. The entirety of the processing fee is
disclosed as revenue. However, what is recognised for the purpose of taxation
is only the fee collected from those cases where the mother-to-be has delivered
and where the child is born prior to the end of the financial year in question.
There are certain other circumstances where the processing fee is returned such
as cases where the contracts between the expectant mother and the petitioner
are not pursued.
8. There is no dispute on the position that the petitioner has been
following a consistent method of accounting over the years and has been
recognising income following a uniform system. The accounts of the petitioner
would reveal the receipt of processing fee in advance and recognition of the
amount quantified in that year in relation to deliveries is that have taken place
within the financial year in question as income. The remaining fee is carried
over to the subsequent financial year. Assessments for previous and later years
following this consistent method of accounting have been accepted. The details
in relation to the entirety of the processing fee received and the component
recognised as income in this year are also available.
9. The Supreme Court in the case of CIT V/s. Woodward Governor India
Pvt. Ltd. ((2009) 13 SCC 1) while considering the issue of recognition of
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W.P. No.34575 of 2019
Foreign Exchange fluctuations states at paragraph 34, that a consistent method
of accounting and recognition of income followed by an assessee over the years
is, normally, liable to be accepted.
10. In this case, admittedly, there is no change in the method of
accounting followed. The methodology followed for recognition of revenue is
the same, both prior and subsequent to this assessment. Thus there appears no
justification for the present proposal to re-assess the income, seen in the light of
the fact that for previous years, the accounts of the petitioner have been
accepted by the Department.
11. In the context of deductibility of expenditure, the Bench states that a
relevant parameter would be to ascertain whether, the same system of
accounting were followed by an assessee from the very beginning and if there
was any change in the interregnum, whether the change was bonafide. It was
also material to ascertainwhether the method adopted by an assessee for making
entries in the books of accounts is as per nationally accepted accounting
standards. At paragraph 34, the Bench states as follows:
34. Section 145(1) enacts that for the purpose of Section 28 and Section
56 alone, income, profits and gains must be computed in accordance with the
method of accounting regularly employed by the assessee. In this case, we are
concerned with Section 28. Therefore, Section 145(1) is attracted to the facts
of the present case. Under the mercantile system of accounting, what is due is
brought into credit before it is actually received; it brings into debit an
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W.P. No.34575 of 2019
expenditure for which a legal liability has been incurred before it is actually
disbursed. (see judgment of this Court in the case of United Commercial Bank
v. CIT reported in 240 ITR 355). Therefore, the accounting method followed by
an assessee continuously for a given period of time needs to be presumed to be
correct till the AO comes to the conclusion for reasons to be given that the
system does not reflect true and correct profits. As stated, there is no finding
given by the AO on the correctness of the accounting standard followed by the
assessee(s) in this batch of Civil Appeals.
12. Moreover, the proceedings for re-assessment have been initiated
beyond a period of four years from the end of the relevant financial year and
hence, in terms of the proviso to Section 147 of the Act, the revenue has to
establish a failure on the part of the petitioner to have made a full and true
disclosure of income to avail of the benefit of extended limitation.
13. In this context, learned revenue counsel relies on a judgment of the
Supreme Court in the case of Calcutta Discount V. Income Tax Officer (41 ITR
191) where also, there was a challenge to a re-assessment made after a period of
four years. The Constitution Bench had occasion to consider the scope and
ambit of the phrase ‘full and true disclosure’ in the proviso to Section 147 as
follows:
8………... The only question is whether the Income-tax Officer has reason to
believe that "there had been some omission or failure to disclose fully and truly
all material facts necessary for the assessment" for any of these years in
consequence of which the under-assessment took place.
9. Before we proceed to consider the materials on record to see whether the
appellant has succeeded in showing that the Income-tax Officer could have no
reason, on the materials before him, to believe that there had been any omission
to disclose materials facts, as mentioned in the section, it is necessary to
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W.P. No.34575 of 2019
examine the precise scope of disclosure which the section demands. The words
used are "omission or failure to disclose fully and truly all material facts
necessary for his assessment for that year." It postulates a duty on every
assessee to disclose fully and truly all material facts necessary for his
assessment. What facts are material, and necessary for assessment will differ
from case to case. In every assessment proceeding, the assessing authority will,
for the purpose of computing or determining the proper tax due from an
assesses, require to know all the facts which help him in coming to the correct
conclusion. From the primary facts in his possession, whether on disclosure by
the assesses, or discovered by him on the basis of the facts disclosed, or
otherwise - the assessing authority has to draw inferences as regards certain
other facts; and ultimately, from the primary facts and the further facts inferred
from them, the authority has to draw the proper legal inferences, and ascertain
on a correct interpretation of the taxing enactment, the proper tax leviable.
Thus, when a question arises whether certain in come received by an assessor's
capital receipt, or revenue receipt, the assessing authority has to find out what
primary facts have been proved, what other facts can be inferred from them,
and, taking all these together, to decide what the legal inference should be.
10. There can be no doubt that the duty of disclosing all the primary facts
relevant to the decision of the question before the assessing authority lies on the
assesses. To meet the possible contention that when some account books or
other evidence has been produced, there is no duty on the assessee to disclose
further facts, which on due diligence, the Income-tax Officer might have
discovered, the Legislature has put in the Explanation, which has been set out
above. In view of the Explanation, it will not be open to the assessee to say, for
example - "I have produced the account books and the documents : You, the
assessing officer examine them, and find out the facts necessary for your
purpose : My duty is done with disclosing these account-books and the
documents." His omission to bring to the assessing authority's attention those
particular items in the account books, or the particular portions of the
documents, which are relevant, amount to "omission to disclose fully and truly
and truly all material facts necessary for his assessment." Nor will he be able to
contend successfully that by disclosing certain evidence, he should be deemed to
have disclosed other evidence, which might have been discovered by the
assessing authority if he had pursued investigation on the basis of what has
been disclosed. The Explanation to the section, gives a quietus to all such
contentions; and the position remains that so far as primary facts are
concerned, it is the assessor's duty to disclose all of them - including particular
entries in account books, particular portions of documents, and documents, and
other evidence, which could have been discovered by the assessing authority,
from the documents and other evidence disclosed.
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W.P. No.34575 of 2019
14. In summation, the Bench would state that the duty of an assessee to
make a full and true disclosure must be seen in the context of Explanation (1),
which requires the assessee to make disclosure of all necessary primary facts,
on the basis of which the Assessing Authority might reach a conclusion.
15. A full and true disclosure thus, means all facts primary and
fundamental to an issue and it is not incumbent upon an assessee to provide
anything over and above the same or any material in addition thereto. It is also
unnecessary for an assessee to speculate on what inference might be drawn by
an Assessing Authority on the primary facts disclosed or furnish additional
materials in anticipation of such inferences. The Bench in Calcutta Discount
(supra) states that this exercise would be impossible since no assessee could
delve into the mind of an Assessing Officer to assume what such inferences
might be. To this end, at paragraph 11, the Bench states as follows:
11. Does the duty however extend beyond the full and truthful disclosure of all
primary facts ? In our opinion, the answer to this question must be in the
negative.
Once all the primary facts are before the assessing authority, he requires no
further assistance by way of disclosure. It is for him to decide what inferences of
facts can be reasonably drawn and what legal inferences have ultimately to be
drawn. It is not for somebody else - far less the assessee - to tell the assessing
authority what inferences, whether of facts or law, should be drawn. Indeed,
when it is remembered that people often differ as regards what inferences
should be drawn from given facts, it will be meaningless to demand that the
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W.P. No.34575 of 2019
assessee must disclose what inferences - whether of facts or law - he would
draw from the primary facts.
16. Applying this judgment to the facts of the present case, the petitioner
has made a disclosure of i) revenue from all income streams including
processing fee ii) the portion of processing fee recognised as income for the
purpose of taxation and (iii) balance is carried over to the subsequent year. It is
true that there is no note in the financials or in the audited report explaining the
method of accounting in detail, that is, to clarify the position that only the
processing fee relating to the deliveries occasioned prior to 31.03.2012 had
been recognised an income and the balance carried forward to the next year.
However, as noted earlier, the petitioner has been following a consistent method
of revenue recognition over the years and it is not the revenue’s case that the
financials for the later years were more elaborate for the purposes of
Explanation (1) when compared to the present year. What constitutes primary
facts for the purposes of 'full and true disclosure' must be seen in the context of
the assessment of a source of income over the years as the Assessing Officer has
understood it. In fact, if one were to take a different view of the matter for this
one intervening year, it would distort the overall assessments over the years
and this cannot be the intention of Section 147.
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W.P. No.34575 of 2019
17. Thus applying the judgment of the Supreme Court in the case of
Calcutta Discount (supra), I am of the view that the disclosure made by the
petitioner in regard to the assessment of processing fee is a full and true
disclosure for the purposes of Section 147/148. The proposal for re-assessment
on this issue also fails.
18. With regard to Issue No.3, the petitioner has claimed deduction under
Section 35 (2AB). The approval for this deduction in Form 3 CM has been duly
filed and, is admittedly, available on record. The only reason for which the
present proceedings have been initiated is that Form 3 CM is not available on
record. However, this appears to be a form to be exchanged inter se the
Assessing Authority of the entity claiming deduction and the Prescribed
Authority and it is thus for the Officer to have sought and obtained the same. In
the light of there being no dispute on the position that Form 3 CM is admittedly
available on file, I see no justification for the re-assessment initiated on this
score.
19. The Writ Petition is allowed. No costs. Connected Miscellaneous
Petitions are closed.
25.01.2021
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W.P. No.34575 of 2019
Index : Yes/No
Speaking Order/Non speaking Order
sl
To
1 Principal Commissioner
Office of the Principal Commissioner of CGST
and Central Excise Chennai North
Commissionerate No.26/1 Mahatma Gandhi
Road Nungambakkam Chennai
https://www.mhc.tn.gov.in/judis/
W.P. No.34575 of 2019
Dr.ANITA SUMANTH,J.
sl
W.P. No.34575 of 2019
and
WMP.Nos.35298, 35300 and 35302 of 2019
and WMP No.13887 of 2020
25.01.2021
https://www.mhc.tn.gov.in/judis/
