Madras High Court
Unknown vs The Assistant Commissioner Of ... on 16 July, 2021
W.P.No.28176 of 2018
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 16.07.2021
CORAM
THE HONOURABLE MR.JUSTICE S.M. SUBRAMANIAM
W.P.No.28176 of 2018
and W.M.P.No.32836 of 2018
f
M/s.Kone Elevator India Private Limited,
Represented by its Director
Mr.C.V.S.Krishna Kumar,
S/.o.C.V.Seshadri, Aged 53 years,
Prestige Centre Court, 9th Floor,
The Forum Vijaya Mall,
Plot No.183, NSK Salai,
Arcot Road, Vadapalani,
Chennai – 600 026. .. Petitioner
-vs-
The Assistant Commissioner of Income Tax,
Corporate Circle 4(2),
Room No.433, 4th Floor, Main Building,
No.121, Mahatma Gandhi Road,
Nungambakkam, Chennai – 600 034. .. Respondent
Petition filed under Article 226 of the Constitution of India praying
for issuance of Writ of Certiorari, calling for the records in Corporate
Circle-4(2)/PAN:AAACK2567P/2018-19 dated 11.10.2018 on the file of
the respondent relating to the A.Y.2013-14 and quash the same.
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For Petitioner : Mr.G.Baskar
For Respondent : Mr.D.Prabhu Mukunth Arunkumar
Junior Standing Counsel
******
ORDER
The writ on hand is filed challenging the validity of the proceedings
dated 11.10.2018 passed by the respondent disposing of the objections filed
by the petitioner/assessee.
2.The petitioner is engaged in the business of design, manufacture,
supply, erection and installation of lifts and supply, erection, installation of
escalators. The petitioner is engaged in maintenance of such erected
elevators and escalator. The petitioner filed its return of income for the
assessment year 2013-14 on 29.11.2013. Form No.3CEB was filed on
23.11.203 since there were international transactions during the previous
year. The return of income was taken up for scrutiny. In respect of transfer
pricing issue, a reference was made to the Transfer Pricing Officer under
section 92CA(1) of the Income Tax Act [hereinafter referred to as “the
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Act”] on 31.08.2015. Notice under section 92CA(2) was issued by the
Transfer Pricing Officer [TPO] to the petitioner on 08.09.2015 calling for
information which the petitioner submitted and appeared before the
Transfer Pricing Officer.
3.The Transfer Pricing Officer passed an order under Section
92CA(1) recommending an upward adjustment of Rs.25,73,41,261/-
towards international transactions vide his report dated 31.10.2016. Upon
receipt of the said report, the Assessing Officer issued a draft assessment
order under Section 144C dated 21.12.2016. The said draft assessment
order was served on the petitioner on 03.01.2017.
4.The petitioner had not chosen to file any objection against the said
draft assessment order neither before the Dispute Resolution Panel [DRP]
on or before 02.03.2017 being 30 days limit prescribed for filing objections
nor before the Assessing Officer. Since the petitioner did not object within
30 days on receipt of draft assessment order, the Assessing Officer ought to
have passed a final assessment order confirming the draft assessment order
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on or before 31.03.2017 being the end of one month from the end of the
month in which the period for filing of objections under section 144C(2) of
the Act expires. However, the respondent failed to pass a final order within
the limitation provided and long thereafter, the respondent issued a notice
under section 148 of the Act on 28.03.2018. In response to the said notice,
the petitioner filed a return of income electronically on 19.04.2018.
5.The petitioner vide letter dated 20.04.2018 sought reasons for
reopening the assessment for the assessment year 2013-14. The respondent
communicated the reasons for reopening the assessment to the petitioner
vide office letter dated 20.08.2018.
6.The petitioner in letter dated 14.09.2018 objected to the reopening
on the ground that the assessment cannot be reopened merely because there
was a failure on the part of the Assessing Officer to complete the
assessment in accordance with law and within the time frame provided by
law by observing that income had escaped assessment.
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7.The respondent issued a notice under section 143(2) of the Act
requiring the petitioner to attend the respondent's office on 09.10.2018 at
10.30 a.m. with all the documents, accounts and other evidences in support
of the return filed. The petitioner appeared before the respondent.
Thereupon, the respondent vide impugned order dated 11.10.2018 rejected
the objections filed by the petitioner for reopening of assessment.
8.The learned counsel for the petitioner with reference to the facts in
nutshell narrated above, contended that the reopening of assessment is
per se illegal and beyond the scope of jurisdiction and not warranted against
the mandate as under the provisions of the Income Tax Act. In this context,
the learned counsel for the petitioner relied on section 92CA at the first
instance to establish that reference to the Transfer Pricing Officer was
admittedly made in the case of the petitioner/assessee in view of the
admitted international transactions as explained in the return of income by
the petitioner/assessee. However, the procedures contemplated more
specifically in sub-clause (4) to section 92CA of the Act, it is contended that
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on receipt of the order under sub-section (3) the Assessing Officer shall
proceed to compute the total income of the petitioner under sub-section (4)
to section 92CA in conformity with the Arm's Length price as so determined
by the Transfer Pricing Officer.
9.In this context, the attention of this Court is drawn with reference to
the order passed by the Transfer Pricing Officer wherein the Transfer
Pricing Officer fixed the Arm's length price of international transactions.
Additions were made and the proceedings of the Transfer Pricing Officer
was communicated to the Assessing Officer and based on the said report of
the TPO, the Assessing Officer passed the draft assessment order on
30.12.2016 under section 143(3) r/w. Section 92CA of the Act. It is
contended that beyond the report of the Transfer Pricing Officer, the
Assessing Authority considered the disallowance under section 40(a)(ia)
and made additions and thereafter the Assessing Officer considered the
claim of the assessee regarding the expenditure and other aspects of the
matter. In paragraph 6 of the draft assessment order, total taxable income is
computed. Relying on the said draft assessment order, the petitioner states
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that once the draft assessment order is passed by the Assessing Officer then
under section 144C, he has to pass the final assessment order within a
period of 30 days from the end of the month. Section 144C stipulates
reference to Dispute Resolution Panel. Sub-clause (4) enumerates “the
Assessing Officer shall notwithstanding anything contained in section 153
or section 153B pass the assessment order under sub-section (3) within one
month from the end of the month in which; (a) the acceptance is received;
or (b) the period of filing of objections under sub-section (2) expires.
Relying on the said provisions, it is contended that the petitioner assessee
had not raised any objections. Therefore, under sub-clause (4) to section
144C the Assessing Officer is mandated to pass an assessment order.
Admittedly in the present case no final order of assessment was passed.
However, the respondent has chosen to invoke the powers under section 147
of the Act and issued a notice under Section 148 of the Act for reopening of
assessment. Admittedly the procedures are followed as directed by the
Apex Court of India in the case of GKN Driveshafts (India) Ltd., vs.
Income Tax Officer [(2002) 125 Taxman 963(SC)]. However, the
reopening of proceedings under section 147 of the Act on completion of
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draft assessment order issued pursuant to the report of the TPO is
impermissible and beyond the jurisdiction of the Assessing Authority.
10.The learned counsel for the petitioner is of an opinion that sub-
clause (4) to section 144C contemplates “the Assessing Officer has to pass
an order within one month from the end of the month”. In the present case
admittedly no final order of assessment was passed. As far as the present
facts are concerned, the reason for reopening of assessment is culled out
from the report of the TPO and therefore the reopening of assessment is not
permissible. In other words, the Arm's length price was determined by the
TPO who is an expert body constituted under the provisions of the Act.
When the expert body constituted considered the issues and determined the
Arm's length price by making additions in the present case, the same cannot
be a ground for reopening of assessment under section 147 of the Act by the
Assessing Authority as the materials regarding international transactions
were considered and determined by the Transfer Pricing Officer. In the
draft assessment order, two more additions were also made by the Assessing
Authority. Therefore, with reference to the additions made in other items
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which forms part of reasons for initiation of reopening proceedings, there is
no jurisdiction for the authority to invoke section 147 of the Act and thus
the proceedings are to be set aside.
11.The learned counsel for the petitioner elaborated the scope of
section 147 of the Act to determine the income escaping assessment. In his
opinion, section 147 of the Act enumerates such income and also any other
income chargeable to tax which has escaped assessment. When the
language is adopted “such income” and when that income which is the
reason for reopening was adjudicated by the Transfer Pricing Officer and a
draft assessment order is passed, there cannot be any power under section
147 of the Act for reopening of assessment and issue notice under Section
148 of the act”. Thus, in the absence of any scope for reopening, the
Assessing Authority cannot further stretch the provisions for the purpose of
reopening of assessment, which is illegal and without jurisdiction. The
learned counsel for the petitioner reiterated that section 153 of the Act
prescribes time limit for completion of assessment, re-assessment and re-
computation. Therefore, in the present case, none of these procedures
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contemplated are followed by the Assessing Authority and for all these
reasons, the writ petition is to be allowed.
12.The learned counsel for the petitioner in support of his contentions
relied on the judgment of the Hon'ble Supreme Court and various High
Courts.
(i)In the case of KLM Royal Dutch Airlines vs. Assistant Director of
Income Tax [(2007) 292 ITR 0049], the High Court of Delhi made an
observation as extracted hereunder:
“15.Applying this line of decisions to the facts of
the present case, the inescapable conclusion that would
have to be reached is that while assessment proceedings
remain inchoate, no 'fresh evidence or material' could
possibly be unearthed. If any such material or evidence is
available, there would be no restrictions or constraints on
its being taken into consideration by the AO for framing
the then current assessment. If the assessment is not
framed before the expiry of the period of limitation for a
particular AY, it would have to be assumed that since
proceedings had not been opened under Section 143(2),
the Return had been accepted as correct. It may be argued
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that thereafter recourse could be taken to Section 147,
provided fresh material had been received by the AO after
the expiry of limitation fixed for framing the original
assessment. So far as the present case is concerned we are
of the view that it is evident that, faced with severe paucity
of time, the AO had attempted to travel the path of Section
147 in the vain attempt to enlarge the time available for
framing the assessment. This is not permissible in law.
16..........Suffice it to state that wherever and
whenever it appears to the High Court that proceedings
have been initiated or are continuing without the
authority of the law the High Court would be in
dereliction of duty if it hesitated in exercising the
extraordinary powers contained under Articles 226/227 of
the Constitution of India. In the present case since the AO
was duty-bound to conclude the assessment before
resorting to Section 147 of the IT Act, it is our bounden
duty to issue a writ of Certiorari so as to bring these legal
proceedings to a definitive halt. The dicta in GKN Drive
has been not duly followed since the Objections filed by
the Petitioners, in our view, have been disposed off
contrary to law.”
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(ii)In the case of Smt.Sova Sarkar and others vs. Income Tax Officer
[(1983) 139 ITR 0386], the High Court of Calcutta made an observation as
extracted hereunder:
“14.It thus appears to be well-settled that when a
return has been filed by an assessee, it cannot be ignored
by the ITO and he will have no jurisdiction to issue a
notice under Section 148 without completing the
assessment on the return filed by the assessee. Even
though a return is invalid in the sense that it is not
correct and complete within the meaning of Section
139 of the I.T. Act, 1961, the ITO cannot ignore or
disregard the same for the purpose of issuing a notice
under Section 148 of the Act, unless the return can be
regarded as not a return in the eye of law as in the case of
the two illustrations given above. In the instant case, the
ITO acted on the returns filed by the appellant, issued
notices under Section 143(2) and heard the appellant for
the assessment years in question under Section 143(3),
but without completing the assessments he took recourse
to reopen the assessments under Section 147 by issuing
the impugned notices under Section 148 of the Act. In our
view, the ITO has acted without jurisdiction in issuing the
impugned notices.”
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(iii)In the case of T.Manavedan Tirumalpad and another vs.
Commissioner of Income Tax [(1955) 28 ITR 0615], the High Court of
Madras made an observation as extracted hereunder:
“5.........We have come almost to the end of the
financial year and it is necessary that the assessment
should be completed early. I therefore complete the
assessment tentatively now leaving the question of
assessment of the income from forests on lands assessed
to land revenue to be considered later. Action
under Section 34 of the Act would be taken in due course
to assess such income from forests on lands assessed to
land revenue as has now escaped assessment.
6...............It was just a case of piecemeal
assessment in the course of the proceedings in the
assessment year 1941-42. Section 23 of the Act does not
provide for such piecemeal assessment. It was true that a
portion of the assessee's income had not been taxed, and
in that sense it had escaped assessment. But that escape
was fully known to the Income-tax Officer even before
28th February, 1942 and was the result of a procedure
deliberately adopted by the Income-tax Officer, a
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procedure which turned out to be wrong in law. There
could be, in the circumstances of this case, no fresh
discovery after 28th February, 1942, that the forest
income had escaped assessment in 1941-42. A deferred
assessment is not discovery of escaped
assessment. Section 34 could not have been called in aid
to complete an assessment deliberately deferred.
Authority is not wanting either to negative the contention
of the department, see Debi Prasad Malaviya v.
Commissioner of Income-tax (1952) 22 ITR 539, where
the learned Judges referred to two earlier decisions Fazal
Dhala v. Commissioner of Income-tax (1944) 12 I.T.R.
341 and Chuni Lal Nayyar v. Commissioner of Income-
tax (1951) 20 I.T.R. 568. We answer the third question in
the negative and in favour of the assessee.”
(iv)In the case of Gemini Leather Stores vs. Income Tax Officer
[(1975) 100 ITR 1(SC)], the Hon'ble Supreme Court of India ruled as
follows:
“.......In the case before us the assessee did not
disclose the transactions evidenced by the drafts which
the Income-Tax Officer discovered. After this discovery
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the Income-tax Officer had in his possession all the
primary facts, and it was for him to make necessary
enquiries and draw proper inferences as to whether the
amounts invested in the purchase of the drafts could be
treated as part of the total income of the assessee during
the relevant year. This the Income-tax officer did not do.
It was plainly a case of oversight, and it cannot be said
that the income chargeable to tax for the relevant
assessment year had escaped assessment by reason of the
omission or failure on the part of the assessee to disclose
fully and truly all material facts. The Income tax officer
had all the material facts before him when he made the
original assessment. He cannot now take recourse
to Section 147(a) to remedy the error resulting from his
own oversight.
(v)In the case of Vijay Television (P) Ltd. Dispute Resolution Panel
and others [(2014) 369 ITR 0113(Mad)], the High Court of Madras made
the following observations:
“23.It is evident from the above decision of the
Honourable Supreme Court that if an order is passed
beyond the statutory period prescribed, such order is a
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nullity and has no force of law. In that case before the
Honourable Supreme Court, the period for assessment
proceedings expired and thereafter, fresh assessment
orders have been issued by anti-dating it. In those
circumstances, it was held that the High Court ought not
to have remanded the matter back to the assessment
officer and by doing so, the statutory period prescribed
for completion of assessment has been extended by
conferring jurisdiction upon the Assessing Officer, which
he otherwise lacked on the expiry of the said period. In
that case, the Honourable Supreme Court also held that
there is a distinction between an order which is a nullity
and an order which is irregular and illegal. Where an
authority making order lacks inherent jurisdiction, such
an order will be null and void ab initio, as the defect of
jurisdiction goes to the root of the matter and strikes at
his very authority to pass any order and such a defect
cannot be cured even by consent of the parties.
24. This decision squarely applies to the facts of
this case. In this case, the order passed by the second
respondent lacks jurisdiction especially when it is beyond
the period of limitation prescribed by the statute. When
there is a statutory violation in not following the
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procedures prescribed, such an order cannot be cured by
merely issuing a corrigendum.”
(vi)In the case of Parashuram Pottery Works Co. Ltd. vs. Income Tax
Officer [(1977) 106 ITR 0001], the Hon'ble Supreme Court held as follows:
“15.It has been said that the taxes are the price that
we pay for civilization. If so, it is essential that those who
are entrusted with the task of calculating and realising
that price should familiarise themselves with the relevant
provisions and become well versed with the law on the
subject. Any remissness on their part can only be at the
cost of the national exchequer and must necessarily result
in loss of revenue. At the same time, we have to bear in
mind that the policy of law is that there must be a point of
finality in all legal proceedings, that state issues should
not be reactivated beyond a particular stage and that
lapse of time must induce repose in and set at rest judicial
and quasi-judicial controversies as it must in other
spheres of human activity. So far as income-tax
assessment orders are concerned, they cannot be
reopened on the scope of income escaping assessment
under section 147 of the Act of 1961 after the expiry of
four years from the end of the assessment year unless
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there be omission or failure on the part of the assessee to
disclose fully and truly all material facts necessary for the
assessment. As already mentioned, 'this cannot be said in
the present case. The appeal is consequently allowed; the
judgment of the High Court is set aside and the impugned
notices are quashed. The parties in the circumstances
shall bear their own costs throughout.”
(vii)In the case of K.M.Sharma vs. Income Tax Officer [(2002) 254
ITR 772 (SC)], the Hon'ble Supreme Court held as follows:
13. Fiscal statute more particularly on a provision
such as the present one regulating period of limitation
must receive strict construction. Law of limitation is
intended to give certainty and finality to legal
proceedings and to avoid exposure to risk of litigation to
litigant for indefinite period on future unforeseen events.
Proceedings, which have attained finality under existing
law due to bar of limitation cannot be held to be open for
revival unless the amended provision is clearly given
retrospective operation so as to allow upsetting of
proceedings, which had already been concluded and
attained finality. The amendment to sub-section (1)
of Section 150 is not expressed to be retrospective and,
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therefore, has to be held as only prospective. The
amendment made to sub-section (1) of Section 150 which
intends to lift embargo of period of limitation
under Section 149 to enable Authorities to reopen
assessments not only on the basis of Orders passed in
proceedings under the IT Act but also on Order of a Court
in any proceedings under any law has to be applied
prospectively on or after 1.4.1989 when the said
amendment was introduced to sub-section (1). The
provision in sub-section (1) therefore can have only
prospective operation to assessments, which have not
become final due to expiry of period of limitation
prescribed for assessment under section 149 of the Act.
(viii)In the case of Hope Textiles Ltd. vs. Union of India [(1994) 205
ITR 508(SC)], the following observations are made by the Apex Court:
“......The writ petition was dismissed observing that
no mandamus can be issued compelling the Income-tax
Officer to make an order of assessment beyond the period
of limitation prescribed by Section 153(2). In this appeal,
it is urged by Sri Sen, learned Counsel for the appellant,
that by virtue of Clause (ii) of Sub-section (3) of Section
153, the High Court could have directed the Income-tax
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Officer to pass an order of reassessment pursuant to the
aforesaid notice, notwithstanding the expiry of the period
prescribed in Sub-section (2) of Section 153. We are not
prepared to agree. A writ of mandamus can be issued to a
statutory authority to compel it to perform its statutory
obligation. It cannot issue to compel him to pass an order
in violation of a statutory provision. The Income-tax
Officer had no power to make a reassessment beyond the
period prescribed by Sub-section (2), unless the case fell
under any of the other sub-sections under Section 153 or
other provision extending the said period of limitation.”
(ix)In the case of Commissioner of Income Tax vs. Anjum
M.H.Ghaswala [(2001) 252 ITR 1 (SC)], the Apex Court ruled as under:
“24...........It is a normal rule of construction that
when a statute vests certain power in an authority to be
exercised in a particular manner then the said authority
has to exercise it only in the manner provided in the statute
itself. If that be so since the Commission cannot exercise
the power of relaxation found in Section 119(2)(a) in the
manner provided therein it cannot invoke that power
under Section 119(2)(a) to exercise the same in its judicial
proceedings by following a procedure contrary to that
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provided in sub-section (2) of Section 119.”
(x)In the case of TANMAC India vs. Deputy Commissioner of
Income Tax [(2016) 97 CCH 0189], the High Court of Madras held as
follows:
“12.If the assessing officer, after issuing intimation
u/s section 143(1) does not to issue a notice u/s 143(2) of
the Act to initiate proceedings for scrutiny of the return of
income, the obvious conclusion is that he does not
consider it necessary or expedient to do so, the inference
being that the Return of Income filed in order. It is this
opinion that cannot be arbitrarily changed by the
assessing officer, to re-assess income on the basis of stale
material, already on record. If we thus keep in the mind
the above fundamental requirement of section 147, it
would be apparent that the exercise undertaken by the
Revenue in this case is not one of re-assessment, but of
review. The reasons make it abundantly clear that the re-
assessment is sought to be initiated on the basis of the
return of income and the enclosures which were available
with the assessing officer since 2.11.1998 and which
ought to have prompted him to issue a notice
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under section 143(2) of the Act to conduct the
proceedings under scrutiny. What is sought to be done by
the re-assessment ought to have been achieved by
scrutiny assessment proceedings. Having missed the bus
earlier, the Department cannot be permitted to avail of
the extended time limit in the absence of any new or
tangible material, when the time for scrutiny assessment
has elapsed on 31.3.2001, prior to issue of notice u/s 148.
The notice under section 148 dated 9.12.2002 is thus an
arbitrary exercise of power and a review of proceedings
impermissible in law.”
(xi)In the case of Smt.Savitri Rani Malik vs. Commissioner of Income
Tax [(1990) 186 ITR 701], the High of Gauhati made the following
observations:
“17.Before we part with this opinion, we may
advert to one argument that was advanced in this regard
by learned counsel for the Revenue. Counsel referred to
the facts in the instant case showing that there are no
extenuating circumstances to stretch the provisions of the
enactment to benefit the assessee in this regard. Like
pleas are often advanced whenever questions of limitation
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have the effect of saving the individuals who, by their
conduct, do not deserve any compassionate
consideration. In courts where British jurisprudence
prevails, statutes of limitation are jurisprudential
necessities. See the American case, Bell v. Mormon
[1828] 1 Peters 351 at page 360. Limitation is said to be
"a statute of repose". Corpus Juris Secundum, Vol. 53, at
page 901 : "Statutes of limitation are statutes of repose,
the object of which is to suppress fraudulent and stale
claims from springing up at great distances of time and
surprising the parties or their representatives when all
the proper vouchers and evidences are lost or the facts
have become obscure from the lapse of time or the
defective memory or death, or removal of witnesses .....
that the statute (of limitation) is for the benefit and repose
of individuals and not to secure general objects of policy
and morals." In the U.K., the most ancient case is that of
A' Court v. Cross [1825] 3 Bing 329 at page 360, in that
limitation was described as "an act of peace". In an
opinion expressed in Ampthill Peerage's case [1976] 2
All ER 411 at p. 423, the House of Lords observed :
"Truth may be shut out (by operation of limitation) but
society considers truth may be bought. . . the fundamental
principle ... (is) that there should be some end to
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litigation . . .". We find solace in what is stated to be the
eternal verity of life and law that statutes of limitation
achieve peace and good administration but do not
advance morals and pood conduct.
18.We answer that the assessment order for 1970-
71 and the assessment proceedings are barred. The
answer is recorded against the Revenue. As respects
1971-72, the assessment order is not barred, and we
answer the question against the assessee and in favour of
the Revenue. No costs.”
13.Relying on the above judgments, the learned counsel for the
petitioner reiterated that the Courts have consistently held that the scope of
section 147 cannot be extended in such circumstances where the TPO
determined the Arm's length price and the Assessing Authority passed a
draft assessment order considering the materials as well as the report of the
TPO and additions are also made. It is not only beyond the scope of
jurisdiction it is not within the time limit prescribed. Some of the judgments
are cited to elaborate the importance of the limitation prescribed under the
Income Tax Act which is mandatory. The other judgments are cited for the
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purpose of understanding the procedures to be followed for reopening of
assessment. Certain judgments are for the purpose of contending that
reopening of assessment in certain circumstances are impermissible.
Broadly these contentions are raised in support of the case of the petitioner
and it is contended that in the present case, the respondent has not followed
any of the principles settled by the Courts across the Country and the Apex
Court of India. Thus the writ petition deserves to be considered in favour of
the petitioner.
14.The learned standing counsel appearing on behalf of the
respondent objected the contentions of the petitioner in entirety. It is
contended that the petitioner cannot sustain his claim based on erroneous
interpretation of the provisions of the Act. The learned Standing counsel
strenuously contended that the writ petition is not entertainable. The scope
of jurisdiction is well defined under the scheme of the Act and thus the
interpretation offered on behalf of the petitioner is not in consonance with
the spirit of the procedures as well as the scheme contemplated under the
Act. Thus the writ petition is devoid of merits. The learned standing
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counsel proceeded with by elaborating the scope of section 147 of the Act.
There is no embargo to initiate proceedings under section 147/148 of the
Act in such circumstances with reference to the facts placed by the
petitioner. There is no bar absolutely for reopening of assessment even in
such cases where draft assessment orders are passed or the issues relating to
international transactions were referred to the Transfer Pricing Officer. The
scope of section 147 of the Act is wider enough and conferred on the
Assessing Officer to reopen the assessment if he has reason to believe that
income chargeable to tax escaped assessment. Thus the scope of wider
interpretation as rightly accepted by the Constitutional Courts cannot be
narrowed down for the purpose of limiting the power conferred on the
authority to reopen the assessment in such circumstances where the issues
are referred to the TPO and a draft assessment order has been passed.
15.The learned standing counsel referred section 148 of the Act and
stated that sub-clause (1) commence as “before making the assessment, re-
assessment and re-computation under section 147, the Assessing Officer
shall serve on the assessment a notice requiring him to furnish within such
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period as it may specific in the notice”. Relying on the said clause, the
learned standing counsel contended that a notice under section 148 of the
Act may be issued before making the assessment, re-assessment or re-
computation. In the present case, admittedly no assessment order has been
passed. The Transfer Pricing Officer submitted his report, and draft
assessment order was passed. However under section 144C(4), no final
assessment order has been passed and therefore, the respondent is vested
with power to invoke section 147 of the Act and issue notice under section
148 of the Act.
16.The learned standing counsel referred section 149 of the Act
which stipulates time limit for notice. Relying on sub-clause (1)(b) which
states that “if four years, but not more than six years, have elapsed from the
end of the relevant assessment year unless the income chargeable to tax
which has escaped assessment amounts to or is likely to amount to one lakh
rupees or more for that year”. In the present case admittedly the reopening
of assessment is made within four year, therefore, there is no irregularity or
infirmity as such. The Assessing officer has not passed any final assessment
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order under section 144C(4) of the Act, therefore, he is well within his
power to invoke section 147 and issue notice under section 148 which states
that such notice can be issued before making any assessment, re-assessment
or re-computation. Therefore, the circumstances as narrated would establish
that the notice under section 148 was issued by following the procedures as
contemplated under sections 147 and 148 of the Act and thus, there is no
perversity and the writ petition is to be rejected.
17.Considering the arguments, two issues are to be considered, with
reference to the facts and circumstances. Firstly, whether the Assessing
Officer can issue notice under section 148 of the Act when the Assessing
Officer has not passed an assessment order under section 144C(4) of the
Act? Secondly, whether the Assessing Officer can cover up the lapses and
whether there is such provision under the Income Tax Act to do so?
18.Let us consider the procedures contemplated in Chapter XIV of
the Act for the purpose of cogent understanding with reference to the
purpose and object of the Act which is to be considered as paramount. Any
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such procedures contemplated under Chapter XIV of the Act must have
nexus, purpose and object sought to be achieved and therefore the Courts
cannot adopt an isolated approach with reference to the procedures as well
as the object sought to be achieved. As far as the procedures are concerned,
pragmatic and constructive interpretations are mandatory.
19.The golden rule of interpretation would be that, the language
employed in the Statute must be read over as it is and the Courts cannot
substitute any other language for the purpose of interpretation of statutes.
Thus the Courts cannot add words to a statute and offer a different
interpretation. However, the rule of constructive interpretation require that
the language employed in the statutes are to be interpreted with reference to
the purpose and object sought to be achieved under the Act.
20.With this, let us consider the scope of section 147 of the Act at the
first instance though the Constitutional Courts have repeatedly considered
the same in umpteen number of judgments. Undoubtedly, consideration of
the provision is imminent as the facts of the particular case warrant the
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same. Section 147 of the Act stipulates that if the Assessing Officer has
reason to believe that any income chargeable to tax 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.
21.In the present case, reopening of assessment is made within a
period of four years. Therefore, the proviso clause may not have any
application. Perusal of Section 147 of the Act and its scope undoubtedly is
wider enough to cover numerous circumstances, wherein the Assessing
Authority can invoke if he has reason to believe that any income chargeable
to tax has escaped assessment. Many other circumstances are also
elaborated in explanation (1) and explanation (2) to Section 147 of the Act.
As far as the reopening of assessment is concerned, if the Assessing Officer
has reason to believe that any income chargeable to tax has escaped
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assessment for any assessment year. As far as the reopening of assessment
is concerned, if the Assessing Officer has reason to believe that any income
chargeable to tax escaped assessment for any assessment year. Therefore
irrespective of the assessment order and within the period of limitation
contemplated under the proviso clause the Assessing Officer is empowered
to reopen the assessment by following the procedures contemplated.
22.There is no other condition stipulated under Section 147 of the Act
with reference to the procedures contemplated under Section 92CA or under
Section 144C of the Income Tax Act. Contrarily section 144C(4) states that
the Assessing Officer shall notwithstanding anything contained in section
153 or section 153B pass an assessment order. Therefore there is a scope
for reopening of assessment even in cases where no assessment order is
passed under sub-clause (4) to section 144C of the Act. Undoubtedly, in the
present case, the petitioner assessee had not raised any objection.
Therefore, under sub-clause (4) the Assessing Officer is empowered to pass
an order of assessment, however, he has not passed any orders and has
chosen to reopen the assessment by invoking the powers conferred under
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section 147 of the Act. Section 147 of the Act provides power to assess or
re-assess. The section did not contemplate the stages under which such
assessment or re-assessment can be made. For this purpose, Chapter XIV of
the Act is to be read cogently to form an opinion that the assessment or re-
assessment shall be made at any point unless there is a specific prohibition
contemplated under any of the clauses under Chapter XIV of the Act. When
there is no embargo under Section 147 of the Act with reference to the
stages under which reopening can be made there is no impediment for the
Assessing Officer to invoke powers under Section 147 of the Act and in the
present case, no assessment order has been passed and therefore, the
Assessing Officer is empowered to invoke section 147 and issue notice
under section 148 of the Act.
23.As far as the arguments advanced on behalf of the petitioner
though the Transfer Pricing Officer submitted his report determining the
Arm's Length Price with reference to the international transactions, the
disallowance under section 40(a) was also considered by the Assessing
Authority when these aspects were considered and a draft assessment order
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is passed, then there is no scope for invoking section 147 of the Act.
24.What is necessary for invoking section 147 of the Act is that any
income chargeable to tax has escaped assessment. That being the heart and
soul of the provision and if the Assessing Officer has reason to believe, then
he is empowered to issue notice under Section 148 of the Act. Thus the
stages under which the reopening can be made are wider enough to cover
the circumstances which all are prevailing in the case of the petitioner also.
There is no restriction to assess or re-assess any income chargeable to tax
has escaped assessment except the restrictions imposed under the proviso
clause with reference to the time limit prescribed as well as the additional
conditions for invoking the provision beyond the period of four years.
Admittedly, in the present case reopening is within the period of four years
and therefore, the assessment and re-assessment shall be made if the
Assessing Officer has reason to believe.
25.As far as the ground taken regarding the reason to believe is
concerned, this Court has to consider the reasons for reopening of
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assessment. The reasons for reopening of assessment states as follows:
“The above additions and disallowances are
recorded in the order sheet and are duly vouched by the
authorized representative of the assessee company. The
draft order was served on the assessee on 31.01.2017.
Thereafter, it is transpired that the assessee company would
be filing its objections before the learned Dispute
Resolution Panel against the said order. However, when a
copy of the objections before the learned DRP was called
for from the assessee, the assessee feigned ignorance.
Hence, as the assessee's income i.e, the additions and
disallowances as mentioned above has escaped assessment
for the A.Yr.2013-14 and to bring the same to tax, the
assessment has been reopened.”
26.The reasons stated above would reveal that after passing of the
draft assessment order on 30.12.2016 it transpired that the assessee
Company would filing its objection before the learned Dispute Resolution
Panel against the order. However, when a copy of the objections before the
learned Dispute Resolution Panel was called for from the assessee, the
assessee feigned ignorance. Hence, as the assessee's income i.e, the
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additions and disallowances as mentioned above has escaped assessment for
the year 2013-14 and to bring the same to tax, the assessment has been
reopened.
27.Regarding the impugned order disposing of the objections, the
Assessing Officer made a finding which reads as follows:
“For making this claim, the assessee has relied on
three case laws which are either not related to the facts of
this case or supportive of the departments action of issuing
notice u/s.148. The same are discussed as under:
The first case viz T.Manavedan Tirumalpad vs. CIT
[1955] deals with the provisions of Act as they exist prior
to independence which are redundant after the 1961 Act
came into force.
The second case Viz, Parashuram Pottery Works Co.
Ltd. vs. ITO [1977] relates to the invoking of Section 147
of the Act of 1961 after the expiry of four years from the
end of the assessment year, where as in the instant case the
provisions of sec. 147 have been invoked within the
stipulated period of four years.
The third and last case viz. KLM Royal Dutch
Airlines vs. ADIT speaks mainly about the distinction
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between the time limits set down by section 153 for
framing the assessment u/s. 143 and u/s.147. Interestingly,
at para8 of this case law relating to the Judgment of the
honourable High Court of Delhi the following was quoted
from the decision in an Australian case law to define
assessment.
“Assessment means the completion of the process by
which the provisions of the Act relating to liability to tax
are give concrete application in a particular case with the
consequence that a specified amount of money will become
due and payable as the proper tax in that case.”
The instant case perfectly fits into this
comprehensive definition, as 'the process of giving concrete
application of the provisions of the Act resulting in a
specified amount of money becoming due and payable as
the proper tax' has not been completed due to the reason
that the demand notice u/s.156 along with the regular
assessment order has not been served on the assessee
company within the statutory period. This means that no
assessment has been made in the instant case and the
provisions of section 147 of the Income Tax Act 1961 read
with its explanation 2(b) are squarely applicable to this
case.
With regard to the assessee's reference to various
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other case laws stating that reassessment has to be based on
'fresh material' and reopening based on reappraisal of
existing material is in valid, attention is drawn to the
decision of the honourable Supreme Court of India in the
case of M/s.Krishna Developers and Co. versus Dy.
Commissioner of Income Tax, Special Leave to Appeal
(C)No(s).23760/2017 dated 08.02.2018 where the
honourable Apex Court has held that 'the A.O can reopen
the case on the same basis as was there in the original
assessment which was quashed for technical reasons' by
observing that 'once the original assessment is declared as
invalid as having been completed without the service of
notice on the assessee within the statutory period, there
would be thereafter no assessment in the eye of law. The
situation therefore, be akin to where return of the assessee
has been accepted without a scrutiny. Reopening of the
assessment, if the Assessing Officer has the reason to
believe that income chargeable to tax has escaped
assessment, would be entirely permissible under section
147 of the Act.
Merely on the ground that the reasons recorded by
the Assessing Officer proceeded on the same basis on
which the Assessing Officer initially desired to make
additions but which failed on account of setting aside of the
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order of assessment, would not preclude the Assessing
Officer from carrying out the exercise of reopening of the
assessment.
On the conspectus, there is no irregularity or
illegality in issue of notice u/s.148 of the Act for taking up
the assessment w.r.t. the provisions of section 153 of the
Act.
As elaborated in the foregoing paragraphs, the
objections of the assessee company have been rebutted
effectively and reasonably and the assessee's request to
drop the reassessment proceedings stands rejected and the
assessment proceedings u/s. 148 are continued. The
assessee company is hereby afforded personal hearing as
requested on 22.10.2018 @ 11.00 a.m.”
28.Close reading of the disposal of objections would reveal that the
respondent has considered the objections including the judgments relied on
by the petitioner. The findings would reveal that “merely on the ground that
the reasons recorded by the Assessing Officer proceeded on the same basis
on which the Assessing Officer initially desired to make additions but which
failed on account of setting aside of the order of assessment, would not
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preclude the Assessing Officer from carrying out the exercise of reopening
of the assessment”. With reference to the reasons stated in proceedings
dated 20.08.2018, the objections raised were considered by the authority
and reasonings are also given.
29.This Court is of the considered opinion that the satisfaction of the
reasons alone are to be considered by the High Court. The sufficiency of
the reasons cannot be gone into by the High Court. The sufficiency of the
reasons may differ from case to case, however, the principle is that the
reasons as well as the findings would be sufficient to form an opinion that
the Assessing Officer has reason to believe. If the reasons furnished passed
the test, then the assessee is bound to co-operate for the re-assessment
proceedings. Therefore, the High Court cannot go into the adjudication of
the reasons furnished with reference to certain materials. If the reasons
furnished are prima facie satisfied with reference to the ingredients
contemplated under section 147 of the Act, then the authority must be
allowed to continue the proceedings. The assessee is getting further
opportunity to submit their documents or explain the nature of transaction,
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etc before passing the final order of assessment/re-assessment. Thus the
intervention after initiation and before completion must be expected to be
cautious and only on certain grounds wherein the assessee could able to
establish that the authority reopened has no jurisdiction or directly in
violation of the provisions of the Act.
30.As far as the lack of jurisdiction is concerned, numerous writ
petitions are filed on the facts and circumstances. Such jurisdictional
ground is popularly taken in order to overcome the entertainability of the
writ petition as the proceedings at the budding stage is challenged.
Therefore, the Courts are expected to be cautious. The jurisdictional point
raised closely connected with the facts and circumstances must be
adjudicated by the authority competent. When there is a blatant violation of
provisions of law hitting the power directly, then alone writ proceedings can
be entertained and not otherwise. Therefore, merely raising a jurisdictional
ground is insufficient to interfere with the proceedings and the jurisdictional
ground raised hitting the provisions directly alone would be acceptable
ground for the purpose of entertaining a writ petition.
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31.As far as the present writ petition is concerned, admittedly the case
was referred under Section 92CA before the TPO who in turn submitted his
report. Based on the report of the TPO, draft assessment order was passed
as contemplated. The assessee has not submitted any objection either before
the DRP or before the Assessing Officer. In view of the fact that objection
was not received, it is contended that sub-clause (4) warrants passing a final
assessment order by the authority. Admittedly, no such final assessment
order is passed. Under these circumstances, there is no prohibition under
section 147/148 of the Act for initiation of reopening of assessment.
32.A plain reading of the draft assessment order would mean that it is
a draft and cannot be considered as final. Thus, any such draft assessment
order is subject to alteration or changes. In this view of the matter, the
discrepancies or materials tangible culled out from and out of such draft
assessment order that also is an acceptable ground for the purpose of
reopening of assessment under section 147 of the Act as the Assessing
Authority has reason to believe that tax chargeable to tax escaped
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assessment.
33.The very concept of reopening of assessment and the wider scope
provided for reopening of assessment is undoubtedly in favour of revenue.
The very purpose of such wider provision is that the initial assessment order
is passed based on the return of income filed by the assessee. Once the
return of income is accepted as it is the Income Tax Department did not go
further for any other enquiry, i.e. limited scrutiny. Therefore, in all
circumstances, the Income Tax Act Act trust the assessee through the return
of income filed and only when the discrepancy or income escaped
assessment is identified, the procedures are set in motion for further action
under Chapter XIV of the Act. Thus there cannot be any other opinion that
the re-assessment provisions are for the benefit of revenue and the revenue
being the backbone of the economy of the Nation, such provisions are
necessary to protect the interest and welfare of the Nation in consonance
with the Constitutional principles.
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34.As far as the other contentions raised that once the draft
assessment order is passed and the assessee has not raised any objections
with reference to the draft assessment order, the Assessing Officer has to
necessarily pass the final assessment order. Undoubtedly, in the present
case the assessee has not raised any objection, however, the same would not
preclude the Assessing Authority as there is a scope for reopening of
assessment if he has reason to believe that the income chargeable to tax
escaped assessment. Therefore, in cases, where no assessment orders are
passed under sub-clause (4) to section 144C, the Assessing Officer is
empowered to invoke section 147 of the Act if he has reason to believe that
the income chargeable to tax escaped assessment.
35.The order of the TPO is independent and unconnected with the
powers conferred on the Assessing Officer under section147 of the Act.
Therefore, the report of the TPO cannot be conclusive for the purpose of its
acceptance by the Assessing Officer, who is empowered to go into the
contents of such report and make an assessment and if any materials are
available, he is at liberty to invoke section 147 of the Act.
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36.Reference to the Transfer Pricing Officer more specifically sub-
clause (4) reveals that on receipt of the order under sub-section (3), the
Assessing Officer shall proceed to compute the total income of the assessee
under sub-section (4) to section 92C so as to determined by the Transfer
Pricing Officer.
37.The above provision unambiguously clarifies that on receipt of the
order passed by the TPO, the Assessing Officer shall proceed to compute
the total income of the assessee and in confirmity with the Arm's length
price. Therefore, the Assessing Officer is empowered to pass draft
assessment order with reference to section 144C by taking into
consideration the report of the TPO and the other aspects of the matter. In
other words, the draft assessment order is not confined actually to the report
of the TPO and therefore, there is a scope for re-assessment.
38.As far as determination of Arm's Length Price or consideration of
other disallowance, etc. in the draft assessment order are to be considered at
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the time of adjudication of reopening proceedings and the assessee is at
liberty to raise any further ground in respect of those aspects which all are
relatable to the merits and with reference to the documents and evidences to
be scrutinized. However, mere consideration of Arm's Length Price and
other disallowance in the draft assessment order would not preclude the
Assessing Authority for reopening of assessment under section 147/148 of
the Act as the spirit of the above provisions are providing wider scope to
reopen the assessment and the only object is to ensure that the income
chargeable to tax escaped assessment is brought within the tax net. Thus
the object plays a pivotal role in the matter of reopening proceedings and
the other procedures contemplated in Chapter XIV of the Act must be read
cogently along with the purpose for which such procedures are
contemplated and any interpretation overlapping the provisions would
defeat the object and thus, this Court is of the opinion that the power of
reopening under section 147 of the Act cannot be restricted, even in such
circumstances, the TPO submitted a report and a draft assessment order is
passed, with reference to certain materials available, and the Assessing
Officer has reason to believe that the income chargeable to tax escaped
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assessment, then he is well within his powers to invoke section 147/148 of
the Act. Accordingly, the issues raised are answered in favour of the
revenue.
39.Thus, the writ petition is devoid of merits and stands dismissed.
No costs. Consequently, connected miscellaneous petition is closed.
16.07.2021
Index : Yes/No
cse
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To
1.The Chief Commissioner of Central
Excise and Service Tax,
Race Course Road,
Coimbatore – 641 018.
2.The Deputy Commissioner of Central Excise,
Coimbatore IV Division,
1441, ELGI Building,
Trichy Road,
Coimbatore – 641 018.
3.The Superintendent of Central Excise
and Service Tax,
IV-A, Range, Sulur,
Coimbatore – 641 402.
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S.M.SUBRAMANIAM, J.
cse
W.P.No.28176 of 2018
16.07.2021
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