Madras High Court
M/S.Sutherland Global Services ... vs The Deputy Commissioner Of Income ... on 26 July, 2021
W.P.No.43925 of 2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED :26.07.2021
CORAM
THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM
W.P.No.43925 of 2016
and
W.M.P.No.37752 of 2016
M/s.Sutherland Global Services Pvt Ltd.,
Represented by its Associate
Vice President – Finance Mr.V.N.Achutarama Gupta
45A, Velachery Main Road,
Vijyanagaram, Chennai – 600 042. ...Petitioner
Vs
1.The Deputy Commissioner of Income Tax,
Corporate Circle 6(2)
Room No.705, 7th Floor, Wanaparthy Block,
121, Mahatma Gandhi Road, Nungambakkam,
Chennai – 600 034.
2.The Principal Commissioner of Income Tax-6,
121, Mahatma Gandhi Road,
Chennai – 600 034. ... Respondents
Prayer : Writ Petition filed Under Article 226 of the Constitution of India
to issue of Writ of Certiorari, to call for the records on the file of the First
Respondent and quash the impugned order in No.AAECS8093A/Corp.Cir 6
(2)/2011-12 dated 08.12.2016 along with notice in PAN No.AAECS8903A
dated 28.03.2016 issued under Section 148 of the Income Tax Act.
1/17
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W.P.No.43925 of 2016
For Petitioner : Mr.N.V.Balaji
For Respondents : Mr.A.P.Srinivas
Senior Standing counsel
For Income Tax
[For R1 & R2]
ORDER
The writ petition is filed, questioning the validity of the order of
disposal passed by the respondents, rejecting the objections filed by the writ
petitioner on re-opening of assessment initiated under Section 147/148 of
the Income Tax Act, 1961[hereinafter referred to as the 'Act']
2. The petitioner is a company engaged in the business of Business
process outsourcing and IT enabled Services. The petitioner company filed
its return of income for the Assessment Year 2011-12 on 29.11.2011 under
Section 139(1) of the Act, returning an income of 'NIL' under the normal
provision of the Act and Rs.32,72,12,940/- under Section 115JB of the Act.
In its return of income, the petitioner had claimed a deduction of
Rs.40,16,50,014/- towards business development commission paid by it to
its associated enterprise M/s.Sutherland Global Services Inc.USA.
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3. The return of income filed by the petitioner was put under scrutiny
and an order of assessment was passed by the assessing authority on
31.03.2015 under Section 143(3) read with Section 92CA(4) for the
Assessment Year 2011-12. The assessment in all respects were completed.
The petitioner had received a notice under Section 148 of the Act on
28.03.2016 for re-opening of assessment. In response, the petitioner
affirmed the return of income already filed in vide letter dated 04.05.2016.
The petitioner further requested to furnish reasons and the reasons are
provided by the respondents for re-opening of assessment in proceedings
dated 15.11.2016. The petitioner submitted its objections for re-opening of
assessment in vide letter dated 05.12.2016 and the said objections were
rejected by the first respondent in order dated 08.12.2016 and the said order
is under challenge in the present writ petition.
4. The learned counsel appearing on behalf of the petitioner mainly
contended that the order of assessment was passed, considering all the
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W.P.No.43925 of 2016
materials, books of accounts etc., filed by the petitioner. While so, notice
under Section 148 was issued only based on the audit objections raised. The
audit objection solely cannot be a ground for re-opening of assessment as
the assessing authority has not formed any independent opinion nor applied
his mind for the purpose of re-opening of assessment, which is a pre-
requisite condition as contemplated under Section 147 of the Act. Thus,
there is an absolute non-application of mind on the part of the assessing
authority as the reasons furnished for re-opening would reveal that the audit
objection as it is stands extracted.
5. Secondly, the learned counsel for the petitioner urged this Court by
stating that in view of the fact that there is no application of mind and the
audit objections as it is, was taken as the basis for making reassessment, the
decision for re-opening is nothing but change of opinion and on this ground
also, the writ petition is to be allowed.
6. With reference to the second issue of tax computation statement of
the assessment order that the interest chargeable under Section 234B, the
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W.P.No.43925 of 2016
learned counsel for the petitioner reiterated that even without invoking the
powers under Section 147/148, the authority is competent to charge interest
and therefore, the authorities have not applied their mind as Section 147
contemplates only income chargeable to tax escaped assessment and
therefore, issue No.2 would not fall under such category and thus, the very
reason furnished is untenable.
7. The learned counsel for the petitioner reiterated that the objections
filed by the petitioner in detail would reveal that none of the grounds raised
are answered in terms of settled principles and therefore, the impugned
disposal of objection is absurd and not in accordance with the provisions of
the Act.
8. The learned counsel for the petitioner relied on the judgment of the
Hon'ble Supreme Court of India in the case of Commissioner of Income
Tax Vs. Yokogawa India Limited, reported in [2017] 77 taxmann.com 41
(SC), wherein the Apex Court made the following observations in paragraph
18, which reads as under:
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W.P.No.43925 of 2016
“18. For the aforesaid reasons we answer the appeals
and the questions arising therein, as formulated at the outset of
this order, by holding that though Section 10-A, as amended, is
a provision for deduction, the stage of deduction would be
while computing the gross total income of the eligible
undertaking under Chapter IV of the Act and not at the stage of
computation of the total income under Chapter VI. All the
appeals shall stand disposed of accordingly.”
9. With reference to Issue No.3, as raised by the petitioner, the
principles are settled in the above judgment and therefore, the very reason
for re-opening of assessment is untenable and explicitly shows non-
application of mind on the part of the respondent.
10. However, perusal of the judgment would reveal that the Hon'ble
Supreme Court of India has delivered the said judgment after passing of the
impugned order in the present writ petition.
11. The learned Senior Standing counsel appearing on behalf of the
respondents disputed the contentions raised on behalf of the petitioner by
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W.P.No.43925 of 2016
stating that the writ petition itself is not maintainable as the petitioner would
get ample opportunity to put forth their contentions before the assessing
authority by participating in the process of reassessment. The grounds raised
to assail the disposal of objections are untenable as audit objection is a valid
ground for the purpose of re-opening of assessment. In the present case, the
audit objection would reveal that a survey was conducted and based on the
survey conducted under Section 133A of the Act, certain materials,
evidences were made available and audit objections were raised and based
on such materials provided through the audit objections, the re-opening of
assessment is made and therefore, there is no infirmity or perversity as such
in respect of exercise of powers by the respondents under Section 147 of the
Act.
12. The learned Senior Standing counsel solicited the attention of this
Court that each and every issue raised by the petitioner in its objections
were elaborately considered by the respondents. When all the issues were
considered elaborately and the objections were dealt with by providing
reason, it is for the assessee to participate in the process of reassessment and
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W.P.No.43925 of 2016
avail further opportunity to be provided and therefore, the writ petition at
this juncture is not entertainable.
13. The learned Senior Standing counsel further made a submission
that the principles laid down by this Court for re-opening of assessment is
also scrupulously followed by the respondents in the present case. The
judgments on the point were relied upon and therefore, there is no infirmity
as such and the writ petition is liable to be rejected.
14. The prime question raised on behalf of the writ petitioner is that
whether an audit objection can be a source for re-opening of assessment
under Section 147/148 is concerned.
15. Let us now consider Section 147 of the Act, which contemplates
if the Assessing Officer “has reason to believe” that any income chargeable
to tax has escaped assessment. Admittedly, the reassessment in the present
case is made within a period of four years. Therefore, the proviso clause to
Section 147 of the Act is not applicable. With reference to the re-opening of
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assessment within four years, if any income chargeable to tax has escaped
assessment, the same is sufficient for the competent authority to invoke
Section 147 and issue notice under Section 148 of the Act. Therefore, the
scope of re-opening of assessment within four years is more wider than that
of the re-opening of assessment to be made beyond four years, but within
six years. If the Assessing Officer “has reason to believe”, the same would
be sufficient for re-opening of assessment. Under these circumstances, a
constructive interpretation is required, in order to consider the scope of the
Act as well as the object sought to be achieved. The sources, through which,
the Assessing Officer “has reason to believe” is one aspect of the matter and
the Assessing Officer “has reason to believe” is another aspect of the matter.
Sources may be numerous and from various factors. However, the Assessing
Officer must have “reason to believe” is the pre-condition for invoking of
the powers under Section 147 of the Act. Thus, the scope of Section 147
cannot be narrowed down in respect of the sources, through which, the
authority “has reason to believe” for re-opening of assessment.
Informations, materials, sources may be from and within the department and
from outside the department or from third parties. However, if the Assessing
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Officer received materials and on receipt of the materials, if he has 'reason
to believe', that is sufficient for the purpose of re-opening of assessment and
mere re-opening would not cause any prejudice to the interest of the
assessee. No doubt, it may cause certain inconvenience. However, such
inconvenience may not be a ground for quashing of the entire proceedings.
The inconveniences would be in respect of closed assessment, a re-opening
is made. However, the initial assessment is made only based on the return of
income filed by the assessee as well as the documents presented. If any
additional information, materials or documents are within the knowledge of
the Assessing Officer after passing the assessment order, then he is
empowered to re-open the assessment and it is the duty of the assessee to
respond to such notice by producing additional materials, enabling the
Assessing Officer to form an opinion and pass an order of assessment. Such
an inconvenience cannot be construed as deprival of right. It is a statutory
obligation as the original assessment order is passed, merely based on the
return of income filed by the assessee. The Revenue is provided with an
opportunity to re-adjudicate the closed assessment on receipt of certain
materials or informations and the Assessing Officer has 'reason to believe'
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W.P.No.43925 of 2016
that any income chargeable to tax has escaped assessment. Therefore, this
Court is of the considered opinion that, whether it is an audit objection or
any other material culled out from the department files or from the outside
sources, it is sufficient for the purpose of exercising the powers under
Section 147, if the Assessing Officer “has reason to believe”.
16. This apart, in the present case, the impugned order reveals that the
survey under Section 133A of the Income Tax Act was conducted at
business premises of the assessee on 21.01.2013 to verify and examine the
nature of remittance made to non resident without TDS during the FY 2010-
11 and 2011-12 (i.e., AY 2011-12 & 2012-13). During the survey, it was
noticed that the assessee had not deducted TDS on following remittances to
non-resident as required under Section 195 of the Act.
17. Section 133A contemplates “(1) Not withstanding anything
contained in any other provision of this Act, an income-tax authority may
enter -
(a) any place within the limits of the area assigned to him, or
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(b) any place occupied by any person in respect of whom he exercises
jurisdiction or
(c) any place in respect of which he is authorised for the purposes of
this section by such income-tax authority, who is assigned the area within
which such place is situated or who exercises jurisdiction in respect of any
person occupying such place.”
18. The scope of Section 133A would reveal that if any survey is
conducted and certain materials are found out, then based on such materials,
the audit objections are raised, certainly it should be construed as a material
for the purpose of considering re-opening of assessment under Section 147
of the Act, provided such materials are sufficient enough for 'reason to
believe'. The scope of Section 133A i.e., power of survey would apparently
show that the authorities after entering into any place, and after conducting
inspection, found certain materials and raised an objection, the said
objections may be a ground for the Assessing Officer to 'reason to believe'
for re-opening of assessment. However, if at all the assessee is having
contra evidence or materials, it is left open to the assessee to produce all
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these files and materials at the time of reassessment proceedings. Contrarily,
the petitioner cannot merely raise a ground that an audit objection cannot be
a source for re-opening of assessment under Section 147/148 of the Income
Tax Act.
19. This Court is of an opinion that Section 147, the conditions
stipulated for re-opening of assessment as well as the scope of Section 133A
are unambiguously portrays the powers of the authority to secure
informations by conducting survey and such informations provided by way
of an audit objections would be a cause for re-opening of assessment under
Section 147/148 of the Act.
20. Each provision under Chapter XIV procedure cannot be separated
as far as the Income Tax Act is concerned. Each Section has got linkage
with one another as far as the procedures to be followed by the authorities
competent as well as the rights of an assessee to defend their case. A
balancing procedures as contemplated, undoubtedly are to be followed
scrupulously by the authorities. Under these circumstances, sources cannot
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be questioned by the assessee. The very purpose and object of the wider
scope provided under Section 147 is to ensure that in the presence of contra
materials made available to the Assessing Officer, a re-opening of
assessment is made and persons evaded tax are brought under the network.
21. In the present case, the objections raised regarding the reasons
were dealt with by the respondents. Further, the other issues regarding
change of opinion is also considered. The Assessing Officer has spelt out
certain reasons, which provided a cause for re-opening of assessment and
such reasons are sufficient enough and, if the petitioner / assessee is not
convinced, it is left open to him to defend the case during reassessment
proceedings.
22. In the present case, the Directives issued by the Hon'ble Supreme
Court of India in the case of GKN Driveshafts (India) Ltd., Vs. Income
Tax Officer and others reported in [(2003)259 ITR 19] was followed. The
assessee also availed the opportunity and the reasons furnished as well as
the objections submitted by the assessee were considered by the authorities.
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It is relevant to note that each and every objection filed by the petitioner
was elaborately considered and all the grounds raised are also met with by
the assessing authority relying on the principles laid down by the
Constitutional Courts.
23. Under these circumstances, this Court is of the considered opinion
that the petitioner has to defend their case by participating in the process of
reassessment and accordingly, the petitioner is at liberty to do so.
24. With these observations, the writ petition stands dismissed. No
costs. Consequently, connected miscellaneous petition is closed.
26.07.2021
Speaking order/Non-speaking order
Internet:Yes/No
Index : Yes/No
Kak
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W.P.No.43925 of 2016
To
1.The Deputy Commissioner of Income Tax,
Corporate Circle 6(2)
Room No.705, 7th Floor, Wanaparthy Block,
121, Mahatma Gandhi Road, Nungambakkam,
Chennai – 600 034.
2.The Principal Commissioner of Income Tax-6,
121, Mahatma Gandhi Road,
Chennai – 600 034.
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W.P.No.43925 of 2016
S.M.SUBRAMANIAM, J.
Kak
W.P.No.43925 of 2016
26.07.2021
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