Madras High Court
M/S.Thambbi Modern Spinning ... vs The Commissioner Of Income Tax on 23 June, 2021
W.P.No.8050 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 23.06.2021
CORAM
THE HONOURABLE MR.JUSTICE S.M. SUBRAMANIAM
W.P.No.8050 of 2015
and
M.P.No.2 of 2015
M/s.Thambbi Modern Spinning Mills Ltd.,
Rep., by the Managing Director,
Omalur Road, Jagir Ammapalayam,
Salem-636 302. .. Petitioner
-vs-
1.The Commissioner of Income Tax,
Income Tax Department,
No.3, Gandhi Road, Salem-636 007.
2.The Assistant Commissioner of Income Tax
Circle 2, Income Tax Department,
No.3, Gandhi Road, Salem-636 007.
3.The Deputy Commissioner of Income Tax
Circle (1), Income Tax Department,
No.3, Gandhi Road, Salem-636 007. .. Respondents
Petition filed under Article 226 of the Constitution of India praying
for issuance of Writ of Certiorarified Mandamus to call for the records of
the second respondent and quash the impugned order No.148/Circle-2,
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W.P.No.8050 of 2015
SLM/2014-15 dated 02.03.2015 issued in terms of Section 148 of the
Income Tax Act, 1961 on the assumption of jurisdiction under Section 147
of the said Income Tax Act, 1961 for framing re-assessment in relating to
the Assessment Year 2007-08 in PAN: AAACT7676G of the 3rd respondent
and further direct the second respondent to drop the proceedings initiateD
under Section 147 of the Act for the said assessment year 2007-08.
For Petitioner : Mr.S.Sridhar
For Respondents : Mr.A.P.Srinivas,
Senior Standing Counsel
******
ORDER
The order dated 02.03.2015, passed by the second respondent,
rejecting the objections filed by the writ petitioner is under challenge in the
present writ petition. Further direction is sought for to drop the reopening
proceedings initiated by the second respondent under Section 147 of the
Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The petitioner was incorporated under the Companies Act, 1956
with the object to carry on the business of manufacturing and sale of cotton
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yarn and other activities as described in the Memorandum of Articles of
Association.
3.The petitioner filed its return of income for the assessment year
2007-08 on 28.10.2007 disclosing the total taxable income at Rs.NIL under
normal computation provisions as well as under the book profits
computation for imposing Minimum Alternate Tax under Section 115JB of
the Act, after claiming the set off brought forward business loss as well as
the unabsorbed depreciation. The said return of income was taken up for
scrutiny by the second respondent and a notice under Section 143(2) of the
Act was issued to the petitioner and the petitioner-company furnished all the
details as called for by the second respondent in the said scrutiny
assessment proceedings and the Assessing Officer passed the final order of
assessment dated 27.07.2009 after completion of the procedures.
4.The second respondent initiated proceedings under Section 147 of
the Act and a notice under Section 148 of the Act was issued on 28.03.2014
beyond the period of four years, but within a period of six years. On receipt
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of Section 148 notice, the petitioner responded vide letter dated 14.04.2014
with a request to treat the original return of income as return of income filed
in response to the notice issued under Section 148 of the Act. The
Assessing Officer sent reminder letter dated 27.08.2014 for filing the return
of income in response to the notice issued under Section 148 of the Act
dated 21.03.2014. Once again the second respondent issued a reminder
letter on 14.10.2014 seeking response from the assessee. In response, the
assessee vide letter dated 20.10.2014, informed the Assessing Officer about
the filing of return of income to the notice of re-opening dated 21.03.2014.
Thereafter, notice under Section 143(2) of the Act was issued on 24.10.2014
directing the petitioner to appear on 03.11.2014 at 11.30 am either in person
or by a representative duly authorized in writing and produce documents,
accounts and any other evidence on which the assessee may rely in support
of the return of income filed.
5.At the request of the petitioner, the Assessing Officer vide letter
dated 27.10.2014, furnished reasons for reopening of assessment for the
assessment year 2007-08. However, the petitioner filed its objections and
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thereafter, filed W.P.No.31294 of 2014 challenging the notice dated
21.03.2014 issued under Section 148 of the Act. The writ petition was
finally disposed of by this Court on 01.12.2014 directing the second
respondent therein to consider the objections raised by the petitioner, afford
an opportunity of personal hearing and thereafter, pass a reasoned order on
merits and in accordance with law by following the principles enunciated in
the case of GKN Driveshafts (India) Ltd., vs. Income Tax Officer & Ors.
reported in (2003) 259 ITR 19 (SC). Pursuant to the orders passed in the
writ petition, the petitioner submitted further objections contesting the
reopening proceedings and the Assessing Officer passed orders on
02.03.2015 furnishing reasons for the reopening of assessment proceedings.
The said order is under challenge in the present writ petition.
6.The learned counsel appearing on behalf of the writ petitioner
mainly contended that the petitioner had truly and fully furnished all the
books, details, informations etc., along with the return of income, which was
duly filed and scrutinised by the Assessing Officer. The informations
sought for by the Assessing Officer were also provided and the final
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assessment order was passed on 27.07.2009. When there is no fresh
material made available for the Assessing Officer to reopen the assessment,
the present proceedings initiated is nothing, but change of opinion and
absolutely, there is no tangible material for the purpose of invoking the
jurisdiction under Section 147 of the Act.
7.The learned counsel for the petitioner reiterated that the reasons
furnished in the impugned order and the proceedings regarding such reasons
are completely adjudicated by the Assessing Officer at the time of passing
the original assessment order. Even in the counter, the second respondent
could not able to establish that they have recovered tangible materials for
the purpose of reopening of assessment as required under the provisions of
the Act and therefore, reopening of the assessment is based on change of
opinion and thus, the impugned order is liable to be set aside.
8.The learned counsel for the petitioner is of an opinion that it is a
case where the reopening proceedings are initiated beyond the period of
four years and during the fag end of sixth year. Thus, the ingredients
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contemplated under Proviso to Section 147 are to be complied with
scrupulously. When there is no tangible materials available on record and
the petitioner has truly and fully furnished all the details at the time of
original assessment, the initiation of reopening the proceedings beyond four
years is impermissible and thus, the requirement prescribed under Proviso to
Section 147 has not been complied with and on this ground also, the writ
petition is to be allowed.
9.In support of the contentions, the learned counsel for the petitioner
cited the judgment of this High Court in the case of Asianet Star
Communications (P.) Ltd., vs. Assistant Commissioner of Income-tax,
Non-Corporate Circle 20(1) reported in (2019) 106 taxmann.com 203
(Madras) and the relevant paragraph 40 is extracted hereunder:-
40.Finally, and in addition to my reasoning as
aforesaid for assessment year 2011-12, the placement of
the Explanation, after the Proviso to Section 147 is also,
in my view, relevant. This indicates the scheme of the
section and the interplay of the components thereof. To
my mind, the application of the Explanation would be
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subject to, and post the application of the Proviso itself.
Thus, in cases, where the benefit of the Proviso is
claimed by the revenue, it would first have to satisfy the
condition under the proviso and validate the assumption
of jurisdiction beyond four years. Only thereafter can
the Revenue seek application of the Explanation to
Section 147. In order of sequence, the Proviso comes
first and only thereafter, does the Explanation. In the
present case, where the Revenue has not satisfied the
statutory condition imposed by the Proviso, the door to
re-assessment remains conclusively shut. There is no
occasion left for the Revenue to look any further, either
at the Explanation or otherwise, to justify the
proceedings for re-assessment, and the assumption of
jurisdiction falls, at the very threshold.
10.Relying on the said judgment, the petitioner has insisted the
Proviso to Section 147 and in the present case, the statutory requirements
are not fulfilled and thus, the impugned order, disposing of the objections
filed by the petitioner, is not in consonance with the fact and it is in
violation of the Proviso to Section 147 of the Act.
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11.The learned Senior Standing Counsel opposed the contentions
raised on behalf of the assessee in its entirety by stating that the very
contention that the reopening proceedings is change of opinion is incorrect.
The reasonings for reopening furnished in the impugned orders are
elaborate and the details are also in clear terms. Perusal of the impugned
order itself would reveal that the case of the assessee is a fit one for
reopening of assessment. It is contended that mere submission of
informations, books of accounts etc., alone cannot be a ground restraining
the Assessing Officer to invoke the powers under Section 147 of the Act.
Various other circumstances are contemplated under Section 147 of the Act
and therefore, the case of the assessee, that it is a change of opinion, is
incorrect and thus, the writ petition is liable to be dismissed.
12.The learned Senior Standing Counsel referred to the order passed
by this Court in W.P.No.31294 of 2014 filed by the petitioner, wherein this
Court directed the Assessing Officer to consider the objections raised by the
petitioner, afford an opportunity of personal hearing and pass orders on
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merits. The direction was issued in view of the fact that the Assessing
Officer, at the first instance, while passing the order, has not elaborated the
reasons in clear terms. Thus, the High Court thought fit to direct the
Assessing Officer to consider the objections and pass orders by following
the procedures and the principles laid down in GKN Driveshafts (India)
Ltd. (supra). Subsequently, the Assessing Officer, considered all the
aspects on merits and in accordance with law and passed a speaking order,
which is impugned in the present writ petition. Thus, the impugned order is
relevant for the purpose of finding out the reasons for reopening of
assessment.
13.The learned Senior Standing Counsel referred to paragraph 6 of
the impugned order wherein, the reasons for reopening are recorded. The
Assessing Officer further considered that it is a case of under-assessment
and certain facts were not furnished by the petitioner. In paragraph 3 and 4
of the impugned order, the Assessing Officer made the following findings:-
“3.This deferred tax asset and waived interest
amounts which were also already debited in the earlier
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years profit and loss account should have been
considered for the calculation of book profit under
Section 115JB. Assessee failed to disclose this amount
in the tax calculation and subsequently for the taxation
hence it is the failure on the part of the assessee to
disclose fully and truly all material facts.
4.In the view of the above, as there is a reason to
believe that the income chargeable to tax has escaped
assessment on account of the failure on the part of the
assessee to disclose fully and truly all material facts
within the meaning of Section 147 of the Income Tax Act
a Notice u/s. 148 was issued on 21.03.2014.”
14.Relying on the said findings of the Assessing Officer, the learned
Senior Standing Counsel reiterated that the reasons were furnished and the
assessee failed to disclose certain amount in the tax calculation and
subsequently, for the taxation. Thus, it is the failure on the part of the
assessee to disclose fully and truly all material facts. As there is a reason to
believe that the income chargeable to tax has escaped assessment on
account of failure on the part of the assessee to disclose fully and truly all
material facts within the meaning of Section 147 of the Act, notice was
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issued under Section 148 of the Act on 21.03.2014. Therefore, the case is to
be considered by following the procedures contemplated and by affording
opportunity to the assessee and the second respondent may be permitted to
proceed with the reassessment proceedings in accordance with the
provisions of the Act.
15.This Court is of the considered opinion that admittedly, the
assessment order under Section 143(3) of the Act was passed on
27.07.2009. Reopening of assessment was initiated beyond the period of
four years, but within a period of six years. The order furnishing reasons for
reopening issued at the first instance by the Assessing Officer was
ambiguous and the reasons were not made clear. Thus, the petitioner filed a
writ petition in W.P.No.31294 of 2014 and this Court passed an order on
01.12.2014 and the operative portion is extracted hereunder:-
“8.In the light of the above direction, duty is cast
upon the Assessing Officer to dispose of the objections
raised by the petitioner by passing a speaking order,
thereby the Assessing Officer should consider the
objections raised by the petitioner, when the petitioner
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has specifically contended that the assessment is
complete in all respects after due consideration and a
detailed reply was given by the petitioner on 19.06.2009.
9.Accordingly, this Court is of the view that the
Writ Petition is pre-mature and at this stage, the
impugned notice cannot be quashed. However, in the
light of the decision of the Hon'ble Apex Court made in
the case of G.K.N.Driveshafts (India) Ltd., (supra), it is
the duty of the Assessing Officer to consider the
petitioner's objections and in my view he should
judiciously take note of the factual and legal contentions
raised by the petitioner in their objection dated
20.11.2014, which appears to have reiterated the stand
in their earlier representation dated 29.06.2009, which
was found to be satisfactory by the Assessing Officer.
10.In the light of the above, there will be a
direction to the second respondent to consider the
objections raised by the petitioner, afford an opportunity
of personal hearing and thereafter, pass a reasoned
order on merits and in accordance with law.”
16.This Court directed the second respondent therein to consider the
objections raised by the petitioner, afford an opportunity of personal hearing
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and pass orders. Thereafter, the petitioner was provided with an opportunity
and the petitioner also had admittedly availed the same. The order pursuant
to the directions issued by this Court was passed by the second respondent
in proceedings dated 02.03.2015 and perusal of the order would reveal that
the assessee failed to disclose certain amount in the tax calculation and
subsequently for the taxation. Hence, the said discrepancy was found as a
failure on the part of the assessee to disclose fully and truly all material
facts. To elaborate the said ground, the second respondent in his order
dated 02.03.2015, has narrated the facts as under:-
“Assessee is a company engaged in the business
of spinning of yarn. During the F.Y. 2006-07 relevant to
the Assessment Year 2007-08 it entered into one time
settlement (OTS) agreement with financial institution to
whom the assessee. The assessee had entered into a one
time settlement (OTS) agreement with financial
institution to whom the assessee had defaulted in
payments. Accordingly, assessee got waived
Rs.9,10,84,000/- towards principal amount and
Rs.15,66,62,000/- towards interest amount during
assessment year 2007-08.
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2.Assessee failed to credit waivers of principal
amount of Rs.9,10,84,000/- in the profit and loss account
and also waivers of interest amount of Rs.15,66,62,000/-
had been shown as prior period adjustments and
credited below the line in the profit and loss account i.e.
after book profit (i.e. out of Rs.17,52,72,070/- as prior
period adjustment Rs.15,66,62,000/- is the waiver of
interest). This waiver of interest had to be offered to tax
under Section 41(1). Further, assessee had credited an
amount of Rs.14,18,66,299/- towards deferred tax
asset.”
17.Perusal of the above facts, as narrated, would establish that the
assessee failed to disclose certain amount, which resulted failure on the part
of the assessee to disclose fully and truly all materials. The very ground
taken by the assessee that it has furnished/disclosed fully and truly all
material facts deserves no merit consideration. The second respondent
could able to ascertain certain material facts establishing failure on the part
of the assessee to disclose the facts fully and truly.
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18.Regarding the ground of availability of fresh material for
reopening of assessment proceedings, this Court is of the considered
opinion that Explanation 2(c) to Section 147 would be relevant. The
concept of “has reason to believe” is wider enough to cover numerous
circumstances and possibilities for reopening of assessment and such a
wider scope is contemplated under the Act with an object to deal with
certain cases where the assessee has not produced true and full facts at the
time of original assessment. The original assessment orders are passed
based on the return of income filed by the assessee. Thus, any discrepancy,
new material or inference or otherwise are identified by the Assessing
Officer, then he is empowered to initiate reopening proceedings by invoking
Section 147 of the Act.
19.In the present case, Explanation 1 and Explanation 2(c) to Section
147 are to be considered. Explanation 1 to Section 147 contemplates that
“production before the Assessing Officer of account books or other
evidence from which material evidence could with due diligence have been
discovered by the Assessing Officer will not necessarily amount to
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disclosure within the meaning of the foregoing proviso”. Therefore, mere
production of books of account and the details by the assessee are one
aspect of the matter and even with reference to such books of accounts and
materials, if the Assessing Officer could able to discover some new
information or materials, which provided cause for the Assessing Officer to
invoke Section 147 of the Act or has reason to believe, then also such
reopening proceedings are permissible. Explanation 2(c)(i) states that
where an assessment has been made, but income chargeable to tax has been
under-assessed, then also reopening of assessment is permissible, in cases
where assessment order has been already passed based on the materials
available on record. In the event of identifying under-assessment based on
the very same materials, then also reopening of assessment is possible.
Regarding the under-assessment there need not be new materials. Even
based on the available materials, if the competent authority could able to
identify any under-assessment, then also power under Section 147 shall be
invoked by the competent authority.
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20.This being the scope of Section 147, this Court is of the
considered opinion that the Assessing Officer could able to find out that the
materials furnished by the assessee were insufficient and the assessee failed
to disclose certain amount in the tax calculation and subsequently, for the
taxation. Thus, the second respondent formed an opinion that it is the
failure on the part of the assessee to disclose fully and truly all material
facts. When such an opinion is formed, a notice under Section 148 was
issued and thereafter, the reasons were also furnished by following the
principles laid down in GKN Driveshafts (India) Ltd. Therefore, the
assessee is bound to participate in the assessment proceedings by defending
their case in the manner known to law. In view of the fact that the case on
hand is a case where it is established that the assessee failed to disclose
certain amount in the tax calculation and subsequently for the taxation, there
is a reason to believe that there was a failure on the part of the assessee to
disclose fully and truly all material facts. This being the factum, the
initiation cannot be construed as change of opinion warranting interference
from the hands of this Court. This being the factum established, this Court
has no hesitation in arriving a conclusion that the petitioner has not made
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out any acceptable ground for the purpose of considering the relief as such
sought for in the present writ petition.
21.With the above observations, this writ petition stands dismissed.
No costs. Consequently, connected miscellaneous petition is closed.
23.06.2021
Index : Yes
Speaking Order
abr
To
1.The Commissioner of Income Tax,
Income Tax Department,
No.3, Gandhi Road, Salem-636 007.
2.The Assistant Commissioner of Income Tax
Circle 2, Income Tax Department,
No.3, Gandhi Road, Salem-636 007.
3.The Deputy Commissioner of Income Tax
Circle (1), Income Tax Department,
No.3, Gandhi Road, Salem-636 007.
S.M.Subramaniam, J.
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W.P.No.8050 of 2015
(abr)
W.P.No.8050 of 2015
23.06.2021
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