Madras High Court
Tamilnad Mercantile Bank Ltd vs The Assistant Commissioner Of ... on 1 February, 2022
WP(MD)No.1862 of 2022
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 01.02.2022
CORAM
THE HON'BLE MR. JUSTICE M.SUNDAR
W.P(MD)No.1862 of 2022
and
W.M.P.(MD)No.1616 of 2022
Tamilnad Mercantile Bank Ltd.,
No.57, V.E.Road,
Thoothukudi – 628 002.
PAN: AAACT 5558K
though its Managing Director. ... Petitioner
-Vs-
1.The Assistant Commissioner of Income Tax,
National e-Assessment Centre,
Delhi, 2nd Floor,
E-Ramp, Jawaharlar Nehru Stadium,
Delhi – 110 003.
2.The Assistant Commissioner of Income Tax,
Circle – 1, Tirunelveli,
Income Tax Department,
Nellai City Centre,
Tiruchendur Road,
Rahmath Nagar,
Tirunelveli – 627 011.
1/22
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WP(MD)No.1862 of 2022
3.The Principal Commissioner of Income Tax,
Madurai – 1,
Income Tax Department,
CR BLDG, 2, V.P.V.P. Rathinasamy Nadar Road,
Bibikulam, Madurai – 625 002. ... Respondents
Prayer: Writ Petition filed under Article 226 of Constitution of India, to
issue a Writ of Certiorari, calling for the records of the writ petitioner on the
file of the second respondent and to quash the impugned notice issued u/s.
148 of the Act dated 31.03.2021 in DIN and Notice
No.ITBA/AST/S/148/2020-21/1032067512(1) for the Assessment Year
2014-15.
For Petitioner : Mr.A.S.Sriraman
For Respondents : Mr.N.Dilipkumar,
Senior Standing Counsel.
ORDER
In the captioned main writ petition a notice dated 31.03.2021 being a
notice under Section 148 of the 'Income Tax Act, 1961' [hereinafter 'IT Act'
for the sake of convenience and clarity] issued by the second respondent
regarding 'assessment year 2014-15' [hereinafter 'said AY' for the sake of
convenience and clarity] qua writ petitioner has been assailed.
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2. This Court, with the consent of learned counsel for writ petitioner
and Mr.N.Dilip Kumar, learned Senior Standing Counsel for Income Tax
(Revenue Counsel), who accepted notice on behalf of all the three
respondents, took up and heard out the main writ petition owing to the
narrow compass on which the captioned main matter turns.
3. Short facts shorn of elaboration or in other words, facts that are
imperative for appreciating this order are that the writ petitioner filed return
of income qua said AY on 25.09.2014 under Section 139(1) of IT Act; that
the original assessment order (based on such return) was made by the
Assessing Officer vide an order dated 22.12.2016; that thereafter the
impugned notice under Section 148 of IT Act came to be issued; that
impugned notice reverted the matter to the earlier part of Chapter XIV of IT
Act and therefore a notice dated 23.11.2021 being a notice under Section
142(1) of IT Act with an annexure came to be issued; that the writ petitioner
on 07.12.2021 filed return of income in response to the impugned notice;
that the writ petitioner also sent in its electronic response on 13.12.2021;
that a speaking order came to be made by the first respondent on
24.12.2021; that another notice under Section 142(1) of IT Act came to be
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WP(MD)No.1862 of 2022
issued by the first respondent for continuing the reassessment; that the writ
petitioner uploaded an e-response on 04.01.2022 inter alia seeking to stop
the proceedings of re-assessment and also taking exceptions to the speaking
order dated 24.12.2021 made by the first respondent; that the reassessment
is pursuant to impugned notice and therefore, the captioned writ petition has
been presented in this Court on 27.01.2022 assailing the impugned notice.
4. This Court, having set out the factual matrix in a nutshell
containing facts that are imperative for appreciating this order and the
trajectory the matter has taken thus far now proceeds to set out the rival
contentions.
5. Learned counsel for writ petitioner in his campaign against the
impugned notice, notwithstanding very many averments in the writ affidavit
and notwithstanding very many grounds raised in the writ affidavit made
pointed submissions, a summation of which is as follows:
a) the impugned notice is hit by limitation as it has
been issued after four years had elapsed from the end of
the said AY;
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WP(MD)No.1862 of 2022
b) absent fresh / tangible material impugned notice
is bad;
c) the impugned notice is based on audit objection
and this cannot be construed as valid information for
assuming jurisdiction under Section 148 of IT Act;
d) the objections raised by the writ petitioner have
not been considered;
e) the second respondent has not chosen to examine
the applicability of Rule 8 of 'Income Tax Rules,
1962' (hereinafter 'IT Rules' for the sake of convenience
and clarity) to examine the possibility of disallowance
under Section 14-A of IT Act qua computation of total
taxable income while completing the original scrutiny
assessment and therefore, the impugned notice cannot now
resort to the explanation qua this provision of law.
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6. In support of some of the aforementioned points, learned counsel
for writ petitioner pressed into service certain case laws and the same will
be discussed infra elsewhere in the latter portion of this order.
7. Learned Revenue Counsel, who accepted notice on behalf of
respondents, on the basis of papers which has been served on him made
three simple submissions and the same are as follows:
a) 'full disclosure' is always a matter turning on facts
and therefore the impugned notice turning on full
disclosure disputation does not warrant interference in writ
jurisdiction;
b) the impugned notice is only for reassessment and
the writ petitioner is not really 'aggrieved' in any sense of
the term;
c) the assumption of jurisdiction under Section 148
of IT Act by the second respondent is not bad and the same
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WP(MD)No.1862 of 2022
is sustainable in the light of the reasons adumbrated in the
annexure to the notice dated 23.11.2021 made under
Section 142(1) of the IT Act.
8. Learned Revenue Counsel also pressed into service two case laws
and the same will be discussed elsewhere infra in the latter part of this order.
9. In response to the submissions of learned Revenue Counsel by way
of reply, learned counsel for writ petitioner reiterated the submissions made
in his opening arguments.
10. This Court now embarks upon the exercise of discussion and
dispositive reasoning qua the points that have been urged in the hearing.
11. The arguments predicated on non-availability of tangible material,
in the considered view of this Court does not really hold water at this stage
in a challenge to a notice under Section 148 of IT Act in the light of the
annexure to Section 142(1) dated 23.11.2021, a scanned reproduction of
which is as follows:
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12. Before proceeding further, though several case laws have been
annexed to the paper book, learned counsel made it clear that he is not
relying on Kelvinator India case law [Commissioner of Income-Tax Delhi
Vs. Kelvinator of India Ltd.] reported in [2010] 187 Taxman 312 in this
case. To be noted, Kelvinator India case has been annexed to the paper
book but as the same has not been pressed into service, a discussion in this
regard is not necessary. Learned counsel for writ petitioner pressed into
service a judgment of Hon'ble Delhi High Court made in Oracle case
[Oracle Systems Corporation Vs. Assistant Director of Income-tax]
reported in [2015] 62 Taxmann.com 291 in support of the above argument.
The facts of Oracle case are very different as it turns on Double Taxation
Avoidance Agreement between India and USA and more particularly it turns
on Article 7 of the DTAA which deals with 'Business profits' besides being a
question on whether royalty should have been taxed under Article 7 of
DTAA. This Court also reminds itself that the judgment of the Delhi High
Court is of persuasive value and nonetheless in difference to the judgment
placed before this Court, the same has been discussed. As alluded to earlier
as it is clearly distinguishable on facts it does not help the case of the writ
petitioner. The next case law pressed into service is Madhukar Khosla
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case [Madhukar Khosla Vs. Assistant commissioner of Income-tax]
reported in [2015] 55 taxmann.com 391. This is also a judgment of Delhi
High Court but here again the facts are completely different as that is a case
where there was nothing to show what triggered issuance of notice of
reassessment. In other words, no information or no new facts which led the
Assessing Officer to believe that full disclosure had not been made has been
set out. This is captured in paragraph 11 of the judgment as reported in
taxmann.com. The last case law pressed into service by the learned counsel
for writ petitioner is Indi-Aen salt case [Indi-Aden Salt Mfg. & Trading
Co. (P) Ltd. Vs. Commissioner of Income-tax] reported in [1986] 25
Taxman 356. In the considered and respectful view of this Court, the Indi-
Aden ratio is in favour of the Revenue in the case on hand. In Indi-Aden
case where the assessee claimed depreciation at 6 per cent on masonry
works qua what actually comprised of substantial portion relating to earth
work was considered and the Court held that the non disclosure of such
primary facts caused escapement of income in the assessment and these are
all clearly questions of fact. This supports the first argument raised by
learned Revenue Counsel which has been captured supra.
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WP(MD)No.1862 of 2022
13. Before proceeding further, this Court makes it clear that in
discussing the case laws supra, the law declared by a Constitution Bench of
Hon'ble Supreme Court in the celebrated and oft quoted Padma Sundara
Rao case [Padma Sundara Rao Vs. State of Tamil Nadu reported in (2002) 3
SCC 533] has been respectfully followed and the relevant paragraph in
Padma Sundara Rao case law is paragraph 9 and the same reads as follows:
'9.Courts should not place reliance on decisions without
discussing as to how the factual situation fits in with the fact
situation of the decision on which reliance is placed. There is
always peril in treating the words of a speech or judgment as
though they are words in a legislative enactment, and it is to
be remembered that judicial utterances are made in the setting
of the facts of a particular case, said Lord Morris in
Herrington Vs. British Railways Board (1972) 2 WLR 537.
Circumstantial flexibility, one additional or different fact may
make a world of difference between conclusions in two cases.'
14. To be fair to the learned counsel for writ petitioner, who argued
with specificity, this Court deems it appropriate to make it clear that learned
counsel for writ petitioner very fairly said he would not press into service
Kelvinator case only when Padma Sundara Rao declaration of law was
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WP(MD)No.1862 of 2022
brought to the notice of the learned counsel and when the learned counsel
was faced with the situation of setting out the facts in Kelvinator case
before this Court.
15. M/s.SUN Direct TV Private Ltd. case [M/s.SUN Direct TV
Private Ltd. Vs. The Assistant Commissioner of Income Tax] reported in
2018 SCC OnLine Mad 3160 and Honda Siel Power Products case
[Honda Siel Power Products Limited Vs. Deputy Commissioner of
Income Tax] reported in (2012) 12 SCC 762 were pressed into service by
learned counsel for Revenue Counsel. Honda Siel Power Products case is
a Judgment of Delhi High Court which was carried to the Supreme Court,
for the purpose of facts, learned Revenue Counsel relied on the Judgment
of a Division Bench of Delhi High Court (which was carrried to the
Supreme Court). To be noted, Delhi High Court Honda Siel Power
Products case is vide W.P.(C)No.9036 of 2007 and the order is dated
14.02.2011. Learned counsel drew the attention of this Court to paragraph
11 which reads as follows:
'11. The contention of the petitioner is that the
assessing officer seeks to invoke Section 14-A of the Act to
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disallow deduction of such expenses which were incurred for
earning tax- free income which is exempt. It is submitted that
Section 14-A was introduced in the statute by the Finance Act,
2001 with retrospective effect from 1-4-1962. It is stated that
the petitioner had filed their return of income for Assessment
Year 2000 – 2001 on 30.11.2000 and, therefore, it was not
obligatory on the part of the petitioner to disclose any fact in
respect of the expenditure incurred to earn exempt / tax – free
income. It is accordingly submitted that there was no failure
on the part of the petitioner assessee to disclose fully and truly
all material facts in respect of the expenditure incurred for
earning tax-free income. It is pointed out that in the present
case the reassessment notice has been issued beyond four
years from the end of relevant assessment year and, therefore,
the assessing officer was required to record and form a prima
facie opinion that there was failure or omission on the part of
the assessee to disclose fully and truly all material facts.'
16. In the case on hand, this Court finds that the facts in Honda Siel
Power Products have similarity qua case on hand as the reasons recorded by
the Assessing Officer for reopening assessment as captured in paragraph 5
are as follows:
'5.The reasons recorded by the assessing officer for
reopening of assessment for Assessment Year 2000 – 2001 are
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as under :
'The assessee company filed return of income on
30.11.2000 declaring income of Rs.14,35,73,320.
Assessment in this case was completed under Section
143 (3) at an income of Rs.15,73,66,280.
It has come to the notice that as per Clause 20 of
Form 3CD, the profit amounting to Rs.107.70 lakhs has
been shown in Annexure VIII under Section 41 of the
Income Tax Act, 1961. Out of this, the assessee has
credited a sum of Rs.9.23 lakhs on account of provision
for warranties no longer required written back under
the head 'Other Income' in the P & L Account leaving a
balance of Rs.98.46 lakhs which has not been shown
under the head 'Other Income'. Therefore, this amount
of Rs.98.46 lakhs has not been offered for taxation by
the assessee and the income of the assessee has been
under assessed by Rs.98.46 lakhs.
Further, it is seen that the assessee has earned
dividend income of Rs.188.73 lakhs on long-term non-
trade investments which is claimed as exempt under
Section 10(33) of the Income Tax Act, 1961. However,
there are various administrative expenses for earning
the dividend income like the expenses on the personnel
involved in taking the decision of investment, expenses
related to purchase / sale of the investment like the
DMAT fee, collection expenses, telephone expenses, etc.
and other administrative expenses and only the net
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dividend income is exempt from taxation, therefore,
these expenses relating to earning of dividend income
are not allowable and the income of the assessee has
been under assessed as these expenses have wrongly
been allowed.
I, therefore, have reasons to believe that income
chargeable to tax has escaped assessment amounting to
Rs.98.46 lakhs on account of amount not offered for tax
under Section 41 of the Income Tax Act, 1961. Further,
the assessee has reduced gross dividend income from its
income for computing the taxable income instead of
reducing the net dividend income after accounting for
the expenses related to earning the dividend income and
therefore, the income of the assessee is also under
assessed on this account. The above income has
escaped taxation by reasons of the failure on the part of
the assessee to disclose fully and truly all material facts
necessary for its assessment for Assessment Year 2000-
2001. It is therefore, proposed to reopen the
assessment by issue of notice under Section – 148 after
seeking necessary sanction.'
17. In the light of the annexure to Section 142 (1) notice dated
23.11.2021 (scanned and reproduced supra) owing to the facts and
circumstances of the case on hand, it does come to the help of the Revenue
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Counsel. Learned Revenue Counsel also drew the attention of this Court to
M/s.SUN Direct TV Private Ltd case. This was rendered by a Hon'ble
Single Judge of this Court. Learned Revenue Counsel drew the attention of
this Court to paragraph 91, wherein another Hon'ble Single Judge of this
Court has taken the view that the assessing officer is bound to furnish
reasons when the same was raised by an assessee, it should be held in
favour of the Revenue and not in favour of the tax payer. This Court deems
it appropriate to not to express any opinion on this view of another Hon'ble
Single Judge as the facts in M/s.SUN Direct TV Private Ltd case are very
different as that is a case where the Assessing Officer had not disclosed the
details qua share premium being derived. The facts being different, this
Court deems it appropriate to leave it at that.
18. This takes us to the argument on limitation. This was predicated
on first proviso to Section 147 of IT Act, which reads as follows:
Section 147: Income escaping assessment:
......
'Provided that where an assessment under sub-section
(3) of section 143or this section has been made for the relevant
assessment year, no action shall be taken under this section
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WP(MD)No.1862 of 2022
after the expiry of four years from the end of the relevant
assessment year, unless any income chargeable to tax has
escaped assessment for such assessment year by reason of the
failure on the part of the assessee to make a return under
section 139 or in response to a notice issued under sub-section
(1) of section 142 or section 148 or to disclose fully and truly
all material facts necessary for his assessment, for that
assessment year:'
A careful perusal of the first proviso makes it clear that the four years
embargo has three exceptions and one of the exceptions is failure to disclose
fully and truly all material facts necessary for assessment. That is the bone
of contention in the writ petitioner's campaign against the impugned order
and therefore it tantamounts to begging the question. Therefore, the
limitation point is clearly a non-starter. Turning to the argument on Section
14-A read with Rule 8D which has been captured supra as well as the
argument on non-consideration of objections besides audit objections not
being a valid piece of information, all these three points can be answered in
one go and that one answer is the annexure to Section 142(1) notice
(extracted and reproduced supra). The annexure speaks for itself. It has
been articulated in the annexure that disallowance under 14A of IT Act
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WP(MD)No.1862 of 2022
should be made as per the methodology prescribed in Rule 8D of the IT
Rules and it is seen that Section 14-A read with Rule 8D was not adhered to
by the assessee in computation of income. Therefore, this matter turns on
facts. To be noted, annexure also makes it clear that the writ petitioner
assessee bank itself made disallowance to the tune of over 69.23 lakhs under
Section 14A and it is in that context that there is a reference to Section 14A
read with Rule 8D. The second paragraph of the annexure also deals with
this aspect of the matter and makes it clear that disallowance of interest /
expenditure ought to have been computed at a particular quantum where as
the assessee bank has disallowed an amount of only 69.23 lakhs and odd.
These need to be disallowed is the point raised. All this turns heavily on
facts. In other words, these are all questions of fact. Therefore, it cannot
be gainsaid that Section 14 A and Rule 8D have not been applied. The
argument that the objections have not been considered may not hold water
as the annexure does deal with the crux of the objections but it may be too
early a stage in the proceedings to express any opinion on this aspect of the
mater. As rightly pointed out by learned Revenue Counsel, reassessment
notice under Section 148 of IT Act i.e, impugned notice if carried to its
logical end, in the facts and circumstances of the case, will clearly neutralize
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all these arguments and the writ petitioner assessee bank will not be
aggrieved in any manner. This Court has taken into account all the facts and
circumstances of the case and has also noticed that the writ petitioner
assessee itself is a bank and this Court is unable to persuade itself to believe
that the impugned notice is either bad calling for interference in writ
jurisdiction (much less demanding to be a situation of being dislodged
under writ jurisdiction) or a notice which causes undue hardship having the
writ petitioner aggrieved.
19. Ergo, captioned writ petition fails and the same is dismissed.
Consequently, captioned WMP is also dismissed. There shall be no order as
to costs.
01.02.2022
Index : Yes/No
Internet : Yes /No
vsm
Note :
In view of the present lock down owing to
COVID-19 pandemic, a web copy of the order may be
utilized for official purposes, but, ensuring that the copy of
the order that is presented is the correct copy, shall be the
responsibility of the advocate / litigant concerned.
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WP(MD)No.1862 of 2022
To
1.The Assistant Commissioner of Income Tax,
National e-Assessment Centre,
Delhi, 2nd Floor,
E-Ramp, Jawaharlar Nehru Stadium,
Delhi – 110 003.
2.The Assistant Commissioner of Income Tax,
Circle – 1, Tirunelveli,
Income Tax Department,
Nellai City Centre,
Tiruchendur Road,
Rahmath Nagar,
Tirunelveli – 627 011.
3.The Principal Commissioner of Income Tax,
Madurai – 1,
Income Tax Department,
CR BLDG, 2, V.P.V.P. Rathinasamy Nadar Road,
Bibikulam, Madurai – 625 002.
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WP(MD)No.1862 of 2022
M.SUNDAR, J.
vsm
W.P(MD)No.1862 of 2022
and W.M.P.(MD)No.1616 of 2022
01.02.2022
https://www.mhc.tn.gov.in/judis
