Madras High Court
The Assistant Commissioner Of ... vs M/S.Dalmia Cement (Bharat) Limited on 23 April, 2025
Author: G.R.Swaminathan
Bench: G.R.Swaminathan
W.A(MD)Nos.593, 596 & 600 of 2021
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Dated : 23.04.2025
CORAM
THE HONOURABLE MR.JUSTICE G.R.SWAMINATHAN
and
THE HONOURABLE MR.JUSTICE M.JOTHIRAMAN
W.A(MD)Nos.593, 596 & 600 of 2021
In W.A.(MD)No.593 of 2021 : -
1.The Assistant Commissioner of Income-tax Circle 1,
Trichy No.44, Williams Road,
Cantonment,
Tiruchirappalli-620 001.
2.The Deputy Commissioner of Income Tax,
Central Circle 2,
New Delhi.
3.The Principal Commissioner of Income-Tax 1-Trichy,
No.44, Williams Road,
Cantonment,
Tiruchirappalli-620001. ... Appellants
Vs.
M/s.Dalmia Cement (Bharat) Limited,
Represented by its Deputy Executive Director (Finance)
and authorised signatory Shri.R.Gururajan,
Dalmiapuram,
Tiruchirappalli-621 651. ... Respondent
Prayer: Writ Appeal filed under Clause 15 of Letters Patent, to allow the writ appeal
and set aside the order passed by this Court in W.P.(MD)No.19202 of 2018, dated
30.10.2019 and dismiss the petition.
1/29
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W.A(MD)Nos.593, 596 & 600 of 2021
In W.A.(MD)No.596 of 2021 :-
1.The Assistant Commissioner of Income-tax Circle 1,
Trichy No.44, Williams Road,
Cantonment,
Tiruchirappalli-620 001.
2.The Deputy Commissioner of Income Tax,
Central Circle 2,
New Delhi.
3.The Principal Commissioner of Income-Tax 1-Trichy,
No.44, Williams Road,
Cantonment,
Tiruchirappalli-620001. ... Appellants
Vs.
M/s.Dalmia Bharath Limited,
(Formerly Known as Dalmia Bharat Enterprises Limited.,)
Dalmiapuram, Tiruchirappalli,
Tamil Nadu-621 651. ... Respondent
Prayer: Writ Appeal filed under Clause 15 of Letters Patent, to allow the writ appeal
and set aside the order passed by this Court in W.P.(MD)No.19825 of 2018, dated
30.10.2019 and dismiss the petition.
In W.A.(MD)No.600 of 2021 : -
1.The Assistant Commissioner of Income-tax Circle 1,
Trichy No.44, Williams Road,
Cantonment,
Tiruchirappalli-620 001.
2.The Principal Commissioner of
Income-Tax1-Trichy,
No.44, Williams Road,
Cantonment, Tiruchirappalli-620001. ... Appellants
2/29
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W.A(MD)Nos.593, 596 & 600 of 2021
Vs.
M/s.Dalmia Power Limited,
(Amalgamated Company of DCB Power Ventures Limited),
Dalmiapuram,
Thiruchirappalli,
Tamil Nadu-621 651. ... Respondent
Prayer: Writ Appeal filed under Clause 15 of Letters Patent, to allow the writ appeal
and set aside the order passed by this Court in W.P.(MD)No.19826 of 2018, dated
30.10.2019 and dismiss the petition.
For Appellants : Mr.N.Dilip Kumar
For Respondent : Mr.R.V.Easwar, Senior Counsel
(in all W.As.) for Mr.N.V.Balaji
COMMON JUDGMENT
(Judgement of the Court was delivered by G.R.SWAMINATHAN, J.)
These writ appeals are directed against the common order dated
30.10.2019 whereby WP(MD)Nos.19202 of 2018, 19825 of 2018 & 19826 of
2018 were allowed. M/s.Dalmia Cement (Bharat) Limited is the petitioner in
W.P.(MD)No.19202 of 2018. M/s.Dalmia Bharat Limited is the petitioner in
W.P.(MD)No.19825 of 2018. M/s. Dalmia Power Limited is the petitioner in
W.P.(MD)No.19826 of 2018.
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W.A(MD)Nos.593, 596 & 600 of 2021
2.The aforesaid companies had filed their returns of income for the
assessment year 2011-2012. They had reported business losses and adjusted
their book profits. Following the search conducted by the Income Tax
Department under Section 132 of the Income Tax Act, 1961, notice under
Section 153A of the Act was issued to M/s.Dalmia Cement (Bharat) Limited
(hereinafter referred to as DCBL). DCBL filed reply on 03.10.2013 reiterating
the figures set out in their original returns. On 14.10.2013, notice under Section
143(2) of the Act was issued. On the same day, notice under Section 142(1) of
the Act along with the questionnaire was issued. The assessee offered its reply
which was followed by issuance of show cause notice on 24.10.2013. The
assessee filed their reply on 24.01.2014. Thereafter, order under Section 153A
r/w Section 143(3) of the Act was passed on 31.03.2014. Challenging the
same, the assessee filed an appeal. The appeal was partly allowed and based on
the same, demand notice under Section 156 of the Act was issued on
31.03.2014. On 31.07.2015, the appeal order was implemented and the search
assessment attained finality. The consequent order giving effect to it was
passed on 18.08.2015.
3.While so, on 28.03.2018, a tax evasion petition was received from
the investigation unit. It indicated escapement of income for the assessment
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year 2011-2012. The assessing officer, therefore, proposed to reopen the
assessment proceedings. After the Principal Commissioner of Income Tax
granted approval under Section 151 of the Act, notice under Section 148 of the
Act was issued on 31.03.2018. The assessee offered their reply on 16.04.2018
and demanded to know the reasons that led the authority to believe that the
income of the assessee-company for the assessment year 2011-12 had escaped
assessment. Vide communication dated 11.05.2018 addressed to DCBL, the
reasons for re-opening the assessment were furnished. The assessee offered
their objection. On 26.07.2018, the Assistant Commissioner of Income-Tax
Circle No.1, Trichy passed order rejecting the assessee's objections.
Challenging the same, DCBL filed W.P.(MD)No.19202 of 2018. The other writ
petitioners also received similar notices under Section 148 of the Act. They
also wanted to know the reasons as to why the authority came to believe that
the income of the assessee-companies for the assessment year 2011-12 had
escaped assessment. The reasons were furnished and in response thereto, the
assessee-companies offered their objections. Their objections were also
rejected vide orders dated 30.07.2018. Challenging the same, W.P.(MD)No.
19825 of 2018 and W.P.(MD)No.19826 of 2018 were filed. As already
mentioned, all the three writ petitions were allowed on 30.10.2019.
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W.A(MD)Nos.593, 596 & 600 of 2021
4.The background facts that led to initiation of proceedings may be
summarised as follows :
KKR Mauritius Cement Investment Limited invested a sum of Rs.
500/- crores in the year 2010-11 and was allotted 3,79,19,005 equity shares. As
a result, its shareholding percentage in DCBL became 14.99%. These shares
were bought back by M/s.Dalmia Bharat Limited (hereinafter referred to as
DBL) on 15.01.2016 for a sum of Rs.1218/- crores. This information received
by the assessing officer led him to believe that the entire transaction amounted
to round tripping. He therefore proposed to reopen the search assessments of
the three companies. The learned Single Judge, however, took the view that
since DCBL had disclosed the factum of investment made by KKR to the tune
of Rs.500/- crores in their returns, the assessments cannot be reopened and
allowed the writ petitions. Challenging the same, the department has filed
these writ appeals.
5.The learned standing counsel appearing for the department
reiterated all the contentions raised in the grounds of appeals. The assessment
period relates to the year 2011-12. The normal time limit of four years for re-
opening the assessment concluded on 31.03.2016. In this case, the re-opening
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was made on 31.03.2018. According to the learned standing counsel, the case
on hand would fall within the extended period of six years since there was
failure on the part of the assessee to disclose fully and truly all material facts
necessary for its assessment for that assessment year. He would submit that
reopening is primarily based on the information received subsequently by the
assessing officer vide communication from DDIT (Investigation Wing), Delhi
on 28.03.2018 informing that the equity investment of Rs.500/- crores made in
DCBL had been bought back for a huge sum of Rs.1218/- crores, and that this
buyback arrangement and the manner in which it has been carried out by
creating a shell company furnished prima facie case for the assessing officer to
reopen the assessment.
6.The learned Standing Counsel would argue that even when KKR
Mauritius Cement Investment Limited made the investment of Rs.500/- crores
in DCBL, there was some tacit arrangement. The reopening proceedings are
not a result of change of opinion. On the other hand, the assessing authority
had specifically satisfied himself that the assessments originally made required
to be reopened as there was an escapement of income. He would contend that it
is not open to the Writ Court to go into the sufficiency of reasons that impelled
the assessing officer to reopen the assessments. According to him, the learned
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Single Judge failed to consider the stand of the department while allowing the
writ petitions. He further argued that the impugned order of the learned Single
Judge is virtually non-speaking. He relied on a catena of decisions in support
of his contentions. He called upon this Court to set aside the impugned order
allowing the writ petitions.
7.Per contra, the learned Senior Counsel appearing for the writ
petitioners submitted that the learned Single Judge rightly allowed the writ
petitions and that interference is not warranted. He pointed out that since there
was no failure on the part of the assessee to disclose the material facts,
reopening of the assessments after four years is time-barred. The assessee is
only expected to furnish the material particulars and it is not for the assessee to
assist the assessing officer to make inferences, whether of facts or law. In fact,
specific queries were raised under Section 142(1) of the Act regarding the share
capital and share premium before making the original assessment. The assessee
had duly responded by furnishing all the relevant details. The learned Senior
Counsel submitted that the reopening of the concluded assessments is only due
to change of opinion on the part of the assessing officer. He pointed out that
the Hon'ble Supreme Court has repeatedly held that assessment cannot be
reopened on a mere change of opinion (vide ITO Vs. Lakhmani Mewal Das
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(1976) 103 ITR 437 (SC) , Commissioner of Income Tax, Delhi vs Kelvinator
of India Ltd (2010) 187 Taxman 312 (SC), ACIT 12(3)(2) Vs. Marico Ltd.,
(2020) 16 SCC 354 (SC)). He pointed out that a mere look at the order
impugned in the writ petitions would show that the reopening is sought to be
made on surmises and suspicion. According to him, the assessing officer wants
to make a roving enquiry. Such a course of action is impermissible (vide
Chhugamal Rajpal Vs. S P Chahal 1971 (1) SCC 453). The learned Senior
Counsel took us through the reasons given by the department and pointed out
that most of them are rank hearsay. He added that though the writ petitioner-
companies are group companies, they are separate legal entities and that the
proceedings cannot be initiated on the group companies in respect of the
transactions undertaken by the subsidiary company. In this regard, he relied on
the decision reported in (2025) 1 SCC 456 (BRS Ventures Investment Limited
Vs. SREI Infrastructure Finance Limited).
8.For each of the propositions canvassed by him, the learned Senior
Counsel relied on the precedents of the Hon'ble Supreme Court and the High
Court. Some of them are as follows :
1. Calcutta Discount Co.Ltd. Vs. ITO (1961) 41 ITR 191 (SC)
2. CIT, Delhi Vs. Kelvinator India Ltd (2010) 320 ITR 561 (SC)
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W.A(MD)Nos.593, 596 & 600 of 2021
3. Ganga Saran and Sons Ltd., Vs. ITO (1981) AIR 1363 (SC)
4. ACIT 12(3)(2) Vs. Marico Ltd., (2020) 16 SCC 354 (SC)v
5. Sri Krishna Pvt.Ltd., Etc.Vs.ITO (1996) 221 ITR 538 (SC)
6.Fenner (India) Ltd Vs. DCIT (2000) 241 ITR 672 (Mad HC)
7.CIT vs. Elgi Tread (India) Ltd (2018) TIOL 1375 (Mad HC)
8. CIT Vs. Usha International Limited (2012) 348 ITR 485 (Delhi HC)
9.Asianet Star Communications (P) Ltd. Vs. ACIT (2019) 106
Taxmann.com 293 (Mad-HC)
10.Sheo Nath Singh v. Appellate ACIT, Calcutta (1972) 3 SCC 234.
He filed written submissions and took us through the same. His categorical
argument is that the jurisdictional facts necessary to reopen a concluded
assessment are wholly absent in this case. He called upon us to sustain the
order of the learned Single Judge and dismiss the writ appeals.
9.We carefully considered the rival contentions and went through the
materials on record. The only question that calls for consideration is whether
the assessing officer was justified in proposing to reopen the search
assessments earlier made beyond the period of four years. The action of the
assessing officer can be upheld only if it is shown that there was failure on the
part of the assessee to fully and truly disclose the material facts before the
original assessment was made.
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10.The relevant provisions are Sections 147 & 148 of Income Tax
Act, 1961. During the period in question, the Sections stood thus :
“Income escaping assessment.
147. If the Assessing Officer has reason to believe that any income chargeable
to tax has 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 (hereafter in
this section and in sections 148 to 153 referred to as the relevant assessment
year) :
Provided that where an assessment under sub-section (3) of section
143 or this section has been made for the relevant assessment year, no
action shall be taken under this section 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:
Provided further that nothing contained in the first proviso shall apply in a
case where any income in relation to any asset (including financial interest in
any entity) located outside India, chargeable to tax, has escaped assessment
for any assessment year:
Provided also that the Assessing Officer may assess or reassess such income,
other than the income involving matters which are the subject matters of any
appeal, reference or revision, which is chargeable to tax and has escaped
assessment.
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Explanation 1.—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
disclosure within the meaning of the foregoing proviso.
Explanation 2.—For the purposes of this section, the following shall also be
deemed to be cases where income chargeable to tax has escaped assessment,
namely :—
(a) where no return of income has been furnished by the assessee although
his total income or the total income of any other person in respect of which
he is assessable under this Act during the previous year exceeded the
maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no
assessment has been made and it is noticed by the Assessing Officer that the
assessee has understated the income or has claimed excessive loss, deduction,
allowance or relief in the return ;
(ba) where the assessee has failed to furnish a report in respect of any
international transaction which he was so required under section 92E;
(c) where an assessment has been made, but—
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act
; or
(iv) excessive loss or depreciation allowance or any other allowance under
this Act has been computed;
(ca) where a return of income has not been furnished by the assessee or a
return of income has been furnished by him and on the basis of information
or document received from the prescribed income-tax authority, under sub-
section (2) of section 133C, it is noticed by the Assessing Officer that the
income of the assessee exceeds the maximum amount not chargeable to tax,
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or as the case may be, the assessee has understated the income or has claimed
excessive loss, deduction, allowance or relief in the return;
(d) where a person is found to have any asset (including financial interest in
any entity) located outside India.
Explanation 3.—For the purpose of assessment or reassessment under this
section, the Assessing Officer may assess or reassess the income in respect of
any issue, which has escaped assessment, and such issue comes to his notice
subsequently in the course of the proceedings under this section,
notwithstanding that the reasons for such issue have not been included in the
reasons recorded under sub-section (2) of section 148.
Explanation 4.—For the removal of doubts, it is hereby clarified that the
provisions of this section, as amended by the Finance Act, 2012, shall also be
applicable for any assessment year beginning on or before the 1st day of
April, 2012.”
“Issue of notice where income has escaped assessment.
148. (1) Before making the assessment, reassessment or recomputation
under section 147, the Assessing Officer shall serve on the assessee a notice
requiring him to furnish within such period, as may be specified in the
notice, a return of his income or the income of any other person in respect of
which he is assessable under this Act during the previous year corresponding
to the relevant assessment year, in the prescribed form and verified in the
prescribed manner and setting forth such other particulars as may be
prescribed; and the provisions of this Act shall, so far as may be, apply
accordingly as if such return were a return required to be furnished
under section 139 :
Provided that in a case—
(a) where a return has been furnished during the period commencing on the
1st day of October, 1991 and ending on the 30th day of September, 2005 in
response to a notice served under this section, and
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(b) subsequently a notice has been served under sub-section (2) of section
143 after the expiry of twelve months specified in the proviso to sub-section
(2) of section 143, as it stood immediately before the amendment of said
sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of
the time limit for making the assessment, re-assessment or recomputation as
specified in sub-section (2) of section 153, every such notice referred to in
this clause shall be deemed to be a valid notice:
Provided further that in a case—
(a) where a return has been furnished during the period commencing on the
1st day of October, 1991 and ending on the 30th day of September, 2005, in
response to a notice served under this section, and
(b) subsequently a notice has been served under clause (ii) of sub-section
(2) of section 143 after the expiry of twelve months specified in the proviso
to clause (ii) of sub-section (2) of section 143, but before the expiry of the
time limit for making the assessment, reassessment or recomputation as
specified in sub-section (2) of section 153, every such notice referred to in
this clause shall be deemed to be a valid notice.
Explanation.—For the removal of doubts, it is hereby declared that nothing
contained in the first proviso or the second proviso shall apply to any return
which has been furnished on or after the 1st day of October, 2005 in
response to a notice served under this section.
(2) The Assessing Officer shall, before issuing any notice under this section,
record his reasons for doing so.
The aforesaid provisions have been considered in a number of judgments to
which our attention was drawn by counsel on either side.
11.In Calcutta Discount Co.Ltd. Vs. ITO (1961) 41 ITR 191 (SC),
the Hon'ble Supreme Court held that the assessee has the duty to disclose all the
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primary facts relevant to the decision of the question before the assessing
authority but that this duty does not extend to communicating the inferences
that can be drawn from the primary facts. The Hon'ble Supreme Court also
held that what facts are material and necessary for assessment will differ from
case to case. Referring to the Explanation to Section 147, the Hon'ble Supreme
Court held as follows :
“...the position remains that so far as primary facts are concerned, it
is the assessee's duty to disclose all of them-including particular
entries in account books, particular portions of documents and
documents, and other evidence, which could have been discovered
by the assessing authority, from the documents and other evidence
disclosed.”
12.No doubt, the fact of investment in DCBL to the tune of Rs.500/-
crores in the form of purchase of equity shares was disclosed in the Auditor's
Financial Statement dated 20.05.2011. The relevant para reads as follows : -
“21.The Company along with Dalmia Bharat Sugar and
Industries Limited (formerly known as Dalmia Cement (Bharat)
Limited) and Dalmia Bharat Enterprise Limited, the holding
company, has entered into definitive agreements, namely, Share
Subscription Agreement and Shareholders Agreement on May
7 2010 with KKR Mauritius Cement Investments Limited
(“KKR”). As per the definitive agreements, KKR will make fresh
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equity subscription in the company to the extent of Rs.7,500
million in multiple tranches and KKR shall be entitled to get
equity stake up to 21% of the Company post investments. The
company has received Rs.5,000 million and issued 37,919,005
fully paid up shares of Rs.10 each at Rs.131.86 per share
constituting 14.99% of post issue capital on September 3, 2010.”
In the income tax returns filed in Form ITR 6, it had been mentioned that KKR
Mauritius Cement Investments Limited is holding beneficial ownership of
14.99% of equity shares. Even their PAN was given as AADCK9761E. When
following the search conducted under Section 132 of the Act queries were
raised, the assessee replied on 26.10.2013 that KKR Mauritius Cement
Investments Limited were holding 14.99% of equity shares in their company.
The mode of receipt of the funds was set out in their reply dated 09.11.2013 in
the following terms:-
“As can be seen from the above table, that company had
issued 3,79,19,005/- equity shares of face value of Rs.10/- at a
premium, for Rs.5,00,00,00,000/- during the financial year 2010-11.
Other than above, no further amounts were received as share
application money during the financial year 2010-11. The aforesaid
amount was received by way of foreign remittances through HSBC
Bank. Copy of Form 2 in respect of allotment of shares to KKR
Mauritius Cement Investment Limited filed with Registrar of
Companies, is also attached herewith.”
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13.What is to be answered is whether the assessee by furnishing the
above information had disclosed all the primary facts before the assessing
officer and whether the assessee's duty stood discharged. At the first blush, it
looks as if the assessee had nothing more to do and that it was for the assessing
officer to arrive at the requisite inferences.
14.The assessing officer can come to the conclusion that there was no
full and true disclosure of all materials facts in the light of subsequent
information that may be received by him. This legal position has been settled
by the Hon'ble Supreme Court in Phool Chand Bajrang Lal v. ITO, (1993) 4
SCC 77 in the following terms :
““19...... The present is, thus, not a case where the Income
Tax Officer sought to draw any fresh inference, which
could have been raised at the time of original assessment
on the basis of the material placed before him by the
assessee relating to the loan from the Calcutta Company
and which he failed to draw at that time. Acquiring fresh
information, specific in nature and reliable in character,
relating to the concluded assessment which goes to expose
the falsity of the statement made by the assessee at the
time of original assessment is different from drawing a
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fresh inference from the same facts and material which
was available with the ITO at the time of original
assessment proceedings. The two situations are distinct
and different. Thus, where the transaction itself on the
basis of subsequent information, is found to be a bogus
transaction, the mere disclosure of that transaction at the
time of original assessment proceedings, cannot be said to
be disclosure of the “true” and “full” facts in the case and
the ITO would have the jurisdiction to reopen the
concluded assessment in such a case. It is correct that the
assessing authority could have deferred the completion of
the original assessment proceedings for further enquiry
and investigation into the genuineness to the loan
transaction but in our opinion his failure to do so and
complete the original assessment proceedings would not
take away his jurisdiction to act under Section 147 of the
Act, on receipt of the information subsequently. The
subsequent information on the basis of which the ITO
acquired reasons to believe that income chargeable to tax
had escaped assessment on account of the omission of the
assessee to make a full and true disclosure of the primary
facts was relevant, reliable and specific. It was not at all
vague or non-specific
25. ..... It would be immaterial whether the Income Tax
Officer at the time of making the original assessment
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could or, could not have found by further enquiry or
investigation, whether the transaction was genuine or not,
if on the basis of subsequent information, the Income Tax
Officer arrives at a conclusion, after satisfying the twin
conditions prescribed in Section 147(a) of the Act, that the
assessee had not made a full and true disclosure of the
material facts at the time of original assessment and
therefore income chargeable to tax had escaped
assessment.”
Phool Chand was affirmed by a three Judges Bench of the Supreme Court in
State of U.P. v. Aryaverth Chawal Udyog (2015) 17 SCC 324 and followed in
a plethora of decisions. Some of the recent decisions are CIT v. Laljibhai
Kanjibhai Mandalia (2022) 16 SCC 139 and Deputy Commissioner of
Income Tax v. M.R.Shah Logistics (P) Ltd (2022) 16 SCC 139.
15.Thus, on the strength of subsequent information, action under
Section 147 r/w.148 of the Act can be initiated subject to fulfilment of the
statutory conditions. From the investigation unit, the assessing officer received
information that the so-called investment pumped in by KKR Mauritius Cement
Investment Limited was Dalmia's own black money and that there has been
round tripping since later KKR's shareholding in DCBL was bought back by
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DBL at a value of more than 1200 crores and that the whole transaction needed
to be investigated properly to find out if any black money has been used in the
transaction and whether there was escapement of income. The fact that some of
the key Dalmia personnel were facing criminal prosecution was also
highlighted.
16.Kohlberg Kravis Roberts & Co. (KKR), a global investment firm
was founded in the year 1976. There was no direct investment from this firm.
The investor was KKR Mauritius Cement Investment Limited. The information
received by the assessing officer was that the said company was incorporated
only on 03.05.2010. Its address was shown as C/o.CITCO (Mauritius) Limited,
4th Floor, Tower A 1 Cyber City, EBENE, Mauritius. This address was in the
news for wrong reasons as it was mentioned in the “Paradise Papers Leak”.
Many different companies had been registered at the said address.
17.Though KKR Mauritius Cement Investment Limited agreed to
invest upto Rs.750/- crores in DCBL, they invested only Rs.500/- crores in FY
2010-11. When DBL bought back KKR stake in DCBL, it was valued at
Rs.1218 crores. The issue of valuation was also sharply highlighted in the
information received from the investigation unit. The buy back was in the form
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of a cash cum share deal. DBL paid Rs.600/- crore in cash and issued 7.5
million equity shares at Rs.825/- each totalling Rs.618.75 crores. The entire
arrangement did not appear to be a prudential business deal. DBL was bending
backwards to financially favour KKR. The information received by the
assessing officer pointed out that the return on investment made by KKR was
around 18% compound rate.
18.We wanted to assure ourselves that there was no arbitrary exercise
of power by the assessing authority. We thought it fit and appropriate to have a
look at undisputed facts that are available in public domain. We noticed that
after acquiring 8.45% in DBL, KKR exited by off-loading its shares in the open
market and made a huge gain. We can take judicial notice of matters of history.
This would include economic and business history also. History need not
necessarily hark back to ancient times. Even happenings in the very recent past
can also qualify as matters of history for the purpose of Section 57 of the Indian
Evidence Act corresponding to Section 52 of Bharatiya Sakshya Adhiniyam.
The Hon'ble Supreme Court in Onkar Nath v. Delhi Administration (1977) 2
SCC 611 held that the list of facts mentioned in Section 57 of the Evidence Act
of which the court can take judicial notice is not exhaustive. Notorious facts of
history, past or present can be taken note of by the courts. KKR exited from
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DBL also after 14 months by selling its 75 lakhs shares in the open market and
earned a sum of Rs.1538 crores. We are conscious that stock market players
make huge gains and that by itself need not raise one's eyebrows. But what
matters is the manner and the circumstances in which such gains have been
made. DBL is the holding company and its shares are listed in the stock
market. DBCL is the subsidiary company and it is an unlisted one. That is
why, the issue of valuation becomes crucial and it was highlighted in the
information supplied to the assessing officer.
19.When an equity firm invests a sum of Rs.500/- crores and walks
away with Rs.2138/- crores in a span of few years, there is something that more
than meets the eye. It is possible that there were exit clauses in the investment
agreements. The Audit Report of the assessee specifically noted that the holding
company as well as DCBL have entered into definitive agreements, namely,
share subscription agreement and shareholders agreement on 07.05.2010 with
KKR Mauritius Cement Investment Limited. But copies of the agreement were
not placed before the assessing officer. The Hon'ble Supreme Court in
Calcutta Discount Co.Ltd. Vs. ITO (1961) 41 ITR 191 (SC) held that so far as
the primary facts are concerned, it is the assessee's duty to disclose all of them –
including particular entries in account books, particular portions of
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documents, and documents and other evidence. Failure to do so would
definitely amount to having failed to truly and fully disclose material facts
within the meaning of Section 147 of the Act. In the circumstances of the case,
the agreements entered into between KKR on the one hand and DBCL on the
other would constitute primary facts. The full contours of the arrangement
between KKR Mauritius Cement Investments Limited and M/s.Dalmia Cement
(Bharat) Limited were not placed before the assessing officer in the first
instance. Merely providing information that there was an investment and that it
came through banking channels would not suffice or amount to full and true
disclosure of all the facts. Since the primary facts were not placed before the
assessing officer, there was failure on the part of the assessee to fully and truly
disclose the material facts. Thus, there was sound basis for the reasonable belief
entertained by the assessing officer for issuing notice under Section 148 of the
Income Tax Act, 1961.
20.The assessing officer, with the benefit of hindsight, proposes to
probe the matter in depth. Of course, quite a few of the reasons set out in the
orders impugned in the writ petitions partake the character of market gossip.
The Hon'ble Supreme Court in ITO vs. Lakshmani Mewal Das (1976) 103 ITR
437 had held that the expression “reason to believe” does not mean a purely
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subjective satisfaction on the part of the officer but the reason must be held in
good faith and cannot be merely a pretence. Applying the said ratio, we would
discount such portions of the reasons as appear to be based on impressions.
Even dehors such reasons that may not stand legal scrutiny, there are still
reasons left that furnish the basis for taking action under Section 147 of the Act.
The Hon'ble Supreme Court in the very same decision had held that the
sufficiency of the grounds that induce the assessing officer is not a justiciable
issue.
21.We are satisfied that the materials relied on by the assessing
officer prima facie indicate that KKR Mauritius Cement Investment Limited is
a shell company. The scale of returns and the manner in which the transactions
had been conducted also prima facie suggest round tripping. The assessing
officer was justified in coming to the conclusion that the matter requires a
deeper probe if the black money of the Dalmias was deployed in making the
initial investment. Section 147 of the Income Tax Act was incorporated with a
laudable objective. It intends to check escapement of income for the purpose of
assessment. At the same time, sufficient safeguards have been incorporated to
ensure that the power to reassess does not become a tool of harassment. This
why, periods of limitation have been prescribed. The extended period of
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limitation has been provided in cases where the assessee did not make a full
and true disclosure of material facts. Though the provision is to be strictly
construed, every minor lapse not touching upon the jurisdictional aspects shall
not enure to the advantage of market buccaneers and money launderers.
22.We need to deal with one another contention of the learned Senior
Counsel for the assessee. He contended that since the notice dated 31.03.2018
does not record the reasons for the belief of the assessing officer that there was
escapement of income, the entire proceedings are liable to be quashed. No
doubt, the notice dated 31.03.2018 is rather cryptic. The assessing officer
merely states that he had reasons to believe that there was escapement of
income. The learned Senior Counsel submitted that in Fenner (India) Ltd Vs.
DCIT (2000) 241 ITR 672 (Mad HC), the Madras High Court had held that in
cases where the notice issued under Section 148 of the Act is beyond the period
of four years, the assessing officer must record not only his reasonable belief
that income has escaped assessment but also the default or failure committed by
the assessee and that failure to do so would vitiate notice and the entire
proceedings. This decision was followed in two subsequent Division Bench
decisions (2015) 61 Taxmann.com 19 (Madras) (Commissioner of Income
Tax, Chennai v. Schwing Stetter India (P) Ltd) and (2018) 96 Taxmann.com
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254 (Madras) (Commissioner of Income Tax, Coimbatore v. Elgi Tread
(India) Ltd. We are of the view that such an approach may not be in accord
with the decision of the Hon'ble Supreme Court in GKN Driveshafts (India)
Ltd vs. ITO (2003) 1 SCC 72. When notice issued under Section 148 of the Act
was challenged and the Hon'ble Delhi High Court rejected the challenge as
premature, the assessee filed Civil Appeal before the Hon'ble Supreme Court.
The Hon'ble Supreme Court delineated the procedure to be followed when a
notice under Section 148 is issued in the following terms :
“5. We see no justifiable reason to interfere with the
order under challenge. However, we clarify that when a notice
under Section 148 of the Income Tax Act is issued, the proper
course of action for the noticee is to file return and if he so
desires, to seek reasons for issuing notices. The assessing officer
is bound to furnish reasons within a reasonable time. On receipt
of reasons, the noticee is entitled to file objections to issuance of
notice and the assessing officer is bound to dispose of the same
by passing a speaking order. In the instant case, as the reasons
have been disclosed in these proceedings, the assessing officer
has to dispose of the objections, if filed, by passing a speaking
order, before proceeding with the assessment in respect of the
abovesaid five assessment years.”
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The statutory provision does not stipulate that at the stage of issuing notice
under Section 148 of the Act, the authority must point out the default on the
part of the assessee. If such were to be the requirement, the Hon'ble Supreme
Court would not have held that the assessee can demand furnishing of reasons.
In the case on hand, pursuant to the request made by the assessee, reasons were
furnished. The assessee offered its objections. The objections were rejected.
All these steps had to be taken before proceeding with the reassessment.
Challenging the rejection order, writ petitions were filed. When the course of
action adopted by the assessee as well as the assessing officer are in
consonance with GKN Driveshafts decision, the question of quashing the
impugned proceedings on the basis of Fenner decision by the Madras High
Court which was rendered in 2000 does not arise at all.
23.The learned Single Judge extracted the rival contentions from para
4 to 19. In paragraph 20, the decision of the Madras High Court reported in
(2019) 106 Taxmann.com 293 (Asianet Star Communications Pvt Limited vs.
ACIT) dealing with the issue of change of opinion was cited. In para 22, the
decision of the Hon'ble Supreme Court reported in (2017) 77 Taxmann.com
176 (SC) was cited to hold that the writ petition was maintainable. In paragraph
23, GKN Driveshafts case was cited. In paragraph 24 and 25, it was noted that
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the writ petitioner came to the court only after following the procedure set out
in GKN Driveshafts case. In paragraph 26, Calcutta Discount Co.Ltd. Vs. ITO
(1961) 41 ITR 191 (SC) was extracted. In para 27, without any discussion, the
learned Judge concluded that the assessee had disclosed all the material facts
and given all the explanation and that the stand of the assessing authority is
contrary to the well settled principles of law laid down by the Hon'ble Supreme
Court. With due respect, we have to observe that the order allowing the writ
petitions is non-speaking. It is vulnerable on that sole ground. Probably, that
was why, the erudite Senior Counsel appearing for the assessee trained his guns
on the notices and the rejection orders passed by the assessing officer instead of
supporting the order passed by the learned Single Judge.
24.For the foregoing reasons, the orders impugned in the writ
petitions are sustained. The order of the learned Single Judge is set aside. The
writ appeals are allowed. No costs.
[G.R.S., J.] [M.J.R., J.]
23.04.2025
NCC : Yes / No
Internet : Yes / No
Index : Yes / No
SKM
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W.A(MD)Nos.593, 596 & 600 of 2021
G.R.SWAMINATHAN, J
and
M.JOTHIRAMAN, J.
SKM
W.A(MD)Nos.593, 596 & 600 of 2021
23.04.2025
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