Madras High Court
The Commissioner Of Income Tax vs Hyundai Motor India Ltd on 1 July, 2025
TCA No.290 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 01.07.2025
CORAM :
THE HON'BLE MR.K.R.SHRIRAM, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE SUNDER MOHAN
TCA No.290 of 2015
The Commissioner of Income Tax,
Chennai.
Appellant
Vs
Hyundai Motor India Ltd,
Plot No.H1, SIPCOT Industrial Park,
Irrungattukottai,
Sriperumbudur,
Kancheepuram District.
Respondent
Prayer: Appeal filed under Section 260A of the Income Tax Act, 1961
against the order of the Income Tax Appellate Tribunal “C” Bench,
Chennai, dated 25.9.2012 in ITA No.1987/Mds/2011.
For Appellant: Mrs.V.Pushpa
Senior Standing Counsel
For Respondent: Mr.S.P.Chidambaram
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TCA No.290 of 2015
JUDGMENT
(Delivered by the Hon'ble Chief Justice)
Assessee, which is a motor car manufacturing company, filed return
of income for Assessment Year 2004-2005 on 30.10.2004 declaring total
income of Rs.508,72,14,630/-. The case was selected for scrutiny and
assessment under Section 143(3) of the Income-tax Act, 1961 [the Act] was
completed on 29.12.2006 determining the total income at
Rs.548,34,61,386/-.
2. Subsequently, Assessing Officer issued notice dated 17.3.2009
under Section 148 of the Act. Assessee was also furnished a copy of the
reasons for reopening the assessment vide letter dated 5.6.2009. By a
letter dated 15.6.2009, assessee requested Assessing Officer to treat the
return filed originally on 30.10.2004 as return in response to the notice
under Section 148 of the Act. After hearing assessee and after rejecting the
objections filed to the validity of reopening, the assessment under Section
143(3) read with Section 147 of the Act was completed on 23.12.2009
determining the total income at Rs.570,17,10,121/-.
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3. Against the said order, an appeal was preferred before the
Commissioner of Income Tax (Appeals), who allowed the appeal vide order
dated 23.9.2011. Challenging the said order, Revenue preferred an appeal
before the Income Tax Appeal Tribunal [the ITAT] and the ITAT dismissed
the appeal by an order pronounced on 25.9.2012.
4. Another appeal was also filed by Revenue pertaining to
Assessment Year 2005-2006, which also came to be dismissed by the ITAT.
As regards Assessment Year 2005-2006, we do not have any appeal before
us. Ms.Pushpa is not aware if separate appeal has been preferred. We are
concerned with only Assessment Year 2004-2005.
5. On 7.7.2015, the appeal was admitted on the following two
substantial questions of law:
“i) Whether on the facts and in the circumstances of the case, the
Appellate Tribunal was right in upholding the orders of CIT(A), who
held that the reopening of assessment under Section 147 was invalid
and that the same was on the basis of change of opinion?
ii) Whether the finding of the Tribunal was proper especially when
the assessment proceedings were reopened within four years and as
per requirement of Section 147 it is sufficient if Assessing Officer has
reasons to believe that income chargeable to tax has escaped
assessment?”
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6. The reason to believe income has escaped assessment, as recorded
in the communication dated 5.6.2009, reads as under:
“i) In the Schedule 4 (fixed asset) of the balance sheet additions
made during the year is Rs.14,33,133 thousands. This is the net of
Rs.1,44,897 thousands pertaining to gains from foreign exchange
rate fluctuation on loans taken to acquire the fixed asset. The
assessee has claimed a deduction of Rs.2,42,957 thousands from the
profit as per P&L a/c in the computation statement towards R&D
capital expenses u/s.35.
Actual cost of addition during the year as per Income tax
depreciation statement is Rs.13,35,053 thousands and the assessee
has deducted a sum of Rs.1,46,04,383 from the actual cost of the
asset while computing depreciation u/s.32, whereas, the assessee
has made a profit of Rs.1,44,897 thousands from foreign exchange
rate fluctuation on loans taken to acquire the fixed assets. Hence,
the assessee has not reduced the entire gain on fluctuation gain for
the purpose of computation of depreciation as per the income tax
act.
Further, if the profit on foreign exchange rate fluctuation on loans
pertains to the fixed assets which is used for R&D purpose on which
deduction u/s.35 was claimed, as per sec.43A of the act, the assssee
can claim deduction only to the extent of Rs.11,26,65,180
(24,29,57,797 – 13,02,92,617) u/s.35 of the income tax act, whereas,
the assessee has claimed entire R&D capital expenses as deduction
including the gain on foreign exchange rate fluctuation.
(ii) It is seen from the Profit and loss account that the assessee
company debited on account of Rs.2,04,81,35,000/- towards
Royalty & Technology Transfer Fee. Out of the total amount, the
Royalty paid was to the tune of Rs.1,93,97,95,716/- as detailed
below:
Royalty for the period from 1.4.03 to 30.9.03 Rs. 81,86,35,068
Royalty for the period from 1.10.03 to 31.3.04 Rs.1,84,74,24,491
Add: Cess: Rs. 9,23,71,225
Total Rs.1,93,97,95,716
Thus, the balance of Rs.10,83,39,284/- (ie., 2,04,81,35,000 –
Rs.1,93,97,95,716) represents amount paid towards technology
transfer fee.
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It is seen from the agreement contract between M/s.Hyundai Motor
Company (ie. HMC) and the assessee that the HMC had granted the
assessee, the right to manufacture, assemble, sell and service the
licensed products and supply of technical know how on the terms
and conditions stipulated in the agreement.
According to Article '6' of the agreement, in consideration of the
rights granted and technical know how supplied by M/s. HMC to
the assessee company, the assessee company shall make the
following payments to M/s.HMC.
(a) Royalty as mentioned clause 6(2) of the agreement.
(b) Lump sum fee not exceeding US $ 2 Millions or as fixed by the
Govt. of India from time to time.
The Royalty and lump sum fee as mentioned above should be paid
by the assessee company M/s.HMC in foreign currency decided by
the parties. The assessee shall pay the Royalty to M/s.HMC
commencing from 1.4.02. The parties shall through a letter of
concurrence specify the percentage of royalty payable by the
assessee company to M/s.HMC. The agreement shall be effective for
the period of 10 years commencing from 1.4.02 and ending on 31st
March 2012 unless terminated under any other provisions of the
agreement.
In this connection, the lump sum payment of Rs.10,83,39,284/-
made by the assessee towards supply of technical know how
requires to be capitalised after allowing depreciation under section
32(i)(ii) in view of the decision in 23 Taxman 66(SC) in the case of
Scrutij Engineering Home (P) Ltd Vs. CIT, wherein it was held that
where under an agreement, assessee made payment to its foreign
collaborator for documents such as manufacturing, drawings,
processing documents, designs, charts, plan etc., the expenditure
has to be treated as capital expenditure.
(iii) As per Taxation Law Amendment 2005, if the export turnover
exceeds Rs.10 crores, the benefit of deduction on the DEPB u/s 80
HHC shall be given subject to the fulfillment of conditions laid down
as per the above amendment to the section 80 HHC(3) of the act.
Hence, the assessee has to prove that, it had opted to choose either
duty drawback or the DEPB/DFRC being the duty remission scheme
and the rate of the duty drawback was higher than the DEPB/DFRC
during that period. The corresponding proviso is reproduced as
under,
“Provided also that in the case of an assessee having
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export turnover exceeding rupees ten crores during the
previous year, the profits computed under clause (a) or
clause (b) or clause (e) of this sub-section or after giving
effect to the first proviso, as the case may be, shall be
further increased by the amount which bears to ninety
per cent of any sum referred to in clause (iiid) of section
28, the same proportion as the export turnover bears to
the total turnover of the business carried on by the
assessee, if the assessee has necessary and sufficient
evidence to prove that, -
(a) he had an option to choose either the duty
drawback or the Duty Entitlement Pass Book
Scheme, being the Duty Remission Scheme; and
(b) the rate of drawback credit attributable to the
customs duty was higher than the rate of credit
allowable under the Duty Entitlement Pass Book
Scheme, being the Duty Remission Scheme:”
It has been observed that, during the current year the assessee has
export turnover of Rs.941,08,31,440/- and income by way of
DEPB/DFRC credit to the tune of Rs.128,86,38,853/-, but the
assessee has not to proved that, it had opted to chose either duty
drawback or the DEPB being the duty remission scheme and the
rate of the duty drawback was higher than the DEBP during that
period.
Hence, the above DEPB/DFRC receipt should be excluded for the
purpose of computation of 80HHC deduction being the export
incentives as per the proviso to Section 80HHC(3) otherwise means
that the deduction u/s. 80HHC can not be further increased on the
above receipt by way of DEPB/DFRC credit.
Based on the above facts, it is clear that assessee has not produced
the material facts fully and truly before the tax authorities.
Therefore, I have the reason to believe that the income has escaped
the assessment with in the meaning of section 147 of the income tax
act.”
7. There are factual findings that, during the original assessment
proceedings, Assessing Officer had called for the details regarding the same
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issues mentioned in the reason to believe. The reasons for reopening by
Assessing Officer are that assessee did not reduce the entire foreign
exchange gain of Rs.14,48,97,000/- from the actual cost of asset for
claiming depreciation under Section 32 of the Act and deduction under
Section 35 of the Act; and that lump sum consideration of
Rs.10,83,39,284/- paid towards technical know-how needed to be
capitalised after allowing depreciation at 25%. It is also alleged that
assessee did not prove that it had opted to choose either duty drawback or
DEPB/DFRC and the rate of duty drawback was higher than DEPB during
that period for the purposes of deduction under Section 80HHC of the Act.
8. There is a factual finding that Assessing Officer had called for all
the details during the original assessment proceedings, so much that he
had also issued a questionnaire in two annexures containing 23 questions
each. Assessee, vide letters dated 13.9.2006 and 16.10.2006, had furnished
various details in respect of the queries raised by Assessing Officer.
Assessing Officer called for the details at point No.(xvii) “note on R&D
activity and justification for expenditure u/s 35”. Assessee had replied to
this query vide letter dated 13.9.2006. Moreover, Assessing Officer had
also raised a query “Royalty payments includes lump sum payment.
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Please state your objection as to why the same should not be treated as
capital expenditure”. This was answered by assessee vide reply dated
13.9.2006. As regards deductions under Section 80HHC of the Act,
including DEPB receipts, Assessing Officer raised a query vide point No.22.
Assessee was called to give a detailed write up on how the conditions for
availing deductions under Section 80HHC of the Act have been satisfied.
This was replied to by assessee vide letters dated 16.10.2006 and
13.9.2006.
9. Therefore, it is clear that details were duly furnished and after
considering the same, the original assessment proceedings have been
concluded and an assessment order dated 29.12.2006 was passed under
Section 143(3) of the Act. Subsequently, Assessing Officer has also passed
an order dated 19.2.2007 under Section 154 of the Act to make adjustment
in respect of the deduction under Section 80HHC of the Act. It is,
therefore, clear that the reopening is based purely on change of opinion.
10. In Aroni Commercials Limited vs. Deputy
Commissioner of Income-Tax-2(1) and another1, a Division Bench
1 (2014) 362 ITR 403 (Bombay)
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of the Bombay High Court, while dealing with the provisions of Section 148
of the Act, held that once a query is raised during the assessment
proceedings and assessee has replied to it, it follows that the query was
subject matter of consideration of Assessing Officer while completing the
assessment and the same is deemed to have been accepted. Paragraph (14)
of the said judgment reads as under:
"14) We find that during the assessment proceedings the petitioner had
by a letter dated 9 July 2010 pointed out that they were engaged in the
business of financing trading and investment in shares and securities.
Further, by a letter dated 8 September 2010 during the course of
assessment proceedings on a specific query made by the Assessing
Officer, the petitioner has disclosed in detail as to why its profit on sale
of investments should not be taxed as business profits but charged to tax
under the head capital gain. In support of its contention the petitioner
had also relied upon CBDT Circular No.4/2007 dated 15 June 2007. (The
reasons for reopening furnished by the Assessing Officer also places
reliance upon CBDT Circular dated 15 June 2007). It would therefore, be
noticed that the very ground on which the notice dated 28 March 2013
seeks to reopen the assessment for assessment year 2008-09 was
considered by the Assessing Officer while originally passing assessment
order dated 12 October 2010. This by itself demonstrates the fact that
notice dated 28 March 2013 under Section 148 of the Act seeking to
reopen assessment for A.Y. 2008-09 is based on mere change of opinion.
However, according to Mr. Chhotaray, learned Counsel for the revenue
the aforesaid issue now raised has not been considered earlier as the
same is not referred to in the assessment order dated 12 October 2010
passed for A.Y. 2008-09. We are of the view that once a query is raised
during the assessment proceedings and the assessee has replied to it, it
follows that the query raised was a subject of consideration of the
Assessing Officer while completing the assessment. It is not necessary
that an assessment order should contain reference and/or discussion to
disclose its satisfaction in respect of the query raised. If an Assessing
Officer has to record the consideration bestowed by him on all issues
raised by him during the assessment proceeding even where he is
satisfied then it would be impossible for the Assessing Officer to
complete all the assessments which are required to be scrutinized by him
under Section 143(3) of the Act. Moreover, one must not forget that the
manner in which an assessment order is to be drafted is the sole domain
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of the Assessing Officer and it is not open to an assessee to insist that the
assessment order must record all the questions raised and the
satisfaction in respect thereof of the Assessing Officer. The only
requirement is that the Assessing Officer ought to have considered the
objection now raised in the grounds for issuing notice under Section 148
of the Act, during the original assessment proceedings. There can be no
doubt in the present facts as evidenced by a letter dated 8 September
2012 the very issue of taxability of sale of shares under the head capital
gain or the head profits and gains from business was a subject matter of
consideration by the Assessing Officer during the original assessment
proceedings leading to an order dated 12 October 2010. It would
therefore, follow that the reopening of the assessment by impugned
notice dated 28 March 2013 is merely on the basis of change of opinion
of the Assessing Officer from that held earlier during the course of
assessment proceeding leading to the order dated 12 October 2010. This
change of opinion does not constitute justification and/or reasons to
believe that income chargeable to tax has escaped assessment.
[emphasis supplied]
11. We, therefore, agree with Commissioner of Income Tax (Appeals)
as well as the ITAT that the reassessment proceedings were not valid and
the reopening is based on change of opinion. The substantial questions of
law framed are answered in favour of assessee.
Appeal is dismissed. There shall be no order as to costs.
(K.R.SHRIRAM, CJ.) (SUNDER MOHAN, J.)
01.07.2025
Index : Yes
Neutral Citation : Yes
sasi
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To:
1. The Assistant Registrar
Income Tax Appellate Tribunal
Chennai Benches, Chennai.
2. The Commissioner of Income Tax (Appeals) LTU,
Chennai.
3. The Addl. Commissioner of Income Tax, LTU,
Chennai.
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THE HON'BLE CHIEF JUSTICE
AND
SUNDER MOHAN,J.
(sasi)
01.07.2025
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