Telangana High Court
M/S. Satyam Computer Services Limited, ... vs The Commissioner Of Income Tax Central on 31 January, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy, N.Tukaramji
IN THE HIGH COURT FOR THE STATE OF TELANGANA
:: AT HYDERABAD ::
***
Writ Petition No.23255 of 2011; Writ Petition No.17518 of 2011;
Writ Petition No.17526 of 2011; Writ Petition No.19622 of 2011;
Writ Petition No.3906 of 2012; and Writ Petition No.9667 of 2013
Between:
M/s.Satyam Computer Services Limited,
(Now Known as Tech Mahindra Limited,
with its Registered Office at Gateway Building,
Apollo Bunder, Mumbai - 400 001,
and also having its office at Mahindra Satyam Infocity,
Unit 12, Plot No.35/36, Hi-Tech City Layout,
Survey No.64, Madhapur, Hyderabad - 500 081,
Rep. by its Vice-President, Mr. Santosh Kumar Nair
Petitioner
Versus
Central Board of Direct Taxes,
Department of Revenue,
Ministry of Finance,
Government of India, and others
Respondents
JUDGMENT PRONOUNCED ON: 31.01.2025
THE HONOURABLE SRI JUSTICE P.SAM KOSHY
AND
THE HONOURABLE SRI JUSTICE N.TUKARAMJI
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? : Yes
2. Whether the copies of judgment may be
Marked to Law Reporters/Journals? : Yes
3. Whether His Lordship wishes to
see the fair copy of the Judgment? : Yes
________________________
P.SAM KOSHY, J
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* THE HONOURABLE SRI JUSTICE P.SAM KOSHY
AND
THE HONOURABLE SRI JUSTICE N.TUKARAMJI
+ Writ Petition No.23255 of 2011; Writ Petition No.17518 of 2011;
Writ Petition No.17526 of 2011; Writ Petition No.19622 of 2011;
Writ Petition No.3906 of 2012; and Writ Petition No.9667 of 2013
% 31.01.2025
# Between:
M/s.Satyam Computer Services Limited,
(Now Known as Tech Mahindra Limited,
with its Registered Office at Gateway Building,
Apollo Bunder, Mumbai - 400 001,
and also having its office at Mahindra Satyam Infocity,
Unit 12, Plot No.35/36, Hi-Tech City Layout,
Survey No.64, Madhapur, Hyderabad - 500 081,
Rep. by its Vice-President, Mr. Santosh Kumar Nair
Petitioner
Versus
Central Board of Direct Taxes,
Department of Revenue,
Ministry of Finance,
Government of India, and others
Respondents
! Counsel for Petitioner(s) : Mr.Arvind Datar, Mr. Jehangir Mistri & Mr.
Vivek Reddy, learned Senior Counsel
appearing on behalf of Mr. K. Pratik Reddy
and Cuddapah Nanda Gopal.
^Counsel for the respondent(s) : Mr.B.Narasimha Sharma, learned
Additional Solicitor General of India,
assisted by Ms. Bokaro Sapna Reddy
Mr. A.Rama Krishna Reddy, and Mr. Ajay
Kumar Kulkarni.
<GIST:
> HEAD NOTE:
Page 3 of 68
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? Cases referred ::
1. (2011) 15 Supreme Court Cases 522
2. (2008) Supreme Court Cases 582
3. (2009) 1 Supreme Court Cases 540
4. Air 2004 Supreme Court 1107
5. [1988] 170 ITR 37 (KER)
6. 2010 SCC OnLine Bom 1387
7. (2003) 2 Supreme Court Cases 45
8. [2017] 87 taxmann.com 228 Karnataka
9. (2018) 6 Supreme Court Cases 189
10. (1997) 4 Supreme Court Cases 530
11. (1974) 3 Supreme Court Cases 196
12. (1962) 46 ITR 144 (SC)
13. (2007) 160 Taxman 101 (Delhi)
14. 1998 SCC OnLine Mad 951
15. (2008) 10 Supreme Court Cases 617
16. Writ Petition No.1749 of 2009 of the Bombay High Court
17. 2008 (1) KLJ 561
18. C.W.P.No.19040 of 2008 decided on 01.11.2004
19. (2007) 4 Supreme Court Cases 221
20. (2000) 3 Supreme Court Cases 581
21. (2000) 3 Supreme Court Cases 581
22. MANU/AP/0459/2003
23. Writ Petition (L) NO.8766 of 2024
24. (2024) 158 taxman.com 658 (Bombay)
Page 4 of 68
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THE HONOURABLE SRI JUSTICE P.SAM KOSHY
AND
THE HONOURABLE SRI JUSTICE N.TUKARAMJI
Writ Petition No.23255 of 2011; Writ Petition No.17518 of 2011;
Writ Petition No.17526 of 2011; Writ Petition No.19622 of 2011;
Writ Petition No.3906 of 2012 & Writ Petition No.9667 of 2013
COMMON ORDER :
(Per the Hon'ble Sri Justice P. Sam Koshy)
Since the issue in the present writ petitions is one and the same,
they are being disposed of by this Common Order.
2. Heard Mr. Arvind Datar, Mr. Jehangir Mistri and Mr. Vivek
Reddy, learned Senior Counsels appearing on behalf of Mr. K.Pratik
Reddy and Cuddapah Nanda Gopal, learned counsel for the
petitioners; Mr. B.Narasimha Sharma, learned Additional Solicitor
General of India, assisted by Ms. Bokaro Sapna Reddy, Mr. A.Rama
Krishna Reddy, and Mr. Ajay Kumar Kulkarni, learned counsel for the
respondents.
3. These are six Writ Petitions filed by the same assessee, the lead
case being Writ Petition No.23255 of 2011 whereby the primary
challenge is to the order dated 11.07.2011 passed by respondent No.1
rejecting the application seeking permission for assessment of real and
actual income after condoning the delay under Section 119 of the
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Income Tax Act, 1961 and the relief sought for was consequential
direction to the Income Tax Department.
4. Writ Petition No.17518 of 2011, Writ Petition No.17526 of 2011
and Writ Petition No.9667 of 2013 are Writ Petitions challenging the
appointment of special auditor on terms which specifically included
the verification of fictitious sales and income from the terms of
reference for three assessment years i.e. Assessment Year 2002-03,
Assessment Year 2007-08 and Assessment Year 2009-10. Writ Petition
No.16722 of 2011 is a Writ Petition challenging the proceedings under
Section 147 seeking to reopen the assessment of the petitioner for the
Assessment Year 2002-03 and adopting the stand of reassessment
proceedings were only to reexamine the claims of deduction under
Section 10A while ignoring existence of fictitious sales included in the
petitioner's assessed income for the Assessment Year 2002-03.
5. Lastly, Writ Petition No.3906 of 2012 is a Writ Petition
challenging the provisional attachment order dated 30.01.2012 under
Section 281B of the Income Tax Act. By efflux of time, the rigor of the
order of provisional attachment does not survive any further. As such,
the order of provisional attachment does not survive any longer and
hence the said Writ Petition i.e. Writ Petition No.3906 of 2012 has
literally become infructuous.
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6. So far as the other four Writ Petitions are concerned, i.e. Writ
Petition No.17518 of 2011, Writ Petition No.17526 of 2011, Writ
Petition No.9667 of 2013 and Writ Petition No.19622 of 2011 are
concerned, if the main Writ Petition i.e. Writ Petition No.23255 of 2011
which in this batch has been taken up as the lead case stands decided
in favour of the petitioner, there would not be a necessity for deciding
the aforesaid four Writ Petitions and as a consequence those Writ
Petitions also would stand disposed of.
7. For convenience, the facts in Writ Petition No.23255 of 2011 are
discussed hereunder.
8. Writ Petition No.23255 of 2011 is filed by the petitioner under
Article 226 of the Constitution of India praying the Court for the
following reliefs, viz.,
(i) to quash the order dated 11.07.2022 bearing
No.295/1/2009-IT(INV.I)(Part), passed by the respondent
No.1 as arbitrary, illegal, violative of Section 119 of the
Income Tax Act, 1961 and Articles 14, 19(1)(g), 265 and
300-A of the Constitution of India;
(ii) to declare the Assessment Orders for the Assessment Year
2003-04 to Assessment Year 2006-07 as illegal, void, ab
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initio, and violative of Article 265 of the Constitution of
India;
(iii) to direct the respondent No.1 / respondent No.3 to re-
quantify / re-compute the income by conducting a fresh
and proper assessment for the Assessment Year 2003-04
to Assessment Year 2008-09 read together based on the
revised financial statements of petitioner for the year
ending 31st March, 2009 wherein the irregularities in the
financial statements pertaining to Assessment Year 2003-
04 to Assessment Year 2008-09 have been duly adjusted
as prior period adjustments;
(iv) to permit the petitioner to file revised returns for the
Assessment Year 2007-08 and Assessment Year 2008-09
based on the audited financial statements for the said
years read together with the audited financial statements
for the year ending 31st March, 2009 prepared pursuant to
the orders of the Company Law Board and thereafter
conduct a proper assessment excluding the fictitious sales
and fictitious interest income;
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(v) to declare the revised audited financial statements of the
petitioner which have been approved by the shareholders
for the year ended March, 31, 2009, wherein the
irregularities in the past financial statements have been
rectified as prior period adjustments, be the basis of
conducting assessment proceedings and any other
proceeding under the Income Tax Act, 1961 for the
Assessment Year 2003-04 to Assessment Year 2008-09;
(vi) to direct the respondents not to proceed with recovery of
tax till the income is computed / recomputed pursuant to
the reliefs sought in (ii), (iii) and (iv) above;
(vii) to declare the Assessment Orders for the Assessment Year
2002-03 to Assessment Year 2006-07 as illegal, void, ab
initio, and violative of Article 265 of the Constitution of
India;
(viii) to declare the Draft Assessment Order passed by the
respondent No.3 for the Assessment Year 2002-03 dated
18.08.2011 as illegal, void, ab initio, and violative of Article
265 of the Constitution of India;
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(ix) to declare the returns filed by the petitioner for the
Assessment Years 2002-03 as illegal, vitiated by fraud and
void ab initio and no reliance can be placed on the said
assessment proceedings; and
(x) to direct the respondent No.1 / respondent No.3 to re-
quantify / re-compute the income by conducting a fresh
and proper assessment for the Assessment Year 2002-03
based on the report of the Forensic Accountant dated
25.11.2016.
9. It has been pleaded that the petitioner Satyam Computer
Services Limited, was an Indian Information Technology (IT) services
Company headquartered in Hyderabad. Initially incorporated in the
year 1987 and converted from Private Ltd. to public Ltd. On
16.06.2011 with its main objective of business in software
consultancy, design and programming of electronic information
systems etc., it came out with IPO in 1992. The petitioner Company
has brought an IT revolution in India and grew to earn revenues of
over $2 Billion by 2008, employing 52,000 IT professionals worldwide.
Unfortunately, it became embroiled in India's biggest corporate
scandal in January, 2009 when its founder, Mr. Byrraju Ramalinga
Raju, admitted to falsifying corporate accounts and confessed to
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forging sales and interest income reports amount to Rs.5,040 crores,
leading to collapse in stock prices. The said confession was made by
the petitioner Company on 07.01.2009 and on the same day the
Government of India (for short, 'the GOI') intervened by filing a petition
before the Company Law Board (for short, 'the CLB') to suspend the
existing Board and take over the company's affairs. The intervention
by the Government was aimed to protect the interests of over 53,000
employees and nearly 3 lakh shareholders, and also to protect the
reputation of India's I.T. and corporate sector which had been severely
tarnished by the scandal.
10. Vide order dated 09.01.2009; the CLB approved the
Government's application and suspended the existing Board, and
appointed six eminent persons as Government of India's nominees on
the Board. Since then, the GOI actively managed the company from
09.01.2009 to 16.04.2009.
11. On 17.02.2009, in the light of petitioner Company's severe
financial distress, the GOI filed an application seeking induction of a
strategic investor into Satyam. In that context, the GOI raised a 600
crore loan to alleviate the company's financial hardship. Thereafter,
on 19.02.009, the CLB permitted the GOI to conduct a bidding process
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under the supervision of a former retired Chief Justice of India to
induct strategic investors to run the company's operations.
12. With the intervention of the GOI, and the subsequent orders
passed by the CLB, a retired Chief Justice of India, viz., Justice S.P.
Bharucha oversaw the bidding process and M/s. Tech Mahindra was
inducted into the petitioner Company as the successful bidder and
major shareholder of the petitioner Company. On 16.04.2009, the
CLB directed the successful bidder to infuse an amount of Rs.2,908
crores into the petitioner Company through share capital and loans.
The CLB also extended the time to file returns / documents with
various statutory authorities till 31.12.2009 and directed that no State
or Central Government agencies should initiate any Civil, Criminal,
Punitive or coercive actions against the petitioner Company.
13. Thereafter, M/s.Tech Mahindra participated in a competitive
bidding process and offered to pay a share price of Rs.58/- which was
approved by a retired Chief Justice of India and the CLB. The price
paid by M/s. Tech Mahindra had no bearing on the subject matter of
these petitions. Subsequently, the petitioner Company filed an
application before the CLB requesting an additional time for
preparation of financial statements and submission before the
appropriate authorities. This included requests for compliance under
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the Indian Companies Act and all other applicable laws, including
taxation laws. The GOI filed its response and stated that it had no
objection to these requests.
14. Taking into account the GOI affidavit, the CLB allowed the
application by extending the time of filing balance sheet, Profit & Loss
Account and any filing required under other applicable laws, including
taxation laws, to a date within thirty (30) days from the date of the
Annual General Meeting.
15. In the aftermath of the GOI's intervention and the CLB orders,
various governmental agencies, including the Central Bureau of
Investigation (CBI), Serious Fraud Investigation Office (SFIO),
Securities and Exchange Board of India (SEBI), Enforcement
Directorate (ED), Income Tax Department and Reserve Bank of India
were assembled to investigate into the fraud perpetrated by the former
management of the petitioner Company. The findings arrived at by
the said agencies corroborated the fraudulent activities of the former
Chairman and Managing Director of the petitioner Company, viz.,
Mr. Byrraju Ramalinga Raju, who was held responsible for causing
significant financial loss to the company. The reports also emphasized
that the Board of the petitioner Company was not aware of the true
financial condition of the company.
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16. On 20.09.2009, the CBI has filed a charge-sheet against
Mr. Byrraju Ramalinga Raju, the key accused in the Satyam case,
framing various charges under various sections of the Indian Penal
Code (IPC) including under Section 120-B r/w Section 409, Section
420, Section 467, Section 468, Section 471 and Section 477-A of the
IPC.
17. On 26.10.2010, the Hon'ble Supreme Court had reversed the
decision of the High Court of Andhra Pradesh to grant bail to the
accused and directing the accused to surrender by 10.11.2010. The
Hon'ble Supreme Court further directed the Trial Court to conduct
trial on a day-to-day basis and conclude it by 31.07.2011; and if the
trial is not concluded, the accused were allowed to file an application
for bail. It further stated that the Trial Court should remain
uninfluenced by any observations made by either the High Court or
the Supreme Court.
18. A Special Court was constituted pursuant to a direction issued
on administrative side to hear the CBI charge-sheet. The Hon'ble
Supreme Court directed that the learned Judge hearing the CBI case
in the Satyam scam shall not be transferred till the trial is concluded
and trial shall be conducted on day-to-day basis.
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19. The CBI filed three reports before the Special Court and the gist
of the report as per the CBI was : (i) the promoters dishonestly
credited additional tax liabilities and made tax payments on fictitious
income and further made the company, i.e., Satyam, suffer a loss to
the tune of ₹.126 crores which went detrimental to the interest of the
company; and (ii) the CBI also in its report held that the remaining
members of the Board were not aware of the true financial condition of
the company.
20. Based on the evidence that was brought before the Special Court
hearing the CBI case after this six year long trial, the CBI Court found
that : (i) the Company become a victim of fraud; (ii) the Board was not
aware of the true financial status of the company; (iii) based on
inflated and non-existent profits the Board was made to sign
fraudulent returns which led to payment of extra / higher tax; (iv) the
Court found the former Chairman and Managing Director, Mr. B.
Ramalinga Raju, to be the person who has committed criminal breach
of trust with the Company; and (v) the former Chairman and
Managing Director in fact was responsible for making dishonest tax
payment on fictitious income and disabled the company from raising
its lawful claim for refunds amounting to ₹.126.57 crores.
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21. Meanwhile, the Serious Fraud Investigation Office (for short,
'SFIO') conducted an elaborate investigation into the affairs of
M/s. Satyam Computers. In the course of the investigation, the SFIO
found that : (i) because of the action of the accused Mr. B. Ramalinga
Raju, the company had to pay excess tax and in the process he has
caused loss to the company to the tune of ₹.186.91 crores; and (ii) the
SFIO reiterated that it was not aware of the true financial status of the
company.
22. There was yet another criminal prosecution initiated at the
behest of Enforcement Directorate (for short, 'ED'). The ED initially
issued provisional attachment order attaching the fixed deposits of the
petitioner Company to the tune of ₹.822 crores. The provisional
attachment order was challenged before this High Court by way of
WPMP.No.47572 of 2012 in Writ Petition No.37487 of 2012 to grant
stay of the impugned Provisional Attachment Order, viz., PAO
No.4/2012 dated 18.10.2012 in ECIR/01/HZ0/2009 issued by
respondent No.1 and all consequential proceedings during the
pendency of the said Writ Petition. Vide order dated 11.12.2012, the
learned Single Judge granted stay of the above impugned Provisional
Attachment Order.
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23. Thereafter, the ED challenged the order of the learned Single
Judge by way of Writ Appeal No.133 of 2013 under Clause 15 of the
Letters Patent, aggrieved by the order of the learned Single Judge,
dated 11.12.2012, passed in W.P.M.P.No.47572 of 2012 in Writ
Petition No.37487 of 2012. However, the Division Bench of this Court,
vide order dated 31.12.2014, dismissed the said writ appeal. In the
course of deciding the same, the Division Bench held as was decided
in the earlier set of litigations referred to in the preceding paragraphs,
highlights of which are as follows : (i) the petitioner-Company, in spite
of the clear evidence of the income being highly inflated and the
Company being a victim of fraud, was made to pay dividends when the
petitioner Company "Satyam" was in fact incurring substantial loss,
and this resulted in an extra tax burden of ₹.39.86 crores for the
Financial Year 2007-08 alone; (ii) the petitioner Company was made to
pay income tax on inflated and non-existent profit and also on
fictitious income to the tune of ₹.126.57 crores; (iii) the benefits of
illegal flow of funds went into the coffers of the Income Tax
Department as a result of the illegal excess payment of tax based on
fictitious and non-existent income; (iv) the Division Bench also went to
the extent of holding that these excess payments of receipt of tax by
the Income Tax Department should actually be treated as proceeds of
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crime as the accused promoters not only got enrolled themselves but
also shared the gains with the Income Tax Department; (v) that for the
period between 2002-03 to 2008-09, the petitioner Company was
made to pay ₹.166.80 crores towards dividends whereas the division of
dividends itself for the said period was totally illegal; and (vi) the
Division Bench further observed that the payments made to the
Income Tax Department indicated that the petitioner Company
became the victim of fraud and was actually made to believe.
24. The aforesaid judgment of the Division Bench in Writ Appeal
No.133 of 2013, dated 31.12.2014, was subjected to challenge by the
ED before the Hon'ble Supreme Court vide S.L.P.(Criminal) Diary
No.30975 of 2019. After due consideration of the entire factual matrix
of the case, the Hon'ble Supreme Court dismissed the said S.L.P.
preferred by the ED and affirmed the judgment of the Division Bench,
dated 31.12.2014, passed in Writ Appeal No.133 of 2013.
25. Later, the ED again filed a criminal complaint against the
petitioner Company before the XXI Additional Chief Metropolitan
Magistrate-cum-Special Sessions Judge, Hyderabad under Section 3
of the Prevention of Money Laundering Act, 2002 and the said Court
took cognizance of the case vide Sessions Case No.1 of 2014, decided
on 25.04.2014. Aggrieved, the petitioner Company challenged the
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proceedings of the Sessions Court by filing Writ Petition No.17525 of
2014 before this Court. Vide order dated 22.12.2014 passed in Writ
Petition No.17525 of 2014, a Single Judge of this Court allowed the
said writ petition and quashed the criminal complaint lodged before
the above Sessions Court. While allowing the said Writ Petition, the
learned Single Judge has in very clear terms held that : (i) it was the
Government of India which had keenly and actively intervened
ensuring revival of the petitioner-company; (ii) the petitioner Company
had no knowledge of the alleged money laundering activities nor was
the petitioner Company involved in the commission of the offence
either directly or indirectly; (iii) the petitioner Company was a
successor company, and having succeeded after participating in a
transparent tender proceedings and the tender proceedings being
supervised by none other than by one of the retired Chief Justice of
India, that too much after the commission of the alleged offence; and
(iv) since the petitioner was a successor company it could not have
been fastened with greater liability or for that matter could not have
been prosecuted for any illegalities committed by the persons who
were at the helm of affairs of petitioner Company at the time of
commission of the offence.
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26. The learned Single Judge went on to hold that for the offences
committed by the person at the helm of affairs of the petitioner
Company at the relevant point of time cannot be saddled upon or
attributed upon to the petitioner-company. However, the order of the
learned Single Judge in Writ Petition No.17525 of 2014, dated
22.12.2014, was subjected to challenge before the Hon'ble Supreme
Court vide S.L.P.(Criminal) No.34143 of 2017.
27. The Hon'ble Supreme Court vide order dated 08.12.2017
dismissed the said S.L.P. validating the order passed by the learned
Single Judge in Writ Petition No.17525 of 2014, dated 22.12.2014,
insofar as quashing of the complaint lodged under Prevention of
Money Laundering Act, 2002 is concerned. Meanwhile, the SFIO filed
a criminal complaint before the Special Economic Offences, viz.,
C.C.Nos.394 and 400 of 2009 on the file of the learned Special Judge
for Economic Offences, Hyderabad : C.C.No.394 of 2009 was
registered for violation of provisions of Section 309 of the Companies
Act, 1956 (for short 'the Act') i.e., failure of respondent No.1 Company
to obtain the opinion of the Central Government before payment of
remuneration to one of its Directors. C.C.No.400 of 2009 was
registered for violation of provisions of Section 220(1) read with
Section 162 of the Act, alleging violation of Section 309 of the
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Companies Act, 2013. In due course of time, the matter travelled to
the High Court which in turn remitted the matter to the Company Law
Board (for short, 'the CLB') for fresh reconsideration highlighting the
fact that the company has already been found to be a victim of fraud
and that too it was played by the previous management, and not by
the petitioner. After remand, the Company Law Board, Chennai, vide
order dated 16.10.2012, in Company Application Nos.233 and
234/621A/CB/2010, allowed the application filed by the petitioner
Company for compounding of the offence. Thereafter, aggrieved by the
said order, the SFIO subjected the above order to challenge before the
High Court by way of filing Company Appeal Nos.4 and 5 of 2014.
Vide order dated 23.06.2014 in Company Appeal Nos.4 and 5 of 2014,
a learned Single Judge of this Court dismissed the said appeals
holding that : "It would therefore be wholly inequitable to subject the
revamped company to needless criminal prosecutions when it has
gracefully decided to put a quietus to the vexing problem of prosecution.
It would be a travesty of justice, if the Company, after its revamp is
subjected to persecution."
28. From the aforesaid given factual matrix of the case, it stands
settled by a series of decisions by the High Court under various
provisions of law all of which have also been affirmed by the Hon'ble
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Supreme Court confirming certain facts like financial embezzlement or
fraud by the petitioner Company, which was primarily run by its then
Chairman-cum-Managing Director, Mr. B. Ramalinga Raju, who was
the key accused. It is also by now well accepted by all the Courts that
Board of the petitioner Company was, in fact, not made known of the
actual financial status of the company. It also stood established and
confirmed by a series of judgments by the High Court that excess tax
has been paid by M/s. Satyam Computer Services Limited based on
non-existent profits shown in the returns filed by the said company.
It was also held in a series of litigation that it was the former
Chairman and Managing Director, viz., Mr. B. Ramalinga Raju, who
had made dishonest tax payments based on fictitious income and
disabled the company from raising its lawful claim of refunds.
29. Based on the said finding fact in a series of litigation by the
Court with its approval by the Hon'ble Supreme Court, learned
counsel for the petitioners contended that the stand of the Income Tax
Department amounts to frustrating the concerted and extra-ordinary
efforts made by the Government of India in the revival of the
petitioner-company. It was also the contention of the learned counsel
for the petitioners that there is a series of finding of fact of there being
fictitious income reflected in the return submitted by M/s. Satyam
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Computers. Yet, the Income Tax Department inexplicably seeks to
deny the stand taken by the learned counsel for the petitioners insofar
that excess tax has been paid. The Income Tax Department also, in
spite of all these admitted factual matrix of the case, was denying
deduction that M/s. Satyam Computers was entitled to under Section
10(a) on its actual / real income. At the same time, the Income Tax
Department also seeks to levy income tax on non-existent and
fictitious income.
30. The Government of India (GOI) appointed Board of Satyam
Computer Services Limited (the Company or SCSL), therefore sought
the permission from the Company Law Board (CLB):
i. An extension of the timeline from the CLB to prepare the
financial statements for the Financial Year 2008-09, which will
provide a true and fair view of the affairs of the company as on
31st March, 2009;
ii. The impact of errors, omissions, irregularities and
misstatements which are brought out by the Government
appointed investigating agencies - CBI, SFIO and the forensic
accountants (KPMG) appointed by the Government appointed
Board to be reflected as "Prior Period Item" as per applicable
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accounting standards in the accounts for the Financial Year
2008-08; and
iii. The accounts would be audited by Deloitte Haskin & Sales
(Deloitte), the statutory auditors, and be presented to the Annual
General Meeting for approval within an extended time.
31. The CLB approved the Company's prayer (Order in C.A.No.527 of
2009 and C.A.No.330 of 2009) and the Company prepared the
accounts for the Financial Year 2008-09 reflecting the impact of fraud
as a Prior Period Item. The accounts were audited by Deloitte (the
audit report was dated 29th September, 2010). The shareholders
adopted the audited accounts in the AGM held on 21st December,
2010.
32. As the Income Tax Act provides a year wise assessment of
income, it was considered prudent to compute the profit & loss
accounts and balance sheet for the Financial Year 2001-02 to 2007-08
year wise by splitting "prior period item" and "Opening Balance
Difference" as reported in the audited accounts for the Financial Year
2008-09 based on the report of the forensic accountant.
33. The Company engaged B K Khare & Co., Chartered Accountants
who are Tax Auditors of Tech Mahindra Ltd. (which acquired SCSL) to
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perform "Agreed Procedures" (AUP) in accordance with the Stands on
Related Services (SRS 4400) "Engagements to Perform Agreed Upon
Procedures regarding financial information" issued by the Institute of
the Chartered Accountants of India. The AUP was carried out to
provide corrected profit / loss and balance sheet for the Financial Year
2001-02 to 2007-08 as the audited accounts would have presented if
the re-audit were to be allowed under the Companies Act (As stated
earlier, the Companies Act 1956 did not contain a provision for re-
audit. The provision was introduced in the Companies Act, 2013 w.e.f.
1st April, 2016).
34. The procedure agreed to be followed, which is fully described in
the AUP Reports, is briefly mentioned below:
a) The Company started with the published financial statements
audited by Price Waterhouse (PwC). PwC had issued a letter
stating that these accounts should not be relied upon after the
discovery of accounts fraud.
i. The company adjusted each item of the profit & loss
account and the balance sheet based on the report of the
forensic accountants for each of the above financial years.
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ii. B K Khare & Co. checked the above procedure and issued
reports for each of the years i.e. Financial Years 2001-02 to
2007-08.
iii. By following the procedures described above, SCSL
computed revised Profit & Loss and Balance Sheet for the
Financial Year 2001-02 to 2007-08, mirroring the audited
accounts if re-audit were possible.
35. The company has also obtained revised Form 56F certificates
giving the correct quantification of deduction to be claimed under
Section 10A/10AA of the Act. The certificates have been issued by
BSR and Associates and BSR & Co., a reputed firm of Chartered
Accountants.
36. All this would enable Income Tax Authorities to assess the
correct income of SCSL - post adjustment of fictitious income,
considering the revised deduction under Section 10A / Section 10AA
basis certificate evidencing genuine exports and granting credit for
genuine FTC.
37. The petitioner Company approached the CBDT to take into
account the actual income. The petitioner Company submitted all the
returns filed by the former management and the consequent
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assessment orders were based on the inflated income and therefore
were inter alia vitiated by fraud.
38. On 10.03.2011, the CBDT refused to grant relief on the ground
that:
a) The CBDT did not have jurisdiction to intervene once after an
assessment attained finality since there was no provision in the
law to reopen such assessments;
b) Reconstruction of financials suffer from severe infirmities and
the same cannot be relied upon to reach any conclusion as to its
real incomes for the relevant years; and
c) The fate of criminal cases against the accused is yet to attain
finality so as to hold them actually or vicariously liable for the
affairs of the company.
39. When the CBDT refused to grant the said relief, the petitioner
approached the High Court of Andhra Pradesh by filing Writ Petition
No.7718 of 2011 and subsequently the Hon'ble Supreme Court. After
taking into account the SFIO findings on the existence of fictitious
income and in view of the peculiar facts and circumstances of the
case, the Hon'ble Supreme Court directed the CBDT to consider the
petitioner's case for re-quantification / re-assessment (Satyam
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Computer Services Limited vs. Central Board of Direct Taxes and
Others 1)
40. Pursuant to the aforesaid direction given by the Hon'ble
Supreme Court, the petitioner Company approached the CBDT with
yet another comprehensive petition seeking for invocation of the
powers under Section 119(1) of the Income Tax Act. Through the said
petition, the petitioner Company had sought for re-scrutiny of the
accounts or in other words, the re-quantification / re-computation of
the incomes for the assessment years 2003-04 to 2008-09 which also
included the reopened assessment years. Such a request was made
with an intention of correcting the fraudulent and fictitious income
assessment made during all these periods and which stands
established from the orders passed by various judicial and quasi-
judicial authorities.
41. It is these petitions which have been rejected vide the impugned
order dated 11.07.2011 by the CBDT which has led to filing of the
main case i.e. Writ Petition No.23255 of 2011. The CBDT held that:
a) For each assessment year, assessment / reassessment
proceedings are pending before the AO. Therefore, the petitioner
Company can agitate the issues before the AO;
(2011) 15 Supreme Court Cases 522
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b) The power under Section 119 is not available to the petitioner;
c) The relief under Section 119(2)(b) is also not available to the
petitioner Company since it has not been proved by the
Department or the CBI and ED that the petitioner Company has
suffered genuine hardship;
d) SFIO report cannot be relied upon;
e) There is no conclusive evidence that can be drawn from the
forensic investigation report; and
f) The criminal prosecution is pending. Therefore, the CBI reports
cannot be relied upon.
42. After rejection of the aforesaid petition under Section 119(1) of
the Income Tax Act, the respondent authorities issued assessment
orders for the year 2002-03 and assessment year 2007-08. It is these
orders which were challenged in Writ Petitions vide Writ Petition
No.1726 of 2011 for the assessment year 2002-03, Writ Petition
No.17568 of 2011 for the assessment year 2007-08, Writ Petition
No.19622 of 2011 against the order of reopening of assessment for the
assessment year 2002-03 and Writ Petition No.3906 of 2011 against
the order of attachment of assets for the assessment year 2002-03 to
2008-09.
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43. According to the petitioner Company, it had approached the
CBDT to take a holistic view of the matter and ensure that the Income
Tax department acted in concert with the other authorities of the
Government of India and in accordance with law. The reason why the
petitioner Company had approached the CBDT was for appropriate
instructions, directions as it may deem fir for the proper
administration of the Act and thereby direct the assessments
(fraudulently obtained / made by virtue of assessing non-existent
income) be corrected so as to ensure that only actual / real income of
the petitioner Company be charged to tax in accordance with the law
and the mandate of Article 265 of the Constitution of India.
44. The contention of the petitioner Company also was that the
requirement for re-scrutiny or re-quantification was enabling the Tax
Department to actually determine and fresh assessment be made
considering the re-stated accounts prepared by B K Khare & Co.
Chartered Accountants pursuant to the CLB order dated 16.10.2019
following "Agreed Upon Procedures (AUP)" in accordance with the
"Standards of Related Services (SRS 4400)". The concerned Chartered
Accountants firm carried out the audit by providing corrected Profit &
Loss and Balance Sheet for the assessment year 2001-02 to 2007-08.
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45. It was contended by the petitioner that there is no evidence of
fictitious income even though there was a finding of the SFIO to that
effect at that time. It was further contended that until the criminal
Court comes to a finding it could not accept the plea of fraud. It was
further contended that CBDT has in exercise of its jurisdiction rejected
the report of SFIO as being "far-fetched" and apart from this serious
impropriety it is also impermissible for one Department of Government
of India not to follow the report of another Department.
46. It was also the contention of the petitioner that CBDT has
erroneously stated that there was no evidence of fictitious income and
this statement alone is sufficient to quash the order. When the Union
of India took emergency steps to superside the Board the later
appointed a retired Chief Justice to conduct the bid process and
prayed for forensic and fresh audit, the CBDT was in serious error in
giving a finding that there was no bogus income.
47. It was the contention of the learned Senior Counsel for the
petitioner that from the decisions that have been taken by the High
Court referred to in the earlier paragraphs, it stands undisputed so far
as the existence of fraud which came to light on the letter issued by
the former Chairman, Mr. Ramalinga Raju. It was also an undisputed
fact that, on account of the inflated income the petitioner has suffered
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genuine hardship for the subsequent assessment years. The hardship
grew because of denial of deductions on : (a) genuine export income;
(b) foreign tax credit; and (c) genuine expenditure which the company
had made and incurred during regular course of business during the
said period of time when inflated incomes were shown in the books of
account.
48. It was also the contention of the learned Senior Counsel for the
petitioner that once when the aforesaid facts stood undisputed or goes
un-denied, the petitioner Company becomes a victim of fraud. The
entire assessment made during the said period stands vitiated by
fraud, and deductions on fictitious income and deductions on genuine
income and genuine expenditure stood disallowed.
49. Another contention which the learned Senior Counsel for the
petitioner harped upon was that on the very same set of facts for the
Assessment Year 2009-10 and 2010-11, the Income Tax Department,
taking into consideration the observations of the Company Law Board
for the said assessment year permitted the petitioner to file revised
returns with delay, and therefore, there was no reason whatsoever
why the Income Tax Department should reject the permission sought
by the petitioner for revision of the assessment made for the previous
period so as to present the actual returns. In fact, the Income Tax
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Department had acknowledged the genuine hardship suffered by the
petitioner for the Assessment period 2009-10 and 2010-11 and
invoked the provisions of Section 119(2) of the Income Tax Act.
50. Learned Senior Counsel appearing on behalf of the petitioner
strongly contended that the fact that the Income Tax Department
accepts the hardship suffered by the petitioner for the Assessment
Years 2009-10 and 2010-11 and at the same time refused to accept
the same contention for the earlier period is nothing but an arbitrary
act on the part of the Income Tax Department and also reflects that
the Income Tax Department has taken a selective cognizance of the
fraud. According to the learned counsel for the petitioner, the issue of
existence of fictitious income has by now been accepted in a series of
litigation under the various statutes both under Civil law jurisdiction
as also under the Criminal law jurisdiction; and even then the Income
Tax Department refuses to accept the application filed by the
petitioner under Section 119(2) of the Income Tax Act. It was the
further contention of the learned Senior Counsel for the petitioner that
the grounds which have been relied upon by the Income Tax
Department do not have force to sustain, as all the cases which were
initiated against the petitioner subsequent to the letter dated
07.01.2009 addressed by the Ex-Chairman, Mr. Ramalinga Raju, were
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all decided in favour of the petitioner Company holding them to be not
responsible for any of the allegations, charges and contentions leveled
against them. Hence, in the light of the cases getting dropped, it
stands proved and admitted so far as the fictitious income and the
statement of account all at the hands of the erstwhile Chairman of the
petitioner-Company, who himself was to be blamed for all the
illegalities and which simultaneously proves that the petitioner
Company was paying income tax for a considerable period till now on
fictitious and non-existing income. According to the learned Senior
Counsel appearing for the petitioner, it was on these set of facts that
they have moved a petition before the respondent-Authorities for re-
assessment of their income based upon the actual business
transactions that have transpired during the relevant point of time.
51. According to the learned Senior Counsel appearing for the
petitioner, it was only with an intention of putting the records straight
in respect of the actual income tax expenditure of the company during
the relevant assessment years rather than fictitious income,
expenditure and the tax paid on the said fictitious income and
expenditure. According to him, they are more concerned about the
actual returns being rectified based on the actual business
transactions and that they are not very particular about refund of any
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excess income tax that they have paid on the fictitious income and
expenditure that stood reflected in the statement of accounts and on
which the income tax was paid.
52. Per contra, the learned Additional Solicitor-General, appearing
for the Income Tax Department, contended that when petitioner has
filed the application under Section 119 of the Income Tax Act before
the Central Board of Direct Tax (C.B.D.T.) there were lot of
proceedings pending consideration before different Forums including
cases initiated by the Central Bureau of Investigation (C.B.I.),
Enforcement Directorate (E.D.), etc. Therefore, in the teeth of pending
proceedings, it was not possible for the Income Tax Department to
have accepted the application of petitioner. He further contended that
allowing the prayer made by the petitioner under Section 119 would
amount to digging up old graves and in the process unsettle all that is
settled. It was also his contention that even otherwise, the relief
sought for by the petitioner was not firstly permissible nor does
Section 119 of the Income Tax Act provide for such a power upon the
Income Tax authorities or the C.B.D.T., in particular. It was also the
contention of the learned Additional Solicitor General, appearing for
the respondents, that the application of the petitioner for
reassessment of the Income Tax returns of the company could not be
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permitted at that point of time for the reason that a petition filed
under Section 264(3) to the Commissioner for the Assessment Years
2003-04 to 2006-07 stood rejected on 22.07.2010 against which the
petitioner Company has rightly preferred an appeal and pending the
appeal, the prayer sought for by the petitioner for revising of the
returns was not permissible.
53. The learned Additional Solicitor General further referred to the
earlier stand of the petitioner Company while re-opening the
Assessment for the year 2002-03 onwards where the petitioner
Company has taken a stand requesting the Income Tax Department to
treat the return earlier filed for the respective years as valid returns for
re-assessment, and after taking such a stand the petitioner Company
could not have repeated the prayer for a further re-assessment.
54. The learned Additional Solicitor-General referred to proviso to
Clause (1) of Section 119 of the Income Tax Act contending that the
proviso itself does not permit the C.B.D.T. to issue instructions
requiring the Income Tax authority to act in a particular manner so far
as assessment is concerned. In the teeth of the said proviso,
according to the learned Additional Solicitor-General, the Income Tax
Department was justified in rejecting the prayer of the petitioner-
Company, more particularly, when the applications and requests are
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made at an inordinately belated stage by which time the accounts
submitted by the petitioner Company have attained finality by efflux of
time. He, however, submitted that realizing the genuine hardship that
the petitioner Company was put to; their claims for the Assessment
Years 2009-10 and 2010-11 have been accepted. However, for the
period for which there was no strong, cogent reasons available with
them, the Income Tax Department could not have permitted the
request so made.
55. The learned Additional Solicitor General contended that the
claims raised by the petitioner of the assessment orders being vitiated
by fraud is factually and illegally incorrect and is also in contravention
to the material on record. According to the learned Additional Solicitor
General, the term "fraud" has been distinctly defined under the
provisions of the Indian Penal Code, 1860, and the ingredients
required to make out a case of fraud is missing from the pleadings.
According to the learned Additional Solicitor General, the case of the
petitioner is only in respect of inflated figures of fictitious income as is
reflected from the letter dated 07.01.2009 issued by the then
Chairman, Mr. Ramalinga Raju.
56. It was contended by the learned Additional Solicitor General that
the petitioner Company had taken over the Company by participating
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in the bid knowing fully well all the contents of the letter of the then
Chairman of M/s. Satyam Computer Services Limited and when they
had participated in the bid were declared successful they were
conscious of the consequences that they were likely to face, and
therefore, the contention of the petitioner of they being sufferer of
unprecedented fraud in the course of taking over the petitioner
Company is totally incorrect.
57. The learned Additional Solicitor General reiterated the
contention of the claim of the petitioner to declare the assessment
orders which has by efflux of time attained finality as null and void to
be impermissible under the Income Tax Act and further submitted
that such a relief as sought for could not had been granted by the
CBDT as it is beyond its scope and powers. The learned Additional
Solicitor General also submitted the prayer of the petitioner to recall
the assessment orders and to condone the delay in the course of
passing of the recalling order and further prayer of the petitioner to
permit them to file revised return are all beyond the scope of the
statute i.e. the Income Tax Act, particularly when each of these reliefs
sought for are specifically governed by specified provisions under the
Income Tax law and it does not permit for granting such a relief at this
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belated stage. Moreover, there is no provision for recalling of the
assessment orders under the Income Tax Act.
58. According to the learned Additional Solicitor General, the
provisions for submission of revised return is one which is envisaged
under Section 139(5) of the Income Tax Act and it provides for the
specific provisions in respect of the same and no such case has been
made out by the petitioner.
59. It was also the contention of the learned Additional Solicitor
General that for certain assessment years the Assessing Officer has
already initiated proceedings under Section 154 and orders have also
been passed which are subject matter of appeal filed on behalf of the
petitioner and therefore no such direction can be sought by the
petitioner, nor can such a relief be granted by the CBDT. According
the learned Additional Solicitor General, the revision of the
assessment order by a Commissioner is permissible strictly in
accordance with the provisions of Section 264 which is itself a self-
contained provision and the CBDT as such does not have the power to
issue any such direction for the Commissioner either of facts or on
law.
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60. Relying upon the entire submissions made, it was summed-up
by the learned Additional Solicitor General that the entire claim of the
petitioner under no stretch of imagination can be brought within the
purview of a direction which could be issued for proper administration
of the statute. Further, it was also contended that the prayers raised
by the petitioner also is specifically barred or is prohibited to be issued
considering the twin conditions as is reflected in the proviso to Section
119(1) of the Income Tax Act.
61. Thus, for all the aforesaid submissions, the learned Additional
Solicitor General prayed for dismissal of these writ petitions.
62. Upon hearing the Counsel representing the petitioner Company
in all these bunch of writ petitions and also considering the
contentions put forth by the learned Additional Solicitor General on
behalf of the respondents, the entire factual matrix as has been
narrated by the petitioner is 1) in respect of the financial position of
M/s. Satyam Computer Services Limited is not in dispute so far as the
entire controversy starting from the open letter that was issued by the
then Chairman Mr. Ramalinga Raju 2) in respect of inflated and
fictitious figures reflected in the books of accounts showing fictitious
sales and income and interest income 3) in respect of the Company
having paid income tax on this inflated figures based upon the
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fictitious sales and interest income 4) in respect of the prosecution
initiated against the petitioner Company having been quashed by the
High Court under more than a couple of jurisdictions, all of which
have already been reflected in the preceding paragraphs 5) in respect
of the Income Tax Department permitting the submission of the
revised return for the assessment year 2009-10 and 2010-11.
63. Based upon these admitted factual matrix, the points for
consideration in these bunch of writ petitions would be:-
1) Whether the respondents were justified in rejecting the
application put forth by the petitioner before the CBDT under
Section 119(1) of the Income Tax Act?
2) Whether such relief as has been sought by the petitioner can be
granted invoking the extraordinary writ jurisdiction conferred
upon the High Court under Article 226 of the Constitution of
India?
64. Before referring to the various judicial precedents in the course
of testing the veracity of the order passed by CBDT dated 11.07.2011,
it would be relevant to refer to the provision of Section 119(2)(b) of the
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Income Tax Act, 1961. For ready reference, the same is reproduced
herein under, viz.,
"(2) Without prejudice to the generality of the foregoing power,-
(a) ...... ..... ...
(b) the Board may, if it considers it necessary or expedient so to
do, for the purpose of proper and efficient management of the work
of assessment and collection of revenue, issue, from time to time
(whether by way of relaxation of any of the provisions of sections
115P, 115S, 115WD, 115WE, 115WF, 115WG, 115WH, 115WJ,
115WK, 139, 143, 144, 147, 148, 154, 155, 158BFA, sub-section
(1A) of section 201, sections 210, 211, 234A, 234B, 234C, 234E,
95[234F,] 270A, 271, 271C, 271CA (and 273 or otherwise),
general or special orders in respect of any class of incomes or
fringe benefits or class of cases, setting forth directions or
instructions (not being prejudicial to assessees) as to the
guidelines, principles or procedures to be followed by other
income-tax authorities in the work relating to assessment or
collection of revenue or the initiation of proceedings for the
imposition of penalties and any such order may, if the Board is of
opinion that it is necessary in the public interest so to do, be
published and circulated in the prescribed manner for general
information;"
65. The Hon'ble Supreme Court in the recent past dealing with the
powers vested upon the CBDT has laid down certain judicial
precedents, which are as under, viz.,
65.1 In the case of State of Kerala and Others vs. kurian Abraham
(P) Ltd. and another 2, the Hon'ble Supreme Court held in paragraph
Nos.23 and 25 as under, viz.,
(2008) Supreme Court Cases 582
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"23. Policy decisions have to be taken by the Government.
However, the Government has to work through its senior officers
in the matter of difficulties which the business may face,
particularly in matters of tax administration. That is where the
role of the Board of Revenue comes into play. The said Board
takes administrative decisions, which includes the authority to
grant administrative reliefs. This is the underlying reason for
empowering the Board to issue orders, instructions and directions
to the officers under it.
25. One more aspect needs to be mentioned. Provisions of Section
3(1-A) are similar to the provisions of Section 119(1) of the Income
Tax Act, 1961 (the 1961 Act) inasmuch as both the sections have
used the expression "for the proper administration of this Act".
According to Law of Income Tax by Kanga and Palkhivala, the
Board is entrusted with the power to give effect to the provisions
of the Act and to provide "fair and just administration" in the
matter of imposition and collection of tax. This is where it becomes
the incumbent duty of the Board to grant administrative relief in
appropriate cases. In such exercise, incidentally the Board has to
consider the effect of the items enumerated in the entry.
Therefore, it is not open to the State Government to contend that
the Board in this case had entered into an area which is
earmarked for the legislature/executive. In our view, the said
circular grants administrative relief to the business. It was
entitled to do so. Therefore, it cannot be said that the Board had
acted beyond its authority in issuing the said circular. One more
reason needs to be stated. Whenever such binding circulars are
issued by the Board granting administrative relief(s) business
arranges its affairs relying on such circulars. Therefore, as long
as the circular remains in force, it is not open to the subordinate
officers to contend that the circular is erroneous and not binding
on them."
65.2 The Hon'ble Supreme Court in the case of Corporation Bank vs.
Saraswati Abharansala and Another 3 held at paragraph Nos.19 and
20 as under, viz.,
(2009) 1 Supreme Court Cases 540
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"19. Article 265 of the Constitution of India mandates that no
tax shall be levied or collected except by authority of law. In
terms of the said provision, therefore, all acts relating to the
imposition of tax providing, inter alia, for the point at which the
tax is to be collected, the rate of tax as also its recovery must be
carried out strictly in accordance with law.
20. If the substantive provision of a statute provides for refund,
the State ordinarily by a subordinate legislation could not have
laid down that the tax paid even by mistake would not be
refunded. If a tax has been paid in excess of the tax specified,
save and except the cases involving the principle of "unjust
enrichment", excess tax realised must be refunded. The State,
furthermore is bound to act reasonably having regard to the
equality clause contained in Article 14 of the Constitution of
India."
65.3 A similar view was also taken earlier in the case of Union of
India and Another vs. Azadi Bachao Andolan and Another 4 where a
circular was issued by CBDT under Section 119 of the Income Tax
Act, 1961. It was challenged inter alia on the ground that it was ultra
vires the provisions of Section 19(1). The argument was rejected by the
Supreme Court holding that:
"47. It was contended successfully before the High Court that
the circular is ultra vires the provisions of Section 119. Sub-
section (1) of Section 119 is deliberately worded in a general
manner so that CBDT is enabled to issue appropriate orders,
instructions or directions to the subordinate authorities 'as it
may deem fit for the proper administration of this Act'. As long
as the circular emanates from CBDT and contains orders,
instructions or directions pertaining to proper administration of
the Act, it is relatable to the source of power under Section 119
AIR 2004 SUPREME COURT 1107
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irrespective of its nomenclature. Apart from sub-section (1), sub-
section (2) of Section 119 also enables CBDT
'for the purpose of proper and efficient management of the
work of assessment and collection of revenue, to issue
appropriate orders, general or special, in respect of any
class of income or class of cases, setting forth directions or
instructions (not being prejudicial to the assessees) as to
the guidelines, principles or procedures to be followed by
other Income Tax Authorities in the work relating to
assessment or collection of revenue or the initiation of
proceedings for the imposition of penalties'.
In our view, the High Court was not justified in reading the
circular as not complying with the provisions of Section 119.
The circular falls well within the parameters of the powers
exercisable by CBDT under Section 119 of the Act."
65.4 Again in the case of Commissioner of Income Tax vs. Punalur
Paper Mills Ltd., 5 in paragraph No.3 it was held as under, viz.,
"The Board of Revenue is competent to issue circulars under
Section 119 of the Income Tax Act. The circulars so issued have
got the force of law. All officers of the Department are bound by
the said circulars. The benevolent circulars issued by the Board
are in the nature of administrative relief. They really "supplant"
the law. The circular can afford administrative relief even
beyond the relevant terms of the statute. It can deviate from the
provisions of the Act."
65.5 In the case of Bombay Mercantile Co-op Bank Ltd. vs. Central
Board of Direct Taxes, Ministry of Finance and Others 6, the High
Court of Bombay held at paragraph Nos.7 and 8 as under, viz.,
[1988] 170 ITR 37 (KER)
2010 SCC OnLine Bom 1387
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"7. As can be seen from the reading of the said provision the
Board is vested with the power to admit any application after
the expiry of the period specified by or under this Act if
sufficient grounds are made out. In our view, therefore, the
said reason mentioned by the petitioner in its application,
deserves to be accepted. The other reasons cited for
condonation of delay, therefore, need not be gone into as the
petitioner in our view, would be entitled to condonation of delay
on the said ground alone.
8. It is well settled that in matters of condonation of delay a
highly pedantic approach should be eschewed and a justice-
oriented approach should be adopted and a party should not
be made to suffer on account of technicalities."
65.6 In the case of Ex-Capt. Harish Uppal vs. Union of India and
Another 7, the Hon'ble Supreme Court held in paragraph No.30 as
under, viz.,
"30. No body or authority, statutory or not, vested with powers
can abstain from exercising the powers when an occasion
warranting such exercise arises. Every power vested in a public
authority is coupled with a duty to exercise it, when a situation
calls for such exercise. The authority cannot refuse to act at its
will or pleasure. It must be remembered that if such omission
continues, particularly when there is an apparent threat to the
administration of justice and fundamental rights of citizens i.e.
the litigating public, courts will always have authority to compel
or enforce the exercise of the power by the statutory authority.
The courts would then be compelled to issue directions as are
necessary to compel the authority to do what it should have done
on its own."
65.7 The High Court of Karnataka in the case of Dr. (Smt.) Sujatha
Ramesh vs. Central Board of Direct Taxes, New Delhi 8 held at
paragraph Nos.12 and 13 as under, viz.,
(2003) 2 Supreme Court Cases 45
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"12. The wide powers of the Central Board of Direct Taxes or
other higher authorities of the Department to whom such powers
can be delegated under Section 119 of the Act, Date of Order 24-
10-2017 W.P.No.54672/2015 Dr.(Smt.)Sujatha Ramesh Vs.
Central Board of Direct Taxes and another. need not always take
only a pro revenue approach in such matters. Their approach in
such cases should be equitious, balancing and judicious which
should reflect the application of mind to the facts of the case and
before denying the genuine claim of the assessee on the grounds
of mere delay in making such claim, something more than the
user of innocuous terms as employed in the present case, should
be forthcoming. Technically, strictly and literally speaking, the
Board might be justified in denying the exemption from capital
gains tax by rejecting such condonation application, but an
assessee, who substantially satisfies the condition for availing
such exemption should not be denied the same, merely on the bar
of limitation, especially, when the legislature has conferred wide
discretionary powers to condone such delay on the highest
executive authority of the Central Board of Direct Taxes under the
Act.
13. The general and wide powers given to the Board in this
regard, "if it considers it desirable or expedient so Date of Order
24-10-2017 W.P.No.54672/2015 Dr.(Smt.)Sujatha Ramesh Vs.
Central Board of Direct Taxes and another. to do for avoiding
genuine hardship in any case.....", not only gives wide powers to
the Board, but confers upon it a obligation to consider facts
relevant for condonation of delay as well as the merit of the claim
simultaneously. If the claim of exemption or other claim on merits
is eminently a fit case for making such claim, it should not
normally be defeated on the bar of limitation, particularly, when
the delay or the time period for which condonation is sought is not
abnormally large. It will of course depend upon the facts of the
each case, where such a time period or the merit of the claim
deserves such exercise of discretion in favour of the assessee
under Section 119 (2)(b) of the Act or not and therefore, no straight
jacket formula or guidelines can be laid down in this regard.
However, such orders passed by the Central Board of Direct
Taxes being a quasi-judicial order is always open to judicial
review by the higher constitutional courts. If the good conscience
of the Courts is pricked, even though such orders rejecting the
[2017] 87 taxmann.com 228 Karnataka
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claims on the bar of limitation may appear to be prima facie
tenable, the Courts may exercise Date of Order 24-10-2017
W.P.No.54672/2015 Dr.(Smt.)Sujatha Ramesh Vs. Central Board
of Direct Taxes and another. their jurisdiction to set aside such
orders and allow the claims on merits, setting aside the bar of
limitation."
66. Dealing with the relevancy of collecting tax on the real income
and the actual expenses incurred on the raid not to be collected under
any circumstances on inflated or unrealistic entries made in the books
of accounts, the Hon'ble Supreme Court laying down certain
precedents has held as under.
66.1 In the case of Deputy Commissioner of Income Tax vs.
T. Jayachandran 9, the Hon'ble Supreme Court in paragraph Nos.16,
18 and 19 held as under, viz.,
"16. The conduct of the respondent in the transaction in
question cannot be termed to be strictly within the normal
course of business and the irregularities can be noticed from
the manner in which the whole transactions were conducted.
However, the same cannot be the basis for holding the
respondent liable for tax with regard to the sum in question and
what is required to be seen is whether there accrued any real
income to the respondent or not.
18. We do not find any force in the contention of the appellant
herein as the High Court has not held that the findings of the
criminal court are binding on the Revenue Authorities. Rather
the High Court was of the view that the findings arrived at by
the criminal court can be taken into consideration while
deciding the question as to the relationship between the parties
to the case. When the findings are arrived at by a criminal court
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on the evidence and the material placed on record then in the
absence of anything shown to the contrary, there seems to be
no reason as to why this duly proved evidence should not be
relied upon by the Court.
19. The income that has actually accrued to the respondent is
taxable. What income has really accrued is to be decided, not
by reference to physical receipt of income, but by the receipt of
income in reality."
66.2 In the case of Godhra Electricity Co. Ltd. vs. Commissioner of
Income Tax, Gujarat-II, Ahmedabad 10 the Hon'ble Supreme Court in
paragraph Nos.13, 14 and 22 held as under, viz.,
"13. Under the Act income charged to tax is the income that is
received or is deemed to be received in India in the previous
year relevant to the year for which assessment is made or on
the income that accrues or arises or is deemed to accrue or
arise in India during such year. The computation of such
income is to be made in accordance with the method of
accounting regularly employed by the assessee. It may be
either the cash system where entries are made on the basis of
actual receipts and actual outgoings or disbursements or it may
be the mercantile system where entries are made on accrual
basis, i.e., accrual of the right to receive payment and the
accrual of the liability to disburse or pay. In CIT v. Shoorji
Vallabhdas and Co. [(1962) 46 ITR 144 (SC)] it has been laid
down: (ITR p. 148)
"... Income tax is a levy on income. No doubt, the Income
Tax Act takes into account two points of time at which the
liability to tax is attracted, viz., the accrual of the income or
its receipt; but the substance of the matter is the income. If
income does not result at all, there cannot be a tax, even
though in book-keeping, an entry is made about a
'hypothetical income', which does not materialise."
(1997) 4 Supreme Court Cases 530
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14. This principle is applicable whether the accounts are
maintained on cash system or under the mercantile system. If
the accounts are maintained under the mercantile system what
has to be seen is whether income can be said to have really
accrued to the assessee company. In H.M. Kashiparekh & Co.
Ltd. v. CIT [(1960) 39 ITR 706 (Bom)] the Bombay High Court
had said:
"... Even so, (the failure to produce account losses) we shall
proceed on the footing that, the assessee company having
followed the mercantile system of account, there must have
been entries made in its books in the accounting year in
respect of the amount to commission. In our judgment, we
would not be justified in attaching any particular
importance in this case to the fact that the company
followed mercantile system of account. That would not have
any particular bearing in applying the principle of real
income in the facts of this case."
22. The question whether there was real accrual of income to
the assessee company in respect of the enhanced charges for
supply of electricity has to be considered by taking the
probability or improbability of realisation in a realistic manner.
If the matter is considered in this light, it is not possible to hold
that there was real accrual of income to the assessee company
in respect of the enhanced charges for supply of electricity
which were added by the Income Tax Officer while passing the
assessment orders in respect of the assessment years under
consideration. The Appellate Assistant Commissioner was right
in deleting the said addition made by the Income Tax Officer
and the Tribunal had rightly held that the claim at the
increased rates as made by the assessee company on the
basis of which necessary entries were made represented only
hypothetical income and the impugned amounts as brought to
tax by the Income Tax Officer did not represent the income
which had really accrued to the assessee company during the
relevant previous years. The High Court, in our opinion, was in
error in upsetting the said view of the Tribunal."
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66.3 The Hon'ble Supreme Court in the case of Commissioner of
Income Tax, West Bengal II vs. Birla Gwalior (P) Ltd. 11 held as under,
viz.,
"8. ...Hence, the mere fact that the assessee Company was
maintaining its accounts on the basis of the mercantile system
cannot lead to the conclusion that the commission had accrued
to it by the end of the relevant accounting year...
...it was the real income of the assessee Company for the
accounting year that was liable to tax and that the real income
could not be arrived at without taking into account the amount
forgone by the assessee. In ascertaining the real income the
fact that the assessee followed the mercantile system of
accounting did not have any bearing..."
66.4 The Hon'ble Supreme Court in the case of Commissioner of
Income-tax vs. Shoorji Vallabhdas & Co. 12 held as under:
"Income-tax is a levy on income. No doubt, the Income-tax Act
takes into account two points of time at which the liability to tax
is attracted, viz., the accrual of the income or its receipt; but the
substance of the matter is the income. If incomes does not
result at all, there cannot be a tax, even though in book-
keeping, an entry is made about a "hypothetical income", which
does not materialize. Where income has, in fact, been received
and is subsequently given up in such circumstances that it
remains the income of the receipient, even though given up, the
tax may be payable. Where, however, the income can be said
not to have resulted at all, there is obviously neither accrual nor
receipt of income, even though an entry to that effect might, in
certain circumstances, have been made in the books of account.
A mere book-keeping entry cannot be income, unless income
has actually resulted, and in the present case, by the change of
the terms the income which accrued was received consisted of
the lesser amounts and not the larger."
(1974) 3 Supreme Court Cases 196
(1962) 46 ITR 144 (SC)
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66.5 In the case of S.D.S. Mongia vs. Central Board of Direct
Taxes13, the High Court of Delhi held in paragraph No.6 as under,
viz.,
"6. Since the extraordinary jurisdiction of this Court has
been invoked, the constraints that may have been felt by the
Commissioner in deciding the assesse's revision application
under section 264 would not impinge on the powers of the
Court under article 226 of the Constitution to correct an
injustice that has occurred albeit because of the
petitioners/assessee himself. Article 265 of the Constitution
mandates that no person shall be taxed without the authority
of law. Since in the present case there is no authority to tax the
annuities received by the petitioner, we consider it appropriate
to exercise our extraordinary powers to correct the injustice."
66.6 In the case of R. Seshammal vs. Income-Tax Officer and
Another 14, the Madras High Court held at paragraph Nos.4 and 8 as
under, viz.,
"4. The fact that the petitioner had paid the monies to the
Government under the mistaken notion that the association of
persons would be liable for tax even when the assessment was
not required to be made as an association of persons; that the
amount though paid was not actually required to be paid and
that the State has not refunded those amounts by taking
advantage of the mistake committed by the payer is not in
dispute. The Act is not intended to benefit the State by enabling
it to collect or retain monies not payable to it under the Act.
What is required to be collected from the assessees under the
Act is only the tax and other amounts properly payable under
the Act.
8. The State is not entitled to plead the hypertechnical plea of
limitation in such a situation to avoid return of the amounts.
Section 119 of the Act vests ample power in the Board to render
(2007) 160 TAXMAN 101 (DELHI)
1998 SCC OnLine Mad 951
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justice in such a situation. The Board has acted arbitrarily in
rejecting the petitioner's request for refund."
67. The Hon'ble Supreme Court further dealing with the term
'genuine hardship' as is referred to in Section 119(2)(b) of the Income
Tax Act, has in a couple of decisions laid down certain judicial
precedents which are as under:
67.1 In the case of B.M. Malani vs. Commissioner of Income Tax
and Another 15 the Hon'ble Supreme Court held in paragraph Nos.16,
17 and 18 as under, viz.,
"16. The term "genuine" as per the New Collins Concise
English Dictionary is defined as under:
"'Genuine' means not fake or counterfeit, real, not
pretending (not bogus or merely a ruse)".
17. [Ed. : Para 17 corrected vide Official Corrigendum No.
F.3/Ed.B.J./5/2009 dated 20-1-2009.] For interpretation of the
aforementioned provision, the principle of purposive
construction should be resorted to. Levy of interest is statutory
in nature, inter alia, for recompensating the Revenue from loss
suffered by non-deposit of tax by the assessee within the time
specified therefor. The said principle should also be applied for
the purpose of determining as to whether any hardship had
been caused or not. A genuine hardship would, inter alia, mean
a genuine difficulty. That per se would not lead to a conclusion
that a person having large assets would never be in difficulty
as he can sell those assets and pay the amount of interest
levied.
18. The ingredients of genuine hardship must be determined
keeping in view the dictionary meaning thereof and the legal
conspectus attending thereto. For the said purpose, another
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well-known principle, namely, a person cannot take advantage
of his own wrong, may also have to be borne in mind. The said
principle, it is conceded, has not been applied by the courts
below in this case, but we may take note of a few precedents
operating in the field to highlight the aforementioned
proposition of law. [See Priyanka Overseas (P) Ltd. v. Union of
India [1991 Supp (1) SCC 102] (SCC at pp. 122-23, para
39); Union of India v. Major General Madan Lal Yadav
(Retd.) [(1996) 4 SCC 127 : 1996 SCC (Cri) 592] (SCC at p. 142,
paras 28-29); Ashok Kapil v. Sana Ullah [(1996) 6 SCC 342]
(SCC at p. 345, para 7); Sushil Kumar v. Rakesh Kumar [(2003)
8 SCC 673] (SCC at p. 692, para 65, first
sentence); Kusheshwar Prasad Singh v. State of Bihar [(2007)
11 SCC 447] (SCC at pp. 451-52, paras 13-14 and 16).]"
67.2 In the case of Sitaldas K.Motwani vs. Director General of
Income Tax and Others 16, the Bombay High Court in paragraph No.3
and 15 has held as under, viz.,
"3. The assessee filed his return of income for the first time for
A.Y. 2000-01 claiming that the Short Term Capital Gains on
sale of shares of Indian Companies qualify to be investment
income u/s.115C of the Act, taxable at a flat rate of 20% and
claimed a refund of Rs.20,78,871/-. Needless to mention that
prior to filing this return on 24th September, 2003, the assessee
did not file any return for any assessment year. The return of
income for A.Y.2000-01 had become barred by limitation on
31st March, 2002 and therefore, the return was filed on 24th
September, 2003 along with an application u/s.119(2)(b) for
condonation of delay in filing of return and claiming refund.
15. The phrase "genuine hardship" used in Section
119(2)(b) should have been construed liberally even when the
petitioner has complied with all the conditions mentioned in
Circular dated 12th October, 1993. The Legislature has
conferred the power to condone delay to enable the authorities
to do substantive justice to the parties by disposing of the
matters on merit. The expression "genuine" has received a
Writ Petition No.1749 of 2009 of the Bombay High Court
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liberal meaning in view of the law laid down by the Apex Court
referred to hereinabove and while considering this aspect, the
authorities are expected to bare in mind that ordinarily the
applicant, applying for condonation of delay does not stand to
benefit by lodging its claim late. Refusing to condone delay can
result in a meritorious matter being thrown out at the very
threshold and cause of justice being defeated. As against this,
when delay is condoned the highest that can happen is that a
cause would be decided on merits after hearing the parties.
When substantial justice and technical considerations are
pitted against each other, cause of substantial justice deserves
to be preferred for the other side cannot claim to have vested
right in injustice being done because of a non-deliberate delay.
There is no presumption that delay is occasioned deliberately,
or on account of culpable negligence, or on account of
malafides. A litigant does not stand to benefit by resorting to
delay. In fact he runs a serious risk. The approach of the
authorities should be justice oriented so as to advance cause of
justice. If refund is legitimately due to the applicant, mere delay
should not defeat the claim for refund."
67.3 The High Court of Kerala in the case of Pala Marketing Co-op.
Socy. Ltd. vs. Union of India & Ors 17 held in paragraph No.3 as
under:
"3. What is stated in Section 119(2)(b) is that if the Board
considers desirable or expedient for avoiding genuine hardship
to the assessee, it should condone the delay. In other words,
what the Board should consider is hardship to the party if
delay is not condoned. The Board should condone the delay if
failure to condone the delay causes genuine hardship to the
assessee, no matter whether the delay in filing return is
meticulously explained or not. In other words, once the Board
allows the application under Section 119(2)(b) of the Act, the
matter goes to the Assessing Officer for considering assessee's
claim for refund under Section 237. Section 237 makes it clear
that the Assessing Officer while considering application for
refund should consider the amount of tax chargeable on the
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claimant under the Act and refund arises only if -payment is in
excess of the tax payable under the Act."
67.4 In the case of Jaswant Singh Bambha vs. Central Board of
Direct Taxes and Others 18 it was held in paragraph Nos.11 and 12 as
under:
"11. It is true that the aforementioned observations have been
made in the context of clause (a) of Section 119(2) of the Act but
we are of the view that the same shall apply in full force even
to clause (b) of the said provision. Clause (a) deals with the
power to grant relaxation from the provisions of several
sections enumerated therein. Clause (b) deals with power to
grant relaxation from the period of limitation to avoid genuine
hardship in any case or class of cases. In Associated Electro
Ceramics [1993] 201 ITR 501 (Karn), it was held that even
though no power had been granted to an Income-tax Officer or
any other officer to condone the delay in making the claim for
refund, such power had specifically been conferred on the
Board under Section 119(2)(b) of the Act. The contention of the
Revenue that the Board had no such power was rejected by S.
Rajendra Babu J. (as his Lordship then was), in the following
terms (page 504) :
"The contention of learned counsel for the Department
that if no power had been granted to an Income-tax
Officer or any other officer to condone the delay in
making such a claim, the Board also cannot extend
time, will not be correct, because this provision
expressly provides that, where any time limit has been
fixed, such time limit can be extended or delay
condoned by the Board."
12. The power of the Board under Section 119(2)(b) to admit an
application or claim or return filed after the period specified for
avoiding genuine hard- ship caused in any case or class of
cases has also been recognised in John Shalex Paints (P.) Ltd.
v. CBDT [1993] 201 ITR 523 (Karn); H. S. Anantharamaiah v.
CBDT [1993] 201 ITR 526 (Karn); Pallavan Transport Con-
C.W.P.No.19040 of 2008 decided on 01.11.2004
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sultancy Services Ltd. v. Union of India [1998] 233 ITR 745
(Mad); Mysore Sales International Ltd.'s case [1998] 233 ITR
663 (Karn) ; Kusumben M. Parikh's case [2000] 242 ITR 501
(Guj) and Dharampal Singh Pall's case [2001] 250 ITR 629 (MP).
By admitting a belated claim for refund, the Board neither
interferes with the course of assessment of any particular
assessee nor with the discretion of the Commissioner of
Income-tax (Appeals) which, according to the Supreme Court in
Azadi Bachao Andolan [2003] 263 ITR 706, is the only
restriction on the powers of the Board under Section 119 of the
Act."
68. Again dealing with the topic of orders passed by fraud losing its
judicial sanctity and holding that fraud vitiates everything, the Hon'ble
Supreme Court has laid down quite a few judicial precedents, some of
which are mentioned herein under:
68.1 The Hon'ble Supreme Court in the case of A.V. Papayya Sastry
and Others vs. Govt. of A.P. and Others 19, held at paragraph
Nos.21, 22, 25, 26, 30 and 33 as under, viz.,
"21. Now, it is well-settled principle of law that if any judgment
or order is obtained by fraud, it cannot be said to be a
judgment or order in law. Before three centuries, Chief Justice
Edward Coke proclaimed:
"Fraud avoids all judicial acts, ecclesiastical or
temporal."
22. It is thus settled proposition of law that a judgment, decree
or order obtained by playing fraud on the court, tribunal or
authority is a nullity and non est in the eye of the law. Such a
judgment, decree or order--by the first court or by the final
court--has to be treated as nullity by every court, superior or
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inferior. It can be challenged in any court, at any time, in
appeal, revision, writ or even in collateral proceedings.
25. It has been said : fraud and justice never dwell together
(fraus et jus nunquam cohabitant); or fraud and deceit ought to
benefit none (fraus et dolus nemini patrocinari debent).
26. Fraud may be defined as an act of deliberate deception
with the design of securing some unfair or undeserved benefit
by taking undue advantage of another. In fraud one gains at
the loss of another. Even most solemn proceedings stand
vitiated if they are actuated by fraud. Fraud is thus an extrinsic
collateral act which vitiates all judicial acts, whether in rem or
in personam. The principle of "finality of litigation" cannot be
stretched to the extent of an absurdity that it can be utilised as
an engine of oppression by dishonest and fraudulent litigants.
33. In United India Insurance Co. Ltd. v. Rajendra
Singh 20, allowing the appeal, this Court held in paragraph
Nos.15 to 17 as under, viz.,
"15. It is unrealistic to expect the appellant
Company to resist a claim at the first instance on
the basis of the fraud because the appellant
Company had at that stage no knowledge about
the fraud allegedly played by the claimants. If the
Insurance Company comes to know of any
dubious concoction having been made with the
sinister object of extracting a claim for
compensation, and if by that time the award was
already passed, it would not be possible for the
Company to file a statutory appeal against the
award. Not only because of the bar of limitation to
file the appeal but the consideration of the appeal
even if the delay could be condoned, would be
limited to the issues formulated from the pleadings
made till then.
16. Therefore, we have no doubt that the remedy
to move for recalling the order on the basis of the
newly-discovered facts amounting to fraud of high
degree, cannot be foreclosed in such a situation.
(2000) 3 Supreme Court Cases 581
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No court or tribunal can be regarded as powerless
to recall its own order if it is convinced that the
order was wangled through fraud or
misrepresentation of such a dimension as would
affect the very basis of the claim.
17. The allegation made by the appellant
Insurance Company, that the claimants were not
involved in the accident which they described in
the claim petitions, cannot be brushed aside
without further probe into the matter, for the said
allegation has not been specifically denied by the
claimants when they were called upon to file
objections to the applications for recalling of the
awards. The claimants then confined their
resistance to the plea that the application for recall
is not legally maintainable. Therefore, we strongly
feel that the claim must be allowed to be resisted,
on the ground of fraud now alleged by the
Insurance Company. If we fail to afford to the
Insurance Company an opportunity to
substantiate their contentions it might certainly
lead to a serious miscarriage of justice." (emphasis
supplied)
68.2 The Hon'ble Supreme Court in the case of United India
Insurance Col. Ltd. vs. Rajendra Singh and Others 21, held in
paragraph Nos.15 and 17 as under, viz.,
"15. It is unrealistic to expect the appellant Company to resist a
claim at the first instance on the basis of the fraud because the
appellant Company had at that stage no knowledge about the
fraud allegedly played by the claimants. If the Insurance
Company comes to know of any dubious concoction having
been made with the sinister object of extracting a claim for
compensation, and if by that time the award was already
passed, it would not be possible for the Company to file a
statutory appeal against the award. Not only because of the
(2000) 3 Supreme Court Cases 581
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bar of limitation to file the appeal but the consideration of the
appeal even if the delay could be condoned, would be limited to
the issues formulated from the pleadings made till then.
17. The allegation made by the appellant Insurance Company,
that the claimants were not involved in the accident which they
described in the claim petitions, cannot be brushed aside
without further probe into the matter, for the said allegation has
not been specifically denied by the claimants when they were
called upon to file objections to the applications for recalling of
the awards. The claimants then confined their resistance to the
plea that the application for recall is not legally maintainable.
Therefore, we strongly feel that the claim must be allowed to be
resisted, on the ground of fraud now alleged by the Insurance
Company. If we fail to afford to the Insurance Company an
opportunity to substantiate their contentions it might certainly
lead to a serious miscarriage of justice."
68.3 The High Court of Andhra Pradesh at Hyderabad in the case of
Lambai Pedda Bhadru and Ors. vs. Mohd. Ali Hussain and Ors. 22
held at paragraph Nos.64 to 70 as under, viz.,
"Consequences of playing fraud:
64. Whether an order obtained by fraud can be recalled at any
time? The next formidable submission made by the learned
Advocate-General is that any order obtained by playing fraud
on the Court or the Tribunal, as the case may be, is a nullity
and non-est in the eve of law.
65. It is submitted that it can be challenged in any Court even
in collateral proceedings.
66. "Fraud avoids all judicial acts, ecclesiastical or temporal"
observed Chief Justice Edward Coke of England about three
centuries ago. The parties are not left without any legal remedy
when a party to a judgment or order later discovers that such
judgment or order was obtained by fraud.
MANU/AP/0459/2003
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67. Denning LJ has said: "No judgment of a Court, no order of a
Minister, can be allowed to stand if it has been obtained by
fraud. Fraud unravels everything. (See: Lazarus Estates Ltd. v.
Beasley, (1956) 1 QB 702).
68. In Indian Bank (supra), the Supreme Court had an occasion
to consider the question as to the power of the authorities, be
they constitutional, statutory or administrative, (and
particularly those who have to decide a lis) to recall their
judgments or orders if they are obtained by fraud, and
observed:
"The judiciary in India also possesses inherent power,
specially under Section 151 CPC, to recall its judgment
or order if it is obtained by fraud on Court. In the case
of fraud on a party to the suit or proceedings, the Court
may direct the affected party to file a separate suit for
setting aside the decree obtained by fraud. Inherent
powers are powers which are resident in all Courts,
especially of superior jurisdiction. These powers spring
not from legislation but from the nature and the
constitution of the Tribunals or Courts themselves so as
to enable them to maintain their dignity, secure
obedience to its process and rules, protect its officers
from indignity and wrong and to punish unseemly
behaviour. This power is necessary for the orderly
administration of the Court's business. Since fraud
affects the solemnity, regularity and orderliness of the
proceedings of the Court and also amounts to an abuse
of the process of Court, the Courts have been held to
have inherent power to set aside an order obtained by
fraud practised upon that Court. Similarly, where the
Court is misled by a party or the Court itself commits a
mistake which prejudices a party, the Court has the
inherent power to recall its order. (See: Benoy Krishna
Mukerjee v. Mohanlal Goenka (AIR 1950 Cal 287);
Gajanand Sha v. Dayanand Thaknr (AIR 1943 Pat
127); Krishnakumar v. Jawand Singh (AIR 1947 Nag
236); Devendra Nath Sarkar v. Ram Rachpal Singh (ILR
(1926) 1 Luck 341); Saiyed Mohd, Raza v. Ram Saroop
(ILR (1929) 4 Luck 562; Bankey Behari Lal v. Abdul
Rahman (ILR (1932) 7 Luck 350); Lekshmi Amma
Chacki Amma v. Mammen Mammen (1955 Ker LT
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459). The Court has also the inherent power to set
aside a sale brought about by fraud practised upon the
Court (Ishwar Mahton v. Sitaram Kumar (AIR 1954 Pat
450) or to set aside the order recording compromise
obtained by fraud. (Bindeshwari Pd. Chaudhary v.
Debendra Pd. Singh ; Tara Bai v. V.S. Kriahnaswamy
Rao (AIR 1985 Kant 270.)"
69. It is further observed by the Supreme Court mat the
authorities, be they constitutional, statutory or administrative,
(and particularly those who have to decide a lis) possess the
power to recall their judgments or orders if they are obtained by
fraud as fraud and justice never dwell together (Fraus et jus
nunquam cohabitant). It has been repeatedly said that fraud
and deceit defend or excuse no man {Fraus et dolus nemini
patrocinari debenf).
70. In our opinion, public interest demands recalling of orders
obtained by parties by playing fraud upon Courts. The Court,
Tribunal, quasi-judicial bodies and other authorities have clear
and definite power to recall and set aside such orders obtained
by playing fraud. Silence and indifference on the part of the
Courts and authorities result in perpetuating fraud. Judicial
process gets sullied resulting not only in miscarriage of justice
but also in erosion of public faith and confidence in the system
of administration of justice. It is the duty of all entrusted with
judicial power to keep streams of judicial process pure and free
from pollution."
69. Very recently, in almost an similar if not identical set of facts,
the Division Bench of the Bombay High Court in the case of CG Power
and Industrial Solutions Ltd. vs. The Assistant Commissioner of
Income Tax, Circle - 6(2)(1) and Ors 23 vide its judgment dated
30.04.2024 had allowed the writ petition and had granted the relief
similar to the relief sought for in the present batch of writ petitions.
Writ Petition (L) NO.8766 of 2024
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70. Reading of the facts in the said judgment passed by the Division
Bench of the Bombay High Court, what is clearly reflected is that the
officers of the Income Tax Department were in agreement with the
petitioners to their request for condoning the delay and also going in
for reassessment so as to compute the correct taxable income.
However, the view of the Income Tax officials were negated by the
CBDT and the CBDT advised the Income Tax Department to reject the
condonation of delay application under Section 119 and also to reject
the claim for reassessment. It is in this factual context that the
Division Bench of the Bombay High Court relying upon a judgment of
the Bombay High Court itself in the case of K.S. Bilawala vs.
Principal Commissioner of Income Tax 24 while allowing the writ
petition in the operative part in paragraph Nos.24 to 27 has held as
under, viz.,
"24. In the circumstances, the Rule is made absolute in
terms of prayer clauses - (a), (b) and (c) which read as under :
a. this Hon'ble Court may be pleased to issue a
writ of Certiorari or a writ in the nature of
Certiorari or any other appropriate writ, order or
direction under article 226 of the Constitution of
India, calling for the records of the present case
and after examining the legality and validity
thereof quash and set-aside the impugned order
dated 29.02.2024 (being Exhibit 'III' hereto);
(2024) 158 taxman.com 658 (Bombay)
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b. this Hon'ble Court may be further pleased to
issue a writ of Mandamus or a writ in the nature
of Mandamus or any other appropriate writ,
order or direction under article 226 of the
Constitution of India directing the Respondent
Nos. 1 to 5 to allow the Petitioner to file revised
returns of income and revised computations of
income prepared in accordance with/based on
the re-casted/revised books of account and
financial statements for assessment years 2015-
16 to 2020-21 and to assess the Petitioner's
income chargeable to tax based on the same;
c. this Hon'ble Court may be further pleased to
issue a writ of Mandamus or a writ in the nature
of Mandamus or any other appropriate writ,
order or direction under article 226 of
Constitution of India directing the Respondents
Nos. 1 and 4 to assess the Petitioner's income in
the assessment/appellate proceedings based on
the re-cased/revised books of account and
financial statements;
25. Petitioner shall file physical returns of income based
on books of account, revised/recasted under Section 130(2) of
the Companies Act, 2013, as taken on record by the NCLT for
A.Y. 2015-16 to A.Y. 2020-21 before the JAO within 30 days
from the date this order is uploaded.
On or before 28th February 2025 the A.O. shall frame
assessments in accordance with law considering the revised
returns of income filed based on recasted/revised books of
account for A.Y. 2015-16 to A.Y. 2020-21.
26. In view of what is recorded above, any assessment
order passed under Section 143(3) or 144(C) of the Act for any
of the years for which recasted/revised accounts have been
filed will not survive. So also consequential notices, if any,
issued or orders, if any, passed.
27. We clarify that accepting returns of income on
recasted accounts will not absolve anybody from any action
that may be taken on the basis of earlier accounts based on
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investigation which are on going. If after investigation, if these
recasted accounts are required to be relooked or reworked, the
company shall not raise issue of limitation for a period of three
years from the date on which the assessment order is passed."
71. Given the fact that the Bombay High Court has in the recent
past itself allowed two similar writ petitions and the facts in the
instant batch of writ petitions also being almost same, coupled with
the series of judicial precedents referred to in the preceding
paragraphs dealing with the powers of CBDT and also the judgments
of the Hon'ble Supreme Court dealing with the term 'genuine hardship'
as is referred to under Section 119 of the Income Tax Act, we see no
reason why Writ Petition No.23225 of 2011 be not allowed and it is
ordered accordingly.
72. The order dated 11.07.2011 passed by respondent No.1 as a
consequence is set aside / quashed being arbitrary, illegal and
violative of Section 119 of the Income Tax Act. Further, it is ordered
that the assessment orders for the Assessment Year 2003-04 to 2008-
09 are illegal and violative of Article 265 of the Constitution of India
and also void ab initio. The respondent No.1 and respondent No.3 are
hereby directed to re-quantify / re-compute the income of the
petitioner Company by conducting a fresh and proper assessment for
the Assessment Year 2003-04 to 2008-09 based upon the revised
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financial statements of the petitioner Company for the year ending 31st
March, 2009. The petitioner Company is further directed to file the
revised return for the Assessment Year 2003-04 to 2008-09 based on
the audited financial statements for the said years read with the
audited financial statement for the year ending 31st March, 2009 and
thereafter, conduct a proper assessment excluding the fictitious sales
and fictitious interest income reflected in the books of accounts.
Meanwhile, it is also ordered that till re-quantification and re-
computation of the income is done, the respondents shall not proceed
with any recovery of income tax against the petitioner for the said
relevant period.
73. In view of the fact that this Bench finding the action on the part
of CBDT in rejecting the petition under Section 119 of the Income Tax
Act, 1961 to be bad in law in the given factual matrix of the case, the
two questions of law framed as is enunciated in paragraph No.63 of
this judgment, stands answered accordingly:-
a) So far as the question whether the respondents were justified in
rejecting the application under Section 119(1) of the Income Tax
Act is answered in the negative holding that the rejection of the
said application was bad in law and also was not sustainable
factually.
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b) So far as the relief which has been sought for whether can be
granted invoking Article 226 of the Constitution of India, the
same is answered in the affirmative in the view of the findings
given by this Bench in the preceding paragraphs based on the
judicial precedents.
74. This Court is conscious of the fact that post re-assessment;
there is a likelihood of inflated values emerging which could possibly
show surplus tax having been paid potentially burdening the Revenue.
However, the petitioner Company has voluntarily agreed not to make
any claim for refund. The petitioner Company has filed a memo in this
regard dated 15.02.2024 undertaking to waive any such surplus tax
having been paid which may arise after assessment. This proactive
step by the petitioner Company provides additional compelling ground
for allowing this petition, particularly in light of there being no
financial implication falling on the Revenue. This gesture on the part
of the petitioner to mitigate potential financial implications also shows
their commitment only with an intention of getting a fair and genuine
assessment so far as the income and the expenditure of the petitioner
Company for the relevant period is redone by way of reassessment.
75. This Court finds that the petitioner-Company through its
Assistant Chief Corporate Counsel (Legal) and Authorized Signatory
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has unequivocally agreed to waive its rights to claim any refund that
may arise after adjusting any tax liability arising from the de novo
assessments for Assessment Years 2002-03 to 2008-09. This waiver is
comprehensive and applies to any residual refunds that may arise
after setting off aggregate demands across the relevant Assessment
Years under Section 245 of the Income Tax Act, 1961. This Court finds
that this decision of the Assistant Chief Corporate Counsel (Legal) has
been duly authorized by the Managing Director of the petitioner
Company supported by a valid Power of Attorney dated 22.11.2013.
This waiver effectively ensures that there will be no additional
financial burden on the Revenue following the completion of the
reassessment process.
76. As a consequence of the lead case i.e. Writ Petition No.23255 of
2011 being allowed, all the other connected Writ Petitions heard
analogously also stands allowed and disposed of leaving open the right
of the Revenue to initiate appropriate proceedings if required after the
re-assessment is done in terms of the order passed today by this
Bench in Writ Petition No.23255 of 2011.
77. No order as to costs.
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78. As a sequel, miscellaneous applications pending if any in these
writ petitions, shall stand closed.
__________________
P.SAM KOSHY, J
__________________
N.TUKARAMJI, J
Date: 31.01.2025
Note : LR copy to be marked
B/o.
Ndr / Gsd
