Cairn India Ltd., (Formerly Known As Cairn Energy India Private Limited) v. Deputy Director Of Income Tax, (International Taxation) Room

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 19.08.2021CORAM THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM W.P.No.6768 of 2013 Cairn India Ltd.,(Formerly known as Cairn Energy IndiaPrivate Limited)Represented by its Authorised Signatory,Mr.Navin Jain,3[rd] & 4[th] Floor, Vipul Plaza,Suncity, Sector-54,Gurgaon – 122 002,Haryana. ...Petitioner VsDeputy Director of Income Tax,(International Taxation)Room No.703, IInd Floor,Annexe Building, Aaykar Bhawan,121, Mahatma Gandhi Road,Chennai – 600 034....Respondent PRAYER : Writ Petition filed Under Article226 of theConstitution of India, to issue a Writ of Certiorari, callingfor the records of the respondent in respect of PANNo.AAACC3097L and quash the impugned Notice u/s 148 of theIncome Tax Act, 1961 dated 30.03.2011 and the consequentialOrder dated 12.03.2013 passed by the respondent. The writ petition is filed, questioning the legal validityof the notice issued under Section 148 of the Income Tax Act,1961 [hereinafter referred to as the 'Act'] dated 30.03.2011 and https://hcservices.ecourts.gov.in/hcservices/ the consequential order dated 12.03.2013 passed by therespondent, disposing of the objections filed by the writpetitioner. 2. The petitioner's predecessor was a company incorporatedin New South Wales, Australia was a subsidiary of Cairn EnergyPLC based in Edinburgh and is engaged in the business ofexploration and production of oil and gas in India since 1996.By an order of the Bombay High Court dated June 22nd, 2010 inCompany Petition No.155 of 2010, the petitioner took over theIndian Business of Cairn Energy India Private Limited and thus,competent to file the present writ petition on behalf of itspredecessor. 3. The petitioner company had filed its return of income forthe Assessment Year 2004-05 under Section 139(1) of the Act on28.10.2004, declaring a total income of Rs.49,16,89,883/- as perthe normal provisions and taxable book profit ofRs.1,90,55,64,209/- under Section 115JB of the Act. The returnof income was processed under Section 143(1) of the Act on24.02.2005, accepting the returned income. The case was selectedfor scrutiny by issuance of notice dated 20.04.2005 underSection 143(2) of the Act and during the course of suchproceedings, the return of income was thoroughly examined on allaspects to determine the total income for the Assessment Year2004-05 in question. The Assessing Officer passed the finalassessment order under Section 143(3) of the Act in proceedingsdated 28.12.2006. The total income of the petitioner under thenormalprovisionsoftheActwasdeterminedatRs.109,59,99,910/- and the book profit of Rs.197,37,88,456/- wasdetermined under the provisions of Section 115JB of the Act. Thecase was referred to Transfer Pricing Officer for determinationof Arm's Length Price of the international transactions enteredinto by the petitioner with the associated enterprises. Thus,the assessment proceedings in all respects were completed underthe normal provisions as well as regarding the internationaltransactions. 4. The learned Senior counsel appearing on behalf of thewrit petitioner made a submission that it is a case of change ofopinion as the materials, informations, books of accounts asrequired were submitted during the course of assessmentproceedings and the petitioner has not suppressed any materialfacts. The materials furnished for scrutiny and the discussionsas well as the consideration deliberated in the originalassessment order are taken for the purpose of reopening ofassessment by forming another opinion and thus, the case on handis change of opinion. 5. The notice under Section 148 of the Act was issued on 4. The learned Senior counsel appearing on behalf of thewrit petitioner made a submission that it is a case of change ofopinion as the materials, informations, books of accounts asrequired were submitted during the course of assessmentproceedings and the petitioner has not suppressed any materialfacts. The materials furnished for scrutiny and the discussionsas well as the consideration deliberated in the originalassessment order are taken for the purpose of reopening ofassessment by forming another opinion and thus, the case on handis change of opinion. 5. The notice under Section 148 of the Act was issued on 30.03.2011, admittedly, beyond the period of four years butwithin six years. The petitioner requested for furnishingreasons in vide letter dated 23.04.2011 and the respondentfurnished the reasons in proceedings dated 18.02.2013. Thepetitioners filed their objections on 04.03.2013 and the saidobjections were disposed of by the respondent in order dated12.03.2013, which is impugned in the present writ petition. 6. The learned Senior counsel for the petitioner drawn theattention of this Court with reference to the particularsproduced by the petitioner company during the scrutinyproceedings as well as in the assessment order. The assessmentorder dated 28.12.2006 would reveal that the Assessing Officerhas considered Site Restoration Cost, Software Purchase andMaintenance and Club membership and facility fees incurredduring the year. Relying on the said findings made in theoriginal assessment order, the learned Senior counsel reiteratedthat the very same reasons are furnished for the purpose ofreopening of assessment. Therefore, the initiation ofproceedings is nothing, but change of opinion. 7. The learned Senior counsel for the petitioner is of anopinion that in order to satisfy the statutory requirement of'reason to believe', the Assessing Officer must have tangiblematerial on record for reopening of assessment. In the presentcase, the very same informations and materials furnished by thepetitioner during the course of original assessment proceedingsare taken into consideration for the purpose of reopening ofassessment and perusal of the reasons furnished, would revealthat there is no fresh materials on record for the purpose ofcontinuance of the reopening proceedings. Thus, the exercisemade by the respondent for reopening under Section 147 of theAct lacks jurisdiction. 8. The learned Senior counsel for the petitioner relied onseveral judgments to establish that the cases, where change ofopinion is a ground for reopening, the Courts have set aside theinitiation of 147 / 148 proceedings. When the case on hand isalso a case, where there is no tangible material on record forreopening of assessment, the order impugned is liable to be setaside. 9. As far as the judgments relied on by the petitioner arenot in dispute as the principles in this regard are settled.With reference to Section 147 of the Income Tax Act, if theassessing Officer has 'reason to believe' that the incomechargeable to tax escaped assessment, then he is empowered toinstitute reopening proceedings. The 'reason to believe' musthave live link with the reasons furnished for the purpose ofreopening. If the reason furnished is the change of opinion, 9. As far as the judgments relied on by the petitioner arenot in dispute as the principles in this regard are settled.With reference to Section 147 of the Income Tax Act, if theassessing Officer has 'reason to believe' that the incomechargeable to tax escaped assessment, then he is empowered toinstitute reopening proceedings. The 'reason to believe' musthave live link with the reasons furnished for the purpose ofreopening. If the reason furnished is the change of opinion, then the proceedings are liable to be set aside. This being thesettled principles, the judgments cited by the petitioner arenot in dispute with reference to the principles laid down by theConstitutional Courts. However, whether the 'reason to believe'is established in a particular case, is to be considered by theCourt based on the facts furnished. In other words, the factsestablished in a particular case would be relevant for thepurpose of arriving a conclusion, whether such case is fallingwithin the ambit of change of opinion or not. Therefore, theconsideration with reference to the facts furnished are to belooked into for forming an opinion. 10. The learned Senior counsel for the petitioner reiteratedthat the reasons furnished by the respondent are not freshmaterials and the same materials, which were considered andfindings are also available in the original assessment order.This being so, there is no reason whatsoever for reopening ofassessment and thus, the order impugned is liable to be setaside. 11. The learned Senior Standing counsel for the respondentobjected the contentions raised on behalf of the petitioner bystating that the materials produced by the petitioner / assesseeare not in dispute. However, in the present case, the TDSdeduction of four person made by the assessee is improper andthe TDS must be on the higher rate and therefore, the AssessingOfficer raised the question, whether the TDS deducted must be onthe higher rate or on the lower rate with reference to thebusiness transactions undertook by the petitioner / assessee.This being the reason for reopening of assessment underExplanation 1 to Section 147 of the Act, the Assessing Officershould be allowed to adjudicate the said issue on merits and thepetitioner has to submit their defense during the course ofreopening proceedings and under these circumstances, thecontention of the petitioner that it is change of opinion isincorrect and unacceptable. 12. The learned Senior Standing counsel for the respondenthas reiterated that the subjects adjudicated by the AssessingOfficer in the original assessment order may be the subject forreopening of assessment. Explanation 1 to Section 147contemplates Production before the Assessing Officer of accountbooks or other evidence from which material evidence could withdue diligence have been discovered by the Assessing Officer willnot necessarily amount to disclosure within the meaning of theforegoing proviso. Therefore, the mere production of books ofaccounts or other evidences by the assessee may not besufficient to set aside the reopening proceedings. If theAssessing Officer has 'reason to believe' that some issues,which all are not adjudicated and from and out of such omission or commission income chargeable to tax escaped assessment, thenhe is empowered to reopen the assessment and proceed with thesame by affording opportunity to the assessee. This being thescope of Section 147, there is no reason to arrive a conclusionthat the reopening proceedings are initiated on change ofopinion. 13. Considering the arguments as advanced by the respectivelearned Senior counsel for the petitioner and the learned SeniorStanding counsel for the respondent, the question arises,whether the initiation of reopening of assessment in the presentcase is change of opinion or the Assessing Officer has 'reasonto believe'. or commission income chargeable to tax escaped assessment, thenhe is empowered to reopen the assessment and proceed with thesame by affording opportunity to the assessee. This being thescope of Section 147, there is no reason to arrive a conclusionthat the reopening proceedings are initiated on change ofopinion. 13. Considering the arguments as advanced by the respectivelearned Senior counsel for the petitioner and the learned SeniorStanding counsel for the respondent, the question arises,whether the initiation of reopening of assessment in the presentcase is change of opinion or the Assessing Officer has 'reasonto believe'. 14. It is not in dispute that the case on hand is beyondfour years, but within six years. Further, it is not in disputethat from and out of the materials already scrutinised by theassessment officer, the reopening proceedings are initiated. Theassessment order passed by the competent authority would revealthat the subject dealt with for reopening of assessment, werealso considered during the original assessment proceedings.However, it is contended that under Explanation 1 to Section147, even in case, where the assessee produced the account booksor other evidences during the course of original assessmentproceedings, the said materials also can be a reason forreopening of assessment, if some new informations or furthermaterials are culled out from the original materials. 15. Reopening of assessment proceedings are made on numerousoccasions. The scope of reopening of assessment under Section147 of the Act is undoubtedly wider enough to cover variouscircumstances, if the Assessing Officer has 'reason to believe'that any income chargeable to tax has escaped assessment for anyassessment year. However, this Court has to consider, whethersuch reopening and the reasons furnished for reopening ofassessment have live link with the materials. 16. It is necessary to draw a distinction between the finalassessment order and the order, disposing of the objections bythe competent authority with reference to the objections filedby the assessee. The final order must satisfy the subjectivesatisfaction. However, no such subjective satisfaction isrequired regarding the order passed, disposing of theobjections. The reopening of proceedings once initiated andnotice issued and the subsequent procedures are contemplatedthrough the judgment of the Hon'ble Supreme Court of India inthe case of GKN Driveshafts (India) Ltd., vs. Income Tax Officer[(2002) 125 Taxman 963(SC)]. The Income Tax Act states thatopportunity is to be provided to the assessee. The manner, inwhich, such opportunity is to be provided were directed by the Hon'ble Supreme Court of India in the case of GKN Driveshafts(cited supra). Thus, in between procedures contemplated througha judgment is to be complied with in its spirit for the purposeof compliance of principles of natural justice. However, such inbetween procedures cannot be construed as a conclusiveproceedings as after disposing of the objections, the Assessingofficer has to provide further opportunity to the assessee forthe purpose of continuing the reopening proceedings and forpassing final reassessment orders. This exactly is the reason,why objective satisfaction is sufficient in respect of the orderpassed, disposing of the objections. However, while passing thefinal assessment / reassessment order, subjective satisfactionof the competent authority is mandatory. Thus, the order,disposing of the objections or reopening of assessment at nocircumstances be compared with the final assessment /reassessment order, which is to be passed after completeadjudication of the facts and the circumstances raised by theparties. 17. In respect of the writ petition on hand, notice underSection 148 was issued on 30.03.2011. The reasons were furnishedto the assessee, objections received and the said objectionswere disposed of. The reasons stated in proceedings dated18.02.2013 states as follows: “In the instant case, the return of income wasfiled on 28.10.2004 declaring a total income ofRs.49,16,89,883 as per the normal provisions of incometax and taxable book profit of Rs.190,55,64,209 as persection 115 JB. The case was selected for scrutiny andassessment was completed u/s 143(3) on 28.12.2006 on atotal income of Rs.109,59,99,910 and computing the bookprofit at Rs.197,37,88,456. The assessment order wasrectified u/s 154 of the income tax reducing the totalincome to 108,74,01,200. Subsequently, the assessmentwas set aside vide the order of the DIT (IT) dated12.03.2009 with the direction to recompute the totalincome of the assessee in as much as the assessmentorder dated 28.12.2006 in which deduction u/s 80 IB waserroneous and West Asia Maritime case, is in the natureof royalty. Therefore, the assessee has deducted lessertax from the payment to the Non-Residents.In this context, it may be noted that the CBDTinstruction No 1862 which was clarified that provisionof services by a foreign company would be outside thepurview of section 44D or section 115A was issued inthe context of services like imparting of training andcarrying out drilling operations. The services in thesubject case are different which do not fall within theambit of section 44BB of the Act. Reference can be made to the judgement of the Hon'ble Uttarakhand High Courtin CIT and Another vs ONGC Ltd (309 ITR 244). Theprinciple evolving from the ruling of the Hon'bleAuthority of Advance Ruling in No P/6 OF 1995, (234 ITR371) also stipulates that there is wide range of incomefalling under Section 44BB which do not fall underSection 44D. Providers of such technical service are thereforeare not entitled to lower deduction of tax andproportional disallowance under Section 40(a)(i) iscalled for. However, the expenses so claimed have beenallowed fully in the assessment. These excess deductionhas resulted in escapement of income chargeable to taxwithin the many of section 147 of the Income Tax Act.Further although order u/s 143 (3) was passed in thiscase, it falls within the ambit of explanation 1 tosection 147 of the Income Tax Act.” Providers of such technical service are thereforeare not entitled to lower deduction of tax andproportional disallowance under Section 40(a)(i) iscalled for. However, the expenses so claimed have beenallowed fully in the assessment. These excess deductionhas resulted in escapement of income chargeable to taxwithin the many of section 147 of the Income Tax Act.Further although order u/s 143 (3) was passed in thiscase, it falls within the ambit of explanation 1 tosection 147 of the Income Tax Act.” 18. The reasons stated above reveals that deduction underSection 80IB was erroneous and West Asia Maritime case, is inthe nature of royalty. Therefore, the assessee has deductedlesser tax from the payment to the Non-Residents. Therefore, thebooks of accounts, informations, materials produced by theassessee may be taken into consideration for reopening ofassessment. However, the Assessing Officer could able to cullout that the TDS deducted there at the lower rate and the saidissue was not adjudicated by the Assessing authority. Thus, theAssessing Officer has 'reason to believe' for reopening ofassessment in order to ascertain the TDS is to be on higher rateor on lower rate. In view of the fact that the said issue wasnot considered by the Original Assessing authority andsubsequently, noticed by the competent authority, the reopeningof assessment is made in accordance with the requirements ascontemplated under Section 147 of the Income Tax Act. Section147 Explanation 2(c) enumerates where an assessment has beenmade, but – (i) income chargeable to tax has been underassessed;or (ii) such income has been assessed at too low a rate; or(iii) such income has been made the subject of excessive reliefunder this Act; or (iv) excessive loss or depreciation allowanceor any other allowance under this Act has been computed.Therefore, even in cases, where the new informations, materialsare gathered from and out of the account books and otherevidences produced by the assessee during the course of theoriginal assessment, then also, reopening of assessment ispossible, if such cases are falling under any of the clauses ascontemplated under Section 147 of the Act. 19. The circumstances as contemplated, providing wider scopefor reopening of assessment, at no circumstances be narroweddown by the Court to cripple the powers of the Assessing authority conferred under the Act. Numerous circumstances arecontemplated, in view of the fact that the original assessmentorder was passed based on the return of income filed by theassessee. The Assessing authority may not have considered allthe intricacies involved in such business or other transactions.Undoubtedly, the business and trading activities are beingcarried out in a calculated manner by the traders. Theintricacies involved may be traced out even at later point oftime. Such being the possible circumstances, the very purposeand object of Section 147 of the Act for reopening ofassessment, if the income chargeable to tax escaped assessmentcannot be narrowed down, so as to dilute the very object of theAct. 20. However, on reopening of assessment, the assessee getsan opportunity to defend its case in the manner known to law.Thus, there is no substantial prejudice is caused except thatthe assessment is reopened. However, if such reopenings are madewithin the scope of Section 147, then the authority must beallowed to continue the reopening proceedings and conclude thesame by providing opportunity to the assessee to defend theircase. 20. However, on reopening of assessment, the assessee getsan opportunity to defend its case in the manner known to law.Thus, there is no substantial prejudice is caused except thatthe assessment is reopened. However, if such reopenings are madewithin the scope of Section 147, then the authority must beallowed to continue the reopening proceedings and conclude thesame by providing opportunity to the assessee to defend theircase. 21. In the present case, the petitioner has submitted itsobjections elaborately on 04th March 2013 and the said objectionswere disposed of by the respondent by issuing an order dated12.03.2013. While disposing of the objections, the respondenthad considered the objections filed by the petitioner andrejected the objections on the ground that for the AssessmentYear 2003-04, ADIT, International Taxation, Chennai, issued aNotice under Section 148 on similar ground that claim of theassessee as regards payment made towards geological studies,seismic data acquiring and processing and chartered hire chargeswould not fall for consideration under Section 44BB of the Actto go for TDA at the rate of 4%. On the contrary, the servicesfell within the definition of “fee for technical services”. 22. When the Assessing Officer could able to trace out thematerial from and out of the materials submitted by theassessee, such new informations or materials undoubtedly wouldprovide the Assessing Officer for 'reason to believe' to reopenthe assessment. This being the factum established, this Court isof the considered opinion that the respondent could able toestablish that the Assessing Officer has 'reason to believe' forreopening of assessment. The other intricacies raised by theassessee on merits are to be adjudicated elaborately withreference to the original documents and evidences to be madeavailable before the authority. Such an elaborate adjudicationon merits need not be entertained by the High Court in a writproceedings under Article 226 of the Constitution of India. 23. The scope of judicial review under Article 226 of theConstitution of India is to scrutinize the processes, throughwhich, a decision is taken by the competent authority inconsonance with the provisions of the law, but not the decisionitself. When the decision is reasoned and in the present case,the reopening is based on certain materials on record, thenfurther adjudications are to be done before the authority basedon the materials available on record. The sufficiency of thereasons need not be gone into by the High Court in a writproceedings. Thus, the petitioner is bound to co-operate for thecompletion of the reopening proceedings initiated under Section147/148 of the Act and the respondent is directed to concludethe assessment / reassessment proceedings as expeditiously aspossible by following the procedures as contemplated. 24. Accordingly, the writ petition stands dismissed. Nocosts. Sd/- Assistant Registrar(CS VII) //True Copy// Sub Assistant Registrar Kak ToThe Deputy Director of Income Tax,(International Taxation)Room No.703, IInd Floor,Annexe Building, Aaykar Bhawan,121, Mahatma Gandhi Road,Chennai – 600 034. +1cc to M/s.Hema Muralikrishnan, Advocate, S.R.No.41714/2021 SSV(CO)RGA(16/09/2021) W.P.No.6768 of 2013