Hcl Corporation Limited v. Badar Durrez Ahmed (Oral

*IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on 07.12.2011 +W.P.(C) 8475/2010 HCL CORPORATION LIMITED versus …Petitioner ASSISTANT COMMISSIONER OF INCOME-TAX & ANR ..Advocates who appeared in this case:For the Petitioner: Mr Ajay Vohra, Adv. with Ms Kavita Jha, Mr Amit Sachdeva andMr Somnath Shukla, AdvocatesFor the Respondent: Ms Suruchi Aggarwal Respondents For the Respondent: Ms Suruchi AggarwalCORAM:HON'BLE MR. JUSTICE BADAR DURREZ AHMEDHON'BLE MS. JUSTICE VEENA BIRBAL BADAR DURREZ AHMED (ORAL) 1.The present writ petition is in respect of the assessment year 2004-05. Thepetitioner is aggrieved by the fact that the assessment in respect of the saidassessment year is sought to be re-opened by the Assessing Officer by invoking theprovisions of section 147 of the Income Tax Act, 1961 (hereinafter referred to asthe ‘said Act’). 2.By virtue of the present writ petition, the petitioner is seeking the quashingof the notice dated 30.03.2010 issued under section 148 of the said Act and also thequashing of all proceedings initiated pursuant thereto including the order dated13.12.2010 passed by the Assessing Officer whereby he rejected the objections tothe re-opening of the assessment filed on behalf of the petitioner/assessee. 3.The original assessment under section 143 (3) was completed on 17.07.2006.The notice under section 148 of the said Act was issued by the Assessing officer on 30.03.2010 and the reasons thereof are also dated 30.03.2010. The reasons werecommunicated to the petitioner/assessee on 07.12.2010.The petitioner filed hisobjection on 10.12.2010 and the impugned order rejecting the objection was passedon 13.12.2010. We may also point out that by virtue of the order dated 20.01.2010passed in the present proceedings this court had stayed further proceedings andtherefore the Assessing Officer was prevented from passing an assessment orderpursuant to the re-opening of the assessment. 4.Mr Vohra, appearing on behalf of the petitioner essentially made twosubmissions.His first submission was that the notice under section 148 wasbeyond the period of four years and was therefore time barred.His secondsubmission was that even if we ignore the fact that the re-opening was itself barredby time it cannot be sustained because it was occasioned by a mere change ofopinion. He submitted that the Assessing Officer in the first round had examinedall the details which had been filed by the assessee and it was only after examiningall other information which the assessee was required to furnish that the assessmentorder was passed. Mr Vohra further submitted that the sole issue for considerationwas the extent of the expenses which was incurred in relation to earning exemptincome in the backdrop of section 14-A of the said Act. He submitted that theassessee had disclosed that it has incurred a sum of Rs. 54,31,565/- towards theportfolio management scheme and a further sum of Rs. 8,10,000/- towardsdepository charges which were the sum total of expenses incurred towards earningthe exempt dividend income of Rs. 195,19,82,701/-. And, the assessee itself hadexcluded these expenses from the claimed expenditure. 5.Consequently, it was submitted by Mr Vohra that first of all there was a full 5.Consequently, it was submitted by Mr Vohra that first of all there was a full and true disclosure of the expenses incurred towards earning dividend incomewhich was exempted in the year in question and that there was no otherexpenditure incurred in respect of earning that income.He submitted that thisbeing the position, the bar of four years clearly applied and since the notice undersection 148 of the said Act was admittedly issued on 30.03.2010 i.e., beyond thefour years from the end of the assessment year in question, there would be nooccasion for re-opening the assessment as the same was barred by law.In anyevent, he submitted that a mere change of opinion could not be a ground for re-opening an assessment as has been held by the Supreme Court in the case ofCIT v.Kelvinator of India Ltd:320 ITR 561 (SC), which affirmed a full Bench decisionof this court in the case ofCIT v. Kelvinator of India Ltd: 256 ITR 1 FB (Del). 6.Mr Vohra further submitted that it appears that the only reason as to why there-opening has been attempted on the part of the revenue was the fact thatsubsequent to the filing of the return the provisions of section 14-A were amendedby introduction of sub-sections (2) and (3) therein by virtue of the Finance Act2006, with effect from 01.04.2007, and the subsequent introduction of Rule 8-D inthe Income Tax Rules, 1962 (hereinafter referred to as the ‘said Rules’) whichprovided the methodology for computing the expenses incurred towards earningincome which did not form part of the total income.The said Rule 8-D wasnotified in the gazette on 24.03.2008. He submitted that the revenue was of theview that the provisions of sub-sections (2) and (3) of section 14-A as also Rule 8-D would be retrospective in operation. That view has been dispelled by virtue ofthe decision of this court in the case ofMaxopp Investment Ltd v. CIT:ITA687/2009 decided on 18.11.2011, and other connected matters.He furthersubmitted that even if the said provisions were taken to be retrospective they could not be the ground for re-opening of the assessment in view of this court’s decisionin the case ofCIT v. SIL Investments Ltd:ITA 700-701/2010, decided on07.05.2010 (2010-TIOL-327-C-DEL-15). 7.Consequently, Mr Vohra submitted that the writ petition ought to be allowedand the impugned notice as also the impugned order ought to be quashed. 8.Ms Suruchi Aggarwal, appearing on behalf of the revenue contended that thenotice under section 148 of the said Act was not barred by limitation because,according to her, the petitioner had not fully and truly disclosed all the materialfacts necessary for the assessment. As such, according to her, in view of the 1[st]proviso to section 147 the bar of four years would not be applicable. She furthersubmitted that even though this court in the case of Maxopp Investment Ltd(supra) held that the provisions of sub-sections (2) and (3) of section 14-A and rule8-D would operate prospectively, it did not mean that the assessing officer was notto satisfy himself as to the correctness of the claim of the assessee with regard tothe expenditure referred to in section 14-A. She submitted that in paragraph 42 ofthe judgment itself it has been indicated that if the assessing officer is satisfied, onan objective analysis and for cogent reasons that the amount of expenditureclaimed by the assessee for the purposes of section 14-A is not correct, theassessing officer would be required to determine the amount of such expenditureon the basis of a reasonable and acceptable method of apportionment.Thusaccording to her, even though the provisions of sub–sections (2) and (3) of section14-A and Rule 8-D have been held to be prospective in operation, it does not meanthat the assessing officer is not to embark upon an enquiry and investigate into thecorrectness of the claim of the assessee with regard to the quantum of expenditure of the nature indicated in section 14-A of the said Act. of the nature indicated in section 14-A of the said Act. 9.Ms Aggarwal, also drew our attention to Explanation 3 to section 147 andsubmitted that for the purposes of assessment or re-assessment, the assessingofficer may assess or re-assess the income in respect of any issue which hasescaped assessment even if such issue comes to his notice subsequently in thecourse of the proceedings under section 147, notwithstanding that the reason forsuch issue has not been included in the reasons recorded under sub-section (2) ofsection 148. She also submitted, with regard to the Explanation 1 to section 147 ofthe said Act, that mere production before the assessing officer of account books orother evidence from which material evidence could, with due diligence, have beendiscovered by the assessing officer would not necessarily amount to disclosurewithin the meaning of the 1[st]proviso to section 147. She finally submitted thatalthough the reasons recorded by the assessing officer primarily appears to bebased on the retrospective applicability of sub-sections (2) and (3) of section 14-Aand rule 8-D of the said Rules, while embarking upon the re-assessmentproceedings, if the assessing officer comes across something new he is within thelaw to pursue that in view of Explanation 3 of section 147. 10.Having heard learned counsel for the parties and having examined the matterin some detail, we feel that this writ petition ought to succeed. The reason is thatwe agree with Mr Vohra that the notice under section 148 is beyond time. The 1[st]proviso to section 147 reads as under:- “ Provided that where an assessment under sub-section (3) of section143 or this section has been made for the relevant assessment year, noaction shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any incomechargeable to tax has escaped assessment for such assessment year byreason of the failure on the part of the assessee to make a return undersection 139 or in response to a notice issued under sub-section (1) ofsection 142 or section 148 or to disclose fully and truly all materialfacts necessary for his assessment, for that assessment year: 11.It is absolutely clear that the end of the assessment year in question was on31.03.2005. Four years from that would take us to 31.03.2009. The notice undersection 148 in the present case was issued on 30.03.2010. Therefore, the noticewas issued beyond the period of four years from the end of the relevant assessmentyear. 12.The only ground on which the revenue is seeking to escape from the bar oflimitation is that the assessee/ petitioner had failed to disclose fully and truly allmaterial facts necessary for the assessment. We do not see how this can be said.The petitioner had in its return and other information supplied to the assessingofficer clearly indicated that it had received dividend income to the extent of `195,19,82,701/- and that it had incurred expenses to the tune of ` 54,31,565/-towards the portfolio management scheme and ` 8,10,000/- towards depositorycharges which were said to be the only expenses incurred for the purposes ofearning the said dividend income which was admittedly exempt in the year inquestion. 13.In the purported reasons for re-opening the assessment, there is no specificaverment or allegation that any particular expense has not been mentioned by theassessee/ petitioner at the time of original assessment proceedings. On the otherhand, according to Mr Vohra certain information was sought by the assessing officer and the same was supplied by virtue of the letter dated 12.07.2006 which isat page 124 of the paper book.We also notice the following remarks in theassessment order which is at page 62 and which is to the following effect:- 13.In the purported reasons for re-opening the assessment, there is no specificaverment or allegation that any particular expense has not been mentioned by theassessee/ petitioner at the time of original assessment proceedings. On the otherhand, according to Mr Vohra certain information was sought by the assessing officer and the same was supplied by virtue of the letter dated 12.07.2006 which isat page 124 of the paper book.We also notice the following remarks in theassessment order which is at page 62 and which is to the following effect:- “In response to notice u/s 143(2) of the Income Tax Act, 1961, issuedon 03.07.2006 Sh. Ajay Bhagwani, C.A. and Sh. Neelesh Aggarwal,DGM (Finance), authorized representative of the assessee attended.Necessary details filed.The assessee has also filed details ofallocation of expenses, not related to business i.e. provisions writtenback during the year, gain on account of revaluation of investment,details of long term and short term capital gain etc.After examiningthe details filed by the authorized representatives of the assessee, thereturn income is accepted. Assessed u/s 143 (3) of the Income Tax Act at `. 16,84,90,040/-Issue necessary forms.” (underlining added) 14.From the above it is apparent that necessary details were sought and theywere filed and that the assessee had specifically filed details with regard toallocation of expenses. The same was examined by the assessing officer and it isonly then that the assessment was finalized under section 143 (3) of the said Act. Itwould be apposite to note the observations of the Full Bench of this court in thecase of Kelvinator of India Ltd (supra) which are as under:- “We also cannot accept the submission of Mr Jolly to the effect thatonly because in the assessment order, detailed reasons have not beenrecorded an analysis of the materials on the record by itself mayjustify the Assessing Officer to initiate a proceeding under section 147of the Act. The said submission is fallacious. An order of assessmentcan be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143.When a regular order of assessment ispassed in terms of the said sub-section (3) of section 143 apresumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also beraised to the effect that in terms of clause (e) of section 114 of theIndian Evidence Act judicial and official acts have been regularlyperformed.If it be held that an order which has been passedpurportedlywithoutapplicationofmindwoulditselfconferjurisdiction upon the Assessing Officer to reopen the proceedingwithout anything further, the same would amount to giving a premiumto an authority exercising quasi-judicial function to take benefit of itsown wrong.” 15.We are therefore of the view that the petitioner had fully and truly disclosedall the material facts necessary for the purposes of assessment. That being the case,there is no escape from the fact that the bar of four years would be clearlyapplicable. Since the notice under section 148 was issued beyond the period offour years the notice and all proceedings pursuant thereto would be contrary to law.As such the impugned order as also the notice under section 148 are set aside andany proceeding pursuant thereto are also set aside. 16.In view of the conclusion that we have arrived at on the plea of limitation,we do not find it necessary to examine the other issues which have been urgedbefore us. 17.The writ petition is allowed to the aforesaid extent. No orders as to costs. BADAR DURREZ AHMED, J DECEMBER 07,2011kb VEENA BIRBAL, J