Kancheepuram District – 603 002 v. Deputy Commissioner Of Income Tax, Corporate Circle 1(2)

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM W.P.No.31258 of 2018andW.M.P.No.36442 of 2018 M/s.BASF Catalysts India Private Limited,Represented by its authorizedSignatory Shri Anil Kumar ChoudharyPlot No.8/1, Veerapuram Village,Chengelpet Taluk, Kancheepuram District – 603 002... Petitioner Vs 1. Deputy Commissioner of Income Tax, Corporate Circle 1(2), 121, Mahatma Gandhi Road, Chennai. 2. Principal Commissioner of Income Tax 1 121, Mahatma Gandhi Road, Chennai. ... Respondents Prayer : Writ Petition filed Under Article226 of theConstitution of India to issue of Writ of Certiorari, to callfor the records on the file of the First Respondent and quashthe impugned order in PAN: /AY 2011-12 dated 13.11.2018alongwithnoticeinPAN:AAACE2545BinNoticeNo.ITBA/AST/148/2017-18/1009528429(1) dated 29.03.2018 issuedunder section 148 of the Income Tax Act for the assessment year2011-12. For Respondents : Mr.D.Prabhu MukunthArunkumar Junior Standing counsel For Income Tax ORDER The writ on hand is filed, questioning the legal validity ofthe notice issued under Section 148 of the Income Tax Act[hereinafter referred to as the 'Act'] and the consequential https://hcservices.ecourts.gov.in/hcservices/ order passed, disposing of the objections filed by thepetitioners. 2. The petitioner is engaged in the manufacture of sale ofcatalysts coverers to automobile manufactures in India. Thepetitioner had filed a return of income for the Assessment Year2011-12 and filed revised return also. The first respondent,after perusal of the details of payments, made to BASF USA andforex loss in respect of forward contracts and completed theassessment by making a disallowance in respect of payments madeto BASF USA and no addition in respect of the Forex Loss. 3. The learned counsel for the petitioner made a submissionthat the petitioner has submitted all the relevant books ofaccounts pertaining to the Assessment Year and provided allinformations sought for. Accordingly, the assessment order hasbeen passed. While so, the first respondent issued a noticeunder Section 148 of the Act on 29.03.2018 with an allegationthat the income of the petitioner has escaped assessment. Thepetitioner filed a return of income in response to the noticeand requested for furnishing of reasons for reopening ofassessment. The reasons were furnished and objections were filedand thereafter, the objection was disposed of by the firstrespondent and challenging the said disposal order, the presentwrit petition is filed. 4. The learned counsel appearing on behalf of the writpetitioner mainly contended that reopening of assessment isperverse in the present case as there is no new tangiblematerials available for the Assessing Officer to invoke thepowers conferred under Section 147 of the Act. It is a case ofchange of opinion, in view of the fact that the issues raised inthe reason for reopening were already adjudicated elaborately bythe Assessing Officer and an assessment order was passed. Thus,in the absence of fresh materials on record, the firstrespondent has no jurisdiction to reopen the assessment. 4. The learned counsel appearing on behalf of the writpetitioner mainly contended that reopening of assessment isperverse in the present case as there is no new tangiblematerials available for the Assessing Officer to invoke thepowers conferred under Section 147 of the Act. It is a case ofchange of opinion, in view of the fact that the issues raised inthe reason for reopening were already adjudicated elaborately bythe Assessing Officer and an assessment order was passed. Thus,in the absence of fresh materials on record, the firstrespondent has no jurisdiction to reopen the assessment. 5. The learned counsel for the petitioner referred theAppellate order passed by the Commissioner of Income Tax(Appeals) [in short 'CIT(A)'] dated 31.01.2018 and drawn theattention of this Court that regarding disallowances withreference to the Assessment Year 2011-12, adjudications weremade. The Appellate authority considered those facts and detailsand made a finding. Against which, the Revenue filed an appealbefore the Income Tax Appellate Tribunal [in short 'ITAT'] andthe said appeal is pending. This being the factum, the issuesadjudicated and pending in appeal cannot be a ground forreopening of assessment under third proviso to Section 147 ofthe Act. Any matter, which are the subject matter of any appeal,cannot be subjected to reassessment. Thus, the initiation of proceedings under Section 147 is in violation of third provisoto Section 147 of the Act. 6. The learned counsel for the petitioner, reading thereasons, furnishing for reopening of assessment, contended thatthe said reasons were adjudicated before the Assessing Officerand further, subject matter of appeal, which is pending beforethe ITAT. For all these reasons, the very reason for reopeningis untenable and in violation of third proviso to Section 147 ofthe Act and thus, the impugned orders are liable to be set aside. 7. The learned counsel for the petitioner further contendedthat all the merits relatable to the reasons furnished for thepurpose of reopening of assessment for the Assessment Year 2011-12 were completely adjudicated and the respondents could notable to establish that any new fresh materials, which availableon record to invoke Section 147 of the Act and thus, the actionsinitiated are untenable. 8. The learned Junior Standing counsel disputed the saidcontentions by stating that the reasons furnished for reopeningof assessment is no way connected with the subject, which wasraised in the appeal and the reasons are independent. In orderto substantiate the said contention, the learned Junior Standingcounsel drawn the attention of this Court with reference to theexplanations submitted by the writ petitioner on 05.02.2015,wherein, in Point No.8, the petitioner has stated that “Forexloss details and declaration to the effect that no capital expis included – Annexure VIII”. Referring Annexure VIII, thelearned Junior Standing counsel reiterated that the materialsavailable on record are unconnected with the earlieradjudication made and further, the Assessing Officer, whileconsidering the return of income, has not adjudicated theseaspects. 9. Pertinently, the learned Junior Standing counsel referredthe Appellate authority's order dated 31.01.2018, wherein thefacts of the case are stated as under:“2. Brief facts of the case: The appellant isengaged in the business of manufacture and sale ofcatalysts and catalytic convertors for automobilemanufactures in India. Assessment u/s.143(3) has beencompleted for A.Y.2011-12 after disallowing paymentsmade to BASF Malaysia to the extent of Rs.1,08,78,548/-towards shared legal / administrative services u/s.40(a)(i) for failure to deduct tax at source u/s.195.Further, a sum of Rs.4,28,18,719/- paid by theappellant to BASF SE, Germany under a Cost SharingAgreement has also been disallowed for failure todeduct tax at source.” 10. The above brief facts in the Appellate order dated31.01.2018 is compared with the reasons furnished for reopeningof assessment in proceedings dated 12.10.2018. The first reasonfurnished are as under:“1.The assessee has made payments to AssociatedEnterprise for shared service/cost sharing expenses. Asper Attachment 6B to Form 3CEB, there is an entry forpayment of Rs.3,72,07,000/- to BASF Corporation, USA,but TDS was not made u/s.195. Income escapedRs.3,72,07,000/-”. 11. Relying on these two facts, the learned Junior Standingcounsel contended that the BASF Corporation mentioned in theAppellate order is at Malaysia and the reasons furnished forreopening indicates that there is an entry for payment ofRs.3,72,07,000/- to BASF Corporation USA, but TDS was not madeunder Section 195. Income escaped Rs.3,72,07,000/-. Therefore,those facts before the Appellate authority are no way connectedwith the reasons furnished for reopening of assessment inproceedings dated 12.10.2018. Both are different and distinctand therefore, the petitioner has to participate in thereassessment proceedings. The learned Junior Standing counselsaid that the petitioner has not clarified his objections. Thus,the reopening is made, based on the new materials identified,which would not disclosed fully and truly by the petitioner atthe time of assessment and therefore, the reassessment is withinthe ambit of Section 147 of the Act. This apart, the petitionersubmitted his detailed objections on 01.11.2018 and theAppellate order was passed by the CIT(A) on 31.01.2018.Therefore, the petitioner had an opportunity to explain theseaspects, but he has not said all these aspects in the objections. 12. The learned counsel for the petitioner, in reply, statesthat the Income Tax Department was party to the appeals filedbefore the CIT(A), this Court is of an opinion that the IncomeTax Department is working in a large scale manner. Variousofficials are dealing with files. Therefore, the Departmentalrepresentative cannot be expected to bring these facts at thetime of reopening of assessment and it is for the assessee toinform all these aspects to the Assessing Officer at the time offiling its objections merely on the ground that the Income TaxDepartment is a party to the appeal, the petitioner cannot takea ground by stating that he is not mentioned because the IncomeTax Department is a party. Such an objection deserves noconsideration. 13. The order impugned, disposing the objections filed bythe petitioner would reveal that the respondent has consideredall the objections raised by the petitioner on issue basis. Thespecific contention raised by the assessee is that the issue was pending before ITAT and therefore, under third proviso toSection 147 of the Act, reopening cannot be made. However,Revenue raised a point that the deduction of tax was not madefor payments made to BASF Corporation at USA. What wasadjudicated before the Appellate authority was about thepayments made to BASF Corporation, Malaysia. 13. The order impugned, disposing the objections filed bythe petitioner would reveal that the respondent has consideredall the objections raised by the petitioner on issue basis. Thespecific contention raised by the assessee is that the issue was pending before ITAT and therefore, under third proviso toSection 147 of the Act, reopening cannot be made. However,Revenue raised a point that the deduction of tax was not madefor payments made to BASF Corporation at USA. What wasadjudicated before the Appellate authority was about thepayments made to BASF Corporation, Malaysia. 14. The learned Junior Standing counsel relied on thefindings made in the order impugned and contended that theissues raised are dealt with on merits and rejected by thecompetent authority. The authority cannot exceed with referenceto the other aspects raised and it is for the assessee to submitthe materials available with the petitioner by participating inthe process of reassessment. Whatever available on record andthe basis for reopening of assessment as well as the objectionsraised were taken into consideration for the purpose of disposalof the objections and reasons were also recorded. Thus, there isno infirmity. 15. This Court has to consider the scope of third proviso toSection 147 of the Income Tax Act. The third proviso enumeratesthat “Provided also that the Assessing Officer may assess orreassess such income, other than the income involving matterswhich are the subject matters of any appeal, reference orrevision, which is chargeable to tax and has escapedassessment.” 16. The said Proviso indicates that the Assessing Officer“may” assess or reassess such income, other than the incomeinvolving matters, which are the subject matters of any appeal.Therefore, the Court has to consider the language employed inthe third proviso to Section 147 of the Act. The languageemployed is “may”. Thus, a discretion is conferred on theauthority to scrutinize the records at the time of reopening ofany assessment. However, the proviso in other circumstances, theword “shall” is employed, in view of the fact that third provisostipulates that the Assessing Officer may assess or reassess,the Act provides discretion to the Assessing Officer to considervarious aspects and take a decision, whether the income otherthan the income involving the matters are the subject matters ofthe any appeal or not. The word such income would reveal that ina same subject, or issue, if a portion of income is identifiedhas escaped assessment, then also, the Assessing Officer isempowered to reopen the assessment proceedings. Morespecifically, in a singular issue, where portion of transactionor otherwise is the subject matter of appeal and in respect ofthe same issue, some other informations are identified or tracedout and the said issue was not the subject matter of the appealnor discussed by the Appellate authority, then also theAssessing Officer is empowered to invoke Section 147 and reopen the assessment. In such circumstances, the assessee cannotcomplain that the issue was pending before the AppellateAuthority. At the outset, mere pendency or adjudication of aparticular issue on a subject by the Appellate authority solelycannot be a ground and the reasons furnished, if directlyconnected to the issue adjudicated before the Appellateauthority is the point to be considered by the Court for formingan opinion, whether the reopening of assessment is in valid andsustainable under the third proviso to Section 147 of the Act. the assessment. In such circumstances, the assessee cannotcomplain that the issue was pending before the AppellateAuthority. At the outset, mere pendency or adjudication of aparticular issue on a subject by the Appellate authority solelycannot be a ground and the reasons furnished, if directlyconnected to the issue adjudicated before the Appellateauthority is the point to be considered by the Court for formingan opinion, whether the reopening of assessment is in valid andsustainable under the third proviso to Section 147 of the Act. 17. Adopting the principles of purposive interpretation, theproviso clauses are provided with specific purpose, enabling theAssessing Officer to cull out new materials, informations, fromand out of the issue, which all are pending before the Appellateauthority with reference to an assessment order already passed.The legislative intention is not to deprive the Revenue fromreopening the assessment if any new materials are identifiedfrom and out of the issue, which were not the subject matter ofthe appeal. Issue may be one and the same, but the materialscollected may be different and distinct and was not the subjectmatter of the appeal. Thus, the distinctions are very importantfor the purpose of reopening of assessment by the authoritycompetent. 18. In the present case, the reasons furnished for reopeningof assessment would reveal that the assessee has made paymentsto Associated Enterprise for shared service/cost sharingexpenses. As per Attachment 6B to Form 3CEB, there is an entryfor payment of Rs.3,72,07,000/- to BASF Corporation, USA, butTDS was not made u/s.195. 19. The facts of the case as narrated in the Appellate orderdated 31.01.2018 would reveal that Assessment u/s.143(3) hasbeen completed for A.Y.2011-12 after disallowing payments madeto BASF Malaysia to the extent of Rs.1,08,78,548/- towardsshared legal / administrative services u/s.40(a)(i) for failureto deduct tax at source u/s.195. 20. The difference is that the disallowance of paymentsrelated to BASF Malaysia is stated in the appeal and the extentof disallowance is mentioned as Rs.1,08,78,548/-. However, inthe reasons furnished for reopening in proceedings dated12.10.2018 would state that the income escaped isRs.3,72,07,000/-. Therefore, there is a mismatching between thesubject dealt with by the Appellate authority as well as thereasons furnished for reopening of assessment. 21. The learned counsel for the petitioner made an attemptto clarify certain transactions for the purpose of establishing https://hcservices.ecourts.gov.in/hcservices/ 20. The difference is that the disallowance of paymentsrelated to BASF Malaysia is stated in the appeal and the extentof disallowance is mentioned as Rs.1,08,78,548/-. However, inthe reasons furnished for reopening in proceedings dated12.10.2018 would state that the income escaped isRs.3,72,07,000/-. Therefore, there is a mismatching between thesubject dealt with by the Appellate authority as well as thereasons furnished for reopening of assessment. 21. The learned counsel for the petitioner made an attemptto clarify certain transactions for the purpose of establishing https://hcservices.ecourts.gov.in/hcservices/ that the subject matter is one and the same and the issue wasrelatable to the transactions from various countries. If thefacts also, it is for the petitioner / assessee to place allsuch records before the Assessing Officer. Mere reopening ofcannot be construed as conclusive. Still, the petitioner wouldget an opportunity to clarify these aspects and establish thatthere was no suppression or failure on the part of the assesseeto furnish true and full disclosures. However, High Court cannotadjudicate these disputed aspects. Once there is a prima faciereason for reopening of assessment, which is essential under theprovisions of Section 147 of the Act, rest of the adjudicationsare to be completed in all respects by affording opportunity tothe assessee concerned. The initiation of proceedings cannot becrippled merely based on certain clarifications. Suchclarifications as well as the documents relied upon are to beadjudicated in detail by the Assessing Officer for the purposeof arriving a decision during the course of 147/148 proceedings.22. This being the factum established, this Court is of theconsidered opinion that the petitioner has to co-operate for thecompletion of the assessment / reassessment proceedings byavailing the opportunities to be provided and the respondentsare bound to complete the proceedings as expeditiously aspossible. 23. With these observations, the writ petition standsdismissed. No costs. Consequently, connected miscellaneouspetition is closed. Sd/- Assistant Registrar(CS III) //True Copy// Kak Sub Assistant Registrar To1. The Deputy Commissioner of Income Tax, Corporate Circle 1(2), 121, Mahatma Gandhi Road, Chennai.2. The Principal Commissioner of Income Tax 1 121, Mahatma Gandhi Road, Chennai. +1cc to Mr.N.V.Balaji, Advocate, S.R.No.38123+1cc to M/s.Hema Muralikrishnan, Senior standing Counsel, S.R.No.38103 W.P.No.31258 of 2018 GPL(CO)HS(26/08/2021)