M/S. T.stanes & Company Limited v. The Deputy Commissioner Of Income Taxcorporate Circle I(2),Income Tax Department,Race Course, Coimbatore – 641 018

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved On 31.01.2020Pronounced On .04.2020 CORAM THE HON'BLE MR.JUSTICE C.SARAVANAN W.P.Nos.30564 & 32477 of 2016andW.M.P.Nos.26506 & 28176 of 2016 M/s. T.Stanes & Company Limited,8/23-24, Race Course Road,Coimbatore – 641 018,Rep. by its Whole time DirectorShri P.S.Bopaiah. ... Petitioner in both W.Ps. Vs. The Deputy Commissioner of Income TaxCorporate Circle I(2),Income Tax Department,Race Course, Coimbatore – 641 018....Respondent in both W.Ps. Writ Petitions filed under Article 226 of the Constitutionof India praying to issue a Writ of Certiorarified Mandamus, tocall for the records of the respondent and quash the impugnednotices under Section 148 of the Act in PAN: dated08.09.2015 and 21.09.2015 and the consequential orders in PANNo: AAACT7126P dated 20.07.2016 & 26.08.2016 respectively anddirect the respondent to drop the reassessment proceedings forthe Assessment Years 2010-2011 & 2011-2012. For Petitioner : Mr.Vikram Vijayaraghavan for Mr.Subbaraya Aiyar Padmanabhan in both W.Ps. For Respondent : Mr. A.N.R. Jayaprathap Standing Counsel, in both W.Ps. ____________ Page No 1 of 8 https://hcservices.ecourts.gov.in/hcservices/ C O M M O N O R D E R By this common order both the Writ Petitions are beingdisposed. 2. In these Writ Petitions, the petitioner has challengedthe impugned notices dated 08.09.2015 and 21.09.2015 issued bythe respondent under Section 148 of the Income Tax Act, 1961seeking to reopen of the assessments for the Assessment Years2010-2011 & 2011-2012 and consequential communications dated20.07.2016 and 26.08.2016 for the respective Assessment Yearsoverruling the objections of the petitioner. The petitioner hasprayed for directing the respondent to drop the proposed re-assessment proceedings initiated by the respondent. 3. The petitioner is engaged in the manufacture offertilizers, mixtures, micro nutrient fertilizers, biopesticides, high quality seeds, and marketing of agro inputs,marketing of consumer industrial products, distributors of agrochemicals, Estate stores, Bata products, Tarpaulins etc. It isalso engaged in manufacture of coffee powder, purchase and saleof coffee seeds and tea and retreading of automobile tyres. 4. According to the petitioner, pursuant to the order dated05.03.2010 of this Court, M/s.Stanes Tyre& Rubber ProductsLimited (Transferror Company) merged with the petitioner(M/s.Stanes & Company limited) with effect from 01.04.2009. 5. The petitioner filed its Income Tax Return of the for theAssessment Years 2010-2011 and 2011-2012 and declared incomeafter setting off the carry forward loss and unabsorbeddepreciation of M/s. StanesTyre and Rubber Products Ltd.(Transferror Company), on the book profit under Section 115JB ofthe Act was determined. 6. The returns were scrutinized and assessment orders werepassed as detailed below:- ____________ Page No 2 of 8 * Under Section 115JB of the Income Tax Act, 1961. 7. These returns were sought to be re-opened under Section148 of the Income Tax Act, 1961. To which the petitioner wasalso filed its objections. By the impugned orders, therespondent has rejected/ overruled the objections of thepetitioner against the reopening of the assessments. The detailsare as follows:- ____________ Page No 3 of 8 https://hcservices.ecourts.gov.in/hcservices/ 8. The reasons for re-opening the assessments of therespective Assessment Years as communicated are as follows:- For Assessment Year 2010-11For Assessment Year 2011-2012 ____________ Page No 4 of 8 6. The returns were scrutinized and assessment orders werepassed as detailed below:- ____________ Page No 2 of 8 * Under Section 115JB of the Income Tax Act, 1961. 7. These returns were sought to be re-opened under Section148 of the Income Tax Act, 1961. To which the petitioner wasalso filed its objections. By the impugned orders, therespondent has rejected/ overruled the objections of thepetitioner against the reopening of the assessments. The detailsare as follows:- ____________ Page No 3 of 8 https://hcservices.ecourts.gov.in/hcservices/ 8. The reasons for re-opening the assessments of therespective Assessment Years as communicated are as follows:- For Assessment Year 2010-11For Assessment Year 2011-2012 ____________ Page No 4 of 8 "The assessment in this case"The assessment in this casewas completed u/s 143(3) ofwas completed u/s 143(3) ofthe IT Act, 1961 onthe IT Act, 1961 on31.03.2013 by assessing book25.03.2014byassessingprofit of Rs.11,09,65,797/-totalincomeofu/s.115JB of the IT Act. Rs.7,32,73,599/-underNormal Provisions of the ITSubsequently it is noticedAct. that on 05.03.2010 theassesseecompanyhasSubsequently it is noticedobtained an order fromthat on 05.03.2010 theHon'ble Madras High Courtassesseecompanyhasapproving the scheme ofobtained an order fromamalgamation between theHon'ble Madras High CourtHolding company T. Stanes&approving the scheme ofCo. Ltd. (Assessee company)amalgamation between theand fully owned subsideryHolding company T. Stanes&company M/s. Stanes Tyre andCo. Ltd. (Assessee company)Rubber Products Ltd., w.e.f.and fully owned subsidery1.04.2009. In consequence ofcompany M/s. Stanes Tyre andtheamalgamationtheRubber Products Ltd., w.e.f.assesseecompanyhas1.04.2009. In consequence ofadjustedasumoftheamalgamationtheRs.7,02,40,408/- as lossassesseecompanyhasbrought forward from theadjustedasumofamalgamating company, byRs.2,98,02,930/- as lossvirtueofamalgamationbrought forward from theu/s.72A of the IT Act, 1961.amalgamating company, byvirtueofamalgamationFor adjusting the broughtu/s.72A of the IT Act, 1961.forward loss u/s.72A of theamalgamating company, theIn this connection it wasassessee company should beobserved that as per thean Industrial undertakingprovisions u/s. 72A(1)(a)engaged in manufacture orand 72A97)(aa) for adjustingprocessing of goods. In thisthe brought forward loss ofcase, the Stanes Tyre andthe amalgamating company, itRubberProducerswereshould be an industrialengaged in the business ofundertakingengagedintyre retreading only. As permanufacture or processing ofthe judicial decision ofgoods. In this case, theHon'ble Kerala High Court inStanes Tyre and Rubberthe case of CIT Vs. VijayaProducers were engaged inRetreders(2001)nothebusinessoftyremanufacturing is involved inretreading only. As per thetyre retreading. Therefore,judicial decision of Hon'blethe assessee company is notKerala High Court in theeligible to adjust thecase of CIT Vs. Vijaya ____________ Page No 5 of 8 9. Challenging the same, the learned counsel for thepetitioner relied on the following decisions:-i. Additional Commissioner of Income Tax Vs. KalsiTyre (P) Ltd., (1981) 131 ITR 0636.ii.Fenner (India) Ltd. Vs. Deputy Commissioner ofIncome Tax, (2000) 241 ITR 0672.iii.Commissioner of Income Tax Vs. Vijaya Retreaders,(2002) 253 ITR 0053. ____________ Page No 5 of 8 9. Challenging the same, the learned counsel for thepetitioner relied on the following decisions:-i. Additional Commissioner of Income Tax Vs. KalsiTyre (P) Ltd., (1981) 131 ITR 0636.ii.Fenner (India) Ltd. Vs. Deputy Commissioner ofIncome Tax, (2000) 241 ITR 0672.iii.Commissioner of Income Tax Vs. Vijaya Retreaders,(2002) 253 ITR 0053. 10. Defending the impugned notices and impugnedcommunications issued for the respective Assessment Years, it issubmitted that mere production of documents before the AssessingOfficer the books of account or other document from whichmaterial evidence could be gathered with due diligence by theassessing officer will not amount to disclosure contemplated inSection 147 of the Income Tax Act, 1961. It is further submittedthat Explanation 2 to Section 147 of the Income Tax Act, 1961 isattracted. It is further submitted that it is open for thepetitioner to make all submissions before the respondent and incase there is a case for dropping on merits, the proceedingswill be dropped on merits. 11. From a reading of the above it is evident that the onlyreason for reopening the assessment of the petitioner was thatit was not entitled to adjust the loss of the transferor companyas the said company was not engaged in the “manufacturingactivity” within the meaning of Section 72A(1)(a) of the IncomeTax Act, 1961. 12. In this connection, reliance has been placed on thedecision of the Kerala High Court in CIT Vs. Vijaya Retreaders,(2002) 253 ITR 53 and that of the decision of the Hon’bleSupreme Court in CIT Vs. Tamil Nadu State Transport Corporation(2001) 252 ITR 883. For the Assessment Year 2010-11, the tax waspaid under Section 115JB of the Income Tax Act, 1961 and it hasbeen proposed to be recomputed by denying the adjustment of lossbrought forward from the said company amounting toRs.7,02,40,408/- similarly for the Assessment Year 2011-12 a sumof Rs.2,98,02,930/- is sought to be added back to the taxableincome. 13. However, it is noticed that the petitioner disclosedthis aspect in the return of income and it is pursuant to whichthe respective assessment orders dated 31.03.2013 and 25.3.2014were passed by the Assessing Officer. Thus, there was nomaterial suppression of facts on the part of the petitioner to ____________ Page No 6 of 8 https://hcservices.ecourts.gov.in/hcservices/ either truly or fully furnish the information that were requiredfor completing the assessment. Therefore invocation of Section148 of the Income Tax Act, 1961 for the purpose of proviso toSection 147 is clearly without jurisdiction. 14. The impugned communication dated 20.07.2016 for theAssessment Year 2010-11 and the impugned communication dated26.08.2016 for the Assessment Year 2011-2012 issued pursuant tothe decision of the Supreme Court in GKN Drive Shafts indicatesthat invocation of Section 148 for the purpose of proviso toSection 147 qua denial of adjustments under Section 72A(1)(a) ofthe Income Tax Act, 1961 is inspired from the change of opinionas the petitioner has disclosed the basis on which thepetitioner was claiming deductions. Thus, the proposal in theimpugned communications would clearly be in violation of thedecision of the Honourable Supreme Court in CIT Vs. Kelvinatorof India Ltd, (2010) 2 SCC 723. 15. The issue as to whether the petitioner was entitled toadjust the loss of the brought forward from the books ofaccounts of the transferor company was subject matter ofdiscussion before the assessment orders were passed for therespective Assessment Years. 15. The issue as to whether the petitioner was entitled toadjust the loss of the brought forward from the books ofaccounts of the transferor company was subject matter ofdiscussion before the assessment orders were passed for therespective Assessment Years. 16. Reopening of the assessment to deny the adjustments madeunder is therefore without jurisdiction. Therefore, the provisoto Section 147 of the Income Tax Act, 1961 puts an embargo onthe respondent from proceeding further as no action shall betaken under this section after the expiry of four years from theend of the relevant assessment year, unless any incomechargeable to tax has escaped assessment for such assessmentyear by reason of the failure on the part of the assessee tomake a return under Section 139 or in response to a noticeissued under sub-section (1) of Section 142 or Section 148 or todisclose fully and truly all material facts necessary for hisassessment, for that assessment year. 17. At the same time, if in the course of such proceedingsthe respondent comes to a conclusion that there were othergrounds on which assessment can be reopened, the respondent canassess or reassess such income in the light of Explanation 3 toSection 147 of the Income Tax Act, 1961. 18. In the light of the above discussion, I direct thepetitioner to participate in the proceedings before therespondent. The respondent is however precluded from disturbingthe adjustments made by the petitioner and allowed in theirrespective assessment orders under Section 72A(1)(a) of the ____________ Page No 7 of 8 https://hcservices.ecourts.gov.in/hcservices/ Income Tax Act, 1961. 19. The respondent may however look for such other aspectswhich may come within the purview of Explanation 3 to Section147 of the Income Tax Act, 1961, for them to demand whilepassing orders. 20. Since the dispute pertains to the Assessment Years 2010-2011 & 2011-2012, in the light of the above observations, therespondent is directed to bring a closure to the proceedingswithin a period of three months from the date of receipt of acopy of this order through videoconferencing, if situation sowarrants on account of Covid19 Pandemic. 21. The present Writ Petitions stand disposed with the aboveobservations. No cost. Consequently, connected MiscellaneousPetitions are closed. -s/d- Assistant Registrar True Copy Sub-Assistant Registrar jen ToThe Deputy Commissioner of Income TaxCorporate Circle I(2),Income Tax Department,Race Course, Coimbatore – 641 018. Pre-Delivery Common Order in W.P.Nos.30564 & 32477 of 2016andW.M.P.Nos.26506 & 28176 of 2016 ks(co)aa08/07/2020 ____________ Page No 8 of 8 https://hcservices.ecourts.gov.in/hcservices/