M/S.cavinkare Pvt.ltd,Registered Under The Provisions Of Indian Companies Act, 1956 v. The Deputy Commissioner Of Income Tax, Company Circle 1(3)

IN THE HIGH COURT OF JUDICATURE AT MADRAS RESERVED ON : 23.03.2021 PRONOUNCED ON : 02.06.2021 CORAM THE HONOURABLE MR.JUSTICE C.SARAVANAN M/s.CavinKare Pvt.Ltd,Registered under the provisions of Indian Companies Act, 1956.Represented by its Chairman and Managing Director,Mr.C.Ranganathan“Cavin Ville”, 12, Cenotaph Road,Chennai – 600 018. .. Petitioner vs 1.The Deputy Commissioner of Income Tax, Company Circle 1(3), 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 2.The Assistant Commissioner of Income Tax, Company Circle 1(3), 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. .. Respondents Prayer: Writ petition filed under Article 226 of theConstitution of India praying to issue a writ of Certiorari, tocall for the records of the 1[st] respondent in PAN No.AAACB3754Band quash the impugned notice under Section 148 of the Act dated29.03.2014 and the consequent proceedings issued by the SecondRespondent in Co.Cir.I(2)/147/2014-15 dated 05.12.2014. For Petitioner : Mr.R.Sivaraman For Respondents : Mr.A.P.Srinivas, Senior Standing Counsel O R D E R The petitioner has challenged the impugned notice dated29.03.2014 issued under Section 148 of the Income Tax Actseeking to re-open the Assessment for the year 2007-2008 and theconsequential communication/speaking order dated 05.12.2014 overruling the objection of the petitioner against the reopening ofthe assessment for the aforesaid Assessment year 2007-2008. 2.Regular scrutiny Assessment was completed under Section143(3) of the Income Tax Act an assessment order was passed on31.12.2009. Thereafter, at the fag end of the limitation, theimpugned notice dated 29.03.2014 was issued to thepetitioner under Section 148 of the Income Tax Act, 1961. Thereasons given for reopening of the assessment was communicatedto the petitioner vide letter dated 06.08.2014 reads as under:- ''During the A.Y.2007-2008, the assesseehas paid a sum of Rs.1,40,00,000/- to ShriC.K.Ranganathanapartfrom directorsremunerationofRs.99,21,973/-.Thesame requires to be disallowed u.s 36(i)(ii). Since there is a failure on the part ofthe assessee to disclose fully and truly allmaterial facts necessary for his assessment,there is a reason to believe that theincome has escaped assessment.'' 3.It is the case of the petitioner that reopening of theassessment was based on the change of opinion for the year 2011-2012, and there was no ground for reopening of the assessmentunder Section 148 of the Income Tax Act for the purpose ofSection 147 of the Income Tax Act, as the petitioner had notsuppressed any information required for completing theassessment. 4.It is submitted that a similar proceedings was alsoinitiated based on a similar reasoning for the Assessment year2008-2009. The Commissioner of Income Tax(Appeals) by an orderdated 15.12.2017 in I.T.A.No.65/17-18 had dropped the demandwith the following observations:- ''During the appellate proceedings, theappellant raised a significant ground that inthe absence of any fresh material in thepossession of the AO and that too after theexpiry of four years, the issuance of noticeunder Section 148 for reopening the alreadycompleted assessment is ao initio void. Inorder to fortify this ground, the appellantrelied on the decision of the Hon'ble ApexCourt in the case of CIT Vs. Kelvinator ofIndia Ltd (2010) 320 ITR 561. It is a fact that the assessment was reopenedbeyond the period of 4 years. Further aspointed out by the AR, there were no freshmaterials which would justify the invocation ofthe provisions of Section 147. It is also truethat the AO has not brought on record any failure on the part of the appellant todisclose fully and truly all material factsnecessary for its assessment.'' It is a fact that the assessment was reopenedbeyond the period of 4 years. Further aspointed out by the AR, there were no freshmaterials which would justify the invocation ofthe provisions of Section 147. It is also truethat the AO has not brought on record any failure on the part of the appellant todisclose fully and truly all material factsnecessary for its assessment.'' 5.The learned counsel for the petitioner submits thatsimilar reasonings has to be adopted for the present case aswell as for the Assessment year 2007-2008. He further submitsthat for the Assessment year 2011-12, an appeal before theCommissioner of Income Tax (Appeals) was pending on the basis ofchange of opinion for the reopening of the Assessment underNotification dated 29.03.2014 under Section 148 of the IncomeTax Act. It is fairly submitted that even though, the petitionerhad earlier filed a separate writ petition, the petitioner couldnot obtained a stay from this High Court. 6.On merits, the learned counsel for the petitioner furthersubmits that the Minutes of the Meeting of the petitioner heldon 01.08.2006 decided that the Chairman cum Managing Director ofthe petitioner company will be paid a remuneration consisting ofa salary, commission and perquisites which reads as under: ''a.Salary:Rs.5,00,000/- per month (rupeesfive lakhs only)b.Commission:0.3% of the net turnover ofthe company, {if the turn over is uptoRs.400,00,00,000/- (Rupees four hundred croresonly,} payable on a quarterly basis and afixed commission of Rs.20,00,000/- (Rupeestwenty lacs only) if the turnover exceedsRs.400,00,00,000/- (Rupees four hundred croresonly) c.Perquisites:The following perquisitesshall be allowed in addition to the salary.'' 7.He further submits that this was also reflected in theSchedule forming part of the Financial Statement for the year31.03.2007 wherein clearly the commission of Rs.1,40,00,000/-has been declared has detailed below: Schedules Forming Part of the Financial Statements for theyear ended 31st March 2007. (b)(i)Remuneration to Chairman and Managing Director and aWhole-time Director (key management Personnel) 8.The learned counsel for the petitioner further submitsthat the returns filed for the Assessment year 2007-2008 on31.12.2019 along with the annexures also gave the particulars ofthe commission paid to the Chariman cum Managing Director of thepetitioner. 9.It is further submitted that while passing the Assessmentorder under Section 143(3) of the Income Tax Act, the AssessingOfficer had disallowed the several expenses and some of theother items which were missed out were also sought to berectified under Section 154 of the Income Tax Act by exercisingits jurisdiction under the aforesaid provision vide order dated09.3.2010. 10.The learned counsel for the petitioner also refers toform No.3CA namely an Audit Report filed under section 44AB ofthe Act, wherein the particulars of the salary namely theremuneration, contribution to provident funds, perquisites andthe commission paid to the Chairman cum Managing Director weredisclosed. 11.He therefore submits that there is no case made out forinvoking extended period of limitation under proviso to section147 of the income tax act. On merits, the learned counsel forthe petitioner placed the reliance on the decisions of the DelhiHigh Court in Commissioner of Income Tax Vs. ConvertechEquipments (P) Ltd [2013]36 taxmann.com (Delhi) wherein held asfollows: 7.This Court is of the opinion that inview of the fact that no fresh circumstanceshave come to notice to take adifferent view, no substantial question of lawarises on the point of the disallowance underSection 36(1)(ii). The decisions of the Income https://hcservices.ecourts.gov.in/hcservices/ 11.He therefore submits that there is no case made out forinvoking extended period of limitation under proviso to section147 of the income tax act. On merits, the learned counsel forthe petitioner placed the reliance on the decisions of the DelhiHigh Court in Commissioner of Income Tax Vs. ConvertechEquipments (P) Ltd [2013]36 taxmann.com (Delhi) wherein held asfollows: 7.This Court is of the opinion that inview of the fact that no fresh circumstanceshave come to notice to take adifferent view, no substantial question of lawarises on the point of the disallowance underSection 36(1)(ii). The decisions of the Income https://hcservices.ecourts.gov.in/hcservices/ Tax authorities involved concurrent findings onpure questions of fact. Moreover, a DivisionBench of this Court in AMD Metplast (P) Ltd v.Dy.CIT [2012] 341 ITR 563/20 taxmann.com 647(Delhi), after referring to the judgment of theBombay High Court in Loyal Motors ServicesCo.Ltd Vs. CIT [1946] 14 ITR 647 opined thatthe commission, if found to be paid forservices rendered by the director as per theterms of the appointment, cannot be said to bedistribution of dividend or profits in theguise of commission. It was noticed that whilecommission was paid as a form of remunerationfor actual services rendered, dividend is areturn of investment and is paid to all itsshareholders equally. It was thus held that ifthe commission is paid for actual servicesrendered, section 36(1)(ii) will not apply.This decision was followed by this Court in CITVs.Career Launcher India Ltd [2012] 207 Taxman28/20 taxmann.com 637 (Delhi). These decisionsapply to the present case. The substantialquestion of law in ITA No.669/2012 is answeredin favour of the assessee. 12.That apart, reliance was placed on the decision of theHon'ble Supreme Court and other High Courts and specificreference was made to the decision of the Hon'ble Supreme Courtin Assistant Commissioner of Income Tax vs. ICICI SecuritiesPrimary Dealership Ltd [2012] 24 taxmann.com 310 (SC).The learned counsel for the petitioner also relied on the otherfollowing decisions:- 3.Tractors & Farm Equipment ltd Vs. ACIT(2019) 102 taxmann.com 130 (Madras) and4.PVP Ventures Ltd Vs. ACIT (2016) 65taxmann.com 221(Madras). 13.An other decision of this Court in T.C.A.No.873 of 2013dated 02.03.2021 in The Commissioner of Income Tax Vs. M/s.TrueValue Homes (India) Pvt Ltd was also refered wherein it has beenheld as follows: https://hcservices.ecourts.gov.in/hcservices/ deduction underSection 801B(10). During theyear, major shareholding in respect of theassessee was held by N.Ravichandran, to anextent of 95% and acted as Chairman and ManagingDirector and the remuneration was paid atRs.7,47,59,772/-. The breakup of the same wasDirector's remunerationamountingtoRs.2,40,00,000/- and the commission amounting toRs.4,83,59,772/- and perquisite and benefitamounting to Rs.24 lakhs was paid. 14. Defending the impugned order, the learned counsel forthe respondent submits that this High Court has settled thescope to Section 147 of the Income Tax Act, 1961 and theamendments and therefore submits the respondents herein wasjustified in reopening for the Assessment. https://hcservices.ecourts.gov.in/hcservices/ deduction underSection 801B(10). During theyear, major shareholding in respect of theassessee was held by N.Ravichandran, to anextent of 95% and acted as Chairman and ManagingDirector and the remuneration was paid atRs.7,47,59,772/-. The breakup of the same wasDirector's remunerationamountingtoRs.2,40,00,000/- and the commission amounting toRs.4,83,59,772/- and perquisite and benefitamounting to Rs.24 lakhs was paid. 14. Defending the impugned order, the learned counsel forthe respondent submits that this High Court has settled thescope to Section 147 of the Income Tax Act, 1961 and theamendments and therefore submits the respondents herein wasjustified in reopening for the Assessment. 15.He submits that explanation 1 to section 147, makes itclear mere production of documents and books of accounts orother evidence from which material after due negligence factscan discovered by the Assessing Officer does not amount todisclose within the meaning of Section 147 of the Income Tax Act.16.He therefore submits that, even though, the petitionerhad filed an audit report under Section 44AB of the income taxact and the annual report and other documents along with thereturns on 20.03.2009, it could not be stayed that there was atrue and full disclosure at the time of filing of the returns.17.It is therefore submitted that the present writ petitionis liable to be dismissed. He therefore submits that it is openfor the petitioner to produce the order passed by theCommissioner of Income Tax (Appeals) passed on 15.12.2013 forthe Assessment year 2008-2009 and have the matter decided by therespondent. However, it cannot be said that the reopening of theAssessment was without jurisdiction in view of the amendedprovisions of the Income Tax Act. 18.I have considered the arguments advanced by the learnedcounsel for the petitioner and the respondent. Facts are not indispute. The petitioner has made adequate disclosures and basedon the same assessment was completed for the assessment year2007-2008 by the assessing officer. 19.For the assessment year 2008-2009, the assessment wassought to be reopened on similar grounds under a similar noticeSection 148 of the Income Tax Act, 1961. The Commissioner ofIncome Tax (Appeals) vide order dated 15.12.2017 has dropped theproceeding. 20.Reopening of the completed assessment based on change ofopinion has been frowned upon by the Apex Court by its severaldecisions. The decision cited by the petitioner are squarelyapplicable facts and circumstances of the case. Even if thematter is remitted back to the respondents to pass a speakingorder, no useful purpose would be served as the respondentsappear to have accepted the views of the Commissioner of IncomeTax (Appeals) vide order dated 15.12.2017 for the assessmentyears 2008-2009 under similar circumstances. 21.The respondents have also not produced any documents toshow that the said order of the Commissioner of Income Tax(Appeals) has been appealed against before the Income TaxAppellate Tribunal and an Appeal is pending as on dated.Therefore, even on merits it is not permissible to therespondents to proceed with the impugned proceeding contrary tothe said order. 22.Further, as an assessing officer, the respondent cannottake a different view for the assessment year 2007-2008 from theview is taken for the assessment year 2008-2009 by theCommissioner of Income Tax (Appeals) in the light ofthe decision of the Hon'ble Supreme Court, Union of India VsKamalakshi Finance Corporation Limited 1991 (55) ELT 333. 23.Under these circumstances, this Court is inclined toallow this writ petition. Accordingly, this writ petition isallowed. No cost. Consequently, connected Miscellaneous Petitionis closed. s/d- Assistant Registrar(CS VII) True Copy Sub-Assistant Registrar 22.Further, as an assessing officer, the respondent cannottake a different view for the assessment year 2007-2008 from theview is taken for the assessment year 2008-2009 by theCommissioner of Income Tax (Appeals) in the light ofthe decision of the Hon'ble Supreme Court, Union of India VsKamalakshi Finance Corporation Limited 1991 (55) ELT 333. 23.Under these circumstances, this Court is inclined toallow this writ petition. Accordingly, this writ petition isallowed. No cost. Consequently, connected Miscellaneous Petitionis closed. s/d- Assistant Registrar(CS VII) True Copy Sub-Assistant Registrar jasTo1. The Deputy Commissioner of Income Tax, Company Circle 1(3), 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 2. The Assistant Commissioner of Income Tax, Company Circle 1(3), 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. Company Circle 1(3), 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. W.P.No.8077 of 2015 and M.P.No.2 of 2015 CP(CO)SP(13/07/2021)