M/S.citadel Fine Pharmaceuticals Limited v. The Deputy Commissioner Of Income-Tax. Corporae Circle-1(2), Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM W.P.Nos.36522 & 35630 of 2016W.M.P.Nos.31430 of 2016 & 10193 of 2021 M/s.Citadel Fine Pharmaceuticals Limited,Represented by Mr.K.Rajiv, Director,No.43, Main Road, Velacherry,Chennai-600 042. ..Petitioner in both W.Ps vs. 1.The Deputy Commissioner of Income-Tax. Corporae Circle-1(2), Chennai-600034. ...R1 in W.P.No.35630 of 2016 2.The Assistant Commissioner of Income-Tax,Corporate Circle-1(2),121, Mahatam Gandhi Road,Aayakar Bhavan-Wanaparthy Block,6th Floor, Chennai-600 034. .. Respondent in W.P.No. 36522 of 2016& R2 in W.P.No.35630 of 2016 PRAYER IN W.P.No.36522 of 2016 : Writ Petition filed underArticle 226 of the Constitution of India, praying for the issueof a Writ of Certiorari calling for the records of therespondent in respect of the assessment order passed underSection 143(3) read with Section 147 of the Income-Tax Act, 1961in PAN No. dated 04.10.2016 and quash the same. PRAYER IN W.P.No.35630 of 2016 : Writ Petition filed underArticle 226 of the Constitution of India, praying for the issueof a Writ of Certiorari calling for the records of the 1strespondent in respect of the assessment notice issued for theassessment year 2009-10 under Section 148 of the Income-Tax Act,1961 in PAN No. dated 05.01.2016 and the consequentialorder disposing off the objections to the reasons dated19.09.2016 passed by the second respondent and to quash thesame. In both W.P'sFor petitioner :Mr.M.V.Swaroop For Respondents :Mr.D.Prabhu Mukunsh Arunkumar Standing Counsel for Income Tax C O M M O N O R D E R The writ petition in W.P.No.36522 of 2016 is filed tocall for the records of the respondent in respect of theassessment order passed under Section 143(3) read with Section147 of the Income-Tax Act, 1961 in PAN No. dated04.10.2016 and quash the same. 2. The writ petition in W.P.No.35630 of 2016 is filed tocall for the records of the 1st respondent in respect of theassessment notice issued for the assessment year 2009-10 underSection 148 of the Income-Tax Act, 1961 in PAN No.AAACC1356Ndated 05.01.2016 and the consequential order disposing off theobjections to the reasons dated 19.09.2016 passed by the secondrespondent and to quash the same. 3. The petitioner is M/s.Citadel Fine Pharmaceuticals Limited. 4. At the first instance, the learned counsel appearing forthe respondent raised the maintainability question on the groundthat during the pendency of the writ petition, the assessmentorder has been passed with reference to initiation ofproceedings under Section 147 of the Income Tax Act, 1961. Inview of the fact that the order of assessment has already beenpassed, the assessee must have to approach the AppellateAuthority for re-dressal of his grievances. Therefore, the writpetition is liable to be dismissed. 5. In this regard, the learned counsel appearing for thepetitioner cited the judgment of the Hon'ble Division Bench ofthis Court in the case of P.V.P.Ventures Limited vs. AssistantCommissioner of Income Tax, Corporate Circle 5(2), Chennaireported in [2016] 65 taxmann.com 221 (Madras), wherein thesimilar ground was taken by the Department by stating that theassessment order was passed during the pendency of the writpetition filed by the assessee challenging the notice issuedunder Section 148 of the Act. The Hon'ble Division Bench of thisCourt made an observation that even in such cases, the Courtsare empowered to adjudicate the true and correct disclosurewhether made or not. If the very initiation is found to be notin consonance with the provisions of the Act, then the contention raised by the petitioner may be considered by thewrit Court under Article 226 of the Constitution of India.Relying on the said judgment, the learned counsel appearing forthe petitioner reiterated that the petitioner has disclosed fulland true facts before the Assessing Officer at the firstinstance and the Department initiated proceedings for reopeningof the assessment only on change of opinion and not based on anyfacts as revealed by the assessee at the first instance.Therefore, the writ petition is to be adjudicated on merits. 6. The learned counsel appearing for the petitioner innutshell contended that the reasons stated for reopening of theassessment are not in consonance with the requirementscontemplated under the provisions of the Act. The reasonsenumerated in proceedings dated 11.08.2016 reveal that the saidfacts were considered by the Assessing Officer and a finding wasgiven in the assessment order. In this regard, the learnedcounsel appearing for the petitioner relied on the assessmentorder passed on 23.12.2011 under Section 143(3) of the IncomeTax Act with reference to the assessment year 2009-2010. In thesaid assessment order, the Assistant Commissioner considered theclaim of bad debts and a finding was arrived which reads asunder: 3.1. Out of the total bad debts ofRs.4,99,12,188/-, the assessee has during the yearwritten off bad debts of Rs.4,94,91,343/- therebyreducing the taxable long-term capital gain. Theentire Bad debts relate to the amounts receivablefrom M/s.Polaris Health Care Pvt.Ltd. The assesseeCompany had been doing certain job works forM/s.Polaris Health Care Pvt. Ltd. and the volume ofjob undertaken during FY 2003-04 & 2004-05 for avalue of Rs.3,21,37,707/- & Rs.3,09,37,577/-respectively. In Financial Year 2005-06, furtherjob contract for a value of Rs.1,10,89,224/- wasundertaken. In FY 2004-05, itself, the assesseeknew that the amount due from M/s.Polaris HealthCare Pvt.Ltd. (PHCPL for brevity) would not berecoverable and therefore, created a provision ofRs.4,07,03,328/- as at 31.03.2005. The provisionwas added back in the memo of computation of totalincome. Though the assessee realized that suchamounts are irrecoverable, it continued to havebusiness with the said person and claims to haveundertaken job work for M/s.PHCPL even duringFinancial Year 2005-06. The ledger folios ofM/s.PHCPL as appearing in the books of the Companyfrom 01.04.2004 to 31.03.2009 were examined. Till31.03.2005, there had been some receipts in respect of services rendered and even TDS had been deductedon such service while making the payment. However,from 01.04.2005, the transactions are one sided andthough the assessee was fully aware that theamounts could not be retrieved, it claims to haveprovided services to PHCPL. Notice u/s.133(6) wasissued to the Principal Officer of PHCPL, on04.10.2011 and since there was no response, areminder was issued again on 20.10.2011, which metwith same fate. It is clear from the ledger folioof PHCPL as appearing in the books of the assesseefor the period from 01.04.2005 to 31.03.2006 thatthe transactions are in a sense, an unilateralbooking which the recipient has not acknowledged.Therefore, the claim of bad debts is restricted tothe period ending 31.03.2005 which amounts toRs.4,07,03,328/- and such values of bad debtsbeyond the period from 01.04.2005 and beyond thisvalue of Rs.4,07,03,328/- is not entertained. 7. Relying on the said findings made by the AssessingOfficer in order dated 23.12.2011, the petitioner reiteratedthat the same findings are extracted in order dated 11.08.2016for reopening of the assessment year 2009-10. Thus, theinitiation of proceedings under Section 147 of the Act isnothing but change of opinion and not based on any disclosure oftrue and full facts. Thus, it is contended that the very reasonis unsustainable and not in consonance with the mandatoryprovisions. There is no reason to sustain the subsequentassessment order and all further actions. In support of the saidarguments, the learned counsel for the petitioner solicited theattention of this Court with reference to reply to theobjections decided by the Assistant Commissioner of Income Taxdated 19.09.2016. It is contended that there is no whisper aboutnon-disclosure of full and true facts and there was no suchallegation found in the order. In the absence of any suchallegation, the initiation of 147 proceedings beyond four yearsis untenable and liable to be quashed. 8. The learned counsel for the petitioner is of the opinionthat the issues, which were already adjudicated and decided inthe original assessment order dated 23.12.2011, are now soughtto be re-adjudicated by way of reopening of assessment which isimpermissible under law. The original assessment orderelaborately reveals the fact that "in the absence of anybusiness activity, expenditure akin to business includingdepreciation u/s.37(1) is not allowable. On the same factsituation elaborately discussed in 2007-08 & 2008-09, this claimof expenditure had similarly been disallowed. Further, the P& LAccount for the year exhibits profit on sale of fixed assets, taxable interest income, and exempt dividend income. The write-back of provision of Rs.93,44,509/- and sale of scrap written-off do not in any way impart the characteristic of businessactivity during the year. The receipts on sale of fixed assetschargeable under capital gains and interest fall under the head'income from other sources'. It is for the same reason, that theassessee company has not got its accounts audited as stipulatedu/s.44AB". It is further observed that "the claim of bad debtsis restricted to the period ending 31.03.2005 which amounts toRs.4,07,03,328/- and such values of bad debts beyond the periodfrom 01.04.2005 and beyond this value of Rs.4,07,03,328/- is notentertained". 9. Relying on the said findings made by the AssessingOfficer, the petitioner has reiterated that the very same reasonhas been considered for reopening of the assessment in the year2009-10. Paragraph No.2 of the order providing reasons forreopening is nothing but the extraction of the paragraph madeavailable in the original assessment order and further reasongiven was also discussed and a finding was arrived by theAssessment Officer, while making original assessment. Thus,there is no reason to sustain the reasons as furnished forreopening of the assessment for the year 2009-10. 9. Relying on the said findings made by the AssessingOfficer, the petitioner has reiterated that the very same reasonhas been considered for reopening of the assessment in the year2009-10. Paragraph No.2 of the order providing reasons forreopening is nothing but the extraction of the paragraph madeavailable in the original assessment order and further reasongiven was also discussed and a finding was arrived by theAssessment Officer, while making original assessment. Thus,there is no reason to sustain the reasons as furnished forreopening of the assessment for the year 2009-10. 10. The learned counsel appearing for therespondent/Department objected the said contention by statingthat undoubtedly, the similarity of the subject matter dealtwith in the original assessment order as well as the orderssubsequently furnished reasons for reopening of the assessmentmay be same but certain true facts were noticed for initiationof proceedings under Section 147 of the Act. To substantiate thesaid contention, the learned counsel appearing for therespondent relied on the proceedings dated 19.09.2016 issued bythe Assistant Commissioner of Income Tax, which is reply to theobjections for reopening of the assessment under Section 147 ofthe Act. The learned counsel appearing for the respondent,relying on the said order, made a submission that non-disclosureof true and full facts were elaborately considered by theCompetent Authority and the reasons are also furnished. Thepetitioner is relying on the findings regarding the claim of baddebts which was restricted to the period ending 31.03.2005 whichamounts to Rs.4,07,03,328/-. With reference to the saidcontention, there is a clear answer provided in paragraph No.5of the order dated 19.09.2016, which is reply to the objectionsfor reopening of the assessment and the said paragraph reads asunder: "5.At the outset, it has to be mentioned thatthere is no change of opinion as stated by theassessee. It is relevant to produce the following from order dated 23.12.2011 "Para 3.1...The ledger folios ofM/s.PHCPL as appearing in the books of the company from01.04.2004 to 31.03.2009 were examined. Till31.03.2005, there had been some receipts in respect ofservices rendered and even TDS had been deducted onsuch service while making the payment, However, from01.04.2005, the transactions are one-sided and thoughthe assessee was fully aware that the amounts could notbe retrieved, it claims to have provided services toPHCL. Notice u/s 133(6) was issued to the PrincipalOfficer of PHCPL on 04.10.2011 and since there was noresponse, a reminder was issued again on 20.10.2011,which met the same fate. It is clear from the ledgerfolio of PHCPL as appearing in the books of theassessee for the period from 01.04.2005 to 31.03.2006that the transactions are in a sense an unilateralbooking which the recipient has not acknowledged". 11. This apart, the said order categorically dealt withnon-disclosure of true and full facts. The learned counselappearing for the respondent relied on the observations madethat "the Assessing Officer had no time to verify with PHBLabout the genuineness of the transactions. Write of bad debts isrelating to business and is not eligible for set off againstCapital Gains. As per Section 71, Current year Loss under anyhead can be set off against under any head with exceptions. Inthis case, the loss has not arisen on account of businessactivities during the current year 01.04.2008 to 31.03.2009. Baddebts relate to business done before 01.04.2005. The indent oflegislature is to provide judicial relief to assessee when ithad incurred bad debts during the course of business activitiesand the same may be deducted from income from business.Moreover, for deduction from LTCG/STCG, there should beattendant expenses relating to the subject Capital asset, thisis not in the assessees case. Moreover, the assessee has waitedfor 4 years and conveniently claimed bad debts to be deductedfrom Capital Gains. It is a fact that if there had been noSTCG/LTCG, the bad debts might not have been claimed for the AY2009-10. 12. Thus, it seems that the Authorities could able to drawan inference with reference to the disclosure made by theassessee during the original assessment. Undoubtedly, the factsappears to be similar but certain intricacies regardingtransactions were identified by the Income Tax Department asnarrated above and they formed an opinion that there is a reasonto believe regarding escape of income. 13. This Court is of the opinion that the payment of IncomeTax is the law. Provisions of Tax laws are to be interpreted inits strict sense. A constructive interpretation is imminent toensure that the purpose and object of the tax laws are met with. 12. Thus, it seems that the Authorities could able to drawan inference with reference to the disclosure made by theassessee during the original assessment. Undoubtedly, the factsappears to be similar but certain intricacies regardingtransactions were identified by the Income Tax Department asnarrated above and they formed an opinion that there is a reasonto believe regarding escape of income. 13. This Court is of the opinion that the payment of IncomeTax is the law. Provisions of Tax laws are to be interpreted inits strict sense. A constructive interpretation is imminent toensure that the purpose and object of the tax laws are met with. 14. Certain inferences or doubts based on facts raisedregarding the assessment may provide a cause for reason tobelieve. "The reason to believe" contemplated under the Actprovides wider power to the Competent Authority to reopen theassessment in order to adjudicate the facts, which were notdisclosed at the first instance by the assessee. As pointed out,the Income Tax Department, relying on the disclosures made bythe assessee, passed an assessment order. That exactly is thereason for enacting provisions for reopening of the assessment.It is based on the information provided by the assessee andbelieving on the same, the assessment orders are passed. Onlywhen the Department is able to receive some information or ableto draw some inference from and out of the information providedand some materials are made available, then alone, they will getan opportunity for reopening the assessment for the purpose ofproceeding with reopening of assessment. Thus, the concept ofreason to believe cannot be restricted in a narrow compass so asto cripple the power of the competent authority for invoking theprovisions of Section 147 of the Act. Even new informations notconsidered if causes a reason to believe, then the Authoritymust be permitted to go for reassessment. The object of theprovision is to ensure that the asseesee discloses the true andfull income and the tax paid in accordance with the provisions.In order to meet out the purpose and object, the assesseeshould not be allowed to escape from the clutches of law oncertain flimsy reasons. Undoubtedly, the assessee gets anopportunity even after reopening of the assessment proceedingsand such opportunities are to be availed for the purpose ofclarifying doubts, reasons or informations gathered by theDepartment to establish non-disclosure of true and full facts bythe assessee. When all these opportunities are provided to theassessee under the provisions of the Act, the High Court isexpected to be slow in exercising the power under Article 226with reference to certain disputed facts. When there aredisputes regarding the disclosure, the best Authority would bethe Income Tax Department and certainly, not the High Courtunder Article 226 of the Constitution of India. 15. The power of High Court under Article 226 is toscrutinize the process through which a decision is taken inconsonance with the provisions of the Act and certainly, not thedecision itself. This being the principles to be borne in mind,while considering the writ proceedings under Article 226 of the Constitution of India, a doubt raised by the Departmentregarding full and true disclosure of the facts by the assesseeand if there are some materials to establish the same, theAuthorities have to initiate action based on the concept ofreason to believe and the assessee must co-operate for theassessment by defending his case and by availing theopportunities contemplated under the provisions of the Act. 15. The power of High Court under Article 226 is toscrutinize the process through which a decision is taken inconsonance with the provisions of the Act and certainly, not thedecision itself. This being the principles to be borne in mind,while considering the writ proceedings under Article 226 of the Constitution of India, a doubt raised by the Departmentregarding full and true disclosure of the facts by the assesseeand if there are some materials to establish the same, theAuthorities have to initiate action based on the concept ofreason to believe and the assessee must co-operate for theassessment by defending his case and by availing theopportunities contemplated under the provisions of the Act. 16. Contrarily, if the High Court takes an exception withreference to certain facts and circumstances, then there is apossibility of escape from the clutches of Tax proceedings,which is certainly not preferable. Further, the Income TaxAuthorities are experts and they must be provided with anopportunity to consider the defence as well as the materialsidentified, by affording an opportunity to the assessee. In thepresent case, in proceedings dated 19.09.2016 which is reply tothe objections for reopening of the assessment under Section147, there is a clear finding by the Authority that "theAssessing Officer had no time to verify with PHBL about thegenuineness of the transactions. Write of bad debts is relatingto business and is not eligible for set off against CapitalGains. Further, a finding is made that the assessee has waitedfor 4 years and conveniently claimed bad debts to be deductedfrom Capital Gains". These are all certain contra facts, whichare all raised as grounds for reopening of the assessment as theAuthorities have reason to believe that there was no true andfull disclosure by the assessee, at the time of the originalassessment. 17. This being the facts and circumstances, this Court isof the considered opinion that the respondents, after initiationof proceedings under Section 147 of the Act, proceeded withreassessment and the assessment order was also passed on04.10.2016 itself. Now four years lapsed and further, in respectof said assessment order, the petitioner has to approach thecompetent authority for redressal of grievances if any exists. 18. The learned counsel appearing for the petitioner made asubmission that in view of pendency of the writ petition, theassessee has not initiated any action against the assessmentorder. Therefore, he must be provided with an opportunity as theassessment order was passed without providing any opportunity tothe petitioner. 19. This being the grievances of the writ petitioner, thisCourt is of the opinion that the petitioner has to prefer anappeal contemplated under the Act and in the event of filing anysuch appeal, the Appellate Authority may consider the case onmerits and in accordance with law. 20. With these observations, the writ petitions standdismissed. No costs. Consequently, connected miscellaneouspetitions are also closed. s/d- Assistant Registrar True Copy Sub-Assistant RegistrarssbTo1.The Deputy Commissioner of Income-Tax. Corporae Circle-1(2), Chennai-600034. 2.The Assistant Commissioner of Income-Tax,Corporate Circle-1(2),121, Mahatam Gandhi Road,Aayakar Bhavan-Wanaparthy Block,6th Floor, Chennai-600 034. +1 CC to M/s. Hema Muralikrishnan, Advocate sr 24629. W.P.Nos.36522 & 35630 of 2016SPD(CO)SP(29/06/2021)