M/S.drs Industries Private Limited,Flat v. The Deputy Commissioner Of Income Tax, Central Circle-I, Main Building

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 09.08.2021 CORAM : THE HON'BLE MR. JUSTICE T.S. SIVAGNANAMAND THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUPW.A.No.1494 of 2021andC.M.P.No.9551 of 2021 M/s.DRS Industries Private Limited,Flat No.1D, Gowtham Maple,Hindustan Avenue,Udayampalayam Road,Chennai – 641 028Represented by its DirectorD.Shivakumar ...Appellant Vs. 1. The Deputy Commissioner of Income Tax, Central Circle-I, Main Building, 63, Race Course Road, Coimbatore – 641 018. 2. Assistant Commissioner of Income Tax, Central Circle-I, Main Building, 63, Race Course Road, Coimbatore – 641 018. ... Respondents Prayer : Writ Appeal filed under Clause 15 of the Letters Patentto set aside the order dated 16.04.2021 made in W.P.No.33896 of2018. Prayer in W.P.No.33896 of 2018: Writ Petition is filed underArticle 226 of the Constitution of India, praying for theissuance of a Writ of Certiorari, calling for the records of thesecond respondent and quash the impugned notice under Section148 of the Act in PAN: dated 31.07.2017 and theconsequential impugned order of the first respondent dated07.11.2018 for the Assessment Year 2011-2012. For Appellant : Mr.R.Sandeep Bagmar For Respondents : Mr.A.P.Srinivas Senior Standing Counsel J U D G M E N T (Judgment was delivered by T.S. SIVAGNANAM, J.) This Writ Appeal has been filed by the writ petitionerchallenging the correctness of the order passed in W.P.No.33896of 2018, dated 16.04.2021. 2.In this judgment, we shall refer to the appellant as“assessee” and the respondent as “Revenue”. 3.The assessee filed the writ petition to quash the noticeissued by the respondent/Revenue, dated 31.07.2017, underSection 148 of the Income Tax Act, 1961 ("the Act" for brevity)and the consequential order passed by the Revenue, dated07.11.2018, disposing of the objections raised by the assesseeby passing a speaking order. 4.We have elaborately heard Mr.R.Sandeep Bagmar, learnedcounsel for the appellant/assessee and Mr.A.P.Srinivas, learnedSenior Standing Counsel for the respondent/Revenue. 5.The learned Writ Court was primarily of the view that theassessee should raise all issues by availing the alternateremedy provided under the Act and the Writ Court should be slowin interfering with the order passed by the authorities underthe provisions of the Act. Taking note of the submissions madeby the learned counsel for the assessee and the submissions madeby the learned Senior Standing Counsel for the Revenue, we areof the considered view that, since jurisdictional issues havebeen raised and the assessee being entitled to question thecorrectness of the order dated 07.11.2018 disposing of theassessee's objections, against which, no remedy has beenprovided under the Act, the writ petition can be entertained andthe correctness of the order of reopening can be decided in awrit petition. 6.The appellant/assessee is before us raising fivecontentions. Firstly, that the conditions stipulated in thefirst proviso to Section 147 of the Act have not been fulfilled.Secondly, it is contended that there is no allegation madeagainst the appellant/assessee that they failed to fully andtruly disclose all material information at first instance duringthe assessment proceedings. Thirdly, it is contended that, onaccount of the assessment having been completed under Section143(3) of the Act by order dated 30.03.2015, which order was reversed by the Commissioner of Income Tax (Appeals)-18,Coimbatore ("CIT(A)" for brevity) by order dated 01.06.2016 andaffirmed by the Tribunal by order dated 03.02.2017, thereopening proceedings is clearly barred under the third proviso.The next contention is that the reopening is a clear case ofchange of opinion, and finally, that the Assessing Officer hasnot brought out any new tangible material to justify thereopening. reversed by the Commissioner of Income Tax (Appeals)-18,Coimbatore ("CIT(A)" for brevity) by order dated 01.06.2016 andaffirmed by the Tribunal by order dated 03.02.2017, thereopening proceedings is clearly barred under the third proviso.The next contention is that the reopening is a clear case ofchange of opinion, and finally, that the Assessing Officer hasnot brought out any new tangible material to justify thereopening. 7.Mr.A.P.Srinivas, learned Senior Standing Counsel for therespondent/Revenue, sought to sustain the reopening proceedingsby referring to the reasons for reopening. It is submittedthat, at the first instance before the Assessing Officer, theissue was whether there was a slump sale. The said issuetraveled up to the Tribunal and was decided against the Revenue.However, on a reading of the reasons for reopening, it is seenthat the Department had reopened the proceedings on the groundthat the assessee has debited an amount of Rs.82,49,045/- underthe head “Administrative Expenses” towards “share of profit”payable to M/s.Miracle Cars India Pvt. Ltd., pursuant to a Memoof Understanding dated 30.06.2010 entered into between theassessee and M/s.Miracle Cars India Pvt. Ltd., and as per theassessee's own version, as confirmed by the CIT(A), theagreement did not fructify due to non receipt of approval fromSKODA, and therefore, the assessee should have offered theamount of Rs.82,49,045/- claimed under the head “AdministrativeExpenses” for taxation. Therefore, it is submitted that thisissue was never a subject matter of the assessment proceedings,which was completed by order dated 30.03.2015, nor the subjectmatter of appeal before the CIT(A) or for that matter before theTribunal. 8.Section 147, which falls under Chapter-XIV of the Act,deals with “Income escaping assessment”. In terms of the saidprovision, if the Assessing Officer has reasons to believe thatany income chargeable to tax has escaped assessment, he may,subject to provisions of Sections 148 to 153 of the Act, assessor reassess such income and also any other income chargeable totax, which has escaped assessment and which comes to his noticesubsequently in the course of the proceedings under Section 147for the Assessment Year concerned. The power under Section 147has been clearly circumscribed and a cumulative reading of theprovisos to Section 147 as well as the explanation will showthat the power is conditional upon the fact that the AssessingOfficer has some reasons to believe that income has escapedassessment. The Hon'ble Supreme Court, in the case of IncomeTax Officer, Ward No.16(2) v. M/s.TechSpan India Private Limitedand another reported in (2018) 404 ITR 10 (SC) held that thewords “reasons to believe” in Section 147 have to be interpretedschematically, as liberal interpretation would have the consequence of conferring arbitrary powers on the AssessingOfficer who may even initiate re-assessment proceedings merelyon his change of opinion on the basis of some facts andcircumstances which have already been considered by him duringthe original assessment proceedings. Thus, it was held that,this cannot be the intention of the legislature and doing so,would have the effect of giving the Assessing Officer the powerof review. consequence of conferring arbitrary powers on the AssessingOfficer who may even initiate re-assessment proceedings merelyon his change of opinion on the basis of some facts andcircumstances which have already been considered by him duringthe original assessment proceedings. Thus, it was held that,this cannot be the intention of the legislature and doing so,would have the effect of giving the Assessing Officer the powerof review. 9.On going through the facts before us, we find that, whatthe Assessing Officer has done by virtue of issuance of noticeunder Section 148 of the Act is to review the earlier order ofassessment. The subject matter which was writ large in theassessment proceedings is the agreement between the assessee andM/s.Miracle Cars India Pvt. Ltd., dated 30.06.2010. In the saidagreement, the assessee was described as the “seller” andM/s.Miracle Cars India Pvt. Ltd., the “buyer”. The assesseeoffered transfer of dealership to the buyer subject to theconsent of SKODA Auto India Private Limited and to sell thespares, tools, machinery, goodwill, etc., for a specific value.It may not be necessary for us to refer to various terms andconditions of the agreement, except to observe that the saidagreement was subject to the approval of SKODA Auto IndiaPrivate Limited. Therefore, unless and until the said companywhich granted the dealership agrees, transfer cannot take place.It is not in dispute that the approval did not go through andconsequently, the transfer did not take place. When theassessment was taken up for consideration by the AssessingOfficer for the Assessment Year under consideration, AY 2011-12,it is the interpretation of the agreement and the questionsincidental and consequential thereto, which was the subjectmatter of consideration. This could be seen from the show causenotice issued to the assessee, dated 14.03.2014. The assesseesubmitted his reply specifically pointing out about theagreement as to how the deal did not fructify all other mattersrelated thereto. The Assessing Officer completed the assessmentby holding that the transfer had taken place as per Section 50-Bof the Act and also that the assessee agreed that the share ofprofit is to be paid to M/s.Miracle Cars India Pvt. Ltd., fromwhich, it is proved that the transfer had taken place, withoutthe transfer, the assessee is not liable to share its profitwith M/s.Miracle Cars India Private Limited, but by sharing theprofit with M/s.Miracle Cars India Private Limited, it is veryclear that the transfer had taken place. 10.Aggrieved by the same, the assessee preferred an appealbefore the CIT(A). The appeal was allowed by order dated01.06.2016, holding that no transfer had taken place and theaddition on account of slump sale was found to be incorrect andaccordingly, the addition was deleted. The Revenue carried the matter on appeal to the Tribunal, which, by order dated03.02.2017, dismissed the appeal, then the matter attainedfinality. To be noted, for the Assessment Year AY 2012-13, theRevenue similarly took the matter up to the Tribunal and theassessee succeeded and the issue has attained finality. 10.Aggrieved by the same, the assessee preferred an appealbefore the CIT(A). The appeal was allowed by order dated01.06.2016, holding that no transfer had taken place and theaddition on account of slump sale was found to be incorrect andaccordingly, the addition was deleted. The Revenue carried the matter on appeal to the Tribunal, which, by order dated03.02.2017, dismissed the appeal, then the matter attainedfinality. To be noted, for the Assessment Year AY 2012-13, theRevenue similarly took the matter up to the Tribunal and theassessee succeeded and the issue has attained finality. 11.In these circumstances, question would be whether thereasons assigned by the Assessing Officer in his communication,dated 26.09.2017, for reopening the assessment, can be taken tobe valid. On a plain reading of the reasons as communicated inthe letter, dated 26.09.2017, it is evidently clear that theAssessing Officer did not have any new tangible material forreopening the proceedings, as the reason is prefaced by thesentence “In the return of income filed for the A.Y.2011-12, theassessee has debited a certain amount”. Courts have always heldthat the Assessing Officer is always an independent authoritywho has to exercise his powers within the four corners of lawand it is not for the higher authorities or for the assessee totell as to in what manner the assessment has to be completed.The duty of the assessee is to fully and truly disclose all thematerial particulars. There is no allegation made by theAssessing Officer that the assessee had failed to fully andtruly disclose all relevant materials for completing theassessment. Therefore, we are of the view that the reopeningwas a clear case of change of opinion. Furthermore, we findfrom the reasons dated 26.09.2017 that there is no whisper ofany tangible material, and all information has been culled outfrom the returns filed by the assessee and the agreement, dated30.06.2010, which was very much available when the originalassessment was completed vide order dated 31.03.2014. 12.We find that the Revenue had filed a MiscellaneousPetition in M.P.No.265 of 2017 in I.T.A.No.2727/Mds/2016, inwhich, they had stated that the assessee had produced newmaterial by way of producing the agreement dated 30.06.2010,which was not available when the assessment was completed on31.03.2014. This appears to be factually incorrect, as theAssessing Officer, while completing the assessment, hasspecifically noted the agreement which was produced and placedbefore the Assessing Officer. Be that as it may, the saidMiscellaneous Petition has been dismissed by the Tribunal. Ashas always been observed, notice under Section 147 is not to becasually invoked to suit the convenience of the Department or tocorrect any alleged errors which would have been committed bythe Assessing Officer. In the instant case, we find that, notonly the ingredients required to be fulfilled in the firstproviso to Section 147 have not been fulfilled, there is noallegation made against the assessee for not having made full ortrue disclosure of all material particulars and the reopening ofthe assessment would also be barred in terms of the third proviso to Section 147. As observed earlier, it is a clear caseof change of opinion, and that apart, the Assessing Officer hasnot brought on record any new tangible material to reopen theassessment, which has been done beyond the period of four years.For all the above reasons, we hold that the reopeningproceedings is without jurisdiction and bad in law. proviso to Section 147. As observed earlier, it is a clear caseof change of opinion, and that apart, the Assessing Officer hasnot brought on record any new tangible material to reopen theassessment, which has been done beyond the period of four years.For all the above reasons, we hold that the reopeningproceedings is without jurisdiction and bad in law. 13.At the time when the Writ Appeal was entertained, theDivision Bench by order dated 30.06.2021, had passed an order ofstatus quo, by which, the assessee was required to participatein the proceedings and the authorities were directed not to passfinal orders till the disposal of the Writ Appeal.Mr.A.P.Srinivas, learned Senior Standing Counsel appearing forthe respondent/Revenue submitted that the Assessing Officer wasnot aware about the interim order which has been passed andtherefore, he has passed the Assessment Order and has evenuploaded in the Departmental Portal. It appears that theassessee is not aware of it. The learned counsel for theappellant/assessee submitted on instructions that the assesseeis yet to receive the said Assessment Order. Be that as it may,since we have held that reopening proceedings are bad in law,consequently, if the Assessment Order had been passed by theAssessing Officer, the same is to be set aside. 14.In the result, this Writ Appeal is allowed and the orderpassed in the Writ Petition is set aside, and consequently, theWrit Petition is allowed. The reopening proceedings arequashed. Consequently, the Assessment Order, if any passed bythe 2[nd] respondent/Assessing Officer, is also quashed. No costs.Consequently, connected miscellaneous petition is closed. Sd/- Assistant Registrar mknTo 1. The Tax Deputy Commissioner of Income Tax, Central Circle-I, Main Building, 63, Race Course Road, Coimbatore – 641 018. 2. The Assistant Commissioner of Income Tax, Central Circle-I, Main Building, 63, Race Course Road, Coimbatore – 641 018. +1 CC to Mr.Dwarakesh Prabakaran, Advocate, Sr.No. 39019.+1 CC to Mr.Srinivas, Advocate, Sr.No. 39518.W.A.No.1494 of 2021 MG(CO)LS(03/09/2021)