M/S.lifecell International Private Limitedrepresented By Mr.s.abhaya Kumar Srisrimalno v. Assistant Commissioner Of Income Tax Corporate Circle – 4(1) (“Ao”) 121 Uthamar Gandhi Salai, Chennai – 600 034

DATED: 25.01.2021 CORAM THE HONOURABLE DR. JUSTICE ANITA SUMANTH W.P. No.34575 of 2019 and WMP No.13887 of 2020 M/s.Lifecell International Private LimitedRepresented by Mr.S.Abhaya Kumar SrisrimalNo.26, Vandalur Kelambakkam Main Road,Keelakottaiyur Village, Chennai – 600 048. …Petitioner Vs. 1. Assistant Commissioner of Income Tax Corporate Circle – 4(1) (“AO”) 121 Uthamar Gandhi Salai, Chennai – 600 034. 2 The Principal Commissioner of Income Tax PCIT – 4, Chennai, 121 Uthamar Gandhi Salai, Chennai – 600 034....Respondent PRAYER: Writ Petition filed under Article 226 of theConstitution of India praying for the issuance of Writ ofCertiorari to call for the records on the file of the firstrespondent and quash the impugned order bearingNo.ITBA/AST/F/17/2019-20/1021512082(1) dated 02.12.2019 alongwith the impugned notice in PAN bearingNo.ITBA/AST/S/148/2018-19/1015348398(1)dated16.03.2019issued under Section 148 of the Income Tax Act for the AY2012-13. For Petitioner : Mr.N.V.Balaji For Respondent : Mrs.Hema Muralikrishnan Senior Standing Counsel The petitioner challenges order dated 02.12.2019rejecting the objections to the assumption of jurisdictionfor re-assessing income in relation to assessment year (A.Y.)2012-13, in terms of the provisions of the Income Tax Act,1961 ( in short ‘Act’). 2. Heard Mr.N.V.Balaji, learned counsel for thepetitioner and Mrs.Hema Muralikrishnan, learned SeniorStanding Counsel for the respondents. 3. Five issues have been identified for re-assessment.Upon instructions from the Assessing Authority, learned SeniorStanding Counsel would fairly state that issues at 1 and 5 arenot seriously pressed. 4. As far as Issue No.1 is concerned, income fromstorage of stem cells have been offered to tax in the Vivad seVishwas Scheme and as such, the question of re-assessment inregard to such incomes does not arise. 5. As far as Issue No.5 in relation to the payment oftax on Provident Fund and ESI contributions is concerned, theissue stands covered by a decision of this Court in the caseof Industrial Securities and Intelligence India V. CIT in T.C.(A)Nos.585 and 586 of 2015 dated 24.07.2015. Hence, the re-assessment initiated on this score would not be pursued. 6. As far as Issue No.4 is concerned, refund was grantedto the assessee while processing the return under Section 143(1) which was omitted to be added back in the regularassessment. The amount is sought to be added back now. Thequestion of re-assessment would not arise in such a situation,insofar as there is no escapement of income per se. TheAssessing Authority could well have addressed this issue underSection 154 of the Act. The proposal for re-assessment on thisscore fails. 7. What survives for consideration are Issue Nos. 2 and3. Issue No.2 relates to re-assessment of processing fee.The petitioner is engaged in the business of stem cellresearch and storage of stem cells collected from theumbilical cord of a new born child. At the time of delivery,a fee is collected for processing of the services offered. Theentirety of the processing fee is disclosed as revenue.However, what is recognised for the purpose of taxation isonly the fee collected from those cases where the mother-to-behas delivered and where the child is born prior to the end ofthe financial year in question. There are certain othercircumstances where the processing fee is returned such ascases where the contracts between the expectant mother and thehttps://hcservices.ecourts.gov.in/hcservices/petitioner are not pursued. 8. There is no dispute on the position that thepetitioner has been following a consistent method ofaccounting over the years and has been recognising incomefollowing a uniform system. The accounts of the petitionerwould reveal the receipt of processing fee in advance andrecognition of the amount quantified in that year in relationto deliveries is that have taken place within the financialyear in question as income. The remaining fee is carried overto the subsequent financial year. Assessments for previousand later years following this consistent method of accountinghave been accepted. The details in relation to the entiretyof the processing fee received and the component recognised asincome in this year are also available. 9. The Supreme Court in the case of CIT V/s. WoodwardGovernor India Pvt. Ltd.((2009) 13 SCC 1) while consideringthe issue of recognition of Foreign Exchange fluctuationsstates at paragraph 34, that a consistent method of accountingand recognition of income followed by an assessee over theyears is, normally, liable to be accepted. 10. In this case, admittedly, there is no change in themethod of accounting followed. The methodology followed forrecognition of revenue is the same, both prior and subsequentto this assessment. Thus there appears no justification forthe present proposal to re-assess the income, seen in thelight of the fact that for previous years, the accounts of thepetitioner have been accepted by the Department. 11. In the context of deductibility of expenditure, theBench states that a relevant parameter would be to ascertainwhether, the same system of accounting were followed by anassessee from the very beginning and if there was any changein the interregnum, whether the change was bonafide. It wasalso material to ascertainwhether the method adopted by anassessee for making entries in the books of accounts is as pernationally accepted accounting standards. At paragraph 34,the Bench states as follows: 34. Section 145(1)enacts that for the purposeofSection 28andSection 56alone, income, profitsand gains must be computed in accordance with themethod of accounting regularly employed by theassessee. In this case, we are concerned withSection28. Therefore,Section 145(1)is attracted to thefacts of the present case. Under the mercantilesystem of accounting, what is due is brought intocredit before it is actually received; it brings intodebit an expenditure for which a legal liability has beenincurred before it is actually disbursed. (seejudgment of this Court in the case ofUnitedCommercial Bank v. CITreported in 240 ITR 355).Therefore, the accounting method followed by anhttps://hcservices.ecourts.gov.in/hcservices/ assessee continuously for a given period of timeneeds to be presumed to be correct till the AO comesto the conclusion for reasons to be given that thesystem does not reflect true and correct profits. Asstated, there is no finding given by the AO on thecorrectness of the accounting standard followed bythe assessee(s) in this batch of Civil Appeals. 12. Moreover, the proceedings for re-assessment have beeninitiated beyond a period of four years from the end of therelevant financial year and hence, in terms of the proviso toSection 147 of the Act, the revenue has to establish a failureon the part of the petitioner to have made a full and truedisclosure of income to avail of the benefit of extendedlimitation. 13. In this context, learned revenue counsel relies on ajudgment of the Supreme Court in the case of Calcutta DiscountV. Income Tax Officer (41 ITR 191) where also, there was achallenge to a re-assessment made after a period of fouryears. The Constitution Bench had occasion to consider thescope and ambit of the phrase ‘full and true disclosure’ inthe proviso to Section 147 as follows: 12. Moreover, the proceedings for re-assessment have beeninitiated beyond a period of four years from the end of therelevant financial year and hence, in terms of the proviso toSection 147 of the Act, the revenue has to establish a failureon the part of the petitioner to have made a full and truedisclosure of income to avail of the benefit of extendedlimitation. 13. In this context, learned revenue counsel relies on ajudgment of the Supreme Court in the case of Calcutta DiscountV. Income Tax Officer (41 ITR 191) where also, there was achallenge to a re-assessment made after a period of fouryears. The Constitution Bench had occasion to consider thescope and ambit of the phrase ‘full and true disclosure’ inthe proviso to Section 147 as follows: 8………... The only question is whether the Income-taxOfficer has reason to believe that "there had beensome omission or failure to disclose fully and trulyall material facts necessary for the assessment" forany of these years in consequence of which the under-assessment took place. 9. Before we proceed to consider the materials onrecord to see whether the appellant has succeeded inshowing that the Income-tax Officer could have noreason, on the materials before him, to believe thatthere had been any omission to disclose materialsfacts, as mentioned in the section, it is necessary toexamine the precise scope of disclosure which thesection demands. The words used are "omission orfailure to disclose fully and truly all material factsnecessary for his assessment for that year." Itpostulates a duty on every assessee to disclose fullyand truly all material facts necessary for hisassessment. What facts are material, and necessary forassessment will differ from case to case. In everyassessment proceeding, the assessing authority will,for the purpose of computing or determining the propertax due from an assesses, require to know all thefacts which help him in coming to the correctconclusion. From the primary facts in his possession,whether on disclosure by the assesses, or discoveredby him on the basis of the facts disclosed, orotherwise - the assessing authority has to drawinferences as regards certain other facts; andultimately, from the primary facts and the furtherhttps://hcservices.ecourts.gov.in/hcservices/facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on acorrect interpretation of the taxing enactment, theproper tax leviable. Thus, when a question ariseswhether certain in come received by an assessor'scapital receipt, or revenue receipt, the assessingauthority has to find out what primary facts have beenproved, what other facts can be inferred from them,and, taking all these together, to decide what thelegal inference should be. the proper legal inferences, and ascertain on acorrect interpretation of the taxing enactment, theproper tax leviable. Thus, when a question ariseswhether certain in come received by an assessor'scapital receipt, or revenue receipt, the assessingauthority has to find out what primary facts have beenproved, what other facts can be inferred from them,and, taking all these together, to decide what thelegal inference should be. 10. There can be no doubt that the duty of disclosingall the primary facts relevant to the decision of thequestion before the assessing authority lies on theassesses. To meet the possible contention that whensome account books or other evidence has beenproduced, there is no duty on the assessee to disclosefurther facts, which on due diligence, the Income-taxOfficer might have discovered, the Legislature has putin the Explanation, which has been set out above. Inview of the Explanation, it will not be open to theassessee to say, for example - "I have produced theaccount books and the documents : You, the assessingofficer examine them, and find out the facts necessaryfor your purpose : My duty is done with disclosingthese account-books and the documents." His omissionto bring to the assessing authority's attention thoseparticular items in the account books, or theparticular portions of the documents, which arerelevant, amount to "omission to disclose fully andtruly and truly all material facts necessary for hisassessment." Nor will he be able to contendsuccessfully that by disclosing certain evidence, heshould be deemed to have disclosed other evidence,which might have been discovered by the assessingauthority if he had pursued investigation on the basisof what has been disclosed. The Explanation to thesection, gives a quietus to all such contentions; andthe position remains that so far as primary facts areconcerned, it is the assessor's duty to disclose allof them - including particular entries in accountbooks, particular portions of documents, anddocuments, and other evidence, which could have beendiscovered by the assessing authority, from thedocuments and other evidence disclosed. 14. In summation, the Bench would state that the duty ofan assessee to make a full and true disclosure must be seen inthe context of Explanation (1), which requires the assessee tomake disclosure of all necessary primary facts, on the basisof which the Assessing Authority might reach a conclusion. 15. A full and true disclosure thus, means all factsprimary and fundamental to an issue and it is not incumbenthttps://hcservices.ecourts.gov.in/hcservices/upon an assessee to provide anything over and above the same or any material in addition thereto. It is also unnecessaryfor an assessee to speculate on what inference might be drawnby an Assessing Authority on the primary facts disclosed orfurnish additional materials in anticipation of suchinferences. The Bench in Calcutta Discount (supra) statesthat this exercise would be impossible since no assessee coulddelve into the mind of an Assessing Officer to assume whatsuch inferences might be. To this end, at paragraph 11, theBench states as follows:11. Does the duty however extend beyond the full andtruthful disclosure of all primary facts ? In ouropinion, the answer to this question must be in thenegative. or any material in addition thereto. It is also unnecessaryfor an assessee to speculate on what inference might be drawnby an Assessing Authority on the primary facts disclosed orfurnish additional materials in anticipation of suchinferences. The Bench in Calcutta Discount (supra) statesthat this exercise would be impossible since no assessee coulddelve into the mind of an Assessing Officer to assume whatsuch inferences might be. To this end, at paragraph 11, theBench states as follows:11. Does the duty however extend beyond the full andtruthful disclosure of all primary facts ? In ouropinion, the answer to this question must be in thenegative. Once all the primary facts are before the assessingauthority, he requires no further assistance by way ofdisclosure. It is for him to decide what inferences offacts can be reasonably drawn and what legalinferences have ultimately to be drawn. It is not forsomebody else - far less the assessee - to tell theassessing authority what inferences, whether of factsor law, should be drawn. Indeed, when it is rememberedthat people often differ as regards what inferencesshould be drawn from given facts, it will bemeaningless to demand that the assessee must disclosewhat inferences - whether of facts or law - he woulddraw from the primary facts. 16. Applying this judgment to the facts of the presentcase, the petitioner has made a disclosure of i) revenue fromall income streams including processing fee ii) the portion ofprocessing fee recognised as income for the purpose oftaxation and (iii) balance is carried over to the subsequentyear. It is true that there is no note in the financials orin the audited report explaining the method of accounting indetail, that is, to clarify the position that only theprocessing fee relating to the deliveries occasioned prior to31.03.2012 had been recognised an income and the balancecarried forward to the next year. However, as noted earlier,the petitioner has been following a consistent method ofrevenue recognition over the years and it is not the revenue’scase that the financials for the later years were moreelaborate for the purposes of Explanation (1) when compared tothe present year. What constitutes primary facts for thepurposes of 'full and true disclosure' must be seen in thecontext of the assessment of a source of income over the yearsas the Assessing Officer has understood it. In fact, if onewere to take a different view of the matter for this oneintervening year, it would distort the overall assessmentsover the years and this cannot be the intention of Section147. 17. Thus applying the judgment of the Supreme Court inthe case of Calcutta Discount (supra), I am of the view thathttps://hcservices.ecourts.gov.in/hcservices/the disclosure made by the petitioner in regard to the assessment of processing fee is a full and true disclosure forthe purposes of Section 147/148. The proposal for re-assessment on this issue also fails. 18. With regard to Issue No.3, the petitioner hasclaimed deduction under Section 35 (2AB). The approval forthis deduction in Form 3 CM has been duly filed and, isadmittedly, available on record. The only reason for whichthe present proceedings have been initiated is that Form 3 CMis not available on record. However, this appears to be aform to be exchanged inter se the Assessing Authority of theentity claiming deduction and the Prescribed Authority and itis thus for the Officer to have sought and obtained the same.In the light of there being no dispute on the position thatForm 3 CM is admittedly available on file, I see nojustification for the re-assessment initiated on this score. 19. The Writ Petition is allowed. No costs. ConnectedMiscellaneous Petitions are closed. Sd/-Assistant Registrar(CS-VI)//True Copy// Sub Assistant Registrar slTo 19. The Writ Petition is allowed. No costs. ConnectedMiscellaneous Petitions are closed. Sd/-Assistant Registrar(CS-VI)//True Copy// Sub Assistant Registrar slTo 1. The Principal Commissioner Office of the Principal Commissioner of CGST and Central Excise Chennai North Commissionerate No.26/1 Mahatma Gandhi Road Nungambakkam, Chennai 2. The Assistant Commissioner of Income Tax, Corporate circle-4(1)(AO), 121, Uthamar Gandhi Salai, Chennai-600 034. +1 CC.to M/s.Hema Muralikrishnan, Advocate, Sr.No.4155+1 CC.to M/s. N.V. Balaji, Advocate, Sr.NO.4070 KV(CO) SM/05/03/2021