M/S.metafilms (India) Ltd.,Rep. By Its Director V.rajendran v. The Assistant Commissioner Of Income Tax,Company Circle Iv (2),Room

IN THE HIGH COURT OF JUDICATURE AT MADRASReserved On 19.02.2021Pronounced On 17.04.2021 CORAM THE HON'BLE MR.JUSTICE C.SARAVANAN W.P.No.28967 of 2010andM.P.No.1 of 2010 (Through Video Conferencing) M/s.Metafilms (India) Ltd.,Rep. by its Director V.Rajendran,157/1, GNT Road,Chinnambedu P.O.,Kavarapet, Tamil Nadu – 601 206. Vs. ... Petitioner The Assistant Commissioner of Income Tax,Company Circle IV (2),Room No.431, 4[th] Floor, Main Building,121, M.G.Road,Nungambakkam, Chennai – 600 034.... Respondent Writ Petition filed under Article 226 of the Constitutionof India, to issue a Writ of Certiorari calling for the recordsin PAN : /2003-04 dated 03.09.2010 read with noticeunder Sec. 148 of the Income Tax Act, 1961, P.A. No.AAACM6975Fdated 17.03.2010 relating to the Assessment Year 2003-04 on thefile of the respondent and quash the same. For Petitioner : Mr.G.Baskar for Mr.N.MuthukumarFor Respondent : M/s.Hema Muralikrishnan, Senior Standing Counsel The petitioner has challenged the re-opening of theAssessment vide impugned notice dated 17.03.2010 for theAssessment Year 2003-2004 and the impugned communication dated03.09.2010 bearing reference PAN: /2003-2004 for the https://hcservices.ecourts.gov.in/hcservices/ Asessment Year 2003-overruling the objection of the petitionerfor re-opening of the completed assessment. 2. The petitioner had filed income tax return for theAssessment Year 2003-2004 belatedly on 06.07.2004. There thepetitioner had declared the loss of income from business asRs.3,66,77,842/-. At the time of filing of the return on06.07.2004, the petitioner had enclosed a copy of the financialstatement which included the report of the auditor to theshareholder of the petitioner M/s.Metafilms (India) Limited. 3. The learned counsel for the petitioner further submitsthat though the petitioner had boosted the income by addingwaiver of interest for a sum of Rs.9,01,80,464/-, it was wronglyshown by the petitioner for making profit and had given a reportalong with the financial statements of the petitioner's companyon 03.09.2003. In the report, it was stated as follows:- The Company has entered into discussions withthe financial institutions for a one-timesettlement scheme. Pending final approval fromthe financial institutions, the company haswritten back the interest due to these financialinstitutions (refer note 3(v) of Schedule 14financial statements). This in our opinion isincorrect and is in violation of FundamentalAccounting Assumption of “Accrual” as advocatedby Accounting Standard-1 – Disclosure ofAccounting Policies issued by the Institute ofChartered Accountants of India. The SecuredLoans and the Losses of the company have beenunderstated to the extent of interest writtenback. Subject to the above, in our opinion, thebalance sheet and the profit and loss accountdealt with by this report are in compliance withthe Accounting Standards referred to in sub-section (3C) of Section 211 of the CompaniesAct, 1956 to the extent applicable thereto. 4. The learned counsel for the petitioner further submitsthat the Assessing Officer passed a scrutiny assessment orderunder Section 143(3) of the Income Tax Act, 1961 afterscrutinizing the records which included the financial statementsand that the explanations were given pursuant to notice underSection 143(2) dated 27.07.2005, notice under Section 143(1)dated 19.08.2004 and detailed questionaires dated 31.08.2005,09.09.2005 and 06.03.2005. It is further submitted that afterscrutiny of all the records, the Assessing Officer came to aconclusion that the petitioner had incurred the total loss ofRs.3,66,77,842/-. It is further submitted that the assessment 4. The learned counsel for the petitioner further submitsthat the Assessing Officer passed a scrutiny assessment orderunder Section 143(3) of the Income Tax Act, 1961 afterscrutinizing the records which included the financial statementsand that the explanations were given pursuant to notice underSection 143(2) dated 27.07.2005, notice under Section 143(1)dated 19.08.2004 and detailed questionaires dated 31.08.2005,09.09.2005 and 06.03.2005. It is further submitted that afterscrutiny of all the records, the Assessing Officer came to aconclusion that the petitioner had incurred the total loss ofRs.3,66,77,842/-. It is further submitted that the assessment order was passed on 30.03.2006. Just 30 days before the expiryof limitations, notice dated 17.03.2010 was issued under Section148 of the income Tax Act, 1961. It is this notice ischallenged in this Writ Petition. 5. The learned counsel for the petitioner further submitsthat the reason given by the respondent for re-opening theassessment was that the petitioner had filed belated return on06.07.2004 and therefore not entitled to carry forward the lossthe loss to subsequent years and that the petitioner had shownan amount of Rs.9,01,80,464/- as other income in its profit andloss account. 6. The learned counsel for the petitioner further submitsthat the for invoking the jurisdiction, as per proviso toSection 147 of the Income Tax Act, 1961, there should have beena failure to disclose truly and fully all informations that wererequired for the purpose of assessment under Section 139 of theIncome Tax Act, 1961 or in response to a notice issued underSection 142 or under Section 148 of the Income Tax Act. In thiscase, there is no failure to disclose fully and truly allmaterial facts that were necessary for the assessment. Hefurther submitted that neither the reason for reopening theassessment vide communication dated 03.06.2010 nor the speakingorder impugned in this Writ Petition dated 03.09.2010 allegedthat the petitioner had failed to truly and fully disclose allmaterial facts necessary for the assessment. 7. The learned counsel for the petitioner further submitsthat the petitioner company was a Sick company as is evidentfrom the financial statement filed along with the returns as thepetitioner company had been declared as a Sick Company underSection 17 of the Sick Industrial Companies (Special Provisions)Act, 1985. The learned counsel for the petitioner thereforesubmits that the entire issue was an academic issue as thepetitioner would have been entitled to carry forward the loss. 8. The learned counsel for the petitioner drew my attentionto the following: Commissioner of Income-tax, Non-Corporate circle 20(1), [2020]422 ITR 47, wherein, this has Court concluded as follows:- “24. The notice under Section 148 inrespect of AY 2011- 12 has been issued by therespondent after the expiry of four years butbefore expiry of six years from the last date ofthe assessment year in question. The provisionsof section 147 set out a limitation of fouryears for proceedings to be initiated forescapement of income, and a further period oftwo years provided that the Revenue is in aposition to establish that the escapement hadbeen occassioned by virtue of failure on thepart of the assessee to either file a returnunder section 139 or in response to a noticeissued under sub-section (1) of section 142 or148 or to disclose fully and truly all materialfacts necessary for the assessment for therelevant assessment year. 25. All details of the claims, such as thebreak-up of the amounts of the specificprogrammes/events/movies that the expenditurerelates to, have been provided along with thereturns of income and at the time of originalassessment and ara a matter of record”. 25. All details of the claims, such as thebreak-up of the amounts of the specificprogrammes/events/movies that the expenditurerelates to, have been provided along with thereturns of income and at the time of originalassessment and ara a matter of record”. 10. The learned counsel for the petitioner further submitsthat proviso to Section 147 of Income Tax Act is not applicableand therefore prays for quashing the impugned notice dated17.03.2010 and the communication dated 03.09.2010. 11. Defending the impugned order, the learned counsel forthe respondent submits that mere production of account books orevidence or other evidence from which material evidence couldwith due diligence have been discovered by the Assessing Officerwill not necessarily amount to disclosure within the meaning ofSection 147 of the Income Tax Act, 1961. 12. The learned counsel for the respondent further submitsthat even as per Sub-Clause (c) to Explanation -2, therespondent is entitled to invoke the jurisdiction to re-open theassessment before the expiry of limitation under proviso toSection 147 of the Income Tax Act. Finally, the learned counselfor the respondent drew my attention to the decision of theHon'ble Supreme Court in Calcutta Discount Co. Ltd Vs. IncomeTax Officer, [1961] 41 ITR 191 (SC) which was relied by thelearned counsel for the petitioner, wherein, the Court held asfollows:- https://hcservices.ecourts.gov.in/hcservices/ “There can be no doubt that the duty ofdisclosing all the primary facts relevant to thedecision of the question before the assessingauthority lies on the assessee to meet thepossible contention that when some account booksor other evidence has been produced, there isno duty on the assessee to disclose furtherfacts, which on due diligence, the Income-taxOfficer might have discovered, the Legislaturehas put in the Explanation, which has been setout above. In view of the Explanation, it willnot be open to the assessee to say, for example- “I have produced the account books and thedocuments: you, the assessing officer, examinethem, and find out the facts necessary for yourpurpose: My duty is done with disclosing theseaccount books and the documents.” His omissionto bring, the assessing authoirty's attentionthose particular items in the account books, orthe particular portions of the documents, whichare relevant, will amount to “omission todisclose fully and truly all material factsnecessary for his assessment.” Nor will he beabove to contend successfully that by disclosingcertain evidence, he should be deemed to havedisclosed other evidence, which might have beendiscovered by the assessing authority if he hadpursued investigation on the basis of what hasbeen disclosed. The Explanation to the sectiongives a quietus to all such contentions; and theposition remains that so far as primary factsare concerned, it is the assessee's duty todisclose all of them inculding particularentries in account books, particular portions ofdocuments, and documents and other evidencewhich could have been discovered by theassessing authoirty, from the documents andother evidence disclosed”. 13. She therefore submits that this Writ Petition waswithout any merits and therefore is liable to be dismissed. 14. Heard the learned counsel for the petitioner and thelearned senior standing counsel for the respondent. 15. The petitioner being a company is liable to pay MinimumAlternate Tax under Section 115JB of the Income Tax Act, 1961 ifthe tax payable on book profit was more than the tax payableunder normal method of computation of income tax. https://hcservices.ecourts.gov.in/hcservices/ 16. In this case, the petitioner declared a business loss ofRs.3,66,77,842/- in the returns filed on 06.07.2004 and claimeda refund of Rs.61,494/-. 13. She therefore submits that this Writ Petition waswithout any merits and therefore is liable to be dismissed. 14. Heard the learned counsel for the petitioner and thelearned senior standing counsel for the respondent. 15. The petitioner being a company is liable to pay MinimumAlternate Tax under Section 115JB of the Income Tax Act, 1961 ifthe tax payable on book profit was more than the tax payableunder normal method of computation of income tax. https://hcservices.ecourts.gov.in/hcservices/ 16. In this case, the petitioner declared a business loss ofRs.3,66,77,842/- in the returns filed on 06.07.2004 and claimeda refund of Rs.61,494/-. 17. The return filed by the petitioner was accepted under anintimation under Section 143(1) of the Income Tax Act, 1961.Thereafter, the returns were scrutinised and an assessment orderwas passed on 30.03.2006 under Section 143(3) of the Income TaxAct, 1961. It was passed after hearing the petitioner on variousdates between 23.09.2005 and 13.03.2006. 18. In the assessment order dated 30.03.2006 passed underSection 143(3) of the Income Tax Act, 1961, it has been merelystated that the petitioner company had been leased out toM/s.Paharpur Industries Ltd. and a lease rent charges has beentreated as conversion charges and that the assessment wascompleted treating the conversion charges as rent and theexpenditure relating to the manufacturing activity wasreimbursed by M/s.Paharpur Industries Ltd. 19. Thus, the focus was only on the income derived from thesaid company. It was not on the method of computation of theincome. There is no discussion on the issues relating to thecomputation of the loss. The said order aslo does not indicateas to whether there was any discussion regarding the reasonsgiven for reopening of the assessment in a communication dated30.06.2010 while passing the aforesaid assessment order. 20. While computing the book profit, the petitioner hasdeducted amounts from the gross income of Rs.1,01,35,842/-[income from sales for a sum Rs.10,34,33+Rs.91,01,609/- asother income]. 21. The petitioner has shown Rs.3,22,71,677/- as loss beforetaxation. The petitioner has added another sum of Rs.10,56,486/-being the alleged miscellaneous expenditure written off andthereby arrived at the total loss for the year asRs.3,33,28,163/-. 22. After arriving at the aforesaid loss for the year, thepetitioner has reduced the aforesaid loss by setting off anamount of Rs.9,01,80,464/- being the notional income from thewaiver of interest to arrive at net loss of Rs.5,68,52,301/-. 23. From the aforesaid loss, the petitioner has furtherdeducted/reduced the loss brought forward from the previous yearamounting to Rs.13,99,07,653/- to arrive at the total loss of Rs.8,30,55,352/- [Rs.13,99,07,653 -Rs.5,68,52,301]. https://hcservices.ecourts.gov.in/hcservices/ 24. Correctness of the computation of net loss for thepurpose of arriving at the book loss and for the purpose ofMinimum Alternate Tax in contrast with the returns filed underSection 139 of the Income Tax Act in a refund of Rs.61,494/-cannot be tested under Article 226 of the Constitution of India.Scope of enquiry under Article 226 of the Constitution of Indiais limited. It is best left to the Assessing Officer/Authoritiesin the hierarchy prescribed under the provisions of the IncomeTax Act, 1961 to look into it. https://hcservices.ecourts.gov.in/hcservices/ 24. Correctness of the computation of net loss for thepurpose of arriving at the book loss and for the purpose ofMinimum Alternate Tax in contrast with the returns filed underSection 139 of the Income Tax Act in a refund of Rs.61,494/-cannot be tested under Article 226 of the Constitution of India.Scope of enquiry under Article 226 of the Constitution of Indiais limited. It is best left to the Assessing Officer/Authoritiesin the hierarchy prescribed under the provisions of the IncomeTax Act, 1961 to look into it. 25. Mere declaration in the Auditors Report to theshareholders of the petitioner that as on 03.09.2003, thesecured loans and the losses of the company have beenunderstated to the extent of interest written back and thebalance sheet and the profit and loss account dealt with in thesaid report were in compliance with the Accounting Standardsreferred to in Sub-Section (3C) of Section 211 of the CompaniesAct, 1956 is not sufficient to conclude that there was true andfull disclosure by the petitioner at the time of filing ofincome tax returns for the purpose of assessment. 26. The computation of income as per the Companies Act, 1956seems to indicate that the petitioner had a whooping loss ofRs.13,99,07,652/- which was carried forward into the AssessmentYear 2002-03 apart from the loss incurred during the financialyear 2001-02 amounting to Rs.3,33,28,163/-. Therefore, it is notclear as to how the petitioner is aggrieved by the impugned re-opening of the assessment vide notice dated 17.03.2010 and theimpugned speaking order dated 03.09.2010. Even according to thepetitioner, the entire exercise was an academic exercise and aharassment as no additional tax was to be paid by thepetitioner. It is therefore not clear why the petitioner isfighting shy from participating in the aforesaid proceedings.After all, the speaking order merely shows a prima facie view ofthe Income Tax Department to justify the re-opening of theassessment. It is not conclusive and it is open for thepetitioner to meet of the points before the respondent byparticipating in the proceeding and persuade the respondentIncome Tax Officer to drop the proceedings. 27. Therefore, I do not find any merits in this WritPetition. I am therefore inclined to dismiss this Writ Petitionwhile giving liberty to the petitioner to file additionalsubmissions/representations with the respondent making its standclear as to how the assessment that has been completed on30.3.2006 has to be re-affirmed again. 28. The petitioner is therefore directed to give itsadditional reply/representation, if any, within a period of thirty days from date of receipt of a copy of this order. Therespondent shall thereafter pass appropriate orders on merits inaccordance with law. Needless to state, if desired, thepetitioner shall also be heard through video conference throughtheir authorised representatives. Entire exercise shall becompleted within a period of ninety days from date of receipt ofa copy of this order. 29. Accordingly, this Writ Petition stands dismissed withthe above liberty and observations. No cost. Consequently,connected Miscellaneous Petition is closed. s/d- Assistant Registrar True Copy Sub-Assistant RegistrarjenToThe Assistant Commissioner of Income Tax,Company Circle IV (2),Room No.431, 4[th] Floor, Main Building,121, M.G.Road,Nungambakkam, Chennai – 600 034.+1 CC to Mr.N. Muthukumar, Advocate sr 23477+1 CC to M/s. Hema Muralikrishnan, Advocate sr 23298.W.P.No.28967 of 2010and M.P.No.1 of 2010PCH(CO)SP(18/05/2021)