M/S.tamil Nadu State Marketing Corporation Ltd.4Th Floor, Cmda Tower-Ii,Gandhi Irwin Bridge Roadegmore, Chennai - 600 008Represented By Its Managing Directorshr v. The Chief Commissioner Of Income Tax Chennai - Iii

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 25.06.2018 CORAM M/s.Tamil Nadu State Marketing Corporation Ltd.4th Floor, CMDA Tower-II,Gandhi IRwin Bridge RoadEgmore, Chennai - 600 008Represented by its Managing DirectorShri T.Soundiah ... Petitioner in both WPs v. 1.The Chief Commissioner of Income Tax Chennai - III 124, MG Road Chennai - 34 2.The Commissioner of Income Tax Chennai III 124, MG Road Chennai - 34 3.The Joint Commissionr of Income Tax Company Circle III (1) Chennai - 34 4.The Assistant Commissioner of Income Tax, Company Circle III(1), Chennai-34. ... Respondents in both WPs W.P.No.31935/2013 : Writ Petition filed under Article 226 of theConstitution of India praying for issuance of Writ of Certiorarito call for the records of the 2nd respondent in PAN/GIR :AAACT296APandquashtheimpugnednoticeinC.No.3033/19/CIT.III/2013-14,dated30.10.2013fortheassessment year 2004-05. W.P.No.31936/2013 : Writ Petition filed under Article 226 of theConstitution of India praying for issuance of Writ of Certiorarito call for the records of the 2nd respondent in PAN/GIR : https://hcservices.ecourts.gov.in/hcservices/ AAACT296APandquashtheimpugnednoticeinC.No.3033/20/CIT.III/2013-14,dated30.10.2013fortheassessment year 2005-06. Heard Mr.Vijayaragavan, learned counsel, assisted byMr.R.Venkatanarayanan learned counsel for the petitioner andMr. J.Narayanaswamy, learned Senior Standing Counsel assisted byMr. Raj Kumar Jhabkah for the respondents. 2. The petitioner is a State owned Corporation, viz., TamilNadu State Marketing Corporation Limited, which has been grantedthe exclusive privilege for wholesale and retail distributionof Indian Made Foreign Liquor (IMFL) and Beer in the State ofTamil Nadu. Challenge in these writ petitions are to thenotices issued by the 2nd respondent under section 263 of theIncome Tax Act, 1961. Notice for the assessment year 2004-05is impugned in Writ Petition No. 31935/2013 and notice forthe assessment year 2005-06 is impugned in Writ PetitionNo.31936/2013 Since the facts are identical, both the writpetitions were heard together and disposed of by this commonorder. 3.1 The 2nd respondent has issued the impugned notices onthe ground that he has reason to believe that the order ofreassessment is erroneous and prejudicial to the interest ofRevenue inasmuch as the diversion of the income by the assesseeto the extent of entire additional vend fee, since theretrospective Government Order appropriating the income of theassessee mentioned the entire fee in the order and such orderwas passed after the close of the financial year. Thus, the 2ndrespondent proposed that the enhanced additional vend fee hasto only be disallowed in the assessment order dated 15.12.2011instead of the additional vend fee and hence, the assessmentorder is liable for revision. 3.2 The 2nd respondent would justify his stand by statingthat as per Section 263 of the Act, if the 2nd respondentconsiders an order to be erroneous and prejudicial to theinterest of Revenue, is entitled to invoke the power and the https://hcservices.ecourts.gov.in/hcservices/ impugned proceeding being only a show cause notice it is wellopen to the petitioner to submit his reply and raise allcontentions before the 2nd respondent and the writ petitionchallenging the same is not maintainable. 3.3 This preliminary objection regarding maintainabilitywas pointed out by the learned Standing Counsel for the Revenueand also pointed out in the counter affidavit filed by the2nd respondent. 3.2 The 2nd respondent would justify his stand by statingthat as per Section 263 of the Act, if the 2nd respondentconsiders an order to be erroneous and prejudicial to theinterest of Revenue, is entitled to invoke the power and the https://hcservices.ecourts.gov.in/hcservices/ impugned proceeding being only a show cause notice it is wellopen to the petitioner to submit his reply and raise allcontentions before the 2nd respondent and the writ petitionchallenging the same is not maintainable. 3.3 This preliminary objection regarding maintainabilitywas pointed out by the learned Standing Counsel for the Revenueand also pointed out in the counter affidavit filed by the2nd respondent. 4. After elaborately hearing the learned counsel for theparties and carefully perusing the materials placed on record,this court is fully convinced to hold that the impugned noticesare without jurisdiction. Such conclusion is supported byfollowing reasons, for which purpose I refer to the factspertaining to the assessment year 2004-05 (W.P.No.31935 OF 2013). 5.1 The petitioner for the assessment year 2004-05 filedreturn of income on 01.11.2004 admitting a total income ofRs.3,65,84,230/- and subsequently a revised return of incomewas filed on 30.03.2005 admitting an income of Rs.4,65,43,830/-.During the said year, the petitioner claimed deduction of asum of Rs.435,17,13,674/- as Special Privilege Fee (SPF) in theprofit and loss account for the year ended 31.03.2004. Thepetitioner adopted the rate of SPF on the basis ofG.O.Ms.No.338, dated 29.10.2004 enhancing the rate from Rs.29.78to Rs.43.37 per bulk litre with retrospective effect from29.11.2003. 5.2 The petitioner's Assessing Officer, viz., the 4threspondent, selected the case for scrutiny and completed theassessment under section 143(3) of the Act on 15.12.2006determining the total income at Rs.7,09,84,025/- and thededuction of SPF was allowed as claimed by the petitioner.Subsequently, the 4th respondent reopened the assessment undersection 147 of the Act by issuing notice under section 148 on10.02.2011 in response to which, the petitioner filed replydated 07.03.2011 requesting the Assessing Officer to treat thereturn of income originally filed as a return filed in pursuanceto notice under section 148 and also requested to furnish thereason for reopening the assessment. 5.3 It appears that the Assessing Officer withoutfurnishing the reasons recorded for reopening of assessment,served a notice under section 143(2) of the Act, dated 04.05.2011 and passed reassessment order on 15.12.2011. Whilecompleting the reassessment, the Assessing Officer disallowed asum of Rs.232,64,49,342/- being the difference in SPF paid andadmissible and raised a demand of Rs.1,72,94,81,300/-. The dis-allowance of the SPF amounting to Rs.232,64,49,342/- was on theground that G.O.Ms.No.338, dated 29.10.2004, was notprevailing as on 31.03.2004 as well as G.O.Ms.No.49, dated19.02.2004 was not cancelled prior to 31.03.2004 and that theliability on account of enhanced SPF did not accrue as on31.03.2004 and the liability is not in the nature of statutoryliability but in the nature of contractual payment to beallowed under section 43B of the Act and that the charging ofSPF on the basis of per bulk litre basis and increasing it everyyear on the basis of the Government Order is not justifiable,the assessee has adopted methodology to take out profits in thename of SPF before arriving at taxable profits and the taxplanning made after the end of the financial year so as toreduce profits. 5.4 The petitioner's liability to pay SPF is as per theprovisions of the Tamil Nadu Prohibition Act, 1937, and theTamil Nadu Indian Made Foreign Spirit (Supply by wholesale),Rules, 1983 (Rules) and it is a statutory liability and suchliability will be at the rates prevailing/notified under Rule15(3) as applicable for the period of sale and even if theGovernment notifies the rate beyond the previous year, theliability for the year will be based on such notified amountonly and very fact that the amount is notified by theGovernment beyond the previous year will not alter the factthat for the year the rate as amended will apply and thededuction should be on the basis of amount notified by theGovernment as applicable for the period, even if thenotification came beyond the previous year. Further, thepetitioner contended that under section 54(2-A) of theProhibition Act, the Government has issued notificationgranting permission with retrospective effect. 5.5 The petitioner's Assessing Officer rejected thesubmission of the petitioner and adopted SPF as Rs.19.29 perbulk litre for the period 01.04.2003 to November 2003 andRs.19.37 for December 2003 to February 2004 and Rs.29.78 forthe period of March 2004 and worked out the dis-allowance of theSPF at Rs.232,64,49,342/-. 5.6 Aggrieved by the said order, the petitioner preferredappeal before the Commissioner of Income Tax (Appeals). TheCIT (Appeals), vide order dated 25.05.2012, confirmed the https://hcservices.ecourts.gov.in/hcservices/ dis-allowance of claim of SPF claimed on the basis ofG.O.Ms.No.338, dated 29.10.2004, which was issued after the endof the relevant financial year, however, directed the AssessingOfficer to adopt the uniform rate of Rs.19.37 on the basis ofG.O.No.336, dated 27.11.2003 for the period 01.04.2003 to28.11.2003 and Rs.29.78 for the period 29.1.1.2003 to31.03.2004 on the basis of G.O No.49, dated 19.02.2004. 5.7 Aggrieved by the same, the petitioner filed appealbefore the Income Tax Appellate Tribunal, which allowed thepetitioner's appeal and dismissed the appeal filed by theDepartment by following the petitioner's own case in ITANos.962/2010 & 964/Mds/2011, dated 18.09.2012 for theassessment year 2007-08 and 2008-09. The order passed by theTribunal was given effect to after which the impugned noticehas been issued by the 4th respondent . 6. On a perusal of the order passed by the Tribunal, it isseen that the Tribunal considered the question as to whetherthe payment of Special Privilege Fee as ordered by theGovernment by issuing various Government Orders some of whichhave been issued beyond the end of the relevant financial yearand considered the order in the assessee's own case inI.T.A.Nos.962 of 2010 and 964/Mds/2011 and held that from thelanguage incorporated in the Government Order dated 20.07.2007,the word 'substituted' implies that for all intents andpurposes the earlier Special Privilege Fees rate no more exitsand it stood 'effaced'. It is further pointed out that therecan be no dispute between the parties that this liability is notallowable as a provision for the previous year ended on31.03.2007, it had to be allowed qua the year ended on31.03.2008 when actual payment was effected. Therefore, theTribunal held, having allowed the assessee to follow the verymethodology for very many years, it is hardly justifiable forthe Revenue to force the assessee for changing its assessmentyear in hand as it will only result in creation of artificialdisturbance and levy of tax. Therefore, the Tribunal concludedthat the 'Rule of consistency' in such a case, cannot be givena go bye unless it contravenes a legal provision or theassesses's claim is apparently unallowable by its very nature. 7. So far as the current assessment years are concerned, theTribunal took note of the earlier decision and pointed out thatfor the relevant assessment years similar Government Ordershave been passed by the State Government enhancing theSpecial Privilege Fees from retrospective date and the case ofthe assessee is squarely covered by the order passed by theCoordinate Bench of the Tribunal. 8. Pursuant to the order passed by the Tribunal, theAssessing Officer has given effect to the order and passed anorder on 24.12.2012, after which, the impugned notice came tobe issued on 30.10.2012. 9.1 In my considered view, interpretation sought to be givenby the 2nd respondent in the impugned notice is in effectsitting in judgment over the decisions of the ITAT, whichanalysed the effect of the Government Orders, the languageadopted by it and held that the Special Privilege Fee which wasrevised by subsequent Government Orders substitutes the ratesfixed in the earlier Government Order, therefore, it isuntenable on the part of the Revenue to contend that they willconsider as to whether the claim of additional vend feeamounting to Rs.435,17,13,674/- is admissible or not. Thefundamental error which has crept in on account of usage ofwrong terminology. The Prohibition Act and the Rules framedthereunder have fixed a fee payable by the petitionercorporation to the Government and this is termed as theSpecial Privilege Fee payable on account of special statusgiven to the Corporation with regard to distribution of sale ofIMFL in the State of Tamil Nadu. 9.2 The 2nd respondent appears to have used the word'additional vend fee' on account of the difference between thefee payable by the assessee at the first instance whenG.O.Ms.No.336 was issued and subsequent increase effected byG.O.Nos. 48 and 338. 9.3 As pointed out by the ITAT, the Government Order issuedsubsequently substituting the SPF as fixed in the earlier order,therefore, the proper method of reading the Government Order isto read the substituted figure as the SPF. Therefore, theterminology adopted by the 2nd respondent in the impugned noticeas 'additional vend fee' is incorrect. 10. Mr.J.Narayanasamy, learned counsel for the Revenuecontended that as against the order of the Tribunal, Tax CaseAppeal has been filed by the Department and they are entitledto contest as to whether the order giving effect to the orderof the Tribunal for the entire claim is justified or not, forwhich the impugned notice has been issued. 11. If the said submission by the Revenue is permitted, thiswould clearly contravene Section 263 (1) of the Act. This is https://hcservices.ecourts.gov.in/hcservices/ so because the ITAT has considered and decided the effect ofthe subsequent Government order revising the SPF. Therefore,the issue which has been considered and decided by the Tribunalin the assessee's own case cannot be sought to be reopened byexercise of powers under section 263(1) of the Act. 12. Mr. J.Narayanaswamy, learned counsel for the Revenuereferred to explanation to section 263 (1), particularly, clauseA under the said explanation and submitted that theCommissioner has power to invoke the said provision, if anorder has been passed without making enquires or verification.This argument is not sustainable on account of undisputed factsin the instant case. https://hcservices.ecourts.gov.in/hcservices/ so because the ITAT has considered and decided the effect ofthe subsequent Government order revising the SPF. Therefore,the issue which has been considered and decided by the Tribunalin the assessee's own case cannot be sought to be reopened byexercise of powers under section 263(1) of the Act. 12. Mr. J.Narayanaswamy, learned counsel for the Revenuereferred to explanation to section 263 (1), particularly, clauseA under the said explanation and submitted that theCommissioner has power to invoke the said provision, if anorder has been passed without making enquires or verification.This argument is not sustainable on account of undisputed factsin the instant case. 13. The Assessing Officer enquired and passed anassessment order allowing the relief. Subsequently theassessment was reopened and an order was passed. This order wastested and ultimately a decision was arrived in favour of theassessee. The only issue to be decided is Special PrivilegeFee payable by the petitioner. This has been dealt with by theTribunal in the assessee's own case for the current assessmentyear as well as earlier and held that the subsequent Governmentorders will have to be taken into consideration for arriving atthe SPF payable for the said year. Thus, in my consideredopinion, no further enquiry is required or any verification isrequired as only the legal interpretation to be given is tothe effect of the subsequent Government Orders which have beenheld to be substitutive in nature, therefore deemed to beretrospective with effect from issuance of the first GovernmentOrder. 14. Thus for the above reasons, I hold that the impugnedshow cause notices are without jurisdiction and not sustainablein law. In the result the writ petitions are allowed and theimpugned notices are quashed. No costs. Consequently, theconnected miscellaneous petitions are closed. Sd/- Assistant Registrar(CS V) //True Copy// Rj To 1.The Chief Commissioner of Income Tax Chennai - III, 124, MG Road Chennai - 34 2.The Commissioner of Income Tax Chennai III, 124, MG Road Chennai - 34 3.The Joint Commissionr of Income Tax Company Circle III (1) Chennai - 34 4.The Assistant Commissioner of Income Tax, Company Circle III(1), Chennai-34. +2cc to Mr.J.Narayanaswamy, Advocate Sr.40487, 40488 W.P.Nos.31935 & 31936 of 2013 &M.P.Nos.1 of 2013 (2 Mps) ss[co]srg 06/07/2018