Income Tax Case

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE C.SARAVANAN M/s.West Asia Maritime Ltd.,Rep.by its Managing Director,Abdul Qadir Abdur Rahman Buhari,Buhari Towers, No.5, Moores Road, Chennai 600 006. .. Petitioner in both W.Ps. Vs Assistant Commissioner of Income Tax,Company Circle – III (3),Aayakar Bhavan – New Block, 4[th] Floor,121, Mahatma Gandhi Road,Chennai 600 034. .. Respondent in both W.Ps. Prayer in both W.Ps.: Writ petitions filed under Article 226 ofthe Constitution of India praying for issuance of a writ ofCertiorari, calling for the records in PAN dated28.12.2011 relating to the Assessment Year 2004-05 and 2005-06and quash the same. For Petitioner : Mr.G.Baskar for (in both W.Ps.) By this common order both the writ petitions are beingdisposed of. https://hcservices.ecourts.gov.in/hcservices/ 2. Petitioner is aggrieved by the impugned re-assessmentorders passed by the respondent for the Assessment Years 2004-05in W.P.No.947 of 2012 and Assessment Year 2005-06 in W.P.No.948of 2012. Regular assessment for the respective assessmentyears were earlier completed on 19.12.2006 and on 31.12.2008accepting the returns filed by the petitioner with slightmodification. 3. The petitioner had made payments to the owners of theship/liners under the Bare Boat Charter Cum Demise (BBCD),Voyage Charter and Time Charter to M/s.Dolphin Maritime Inc.,Cyprus and to few others under Voyage Charter. However, thepetitioner had failed to deduct tax at source under Section 195of the Income Tax Act, 1961 on payments made to non-residentsunder these voyage agreements. 4. Issue relating party to failure to deduct tax on paymentsmade to M/s.Dolphin Maritime Limited Cyprus under the Bare BoatCharter Cum Demise (BBCD) was one of the issue which was handledby the Income Tax Officer (International Taxation). 5. By a communication dated 31.8.2004, the petitioner wascalled upon to furnish the details of payment made to the abovecompany along with Emirates Trading Agency LLC, UAE and Shippingand Trading Associates LLC UAE. The petitioner had claimed thebenefit of Double Taxation Agreement (DTA) with Cyprus insofaras payments made to Dolphin Maritime Ltd., Cyprus was concerned. 6. The petitioner replied to the same which eventuallyculminated in an order dated 27.04.2005 of the Income TaxOfficer (International Taxation) for the assessment year 2003-04& 2004-05. Information was called for payment made up to the date of notice dated31.8.2004. The petitioner had paid a sum of Rs.1,46,51,000/-and was held liable to pay tax under section 201 (1) of theIncome Tax Act, 1961. 7. The petitioner preferred an appeal against the said orderbefore the Commissioner of Income Tax (Appeals) for theAssessment Years 2003-04 and 2004-05 alone. The Commissioner ofIncome Tax (Appeals) upheld the order dated 27.4.2005 of theIncome Tax Officer (International Taxation). Aggrieved by thesame, the petitioner preferred the appeals before the Income TaxAppellate Tribunal, Chennai. 8. The Income Tax Appellate Tribunal by its order dated19.5.2006, upheld the order passed by the Commissioner of IncomeTax (Appeals) in its order reported in West Asia Maritime Ltd.vs The Income-Tax Officer, (2008) 297 ITR 202. 9. It is during the pendency of these proceedings, theoriginal assessment for the assessment year 2004-05 and theAssessment year 2005-2006 orders vide dated 19.12.2006 and31.12.2008 came to be passed by the respondent. 10. By the assessment order dated 19.12.2006 for theassessment year 2004-05, the respondent disallowed an expense ofRs. 6,08,98,646/-under Section 40(a)(i) of the Income Tax Act,1961 being the amount paid towards BBCD hire charges to M/s.Dolphin Maritime, Cyprus. 8. The Income Tax Appellate Tribunal by its order dated19.5.2006, upheld the order passed by the Commissioner of IncomeTax (Appeals) in its order reported in West Asia Maritime Ltd.vs The Income-Tax Officer, (2008) 297 ITR 202. 9. It is during the pendency of these proceedings, theoriginal assessment for the assessment year 2004-05 and theAssessment year 2005-2006 orders vide dated 19.12.2006 and31.12.2008 came to be passed by the respondent. 10. By the assessment order dated 19.12.2006 for theassessment year 2004-05, the respondent disallowed an expense ofRs. 6,08,98,646/-under Section 40(a)(i) of the Income Tax Act,1961 being the amount paid towards BBCD hire charges to M/s.Dolphin Maritime, Cyprus. 11. However the, assessment order did not deal with thebalance amount of Rs. 62,79,15,227/- paid under Voyage Charterparty to Shipping Trading Associates LLC, Emirates Trading LLC,EAS International Ltd UK ad West Asia Maritime Overseas Pte LtdSingapore though in the notice issued to the petitioner underSection 143 (2)/142 (1) of the Income Tax, 1961 specificallycalled upon the petitioner to give particulars of the paymententire payment of Rs.68,89,14,292/- made to these companies-forthe Assessment Year 2004-05 before the assessment order waspassed on 19.12.2006. Over and above the aforesaid amounts, thepetitioner had paid a total sum Rs.62,79,15,227/- to some of theparty’s named above which is now thought to be disallowed videthe impugned order. 12. For the Assessment Year 2005-06, similar particulars ofpayments made to under BBCD hire charges to M/s. DolphinMaritime Incorporated, Cyprus alone was called. The petitionerinformed payment of Rs.4,35,64, 010/-. The said amount alonewas disallowed under Section 40a(1) of the Income Tax Act, 1961in the Assessment order dated 31.12.2008. Over and above theaforesaid amounts, the petitioner had paid a total sum of2,12,28,88,338/- to some of the party’s named above which is nowthought to be disallowed. 13. It is submitted that the assessment was completed by theIncome Tax Officer for the Assessment Year 2004-05 vide orderdated 19.12.2006 with the concurrence of the AssistantCommissioner of Income Tax. 14. It is submitted that the notices dated 28.03.2011 issuedto the petitioner for the respective Assessment Years werewithout jurisdiction. It is submitted that for the AssessmentYear 2004-2005, not only the jurisdictional Income Tax Officerbut also the Assistant Commissioner of Income Tax hadscrutinised while holding a concurrent jurisdiction over thefiles of the petitioner and that the Income Tax Officer passedthe assessment order on 19.12.2006 after due scrutiny by thesaid officer as well. 15. It is further submitted that the Income Tax Officer(International Taxation) had also issued a notice dated31.8.2004 which culminated in an order dated 27.4.2005 asmentioned above. It is therefore submitted that three differentofficers had applied their mind and scrutinised the paymentsmade to non-residents and therefore there was no case made outfor issuing notice under Section 148 of the Income Tax Act, 1961for the purpose of invoking proviso to Section 147 of the IncomeTax Act, 1961 and therefore the impugned order dated 28.12.2011was also liable to be quashed. 15. It is further submitted that the Income Tax Officer(International Taxation) had also issued a notice dated31.8.2004 which culminated in an order dated 27.4.2005 asmentioned above. It is therefore submitted that three differentofficers had applied their mind and scrutinised the paymentsmade to non-residents and therefore there was no case made outfor issuing notice under Section 148 of the Income Tax Act, 1961for the purpose of invoking proviso to Section 147 of the IncomeTax Act, 1961 and therefore the impugned order dated 28.12.2011was also liable to be quashed. 16. As far as the Assessment Year 2005-06, is concerned,again all the information necessary for the assessment werefurnished by the petitioner during assessment and that thenotice under Section 148 of the Income Tax Act, 1961 againnotice was issued after the expiry of normal period oflimitation. It is submitted that the notice has been issued onaccount of change of opinion. It is submitted that all thedetails were furnished by the petitioner at the time ofassessment and therefore the impugned order was liable to bequashed. It is submitted that there were no new materialavailable for reopening the assessment under Section 148 of theIncome Tax Act, 1961. 17. It is submitted that the only reason for reopening theassessment reason given in the communication dated 27.4.2011merely states that the petitioner failed to deduct tax underSection 195 of the Income Tax Act, 1961. For the AssessmentYears read as under: Asst.Year 2004-05: On perusal of the Return of Income for theAsst.Year 2004-05, it is understood that youhave made a payment to the tune ofRs.62,79,15,227/- to a Non-resident company viz,Emirates Trading LIC, UAE towards charter HireCharges, but you have not deducted tax on thesaid payment made to the Non Resident company asper the provisions of Section 195 of the Act.Since, you have failed to deduct tax, the saidsum to be disallowed u/s.40(a)(i).Asst.Year 2005-2006 On perusal of the Return of Income for theAsst. Year 2005-06, it is learnt that you havemade payment to Non Resident companies viz,Damico Dry Ltd., Dublin, West Asia MaritimeOverseas Pvt.Ltd, and Emirates Trading LIC,UAEtotaling of Rs.212,28,88,338/- towards CharterHire Charges, but you have not deducted tax onthe said payment made to the Non Residentcompanies as per the provisions of section 195 of the Act. Since you have failed to deducttax, the said sum needs to be allowed u/s.40(a)(i). 18. Under these circumstances, the learned counsel for thepetitioner relied on the following decisions of the SupremeCourt and that of this Court as follows:- of the Act. Since you have failed to deducttax, the said sum needs to be allowed u/s.40(a)(i). 18. Under these circumstances, the learned counsel for thepetitioner relied on the following decisions of the SupremeCourt and that of this Court as follows:- i).CIT Vs.Eco Media (P) Ltd (2012)81CCH 85 (ChenHC)ii).Calcutta Discount Co Ltd Vs.Income TaxOfficer, (1961) 41 ITR 191(SC) iii).Jeans Knit Pvt. Ltd Vs. Deputy Commissionerof Income Tax, Bangalore (2017) 77 taxmann.com176 (SC)iv).VishwanathEngineersVs.AssistantCommissioner of Income Tax (2012) 21 taxmann.com5 (Gujarat)v).Asianet Star Communications (P) Ltd. VsAssistant Commissioner of Income Tax-NonCorporate Circle 20(1), W.P.Nos.25328, 25331,25336 of 2018vi) Principal Commissioner of Income Tax,Coimbatore vi. Bharathi Constructions, (2020) 121taxmann.com 302 (Madras)vii).TransperkIndustryLtdVs.DeputyCommissioner of Income Tax, , (2017) 80taxmann.com 83 (Gujarat)viii).Income Tax Officer vs. Techspan India (P)Ltd. (2018) 92 taxmann.com361(SC): 2018) 302 CTR74 (SC)ix).Commissiner of Income Tax Vs. Kelvinator ofIndia Ltd. (2002) 256 ITR 1 (Delhi)x).Commissioner of Income Tax Vs.Kelvinator ofIndia Ltd. (2010) 320 ITR 561 (SC)xi).E-Infochips Ltd Vs. Deputy Commissioner ofIncome Tax, (2017) 380 ITR 449 (Gujarat)xii) .QX KPO Services(P) Ltd. Vs DeputyCommissioner of Income Tax, (2019) 414 ITR 429(Gujarat)xiii).Deputy Commissioner of Income Tax v. QX KpoServices(P)Ltd, (2018) 259 Taxman 317 (SC)xiv) State Bank of India Vs. AssistantCommissioner of Income Tax, Circle-2(2)(1),Mumbai, (2019) 411 ITR 664 (Bombay) 19. That apart, the petitioner was also made to thefollowing three decisions: i) .New Delhi Television Ltd. Vs. Deputy Commissioner of Income Tax (2020) 116 taxmann.com151 (SC) ii).Jarun Pharmaceuticals Pvt.Ltd Vs. Income TaxOfficer Special Leave Application No.19008/2018 iii).Hitech Outsourcing Services Vs. Commissionerof Income Tax (2019) 102 taxmann.com 128 (Gujarat) 20. The learned counsel for the petitioner drew my attentionto the decision of the Supreme Court, in Commissiner of IncomeTax Vs. Kelvinator of India Ltd. (2002) 256 ITR 1 (Delhi), ithas been held as follows: “13. We are, with respect, unable to subscribe tothe afore-mentioned view. If the contention of theRevenue is accepted the same, in our opinion,would confer an arbitrary power upon the AssessingOfficer. The Assessing Officer who had passed theorder of assessment or even his successor officeronly on slightest pretext or otherwise would beentitled to re-open the proceeding. Assessmentproceedings may be furthermore re-opened more thanonce. It is now trite that where twointerpretations are possible, that which fulfillsthe purpose and object of the Act should bepreferred.14. It is well settled principle of interpretationof statute that entire statute should be read as awhole and the same has to be considered thereafterChapter by Chapter and then Section by Section andultimately Word by Word. It is not in dispute thatthe Assessing Officer does not have anyjurisdiction to review its own order. Hisjurisdiction is confined only to rectification ofmistake as contained in Section 154 of the Act.The power of rectification of mistake conferredupon the ITO is circumscribed by the provisions ofSection 154 of the Act. The said power can beexercised when mistake is apparent. Even mistakecannot be rectified where it may be a merepossible view or where the issues are debatable.Even the Income-tax Appellate Tribunal has limitedjurisdiction under Section 254(2) of the Act. Thuswhen the Assessing Officer or Tribunal hasconsidered the matter in detail and the view takenis a possible view the order cannot be changed byway of exercising the jurisdiction ofrectification of mistake.15. It is a well settled principle of law thatwhat cannot be done directly cannot be done indirectly. If the ITO does not possess the powerof review, he cannot be permitted to achieve thesaid object by taking recourse to initiating aproceeding of re-assessment or by way ofrectification of mistake. In a case of this naturethe Revenue is not without remedy. Section 263 ofthe Act empowers the Commissioner to review anorder which is prejudicial to the Revenue. 16. In Bawa Abhai Singh's case (supra) a DivisionBench of this Court of which one of us (D.K. Jain,J.) is a Member, clearly held: "The crucial expression is "reason to believe".The expression predicates that the AssessingOfficer must hold a belief ... by the existence ofreasons for holding such a belief. In other words,it contemplates existence of reasons on which thebelief is founded and not merely a belief in theexistence of reasons inducing the belief. Such abelief may not be based merely on reasons but itmust be founded on information. As was observed inGanga Saran and Sons P. Ltd. v. ITO (1981) 130 ITR1 (SC), the expression "reason to believe" isstronger than the expression "is satisfied". Thebelief entertained by the Assessing Officer shouldnot be irrational and arbitrary. To put itdifferently, it must be reasonable and must bebased on reasons which are material. In S.Narayanappa v. CIT(1967) 63 ITR 219, it was noted by the apex courtthat the expression "reason to believe" in Section147 does not mean purely a subjective satisfactionon the part of the Assessing Officer, the beliefmust be held in good faith; it cannot be merely apretence. It is open to the court to examinewhether the reasons for the belief have a rationalnexus or a relevant bearing to the formation ofthe belief and are not extraneous or irrelevantfor the purpose of the section. To that limitedextent, the action of the Assessing Officer ininitiating proceedings under Section 147 can bechallenged in a court of law." 21. Defending the impugned order, the learned counsel forthe Income Tax Department submits that these petitions wereliable to be dismissed in asmuchas the petitioner has notquestioned the jurisdiction for reopening of the assessment under Section 147 r/w Section 148 of the Income Tax Act, 1961.It is submitted that petitioner has an alternate remedy by wayof an appeal before the Commissioner of Income Tax (Appeals)against the impugned re-assessment orders dated 28.12.2011. 22. It is submitted that though the petitioner company hadfiled its return for the Assessment Year 2004-05 admittingincome of Rs.2,03,09,640/- and a book profit under Section 115JB at Rs.3,62,95,681/- in the return for the Assessment Year2005-06 filed on 31.10.2005, the petitioner had declared nilincome after setting off the loss suffered during the assessmentyears. It is submitted that the original assessment ordersdated 19.12.2006 and 31.12.2008 for the respective assessmentyears only dealt with the BBCD hire charges which weredisallowed under Section 40 (a) (i) of the Income Tax Act, 1961.It is submitted that there was no true and full disclosure andtherefore there was sufficient reasons for reopening theassessment. 23. Reliance was placed on the following decisions by thelearned counsel for the respondent:-i. Poombuhar Shipping Corporation Ltd Vs.Income Tax Officer [2013] 38 taxmann.com 150(Madras) ii. Home Finders Housing Ltd., vs. Income TaxOfficer, Corporate Ward 2(3)*, [2018] 94taxmann.com 84 (SC); iii. Mohan Ravi vs. Income Tax Officer No,-Corporate Ward 20(5), Chennai *, [2019] 112taxmann.com 373(Madras) 24. I have considered the arguments advanced by the learnedcounsel for the petitioner and the learned Senior StandingCounsel for the respondent. I have also perused the documentsfiled by the petitioner. 23. Reliance was placed on the following decisions by thelearned counsel for the respondent:-i. Poombuhar Shipping Corporation Ltd Vs.Income Tax Officer [2013] 38 taxmann.com 150(Madras) ii. Home Finders Housing Ltd., vs. Income TaxOfficer, Corporate Ward 2(3)*, [2018] 94taxmann.com 84 (SC); iii. Mohan Ravi vs. Income Tax Officer No,-Corporate Ward 20(5), Chennai *, [2019] 112taxmann.com 373(Madras) 24. I have considered the arguments advanced by the learnedcounsel for the petitioner and the learned Senior StandingCounsel for the respondent. I have also perused the documentsfiled by the petitioner. 25. For the assessment year, the assessments were re-openedafter the expiry of normal period of limitation just three daysbefore the expiry of limitation under proviso to Section 147 ofthe Income Tax Act, 1961 in 2004-05 and two months before forthe Assessment Year 2005-06. If there was any failure to trulyand fully disclose all information that were required forassessment under Section 139 of the Income Tax Act, 1961,invocation of the machinery under Section 148 read with provisoto Section 147 of the Income Tax Act, 1961 can be said to bejustified. 26. In this case, at the time of assessment, for theAssessment Year 2004-05 the details were called for from thepetitioner vide notice dated 17.8.2006 issued under Section 143(2)/142 (1) of the Income Tax Act, 1961. In its reply dated30.8.2006, the petitioner declared that it had paid a total sumof Rs.68,89,14,292/- as freight. During assessment, only a sumof Rs.6,08,98,646/-from the aforesaid amount was disallowedunder Section 40(a)(1) of the Income Tax Act, 1961. Thus, thereis no case made out for suppression of facts or failure to trulyand fully disclose information by the petitioner. 27. Therefore, invocation of the machinery prescribed underthe Act for reopening the assessment beyond the normal period oflimitation was not available to the respondent. Though, thepetitioner has an alternate remedy before the Commissioner ofIncome Tax (Appeals), this court is inclined to interfere byquashing the impugned order dated 28.12.2011 for the AssessmentYear 2004-05, as there was no failure on the part of thepetitioner to truly and fully disclose all materials that arerequired for assessment by the assessment officer. Accordingly,W.P.No 947 of 2012 stands allowed. 28. Coming to the Assessment Year 2005-06, again it isnoticed that notice under Section 148 of the Income Tax Act,1961 has been issued for the purpose of re-opening of theassessment on 28.4.2011 after a lapse of four years from the endof the assessment year 2005-06. The notice for reopening theassessment was issued on 28.3.2011. 29. The only reason given for re-opening of the assessmentis on account of the failure on the part of the petitioner topay tax on the freight under voyage charter. In the noticeissued under section 143 (2) of the Income Tax Act, 1961 and theconsequent communication dated 15.11.2007 of the AssistantCommissioner of Income Tax the petitioner was called upon tofurnish the details in writing to the questionnaire attached tothe said notice. The questionnaire specifically called upon thepetitioner only to furnish details of BBCD hire charges paid toM/s.Dolphin Maritime Inc.Cyprus, with the details of taxdeducted at source. 30. The petitioner not only produced the details but alsofurnished the details of the payment made towards charter hirefor a sum of Rs.2,12,28,88,338/-. By another communication dated3.12.2007 also these details were furnished again by thepetitioner. The Asst Commissioner of Income Tax in theassessment order dated 31.12.2008 merely disallowed the BBCDhire charges for a sum of Rs.4,35,64,010/-. This was perhaps onaccount of the order dated 27.4.2005 passed by the Income Tax 30. The petitioner not only produced the details but alsofurnished the details of the payment made towards charter hirefor a sum of Rs.2,12,28,88,338/-. By another communication dated3.12.2007 also these details were furnished again by thepetitioner. The Asst Commissioner of Income Tax in theassessment order dated 31.12.2008 merely disallowed the BBCDhire charges for a sum of Rs.4,35,64,010/-. This was perhaps onaccount of the order dated 27.4.2005 passed by the Income Tax Officer (International Taxation) Division. Thus, there was nofailure to truly and fully disclose all information required forassessment. 31. Thus, the decision cited by the petitioner areapplicable as there is a change of opinion. As extracted above,the reason for reopening the assessment only on on account ofchange of opinion. Therefore, W.P.No.948 of 2012 also deservesto be allowed for the same reasons stated for allowingW.P.No.947 of 2012. 32. In the result, both the writ petitions are allowed.No costs. Consequently, connected miscellaneous petitions areclosed. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar kkdTo Assistant Commissioner of Income Tax,Company Circle – III (3),Aayakar Bhavan – New Block, 4[th] Floor,121, Mahatma Gandhi Road,Chennai 600 034. +1cc to M/s.N.Muthukumar, Advocate, sr no.12540+1cc to M/s.N.Muthukumar , Advocate , sr no.12541+1cc to M/s.Hema murali krishnan, Advocate, sr no.12744 AAB(CO)RMP(18/03/2021) W.P.Nos.947 & 948 of 2012 andM.P.Nos.1,1 and 2,2 of 2012 https://hcservices.ecourts.gov.in/hcservices/