The Honourable Dr. Justice Anita Sumanth W.p v. Assistant Commissioner Of Income Tax, Company Circle 4(1), Chennai Main Building

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 08.10.2020 CORAM THE HONOURABLE DR. JUSTICE ANITA SUMANTHW.P. No.1212 & 1216 of 2020WMP.No.1477 of 2020 Maya Appliances Private Limited,Represented by K.Uma Shankar, Senior Manager ... Petitioner in both WPsVs. 1. Assistant Commissioner of Income Tax, Company Circle 4(1), Chennai Main Building, No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600 034 2.Deputy Commissioner of Income Tax, Company Circle 4(1), No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600 034. 3.Principal Commissioner of Income Tax-4 No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600 034 4.Union of India, Represented by Revenue Secretary, North Block, New Delhi-110 001 . .. Respondents in all WPs Prayer in WP No.1212 of 2020: Writ Petition filed underArticle 226 of the Constitution of India praying to Writ ofCertiorari calling for the final assessment order (SecondImpugned Order) passed by the 1[st] respondent in u/S 143(3) r/wSection 147 in DIN 20121173482 dated 27.12.2019 for the AY2012-13 and quash the same. Prayer in WP No.1216 of 2020: Writ Petition filed underArticle 226 of the Constitution of India praying to Writ ofCertiorari calling for the records relating to the orderdisposing objections (First Impugned Order) passed by the 1[st]respondent in ITBA/AST/f/17/2019-20/1022914389(1) dated23.12.2019 for the AY 2012-13 and quash the same. https://hcservices.ecourts.gov.in/hcservices/ For Petitioner: Mr.Ragavan Ramabadran (in both WP's) For Respondents : Mrs.Hema Muralikrishnan, Senior Standing Counsel (in both WP's) The petitioner has filed these two writ petitions, onechallenging order dated 23.12.2019 rejecting the objections ofthe petitioner to the jurisdiction assumed by the respondentfor proceedings in connection with re-assessment under theIncome Tax Act, 1961 (in short ‘Act’) for Assessment Year2012-13, and the second, the order of re-assessment dated27.12.2019. 2. Proceedings for re-assessment have admittedly beeninitiated after a period of four years from the end of therelevant year and this is thus, a case, that attracts theproviso to Section 147 of the Act. The provision, to theextent to which it is relevant to this matter, is extractedbelow:147.Income escaping assessment:If the Assessing Officer3has reason tobelieve that any income chargeable to tax hasescaped assessment for any assessment year, he may,subject to the provisions of sections 148 to 153,assess or reassess such income and also any otherincome chargeable to tax which has escapedassessment and which comes to his noticesubsequently in the course of the proceedings underthis section, or recompute the loss or thedepreciation allowance or any other allowance, asthe case may be, for the assessment year concerned(hereafter in this section and in sections 148 to153 referred to as the relevant assessment year). Provided that where an assessment under sub-section (3) of section 143 or this section has beenmade for the relevant assessment year, no actionshall be taken under this section after the expiryof four years from the end of the relevantassessment year, unless any income chargeable totax has escaped assessment for such assessment yearby reason of the failure on the part of theassessee to make a return under section 139 or inresponse to a notice issued under sub-section (1)of section 142 or section 148 or to disclose fullyand truly all material facts necessary for hisassessment, for that assessment year:........ 3. Normally, the time limit for initiation of proceedingsfor assessment would be four years from the end of therelevant Assessment Year. An additional period of two (2)years is granted in those cases where the original assessmentwas completed under the provisions of Section 143(3) and theescapement of income has been occasioned on account of thenon-filing of the return of income either under Section 139 orunder Section 142 by an assessee or on account of the failureof the assessee to have made a full and true disclosure ofincome at the original instance. 4. In the present case, the petitioner has filed a returnof income in time and therefore, the first two conditions arenot attracted. The only issue to be examined is whether thealleged escapement of income, if any, is attributable tofailure on account of the assessee/petitioner to have made afull and true in disclosure of income in that regard. Forthis purpose, one would have to examine the reasons on thebasis of which jurisdiction has been assumed, and test thesame in the light of the enquiry conducted and the responsesfiled by the petitioner prior to the framing of the originalscrutiny assessment. 5. Each issue in the reasons for re-assessment dated08.03.2019 is extracted with the comparative position asregards the disclosure made by the petitioner at the time oforiginal assessment, in seriatim, as under:‘Issue 1In the assessment order disallowance u/s 14A ofRs.40,70,957 was made as per Rule 8D. The workingis as under:Rule 8D(ii): 6,37,586Rule 8D(iii) : 34,33,371-------------40,70,957------------ It is seen that assessee has already disallowed sumof Rs.81,43,316 being management expenses incurredin relation to exempted assets [sec Sch.1 of‘Statement of Income’ r.w. Col 17(1) of Form 3CDaudit report]. Hence disallowance u/s 14A in theassessment order needs to be restricted toRs.6,37,586 being proportionate interest expensesas against Rs.40,70,957. Excess addition made ofRs.34,33,371 has to be deleted. 6. This issue has been raised by the Assessing Officer inquestionnaire under Section 142(1) of the Act, where he callsfor an explanation as to why expenditure was not disallowedunder section 14A read with 8D of the Act. The petitioner hasresponded vide reply dated 14.11.2014 as follows: ‘8) The actual expenses of Rs.81,43,316/-representing as management fees against theexempted Income u/s 10(34) of the Income Tax Act,1961 has been disallowed in the statement ofhttps://hcservices.ecourts.gov.in/hcservices/ Computation of Income. Kindly refer thecomputation of income submitted earlier.’ 7. The second issue is as under: As per Col. 27(b)(i) of Form 3CD audit report,TDS was not made u/s 194J in respect of payment ofRs.3,30,900 made towards fee for technical /professional services. However AO omitted to makedisallowance of this sum u/s 40(a)(ia). The Excessdeduction granted of Rs.3,30,900/- has to bedisallowed. 8. This issue relates to alleged non-deduction of tax atsource under Section 194J in respect of remittances towardsfee for technical/professional services. This information hasbeen sought for under communication dated 23.07.2014, where acopy of the memo of computation of income and all annexuresthereto, being the balance sheet, profit and loss account,notes of audits, returns, statutory reports in Forms 3CD andvarious other details have been sought. The Form 3CD has beenfiled along with the return and along with schedule theretosupplied under cover of communication dated 19.09.2012. Theschedule thereunder discloses the amounts upon which no taxwas deducted under Section 194J as under: … Tax not deductedSection 9. The third issue and analysis thereof are as under:Issue 3 8. This issue relates to alleged non-deduction of tax atsource under Section 194J in respect of remittances towardsfee for technical/professional services. This information hasbeen sought for under communication dated 23.07.2014, where acopy of the memo of computation of income and all annexuresthereto, being the balance sheet, profit and loss account,notes of audits, returns, statutory reports in Forms 3CD andvarious other details have been sought. The Form 3CD has beenfiled along with the return and along with schedule theretosupplied under cover of communication dated 19.09.2012. Theschedule thereunder discloses the amounts upon which no taxwas deducted under Section 194J as under: … Tax not deductedSection 9. The third issue and analysis thereof are as under:Issue 3 Col. 16(b) of Form 3CD Audit report read withAnn shows that sum of Rs.49,412 collected fromemployees as PF contribution were not paid beforethe respective due dates. Employee’s contributionto PF/ESI received by the employer is income in hishands as per sec. 2(24)(x). It is deductible onlyif paid within the due date as per the respectiveAct as specified in sec. 36(1)(va). The provisionsof sec. 43B which is applicable in respect ofemployer’s contribution is quite different than theprovisions of sec. 36(1)(va).The Excess deduction granted of Rs.49,412 has to behttps://hcservices.ecourts.gov.in/hcservices/disallowed 10. Details of provident fund contribution were soughtunder notice dated 23.07.2014 by the Assessing Officer andhave been supplied as a part of the Form 3CD at column No. 16and the annexure thereto reading as under: 16(1) •Any sum paid to an employeeNILas bonus or commission forservices rendered, wheresuch sum was otherwisepayable to him as profits ordividend. (Section 36(1)(ii)2.(As per Annexure)•Any sum received fromemployeestowardscontributionstoanyprovidentfundorsuperannuation fund or anyother fund mentioned insection 2(24) (x); and duedate for payment and theactual date of payment tothe concerned authoritiesunder section 36(1)(va 11. Issue 4 is set below: Issue 4. As per the details of “Legal and Professional fees”incurred available on record, the followingexpenditure are not revenue in nature:DatePayment toAmountParticulars20-05-11 HSB Partners 11,03,000 Towards projectPhoenix26-08-11 HSB Partners5,51,500Towards projectPhoenix20-05-11 HSB Partners11,03,000 Towards projectPhoenix06-06-11AlterEgoMgm.Con.11,03,000 Assisting tr.With Philips01-12-11 Durairajan4,00,000 Assisting tr.With Philips19-08-11 HSB Partners82,725 Ag.With CreditSuisse Total43,43225It was omitted to consider the purpose for whichsuch expenditure was incurred and to disallow it asbeing capital in nature. 12. Details of legal and provisional fees were soughtunder communication dated 26.12.2014 and have been supplied bythe petitioner under communication dated 06.01.2015 andhttps://hcservices.ecourts.gov.in/hcservices/ Annexure containing the ledger extract for ‘Legal &Professional Fee’ at –Annexure-7 thereto. 13. Issue five and explanation filed originally areas follows: Issue 5In the P & L a/c assessee claimed deduction ofRs.1,09,51,936 being “Bike event expenses”. Inletter dated 06-01-15 assessee clarified that suchexpenditure was in the nature of CSR expenses. Itis seen that incurring of CSR expenses becamemandatory only by virtue of sec. 135 of theCompanies Act, 2013 which was not in operationduring the previous year. Mere fact that indirectlyassessee earned goodwill of the general public doesnot imply that the expenditure was incurred forbusiness purposes and such expenditure is notdeductible u/s 37. Excess deduction granted ofRs.1,09,51,936/- has to be disallowed 14. Bike event expenses were sought under cover ofcommunication dated 26.12.2014 and supplied vide replydated 06.01.2015 as follows: Issue 5In the P & L a/c assessee claimed deduction ofRs.1,09,51,936 being “Bike event expenses”. Inletter dated 06-01-15 assessee clarified that suchexpenditure was in the nature of CSR expenses. Itis seen that incurring of CSR expenses becamemandatory only by virtue of sec. 135 of theCompanies Act, 2013 which was not in operationduring the previous year. Mere fact that indirectlyassessee earned goodwill of the general public doesnot imply that the expenditure was incurred forbusiness purposes and such expenditure is notdeductible u/s 37. Excess deduction granted ofRs.1,09,51,936/- has to be disallowed 14. Bike event expenses were sought under cover ofcommunication dated 26.12.2014 and supplied vide replydated 06.01.2015 as follows: ... During the previous year, we amended the“object Clause” in the Memorandum of the Company toinclude “Bike Event”. It is a CSR activityinvolving the conduct of an Annual Training Camp toprovide skills aimed at training motored twowheeler rides on safe and skilled riding on roadand respect for traffic rules. Additionally, theprogram helps identify talented youngsters who canpotentially be trained for representation in thearena of Motor Sports. Amount spent on this eventhas been booked under “Bike Event Expenses”. 15. Issue 6 and explanation thereto are extractedbelow: Issue 6Sum of Rs.2,84,73,639 is debited to the P & L a/cunder the head ‘Employee benefit expenses’ [Note18] with the narration “Bonus, Leave encashment”.As per letter dated 06-01-15 of assesse, suchexpenditure relates to amount due to ex-employeesof “Prestige manufacturing” business carried on bythe assesse which was transferred to Philips groupin April, 2011. According to the assesse, suchpayment was made in F.Y. 2012-13 as a gesture ofgratitude. Firstly, it is not an ascertainedliability as on 31-03-2012 since the same is notpayable as per any law in force in the country.Secondly such payments were not for the purpose ofhttps://hcservices.ecourts.gov.in/hcservices/business. Excess deduction granted : Rs.2,84,73,639. This hasto be disallowed. 16. Employee benefit expenses were sought for on26.12.2019 and supplied as follows: 5) Evidence for payment of bonus/leave encashmentof Rs.284,74 lakhs- Annexure-6. During this yearthe business of “Maya Appliances P. Ltd” was soldto “Philips” on slump sale basis. As a finalgesture of gratitude to the long serving employeesand those who specifically contributed to criticalchallenges in our organization’s history- a one-time parting Ex-gratia and Bonus was paid to keyemployees. Hence this looks abnormal when comparedto previous year. 17. Issue 7 and explanation are as under: Issue 7. While working out the Long term capitalgains, it is seen that assessee excluded sum ofRs.27,77,75,000 from sale proceeds being amountheld in escrow account. As per sec. 45(1), capitalgain is taxable in the year in which transfer tookplace. Since there is no dispute that the transferof kitchen appliances business took place in F.Y.2011-12, the C.G. arising from such transaction istaxable in A.Y. 2012-13. In this case part of theconsideration was kept in escrow account. This willnot change the incidence of taxation u/s 45(1) ofthe Income tax Act. Long term Capital Gains escaped assessment isRs.27,77,75,000. 18. A query relating to long term capital gains on slumpsale has been raised by the Assessing Officer under cover ofNotice dated 23.07.2014, to which the petitioner had repliedon 18.08.2014 supplying a copy of agreement dated 11.04.2011on 20.08.2015. Long term Capital Gains escaped assessment isRs.27,77,75,000. 18. A query relating to long term capital gains on slumpsale has been raised by the Assessing Officer under cover ofNotice dated 23.07.2014, to which the petitioner had repliedon 18.08.2014 supplying a copy of agreement dated 11.04.2011on 20.08.2015. 19. Thus, all issues based on which the impugnedproceedings for re-assessment have been initiated emanate fromthe Return of income and accompanying annexures and have beennoted even at the time of original proceeding. Queries havebeen raised by the officer even at that juncture and thepetitioner has, admittedly, furnished explanations and detailsin response thereto. The reasons for re-assessment themselvesfairly reveal that the assumption of jurisdiction is onlybased on materials already available on record and no new,tangible materials have been culled thereafter. There is nodispute on the position that the alleged escapement of income,if any, is not attributable to non-disclosure of materialparticulars by the petitioner. The conditions precedent in thehttps://hcservices.ecourts.gov.in/hcservices/proviso to Section 147 are clearly not attracted in this case. 20. The Supreme Court, in the case of ACIT vs ICICISecurity Primary Dealership Ltd (348 ITR 299) considered there-opening of an assessment beyond the period of four yearsconfirming the quashing of the proceedings for re-assessmenton the ground that there was a full disclosure of allmaterial particulars in the return of income filed by theassessee. So too in this case. The Bench states thus:'The assessee had disclosed full details in the Return of Income in the matter of its dealing instocks and shares. According to the assessee, theloss incurred was a business loss, whereas, accordingto the Revenue, the loss incurred was a speculativeloss. Rejection of the objections of the assessee tothe re-opening of the assessment by the AssessingOfficer vide his Order dated 23rd June, 2006,is clearly a change of opinion. In thecircumstances, we are of the view that the order re-opening the assessment was not maintainable.' 21. These Writ Petitions are allowed and both the impugned order dated 23.12.2019 rejecting the objections ofthe petitioner as well as the order of re-assessment dated27.12.2019 are quashed. Connected miscellaneous petition isclosed. No costs. skaTo //True copy// Sd/- Assistant Registrar(CS-VII) Sub Assistant Registrar 1. Assistant Commissioner of Income Tax, Company Circle 4(1), Chennai Main Building, No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600 034 2.Deputy Commissioner of Income Tax, Company Circle 4(1), No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600 0344 Company Circle 4(1), No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600 0344 3.Principal Commissioner of Income Tax-4 No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600 034 4.Union of India, Represented by Revenue Secretary,https://hcservices.ecourts.gov.in/hcservices/ North Block, New Delhi-110 001 +1cc to Mr.Mrs.Hema Muralikrishnan, Advocate SR.No.33364+2cc to Mr.Lakshmi Kumaran, Advocate SR.No.33368 W.P. No.1212 & 1216 of 2020WMP.No.1477 of 2020 GMR(CO)GMY(18/11/2020)