Vijyanagaram, Chennai – 600 042 v. The Deputy Commissioner Of Income Tax, Corporate Circle 6(2) Corporate Circle 6(2

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED :26.07.2021 CORAM THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM M/s.Sutherland Global Services Pvt Ltd.,Represented by its AssociateVice President – Finance Mr.V.N.Achutarama Gupta45A, Velachery Main Road, Vijyanagaram, Chennai – 600 042. ...Petitioner Vs 1. The Deputy Commissioner of Income Tax, Corporate Circle 6(2) Corporate Circle 6(2) Room No.705, 7[th] Floor, Wanaparthy Block, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. Chennai – 600 034. 2. The Principal Commissioner of Income Tax-6, 121, Mahatma Gandhi Road, Chennai – 600 034. ...Respondents 121, Mahatma Gandhi Road, Chennai – 600 034. ...Respondents Prayer : Writ Petition filed Under Article226 of theConstitution of India to issue of Writ of Certiorari, to callfor the records on the file of the First Respondent and quashthe impugned order in No. /Corp.Cir 6 (2)/2011-12 dated08.12.2016 along with notice in PAN No. dated28.03.2016 issued under Section 148 of the Income Tax Act. For Respondents : Mr.A.P.Srinivas Senior Standing counsel For Income Tax [For R1 & R2] The writ petition is filed, questioning the validity of theorder of disposal passed by the respondents, rejecting theobjections filed by the writ petitioner on re-opening of https://hcservices.ecourts.gov.in/hcservices/ assessment initiated under Section 147/148 of the Income TaxAct, 1961[hereinafter referred to as the 'Act'] 2. The petitioner is a company engaged in the business ofBusiness process outsourcing and IT enabled Services. Thepetitioner company filed its return of income for the AssessmentYear 2011-12 on 29.11.2011 under Section 139(1) of the Act,returning an income of 'NIL' under the normal provision of theAct and Rs.32,72,12,940/- under Section 115JB of the Act. In itsreturn of income, the petitioner had claimed a deduction ofRs.40,16,50,014/- towards business development commission paidby it to its associated enterprise M/s.Sutherland GlobalServices Inc.USA. 3. The return of income filed by the petitioner was putunder scrutiny and an order of assessment was passed by theassessing authority on 31.03.2015 under Section 143(3) read withSection 92CA(4) for the Assessment Year 2011-12. The assessmentin all respects were completed. The petitioner had received anotice under Section 148 of the Act on 28.03.2016 for re-openingof assessment. In response, the petitioner affirmed the returnof income already filed in vide letter dated 04.05.2016. Thepetitioner further requested to furnish reasons and the reasonsare provided by the respondents for re-opening of assessment inproceedings dated 15.11.2016. The petitioner submitted itsobjections for re-opening of assessment in vide letter dated05.12.2016 and the said objections were rejected by the firstrespondent in order dated 08.12.2016 and the said order is underchallenge in the present writ petition. 4. The learned counsel appearing on behalf of the petitionermainly contended that the order of assessment was passed,considering all the materials, books of accounts etc., filed bythe petitioner. While so, notice under Section 148 was issuedonly based on the audit objections raised. The audit objectionsolely cannot be a ground for re-opening of assessment as theassessing authority has not formed any independent opinion norapplied his mind for the purpose of re-opening of assessment,which is a pre-requisite condition as contemplated under Section147 of the Act. Thus, there is an absolute non-application ofmind on the part of the assessing authority as the reasonsfurnished for re-opening would reveal that the audit objectionas it is stands extracted. 4. The learned counsel appearing on behalf of the petitionermainly contended that the order of assessment was passed,considering all the materials, books of accounts etc., filed bythe petitioner. While so, notice under Section 148 was issuedonly based on the audit objections raised. The audit objectionsolely cannot be a ground for re-opening of assessment as theassessing authority has not formed any independent opinion norapplied his mind for the purpose of re-opening of assessment,which is a pre-requisite condition as contemplated under Section147 of the Act. Thus, there is an absolute non-application ofmind on the part of the assessing authority as the reasonsfurnished for re-opening would reveal that the audit objectionas it is stands extracted. 5. Secondly, the learned counsel for the petitioner urgedthis Court by stating that in view of the fact that there is noapplication of mind and the audit objections as it is, was takenas the basis for making reassessment, the decision for re-opening is nothing but change of opinion and on this groundalso, the writ petition is to be allowed. 6. With reference to the second issue of tax computationstatement of the assessment order that the interest chargeableunder Section 234B, the learned counsel for the petitionerreiterated that even without invoking the powers under Section147/148, the authority is competent to charge interest andtherefore, the authorities have not applied their mind asSection 147 contemplates only income chargeable to tax escapedassessment and therefore, issue No.2 would not fall under suchcategory and thus, the very reason furnished is untenable. 7. The learned counsel for the petitioner reiterated thatthe objections filed by the petitioner in detail would revealthat none of the grounds raised are answered in terms of settledprinciples and therefore, the impugned disposal of objection isabsurd and not in accordance with the provisions of the Act. 8. The learned counsel for the petitioner relied on thejudgment of the Hon'ble Supreme Court of India in the case ofCommissioner of Income Tax Vs. Yokogawa India Limited, reportedin [2017] 77 taxmann.com 41 (SC), wherein the Apex Court madethe following observations in paragraph 18, which reads as under:“18. For the aforesaid reasons we answer theappeals and the questions arising therein, asformulated at the outset of this order, by holding thatthough Section 10-A, as amended, is a provision fordeduction, the stage of deduction would be whilecomputing the gross total income of the eligibleundertaking under Chapter IV of the Act and not at thestage of computation of the total income under ChapterVI. All the appeals shall stand disposed ofaccordingly.” 9. With reference to Issue No.3, as raised by thepetitioner, the principles are settled in the above judgment andtherefore, the very reason for re-opening of assessment isuntenable and explicitly shows non-application of mind on thepart of the respondent. 10. However, perusal of the judgment would reveal that theHon'ble Supreme Court of India has delivered the said judgmentafter passing of the impugned order in the present writ petition. 11. The learned Senior Standing counsel appearing on behalfof the respondents disputed the contentions raised on behalf ofthe petitioner by stating that the writ petition itself is notmaintainable as the petitioner would get ample opportunity toput forth their contentions before the assessing authority byparticipating in the process of reassessment. The grounds raisedto assail the disposal of objections are untenable as auditobjection is a valid ground for the purpose of re-opening of https://hcservices.ecourts.gov.in/hcservices/ 10. However, perusal of the judgment would reveal that theHon'ble Supreme Court of India has delivered the said judgmentafter passing of the impugned order in the present writ petition. 11. The learned Senior Standing counsel appearing on behalfof the respondents disputed the contentions raised on behalf ofthe petitioner by stating that the writ petition itself is notmaintainable as the petitioner would get ample opportunity toput forth their contentions before the assessing authority byparticipating in the process of reassessment. The grounds raisedto assail the disposal of objections are untenable as auditobjection is a valid ground for the purpose of re-opening of https://hcservices.ecourts.gov.in/hcservices/ assessment. In the present case, the audit objection wouldreveal that a survey was conducted and based on the surveyconducted under Section 133A of the Act, certain materials,evidences were made available and audit objections were raisedand based on such materials provided through the auditobjections, the re-opening of assessment is made and therefore,there is no infirmity or perversity as such in respect ofexercise of powers by the respondents under Section 147 of theAct. 12. The learned Senior Standing counsel solicited theattention of this Court that each and every issue raised by thepetitioner in its objections were elaborately considered by therespondents. When all the issues were considered elaborately andthe objections were dealt with by providing reason, it is forthe assessee to participate in the process of reassessment andavail further opportunity to be provided and therefore, the writpetition at this juncture is not entertainable. 13. The learned Senior Standing counsel further made asubmission that the principles laid down by this Court for re-opening of assessment is also scrupulously followed by therespondents in the present case. The judgments on the point wererelied upon and therefore, there is no infirmity as such and thewrit petition is liable to be rejected. 14. The prime question raised on behalf of the writpetitioner is that whether an audit objection can be a sourcefor re-opening of assessment under Section 147/148 is concerned. 15. Let us now consider Section 147 of the Act, whichcontemplates if the Assessing Officer “has reason to believe”that any income chargeable to tax has escaped assessment.Admittedly, the reassessment in the present case is made withina period of four years. Therefore, the proviso clause to Section147 of the Act is not applicable. With reference to the re-opening of assessment within four years, if any incomechargeable to tax has escaped assessment, the same is sufficientfor the competent authority to invoke Section 147 and issuenotice under Section 148 of the Act. Therefore, the scope of re-opening of assessment within four years is more wider than thatof the re-opening of assessment to be made beyond four years,but within six years. If the Assessing Officer “has reason tobelieve”, the same would be sufficient for re-opening ofassessment. Under these circumstances, a constructiveinterpretation is required, in order to consider the scope ofthe Act as well as the object sought to be achieved. Thesources, through which, the Assessing Officer “has reason tobelieve” is one aspect of the matter and the Assessing Officer“has reason to believe” is another aspect of the matter. Sources may be numerous and from various factors. However, the AssessingOfficer must have “reason to believe” is the pre-condition forinvoking of the powers under Section 147 of the Act. Thus, thescope of Section 147 cannot be narrowed down in respect of thesources, through which, the authority “has reason to believe”for re-opening of assessment. Informations, materials, sourcesmay be from and within the department and from outside thedepartment or from third parties. However, if the AssessingOfficer received materials and on receipt of the materials, ifhe has 'reason to believe', that is sufficient for the purposeof re-opening of assessment and mere re-opening would not causeany prejudice to the interest of the assessee. No doubt, it maycause certain inconvenience. However, such inconvenience may notbe a ground for quashing of the entire proceedings. Theinconveniences would be in respect of closed assessment, a re-opening is made. However, the initial assessment is made onlybased on the return of income filed by the assessee as well asthe documents presented. If any additional information,materials or documents are within the knowledge of the AssessingOfficer after passing the assessment order, then he is empoweredto re-open the assessment and it is the duty of the assessee torespond to such notice by producing additional materials,enabling the Assessing Officer to form an opinion and pass anorder of assessment. Such an inconvenience cannot be construedas deprival of right. It is a statutory obligation as theoriginal assessment order is passed, merely based on the returnof income filed by the assessee. The Revenue is provided with anopportunity to re-adjudicate the closed assessment on receipt ofcertain materials or informations and the Assessing Officer has'reason to believe' that any income chargeable to tax hasescaped assessment. Therefore, this Court is of the consideredopinion that, whether it is an audit objection or any othermaterial culled out from the department files or from theoutside sources, it is sufficient for the purpose of exercisingthe powers under Section 147, if the Assessing Officer “hasreason to believe”. 16. This apart, in the present case, the impugned orderreveals that the survey under Section 133A of the Income Tax Actwas conducted at business premises of the assessee on 21.01.2013to verify and examine the nature of remittance made to nonresident without TDS during the FY 2010-11 and 2011-12 (i.e., AY2011-12 & 2012-13). During the survey, it was noticed that theassessee had not deducted TDS on following remittances to non-resident as required under Section 195 of the Act. 17. Section 133A contemplates “(1) Not withstanding anythingcontained in any other provision of this Act, an income-taxauthority may enter - (a) any place within the limits of the area assigned to him,or (b) any place occupied by any person in respect of whom heexercises jurisdiction or(c) any place in respect of which he is authorised for thepurposes of this section by such income-tax authority, who isassigned the area within which such place is situated or whoexercises jurisdiction in respect of any person occupying suchplace.” 17. Section 133A contemplates “(1) Not withstanding anythingcontained in any other provision of this Act, an income-taxauthority may enter - (a) any place within the limits of the area assigned to him,or (b) any place occupied by any person in respect of whom heexercises jurisdiction or(c) any place in respect of which he is authorised for thepurposes of this section by such income-tax authority, who isassigned the area within which such place is situated or whoexercises jurisdiction in respect of any person occupying suchplace.” 18. The scope of Section 133A would reveal that if anysurvey is conducted and certain materials are found out, thenbased on such materials, the audit objections are raised,certainly it should be construed as a material for the purposeof considering re-opening of assessment under Section 147 of theAct, provided such materials are sufficient enough for 'reasonto believe'. The scope of Section 133A i.e., power of surveywould apparently show that the authorities after entering intoany place, and after conducting inspection, found certainmaterials and raised an objection, the said objections may be aground for the Assessing Officer to 'reason to believe' for re-opening of assessment. However, if at all the assessee is havingcontra evidence or materials, it is left open to the assessee toproduce all these files and materials at the time ofreassessment proceedings. Contrarily, the petitioner cannotmerely raise a ground that an audit objection cannot be a sourcefor re-opening of assessment under Section 147/148 of the IncomeTax Act. 19. This Court is of an opinion that Section 147, theconditions stipulated for re-opening of assessment as well asthe scope of Section 133A are unambiguously portrays the powersof the authority to secure informations by conducting survey andsuch informations provided by way of an audit objections wouldbe a cause for re-opening of assessment under Section 147/148 ofthe Act. 20. Each provision under Chapter XIV procedure cannot beseparated as far as the Income Tax Act is concerned. EachSection has got linkage with one another as far as theprocedures to be followed by the authorities competent as wellas the rights of an assessee to defend their case. A balancingprocedures as contemplated, undoubtedly are to be followedscrupulously by the authorities. Under these circumstances,sources cannot be questioned by the assessee. The very purposeand object of the wider scope provided under Section 147 is toensure that in the presence of contra materials made availableto the Assessing Officer, a re-opening of assessment is made andpersons evaded tax are brought under the network. 21. In the present case, the objections raised regarding thereasons were dealt with by the respondents. Further, the otherissues regarding change of opinion is also considered. TheAssessing Officer has spelt out certain reasons, which provideda cause for re-opening of assessment and such reasons aresufficient enough and, if the petitioner / assessee is notconvinced, it is left open to him to defend the case duringreassessment proceedings. 22. In the present case, the Directives issued by theHon'ble Supreme Court of India in the case of GKN Driveshafts(India) Ltd., Vs. Income Tax Officer and others reported in[(2003)259 ITR 19] was followed. The assessee also availed theopportunity and the reasons furnished as well as the objectionssubmitted by the assessee were considered by the authorities. Itis relevant to note that each and every objection filed by thepetitioner was elaborately considered and all the grounds raisedare also met with by the assessing authority relying on theprinciples laid down by the Constitutional Courts. 22. In the present case, the Directives issued by theHon'ble Supreme Court of India in the case of GKN Driveshafts(India) Ltd., Vs. Income Tax Officer and others reported in[(2003)259 ITR 19] was followed. The assessee also availed theopportunity and the reasons furnished as well as the objectionssubmitted by the assessee were considered by the authorities. Itis relevant to note that each and every objection filed by thepetitioner was elaborately considered and all the grounds raisedare also met with by the assessing authority relying on theprinciples laid down by the Constitutional Courts. 23. Under these circumstances, this Court is of theconsidered opinion that the petitioner has to defend their caseby participating in the process of reassessment and accordingly,the petitioner is at liberty to do so. 24. With these observations, the writ petition standsdismissed. No costs. Consequently, connected miscellaneouspetition is closed. Sd/- Assistant Registrar(CS-VI) //True Copy// Sub Assistant Registrar Kak To 1. The Deputy Commissioner of Income Tax, Corporate Circle 6(2) Room No.705, 7[th] Floor, Wanaparthy Block, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 2. The Principal Commissioner of Income Tax-6, 121, Mahatma Gandhi Road, Chennai – 600 034. +1cc to Mr.A.P.Srinivas, Advocate, S.R.No.36000+1cc to Mr.N.V.Balaji, Advocate, S.R.No.36165 W.P.No.43925 of 2016 RR(CO)RGA(13/08/2021)