Wa/1091/2017 Of M/S. Indira Industries v. Principal Commissioner Of Income Tax, Chennai-8 Bsnl Building Tower-Ii, C-Wing

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 11.09.2017Date of Decision : 14.06.2018 CORAM : The Hon'ble Ms.INDIRA BANERJEE, CHIEF JUSTICEANDThe Hon'ble Mr.JUSTICE M.SUNDAR W.A.No.1091 of 2017&C.M.P.No.15223 of 2017M/s.Indira IndustriesPlot No.6, Sipcot Industrial ComplexSipcot, Ranipet, Vellore-632 403Represented by PartnerMr.R.Manikandan.. Appellant Vs.Principal Commissioner of Income Tax, Chennai-8BSNL BuildingTower-II, C-WingNo.6, Greams RoadChennai – 600 006.. RespondentWrit Appeal is preferred under clause 15 of the LettersPatent to set aside the order dated 28.08.2017 passed inW.P.No.22977 of 2017. Prayer in WP.No.22977/2017:Writ petition filed under Article226 of the Constitution of India praying to issue a writ ofprohibition, prohibiting the respondent from proceeding undersection 263 of the Income-tax Act 1961 against the petitionerunder C.No.852(4)/PCIT-8/2017-18 dated 10.08.2017. In this intra-court appeal, dismissal of a writ petitionby a learned single Judge is called in question. To be noted,in the writ petition before the learned single Judge, a noticehttps://hcservices.ecourts.gov.in/hcservices/dated 10.08.2017 under Section 263 of the Income Tax Act, 1961 issued by the Commissioner of Income Tax to the writpetitioner was assailed. 2. Bare minimum facts that are essential for appreciatingand understanding this order are set out infra under thecaption 'Facts in a nutshell'. FACTS IN A NUTSHELL 2(i) A Partnership firm which goes by the name M/s.IndiraIndustries is the appellant before us. For the sake ofclarity and convenience, the appellant is referred to as'Assessee'. Principal Commissioner of Income Tax, Chennai-8is the sole respondent in the writ appeal before us and thesole respondent is hereinafter referred to as 'Revenue' forthe sake of convenience and clarity. Wherever the referenceis not specifically to the sole respondent, the expression /term 'IT Department' is used for the purpose of enhancedclarity. Subject matter of this writ appeal pertains toAssessment year 2011-12 and the same is hereinafter referredto as 'said Assessment year' for the sake of convenience. 2(ii) This writ appeal i.e, W.A.No.1091 of 2017 isdirected against an order dated 28.08.2017 made by a learnedsinge Judge in W.P.No.22977 of 2017 wherein and whereby thesaid writ petition was dismissed. 2(iii) To be noted, the order of the learned single Judgeis a common order made in W.P.Nos.22977 and 22978 of 2017 andthis writ appeal deals with only the order of dismissal ofW.P.No.22977 of 2017. 2(iv) Assessee filed return of income on 29.09.2011 forthe said Assessment year. We are informed that the assessmentwas processed under Section 143(1) of the Income Tax Act, 1961(hereinafter referred to as 'IT Act' for the sake of brevity).Subsequently, the assessment was reopened by issue of a noticedated 30.03.2016 under Section 148 of the IT Act. 2(v) We are informed that reopening of assessment byissue of aforesaid notice under Section 148 of the IT Act waspertaining to only one issue and that the lone issue is, theassessee firm had availed bank loans and had paid interest onthe same, in the returns filed by the Assessee, the interestso paid had been deducted, the interest payment was shown asexpenditure from income, but the bank loans were diverted forthe benefit of the partners of the assessee firm. 2(vi) In other words we are informed that reopening asaforesaid by the IT Department was on the ground that suchdeduction of interest paid to the Bank by the assessee asexpenditure from its income deserves to be disallowed as theassessee firm had diverted the funds taken as loan from theBank to its partners. https://hcservices.ecourts.gov.in/hcservices/ 2(vi) In other words we are informed that reopening asaforesaid by the IT Department was on the ground that suchdeduction of interest paid to the Bank by the assessee asexpenditure from its income deserves to be disallowed as theassessee firm had diverted the funds taken as loan from theBank to its partners. https://hcservices.ecourts.gov.in/hcservices/ 2(vii) Post aforesaid 30.03.2016 notice, assessee sent aletter dated 19.04.2016 to the IT Department stating thatoriginal return can be treated as return for the purpose ofreopening of assessment. Thereafter IT Department sent acommunication dated 25.11.2016 giving reasons for reopening ofassessment. This was followed by objections dated 06.12.2016for reopening of assessment and the objections were disposedof by the IT Department on 23.12.2016. Post disposal ofobjections, IT Department issued a notice under Section 143(2) of IT Act dated 23.12.2016 requesting assessee to producevarious information and the same were furnished by assessee on28.12.2016. 2(viii) Thereafter, on 30.12.2016, a re-assessment orderwas passed by the IT Department under Section 143(3) read withSection 147 of the IT Act inter alia disallowing the interestso deducted from the income of the Assessee showing the sameas expenditure. 2(ix) It is not in dispute that the Assessee has paid theentire tax due, thereafter, on 04.01.2017. To be noted, ITDepartment/Revenue does not dispute this position. 2(x) When things stood as above, Revenue issued noticedated 10.08.2017 bearing reference C.No.852(4)/PCIT-8/2017-18,which is hereinafter referred to as 'Impugned notice' for thesake of convenience and clarity. There is no dispute thatthis impugned notice has been issued by the Revenue underSection 263 of the IT Act. 2(xi) Assessee filed the aforesaid writ petition i.e.,W.P.No.22977 of 2017 assailing the impugned notice primarilyon the ground that it has been issued beyond the period oflimitation prescribed by Sub-section (2) of Section 263 of theIT Act. 2(xii) As would be evident from our narrative supra, thewrit petition was dismissed by a learned single Judge andtherefore the instant writ appeal before us. 3. We now proceed to examine the rival submissions underthe caption “Discussion” infra. 3.DISCUSSION3(i) By consent of both the counsel, the main writ appealitself was heard out and again by consent of both counsel, weare disposing of the main writ appeal itself by the instantjudgment. 3(ii) As stated supra, writ petition was filed by theAssessee on the pivotal ground that the impugned notice hasbeen issued beyond the period of two years from the end of thefinancial year in which the order sought to be revised waspassed. In other words, it is the sheet anchorsubmission/contention of the writ petitioner that the impugnedhttps://hcservices.ecourts.gov.in/hcservices/order is hit by Sub-Section (2) of Section 263 of the IT Act and therefore, there is a jurisdictional error in the Revenueissuing the impugned order. For appreciating the above saidsubmission, we deem it appropriate to extract Sub-Section (2)of Section 263 of the IT Act. The same reads as follows: “263.Revision of orders prejudicial to Revenue_ (1)..... (2) No order shall be made under sub-section (1)after the expiry of two years from the end of thefinancial year in which the order sought to be revisedwas passed.” 3(iii) Before us, the Assessee contended that thereckoning date for computing the two years period set out inSection 263 (2) is the date on which the intimation underSection 143(1) of IT Act was issued. and therefore, there is a jurisdictional error in the Revenueissuing the impugned order. For appreciating the above saidsubmission, we deem it appropriate to extract Sub-Section (2)of Section 263 of the IT Act. The same reads as follows: “263.Revision of orders prejudicial to Revenue_ (1)..... (2) No order shall be made under sub-section (1)after the expiry of two years from the end of thefinancial year in which the order sought to be revisedwas passed.” 3(iii) Before us, the Assessee contended that thereckoning date for computing the two years period set out inSection 263 (2) is the date on which the intimation underSection 143(1) of IT Act was issued. 3(iv) In support of their contention, Assessee pressedinto service a judgment of the Hon'ble Supreme Court of Indiain Commissioner of Income Tax, Chennai Vs. Alagendran FinanceLtd., reported in [2007] 162 Taxman 465(SC). Learned seniorcounsel for Assessee took us through Paragraph 15 of the saidJudgment and contended that the Supreme Court has clearly laiddown that the period of limitation provided in Sub-Section (2)of Section 263 of the IT Act would begin to run from the dateof order of assessment. According to the Assessee, theproceedings under Section 143(1) of IT Act is also an orderand is not a mere intimation. To support this contention,learned counsel for Assessee pressed into service a DivisionBench judgment of the Panaji Bench of the Bombay High Court inCommissioner of Income Tax Vs. Anderson Marine & Sons (P)Ltd., reported in [2004] 139 Taxman 16 (BOM.) wherein thequestion as to whether an intimation sent for the purpose ofSection 143(1) is an assessment and therefore in the nature ofan order was dealt with. 3(v) The Division Bench in Anderson Marine supra heldthat an intimation under Section 143 of the IT Act is alsorevisable under Section 263 of the IT Act. It can be deducedfrom this ratio that an intimation sent under Section 143(1)of the IT Act was held to be an assessment and therefore inthe nature of an order. 3(vi) The contra contention of Revenue that AlagendranFinance ratio will not apply to assessee in the instant caseas there was only an intimation under Section 143(1) in theinstant case, does not take the Revenue very far owing to allthat we have opined /expressed supra. One more aspect to benoted is, in Alagendran Finance Ltd case supra, the Authorityexercising jurisdiction under Section 263 did so and reopenedthe order of assessment with regard to one aspect of thematter, namely Lease Equalization Fund, which was not thesubject matter of the re-assessment proceedings. In theinstant case, reassessment was on agreed basis whereas theimpugned notice has raised several issues not raised in thereassessment order. To appreciate this aspect of our order wehttps://hcservices.ecourts.gov.in/hcservices/deem it pertinent to reproduce paragraph 15 of Alagendran Finance Judgment. We do so infra:“15.We, therefore, are clearly of the opinionthat keeping in view the facts and circumstances ofthis case and, in particular, having regard to thefact that the Commissioner of Income-tax exercisingits revisional jurisdiction reopened the order ofassessment only in relation to lease equalization fundwhich being not the subject of the reassessmentproceedings, the period of limitation provided forunder sub-section (2) of Section 263 of the Act wouldbegin to run from the date of the order of assessmentand not from the order of reassessment. Therevisional jurisdiction having, thus, been invoked bythe Commissioner of Income-tax beyond the period oflimitation, it was wholly without jurisdictionrendering the entire proceedings a nullity.” 3(vii) As stated supra, the Assessment Order in theinstant case pertains to 2011-12 i.e., said assessment yearand the Assessee filed return of income on 29.09.2011 itself.Therefore, issuing the impugned notice on 10.08.2017 isclearly beyond two years stipulated under Section 263(2) ofthe IT Act. We have also noticed that the Assessee hasadmittedly paid the entire tax on 04.01.2017. If the impugnednotice is hit by Section 263(2), it is clearly ajurisdictional error. 3(viii) We find that learned single Judge has dismissedthe writ petition of the Assessee at the admission stage,mainly on two grounds. 3(ix) One ground is that it is within two years from thereckoning date, i.e., it is within two years from 30.12.2016.The other ground on which the learned single Judge hasdismissed the writ petition is that it is merely in the natureof a show-cause notice. 3(x) Owing to all that have been stated supra, we holdthat impugned notice is hit by Section 263(2) of the IT Act,being beyond the period of limitation prescribed therein. Themoment the notice is hit by limitation, it makes littledifference as to whether it is a show-cause notice or asubstantial notice. It is beyond any pale of doubt that evena show-cause notice if issued beyond the period of limitation,suffers from the vice of jurisdictional error and istherefore, liable to be set aside. Therefore we are of theconsidered view that both the grounds on which the learnedsingle Judge dismissed the writ petition are liable to be setaside. 3(xi) Learned Senior Standing Counsel for Revenue pressedinto service MAK Data P. Ltd. Vs. Commissioner of Income Tax[(2013) 358 ITR 593 (SC)] to say that even agreed basis ordershttps://hcservices.ecourts.gov.in/hcservices/can be revisited and Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax [(2000) 243 ITR 83 (SC)] to saythat Revenue in exercise of powers under Section 263 of IT Actcan travel beyond the assessing officer in cases of non-application of mind. MAK Data Systems case deals with penaltyunder Section 271 (1) (c) of the IT Act which operates in adifferent realm and Malabar Industrial Co. Ltd., does notrescue the Revenue as impugned notice is hit by the vice oflack of jurisdiction on account of being time barred. 3(xii) We are, therefore, inclined to accept thesubmission of the Assessee and hold that the impugned noticeis bad in law. 4.CONCLUSION : As stated supra, the impugned notice, being notice dated10.08.2017 bearing reference C.No.852(4)/PCIT-8/2017-18 isclearly hit by sub-section (2) of Section 263, notwithstandingthe fact that it is in the nature of a show-cause notice.5.DECISION: This writ appeal is allowed setting aside the order ofthe learned single Judge dated 28.08.2017 and made inW.P.No.22977 of 2017 and consequently quashing the impugnednotice dated 10.08.2017 bearing Reference C.No.852(4)/PCIT-8/2017-18. No costs. Consequently, connected miscellaneouspetition is closed. Sd/- Assistant Registrar(co) //True Copy// Sub Assistant Registrar ToThe Principal Commissioner of Income Tax, Chennai-8BSNL BuildingTower-II, C-WingNo.6, Greams RoadChennai – 600 006. +1cc to Mr.M.V.Swaroop, Advocate Sr.No.37825 dt.21.6.2018+1cc to Mr.Raj Kumar Jhababh, Advocate Sr.No.38013 dt.26.7.2018 NRL(CO)GSP:19.6.2018 Judgement inW.A.No.1091 of 2017 &C.M.P.No.15223 of 2017