Wa/1092/2017 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.1092 of 2017&C.M.P.No.15224 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.22978 of 2017. Prayer in WP.No.22978/2017: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 (5)/PCIT-8/2017-18 dated 16.08.2017. M.SUNDAR.J This intra-court appeal is directed against an orderhttps://hcservices.ecourts.gov.in/hcservices/dated 28.08.2017, wherein and whereby a learned single Judge of this Court had dismissed a writ petition in which a noticedated 16.08.2017, issued by the Commissioner of Income Tax,under Section 263 of Income Tax Act, 1961, was assailed. Tobe noted, order of the learned single Judge is a common orderin two writ petitions, but this judgment deals with the orderin W.P.No.22978 of 2017 alone. 2. A thumbnail sketch of facts essential for effectiveunderstanding of this order are set out infra under thecaption “Factual Matrix”. FACTUAL MATRIX 2(i) Subject matter of the instant intra-court appealarises under the Income Tax Act, 1961 ('IT Act' for brevity). 2(ii) The appellant before us, a partnership firm, whichgoes by the name M/s.Indira Industries, is hereinafterreferred to as 'Assessee' and the sole respondent before us,namely the Principal Commissioner of Income Tax, Chennai, ishereinafter referred to as 'Revenue', both for the sake ofconvenience and clarity. Other authorities of Income TaxDepartment i.e., other than the sole respondent are referredto as 'IT Department' for the sake of convenience and enhancedclarity. 2(iii) A notice dated 16.08.2017, issued by the Revenueto the Assessee, bearing Reference C.No.852 (5)/PCIT-8/2017-18(hereinafter referred to as 'Impugned Notice'), was called inquestion and assailed by the Assessee in a writ petition beingW.P.No.22978 of 2017 as narrated by us supra in the openingparagraph of this judgment. 2(iv) Assessee filed its return of income on 30.09.2012(within time) for the Assessment Year 2012-2013 (hereinafterreferred to as 'said Assessment year' for the sake ofconvenience and clarity) under Section 139 of the IT Act. 2(v) A scrutiny assessment order under Section 143(3) ofthe IT Act was made by the IT Department on 25.02.2015,accepting the return of income filed by the assessee afterverifying the books of accounts and details filed. To benoted, before passing the scrutiny assessment order, a noticeunder Section 142(1) of the IT Act was issued calling fordetails and the Chartered Accountant of the assessee appearedand furnished the details sought for and the same wereexamined. 2(vi) Thereafter, vide notice dated 30.03.2016, theassessment was reopened under Section 148 of the IT Act. 2(vii) We are informed that the sole ground for reopeningthe assessment was that certain sums of monies paid by theAssessee as interest to Bank, claimed as expenditure, were tobe disallowed. IT Department contended that interest so paidhttps://hcservices.ecourts.gov.in/hcservices/by the Assessee to the Bank was on loan taken by the Assessee from the Bank. It is the further contention of the ITDepartment that Assessee had diverted the loan taken from theBank to its partners and therefore, the interest paid on suchloan cannot be treated as expenditure by the Assessee in itsreturns. 2(vi) Thereafter, vide notice dated 30.03.2016, theassessment was reopened under Section 148 of the IT Act. 2(vii) We are informed that the sole ground for reopeningthe assessment was that certain sums of monies paid by theAssessee as interest to Bank, claimed as expenditure, were tobe disallowed. IT Department contended that interest so paidhttps://hcservices.ecourts.gov.in/hcservices/by the Assessee to the Bank was on loan taken by the Assessee from the Bank. It is the further contention of the ITDepartment that Assessee had diverted the loan taken from theBank to its partners and therefore, the interest paid on suchloan cannot be treated as expenditure by the Assessee in itsreturns. 2(viii) Most importantly, Assessee accepted the aboveposition. On Assessee accepting the above position, a re-assessment order came to be passed on 30.12.2016 and such re-assessment order was passed under Section 143(3) read withSection 147 of the IT Act. 2(ix) In and by the aforesaid re-assessment order, theinterest component paid by the Assessee to the Bank wasdisallowed. Most importantly, Assessee paid the entire taxpost such re-assessment on 04.01.2017 and this position is notdisputed by the Revenue. 2(x) When things stood as above, Revenue issued theimpugned notice. 2(xi) Pleading that the Assessee is aggrieved by theimpugned notice, the above said writ petition beingW.P.No.22978 of 2017 was filed by the Assessee. 2(xii) At the admission stage itself, the Revenue waspresent before the Court and after hearing the Revenue, alearned single Judge of this Court dismissed the writ petitionnegativing the grounds urged by the Assessee. 2(xiii) Aggrieved, Assessee has preferred the instantintra-court appeal before us. 3.DISCUSSION: 3(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) Assessee assailed the impugned notice before thelearned single Judge on two main grounds. The two maingrounds, in simple terms, can be crystallized and set out asfollows: a) As the original re-assessment was done on thebasis of Assessee accepting the position, the sameissue cannot be reopened under Section 263 of the ITAct as it tantamounts to 'Change of Opinion'; andb) The impugned notice lacks jurisdiction as it ishit by limitation prescribed by sub-section (2) ofSection 263. It was contended by the Assessee thatunder Section 263(2), the impugned notice ought to havebeen issued within two years from the end of thefinancial year in which the order sought to be revisedwas passed.https://hcservices.ecourts.gov.in/hcservices/basis of Assessee accepting the position, the sameissue cannot be reopened under Section 263 of the ITAct as it tantamounts to 'Change of Opinion'; andb) The impugned notice lacks jurisdiction as it ishit by limitation prescribed by sub-section (2) ofSection 263. It was contended by the Assessee thatunder Section 263(2), the impugned notice ought to havebeen issued within two years from the end of thefinancial year in which the order sought to be revisedwas passed.https://hcservices.ecourts.gov.in/hcservices/ 3(iii) In support of this first point i.e., 'Change ofOpinion', Assessee pressed into service Commissioner ofIncome-Tax Vs. Sat Pal Aggarwal case reported in [2007] 293ITR 90 (P&H). To be noted, this is a judgment of a DivisionBench of the Punjab and Haryana High Court. To buttress thesecond point pertaining to Limitation under Section 263(2) ofthe IT Act, the Assessee pressed into service Commissioner ofIncome Tax, Chennai Vs. Alagendran Finance Ltd., case reportedin [2007] 162 Taxman 465 (SC). 3(iii) In support of this first point i.e., 'Change ofOpinion', Assessee pressed into service Commissioner ofIncome-Tax Vs. Sat Pal Aggarwal case reported in [2007] 293ITR 90 (P&H). To be noted, this is a judgment of a DivisionBench of the Punjab and Haryana High Court. To buttress thesecond point pertaining to Limitation under Section 263(2) ofthe IT Act, the Assessee pressed into service Commissioner ofIncome Tax, Chennai Vs. Alagendran Finance Ltd., case reportedin [2007] 162 Taxman 465 (SC). 3(iv) We have heard Mr.R.Vijay Narayanan, learned seniorcounsel appearing for the counsel on record for theappellant/assessee and Mr.J.Narayanaswamy, learned seniorstanding counsel appearing for Income Tax Department on behalfof the Revenue. 3(v) With regard to the first point raised by theAssessee i.e., 'Change of Opinion', learned single Judge hasnoticed Sat Pal Aggarwal's case. Learned single Judge hasalso noticed that Sat Pal Aggarwal's case pertains to 'Changeof Opinion', but has held that this cannot come in the way ofor denude the powers of the Commissioner under Section 263 ofthe IT Act on the assumption that Section 263 is a provisionwhich empowers the Commissioners to give their opinion that anorder of Authority below him is erroneous. 3(vi) In the instant case, a perusal of the re-assessmentorder dated 30.12.2016 under Section 143(3) of the IT Actreveals that the only point qua reassessment is dis-allowanceof interest paid to the Bank by the Assessee in the light ofthe loans on which the interest was paid being diverted topartners of the Assessee firm. To be noted, this is the lonepoint on which the reassessment was done or in other words,this is the lone point on which the entire re-assessmentexercise was carried out. 3(vii) However, a perusal of the impugned order nowreveals that it raises other issues such as bad debts writtenoff to the tune of Rs. 33.06 lakhs and administrative, sellingand distribution expenses claimed by the Assessee to the tuneof Rs. 3.23 crores. 3(viii) Some other issues have also been raised in theimpugned notice under Section 263. 3(ix)The Principle of law is, it can be construed to be'Change of Opinion' only when the same issue dealt with inreassessment is raised again in proceedings under Section 263.This is clearly articulated in Sat Pal Aggarwal's caseitself. On facts, it would be seen that in Sat PalAggarwal's case, reassessment proceedings and thereafterinvocation of jurisdiction by Commissioner under Section 263of the IT Act were on the same set of grounds. 3(x) Therefore, while we agree with the conclusion of thelearned single Judge that this is not a case of change ofhttps://hcservices.ecourts.gov.in/hcservices/opinion qua Section 263 of the IT Act, we do not agree with ultimate conclusion for reasons which are elaborated in thisjudgment. 3(xi)This takes us to the next point urged by theAssessee. As would be evident from the narration of facts anddiscussion supra, the second point raised by the Assessee isthat the impugned notice is barred by limitation, to beprecise, it is barred by Section 263(2) of the IT Act is theplea of the Assessee. In support of the second point, asmentioned supra, Assessee pressed into service AlagendranFinance case (citation given supra elsewhere in thisjudgment). 3(xii) Learned single Judge has noticed AlagendranFinance case and has also extracted Paragraph 7 of AlagendranFinance case. Learned Judge has held that Alagendran Financecase does not help the Asseessee, as the impugned notice hasbeen issued within two years from the date of reassessment,i.e., within two years from 30.12.2016. 3(xii) Learned single Judge has noticed AlagendranFinance case and has also extracted Paragraph 7 of AlagendranFinance case. Learned Judge has held that Alagendran Financecase does not help the Asseessee, as the impugned notice hasbeen issued within two years from the date of reassessment,i.e., within two years from 30.12.2016. 3(xiii) Learned senior counsel for the Assessee contendedbefore us that the date of reassessment cannot be thereckoning date and that the date of original assessment in theinstant case being 25.02.2015 alone should be the reckoningdate. To buttress this submission, learned senior counselstressed that the term occurring in sub-section (2) ofSection 263 is 'order' and not 'notice'. We deem itappropriate to extract sub-section (2) of Section 263 of ITAct, which 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(xiv) Mr.J.Narayana Swamy, learned senior standingcounsel appearing for the Revenue drew our attention toAlagendran Finance case and advanced a submission that twoyears can be computed from the date of reassessment order. 3(xv) We are unable to agree. We are unable to agree asParagraph 15 of the Alagendran Finance case makes it clearthat when a notice under Section 263 raises new issues, whichare not subject matter of the re-assessment proceedings, thenthe two year period contemplated under Sub-section (2) ofSection 263 would begin to run from the date of assessment andnot from the date of re-assessment. In other words, the ratiolaid down in Alagendran Finance case, particularly aselucidated in Paragraph 15 of the Alagendran Finance case, isto the effect that the two year limitation period stipulatedunder Section 263(2) will run from the date of assessment onlyand not from the date of re-assessment when the Section 263https://hcservices.ecourts.gov.in/hcservices/notice does not deal with the same subject as in assessment and when it deals with other issues which are not subjectmatter of reassessment proceedings. 3 (xvi) In the instant case, we have already noticed thatwhile the original issue (in the reassessment proceedings) waswith regard to disallowance of interest paid by the Assessee,as the loan amount has been diverted to the partners, theissue now raised in the impugned notice under Section 263 isnot restricted to the disallowance of interest on loan alone.It deals with other aspects such as claims of the assesseeregarding administrative, selling and distribution expensesmade by the Assessee to the tune of Rs.3.23 crores andclaim of bad debts written off to the tune of Rs.33.06 lakhsetc., 3(xvii) Therefore, as the impugned notice deals withseveral issues other than the one raised earlier, thelimitation period in the instant case has to necessarily runfrom 31.3.2015 being the end of the financial year as25.02.2015 is the date on which the scrutiny assessment wasadmittedly made for the Assessee under Section 143 (3) of theIT Act. 3(xviii) We therefore have no hesitation in holding thatthe reckoning date qua the impugned notice for the purpose ofSection 263(2) of IT Act is not the date of re-assessmentbeing 30.12.2016, but the date of scrutinizing the assessmenti.e, 25.02.2015. 3(xix) As would be evident from the narration of factsand discussion supra, the impugned notice is dated 16.08.2017and is therefore, clearly beyond two years when reckoned from25.02.2015. 3(xx) Therefore, the Assessee before us was clearlyentitled to succeed on the second point raised before thelearned single Judge. To be noted, we have already negativedthe first point regarding 'Change of Opinion'. 3(xviii) We therefore have no hesitation in holding thatthe reckoning date qua the impugned notice for the purpose ofSection 263(2) of IT Act is not the date of re-assessmentbeing 30.12.2016, but the date of scrutinizing the assessmenti.e, 25.02.2015. 3(xix) As would be evident from the narration of factsand discussion supra, the impugned notice is dated 16.08.2017and is therefore, clearly beyond two years when reckoned from25.02.2015. 3(xx) Therefore, the Assessee before us was clearlyentitled to succeed on the second point raised before thelearned single Judge. To be noted, we have already negativedthe first point regarding 'Change of Opinion'. 3(xxi) Learned Senior Standing Counsel for Revenuepressed into service MAK Data P. Ltd. Vs. Commissioner ofIncome Tax [(2013) 358 ITR 593 (SC)] to say that even agreedbasis orders 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 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(xxii) One other reason given by the learned singleJudge for dismissing the Assessee's writ petition is that thehttps://hcservices.ecourts.gov.in/hcservices/impugned notice is a show-cause notice and therefore, no harm would be caused to the Assessee. 3(xxiii) The principles and the grounds available forassailing a show-cause notice are now well settled. If theauthority issuing the show-cause notice lacks jurisdiction andif it is clearly barred by law, it certainly renders the show-cause notice invalid in law. In the instant case, owing toall that have been stated supra, as the impugned notice,though is a show-cause notice as noticed by the learned singleJudge, is invalid, as it has been issued beyond two years fromthe reckoning date and is clearly hit by Sub-section (2) ofSection 263. In other words, the impugned notice is hit bythe vice of lack of jurisdiction. Therefore, the assessee isentitled to succeed in its challenge to the impugned notice. Owing to all that have been stated supra, impugned noticeissued by the Revenue dated 16.08.2017 bearing ReferenceC.No.852(5)/PCIT-8/2017-18 is set aside as being hit bylimitation prescribed by sub-section (2) of Section 263 of theIT Act.5. DECISION This writ appeal is allowed, order of the learned singleJudge in W.P.No.22978 of 2017 dated 28.08.2017 is set asideand consequently, the impugned notice issued by the respondentRevenue being notice dated 16.08.2017 bearing ReferenceC.No.852(5)/PCIT-8/2017-18 is quashed. No costs. Consequently,connected miscellaneous petition is closed. //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.37826 dt.25.6.2018NRL(CO)GSP(19.6.2018) https://hcservices.ecourts.gov.in/hcservices/