Wp-1320-2013.Doc v. Oral Judgment : (Per K.r. Shriram, J

IN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTION WRIT PETITION NO.1320 OF 2013 Skoda Auto Volkswagen India Private Limited, )E-1, MIDC Industrial Area, Phase III,)Village Nogoje, Mhalunge Kharabwadi,)Chakan, Tal. Khed, Pune, Maharashtra – 410 501) ….Petitioner V/s.1. Assistant Commissioner of Income Tax, Circle)– I, Aurangabad, having his office at “Jeevan)Suman”, LIC Building, 2[nd] Floor, Connaught)Palace, Town Centre, N-5 Cidco, Jalgaon Road,)Aurangabad – 431 003)2. Assistant Commissioner of Income Tax Circle –)8, Pune, Pratyakshkar Bhavan, Dr. Ambedkar)Marg, Near Akurdi Railway Station, Pune – 411)044)3. Deputy Commissioner of Income Tax (TP-IV),)Pune, having his office at 3[rd] Floor, B.O. Bhavan,)Sector No.47, Plot No.1, Pune Satara Road,)Paravati, Pune – 411 009 )4. Commissioner of Income Tax, Aurangabad,)having his office at Aayakar Bhavan,)Cantonment, Aurangabad – 431 002)5. Union of India through the Secretary,)Department of Revenue, Ministry of Finance,)having its office at North Block, New Delhi – 110)001) ….Respondents ---- Mr. Madhur Agrawal i/b. Mr. Atul Jasani for petitioner.Mr. Sham V. Walve for respondents. ---- CORAM : K.R.SHRIRAM, & AMIT B. BORKAR, JJ. DATED : 4[th] DECEMBER 2021 ORAL JUDGMENT : (PER K.R. SHRIRAM, J.) 1 Since pleadings are completed, we decided to dispose of this petition at the admission stage itself. Rule. Rule made returnable forthwith. 2Petitioner had received a notice dated 23[rd] March 2011 underSection 148 of the Income Tax Act, 1961 (the said Act) informing petitionerthat the Revenue had reasons to believe that petitioner's income in respectof which it was chargeable to tax for Assessment Year 2004-2005 hasescaped assessment within the meaning of Section 147 of the said Act. 2 3Petitioner responded to the notice with its objections. Before theobjections were disposed, various further notices were issued. All thesenotices were impugned in this petition as originally filed. By an order dated7[th] March 2013 ad-interim relief in terms of prayer clause - (d) was grantedby this Court with a caution to the parties that the petition may be heardand finally disposed at the admission stage itself. As the order dated7[th] March 2013 mentioned that the ad-interim relief shall remain inoperation till the next date of hearing and on the next date of hearing, thematter either did not get called out or the stay did not get extended becausepetitioner failed to request the Court to extend the stay, respondentsproceeded to complete the assessment and passed an assessment orderdated 28[th] March 2013. Petitioner has also impugned an order dated23[rd] January 2013 passed by the Transfer Pricing Officer to whom areference was made under Section 92CA (1) of the said Act. Mr. Agrawal states that this reference to Transfer Pricing Officer was also made in furtherance to the notice dated 23[rd] March 2011 issued under Section 148 of the said Act. 4The reasons, that were provided for respondents proposing to reopen the assessment proceedings, would be found in a communication dated 4[th] July 2011 and the same read as under : Sub.: Reasons for re-opening of the assessment u/s. 148 for A.Y.2004-05 – Regarding Please refer to the above. On verification of the case records, it is observed that the assesseehas paid 157.43 crores and capitalized Rs.121,25,58672/- towardslump sum payment of Technical Know How Fees and claimeddepreciation of Rs.41,22,69,995/-. As such, the company hascalculated operating loss by considering the actual payment ofTechnical Know How Fees instead of only depreciation as claimedby assessee. As such, the working profit calculated by the assesseeis not correct. The Arm’s Length Price is calculated short byRs.116.20 Crores. Hence the income of Rs.116.20 Crores hasescaped income within the meaning of Section 147 of the Act.Yours faithfully, (Dr. Satyapal Singh Meena)Asstt. Commissioner of Income Tax Circle – 1, Aurangabad Please refer to the above. On verification of the case records, it is observed that the assesseehas paid 157.43 crores and capitalized Rs.121,25,58672/- towardslump sum payment of Technical Know How Fees and claimeddepreciation of Rs.41,22,69,995/-. As such, the company hascalculated operating loss by considering the actual payment ofTechnical Know How Fees instead of only depreciation as claimedby assessee. As such, the working profit calculated by the assesseeis not correct. The Arm’s Length Price is calculated short byRs.116.20 Crores. Hence the income of Rs.116.20 Crores hasescaped income within the meaning of Section 147 of the Act.Yours faithfully, (Dr. Satyapal Singh Meena)Asstt. Commissioner of Income Tax Circle – 1, Aurangabad 5 As could be seen from the notice dated 23[rd] March 2011 issued under Section 148 of the said Act, the proposal to reassess is being done after the expiry of four years from the end of the relevant assessment year, viz., 2004-2005. Section 147 of the said Act, as it was then in force, reads as under : 147. Income escaping assessment - If the Assessing Officerhas reason to believe that any income chargeable to tax hasescaped assessment for any assessment year, he may, subjectto the provisions of sections 148 to 153, assess or reassesssuch income and also any other income chargeable to tax which has escaped assessment and which comes to his noticesubsequently in the course of the proceedings under thissection, or recompute the loss or the depreciation allowanceor any other allowance, as the case may be, for theassessment year concerned (hereafter in this section and insections 148 to 153 referred to as the relevant assessmentyear): Provided that where an assessment under sub- section (3) ofsection 143 or this section has been made for the relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of relevantassessment year, unless any income chargeable to tax hasescaped assessment for such assessment year by reason ofthe failure on the part of the assessee to make a return undersection 139 or in response to a notice issued undersub-section (1) of section 142 or section 148 or to disclosefully and truly all material facts necessary for his assessmentfor that assessment year. 6 6Therefore, the proviso to Section 147 applies. Respondents haveto make out a case that income chargeable to tax has escaped assessment byreason of the failure on the part of petitioner to disclose fully and truly allmaterial facts necessary for its assessment. As could be seen from thereasons quoted above, the reasons do not indicate which are those materialfacts that petitioner has failed to truly and fully disclose. 7Mr. Walve relied upon a judgment of this Court in CromptonGreaves Ltd. V/s. Assistant Commissioner of Income Tax, Circle 6 (2)1 tosubmit that even if the reason for reopening does not specifically state thatthere was any failure on the part of petitioner to disclose fully and truly allmaterial facts necessary for its assessment for the relevant assessment year,it will not be fatal to the assumption of jurisdiction under Sections 147 and148 of the Act. We would certainly agree with Mr. Walve but as held in 1 (2015) 55 taxmann.com 59 (Bombay) 7Mr. Walve relied upon a judgment of this Court in CromptonGreaves Ltd. V/s. Assistant Commissioner of Income Tax, Circle 6 (2)1 tosubmit that even if the reason for reopening does not specifically state thatthere was any failure on the part of petitioner to disclose fully and truly allmaterial facts necessary for its assessment for the relevant assessment year,it will not be fatal to the assumption of jurisdiction under Sections 147 and148 of the Act. We would certainly agree with Mr. Walve but as held in 1 (2015) 55 taxmann.com 59 (Bombay) Crompton Greaves Ltd. (Supra), this is subject to the rider that there mustbe cogent and clear indication in the reasons supplied, that in fact there wasfailure on the part of the assessee to disclose fully and truly all the materialfacts necessary for its assessment. If the factum of failure to disclose can beculled down from the reasons in support of the notice seeking to reopenassessment, that will certainly not be fatal to the assumption of jurisdictionunder Sections 147 and 148 of the Act. The Court held “However, if fromthe reasons, no case of failure to disclose is made out, then certainly theassumption of jurisdiction under Sections 147 and 148 of the Act would beultra vires, being in excess of the jurisdictional restraints imposed by thefirst proviso to Section 147 of the Act”. Mr. Walve also submitted thatexplanation 1 to Section 147 provides that production before the AssessingOfficer of account books or other evidence from which material evidencecould with due diligence have been discovered by the Assessing Officer willnot necessarily amount to disclosure within the meaning of the foregoingproviso. 8Petitioner had in its annual report mentioned about thetechnical know how fee, royalty and technical assistance fee that it had paidto Skoda Auto a.s. and Volks Wagen AG. Petitioner had also filed Form 3CEBin which it had disclosed about details and description of internationaltransactions in respect of know how and patents and it had disclosed thedetails regarding royalty paid and lump sum fees for know how paid to Skoda Auto a.s. and fees for technical services paid to Volks Wagen AG.Before the original assessment order was passed, the Transfer Pricing Officeralso had raised all these queries and passed his transfer pricing order dated19[th] December 2006 which Mr. Agrawal states has been challengedseparately before the Commissioner of Income Tax (Appeals). Even in thisorder by the Transfer Pricing Officer passed on 19[th] December 2006 underSection 92CA (3) of the said Act, the Transfer Pricing Officer has consideredthe royalty, technical know how amounts paid and passed his order. Thisorder of the Transfer Pricing Officer has been considered by the AssessingOfficer while passing the original assessment order dated 29[th] December2006 under Section 143 (3) of the said Act. Therefore, there can be nothingwhich has not been truly and fully disclosed and we cannot accept thesubmissions of Mr. Walve that explanation 1 to Section 147 provides thatproduction before the Assessing Officer of account books or other evidencefrom which material evidence could with due diligence have beendiscovered by the Assessing Officer is no defence. Petitioner has not onlyfiled its account books and other evidence but those have been consideredby the Transfer Pricing Officer whose order also has been considered by theAssessing Officer while passing the original assessment order. 9 In our view, the reasons recorded for reopening is nothing but achange of opinion which is not permissible in law. We find support for thisview in the judgment of this Court in Ananta Landmark Private Limited V/s. 2Deputy Commissioner of Income Tax and Ors. 10In the circumstances, we are satisfied that the notice dated23[rd] March 2011 issued under Section 148 of the said Act has been issuedafter illegally assuming jurisdiction under Section 148 of the said Act.Therefore, we are inclined to and hereby allowed the petition in terms of prayer clause - (a), which reads as under : 9 In our view, the reasons recorded for reopening is nothing but achange of opinion which is not permissible in law. We find support for thisview in the judgment of this Court in Ananta Landmark Private Limited V/s. 2Deputy Commissioner of Income Tax and Ors. 10In the circumstances, we are satisfied that the notice dated23[rd] March 2011 issued under Section 148 of the said Act has been issuedafter illegally assuming jurisdiction under Section 148 of the said Act.Therefore, we are inclined to and hereby allowed the petition in terms of prayer clause - (a), which reads as under : (a) that this Hon’ble Court may be pleased to issuea writ of Certiorari or a writ in the nature ofCertiorari or any other appropriate writ, order ordirection under Article 226 of the Constitution ofIndia calling for the records of the petitioner’s caseand, after examining the legality and validity of theimpugned notice dated March 23, 2011 issuedunder Section 148 of the Act (being Exhibit – Nhereto), the impugned notices dated June 08, 2011and January 04, 2012 issued by Respondent No.1(being Exhibits P & S hereto) impugned noticesdated May 04, 2012, August 13, 2012 andDecember 13, 2012 issued by Respondent No.2(being Exhibits U, X & Y hereto) and impugnedorder date January 17, 2013 passed by RespondentNo.1 (being Exhibit AB hereto), impugned orderdated January 23, 2013 passed by Respondent No.2(being Exhibit Ac hereto) and impugned orderdated March 28, 2013 passed by Respondent No.1(being Exhibit AK hereto) and quash and set asidethe same. 11Petition disposed with no order as to costs. (AMIT B. BORKAR, J.) (K.R. SHRIRAM, J.) Gauri Gaekwad