Wp/19565/2008 Of M/S.sima Agencies v. The Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 18.12.2020Pronounced on : 06.01.2021 CORAM THE HON'BLE MR. JUSTICE P.D. AUDIKESAVALUW.P. No. 19565 of 2008 M/s. Sima Agencies,16/2, (Old No. 8/2), Vepery High Road,Periamet,Chennai – 600 003. ... Petitioner -vs- The Income Tax Officer,Business Ward XII (2),611, Anna Salai, 7[th] Floor,Kannamai Building,Chennai – 600 006.... Respondent Prayer:- Writ Petition filed under Article 226 of theConstitution of India praying to issue a Writ of Certiorari,calling for the records in P.A. No.AAOFS4340P/BW XII (2) dated 18.09.2007 on the file of theRespondent for the assessment year 2005-2006 and quash the same. For Petitioner : Mr. K.Mohan for M/s. Pass AssociatesFor Respondent :Mrs. Hema Muralikrishnan,Standing Counsel Heard Mr. K.Mohan, Learned Counsel appearing for thePetitioner and Mrs. Hema Muralikrishnan, Learned StandingCounsel appearing for the Respondent and perused the materialsplaced on record, apart from the pleadings of the parties. 2.The Writ Petition challenges the proceedings in P.A. No.AAOFS4340P/ BW XII (2) dated 18.09.2007 issued by the Respondent https://hcservices.ecourts.gov.in/hcservices/ to the Petitioner, which is a notice under Section 148 of theIncome Tax Act, 1961 (hereinafter referred to as the 'IT Act'for short) informing that he has reason to believe that theincome of the Petitioner chargeable to tax for the assessmentyear 2005-2006 has escaped assessment within the meaning ofSection 147 of the IT Act, for which he proposes to re-assessincome for that assessment year and the Petitioner was requiredto deliver within 30 days from the date of receipt of thatnotice, a return in the prescribed format for his income forthat assessment year. 3.It must, at once, be recapitulated here that the Hon'bleSupreme Court of India in Jeans Knit Private Limited -vs- DeputyCommissioner of Income Tax, Bangalore [(2018) 12 SCC 36] hasheld that challenge to such notice under Section 148 of the ITAct in a Writ Petition is maintainable and would have to beexamined on its own merits keeping in view the scope of judicialreview while entertaining such matters as laid down in variousdecisions. Further, the Hon'ble Supreme Court of India in GKNDriveshafts (India) Ltd., -vs- Income Tax Officer [(2003) 1 SCC72] has laid down the procedure to challenge the re-assessmentproceedings as follows:- “5.....when a notice under Section 148 of the IncomeTax Act is issued, the proper course of action for thenoticee is to file return and if he so desires, toseek reasons for issuing notices. The assessingofficer is bound to furnish reasons within areasonable time. On receipt of reasons, the noticee isentitled to file objections to issuance of notice andthe assessing officer is bound to dispose of the sameby passing a speaking order....” It is borne out from the materials placed on record that onreceipt of the impugned notice dated 18.09.2007, the Petitionerhad requested the Respondent by letter dated 24.09.2007 tofurnish the reasons for re-opening the assessment for theassessment year 2005-2006. In response thereto, the Respondentby letter dated 25.09.2007 had sent a copy of the reasonsrecorded for re-opening of the assessment under Section 147 ofthe IT Act for the assessment year 2005-2006 and the relevantportions are extracted below:- “In the return of income filed for the asst. year2005-2006, the assessee has not disclosed the freightreceipts from the Exporters and the net freightpayment made to La Freightlift Pvt. Ltd. Although theassessee has not disclosed the freight receipts, theyhave claimed refund by enclosing all the TDSCertificates issued by the exporters and IATA agents.By not disclosing the freight receipts, the assesseehas avoided filing of Form No.3 CD required to befiled u/s 44 AB. “In the return of income filed for the asst. year2005-2006, the assessee has not disclosed the freightreceipts from the Exporters and the net freightpayment made to La Freightlift Pvt. Ltd. Although theassessee has not disclosed the freight receipts, theyhave claimed refund by enclosing all the TDSCertificates issued by the exporters and IATA agents.By not disclosing the freight receipts, the assesseehas avoided filing of Form No.3 CD required to befiled u/s 44 AB. The freight payment by the assessee to LaFreightlift Pvt. Ltd. is covered u/s 194C as paymentto a sub-contractor. The assessee is however deductingtax on this payment from the A.Y. 2006-07 only. Duringthe year 2004-05, relevant for the asst. year 2005-06,the assessee had paid a total sum of Rs.3,21,79,805/-as freight charges. However the assessee has failed todeduct tax at source from these payments. The entiresum of Rs.3,21,79,805/- will have to be disallowed u/s40(a)(ia). As the assessee has filed to disclose both thefreight receipts and the freight payments in theIncome and Expenditure Statement filed along with thereturn of income for the asst. year 2005-06, theincome chargeable to tax, by way of disallowance u/s40(a)(ia), has escaped assessment. As I have reason tobelieve that the income chargeable to tax to the tuneof Rs.3,21,79,805/- has escaped assessment for theasst. year 2005-06, the case is reopened u/s 147(c).”The Petitioner had been thereafter corresponding with theRespondent explaining that the freight rates from the exporterswere actually payment received on behalf of the La FreightliftPrivate Limited to whom the said payment has been made and whohas also paid the tax amount. However, since the Respondent hadnot accepted the explanation made by the Petitioner in thatregard, the Petitioner has approached this Court. 4.It is brought to the notice of this Court by the LearnedCounsel for the Petitioner that after the filing of the WritPetition, there has been amendment to Section 40(a)(ia) of theIT Act and that the Hon'ble Supreme Court of India inCommissioner of Income Tax, Kolkata XII -vs- Calcutta ExportCompany [(2018) 16 SCC 686] has held that the said amendmentwould have retrospective applicability from the date of itsinsertion with effect from the assessment year 2005-2006 inorder to remove the unintended consequences which were causinggrave and genuine hardships to the assessees and remedy thatposition. It is further contended that the Delhi High Court hadalso earlier expressed the same view in Commissioner of IncomeTax-1 -vs- Ansal Land Mark Township (P) Ltd., (Order dated26.08.2015 in I.T.A. Nos. 160 and 161 of 2015). That apart,reliance is placed on another ruling of the Delhi High Court inCommissioner of Income Tax -vs- Cargo Linkers (Order dated25.03.2008 in ITA No. 218 of 2008), where in recognition of thefact that similarly placed clearing and forwarding agents in theindustry had not been deducting tax at source till 31.03.2005,it was held that since the contract is actually between theexporter and the airline, and the clearing and forwarding agent is only an intermediary, it is not the person responsible forthe deduction of tax at source in terms of Section 194-C of theIT Act. It is submitted that in view of the aforesaid change inthe statutory provision, which has been held to be declaratoryand curative in nature having retrospective effect from01.04.2005, the impugned proceedings ought not to be permittedto proceed further, which would have the effect of depriving thePetitioner of the benefits conferred by the same. is only an intermediary, it is not the person responsible forthe deduction of tax at source in terms of Section 194-C of theIT Act. It is submitted that in view of the aforesaid change inthe statutory provision, which has been held to be declaratoryand curative in nature having retrospective effect from01.04.2005, the impugned proceedings ought not to be permittedto proceed further, which would have the effect of depriving thePetitioner of the benefits conferred by the same. 5.There is substantial force in the aforesaid contentions madeby the Learned Counsel for the Petitioner, which deservesacceptance and at the same time, it would be appropriate thatthe Respondent has a re-look of the matter in the light of thesaid amendment and take a decision after affording anopportunity of personal hearing to the Petitioner in thatregard. In that view of the matter, the Petitioner is permittedto make written representation by 31.01.2021 to the Respondentwith supporting materials substantiating the objections for thecontinuance of proceedings under Section 147 of the IT Act tore-assess the income of the Petitioner for the assessment year2005-2006. Taking into account the peculiar features of thiscase, it shall be incumbent upon the Respondent to affordopportunity of personal hearing to the Petitioner and thereupon,the Respondent shall deal with each of the contentions raised bythe Petitioner, uninfluenced and uninhibited by the earlierviews expressed by the Respondent in the matter, and passreasoned orders on merits and in accordance with law andcommunicate the decision taken to the Petitioner under writtenacknowledgment. Though obvious, it is made clear that till theaforesaid exercise is carried out, the Respondent shall not takeany action which entails adverse civil consequences to thePetitioner by re-opening the assessment of income tax for theassessment year 2005-2006 in pursuance of the order impugned inthis Writ Petition. In the result, the Writ Petition is disposed on theaforesaid terms. No costs. Sd/- Assistant Registrar//True Copy// vjt/dm Sub Assistant Registrar To The Income Tax Officer,Business Ward XII (2),611, Anna Salai, 7[th] Floor,Kannamai Building,Chennai – 600 006. W.P. No. 19565 of 2008 CO(SRII)BDL/08/01/2021