Wp/8901/2015 Of Dell India Pvt Ltd v. The Joint Commissioner Of Income Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23 DAY OF MARCH, 2015 BEFORE THE HON’BLE MR.JUSTICE ARAVIND KUMAR WRIT PETITION NO.8901/2015(T-IT) | BETWEEN: DELL INDIA PVT. LTD.,DIVYASHREE GREENS,|NO.12/1, 12/1A, KORAMANGALA >INNER RING ROAD,DOMLUR,BBRNGALURU-560071REPRESHNIBED HEREIN BY IISTAX DIRECTOR, |MR. AMIT GUPTA PRTITIONER(BY SRIL.PERLY PARDIWALLA, SENIOR COUNSEL ALONGWITH SRI.SURYANARAYANA T., ADVOCATE) AND: 1. THB JOINT COMMISSIONER OF INCOME TAXLARGE TAX PAYERS UNIT :(LTV)JSS TOWERS,100 FEET RING ROAD,BANASHAN KARI III STAGE,BENGALURU- 560085| 2THR COMMISSIONER OF INCOME TAX - IIL) 2 LARGE TAX PAYERS UNIT (LTV)JSS TOWERS,100 FEET RING ROAD,BANASHANKARI III STAGE,BBRENGALURU-560085 RBSPONDENTS (BY SRI.K.V.ARAVIND, PANEL ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF.CONSTITUTION OF INDIA PRAYING TO: DBCLARE THAT THR IMPUGNED PROCBBDINGS INITIATBDBY THERE R-1 UNDER SKHCTION 147 READ WITH SECTI148 OF THR ACT ARE WITHOUT JURISDICTION| OQUASH THE NOTICE DATED 27.03.2014 VIDE ANNEXUREK, ISSUED BY THE R-1 UNDER SECTION 148 READ WITHSKHCTION 147 OF THR ACT FOR THR ASSESSMENT YBAR2009-10. OQUASH THE ORDER DATED 24.02.2015 VIDE ANNEXURE-PPASSKD BY THERE R-1 REJECTING THR PRTITIONER'PRBLIMINARY OBJECTION AS TO HIS JURISDICTION IN.RESPBCT OF THR ASSESSMENT YRBAR JOO9-10 THIS WP COMING ON FOR DICTATING ORDERS THIS|DAY, THE COURT MADE THE FOLLOWING: | ORDER| Joint Commissioner of Income tax (LTU), Bengaluru|sought to reassess the petitioner in respect of its income forthe Assessment Year JOO9-10 under section 147 of the. Income Tax Act, 1961 (for short referred to as Act), by)issuing of notice under section 148 of the Act. Petitioner haschallenged the notice issued for reassessment and orderpassed by first respondent holding that there is no error of)jurisdiction. In order to examine the issue involved in this)present petition facts relevant for the said purpose requires tobe noticed which are as under. 2. Petitioner is engaged in the manufacture and sale ofcomputer hardware and related products. For the assessmentyear 2009-10 which relates to Financial year 2008-09 return|of income came to be filed on 30.09.2009 declaring a totalloss ot!=39,96,399/-. Under section 143(3) of the Actassessment was taken up and after the details called for by)the Assessing officer and same being produced a draftassessment order came to be passed on 28.03.2013—proposing to make several additions to the income of thepetitioner. Petitioner filed its objections to draft assessment|order before Dispute Resolution Panel, which ultimately confirmed the proposed addition to the income of thepetitioner on the basis of which order under section 143(3)|read with Section 144C of the Act came to be passed on31.01.2014, Annexure-H. Being aggrieved by the same)petitioner is said to have filed an appeal and same is filedbefore first appellate authority and same is pending. 3. First respondent has issued a notice under section148 of the Income Tax Act to the petitioner-assessee on2/.03.2014 Annexure-K indicating thereunder that he hasreason to believe that income in respect of which petitioner-assessee is assessable to tax for the assessment year 2009-10has escaped assessment within the meaning of section 147 ofthe Act. Hence, in order to assess/re-assess the incomeunder section 147 of the Act petitioner-assessee was calledupon to file the return in the prescribed form within 30 daysfromthedateotSETrVICeotnotice.PetitionerbyCOMmmunication dated 15.04.2014 Annexure-L intimated thefirst respondent that return of income filed on 30.09.2009 be 3. First respondent has issued a notice under section148 of the Income Tax Act to the petitioner-assessee on2/.03.2014 Annexure-K indicating thereunder that he hasreason to believe that income in respect of which petitioner-assessee is assessable to tax for the assessment year 2009-10has escaped assessment within the meaning of section 147 ofthe Act. Hence, in order to assess/re-assess the incomeunder section 147 of the Act petitioner-assessee was calledupon to file the return in the prescribed form within 30 daysfromthedateotSETrVICeotnotice.PetitionerbyCOMmmunication dated 15.04.2014 Annexure-L intimated thefirst respondent that return of income filed on 30.09.2009 be treated as the return of income filed in response to noticeissued under section 148 of the Act. At the same timepetitioner also called upon the first respondent to furnishreasons for initiating reassessment proceedings. Pursuant to)the same, Assessing officer namely first respondent intimatedthe petitioner by communication dated 25.04.2014 Annexure-M, reasons for reopening indicating thereunder that deferredrevenue totaling=216,89,00,773/- which was deferred in the)assessment year 2009-10 was not added while computingtotal income for the relevant assessment year and petitionerought to have admitted said revenue in the assessment year2010-11 and having not offered same to tax in theSubsequent assessment year i1.e., assessment year 2010-11.similarly reconciliation between sale of goods as per sale tax)return and sale of goods as per Income Tax return had beenrequested which was furnished and on examination it wasnoticed that smart debits deferred revenue amounting to=216,89,00,773/- for the assessment year 2009-10 was not|admitted for sales in the assessment year 2010-11. On this) sround also Assessing officer had opined that he had reasonto believe that income of.“216,89,00,773/- assessable to taxhas escaped the assessment for the year 2009-10 and assuch he proposed to reassess the income of petitioner undersection 147 of the Act. Said reason assigned by the Assessing|officer on being furnished came to be replied by petitioner-assessee by challenging the same on the grounds indicated inreply dated 09.05.2014 Annexure-N. Assessing officer afterconsidering the said reply rejected the contentions raised for|theTE€aSON;indicatedinthecommunication—dated24 02.9015 Annexure-P which reads as under: “1. It was seen that amount deferred in the AY2009-10 totalling Rs.216,89,00,773/- was notoffered to tax in subsequent year i.e., AY 2010-11.In your submission you have not been able toconvincingly demonstrate that the above saidamount was oftered to tax in AY JOI1O-11. Thetable in the submission does not show it. 2. Re-opening u/s 148 in your case for the AY2009-10 is not based on a mere change of opinion but1S basedOT]thefact|allamountoftRs.216,89,00,773/- which was deferred in AY2009-10 has not been offered in the subsequentassessment year. | 3. Regarding deferment of revenue, the DRP in itsorder for AY 2010-11 has upheld the stand takenby the Assessing Officer that such deferral maywork against revenue not just because it is notpermitted under the IT Act but also because TDScredit is claimed in full in the year in whichrevenue accrues. It is also possible as in thepresent case that the company may not offer suchamount to tax”. 4. Hence, petitioner has approached this court forquashing.otnoticeissuedunder.section|148|dated2/.03.2014 Annexure-K and order/communication dated24.02.2015 Annexure-P passed by first respondent rejecting|petitioner’s preliminary objection. | oO. I have heard the arguments of Sriyuths Perly|Pardiwalla, Learned Senior Counsel appearing on behalf T.Suryanarayana, for petitioner and K.V.Aravind, learnedpanel counsel appearing for respondents. _ 4. Hence, petitioner has approached this court forquashing.otnoticeissuedunder.section|148|dated2/.03.2014 Annexure-K and order/communication dated24.02.2015 Annexure-P passed by first respondent rejecting|petitioner’s preliminary objection. | oO. I have heard the arguments of Sriyuths Perly|Pardiwalla, Learned Senior Counsel appearing on behalf T.Suryanarayana, for petitioner and K.V.Aravind, learnedpanel counsel appearing for respondents. _ 6. It is the contention of Sri.Perly Pardiwala, learnedsenior counsel appearing for petitioner that mere change ofopinion’ would not be a ground for reopening assessmentorder and particularly when no new material is detected, soas to arrive at a conclusion that there is escaping of)declaration by the assessee at the time of filing of return ofincome. He would contend that it is only on the reason tobelieve that there is escaping of income Assessing officer will|set jurisdiction to issue notice under section 148 and to)assume the jurisdiction tor reassessment under section 147|and there must be material available to him on the basis ofwhich he would have reason to believe that income hasescaped from assessment and contends there has been totalnon application of mind in this regard by Assessing officer.He would also contend that there should be rational nexus.between the reasons and the belief that income has escaped from assessment and there should be existence of reasons onwhich a belief can be entertained by Assessing officer thatincome has escaped assessment and mere belief being inexistence without backed by reasons would not be sufficient|to reopen the assessment. He would also contend thatreasoning provided by first respondent for reopening theassessment for the year 2009-10 is that petitioner in theassessment year 2010-11 did not offer to tax the revenue)which was deferred in the assessment year 2009-10 and said|sround can only amount to reason to suspect but it cannot bereason to believe escapement of income to tax or suchreasons would not be a ground to suspect the return ofincome filed by the petitioner at the first instance to re-open|the assessment. On facts he would contend that petitionerwhich is engaged in the sale of computer hardware andrelated products has offered to its customers installation andwarranty service which does not necessarily come to end in|the year of sale but may be spread over a period of two or)more accounting years and as such petitioner recognizes the said revenue proportionately over the period of servicecontract and offers to tax in the subsequent assessment yearswhen the obligation to render services arises. He would alsoelaborate his submission by contending that entire sale price|for sale of products together with warranty and installationare invoiced in a given year and service/sales tax as the casemay be are discharged, the obligation to provide services inthat respect and the outflow of resources would happen only|in the subsequent years and that therefore, in line with the)revenue recognition principles, the revenue from suchservices would have to be recognized over the period of)providing services. He would also contend that revenue to beso recognized in the subsequent years is accounted under thehead other liabilities’ in the balance sheet of the petitionercompany and this policy is consistently being followed by thepetitioner which is inpara materiawith the accountingpattern and system formulated by Institution of Chartered|Accountant otf India. He would draw the attention of the.court to assessment order for the assessment year 2009-10 whereunder the Assessing officer had an occasion toparticularly examine the accounting policy adopted bypetitioner and after noticing the explanation offered by thepetitioner, Assessing Officer had accepted the same for the)said year with regard to detailed break up of deferred revenuerelating to a total amount of|V216,89,00,773/- and no|disallowance came to be made by the Assessing Officer onaccount of revenue itself recognizing the accounting policyfollowed by petitioner and same came to be accepted. Hewould also submit that subsequently for the assessment year2010-11 Assessing officer took a different view and has heldthat there was no concept of deferred revenue under the Act. |By virtue of such change of view the assessment order for theassessment year 2009-10 is sought to be reopened byinvoking section 14/7 and issuing notice under section 148 ofthe Act which is based purely on the changed opinion andchange of opinion would not be a ground for re-opening of theassessment. He would draw the attention of court to section147 which has undergone change by Direct Tax Laws Amendment (1989) with effect from 01.04.89 whereunder for|the words for reasons to be recorded by him in writing, is ofthe opinion’ came to be substituted by the words has reasonto believe’ and as such change of opinion would not be a)eround for reopening the assessment. In support of hissubmission he has relied upon the following Judgments: 1. (2010) 320 ITR 561 (SC)— Commissioner of|Income Tax Vs (1)Kelvinator of India Ltd., (2)Eicher|Ltd. 2. (2007) 295 ITR 333 (Bom) — Siemens Informationsystem Ltd. Vs Assistant Commissioner of Income.Tax and others 3. (1997) 95 Taxman 579(P & H) — Commissioner of IncomeTAX|Vs)PunjabTractorsCo-op.Multipurpose Society Ltd. 4UnreportedJudgmentotHighCourtot Judicature, Bombay rendered in W.P.1327/2013|on 16.07.2014 — Aroni Commercials Ltd., Vs The|AssistantCommissioner.otIncomeTax|2(1)Mumbai and anr| o. (1980) 121 ITR ool — T.T. Pvt. Ltd., Vs Income|Tax Officer, Company Circle-III, Bangalore. ¢’. He would also contend that in anticipation of theprobable contention that revenue may raise with regard tomaintainability of writ petition namely petitioner ought tohave approached the appellate authority and as such)petitioner cannot question the issuance of notice issuedunder section 148 in writ jurisdiction and to preempt such|contention being raised or urged and in reply to the same hewould submit this court in exercise of power under Article226 has power to examine as to whether the notice issued isone without jurisdiction or not and for this proposition he hasrelied upon the Judgment of Division Bench of this court in|the case of T.T. Pvt. Ltd., Vs Income Tax Officer, CompanyCircle-III, Bangalore reported in (1980) 121 ITR ool and)contends that writ petition is maintainable and same cannotbe dismissed on the ground of alternate remedy. Hence, heprays for allowing the writ petition and seeks for quashing ofthe impugned notice and prays for setting aside the reasons|assigned by the respondent for sustaining the notice which isat Annexure-P. | 8. Per contra, Sri.K.V.Aravind, learned counselappearing for respondents would support the impugnednotice issued to the petitioner and contends that thepetitioner having adopted the policy of deferred revenue on)the ground that it would be amenable to taxation only afterwarranty claim arises is not a procedure provided under theIncome Tax Act, 1961 or the issue of deferred revenue is not’provided under the Income Tax Act, 1961 and contends thatpetitioner company having received the amounts by way of)warranty from its customers and having not established as towhen the said amounts received had been offered to tax,Assessing officer had reason to believe that it has escapedassessment and as such Assessing Officer had called upon|the petitioner to prove that such income in respect of whichpetitioner has declared in the return of income as deferredrevenue having suffered tax with details thereof and contendsthat inspite of several particulars being given it was not)furnished and as such assessing officer had reason to believe that deferred payment had escaped assessment and forpurposes of reassessment impugned notice has been issued. 9. He would also contend that the petitioner has notproved when notice came to be issued about the amountswhich it sought for being treated as deferred revenue, ofhaving been offered to tax at any subsequent stage or in theSubsequent assessment years and in that view of the matter|reassessment is proposed to be done and in the event ofpetitioner is able to establish, petitioner would be entitled forsuch allowances as is permissible under the Act. He woulddraw the attention of the court to 2[/>]proviso of section 147(1)of the Act to contend that it is incumbent upon the assesseeto disclose fully and truly all material facts and during theassessment proceedings and despite calling upon petitionerby issuance of notice to furnish details of smart debitsdeferred revenue and same having not been furnished a sum|ot=124,88,69,986/- was added to the income of assessee ascould be seen from the assessment order dated 25.03.2014. Annexure-J and as such the assessing officer had reason tobelieve that deferred revenue had escaped assessment andthereby he had issued the impugned notice for re-opening theassessment which does not suffer from any infirmity)whatsoever and as such he prays for dismissal of the writpetition. In support of his submission he has relied upon thefollowing Judgments: 1.(2007)IAQ TTR500(SC)AssistantCommissioner of Income Tax Vs Rajesh Jhaveristock Brokers (P) Ltd. ?)Unreported Judgment in the case of JeansKnit Private Limited Vs The Deputy Commissionerof Income Tax, Circle 11(5) and others inW.A.9/89/2013 dated 29.04.2014 3.Judgment of Division Bench of High Court ofJudicature at Madras in W.A.347-349/2014 andconnected matters disposed of on 04.07.2014 —-The Joint Commissioner of Income Tax and othersVs Kalanithi Maran, Kavery Kalanithi. 10. Having heard the learned advocates appearing for| the parties and on perusal of the records and case laws reliedupon by learned advocates appearing for the parties, this court is of the considered view that following points wouldarise for consideration: “1. Whether impugned notice dated 27.03.2014issued by 1[:.]respondent under section 148 ofthe Income Tax Act, 1961 suffers from anyjurisdictional error calling for exercise ofextraordinary jurisdiction by this court? 2.WhetherTrTeasonassigned|by|the1[:.]respondentvidecommunicationdated25.04.2014|Annexure-WVrejecting|the|objections raised by petitioner for reopeningthe assessment for the year 2009-10 can beheld to satisfy the criteria prescribed underSection 147 of the Act?” 11. In order to delve upon the points formulated herein|above it would be necessary to extract the relevant provisionswhich has bearing on the issue namely Section 147 and sameis extracted herein below: “147. If the Assessing Officer has reason to believe|that any income chargeable to tax has escaped) “1. Whether impugned notice dated 27.03.2014issued by 1[:.]respondent under section 148 ofthe Income Tax Act, 1961 suffers from anyjurisdictional error calling for exercise ofextraordinary jurisdiction by this court? 2.WhetherTrTeasonassigned|by|the1[:.]respondentvidecommunicationdated25.04.2014|Annexure-WVrejecting|the|objections raised by petitioner for reopeningthe assessment for the year 2009-10 can beheld to satisfy the criteria prescribed underSection 147 of the Act?” 11. In order to delve upon the points formulated herein|above it would be necessary to extract the relevant provisionswhich has bearing on the issue namely Section 147 and sameis extracted herein below: “147. If the Assessing Officer has reason to believe|that any income chargeable to tax has escaped) assessment for any assessment year, he may,|subject to the provisions of sections 148 to 153,|assess or reassess such income and also any other|income chargeable to tax which has escaped|assessment and which comes to his notice'subsequently in the course of the proceedings|under this section, or recompute the loss or the|depreciation allowance or any other allowance, as the case may be, for the assessment year'concerned (hereafter in this section and in sections148 to 153 referred to as the relevant assessment|year): Provided that where an assessment under sub-section(3) of section 143 or this section has been|made for the relevant assessment year, no action|shall be taken under this section after the expiry of|four years from the end of the relevant assessment|year, unless any income chargeable to tax has|escaped assessment for such assessment year by|reason of the failure on the part of the assessee to|make a return under section 139 or in response to|a notice issued under sub-section(1) of section 142or section 148 or to disclose fully and truly all| material facts necessary for his assessment, for|that assessment year.| Provided further that nothing contained in the first|proviso shall apply in a case where any income in|relation to any asset (including financial interest inany entity) located outside India, chargeable to tax,has escaped assessment for any assessment year. Provided also that the Assessing Officer may assessor reassess such income, other than the income|involving matters which are the subject matters ofany appeal, reference or revision, which is|chargeable to tax and has escaped assessment”. 12. Perusal of above provision would indicate that prior|to amendment Section 147 of the Act enabled the Assessing|officer to re-open the assessment if he had formed an opinionabout any income chargeable to tax had escaped assessmentand reasons for such re-opening was required to be recordedby him in writing or in other words the opinion of Assessing|officer was the basis on which it enabled him to re-open theassessment. However post amendment i.e., with effect from 01.04.89 the words‘for reasons to be recorded in writing, is ofthe opinion, came to be substituted for the words|“hasreason to believe’. In other words the assessing officer hadto base his reasons tor such re-opening ofthe assessmentand mere change of opinion could not form the basis for re-opening of such concluded assessment under section 148 ofthe Act. A notice is required to be issued by the Assessingofficer to reopen the assessment, if has reason to believe thatany income chargeable to tax had escaped assessment at thetime of passing the assessment order. In other words thereshould be relevant material available before the Assessingofficer upon which he reasonably or rationally can form beliefthat any income chargeable to tax has escaped assessment. |The formation of belief by the Assessing officer is essentiallywithin his subjective satisfaction at the stage of issuing noticeunder section 148. The only question is whether there wassufficient material on which a man of reasonable prudencecould have formed such belief or not. As to whethercommencement of re-assessment proceedings is valid or not can be considered when questioned in a court by examining itfrom the point of view of an Assessing officer namely as towhetherthereWa Sprimafacie“reasonablebelief’entertained by the Assessing officer prior to issue of such)notice or it is only because of change of opinion. Sufficiencyof such material cannot be a ground which can be examinedby the court while examining a plea, attacking such noticeissued under section 148 read with section 147. For this.proposition judgment of Hon’ble Apex Court in the case of)Raymond Woollen Mills Ltd., Vs [TO reported in (1999) 236)ITR 34 (SC) can be looked up. 13. The Assessing officer at the stage of issuing notice isrequired to have“reason to believe’but not the established|fact of escaping of income to tax. At the stage of issuing noticethe only question is whether there was relevant materialavailable before Assessing officer on which the Assessing|officer would have formed such belief or in other words.whether Assessing officer had reason to believe that income chargeable to tax had escaped assessment which confersupon him jurisdiction under section 147 to re-open the)assessment. Hon’ble Apex Court in the case of Commissionerof Income Tax Vs Kelvinator of India Ltd., reported in (2010)320 ITR 561 (SC) which has been very heavily relied upon by|Learned Senior Counsel appearing for petitioner has held thatpower to reopen or reassess post 01.04.1989 is much widerthan the pre 1989 amendment. It has been held thatassessing officer has power to reopen the _ concludeassessment provided there is tangible material’ before him tocome to a conclusion that there is escaping of income)chargeable to tax. It has also been held that the reasons havenexus or link to the formation of belief. It has been held by)Apex Court in said Judgment to the following effect: “6. On going through the changes, quoted above,made to section 147 of the Act, we find that, priorto the Direct Tax Laws (Amendment) Act, 1987,reopening could be done under the above twoconditions and fulfillment of the said conditions|alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section|147 of the Act (with effect from 1[20]April, 1989), |they are given a go-by and only one condition hasremained, viz., that where the Assessing Officerhas reason to believe that income has escapedassessment, confers jurisdiction to reopen theassessment. Therefore, post -l[20]April, 1989,power to reopen is much wider. However, oneneeds to give a schematic interpretation to thewords “reason to believe” tailing which, we areafraid, section 14/7 would give arbitrary powers tothe Assessing Officer to reopen assessments onthe basis of “mere change of opinion’, whichcannot be per se reason to reopen”. 14. Hon’ble Apex court in the case of Assistant)Commissioner of Income Tax Vs Rajesh Jhaveri Stock Brokers(P) Ltd., reported in (2007) 291 ITR SOO(SC) while examining|the issue as to what constitutes an assessment order namelyas to whether the quantum notice issued under section143(1)(a) would also be treated as an order passed under)section 143(3) has held in the negative and in this process,| scope and effect of sections 147 and 148 also came to beexamined. While so examining it has been held by the ApexCourt that expression reason to believe’ cannot be read tomean that Assessing officer should have ascertained the factby legal evidence or conclusion. It has been held by ApexCourt as under: 14. Hon’ble Apex court in the case of Assistant)Commissioner of Income Tax Vs Rajesh Jhaveri Stock Brokers(P) Ltd., reported in (2007) 291 ITR SOO(SC) while examining|the issue as to what constitutes an assessment order namelyas to whether the quantum notice issued under section143(1)(a) would also be treated as an order passed under)section 143(3) has held in the negative and in this process,| scope and effect of sections 147 and 148 also came to beexamined. While so examining it has been held by the ApexCourt that expression reason to believe’ cannot be read tomean that Assessing officer should have ascertained the factby legal evidence or conclusion. It has been held by ApexCourt as under: “16. Section 14/7 authorises and permits theAssessing Officer to assess or reassess incomechargeable to tax if he has reason to believe thatincome for any assessment year has escapedassessment. The word “reason” in the phrase“reasonTO|believe”|wouldThledCAUSE|OT|justification. If the Assessing Officer has cause orjustification to Know or suppose that income had.escaped assessment, it can be said to have reasonTO|believethatal®income.hadescapedassessment. The expression cannot be read tomean that the Assessing Officer should havefinally ascertained the fact by legal evidence orconclusion. The function of the Assessing Officeris to administer the statute with solicitude for the|public exchequer with an inbuilt idea of fairness totaxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO.(1991) 938 CTR (8C)161:(1991) 191 ITR 662 (SC),for initiation of action under section 147(a) (as theprovision stood at the relevant time) fulfillment ofthe two requisite conditions in that regard isessential. At that stage, the final outcome of theproceeding is not relevant. In other words, at theinitiation stage, what is required is “reason tobeheve’,but|NOT.theestablished factoftescapement of income. At the stage of issue ofnotice, the only question is whether there was.relevant material on which a reasonable personcould have formed a requisite belief. Whether thematerialswouldconclusivelyPIOVCtheescapement is not the concern at that stage. Thisis so because the formation of belief by theAssessing Officer is within the realm of subjectivesatisfaction (see ITO v. Selected Dalurband CoalCo. Pvt. Ltd. (1996) 132 CTR (SC) 162: (1996) 217.ITR 997 (SC); Raymond Woollen Mills Ltd. v. ITO(1999) 152 CTR (SC) 418: (1999) 236 ITR 34 (SC). | 17. The scope and effect of section 14/7 assubstituted with etfect from § [20]April, 1989, as| also sections 148 to 152 are substantially differentfrom the provisions as they stood prior to suchsubstitution. Under the old provisions of section147, separate clauses (a) and (b) laid down thecircumstances under which income _ escapinassessment for the past assessment years couldbe assessed or reassessed. To confer jurisdictionunder section 147(a) two conditions were requiredto be satisfied firstly the Assessing Officer musthave reason to believe that income profits or gainschargeableTOincome.Tax|haveescapedassessment, and secondly he must also havereason to believe that such escapement hasoccurred by reason of either (i) omission or failureon the part of the assessee to disclose fully ortrulyallmaterial factsNeCessa lyfOrhisassessment of that year. Both these conditionswere conditions precedent to be satisfied beforethe Assessing Officer could have jurisdiction toissue notice under section 148 read with section147(a) But under the substituted section 147.existence of only the first condition suffices. Inother words if the Assessing Officer for whateverreason has reason to believe that income hasescaped assessment it confers jurisdiction to reopen the assessment. It is however to be notedthat both the conditions must be fulfilled if thecase falls within the ambit of the proviso to section147. The case at hand is covered by the main.provision and not the proviso. reopen the assessment. It is however to be notedthat both the conditions must be fulfilled if thecase falls within the ambit of the proviso to section147. The case at hand is covered by the main.provision and not the proviso. 18. So long as the ingredients of section 147 arefulfilled, the Assessing Officer is free to initiateproceeding under section 147 and failure to takesteps under section 143(3) will not render theASS€SSI1NgOfficerpowerless|TO|initiatereassessment proceedings even when intimationunder section 143(1) had been issued”. — lo. Keeping these principles in mind when the facts onhand are examined it would indicate that during the course ofassessment proceedings for the assessment year 2009-10 |assessee had requested the Assessing officer to reconcile thesales as per sales tax return and sales declared in the returnof income. Said returns on comparison was found byAssessing officer that sales as per sales register and sales taxreturn Was=3185,47,04,713/- and a sum of)=81,26,94,037/- was further added as service income not included in the VAT.return. On this various adjustments were made to reach the)net revenue ot “3110,85,96,000/-. One of the reduction|which was claimed was in a sum ot.“216,89,00,/773/- assmart debits deferred revenue account in the schedule oftother liabilities as smart debits deferred revenue account. Inthe reasons furnished by l[20]respondent for reopening theassessment vide reply dated 25.04.2014 Annexure-M it hasbeen noticed by the Assessing officer that deferred revenue inthe reconciliation statement and the deterred revenue in the.balance sheet —other liabilities were more or less same. I[t wasnoticed by Assessing officer that petitioner-assessee in the)schedule of other liabilities, had indicated further break-up ofsmart debits deterred revenue account was as under: Deferred revenue account — Short term |deferred revenue warranty - Rs.98,23,47,873SnP deterred revenue ST7T-Short term deferred revenue - Rs.31,97,04,229 Deferred revenue —Long termdeferred revenue - Rs.90,75,75,789 onP deferred revenue LT- Long term| deferred revenue - Rs.35,95,/76,044 16. The Assessing officer noticed that deferred revenuein the reconciliation statement and deferred revenue in the.balance sheet namely as reflected as other liabilities’ weremore or less the same. The Assessing officer for theassessment year 2009-10 did not add such deferred revenue|while computing the total income for the relevant assessmentyear as indicated in the assessment order for the reasons now|assigned for re-opening the assessment vide Annexure-Mnamely that petitioner company may have admitted the salesin the subsequent assessment year. As noticed earlier petitioner-company is engaged in the)sales of computer hardware and related products by offeringto its customers warranty services for different period the)details of which is not available before this court and nor it was made available by the assessee before the Assessingofficer. 17. Be that as it may. The warranty services in respect|of which the assessee had claimed said amount to be treatedas deferred revenue was on the basis that it would accrue asincome of the petitioner-assessee only on such warrantybeing claimed by its customers over a period and it cannot be)construed as income for next assessment year. Said)reasoning was not required to be accepted by the Assessingofficer at the stage of considering reply submitted by the)assessee to the reopening notice for reasons more than one.Firstly details of such break up are not forthcoming. There)might be situations where warranty expiring after one year, oreven two years or three years which might have been offeredby petitioner-assessee to its customers. Thus, it depends onfactual aspects. It is because of this precise reason Assessing|officer has called upon the assessee to furnish details thereofin order to ascertain as to whether said warranties in respect of which the assessee had claimed as deterred revenue hadbeen factually offered in the subsequent year/s. Thoughori.Perly Pardiwalla, Learned Senior Counsel for petitionerwas correct in contending that in respect of warranties whichhas been issued for two years would not arise immediately inthe next financial year that by itself would not be a ground toreject the notice issued for reopening the assessment and it)would be always open to the assessee to place all such)material in support of its contention before the Assessing|ofticer to establish as to when and how and in what modesuch warranty which is claimed by it as deferred revenue|would accrue as its income which has been treated asdeferred revenue and same having been offered to tax in the)subsequent year/s. | 18. As already noticed hereinabove, the words used insection 147 of the Income Tax Act, 1961 empowers theASS€SSI1NgOfficerTO|issuenoticefor.reopeningtheassessment, if he has “reason to believe” and it would not be in his domain at that stage to conclusively prove theescapement of such income to tax and if there is subjective|satisfaction for issuance of notice for such reopening it wouldbe fully within his domain to issue such notice. Hence, itwould not be necessary for him to arrive at any conclusion atthat stage particularly when there is no material whatsoeveravailable before him to accept the contention of the assessee.As such, if Assessing Officer has reason to believe income|having escaped to tax it would give him the power to reopen|the assessment and change of opinion would not, 19. In the instant case, the deferred revenue for theassessment year 2009-10 according to the Assessing Officer|ought to have been admitted or included by the assessee inthe assessment year 2010-11 and on account of same havingnot been offered, has given rise for reopening of theassessment. Nothing prevented the petitioner to place such)material to establish that such deferred revenue totaling)V216,89,00,773/- has been actually included as its income in| the subsequent assessment year/s and if so, the detailsthereof with the break up, which the Assessing Officer hadcalled for at the first instance. In that view of the matter, it|cannot be held that the reasons assigned by the Assessing|Officer by communication dated 25.04.2014 vide Annexure-Mfor reopening the assessment for the year 2009-10 suffersfrom any jurisdictional error. Reply to notice issued under|section 148 of the Act which has been furnished by the)petitioner-assessee to 1[20]respondent on 09.05.2014 vide.Annexure-N has been examined by the Assessing Officer toreject the said contention for the reasons indicated in the)COMmmunication dated 24.02.2015 Annexure-P. It has alsobeen specifically made clear thereunder by 1[20]respondentthat deferment of revenue has not been accepted even by theDRP and what has been stated in the said communication is”that reply submitted by petitioner does not demonstrate orestablish that total amount of=216,89,00,773/- had been)offered to tax in the assessment year 2010-11. The issue)involved is the escapement of income to tax for the assessment year 2009-10. As such, the burden is on theassessee to demonstrate that said deferred revenue totaling toV216,89,00,773/- has been offered to tax in the assessment|year 2010-2011 or in any subsequent year/s. In that view ofthe matter, I do not find any jurisdictional error having been|committed by the Assessing Officer to reopen the assessmentfor the assessment year 2009-10 by issue of impugned noticeand also over-ruling of objections raised by the petitioner-assessee to such notice. For these myriad reasons, it has to)be held that impugned notice dated 27.03.2014 (Annexure-K)and reasons assigned in the endorsement issued by l[20]respondent to reopen the assessment for the assessment year2009-10 dated 24.02.2015 (Annexure-P) does not suffer from|any jurisdictional error or infirmity and said notice issued is in consonance with Sections 147 and 148 oft the Income TaxAct, 19601. 20. Though SsSri.K.V.Aravind, has made an attempt tocontend that this Court has no jurisdiction to entertain the) writ petition on the ground of petitioner having alternate andefficacious remedy available under law, this court is notinclined to accept the said contention inasmuch as in catenaof Judgments, this Court as well as the Hon’ble Apex Court|has held that exercise of extraordinary jurisdiction is_available where the petitioner assails action of the authoritieson the following grounds: i) without jurisdiction, ii) violation of principles of natural justice, | i111) without authority of law, iv) validity or vires of the statutory provision being under|challenge. 21. This view is also fortified by law laid down by Apex|Court in the case oftWHIRLPOOL CORPORATION VS.|REGISTRAR TRADE MARKS, MUMBAI AND OTHERSreportedin 1998(8) SCC 1#In tact the Division Bench oft this Court in>the case oftT.T. PVI. LID. Vs. INCOME TAX OFFICER,|COMPANY CIRCLE-II, BANGALORE|reported in (1980) 121. ITR 951 has held that availability of alternate remedy underthe Act would not be a bar tor this Court to examine thenotice issued under section 148 of the Income Tax Act, 1961,if it is challenged on the ground of jurisdictional error. In thatview of the matter, the contention raised by Sri.K.V.Aravindcannot be accepted with regard to maintainability of the writpetition and same stands rejected. | It is made clear that no opinion is expressed on themerits ot the claim and discussion made hereinabove islimited only for the purpose of examining the correctness or|otherwise of the notice issued under Section 148 of the Act forreopening the assessment under Section 147 of the Act, and|the reasons given by the Assessing Officer to reject the reply|submitted by the petitioner to the notice for reopening is just|and correct. 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