Madras High Court
M/S.Mahogany Logistics Services … vs The Income Tax Officer on 23 February, 2024
Author: C.Saravanan
Bench: C.Saravanan
W.P.(MD) No.10198 of 2024
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved on 02.08.2024
Delivered on 23.08.2024
CORAM
THE HON'BLE MR.JUSTICE C.SARAVANAN
W.P.(MD) No.10198 of 2024
and
W.M.P.(MD) Nos.9200 & 9201 of 2024
M/s.Mahogany Logistics Services Private
Limited
Represented by its Director,
P.Venkatesh ... Petitioner
Vs.
The Income Tax Officer,
Corporate Ward 2,
No.2, V.P.Rathinasamy Nadar Road,
CR Building, Bibikulam,
Madurai 625 002. ... Respondent
Prayer: Writ Petition filed under Article 226 of Constitution of India for
issuance of a Writ of Certiorari calling for the records of the respondent
in Notice in PAN: AAFCD8781R dated 23.02.2024 in DIN & Letter
No.ITBA/AST/F/148A(SCN)/2023-24/1062349156(1) issued under
Section 148A(b) of the Income Tax Act, 1961 for the AY 2017-18, Notice
dated 26.03.2024 in DIN & Letter No:
ITBA/AST/S/148-1/2023-24/1063380782/(1) issued under Section 148 of
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the Income Tax Act, 1961 for the AY 2017-18 and order in PAN:
AAFCD8781R dated 26.03.2024 in DIN & Letter
No.ITBA/AST/F/148A/2023-24/1063378872(1) passed under Section
148A(d) of the Income Tax Act, 1961 for the AY 2017-18 and quash the
same.
For Petitioner : Dr.S.Muralidhar
Senior Counsel
for Mr.P.M.N.Bhagavath Krishnan
For Respondent : Mr.N.Dilip Kumar
Senior Panel Counsel
Asst.by Mr.K.Prabhu
Junior Panel Counsel
ORDER
In this Writ Petition, the petitioner has challenged the impugned
notice dated 23.02.2024 issued for the Assessment Year 2017-2018 under
Section 148A(b) of the Income Tax Act, 1961 and the consequential
impugned order dated 26.03.2024 passed under Section 148A(d) of the
Income Tax Act, 1961 for the very same Assessment Year and the
impugned notice dated 26.03.2024 issued under Section 148 of the
Income Tax Act, 1961.
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2. Brief facts of the case are that the Petitioner Company was
incorporated on 17.10.2016. The petitioner had filed its Return of Income
under Section 139 of the Income Tax Act, 1961 for the Assessment Year
2017-2018 on 13.10.2017, declaring a loss of Rs.7,27,25,946/-.
Ultimately, an assessment Order dated 27.12.2019 was passed under
Section 143(3) of the Income Tax Act, 1961.
3. Earlier, the Return filed by the petitioner was selected for limited
scrutiny after a notice dated 14.09.2018 issued under Section 143(2) of
the Income Tax Act, 1961 under Computer Aided Scrutiny Selection
(CASS) on 14.09.2018. Prior to the Assessment Order dated 27.12.2019,
the petitioner was also issued with two notices under Section 142(1) of the
Income Tax Act, 1961 on 26.07.2019 and 18.10.2019. In the notice dated
26.07.2019, issued under Section 142(1) of the Income Tax Act, 1961, the
petitioner was called upon to furnish the following documents/details:-
”(i) Expenses incurred for earning exempt income.
(ii) Details of investments (Current and Non current).
(iii) Details of advances / loans received during the
Financial Year 2016-2017 (if any).”_______________
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4. By second mentioned notice dated 18.10.2019 issued under
Section 142(1) of the Income Tax Act, 1961, the petitioner was called
upon to furnish the following documents:-
”1. Memorandum of articles signed by the partners
of the LLP at the time formation.
2. Agreement, if any, between the assessee company
(borrower) and loan creditors (lendor).
3. Copy of partnership deed of LLPs (Dinram
Logistics Services LLP and DRSR Advisory
Services LLP).
4. Produce the bank statements highlighting the
transactions made with Dinram Logistics
Services LLP and DRSR Advisory Services LLP.
5. Ledger account copies of loan creditors.
6. Provide Non Convertible Debenture pledge
agreements.”
5.The aforesaid information were furnished by the petitioner, which
ultimately, culminated in the aforesaid Assessment Order dated
27.12.2019 under Section 143(3) of the Income Tax Act, 1961. The
operative portion of the Assessment Order dated 27.12.2019 reads as
under:-
”M/s. DRSR Logistics Services P Ltd., a domestic
company filed its return of income for the A.Y.
2017-18 on 13.10.2017 admitting total income of_______________
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W.P.(MD) No.10198 of 2024Rs.Nil. The case was selected for limited scrutiny
through CASS. A notice u/s 143(2) was issued to
the assessee through e-proceedings on
14.09.2018. The case was transferred to this
office from the office of the ITO, Non Corporate
Ward-3(1), Madurai vide letter dated 26.09.2018
since the jurisdiction of the case vests with this
office. Subsequently, a notice u/s 142(1) dated
26.07.2019 alongwith Questionnaire was sent to
the assessee through ITBA requesting the
assessee company to furnish the details called for
through E-Proceeding. In response to notice u/s.
142(1), the assessee filed the necessary details.
The CASS reasons are:
1. Expenses incurred for earning exempt income:
2. Investments/advances/loans
1.Expenses incurred for earning exempt income:
During the financial year relevant to assessment
year 2017-18, the assessee company made
investment of Rs.288,50,94,000/ in Dinram
Logistics Services LLP & DRSR Advisory Services
LLP. The assessee was asked to furnish the details
of exempt income earned along with any
expenditure incurred to earn the same. In this
regard, the assessee submitted that the assessee
had not earned any exempt income and also no
expenses incurred towards earning Exempted
income. Further, the assessee submitted cash flow
statement for the relevant period showing the
source for the investments.
2. Investments/advances/loans
During the financial year relevant to assessment
year 2017-18, the assesse company raised money
through issue of Debentures amounting to Rs.
294,00,00,000/-. The assessee furnished the
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break-up details of debenture holders and copy of
ledger account of debentures. The payments were
received through HDFC Bank. In this regard, the
assessee furnished a copy of HDFC Bank
statement. Notice u/s.133(6) was issued to the
debenture holders requesting to furnish the
details/confirmation relating to financial
transactions with the assessee company. In
response, the debenture holders furnished the
above details and confirmation relating to
financial transactions with the assessee company.
The details furnished by the assessee were
examined and the assessment is completed
accepting the returned income.”
6. The above assessment that was completed under Section 143(3)
of the Income Tax Act, 1961 on 27.12.2019 was sought to be re-opened
by issuance of a notice under Section 148A(b) of the Income Tax Act,
1961, on 23.02.2024. The reasons stated for issuing the above notice are
as under:-
”The following information are available in the
records of this office:
1. Processing charges incurred Rs.6,98,00,000/-
2.Legal and Professional charges incurred Rs.
35,73,645/-.
3. Borrowed funds amounting toRs.294,00,00,000/-
by way of issuing Non Convertible Debentures
(NCDs)
4. Short term borrowing of Rs.28,00,00,000/- and
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Rs.35,00,000/-
5. Made investments in listed equities amounting
to Rs.288,50,94,000/-
1. The absence of any evidence to prove that these
expenses (processing charges and legal &
professional charges) are having nexus with the
assessees business and expended wholly for the
business purpose.
2. The genuineness (Identity & credit worthiness
of persons to whom NCDs issued and genuineness
of transactions) of the long term borrowing
(NCDs) & short tem borrowing are not
established.
3. The absence of admission of any income from
the investments made in listed equities.
Rs.329,68,73,645/- has escaped assessment.
You are required to submit the detailed reply with
evidence to the show cause notice u/s 148 A(b) of
the Act on or before 08/03/2024”
7. The petitioner has replied to the same. The impugned order dated
26.03.2024 has been passed under Section 148A(d) of the Income Tax
Act, 1961. The operative portion of the impugned order dated 26.03.2024
reads as under:-
”The following information available with this
office viz.
1. Processing charges incurred Rs.6,98,00,000/-
2. Legal and Professional charges incurred Rs.
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35,73,645/-
3. Long term borrowings of Rs.294,00,00,000/-
by way of issuing non convertible debentures
(NCDs)
4. Short-term borrowing of Rs.28,00,00,000/- and
Rs.35,00,000/-
In the absence of any evidence to prove that these
expenses (processing charges and legal &
professional charges) are having nexus with the
assessees business and expended wholly for the
business purpose
In the absence of the genuineness (Identity &
credit worthiness of persons of the long-term
borrowing)
In the absence of the genuineness (Identity &
credit worthiness of persons of the short-term
borrowing)
In the absence of admission of any income from
the investments made in listed equities suggests
that income to the extent of Rs.329,68,73,645/-
has escaped assessment
XIX. In view of the above detailed discussion and
facts, the income chargeable to tax has escaped
assessment to the tune of Rs.329,68,73,645/- in
terms of section 147 of the Act.
XX. All the due procedures laid down u/s 148A of
the Act have been duly complied with and after
having perused the information available on
record and the material evidence gathered, I am
satisfied that all the conditions mentioned u/s
149(1) are fulfilled and it is a fit case to issue
notice u/s 148 of the Income Tax Act, 1961 for
the ?.?.2017-18.
XXI. This order is issued with the prior approval of
the CCIT, Madurai as provided u/s 151 (ii) of the
Income Tax Act, 1961.”
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8.Challenging the impugned orders, the petitioner is before this
Court.
9. The learned Senior Counsel for the petitioner submitted that the
impugned proceedings are without jurisdiction. Specifically, it was
submitted that the respondent while passing the impugned order dated
26.03.2024 under Section 148A(d) of the Income Tax Act, 1961, has
misconstrued the said provisions.
10. It is submitted that the following observation of the respondent
in the impugned order dated 26.03.2024 passed under Section 148A(d) of
the Income Tax Act, 1961 is in correct.
”VI. The assessee has wrongly misinterpreted the
1st proviso to section 149 (1) of Act which
stipulates the time limit to issue notice u/s 148 of
the Act and whereas this office has issued only
notice u/s 148 A(b) on 23.2.2024 which is well
within time as per the Act, in other words notice u/s
148A(b) can be issued till 31.03.2024. This office
duly followed the procedure as laid down in the sec
148 A of the Act before issue of notice u/s 148 of
the Act (providing opportunity u/s 148 A of the Act
before issue of notice u/s 148 of the Act).”
11. That apart, it is submitted that the major chunk of the amount of
Rs.294,00,00,000/- was a long term borrowings and Rs.28,00,00,000/ and
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Rs.35,00,000/- were a short-term borrowings and were subject matter of
Scrutiny Assessment dated 27.12.2019 under Section 143(3) of the Income
Tax Act, 1961 and therefore, under the amended provisions of the Income
Tax Act, 1961, no notice could be issued under Section 149 of the Income
Tax Act, 1961.
12. The learned Senior Counsel would submit that with effect from
01.04.2021, a notice under Section 148 of the Income Tax Act, 1961, could
be issued only if such notice could have been validly issued under the old
regime prior to 01.04.2021. Specifically, the learned Senior Counsel would
draw the attention to first Proviso to Section 149(1) of the Income Tax Act,
as amended, with effect from 01.04.2021 which reads as under:-
”Time limit for notice.
149. (1) No notice under section 148 shall be issued for
the relevant assessment year.-
….
Provided that no notice under section 148 shall
be issued at any time in a case for the relevant
assessment year beginning on or before 1st day
of April, 2021, if a notice under section 148 or
section 153A or section 153C could not have
been issued at that time on account of being
beyond the time limit specified under the
provisions of clause (b) of sub-section (1) of
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this section or section 153A or section 153C, as
the case may be, as they stood immediately
before the commencement of the Finance Act,
2021:”
13. The learned Senior Counsel also laboured hard to refer to the
following decisions rendered under somewhat similar circumstances:-
(i) Avinashilingam Institute for Home Science and
Higher Education for Women vs. ACIT
(Exemptions), (2023) 149 taxmann.com 458
(Madras) : (2023) 458 ITR 491 (Madras)
(ii) Shree Nagalinga Vilas Oil Mills vs. Income-tax
Officer, (2023) 149 taxmann.com 249 (Madras) :
(2023) 292 Taxman 533 (Madras)
(iii)Red Chilli International Sales vs. Income-tax
Officer, (2023) 143 taxmann.com 224 (SC) : 452
ITR 222 (SC)
iv) Component source Company Ltd. vs. Assistant
Commissioner of Income Tax, Circle INT Tax
1(2)(1), New Delhi [W.P.(C)7753/2024, dated
27.05.2024]
14. It is submitted that the following decisions are to be construed
as the ratio specific to the case:-
(i) Azim Premji Trustee Co. (P.) Ltd. vs. Deputy
Commissioner of Income-tax, (2023) 146
taxmann.com 58 (Karnataka)_______________
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(ii) Siemens Financial Services (P.) Ltd. vs. Deputy
Commissioner of Income-tax, (2023) 154
taxmann.com 159 (Bombay) : 457 ITR 647
(Bombay)
(iii)Hexaware Technologies Ltd. vs. Assistant
Commissioner of Income-tax, Circle 15(1)(2),
(2024) 162 taxmann.com 225 (Bombay)
(iv)Anshul Jain vs. Principal Commissioner of
Income-tax, (2022) 143 taxmann.com 38 (SC) :
449 ITR 256 (SC)”
15. It is submitted that the law on the subject is very clear in terms
of the decision of the Hon’ble Supreme Court in CIT vs. Kelvinator of
India Ltd., (2010) 187 Taxman 312 : 320 ITR 561 (SC). It is submitted
that the machinery under Section 148 read with Sections 147 and 149 of
the Income Tax Act, 1961, cannot be a review in disguise and therefore,
the impugned order seeking to re-open the assessment for the Assessment
Year 2017-2018 is liable to be interfered with, as there are no
jurisdictional fact available for re-opening the assessment.
16. The learned Senior Counsel reiterated that in absence of new
tangible materials to reopen the assessment made on 27.12.2019, the
impugned proceedings were liable to be declared as without jurisdiction.
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It is submitted that all the materials were furnished to the Assessing
Officer before the assessment was completed on 27.12.2019 under Section
143 (3) of the Income Tax Act, 1961.
17. In response to the objections of the respondent to the
maintainability of the present Writ Petition, it is submitted that the
respondent has relied on the Hon’ble Supreme Court’s judgment on
Anshul Jain Vs. PCIT [2022] 143 taxmann.com 38 (SC) during
argument and is of the view that present Writ petition filed by the
Petitioner is premature.
18. It is submitted that the Hon’ble Supreme Court in the said case
has held that merits of a case cannot be dealt in a Writ Petition. However,
in the Petitioner’s case, arguments raised in the present writ petition is on
the jurisdictional validity of the proceedings. The judgment relied by the
Respondent itself supports the validity of the subject writ petition since it
is on jurisdictional grounds. The relevant extract of the judgment has been
reproduced below:-
” …. Moreover it is not a case where from bare
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W.P.(MD) No.10198 of 2024reading of notice it can be axiomatically held that
the authority has clutched upon the jurisdiction
not vested in it. The correctness of order under
section 148A(d) is being challenged on the factual
premise contending that jurisdiction though vested
has been wrongly exercised. By now it is well settled
that there is vexed distinction between jurisdictional
error and error of law/fact within
jurisdiction.” (emphasis supplied)
19. It is submitted that the aforesaid case has also been
distinguished by this Court in the case of Avinashilingam Institute for
Home Science and Higher Education for Women Vs ACIT
(Exemptions) in Writ Petition No.11083 of 2022 dated 21.02.2023 and
in the case of Shree Nagalinga Vilas Oil Mills Vs Income-tax Officer in
Writ Petition (MD)No.2630 of 2022 vide order dated 07.02.2023.
20. It is submitted that this Court has held that where the Assessing
Officer has rejected the objection raised by the assessee without application
of mind to the relevant facts of the case, then a writ petition is maintainable.
Further, it is submitted that the Hon’ble Supreme Court in the case of Red
Chilli International Sales Vs ITO [2023] 146 taxmann.com 224 (SC), has
observed that writ courts are required to examine in depth the jurisdiction
pre-condition for issuance of notice under section 148 of the Act.
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21. Thus, it is submitted that the Writ Petition is maintainable as the
aforesaid case relied by the Respondent does not apply to the instant case, as
the Petitioner has raised grounds challenging the validity of the reassessment
proceedings based on the jurisdictional grounds as mentioned below and not
on the merits of the case.
22. As far as the subject reassessment proceeding being barred by
limitation of time as per section 149 of the Act is concerned, it is submitted
that the statute has specifically inserted first proviso to section 149 of the Act
to restrict the department to initiate re-assessment proceedings under the new
re-assessment regime if such proceedings cannot be initiated under the old
re-assessment regime. The relevant extract of the proviso is reproduced
below:-
“Provided that no notice under section 148 shall be
issued at any time in a case for the relevant
assessment year beginning on or before 1st day of
April, 2021, if a notice under section 148 or section
153A or section 153C could not have been issued at
that time on account of being beyond the time limit
specified under the provisions of clause (b) of sub-
section (1) of this section or section 153A or section
153C, as the case may be], as they stood immediately
before the commencement of the Finance Act,
2021” (emphasis supplied)_______________
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23. It is submitted that it is important to note that the wordings viz.,
“at that time” and “as they stood immediately before commencement
of the Finance Act, 2021” in the first proviso to Section 149 of the
Income Tax Act, 1961, indicates that, upto A.Y. 2021-22, if the
department could not issue a notice for re-assessment under old-
reassessment regime, it cannot issue a notice under the new reassessment
regime.
24. It is submitted that under the old-reassessment regime, the
provisions of Section 149(1)(b) of the Act was always curtailed by the
limitation under first proviso to Section 147 of the Act, which provides
that, where a scrutiny assessment has taken place, no re-assessment
proceedings can be initiated 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 disclose fully and truly all material facts
necessary for his assessment, for that assessment year.
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25. In the context of new-reassessment regime, the above principle
has also been upheld by the Hon’ble Karnataka High Court in the case of
Azim Premji Trustee Co Ltd. [2023] 146 taxmann.com 58 (Karnataka).
26. Further, it is submitted that the respondent argued that the
assessment was a “Limited Scrutiny” under Computer Aided Scrutiny
Selection (‘CASS’) and accordingly the period of four years as per first
proviso to erstwhile Section 147 of the Act is not applicable in the instant
case. The Petitioner submits that the A.O. on completion of the
assessment had passed an order under section 143(3) of the Act. It is
submitted that it is pertinent to note that the first proviso to erstwhile
Section 147 of the Act covers all the order passed under Section 143(3) of
the Act and does not differentiate between a “limited scrutiny” or “full
scrutiny”.
27. It is submitted that since the petitioner has disclosed truly and
fully all material facts during assessment under Section 143(3) of the Act
and since this fact has not been disputed by the Department, the Petitioner
submits that the time limit for initiating the reassessment proceedings
shall expire on 31st March 2022. Accordingly, the Impugned Order and
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Impugned Notice No.3 issued on 26th March 2024 is barred by limitation
of time.
28. It is submitted that the subject reassessment proceeding is
based on mere ‘change of opinion’ without any new material on
record. It is submitted that it is a well settled principle that an Assessing
Officer cannot initiate reassessment proceedings to have a review the
documents that were filed and considered by him in the original
assessment proceedings as the power to reassess cannot be exercised to
review an assessment and re-assessment should only be on account of a
“new material on record”. Reliance in this regard is placed on the decision
of Hon’ble Supreme Court in the case of Commissioner of Income-Tax,
Delhi Vs. Kelvinator of India Ltd, [2010] 320 ITR 561 (Hon’ble
Supreme Court). The above principle has already been upheld in the
context of new re-assessment regime in the following decisions:-
(i) Siemens Financial Services (P.) Ltd. Vs. DCIT
[2023] 154 taxmann.com 159 (Hon’ble Bombay
High Court); and
(ii) Hexaware technologies Ltd. Vs. ACIT [2024]
162 taxmann.com 225 (Hon’ble Bombay High
Court).
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29. With respect to long-term borrowings of INR 294 Crores, it is
submitted that the Assessment Order specifies that the same was evaluated
and accepted by the Assessing Officer during the Original Assessment
Proceedings since a notice under Section 133(6) of the Act was sent to the
lenders and, upon receiving confirmation from the lenders and satisfying
the genuineness of the transaction, the JCIT passed the Assessment Order
without any variations on 27.12.2019. The relevant extract of the
Assessment Order is reproduced below:-
2. Investments/ advances/loans
During the financial year relevant to assessment
year 2017-18, the assessee company raised money
through issue of Debentures amounting to Rs.
294,00,00,000/-. The assessee furnished the break-
up details of debenture holders and copy of ledger
account of debentures. The payments were received
through HDFC Bank. In this regard, the assessee
furnished a copy of HDFC Bank statement. Notice
u/s. 133(6) was issued to the debenture holders
requesting to furnish the details/ confirmation
relating to financial transactions with the assessee
company. In response. the debenture holders
furnished the above details and confirmation
relating to financial transactions with the assessee
company.
30. Countering the argument of the respondent with respect to the
short-term borrowings of INR 28.35 Crores, it is submitted that the
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learned Counsel for the Respondent is of the view that the same have not
been assessed since the Assessment Order under Section 143(3) of the Act
does not specifically captures the same. It is pertinent to note that vide
notice dated 26.07.2019, the JCIT during the Original Assessment
Proceedings had called for details on all the borrowings made by the
Petitioner, which included the short-term borrowings, which the Petitioner
had duly submitted and the same had been accepted by the Respondent.
Thus, all the borrowings made by the Petitioner has been verified by the
Respondent during the Original Assessment Proceedings.
31. It is further submitted that out of 28.35 Crores, INR 28 Crores
was borrowed from the same lender (KKR India Financial Services
Private Limited) who was categorized under “Long term borrowings” and
the Respondent had sent a notice under Section 133(6) to all the lenders
and confirmed the same.
32. With respect to Processing charges of Rs.6,58,00.000 and Legal
and Professional charges of Rs.35,73,845, it is submitted that the
perception of the respondent that the same have not been assessed since
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the Assessment Order dated 27.12.2019 passed under section 143(3) of
the Act does not specifically capture the opinion framed by the JCIT and
it is only a limited scrutiny cannot be countenanced.
33. It is submitted that during the course of regular assessment, the
petitioner had provided books of accounts, cash flow statement and
financial statements for the subject A.Y. which dearly discloses the details
of Processing Charges of Rs.6,58,00,000 and Legal and Professional
Charges of Rs.35,73, 845/. Further, it is submitted that the Petitioner had
called for details of expenses incurred to earn exempt income.
34. In this regard, the learned Senior Counsel for the petitioner
submits that since the every query is raised by the department and relevant
details as required by the Assessing Officer were provided, the issue is
deemed to have been considered and the explanation is deemed to be
accepted by the Assessing Officer, even Assessment Order does not
contain reference or a discussion to disclose the satisfaction of the
Assessing Officer in respect of the query raised. Reliance in this regard
was placed on the decision of Bombay High Court in the case of Aroni
Commercials Ltd Vs. Dy.CIT, 362 ITR 463.
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35. It is submitted that the assessment that was completed on
27.12.2023 under Section 143 (3) of the Income Tax Act, 1961, was
confined only to the expenses incurred for earning exempted income and
investment amounts / advances and loans, content of which has already
been extracted above.
36. In support of his submission, the learned Senior Standing
Counsel for the respondent has relied upon a judgment of a Full Bench of
the Delhi High Court rendered in Commissioner of Income-tax-VI, New
Delhi vs. Usha International Ltd., (2012) 25 taxmann.com 200 (Delhi) :
348 ITR 485 (Delhi).
37. As regards the first plea of Limitation, it is submitted that the
petitioner admits that the income contemplated in the proceedings under
the challenge is in excess of Rs.50 lakhs. It is submitted that the
petitioner also admit that the case will therefore fall under Section 149 (1)
(b) of the Act which prescribes 10 years period. However, the petitioner
contends that since the proposed reopening is with reference to
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Assessment Year 2017-18, which is beginning before 01/04/2021, the first
proviso to Section 149 (1) stands attracted.
38. The revenue accedes to this position that the first proviso to
Section 149 (1) stands attracted to the present case. It is submitted that the
statute is clear and unambiguous in stating that the time limit mentioned
in the first proviso relates only to the time limit specified under the old
149 (1) (b) or 153A or 153C. In this case, Section 153A or 153C are not
relevant. Old Section 149 prescribes three different time limits.
39. It is submitted that the general time limit provided was four
years from the end of the relevant Assessment Year. The second time limit
was up to 6 years from the end of the relevant Assessment Year when the
escaped assessment amount was likely to be 1 lakh or more for that year.
The third time limit was up to 16 years from the end of the relevant
Assessment Year if income in relation to any asset located outside India,
chargeable to tax, has escaped assessment.
40. Therefore, even under the old Section 149, the time limit was
six years from the end of the relevant Assessment Year if the escaped
assessment amount was likely to be 1 lakh or more for that year.
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41. It is submitted that the subject case relates to the Assessment
Year 2017-2018. The income that has escaped assessment according to
respondent is Rs.329,68,73,645/-. Hence even under the old Section 149,
the time limit of six years from the end of the relevant Assessment Year
would have lapsed only on 31.03.2024. It is submitted that the impugned
order under Section 148A (d) and the notice under Section 148 is dated
26.03.2024. Therefore, it is submitted it is well within time.
42. It is submitted that the falsity in the plea of limitation is raised
by the petitioner stems from an attempt made by the writ petitioner to
import the first proviso to the old Section 147. It is submitted that there is
no legislative mandate or intent to read the first proviso to old Section 147
into the new Section 149. It is an ingenious and mischievous attempt,
without any substance. Section 149 provides a time limit for issuance of a
notice under Section 148, which is a precursor for determining the income
that has escaped assessment under Section 147. Section 147 has also been
completely substituted under the Finance Act, 2021 with effect from
01.04.2021.
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43. It is submitted that the time limits/restrictions imposed under
the first proviso of old Section 147 prescribed four years and six years in
respect of cases where an assessment under Section 143 (3) or Section
147 was made has been done away with under the new Section 147.
44. It is submitted that therefore, the attempt of the petitioner to
contend that the present notice under Section 148 was barred by limitation
or was devoid of any merit is liable to be rejected.
45. In so far as “change of opinion”, while re-opening the
assessment, it is submitted that the petitioner was duty bound to
demonstrate that under the earlier CASS limited scrutiny assessment
under Section 143 (3) dated 27.12.2019, there was a “formation of
opinion” regarding the issues which are basis for reopening the
assessment.
46. It is submitted that the earlier assessment order u/s. 143(3) on
27.12.2019 is confined to expenses incurred for earning exempt income,
and investments/advances/loans, as mentioned in the notice issued u/s.
142(1) . It was case of limited scrutiny.
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47. Learned counsel submits that as per the circular F.No.
225/402/2018/ITA.II, dated 28.11.2018, the cases selected for limited
scrutiny under CASS for the A.Y. 2017- 2018, the scope of enquiry was
limited only to the issue for which the case has been selected and this has
been strictly laid down in order to curb the arbitrary exercise of powers of
the Assessing Officers to prevent harassment of the assessee.
48. Even in the Assessment Order findings have been provided only
in respect of the issue of Debentures and no findings have been provided
in respect of other items for which the assessment is sought to be
reopened.
49. Thus, it is submitted that when no opinion was formed in
respect of the issues which are the basis for reopening of the assessment,
there cannot be any allegation of change of opinion.
50. In the case of Shrikant Phulchand Bhakkad (HUF) Vs. JCIT
(137 taxmann.com 445) where the original assessment was completed
under CASS for limited purpose to examine the Genuineness of share
capital and there was no consideration of documents produced by
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petitioner with respect to derivative transaction, reopening notice issued
by the Assessing Officer on ground that petitioner entered into bogus
derivative transactions to obtain loss for purpose to reduce his taxable
income was held to not amount to review of earlier order on same facts
and it was decided to be a valid notice.’
51. The contention of the assessee that there is an implied formation
of opinion on all the issues as it had been subjected to a scrutiny
assessment is without any substance at all.
52. It is submitted on a demurrer that though circulars are not
binding on the assessee, in a plethora of cases the Apex Court has laid
down that circulars issued by the Central Board of Direct Taxes are
legally binding on the Assessing Officers and they ought to follow the
stipulations in the circular. Reference can be made to Navnitlal C.
Jhaveri Vs. KK, Sen, [1965] 56 ITR 198 (SC), Ellerman Lines Ltd. Vs.
Commissioner of Income-tax, West Bengal, [1971] 82 ITR 913 (SC)
and K.P.Varghese Vs. ITO, [1981] 131 ITR 597 (SC).
53. It is submitted that the order dated 27.12.2019 under Section
143 (3) records that the Assessing Officer had accepted the submission of
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the writ petitioner/assessee that it had not earned any exempt income and
no expenses were incurred towards earning exempted income. Thus, it
could be seen that one of the reasons assigned in the present impugned
notice under Section 148 to reopen the assessment regarding the
processing charges of Rs.6,98,00,000/- and legal and professional charges
of Rs.35,73,645/- were not at all the subject matter of the previous limited
scrutiny assessment and no opinion had been formed in this regard, in
order for the reassessment proceedings to be taken as a mere change of
opinion.
54. It is submitted that the genuineness (identity and
creditworthiness) of the persons from whom the petitioner has made a
short-term borrowing of Rs.2,83,500,000/- had also not been the subject
matter of the earlier concluded scrutiny assessment proceeding dated
27.12.2019, and thus no opinion had been formed on the same as well.
55. It is submitted that in the absence of any formation of opinion in
the earlier Scrutiny Assessment Order regarding the issues raised in the
present reopening proceedings, the allegation of “change of opinion” is
devoid of any merit and is liable to be rejected.
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56. The contention of the petitioner that no new information was
available for reopening assessment is denied as false, and it is submitted
that the reassessment proceedings are not initiated on the basis of the
financial record already available but the tangible information on the basis
of which the reassessment was proposed to be initiated in the instant case
as per clause (ii) of Explanation 1 of Section 148 of the Act which was
conveyed to the petitioner in the notice dated 23.02.2024 under Section
148A(b) of the Income Tax Act for following heads under:-
i) Processing charges incurred Rs.6,98,00,000/-
ii)Legal and Professional charges incurred
Rs.35,73,645/-
iii)Borrowed funds amounting to
Rs.294,00,00,000/- by way of issuing Non-
Convertible Debentures (NCDs)
iv) Short-term borrowing of Rs.28,00,00,000/- and
Rs.35,00,000/-
v) Made investments in listed equities amounting
to Rs.288,50,94,000/-
57. It is submitted that the petitioner did not produce any evidence
to prove that:-
(i) the expenses on legal & professional charges have a
nexus with the petitioner’s business and are expended
wholly for the business purposes.
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W.P.(MD) No.10198 of 2024
(ii)The genuineness (Identity & credit worthiness of
persons to whom NCDs were issued and genuineness
of transactions) of the long term borrowing (NCDs)
& short term borrowing are not established.
(iii)The absence of admission of any income from the
investments made in listed equities. Hence the above
three information suggest that income to the extent
of Rs.329,68,73,645/- has escaped assessment.
58. It is further submitted that even assuming that every aspect
relating to long-term borrowings (Non-convertible Debentures) has been
subjected to perusal during the course of the limited scrutiny assessment,
only by virtue of it being one of the items of reassessment, the entire
reassessment proceedings and notice under Section 148 of the Act, also
containing other items requiring reopening of assessment and not having
been subjected to scrutiny assessment i.e., legal and professional charges
and the genuineness (identity and creditworthiness) of the persons from
whom the petitioner has made a short-term borrowing, cannot be quashed
in toto.
59. In the case of Income Tax Officer, Azamgarh & Anr Vs
Mewalal Dwarka Prasad, 1989 (2) SCC 279, in Para 7 it was held as
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follows: “Accepting the legal position indicated in these cases we come to
the conclusion that it was not for the High Court to examine the validity
of the notice under Section. 148 in regard to the two items if the High
Court came to the conclusion that the notice was valid at least in respect
of the remaining item. Whether the Income Tax Officer while making his
reassessment would take into account the other two items should have
been left to be considered by the Income Tax Officer in the fresh
assessment proceeding.”
60. Therefore, the attempt of the petitioner to contend that the
present notice under Section 148 of the Act is issued because of a “change
of opinion,” on the basis of which it is sought to quash the notice under
Section 148 in toto, is devoid of any merit and is liable to be rejected.
61. It is further submitted that the present writ petition has been
filed at a premature stage of the proceedings given the fact that no
Assessment Order has been passed yet. The contentions raised herein by
the petitioner can very well be taken up before the Assessing Officer
during the course of proceedings under Section 147 of the Act.
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62. Therefore, on the premise of the submissions made on behalf of
the respondent, it is prayed that the present writ petition be dismissed as
the same is devoid of any merits and premature.
63. I have considered the arguments advanced by the learned Senior
Counsel for the petitioner and the learned Senior Standing Counsel for the
respondent. I have also perused documents that have been filed before this
Court. I have also considered the decisions cited and provisions of law.
64. The Hon’ble Supreme Court in Anshul Jain Vs. PCIT(2022)
143 taxmann.com 38, while dealing with an identical situation had held as
under:
“Thus, the consistent view is that where the
proceedings have not even been concluded by the
statutory authority, the writ Court should not
interfere at such a pre-mature stage. Moreover it is
not a case where from bare reading of notice it can
be axiomatically held that the authority has clutched
upon the jurisdiction not vested in it. The correctness
of order under Section 148A(d) is being challenged
on the factual premise contending that jurisdiction
though vested has been wrongly exercised. By now it
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W.P.(MD) No.10198 of 2024jurisdictional error and error of law/fact within
jurisdiction. For rectification of errors statutory
remedy has been provided.”
65. The Hon’ble Supreme Court in Red Chilli International Sales
Vs. Income Tax Officer(2023) 452 ITR 222 (SC) under similar
circumstances had interfered and set aside the adverse order passed by the
High Court against the Revenue with the following observation:
“We with the petitioner that the impugned
judgment rejecting the writ petition on the
ground of alternative remedy does not 2 take
into consideration several judgments of this
Court, on the jurisdiction of High Court, as
writ petitions have been entertained to be
examined whether the jurisdiction
preconditions for issue of notice under Section
148 of the Income Tax Act, 1961 is satisfied.
The provisions of reopening under the Income
Tax Act, 1961 have undergone an amendment
by the Finance Act, 2021, and consequently
the matter would require a deeper and in
depth consideration keeping in view the
earlier case law. Accordingly, we set aside the
observations made by the High Court in the
impugned judgment observing that the writ
petition would not be maintainable in view of
the alternative remedy, clarify that this issue
would be examined in depth by the High
Court if and when it arise for consideration.
We do deem it open to examine this issue in the
present case after having examined the notice
under Section 148A (b) including the annexure
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thereto, the reply filed by the petitioner and the
order under Section 148A (d) of the Income Tax
Act, 1961.”
66. In Commissioner of Income Tax Vs P.V.S. Beedies Pvt. Ltd.,
(1998) 9 SCC 272, the Hon’ble Supreme Court in Para 3 held that “there
can be no dispute that the audit party is entitled to point out a factual
error or omission in the assessment. Reopening of the case on the basis
of a factual error pointed out by the audit party is permissible under
law. In view of that we hold that reopening of the case under Section
147(b) in the facts of this case was on the basis of factual information
given by the internal audit party and was valid in law.”
67. In the case of Income Tax Officer, Azamgarh &Anr Vs
Mewalal Dwarka Prasad, 1989 (2) SCC 279, in Para 7, the Hon’ble
Supreme Court held as follows:-
“Accepting the legal position indicated in these
cases we come to the conclusion that it was not
for the High Court to examine the validity of the
notice under Section 148 of the Income Tax Act,
1961 in regard to the two items if the High Court
came to the conclusion that the notice was valid
at least in respect of the remaining item. Whether
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W.P.(MD) No.10198 of 2024reassessment would take into account the other
two items should have been left to be considered
by the Income Tax Officer in the fresh assessment
proceeding.”
68. The two decisions of the Division Bench of the High Court of
Bombay in Siemens Financial Services (P). Ltd., Vs. Deputy
Commissioner of Income Tax reported in (2023) 457 ITR 647 (Bombay)
and in Hexaware Technologies Ltd., Vs. Assistant Commissioner of
Income Tax reported in (2024) 162 taxmann.com 225 (Bombay) ought to
be applied cautiously.
69. They have substantially watered down the amendment made the
provisions of the Income Tax Act, 1961 in 2021 which was not intended
by the Parliament when it amended the provision of the Income Tax Act,
1961 vide Finance Act, 2021.I shall refer to these two decisions later after
discussing the facts.
70. The petitioner appears to have borrowed Rs.294,00,00,000/-
from the following four entities, namely:-
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W.P.(MD) No.10198 of 2024Sl. Name of the debenture PAN NCD
No. holder (Rs. in crore)
1. KKR India Financial AAACM7774Q 172.60
Services Private Limited
(‘KKR India Ltd’)
2. KKR India Debt AACTK8338D 25.70
Opportunities Fund II (‘KKR
India Fund’)
3. BOI AXA Mutual Fund AABTB3493R 25.70
4. Aditya Birla Finance Limited AABCB5769M 70.00
Total 294.00
71. The borrowings from these companies were against issuance of
Non-Convertible Debentures by the petitioner to them. These amounts
were treated as long term borrowings by the petitioner in its Books of
Accounts.
72. The petitioner had also borrowed a further sum of Rs.
28,00,00,000/- and Rs.35,00,000/- as a short term borrowings. In the
Assessment order, dated 27.12.2019 that was passed earlier under Section
143(3) of the Income Tax Act, 1961, there is no discussion on these
aspects. There was no discussion and no formation of opinion by the
Assessing Officer.
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73. The amounts that were borrowed from these above mentioned
four entities and others were invested in the following two entities, which
are closely associated with the petitioner and are petitioner’s sister
concerns. Details of the investment are as below:-
Particulars Opening Amount Amount Closing
Balance invested(Rs.) withdrawn Balance(Rs.)
M/s.Dinram – 2,48,00,47,000 – 2,48,00,47,000
Logistics
Services
LLP
M/s.DRSR – 40,50,47,000 – 40,50,47,000
Advisory
Services
Total 2,88,50,94,000 2,88,50,94,000
74. In the books of accounts, there are indication that the petitioner
has also received certain amounts from these two entities. From
M/s.Dinram Logistics Services LLP, the petitioner has received a sum of
Rs.2,30,000/- and from M/s.DRSR Advisory Services, the petitioner has
received a sum of Rs.1,15,000/-.
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75. The petitioner has apparently incurred a whopping sum of
Rs.6,98,00,000/- towards processing charges and a further sum of
Rs.35,73,645/- towards legal expenses in connection with the issuance of
the aforesaid Non-Convertible Debentures the four entities. Thus, in all a
sum of Rs.7,33,73,645/- (Rs.6,98,00,000/- + Rs.35,73,645/-) was written
off as expenses incurred and by the petitioner in its book of account and
thereby reduced the profit.
76. In the Profit and Loss Account filed by the petitioner, the
petitioner has declared a total loss of Rs.7,27,25,946/- and loss after tax
for the period (VI-VII) as Rs.49,526,369/-.
77. In the return filed by the petitioner, the petitioner has declared a
loss of Rs.4,95,26,396/-, though in the returns that was filed by the
petitioner under Section 139 of the Income Tax Act, 1961 on 13.10.2017,
the petitioner has declared a loss of Rs.7,27,25,946/-.
78. The reading of the profit and loss account filed by the petitioner
indicates the following:
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W.P.(MD) No.10198 of 2024Borrowings Rs.322,35,00,000 *
(long term)
(short term
Deployment + Expenses +Legal Rs.314,85,31,645 #
Expenses
Balance Rs.08,29,68,355
Current liability Rs. 6,28,11,914a. [*Rs.3,22,35,00,000=294,00,00,000+ Rs.28,00,00,000 +
35,00,000]
b. [#Rs.3,14,85,31,645=Rs.6,98,00,000 + 35,73,645 +
2,88,50,94,000]
79. The Department has sought to reopen the assessment on the
ground that the amounts that were given as loan to M/s.Dinram Logistics
Services LLP, M/s.DRSR Advisory Services and the expenses incurred
for a sum of Rs.3,29,68,73,645/- are to be taxed, which had escaped
assessment at the time of Assessment made on 27.12.2019 under Section
143(3) of the Income Tax Act, 1961.
80. The above Assessment was completed after a limited scrutiny
under Computer Aided Scrutiny Selection (CASS) on 27.12.2019
although all the information’s called for were furnished by the petitioner.
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However, with effect from 01.04.2021, the ecosphere for re-assessment
under the provisions of the Income Tax Act, 1961 has changed
drastically. There is a paradigm shift for reopening the assessment.
Section 147 of the Income Tax Act, 1961, is the statutory mechanism for
bringing “income escaping assessment” of an assessee. It is different
from how it read before 01.04.2021.
81. Section 147 of the Income Tax Act, 1961, has been made short
and crisp. It read as under :-
1 [147. Income escaping assessment.—If the 2
[Assessing Officer] 3 [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 sections 148 to 153 referred to as the
relevant assessment year):
82. The phrase “an assessing officer has reason to believe that” as
in un-amended Section 147, has been deleted in the amended Section 147
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W.P.(MD) No.10198 of 2024
of the Income Tax Act, 1961 with effect from 01.04.2021. The pronoun
“he” in un-amended Section 147 has been replaced with proper noun,
“Assessing Officer” in the amended Section.
83. Similarly, the expression “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”
has also been deleted in the amended Section 147 of the Income Tax Act,
1961. However, this deletion has been compensated and in the included
in Explanation to amended Section 147 of the Income Tax Act, 1961.
Thus, if Section 148A is validly invoked, any income which “has escaped
assessment” subsequent to issue of notice under Section 148A(b) of the
Income Tax Act, 1961 can be assessed to tax subsequent to issue of notice
under Section 148A(b) of the Income Tax Act, 1961
84. Similarly, the phrase starting from “as the case may be, for the
assessable year concerned” as in old Section 147 has been deleted in the
amended Section.
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85. With effect from 01.04.2021, a sea change has been made under
amended Section 149(1) of the Income Tax Act, 1961. A notice for re-
assessment can be issued within three years from the end of the relevant
Assessment Year under Section 148 of the Income Tax Act, 1961, unless
the situation contemplated in sub-clause (b) to Section 149(1) of the
Income Tax Act, 1961, are attracted.
86. As per the first proviso to Section 149(1) of the Income Tax
Act, 1961, as amended with effect from 01.04.2021 makes it clear that
whether under the situation contemplated under sub-clause (a) or sub-
clause (b) to Section 149(1) of the Income Tax Act, 1961, a notice under
Section 148 of the Income Tax Act, 1961cannot be issued for the relevant
Assessment Year beginning on or before 1st day of April, 2021, if such a
notice could not have been issued at that time under Section 148 or
Section 153A or 153C of the Income Tax Act, 1961, on account of being
it being beyond the time limit specified under the provisions of sub-clause
(b) to Section 149(1) or Section 153A or Section 153C of the Income Tax
Act, as the case may be, as they stood immediately before the
commencement of the Finance Act, 2021.
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87. Therefore, in the light of the above facts and law, the issue for
consideration is whether the respondent was justified in issuing notice
dated 23.02.2024 and a second notice dated 11.03.2024 under Section
148A(b) of the Income Tax Act, 1961, for re-opening the assessment for
the Assessment Year 2017-2018, which has culminated and the
Impugned Order dated 26.03.2024 under Section 148A(d) of the Income
Tax Act, 1961 and in the impugned notice dated 26.03.2024 under Section
148 of the Income Tax Act, 1961?
88. The petitioner has relied on the decisions of the Courts rendered
in the context of Section 148 of the Income Tax Act, 1961, as it stood
prior to 01.04.2021. Under the old regime, the law was well settled.
Re-opening of the assessment under the amended Section 148 of the
Income Tax Act, 1961 was circumscribed and could not issued for change
of opinion or where there was true and full disclosure of information for
the period beyond four years notwithstanding Explanation 1 to Section
147 of the Income Tax Act, 1961, as it stood prior to 01.04.2021.
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89. However, Section 148 of the Income Tax Act, 1961, has also
been amended with effect from 01.04.2021. Amendment to Section 148 of
the Income Tax Act, 1961, accompanied insertion of Section 148A and
amendments to Sections 147, 149 and 151 of the Income Tax Act, 1961.
90. A notice under Section 148 of the Income Tax Act, 1961 is
subject to the provisions of Section 148A.
91. Section 148 of the Income Tax Act, 1961 before and after
amendment reads as under:-
Section extracts from old law Section extracts from New law
(prior to Finance Act 2021)
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148.Before making the assessment, 148. Before making the assessment,
reassessment or recomputation reassessment or recomputation
under section 147, the Assessing under section 147 and subject to the
Officer shall serve on the assessee provisions of section 148A, the
a notice requiring him to furnish Assessing Officer shall serve on the
within such period, as may be assessee a notice, along with a copy
specified in the notice, a return of of the order passed, if required
his income or the income of any under clause (d) of Section 148A
other person in respect of which requiring him to furnish within a
he is assessable under this Act period of three months from the end
during the previous year of the month in which such notice is
corresponding to the relevant issued, or such further period as may
assessment year in the prescribed be allowed by the Assessing Officer
form and verified in the presented on the basis of an application made
manner and setting forth such in this regard by the assessee, a
other particulars as may be return of his income or the income of
prescribed and the provisions of any other person in respect of which
this Act shall so far as may be he is assessable under this Act
apply accordingly as if such return during the previous year
were a return required to be corresponding to the relevant
furnished under Section 139. assessment year in the prescribed
form and verified in the prescribed
manner and setting forth such other
particulars as may be prescribed
and the provisions of this Act shall
so far as may be apply accordingly
as if such return were a return
required to be furnished under
Section 139.
92. There are further restrictions in these provisions to Section 148
of the Income Tax Act, 1961 as amended with effect from 01.04.2021. It
reads as under:-
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W.P.(MD) No.10198 of 2024Provided that no notice Provided further that no Provided also
under this section shall be such approval shall be that any return
issued unless there is required where the of income,
information with the Assessing Officer, with required to be
Assessing Officer which the prior approval of the furnished by an
suggests that the income specified authority, has assessee under
chargeable to tax has passed an order under this section and
escaped section assessment clause (d) of section furnished
in the case of the assessee 148A to the effect that it beyond the
for the relevant assessment is a fit case to issue a period allowed
year and the Assessing notice under this section shall not be
Officer has obtained prior deemed to be a
approval of the specified return under
authority to issue such section 139.
notice;
93. Explanation which interplay with amended Section 148 of the
Income Tax Act, 1961 read as under:-
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W.P.(MD) No.10198 of 2024Explanation-1 Explanation-2 Explanation-3
For the purposes of For the purposes of this Explanation 3. For the
this section and section, where,- purposes of this section,
section 148A, the (i) a search is initiated specified authority
information with the under section 132 or means the specified
Assessing Officer books of account, other authority referred to in
which suggests that documents or any assets section 151.
the income chargeable are requisitioned under
to tax has escaped section 132A, on or
assessment means,- after the 1st day of
April, 2021, in the case
(i) any information in of the assessee; or
the case of the
assessee for the (ii) a survey is
relevant assessment conducted under
year in accordance section 133A, other
with the risk than under sub-section
management strategy (2A) of that section, on
formulated by the or after the 1st day of
Board from time to April, 2021, in the case
time;or of the assessee, or
(ii) any audit (iii) the Assessing
objection to the effect Officer is satisfied, with
that the assessment in the prior approval of
the case of the the Principal
assessee for the Commissioner or
relevant assessment Commissioner, that any
year has not been money, bullion,
made in accordance jewellery or other
with the provisions of valuable article or
this Act; or thing, seized or
requisitioned under
(iii) any information
section 132 or section
received under an
132A in case of any
agreement referred to
other person on or after
in section 90 or st
section 90A of the Act; the 1 day of April,
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94. Under the new regime with effect from 01.04.2021, before
making an assessment, reassessment or re-computation under Section 147
the Assessing Officer has to serve on the assessee a notice, along with a
copy of the order passed, if required under clause (d) of Section 148A
requiring him to furnish within a period of three months from the end of
the month in which such notice is issued, or such further period as may be
allowed by the Assessing Officer on the basis of an application made in
this regard by the assessee, a return of his income or the income of any
other person in respect of which he is assessable under this Act during the
previous year corresponding to the relevant assessment year in the
prescribed form and verified in the prescribed manner and setting forth
such other particulars as may be prescribed and the provisions of this Act
shall so far as may be apply accordingly as if such return were a return
required to be furnished under Section 139.
95. The impugned notice dated 26.03.2024 issued under Section
148 of the Income Tax Act, 1961, could have been issued only for the
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W.P.(MD) No.10198 of 2024
purpose of bringing income escaping assessment as per Section 147 of the
Income Tax Act, 1961.
96. As per the amended Section 148 of the Income Tax Act, 1961,
before making the assessment, reassessment or re-computation under
section 147, and subject to the provisions of section 148A, the Assessing
Officer shall serve on the assessee a notice, along with a copy of the order
passed, if required, under clause (d) of Section 148A, requiring him to
furnish within a period of three months from the end of the month in
which such notice is issued, or such further period as may be allowed by
the Assessing Officer on the basis of an application made in this regard by
the assessee, a return of his income or the income of any other person in
respect of which he is assessable under this Act during the previous year
corresponding to the relevant assessment year, in the prescribed form and
verified in the prescribed manner and setting forth such other particulars
as may be prescribed; and the provisions of this Act shall, so far as may
be, apply accordingly as if such return were a return required to be
furnished under Section 139.
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W.P.(MD) No.10198 of 2024
97. As per first proviso to Section 148 of the Income Tax Act, 1961
as amended, no notice under this Section shall be issued unless there is
information with the Assessing Officer which suggests that the income
chargeable to tax has escaped assessment in the case of the assessee for
the relevant assessment year and the Assessing Officer has obtained prior
approval of the specified authority to issue such notice. Thus, if
information is available with the Assessing Officer which suggests that
the income chargeable to tax has escaped assessment after obtaining
obtained prior approval of the specified authority to issue such notice.
98. As per second proviso, no such approval shall be required where
the Assessing Officer, with the prior approval of the specified authority,
has passed an order under clause (d) of Section 148A to the effect that it is
a fit case to issue a notice under this Section.
99. Thus, if an order under clause (d) of Section 148A of the
Income Tax Act, 1961 has been passed with the prior approval of the
specified authority also no such approval under the first proviso shall be
required for issuing notice under Section 148 of the Income Tax Act,
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1961.
100. As per third proviso, any return of income, required to be
furnished by an assessee under this section and furnished beyond the
period allowed shall not be deemed to be a return under Section 139.
101. Thus, a notice issued under Section 148 of the Income Tax
Act, 1961, has to precede an enquiry after an opportunity of being heard
and an opportunity of reply under Section 148A of the Income Tax Act,
1961. The notice under Section 148 also has to satisfy the time limit under
Section 149 of the Income Tax Act, 1961.
102. As per Section 151 of the Income Tax Act, 1961, before
issuing the notice both under Sections 148 and 148A of the Income Tax
Act, 1961, sanction of the specified authority also has to be obtained.
Section 151 of the Income Tax Act, 1961, as amended contemplates
sanction of the specified authority . It reads as under: –
“Sanction for issue of notice:-.
151. Specified authority for the purposes of
section 148 and section 148A shall be,-
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(i) Principal Commissioner (ii) Principal Chief
or Principal Director or Commissioner or Principal
Commissioner or Director, Director General, if more
if three years or less than than three years have
three years have elapsed elapsed from the end of the
from the end of the relevant relevant assessment year:
assessment year;
Provided that the period of three years for the purposes of
clause (1) shall be computed after taking into account the
period of limitation as excluded by the third or fourth or
fifth provisos or extended by the sixth proviso to sub-
section (1) of section 149.”
103. In Commissioner of Income Tax, Delhi Vs. Kelvinator of
India Limited reported in (2010) 320 ITR 561, the Hon’ble Supreme
Court after examining the changes to Section 147 of the Income Tax Act,
1961 observed as under:
“On going through the changes, quoted above, made
to Section 147 of the Act, we find that, prior to Direct
Tax Laws (Amendment) Act, 1987, re-opening could
be done under above two conditions 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 1st April,
1989], they are given a go-by and only one condition
has remained, viz., that where the Assessing Officer
has reason to believe that income has escaped
assessment, confers jurisdiction to re- open the
assessment. Therefore, post-1st April, 1989, power to_______________
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Page No. 52 of 64
W.P.(MD) No.10198 of 2024re-open is much wider. However, one needs to give a
schematic interpretation to the words “reason to
believe” failing which, we are afraid, Section 147
would give arbitrary powers to the Assessing Officer
to re-open assessments on the basis of “mere change
of opinion”, which cannot be per se reason to re-
open. We must also keep in mind the conceptual
difference between power to review and power to re-
assess. The Assessing Officer has no power to review;
he has the power to re-assess. But re-assessment has
to be based on fulfillment of certain pre-condition and
if the concept of “change of opinion” is removed, as
contended on behalf of the Department, then, in the
garb of re-opening the assessment, review would take
place. One must treat the concept of “change of
opinion” as an in-built test to check abuse of power
by the Assessing Officer. Hence, after 1st April, 1989,
Assessing Officer has power to re-open, provided
there is “tangible material” to come to the
conclusion that there is escapement of income from
assessment. Reasons must have a live link with the
formation of the belief. Our view gets support from
the changes made to Section 147 of the Act, as quoted
hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only deleted
the words “reason to believe” but also inserted the
word “opinion” in Section 147 of the Act. However,
on receipt of representations from the Companies
against omission of the words “reason to believe”,
Parliament re-introduced the said expression and
deleted the word “opinion” on the ground that it
would vest arbitrary powers in the Assessing Officer.
We quote hereinbelow the relevant portion of
Circular No.549 dated 31st October, 1989, which
reads as follows:
“7.2 Amendment made by the Amending Act,
1989, to reintroduce the expression `reason to
believe’ in Section 147.–A number of_______________
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Page No. 53 of 64
W.P.(MD) No.10198 of 2024representations were received against the
omission of the words `reason to believe’ from
Section 147and their substitution by the
`opinion’ of the Assessing Officer. It was
pointed out that the meaning of the
expression, `reason to believe’ had been
explained in a number of court rulings in the
past and was well settled and its omission
from section 147 would give arbitrary powers
to the Assessing Officer to reopen past
assessments on mere change of opinion. To
allay these fears, the Amending Act, 1989, has
again amended section 147to reintroduce the
expression `has reason to believe’ in place of
the words `for reasons to be recorded by him
in writing, is of the opinion’. Other provisions
of the new section 147, however, remain the
same.”
5. For the afore-stated reasons, we see
no merit in these civil appeals filed by
the Department, hence, dismissed with
no order as to costs.”
104. The law that was settled by the Courts Hon’ble Supreme Court
in the context of old Section 147, in Commissioner of Income Tax,
Delhi Vs. Kelvinator of India Limited reported in (2010) 320 ITR 561
was in the context of old Section 147 prior to 01.04.1989. After the
amending Act, it reads as under:-
After enactment of Direct Tax After amending the act, 1989
Laws (Amendment) Act, 1987
ie., prior to 01.04.1989_______________
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Page No. 54 of 64
W.P.(MD) No.10198 of 2024“147. Income escaping 147. Income escaping assessment.–
assessment.– If the Assessing If the Assessing Officer has reason to
Officer, for reasons to be recorded believe that any income chargeable to
by him in writing, is of the opinion tax has escaped assessment for any
that any income chargeable to tax assessment year, he may, subject to
has escaped assessment for any the provisions of sections 148 to 153,
assessment year, he may, subject assess or reassess such income and
to the provisions of Sections 148 also any other income chargeable to
to 153, assess or reassess such tax which has escaped assessment
income and also any other income and which comes to his notice
chargeable to tax which has subsequently in the course of the
escaped assessment and which proceedings under this section, or
comes to his notice subsequently recompute the loss or the
in the course of the proceedings depreciation allowance or any other
under this section, or recompute allowance, as the case may be, for the
the loss or the depreciation assessment year concerned (hereafter
allowance or any other allowance, in this section and in sections 148 to
as the case may be, for the 153 referred to as the relevant
assessment year concerned assessment year).”
(hereafter in this section and in
Sections 148 to 153 referred to as
the relevant assessment year).”
105. The decision of the Division Bench of the Bombay High Court
in Shrikant Phulchand Bhakkad Vs. Joint Commissioner of Income
Tax reported in (2022) 446 ITR 250 (Bombay), has dealt with the
scrutiny assessment under CASS for limited purpose.
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W.P.(MD) No.10198 of 2024
106. In para 60 of the said decision, it has been observed as under:
“60. In the facts of that case, this Court found that
the petitioner had filed detailed information asked
for by the assessing officer U/Sec. 142(1) and
143(2) of the I. T. Act and had participated in the
assessment proceedings. This having been done,
it was not open for the assesee to now contend
that this Court should exercise its extra-ordinary
jurisdiction and prohibit the authorities from
proceeding further with the impugned notice. This
Court accordingly did not interfere with the
notice U/ Sec. 148 of the I. T. Act while exercising
extra-ordinary jurisdiction under Article 226 of
the Constitution of India and to 34 wp 14336.21
prohibit the authorities from proceeding further
in the matter. In our view principles laid down by
this Court in a case of Chhagan Chandrakant
Bhujbal Vs. Income Tax Officer (supra) apply to
the facts of this case.”
107. The said decision was rendered in the context of notice issued
on 31.03.2021 under Section 148 of the Income Tax Act, 1961. Therefore,
the said decision is of no relevance.
108. Similarly, the decision of the Full Bench of the Delhi High
Court in Commissioner of Income Tax – VI, New Delhi Vs. Usha
International Limited reported in (2012) 348 ITR 485(Delhi) is also
relevant for the decision under the old regime.
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W.P.(MD) No.10198 of 2024
109. The decisions cited by the learned Senior Counsel for the
petitioner rendered in the context of old regime are still relevant and
therefore, they cannot be ignored as there has to be reasoned to believe
that any tax has escaped assessment for any assessment year.
110. Unless, fresh and tangible materials were available with the
Assessing Officer as is contemplated under Explanations 1, 2 &3 to
Section 148 of the Income Tax Act, 1961 reopening of the complete
assessment cannot be allowed for the period which would have been
covered by the old provisions, if there was no amendment. The test in
Kelvinator of India Ltd supra cannot be ignored as the language used is
still the same in the amended in the first proviso to Section 149(1) of the
Income Tax Act, 1961, the test in Kelvinator of India Ltd supra is both
pristine and still contemporary in the context of amended provisions of
Income Tax Act, 1961 with effect from 01.04.2021.
111. The Division Bench of the Bombay High Court, in Siemens
Financial Services (P). Ltd., Vs. Deputy Commissioner of Income Tax
reported in (2023) 457 ITR 647 (Bombay), reiterated the principles of law
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W.P.(MD) No.10198 of 2024
that were applicable to the provisions of the Income Tax Act, 1961 after
1989 amendment and for the period immediately prior to 01.04.2021. Para
36 to 39 and 41 from the said decision reads as under:
36. We would agree with the submissions of Mr.
Pardiwalla that if change of opinion concept is given
a go by, that would result in giving arbitrary powers
to the Assessing Officer to reopen the assessments. It
would in effect be giving power to review which he
does not possess. The Assessing Officer has only
power to reassess not to review. If the concept of
change of opinion is removed as contended on
behalf of the Revenue, then in the garb of re-opening
the assessment, review would take place. The
concept of change of opinion is an in-built test to
check abuse of power by the Assessing Officer. As
held in Dr. Mathew Cherian (Supra), whether under
old or new regime of reassessment, it is settled
position that the issues decided categorically should
not be revisited in the guise of reassessment. That
would include issues where queryhave been raised
during the assessment and query have been
answered and accepted by the Assessing Officer
while passing the assessment order. As held in Aroni
Commercials (supra) even if assessment order has
not specifically dealt with that issue, once the query
is raised it is deemed to have been considered and
the explanation accepted by the Assessing officer. It
is not necessary that an assessment order should
contain reference and/or discussion to disclose his
satisfaction in respect of the query raised.
The Division Bench of this court in Aroni
Commercials Ltd. (supra) held it is not necessary
that the assessment order should contain reference
and/or discussion to disclose its satisfaction in
respect of the query raised. Paragraph 14 of Aroni
Commercials Ltd. (supra) read as under:
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Page No. 58 of 64
W.P.(MD) No.10198 of 2024“14. We are of the view that once a query is
raised during the assessment
proceedings and the assessee has replied
to it, it follows that the query raised was
a subject of consideration of the
Assessing Officer while completing the
assessment. It is not necessary that an
assessment order should contain
reference and/or discussion to disclose
its satisfaction in respect of the query
raised. If an Assessing Officer has to
record the consideration bestowed by
him on all issues raised by him during
the assessment proceeding even where
he is satisfied then it would be
impossible for the Assessing Officer to
complete all the assessments which are
required to be scrutinized by him under
Section 143(3) of the Act. Moreover, one
must not forget that the manner in which
an assessment order is to be drafted is
the sole domain of the Assessing Officer
and it is not open to an assessee to insist
that the assessment order must record all
the questions raised and the satisfaction
in respect thereof of the Assessing
Officer. The only requirement is that the
Assessing Officer ought to have
considered the objection now raised in
the grounds for issuing notice under
Section 148 of the Act, during the
original assessment proceedings. There
can be no doubt in the present facts as
evidenced by a letter dated 8 September
2012 the very issue of taxability of sale
of shares under the head capital gain or
the head profits and gains from business
was a subject matter of consideration by
the Assessing Officer during the original_______________
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W.P.(MD) No.10198 of 2024assessment proceedings leading to an
order dated 12 October 2010. It would
therefore, follow that the reopening of
the assessment by impugned notice dated
28 March 2013 is merely on the basis of
change of opinion of the Assessing
Officer from that held earlier during the
course of assessment proceeding leading
to the order dated 12 October 2010. This
change of opinion does not constitute
justification and/or reasons to believe
that income chargeable to tax has
escaped assessment.”
37. The Assessing Officer does not have any power to
review his own assessment when during the
original assessment petitioner provided all the
relevant information which was considered by him
before passing the assessment order under section
143(3) of the Act dated 23rd December 2018.
Petitioner had debited an amount of Rs.
6,41,87,931/- on account of software consumables
in the profit and loss account and a detailed
breakup of the said expenses were submitted before
the Assessing Officer during the course of
assessment proceedings vide a letter dated 6th
December 2018. It is settled law that proceedings
under section 148 cannot be initiated to review the
earlier stand adopted by the Assessing Officer. The
Assessing Officer cannot initiate reassessment
proceedings to have a relook at the documents that
were filed and considered by him in the original
assessment proceedings as the power to reassess
cannot be exercised to review an assessment. In
petitioner’s case the Assessing Officer having
allowed the amount of software consumables as a
revenue expenditure now seeks to treat the same as
capital expenditure which is a clear change of
opinion. Various judicial precedents have held that
reassessment proceedings initiated on the basis of
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W.P.(MD) No.10198 of 2024
a mere change of opinion are invalid and without
jurisdiction.
38. The Apex Court in Kelvinator of India Ltd.(Supra)
emphasised on the difference between a power to
review and the power to reassess. The Apex Court
held that the Assessing Officer has no power to
review but has only the power to reassess. The
concept of ‘change of opinion’ must be treated as
an in-built test to check abuse of power by the
Assessing Officer. The relevant extract of the
judgement is reproduced as under:-
“…….However, one needs to give a schematic
interpretation to the words “reason to
believe” failing which, we are afraid, section
147 would give arbitrary powers to the
Assessing Officer to re-open assessments on
the basis of “mere change of opinion”, which
cannot be per se reason to reopen. We must
also keep in mind the conceptual difference
between power to review and power to re-
assess. The Assessing Officer has no power to
review; he has the power to reassess. But
reassessment has to be based on fulfilment of
certain pre-condition and if the concept of
“change of opinion” is removed, as contended
on behalf of the Department, then, in the garb
of re-opening the assessment, review would
take place. One must treat the concept of
“change of opinion” as an in-built test to
check abuse of power by the Assessing
Officer. Hence, after 1-4-1989, Assessing
Officer has power to reopen, provided there
is “tangible material” to come to the
conclusion that there is escapement of income
from assessment. Reasons must have a live
link with the formation of the belief. Our view
gets support from the changes made to
section 147 of the Act, as quoted_______________
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Page No. 61 of 64
W.P.(MD) No.10198 of 2024hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only
deleted the words “reason to believe” but also
inserted the word “opinion” in section 147 of
the Act. However, on receipt of
representations from the Companies against
omission of the words “reason to believe”,
Parliament re-introduced the said expression
and deleted the word “opinion” on the ground
that it would vest arbitrary powers in the
Assessing Officer………….”
39.The Delhi High Court in Seema Gupta v. ITO
MANU/DE/4145/2022 : (2022) 288 Taxman 519
(Del) held that the order under section 148A(d) and
notice under section 148 of the Act should be set
aside when the reassessment was initiated on a
change of opinion where the same was discussed
and verified by the Assessing Officer at the time of
original assessment proceedings.
……….
41.In the circumstances, we make the Rule absolute
and allow the petition for the following reasons:
(a) that approval for issuance of notice under
Section 148A(d) of the Act has not been properly
obtained and hence the order passed thereunder
and consequent notice issued under Section 148 of
the Act have to be quashed and set aside. The
sanction ought to have been granted under Section
151(ii) and not under Section 151(i) of the Act.
(b) The notice to reopen has also been issued on the
basis ofchange of opinion which is not permissible.
42. Since we have disposed the petition on these
grounds, we have not considered the other grounds
which can be considered in some other matter at
the appropriate stage.”
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W.P.(MD) No.10198 of 2024
112. This view has been reiterated in Hexaware Technologies Ltd.,
Vs. Assistant Commissioner of Income Tax reported in (2024) 162
taxmann.com 225 (Bombay).
113. Since there are no fresh and tangible material were available
for the Assessing Officer to form an opinion that income escaped
assessment, it has to be held attempt is to review the assessment
completed under Section 143(3) of the Income Tax Act, 1961. Therefore,
the impugned proceedings are held without jurisdiction and are liable to
be quashed as prayed.
114. This writ petition stands allowed with the above observation.
No costs. Consequently, connected miscellaneous petitions are closed.
23.08.2024
Index: Yes / No
Neutral Citation: Yes / No
Speaking Order / Non-Speaking Order
mm/kkd
To:
The Income Tax Officer,
Corporate Ward 2,
No.2, V.P.Rathinasamy Nadar Road,
CR Building, Bibikulam,
Madurai 625 002.
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W.P.(MD) No.10198 of 2024C.SARAVANAN, J.
mm/kkd
Pre-Delivery order made in
W.P.(MD) No.10198 of 202423.08.2024
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