2018 (1) TMI 1525 - HC - Income Tax

Applicability of Section 40(a)(ia) and (3) read with Section 194C - HELD THAT - Revenue s appeal had to be examined on its merits as to the applicability or otherwise of Section 194C of the Act in the facts of the case. Legality of re-assessment proceedings - HELD THAT - There cannot be per se conclusion that failure to furnish reasons would invariably invalidate all the assessment proceedings. The assessee concededly reiterated its returns previously filed; the assessee was put on sufficient notice in the sense, if, it felt aggrieved, it could have approached the Court under Article 226 of the Constitution of India for an order compelling the Revenue to disclose the reasons. More crucially, the judgment of the Supreme Court in GKN Driveshafts (India) Ltd. vs. Commissioner of Income Tax, 2002 (11) TMI 7 - SUPREME COURT no doubt directs the Revenue Authorities and Tax Administration to furnish copy of the reasons and also deal with the representations through a reasoned order. However, to characterise that requirement though a matter of law, by raising Article 141 of the Constitution of India as mandatory and resulting in nullity of the reassessment proceedings, would be going too far. The Court notices that GKN Driveshafts (supra) has not been assimilated through statute. This aspect is important because in the absence of a consequence spelt out either by statute or through judgment, it cannot be said that invariably every assessee would suffer the same amount of prejudice as to nullify or invalidate the entire assessment proceedings; much will depend on the circumstances of the case. In the present case, the assessee was issued with questionnaires calling for particulars, which it complied with. Especially therefore, there was no prejudicial consequence as is sought to be urged. For these reasons, the ground urged is not tenable and therefore rejected. Tangible material to support the reassessment notice - the original assessment was completed or framed under Section 143(1) of the Act. Furthermore, the notice under Section 147 of the Act was issued within the four years period. Clearly, the framing of assessment itself does not result in judicial application of mind and an order, as held in Indu Lata Rangwala vs. Deputy Commissioner of Income Tax, 2016 (5) TMI 804 - DELHI HIGH COURT Furthermore, the Court recollects the decision of the Supreme Court in Commissioner of Income Tax vs. Zuari Estate Development and Investment Co. Ltd., 2015 (8) TMI 480 - SUPREME COURT which clearly states that the filing under Section 143(1) of the Act does not result in any expression of judicial opinion. For these reasons, the second ground urged to attack the reassessment is rejected. Additions on the grounds and facts other than on the issues for which reassessment notice was premised, and has not made additions on those grounds in the reassessment proceedings - This Court specifically is of the opinion that the Karnataka High Court s view in the case of N. Govind Raju 2015 (8) TMI 271 - KARNATAKA HIGH COURT is a more accurate one. In this Court s view the emphasis placed in Jet Airways s case 2010 (4) TMI 431 - HIGH COURT OF BOMBAY on and also undermines the essential objective of Section 147 of the Act and unduly restricts and narrows it. The circumstance clarifies existence of an additional power to bring to tax other sums. This per se would not mean that the sums or amounts sought to be brought to tax in a reassessment notice (which are ultimately not the subject of the final reassessment orders), act as a limitation. Having regard to the facts, this Court is of the opinion that since there is some doubt as to the accuracy of the interpretation in the case of Ranbaxy Laboratories Limited 2011 (6) TMI 4 - DELHI HIGH COURT and which was subsequently followed in the case of Monarch Educational Society 2016 (2) TMI 971 - DELHI HIGH COURT the appropriate course would be to refer the issue to a larger Bench. The following issue is accordingly framed for reference to the Full Bench i.e. whether the view expressed in the case of Ranbaxy Laboratories Limited (supra) following Jet Airways s case (supra) of the Bombay High Court and followed later in Monarch Educational Society s case (supra) with respect to the interpretation of Section 147 read with Explanation (3) of the Act, is restrictive, so as to sustain only additions made in the course of reassessment proceedings subject to the additions of amounts adverted to in the reassessment notice in the reasons to believe under Sections 147/148 of the Act and notice pursuant thereof? The office is directed to register the question as a reference and lay the papers before the Hon ble the Acting Chief Justice subject to whose orders, the matter would be listed before the appropriate Full Bench.

Summary

Issues:
1. Applicability of Section 40(a)(ia) and (3) read with Section 194C of the Income Tax Act, 1961 for A.Y. 2005-06.
2. Legality of re-assessment proceedings for A.Y. 2005-06.

Analysis:
1. Applicability of Section 40(a)(ia) and (3) read with Section 194C:
The primary issue in this judgment revolves around the applicability of Section 40(a)(ia) and (3) read with Section 194C of the Income Tax Act, 1961 for the assessment year 2005-06. The Revenue contends that the judgment in Palam Gas Service vs. Commissioner of Income Tax covers the aspect of whether the deducted amounts are paid or payable, impacting the treatment under Section 194C of the Act. On the other hand, the assessee relies on the findings of CIT(A) that no tax deduction was required for the relevant year. The Court, after considering the submissions, concludes that the Revenue's appeal needs examination on its merits regarding the applicability of Section 194C in the given circumstances. The case raises crucial questions regarding tax deductions and their treatment under the specified sections.

2. Legality of re-assessment proceedings:
The second issue pertains to the legality of re-assessment proceedings for the assessment year 2005-06. The assessee raised concerns about the lack of furnishing "reasons to believe" for re-opening the assessment despite repeated requests. The reassessment led to several additions beyond the initial reasons recorded for re-assessment. The assessee's counsel argued on three grounds, including the denial of justice due to the failure to provide reasons and lack of tangible material supporting the reassessment. The Court, while acknowledging the importance of disclosing reasons, opined that the absence of reasons does not necessarily invalidate the entire assessment process. It highlighted the need for the assessee to seek legal recourse if aggrieved. The judgment delves into the legal precedents and interpretations regarding reassessment proceedings, emphasizing the need for clarity and adherence to procedural requirements.

In conclusion, the judgment addresses significant issues related to tax deductions, reassessment proceedings, and procedural compliance under the Income Tax Act, providing detailed analysis and legal interpretations to guide the resolution of the appeals before the Court.