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TMI Blog2023 (6) TMI 1294X X X X Extracts X X X X X X X X Extracts X X X X ..... nt u/s 143(3) of the Act had been completed, the assessee had failed to disclose fully and truly all material facts necessary for assessment during such assessment proceedings. In the instant case, AO has in fact alleged that the petitioner had failed to disclose fully and truly material facts necessary for the assessment for the assessment year 2013- 14. A bald statement made in the reasons recorded would not satisfy the jurisdictional condition as prescribed for purposes of invoking section 147 of the Act. Whether or not there was in fact a failure to disclose fully and truly can be seen from the material on record. In the present case, as stated in the preceding paragraphs, the claim of the petitioner with regard to deduction of on account of settlement of class action suit was not only specifically reflected in the relevant documents but the issue had also been specifically gone into by the AO. A specific query was raised by the Assessing Officer during the scrutiny assessment proceedings as is reflected from the order-sheet dated 16th November 2016 whereby the Assessing Officer had sought specific details of claims made under class action suit (Rs. 161.63 crore) and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plaintiffs or class members on those claims. The agreement also reflects that the same would not be construed as an admission of wrongdoing or liability on the part of any party to the said agreement. Even the order passed by the Court recording approval to the said agreement did not even in the least refer the amount payable in any manner as a penalty amount. A.O. had no reason to believe that the payment made towards settlement of the class action suit was a payment towards a penalty imposed and on that account we hold that there was no reason for the A.O. to believe that income had escaped assessment. In the light of the above to hold that what was paid by the petitioner was a penalty, in fact, would be without any basis and aimed at reviewing an order passed earlier by the AO who had specifically gone into the allowability of the claim. We also have no hesitation in holding that a mere assertion in the absence of any material would not constitute a tangible material for purposes of reopening an assessment. Decided in favour of assessee. - WRIT PETITION NO. 1964 OF 2022 - - - Dated:- 27-6-2023 - DHIRAJ SINGH THAKUR AND KAMAL KHATA, JJ. For the Petitioner :Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were claimed against the petitioner. The employees had also raised certain other disputes in the said civil suit which had been filed, wherein a settlement was finally arrived at between the parties and an agreement dated 5th February, 2013 came to be executed. 4. As per the agreement, an amount of Rs. 29.75 million USD equivalent to Rs. 161.63 crores was to be paid to the concerned employees. The United Sates District Court for the Northern District of California ( the US Court ), by virtue of its order dated 18th July 2013, allowed the application and granted approval to the service awards. 5. Return of income was filed by the petitioner for the assessment year 2013-14 on 14th November 2013, declaring an income of Rs. 84,04,81,15,610/- and while computing the said income claimed deduction inter-alia of Rs. 161.63 crores forming a part of the other expenses in the profit and loss account. The amount aforementioned was debited under the head other expenses in the profit and loss account. The fact relating to the said settlement had also been adequately reflected in Note No. 49 in the stand-alone accounts, in Note No. 46 of the consolidated account and in the balance-sheet u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the said notice on 21st April 2021 declaring a total income of Rs. 84,54,68,32,080/-. Copy of the reasons recorded for purposes of reopening the assessment were sought along with a copy of the approval obtained under section 151 of the Act. The reasons which were provided to the petitioner stated as under : The assessee had filed return of income on 14.11.2013 declaring its income of Rs 8404,81,15,610/- under normal provisions of the Income Tax Act and book profit of Rs. 15656,52,27,545/- u/s 115JB of the Income Tax Act. The case was selected for scrutiny and the assessment for AY 2013-14 was completed on 16.02.2017 determining income of Rs. 11351,41,97,376/- under normal provisions of the Income Tax Act and Book Profit of Rs. 15956,01,97,867/- u/s 115JB of the Income Tax Act. 2. In the instant case, information has been received from DDIT (Investigation) Unit-2(4), Mumbai vide email dated 09.06.2020 that Tata Consultancy Services Ltd (hereinafter referred as TCS ) has paid penalty of Rs. 161.63 crores (29.75 million USD) in USA. TCS has not shown the penalty paid in USA in the annual report for the FY 2012-13 and FY 2013-14 by their directors and the auditor report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come to the extent of amount of Rs 161.63 crores (29.75 million USD) as explained above, has escaped assessment. 3. In view of the above the undersigned has reason the believe that the income exceeding Rs. 1,00,000/- has escaped assessment within the meaning of Section 147 of the Act. Therefore proposal for reopening of AY 2013-14 by issuing notice u/s 148 of the Act is being made u/s 151 of the Act for your kind perusal and approval. 4. In view of the reasons recorded above, I am of the opinion that income chargeable to tax has escaped assessment for A. Y. 2013-14 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for A. Y 2013-14. 10. Objections to the reopening of the assessment were filed by the petitioner in which it was highlighted that the reassessment was bad in law and without jurisdiction on account of the fact that since the notice under section 148 was issued after four years from the end of the relevant assessment year 2013-14, the Assessing Officer had to show that there was failure on the part of the petitioner to disclose fully and truly all material facts during the origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation 1 of the section 147 mere production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing provisions of section 147 of the I Act. Evidently, the issue had not been examined during the original assessment proceedings as you had not submitted the facts fully and truly at that time. Hence the reopening of the case after four years is justified and its not a case of change of opinion as THE REAL NATURE OF SO-CALLED SETTLEMENT AMOUNT could not be ascertained by the then Assessing Officer with due diligence in the absence of specific fact which came to the notice of the department at this time after the receipt of email in Investigation Wing. 12. Mr. Mistri, learned Senior Counsel for the petitioner has very elaborately taken us through the various documents on record to show how the claim of deduction in regard to Rs. 161.63 crores was reflected in the profit and loss account, in the stand-alone accounts with the consolidated accounts as also reflected in the balance-sheet and the annual report. Mr. Mistri besid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, an additional jurisdictional condition has to be satisfied that in a case where an assessment under section 143(3) of the Act had been completed, the assessee had failed to disclose fully and truly all material facts necessary for assessment during such assessment proceedings. 16. In the instant case, the Assessing Officer has in fact alleged that the petitioner had failed to disclose fully and truly material facts necessary for the assessment for the assessment year 2013- 14. However, a bald statement made in the reasons recorded would not satisfy the jurisdictional condition as prescribed for purposes of invoking section 147 of the Act. Whether or not there was in fact a failure to disclose fully and truly can be seen from the material on record. In the present case, as stated in the preceding paragraphs, the claim of the petitioner with regard to deduction of Rs. 161.63 crores on account of settlement of class action suit was not only specifically reflected in the relevant documents but the issue had also been specifically gone into by the Assessing Officer. 17. We have seen that a specific query was raised by the Assessing Officer during the scrutiny assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department that the petitioner company had paid a penalty of Rs. 161.63 crores which had not been shown in the annual report for the assessment year 2013-14 by the Directors and the Auditors and further that the penalty could not be shown as operational expenses which has thus resulted in evasion of tax. According to the reasons recorded, reassessment was justified as the assessee had claimed the deduction as allowable expenses and not as penalty. In other words, what is sought to be alleged is that what was paid was in fact a penalty and if it had been reflected so in the relevant documents during the course of assessment proceedings, the same would not have been allowed under section 37 of the Act. 20. The next question that arises for consideration is whether what was paid by the petitioner in terms of the agreement to settle the class action suit was actually a penalty. If it was not, even then, in our opinion, the case of the revenue would fail for purposes of reopening under section 147. To see as to whether the payment was a penalty or not, we need to refer to the relevant documents in the shape of the agreement executed between the claimants and the defendant-petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olation. A penalty imposed for a tax delinquency also has been held to be a civil obligation, remedial and coercive in its nature and is different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. 24. It can thus be seen that in a case of civil penalty payment of an amount as penalty can either be on account of a penalty clause which may either be paid voluntarily by a party if it abides strictly by the terms and conditions of the contractual provision, and if not, the same may be enforced in an adjudicatory process by a Court or a statutory authority, in which case, the condition precedent would be a process of adjudication. In the present case there has certainly not been any assessment of a fine to be paid as a penalty by any judicial, quasi-judicial and/or statutory forum. However, there is no basis for us to hold that the amount paid for settling the class action suit was in fact an amount representing a predetermined penalty amount either on the basis of the agreement between the parties and much less from the order accepting the terms of settlement so arrived at. In the present case, a bald assert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax [1998] 234 ITR 170 (Delhi), the Court, in the light of the facts before it and in the background of section 147 of the Act, observed : .all that the Income-tax Officer has said is that he was not right in allowing deduction under Section 80I because he had allowed the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase reason to believe in his order, admittedly, between the date of the orders of assessment sought to be reopened and the date of forming of opinion by the Income-tax Officer nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order dated February 28, 1994, passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stands till today. What the Assessing Officer has said about the order of the Commissioner of Income-tax (Appeals) while recording reasons under Section 147 he could have said even in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants of any wrongdoing or that the plaintiff s claim had any merit or that the defendants have any liability to the plaintiffs or class members on those claims. The agreement also reflects that the same would not be construed as an admission of wrongdoing or liability on the part of any party to the said agreement. Even the order passed by the Court recording approval to the said agreement did not even in the least refer the amount payable in any manner as a penalty amount. 29. We are therefore of the view that the A.O. had no reason to believe that the payment made towards settlement of the class action suit was a payment towards a penalty imposed and on that account we hold that there was no reason for the A.O. to believe that income had escaped assessment. In the light of the above to hold that what was paid by the petitioner was a penalty, in fact, would be without any basis and aimed at reviewing an order passed earlier by the Assessing Officer who had specifically gone into the allowability of the claim. We also have no hesitation in holding that a mere assertion in the absence of any material would not constitute a tangible material for purposes of reopening an assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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