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TMI Blog2024 (9) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 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, 1961. 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. 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. 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 am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. 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 invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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.'' 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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) (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 Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 dear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. 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. 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 fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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:- Sl. No. Name of the debenture holder PAN NCD (Rs. in crore) 1. KKR India Financial Services Private Limited ('KKR India Ltd') AAACM7774Q 172.60 2. KKR India Debt Opportunities Fund II ('KKR India Fund') AACTK8338D 25.70 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 format ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. 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:- Provided that 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 section 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; Provided further that 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 Provided also that 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. 93. Explanation which interplay with amended Section 148 of the Income Tax Act, 1961 read as under:- Explanation-1 Explanation-2 Explanation-3 For the purposes of this section and section 148A, the information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. 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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year; (ii) Principal Chief Commissioner or Principal Director General, if more than three years have elapsed from the end of the relevant 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 subsection (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 j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 147 to 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 Laws (Amendment) Act, 1987 ie., prior to 01.04.1989 After amending the act, 1989 "147. Income escaping assessment.-- If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 reassess. 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 hereinabove. Under the Direct Tax Laws (Amendment) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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