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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 ..... 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. 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, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(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 inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned 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 re-opened by issuance of a notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 26.03.2024 passed under Section 148A(d) of the Income Tax Act, 1961 is in correct. '' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... galinga 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 Supreme Court in CIT vs. Kelvinator of India Ltd., (2010) 187 Taxman 312 : 320 ITR 561 (SC). It is submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proviso to section 149 of the Act to restrict the department to initiate re-assessment proceedings under the new re-assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 formation of opinion by the Assessing Officer. 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 Balance Amount invested(Rs.) Amount withdrawn Closing Balance(Rs.) M/s. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,- (i) any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; or (ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or (iii) any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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. 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 re-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 reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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). 147. Income escaping assessment.-- If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion 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) 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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