Income Tax Act, 1961 – Sections 143(3) and 148 – Reopening of assessment – Validity – Petitioner filed return of income for AY 2013-14 – Petitioner provided details called for by Assessing Officer regarding all “outward remittances” made during AY 2013-14 – After considering details submitted by Petitioner, Assessing Officer passed assessment order under Section 143(3) of the Act – Respondent reopened assessment by issuing notice under Section 148 of the Act – Respondent completed reassessment by making addition of commission paid to foreign agents for non-deduction of TDS – Petitioner challenged notice issued under Section 148 of the Act and reassessment order – HELD – Petitioner had provided details to Assessing Officer regarding outward remittances – Petitioner had also provided the chart containing detailed breakup of all foreign remittances along with details of TDS deducted and if not deducted, reasons for not doing so – After considering submissions and on basis of verification of records, Assessing Officer passed assessment order under Section 143(3) of the Act – Notice issued under Section 148 of the Act and reason to believe that income has escaped assessment is based on very same records which were placed at time of original assessment – Details regarding issue under consideration was already examined by Assessing Officer, for which a specific query was raised and therefore, it was not open for Assessing Officer to reopen same or revisit his opinion because of a “change of opinion” – It is not the case of authority that there was a failure to fully and truly disclose all facts that led to escapement of income so as to warrant an exercise of reassessment under Section 148 of the Act – In absence of any tangible material available, reopening beyond period of four years is bad in law – Notice issued under Section 148 of the Act and consequential assessment order are quashed and set aside – Petition allowed

 

2023-VIL-130-GUJ-DT

 

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

 

R/SPECIAL CIVIL APPLICATION NO. 15118 of 2021

 

Date: 27.09.2023

 

TROIKAA PHARMACEUTICALS

 

Vs

 

ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER

 

For the Petitioner: MS NUPUR D SHAH (10233)

For the Respondent: MR. KARAN SANGHANI, STANDING COUNSEL FOR MRS KALPANA K RAVAL (1046)

 

CORAM

HONOURABLE MR. JUSTICE BIREN VAISHNAV

HONOURABLE MR. JUSTICE BHARGAV D. KARIA

 

CAV JUDGMENT

 

(PER: HONOURABLE MR. JUSTICE BIREN VAISHNAV)

 

1 Rule returnable forthwith. Mr. Karan Sanghani, learned Standing Counsel, waives service of rule on behalf of the respondent. With consent of the learned advocates appearing for the respective parties, the matter is taken up for final hearing today.

 

2 By way of this petition under Article 226 of the Constitution of India, the petitioner has prayed for quashing and setting aside the notice dated 06.03.2020 under Sec.148 of the Income Tax Act, 1961, (“the Act” for short) along with the orders dated 31.08.2021 disposing off the objections and also set aside the impugned Assessment Order dated 19.09.2021 and the subsequent Demand Notice u/s 156 of Act.

 

3 Facts in brief are as under:

 

3.1 The petitioner filed the return of income for the Assessment Year 2013-14 on 28.11.2014 declaring total income of Rs.86,020/-. Thereafter, the case of the petitioner was selected for scrutiny assessment and notice under Sec.142(1) of the Act was issued on 26.06.2015. The petitioner-assessee, in response to such notice submitted various details.

 

3.2 During the course of assessment proceedings, vide Order Sheet Entry dated 23.07.2015, the petitioner was asked to submit the details of all ‘outward remittances’ - Party wise, and ‘TDS’ deducted if any. If no TDS / low TDS was deducted, then reason / document justifying the same was also called for.

 

3.3 The petitioner-assessee, by the letter dated 03.11.2015, provided the details called for by the Assessing Officer regarding all “outward remittances” made during A.Y 2013-14. The petitioner also provided the chart containing the detailed breakup of all the foreign remittances made during the previous year 2012-13 along with details of TDS deducted and if not deducted, the reason for the same at Exh.1 to the said reply.

 

3.4 The Assessing Officer, after considering the Order Sheet Entry dated 23.07.2015 and the reply submitted by the petitioner, as well as on the basis of the verification of the record of the petitioner, passed the Assessment Order under section 143(3) of the Act on 23.03.2016.

 

3.5 The respondent issued notice under Sec.148 of the Act on 06.03.2020. The petitioner-assessee by letter dated 11.03.2020, challenged the validity of the said notice followed by a letter dated 30.05.2020 stating that the petitioner has filed the return of income in response to the notice under sec.148 of the Act with a request to provide the copy of the reasons recorded for reopening of the case.

 

3.6 Thereafter, reasons recorded for reopening of the case were supplied to the petitioner vide letter dated 03.06.2020, wherein, it was mentioned that the respondent – Assessing Officer has reason to believe that income of Rs.63,74,736/- has escaped assessment as TDS was not deducted and the same should be disallowed under Sec.40(a)(i) of the Act for non-deduction of TDS on foreign remittance.

 

3.7 Despite anomalies carried out by the respondent, the petitioner made due compliance against the reasons recorded by raising the objections against the reasons recorded within the requisite time frame vide letter dated 16.07.2020.

 

3.8 The respondent did not dispose off the objections dated 16.07.2020 and rather proceeded to issue notice dated 05.02.2021 u/s. 142(1) of the Act.

 

3.9 The petitioner challenged the issuance of the notice u/s. 142(1) of the Act without the issuance of the speaking order disposing off the objections against reasons recorded dated 16.07.2021 by the respondent vide letter dated 12.02.2021 and duly complied with the factual details sought in said notice without prejudice to the legal contentions highlighting the blatant irregularities in the present case at hand.

 

3.10 The petitioner, thereafter filed objections on July 16, 2020, against the reopening of the assessment contending inter alia that the petitioner submitted all the factual information at the time of original assessment proceedings by filing exhaustive submissions before the Assessing Officer and he has formed his opinion on the basis of the facts so provided. It was also contended that the specific issue was raised P in the Order Sheet Entry 23.07.2015 and the assessee submitted the reply on 03.11.2015, which was again annexed with the objections filed by the assessee-petitioner.

 

3.11 The respondent subsequently issued the show cause notice as contemplated under Sec.144B of the Act along with a draft assessment order for the proposed addition and fixed the date of submission by 23:59 hours of 17.09.2021 by Email.

 

3.12 The petitioner-assessee, in view of the show cause notice received late in the evening of 15.09.2021, made an on-line application dated 16.09.2021 seeking reasonable time of 8 days to provide a satisfactory, detailed and thorough reply. However, without response to the application for adjournment, the respondent passed Assessment Order dated 19.09.2021 under Sec.143(3) of the Act, making addition of Rs.63,74,736/- on the ground that the commission paid to foreign nationals / agents was without deduction of tax (TDS) and raised the demand of Rs.5,13,54,720/-. The petitioner, therefore, being aggrieved by the stand and though there was full and true disclosure in filing the return as well as in the thorough scrutiny assessment framed under Sec.143(3), as a result of such reopening is constrained to file the present petition.

 

3.13 The petitioner, therefore, filed a draft amendment in the petition. This Court permitted the draft amendment and issued notice in the petition vide order dated 11.10.2021.

 

3.14 The petitioner-assessee has, thus challenged the assessment order not only in the context of Sec.148 of the Act but also in the context of lack of procedural formalities of not giving an opportunity of hearing as provided under Sec.144B of the Act.

 

4. Ms. Nupur Shah, learned counsel for the petitioner, in addition to making oral submissions, filed written submissions. The submissions are as under:

 

(1) She would submit that there was a change of opinion inasmuch as all the details relating to the issue under consideration for which the case of the petitioner is reopened was already examined by the then Assessing Officer, for which a query was raised and supporting documents were furnished to the then Assessing Officer. Therefore, once having given all the details to the then Assessing Officer for forming an opinion and once the Assessing Officer has formed such opinion and having passed an order, any revisit to the said facts is merely “change of opinion”.

 

(2) She would further submit that though the petitioner had revised objections against reasons recorded, without disposing of the same, a notice u/s. 142(1) was issued on 05.02.2021. The objections were disposed off on 31.08.2021 after a delay of over a year. There was a violation of the guidelines laid down in the decision in the case of GKN Driveshafts (India) Ltd vs. ITO, reported in (2003) 259 ITR 19 (SC).

 

(3) That there was no tangible material for reopening the issue. Reading the reasons, she would submit that the case was reopened on the basis of the “assessment record”. The recording of reasons was on the basis of details already supplied. She would rely on a decision in the case of C.I.T Delhi vs. M/s. Kelvinator of India Ltd., reported in 320 ITR 561 (SC).

 

(4) That the reopening of the assessment proceedings sought is for A.Y. 2013-14, was beyond a period of four years. It was evident that unless it is found that there was no fully and truly disclosure of material facts on the part of the petitioner, it would not be open to reopen the assessment proceedings. What is evident here is that there was a full and true disclosure as the reopening was not based on any fresh tangible material.

 

(5) The order of assessment dated 19.09.2021 was passed in violation of principles of natural justice.

 

(5) Mr. Karan Sanghani, learned counsel appearing for Mrs. Kalpana Raval, learned counsel for the respondent, would submit as under:

 

5.1 The assessee filed its return of income for AY 2013-14 declaring total income at Rs.4,48,23,770/- on 10.10.2013. Again, the assessee filed revised return of income on 24.03.2014 declaring total income as nil. Thereafter, the case was selected for scrutiny assessment and vide assessment order u/s. 143(3) dated 23.03.2016, the total income was determined at Rs.15,30,76,690/-. Subsequently, on further scrutiny of record, it was found that the assessee made foreign remittance of Rs.63,74,736/- on account of legal and professional fees. It was also noticed that no TDS was deducted from this payment. As per section 195(1) of the Act, the assessee was required to deduct TDS on such payments. Therefore, this expense was not allowable as per section 40(a)(i) of the Act. As the same was not disallowed by the assessee suo-moto in the return, nor the same was offered for disallowance during the assessment proceedings, the income of the assessee to the extent of Rs.63,74,736/- was under assessed. In other words, the income to the extent of Rs.63,74,736/- had escaped assessment. Therefore, the reasons for re-opening were recorded by the Assessing Officer on 28.01.2020 and approval of the Pr.CIT was taken which was communicated on 03.03.2020. Thereafter, notice u/ s. 148 of the Act was issued on 06.03.2020.

 

5.2 Mr. Sanghani, learned counsel, would further submit that as the assessee had not filed the return of income, the reason could not be provided to the assessee. Thereafter, objection of the assessee was duly disposed vide order dated 31.08.2021 and intimated. That without filing the return, reason for re-opening was not to be supplied. However, in the meantime, the assessee had emailed a copy of return filed on 30.05.2020, therefore, the reasons for re-opening were provided to the assessee on 03.06.2020.

 

5.3 Mr. Sanghani, learned counsel, submitted that notice u/s. 142(1) was issued on 05.02.2021. The assessee had filed further objections vide letters dated 16.07.2020 and 12.02.2021 which were disposed vide order dated 31.08.2021. Finally, show cause notice dated 15.09.2021 was issued to the assessee and the addition of Rs.63,74,736/- was proposed to be made on account of non-deduction of TDS on legal and professional fees paid to non-residents. The assessee was given time till 17.09.2021 to furnish any objection to the proposed addition. However, no objection was filed within the given time. Finally, the assessment was completed on 19.09.2021 with the addition as per show cause notice.

 

5.4 It is further submitted by Mr. Sanghani, learned counsel, that from the reasons recorded by the Assessing Officer, it is clear that assessee has not made requisite full and true disclosure of all material facts necessary for assessment. As per reasons recorded by Assessing Officer, it is clear that the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discovered by the Assessing Officer and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the Act.

 

5.5 Mr. Sanghani, learned counsel, would further submit that the expenses of Rs.63,74,736/- was not allowable for the reason of non-deduction of TDS on legal and professional fee paid to nonresidents. However, the same was neither disallowed by the assessee suo-moto in the return, nor the same was offered for disallowance during the assessment proceedings.

 

6 Having considered the submissions made by the Learned Advocates for the respective parties, the perusal of the reasons to believe indicate that it is the case of the revenue that the scrutiny of the assessment records reveal that the assessee made foreign remittance of Rs.63,74,736 on account of legal and professional fees. As per Section 195(1) of the Act, the assessee was required to deduct TDS on such payments. However, it was observed that no deduction of TDS was made and hence the same is required to be disallowed u/s 40(a)(i) of the Act. According to the revenue, though the petitioner had filed a copy of the annual report and audited Profit and Loss Accounts and Balance-sheet along with the return, no full and requisite disclosure was made of all material facts, vis-a vis the contention raised by the petitioner with respect to the twin challenge on the concept of “change of opinion” and that no tangible material was available so as to reopen the assessment.

 

6.1 Certain events preceding the notice under Section 148 need to be gone into.

 

1) After filing the return of income for the AY 2013-2014, on 28.11.2014, the case of the petitioner was selected for scrutiny assessment u/s. 143(3) of the Income Tax Act and notice under section 142(1) was issued on 26.6.2015.

 

2) Reading the notice would indicate that explanation was sought whether TDS has been deducted on all payments where TDS is deductible under Chapter XVII-B of the Income Tax Act,1961. The petitioner was also called upon to give details of TDS deducted in the format set out. Via an order sheet, the petitioner was asked to submit details. The order sheet dated 23.7.2015 filed separately indicates that the petitioner was asked to submit the details of all the “outward remittances”- party-wise and “TDS” deducted, if any. Even the Assessment Order dated 23/3/2016 records that a detailed questionnaire was issued on 23.6.2015 fixing hearing on 23.7.2015. Question 15 of the questionnaire reads as under:

 

“15. Your honour had called for details of “Outward Remittances” partywise and “TDS” if any. If no TDS/ low TDS was deducted then reason/document justifying the same.”

 

3) The petitioner by a letter dated 3.11.2015 had provided the details to the Assessing Officer regarding outward remittances. The explanation was provided. A chart was also provided to the reply dated 3.11.2015 containing a breakup of all foreign remittances made during the year along with the details of the TDS deducted or if not deducted the reasons for not doing so.

 

4) After considering the submissions and on the basis of the verification of records the Assessing Officer passed the assessment order under Section 143(3) of the Act. The notice under Section 148 of the Act and the reasons for reopening the case on the assumption or reason to believe that the income of Rs.63,74,736/ has escaped assessment and same be disallowed is based on the very same records which were placed at the time of the original assessment. The details regarding the issue under consideration was already examined by the then Assessing Officer for which a specific query was raised and therefore it was not open for the Assessing Officer to reopen the same or revisit his opinion because of a “change of opinion”.

 

7. The Supreme Court in the case of Principal Commissioner of Income Tax vs Fibres and Fabrics International (P) Ltd reported in 139 taxmann.com 592 has held as under:

 

“2. Facts leading to filing of this appeal briefly stated are that assessee

is a company which is engaged in the business of manufacture and export of garments. The assessee filed the return of income for the Assessment Year 2005- 06 on 31-10-2005. The return filed by the assessee was selected for scrutiny under section 143(2) of the Act. The assessee furnished the details pertaining to liabilities which included details relating to sale commissions paid to certain foreign companies and tax deducted at source on such sale commissions. The Assessing Officer after examining the details furnished by the assessee passed an original order of assessment on 31-12-2008 without making any disallowance pertaining to sales commission. The contention of the assessee that payments were made the assessee to non-residents and since, the services were rendered outside India, therefore, no income accrued or arose in India and therefore, sales commission were not exigible to tax was rejected.

 

3. The Assessing Officer issued a notice dated 12-3-2010 under section 148 of the Act proposing to reassess the income of the assessee on the ground that he has reasons to believe that income chargeable to tax had escaped assessment. The assessee sought reasons for reopening the assessment which was supplied to it and thereafter, the assessee filed objections to the notice for reopening assessment on the ground that the same was based on a mere change of opinion. The Assessing Officer passed an order of reassessment under section 143(3) read with section 147 of the Act disallowing the deduction claimed by the assessee towards sales commission to the tune of Rs. 16,93,91,847/- and added the same to the total income of the assessee….

 

XXX XXX XXX

 

10. During the course of original assessment proceeding, details pertaining to expenditure incurred by the assessee towards sales commission were furnished. Thus, the assessee had furnished all primary facts before the Assessing Officer and the Assessing Officer on the basis of facts available with him had passed an original order of assessment without making any disallowance of the aforesaid expenditure. The reassessment proceeding are based on the basis of same information which was available with the Assessing Officer at the time of original order of assessment and inferences drawn by the Assessing Officer on the same set of facts cannot be said to be tangible material. It is also noteworthy that mere fact that expenses were huge in the opinion of the Assessing Officer cannot be a ground for reopening the assessment and necessity of incurring expenditure cannot be gone into by the Assessing Officer.

 

11. It is pertinent to mention that no material was gathered in the survey proceeding to suggest that expenditure incurred towards sales commission is not an allowable expenditure and disallowance made in respect of the expenditure for the subsequent Assessment Year 2006-07 cannot be a ground for reopening the assessment. The tribunal has therefore, rightly recorded the findings of fact that there is no tangible material on the basis of which assessment for Assessment Year 2005-06 was reopened and the assessment of the subsequent Assessment Year is based on the inferences drawn from certain facts which cannot be construed as tangible material. The reasons mentioned in the notice for reassessment are based on mere change of opinion and therefore, the reopening of the assessment proceeding is not permissible in the facts and circumstances of the case. The aforesaid finding cannot be said to be perverse. For the aforementioned reasons, the substantial questions of law involved in this appeal are answered against the revenue and in favour of the assessee.

 

In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed.”

 

8. It is also worth noting that the petitioner lodged its objections to the reasons recorded vide letter dated 3.6.2020 on 16.7.2020. Without disposing of the objections, notice under Section 142 was issued on 5.2.2021. This was in violation of the principles set out in the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Limited v.ITO , reported in (2003) 259 ITR 19 (SC). The objections were disposed of after over a year by an order passed on 31.8.2021 which indicates that there was a clear case of procedural violations.

 

9. Answering the question of the reassessment being bad as no tangible material was available, as is analysed in the aforesaid paras, it is evident that while issuing notice under Section 148 of the Act, the revenue has relied on the very same assessment records where it is pointed out that there was no fresh material to hold so and therefore the notice under Section 148 and the consequential orders are bad on this ground too. Reading the reasons indicate that what was relied upon was the very same record Page 23 of 28 Do of assessment and therefore on this count too the notice and the order disposing off the objections is bad.

 

10. The reassessment has been done for the year 2013-14. The notice for such reassessment is dated 6.3.2020 i.e. beyond a period of four years. The law prescribes that in such cases, unless and until it is found that there was no full and true disclosure of material facts, the assessment cannot be reopened. On the facts of the present case, it has been found that the very same material and the assessment records are sought to be revisited and therefore it is not the case of the authority that there was a failure to fully and truly disclose all facts that led to the escapement of income so as to warrant an exercise of reassessment under Section 148 of the Act.

 

11. In the case of Jivraj Tea vs Assistant Commissioner Of Income-Tax,Circle 1(1)(2) reported in (2020) 116 taxmann.com 27 (Gujarat), this Court has held that in absence of any tangible material available, reopening beyond the period of four years is bad in law. Relevant paragraph of the decision read as under:

 

“10. The Coordinate Bench, while allowing the writ application, has observed in clear terms that full separate accounts of both the divisions were maintained and also presented before the Assessing Officer during the course of assessment. This Court recorded a clear finding that there was no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. In such circumstances, the Coordinate Bench, ultimately, held that the notice for reopening which was issued beyond a period four years should fail.

 

11. The writ applicant pointed out while raising his objections that there was no failure on his part to disclose truly and fully any material fact. He pointed out that his assessments were being examined by the Assessing Officer for the original assessment. The reopening on the basis of re-analysis of the existing material was nothing, but a change of opinion and the same is not permissible. He pointed out that no specific information has been received by the Assessing Officer to firmly believe that the income chargeable is escaped the assessment and as noted above, at the cost of repetition, he pointed out that reassessment was sought for in the assessee's own case for A.Y. 2008-09 which came to be questioned by this Court in the Jivraj Tea Ltd. (supra).

 

12. Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are of the view that the case on hand is one of change of opinion. There is hardly anything on record to indicate that there was failure on the part of the assessee to disclose truly and fully all material facts. There was no tangible material available for the

purpose of issuing the notice for reopening beyond the period of four years.”

 

Therefore what is evident is that the notice dated 6.3.2020 and the order disposing off objections dated 31.08.2021 are bad in law and deserve to be quashed and set aside.

 

12. Post the order disposing off objections, the respondent issued a show cause notice dated 15.09.2021 under Section 144(B) of the Act seeking reasons as to why the assessment should not be completed as per the Draft Assessment Order. A date was fixed being 23:59 hours on 17.09,2021. The email fixing such date was received in the evening of 15.09.2021 at around 7:09 PM. The petitioner filed an application for adjournment which was updated on ITBA portal however the Assessment Order dated 19.09.2021 u/s 143(3) read with Section 144B and 147 of the Income Tax Act was passed by making an addition of the commission paid to foreign nationals / agents amounting to Rs.63,74,736/- without deduction of tax (TDS) and raised a demand of Rs.5,13,54,720 vide demand notice issued under Section 156 of the Income Tax Act,1961. The exercise on the face of it was undertaken in gross violation of principles of natural justice.

 

13. The narration hereinabove would indicate that since the notice under Section 148 of the Income Tax Act,1961 dated 6.3.2020 was flawed for the reasons aforesaid, the consequential effect thereof would be that the order disposing off objections dated 31.8.2021 and the Assessment Order dated 19.09.2021 are held to be bad.

 

14. Accordingly, the notice dated 6.3.2020, the order disposing of objections dated 31.08.2021 and the Assessment Order dated 19.09.2021 are quashed and set aside. The petition is allowed with no order as to costs. Rule is made absolute accordingly.

 

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