IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 02.09.2014
Judgment pronounced on:17.10.2014
W.P.(C) 747/2014
GLOBAL SIGNAL CABLES (INDIA) PVT. LTD. ..... Petitioner
versus
DEPUTY COMMISSIONER OF INCOME TAX ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr Piyush Kaushik, Advocate
For the Respondents : Mr Sanjeev Sabharwal, Advocate
CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
JUDGMENT
SIDDHARTH MRIDUL, J.
1. By way of this writ petition a writ of certiorari has been sought for
quashing the notice dated 28.03.2013 issued by the respondent (Deputy
Commissioner of Income Tax) under Section 148 of the Income Tax Act,
1961 (hereinafter referred to as ,,the said Act).
2. The facts of the present writ petition are enunciated as below:-
WP(C) 747/2014 Page 1 of 11
3. On 29.11.2006 the petitioner/assessee filed its return of income for the
assessment year 2006-2007. The aforesaid return of income of the
petitioner was selected for scrutiny assessment vide issue of notice under
Section 143(2) of the said Act dated 28.09.2007.
4. On 20.12.2007 the assessing officer issued another notice along with
the detailed questionnaire raising queries on 32 points. Vide the said
questionnaire, the assessing officer with respect to query No.1 required the
petitioner/assessee to submit the audited account along with the audit report.
Further, with respect to query No.9, the assessing officer required the
petitioner/assessee to submit the details with regard to the loans taken by the
petitioner/assessee, requiring information with respect to the opening
balance, addition, repayment, rate of interest, interest accrued, interest
received etc. Further, with respect to query No.12 of the said questionnaire
the assessing officer required the petitioner/assessee to submit details with
respect to loans and advances given by the petitioner/assessee along with
the details with respect to rates of interest on advances, interest received on
advances etc.
5. On 23.07.2008 the petitioner/assessee submitted its response with
respect to the questionnaire issued by the assessing officer. With respect to
WP(C) 747/2014 Page 2 of 11
query No.1, the petitioner/assessee submitted the auditors report and
audited accounts. In the said auditors report, the auditor had mentioned
that the petitioner/assessee has given interest free loans/advances to group
companies totaling to `5,20,57,726/- as at the year-end. In the said report,
the auditor has also commented that the terms and conditions of the said
advances are not prima facie prejudicial to the interest of the
petitioner/assessee. Further, it was commented that the disclosure regarding
the loans/advances to the group companies was also made by the
petitioner/assessee in the audited notes of account. In the schedule of loans
and advances forming part of the audited accounts, it is mentioned that out
of the loans and advances outstanding at the year-end, substantial amount of
advances are brought forward from the preceding year. The said audited
accounts also contained the details of interest and financial charges of
`81,30,819/- debited to the Profit & Loss Account.
6. With respect to the query No.9 of the assessing officer, the
petitioner/assessee furnished schedules of loan taken along with the interest
payment. The petitioner/assessee submitted that all the loans taken are for
specific business purpose, like purchase of vehicle, plant and machinery etc.
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7. With respect to the query No.12 of the assessing officer, the
petitioner/assessee furnished details of loans and advances including the
advance of `5,20,57,726/- to the group companies. In reply to the assessing
officers query as to why interest is not charged on the loans and advances,
it was explained that the loans and advances are given for business
purposes.
8. It was submitted to the assessing officer that the loans and advances
are given by the assessee-company from the available interest free funds
placed at the disposal of the assessee in the form of share capital, reserves
and surplus and sales proceeds, which exceed the amount of loans and
advances given.
9. Thereafter on 05.08.2008 another questionnaire was issued by the
assessing officer. The reply to the aforesaid questionnaire was submitted by
the petitioner/assessee on 12.08.2008, mentioning the commercial
advantage arising out of business transactions with group companies.
10. On 29.08.2008, scrutiny assessment order under section 143(3) of the
said Act was issued by the respondent (Deputy Commissioner of Income
Tax) determining the total income at `1,06,25,560/-.
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11. Thereafter, the assessing officer issued the impugned notice dated
28.03.2013 for reopening of assessment under section 148 of the said Act.
The petitioner/assessee submitted its response before the assessing officer to
treat the return as originally filed under section 139 of the said Act as a
return for the purpose of section 148 of the said Act and asked for the
reasons recorded under Section 148 of the said Act.
12. On 03.12.2013, the assessing officer forwarded the copy of the
recorded reasons for reopening the assessment. In the recorded reasons the
reopening has been proposed on the ground that since the
petitioner/assessee has granted interest free loan of `5,20,57,726/-,
therefore, proportionate disallowance on account of interest and financial
charges of `56,01,390/- out of total interest and financial charges of
`81,30,819/- debited in Profit & Loss Account should have been made
resulting in under assessment of income.
13. On 17.01.2014 the petitioner/assessee submitted their objections to the
reopening of assessment, on the ground that reopening is initiated on the
basis of review or re-appreciation of the same material and no fresh material
of any sort has come in the possession of the department as also there has
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been no failure on the part of the petitioner/assessee in disclosing fully and
truly all material facts.
14. The respondent rejected the objection of petitioner/assessee vide its
letter dated 24.01.2014.
15. Admittedly, the issuance of notice under section 148 of the said Act is
beyond the period of four years from the end of the relevant assessment year
i.e. assessment year 2006-2007. Consequently, the first proviso of section
147 of the said Act would be relevant. The first proviso of the section 147
of the said Act is reproduced hereinbelow:-
"147 ....Provided that where an assessment under
sub-section (3) of section 243 or this section has been
made for the relevant assessment year, no action shall
be taken under this section after the expiry of four
years from the end of the relevant assessment year,
unless any income chargeable to tax has escaped
assessment for such assessment year by reason of the
failure on the part of the assessee to make a return
under section 139 or in response to a notice issued
under sub-section (1) of section 142 or section 148 or
to disclose fully and truly all material facts necessary
for his assessment, for that assessment year."
16. The point urged by the learned counsel appearing on behalf of the
petitioner was that in a case where the proviso to section 147 of the said Act
was applicable, it must be clearly indicated that the understatement of
income was on account of the failure on the part of the assessee to fully and
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truly disclose all material facts necessary for the assessment. The purported
reasons behind the issuance of the notice under section 148 of the said Act
are reproduced below:-
"....The assessment of M/s Global Signal Cables
(India) Pvt. Ltd for the assessment year 2006-07 was
completed after scrutiny in September 2008
determining an income of `1,06,25,5578/-. It is
gathered that the assessee debited `81,30,819/- to
profit and loss account on account of interest and
financial charges. In the auditors report it was stated
that interest free loan upto the tune of `5,20,57,726/-
had been given to other companies. Therefore,
proportionate amount of expense on account of interest
and financial charge should have been disallowed by
the assessing officer. The mistake resulted in
underassessment of income of `56,01,390/- involving
short levy of tax of `24,32,200/- including interest.
On the basis of the facts as stated above, I have reasons
to believe that income chargeable to tax exceeding `1
lac has escaped assessment, as the assessee has not
disclosed fully and truly all material facts necessary for
his assessment for the relevant assessment year.
Hence, a notice u/s 147 read with section 148 for
reopening of assessment is required to be issued in this
case."
17. It is evident that while the assessing officer mentioned that income
had escaped assessment because of the failure on the part of the assessee to
fully and truly disclose the material facts for assessment, he has not
indicated as to which material fact had not been fully and truly disclosed by
the petitioner/assessee.
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18. The learned counsel for the petitioner placed reliance on a decision of
this Court in the case of Haryana Acrylic Manufacturing Co. vs.
Commissioner of Income-Tax and Another: [2009] 308 ITR 38 (Delhi).
While considering the provisions of sections 147 and 148 of the said Act, in
particular the first proviso thereof, this court observed as under:-
"29. In the reasons supplied to the petitioner, there is
no whisper, what to speak of any allegation, that the
petitioner had failed to disclose fully and truly all
material facts necessary for assessment and that
because of this failure there has been an escapement of
income chargeable to tax. Merely having a reason to
believe that income had escaped assessment, is not
sufficient to reopen assessments beyond the four year
period indicated above. The escapement of income
from assessment must also be occasioned by the failure
on the part of the assessee to disclose material facts,
fully and truly. This is a necessary condition for
overcoming the bar set up by the proviso to section
147. If this condition is not satisfied, the bar would
operate and no action under section 147 could be taken.
We have already mentioned above that the reasons
supplied to the petitioner does not contain any such
allegation. Consequently, one of the conditions
precedent for removing the bar against taking action
after the said four year period remains unfulfilled. In
our recent decision in Wel Intertrade Private Ltd.
[2009] 308 ITR 22 (Delhi) we had agreed with the
view taken by the Punjab and Haryana High Court in
the case of Duli Chand Singhania [2004] 269 ITR 192
that, in the absence of an allegation in the reasons
recorded that the escapement of income had occurred
by reason of failure on the part of the assessee to
disclose fully and truly all material facts necessary for
his assessment, any action taken by the Assessing
Officer under section 147 beyond the four year period
WP(C) 747/2014 Page 8 of 11
would be wholly without jurisdiction. Reiterating our
view-point, we hold that the notice dated March 29,
2004, under section 148 based on the recorded reasons
as supplied to the petitioner as well as the consequent
order dated March 2, 2005, are without jurisdiction as
no action under section 147 could be taken beyond the
four year period in the circumstances narrated above."
(underlining added)
19. The same principle is reiterated in Rural Electrification Corporation
Ltd. vs. Commissioner of Income Tax: [2013] 355 ITR 356. Also in
Microsoft Corporation (I) Pvt Ltd vs. Deputy Commissioner of Income Tax
& Anr: [WP(C) 284/2013 decided on 23.05.2013] a Division Bench of this
Court had observed as under:-
"From the above, it is evident that merely having a
reason to believe that income had escaped assessment
is not sufficient for reopening the assessment beyond
the four year period referred to above. It is essential
that the escapement of income from assessment must
be occasioned by the failure on the part of the assessee
to, inter alia, disclose material facts, fully and truly. If
this condition is not satisfied, there would be a bar to
taking any action under Section 147 of the said Act."
20. The facts of the present case are squarely covered by the decision of a
Division Bench of this Court in M/s Swarovski India Pvt. Ltd. vs. Deputy
Commissioner of Income Tax: W.P.(C) 1909/2013 decided on 08.08.2014
wherein the notice under section 148 of the said Act was quashed for being
issued after the expiry of 4 years from the relevant assessment year wherein
there was no specific mention of which material facts were not disclosed by
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the assessee in the course of its original assessment proceedings under
section 143(3) of the said Act. The relevant paragraph is reproduced
hereinbelow:-
"12 It is clear that the escapement of income by itself
is not sufficient for reopening the assessment in a
case covered by the first proviso to Section 147 of
the said Act unless and until there is failure on the
part of the assessee to disclose fully and truly all
the material facts necessary for assessment. In the
present case, it has not been specifically indicated
as to which material fact or facts was/were not
disclosed by the petitioner in the course of its
original assessment under Section 143(3) of the
said Act...."
21. In the present case also, there exist no grounds for re opening the
assessment after the expiry of 4 years from the relevant assessment year.
The notice under section 148 of the said Act is based on re-appreciation of
the same material on record. The respondent has not specifically indicated
as to which material facts were not disclosed by the petitioner/ assessee in
the course of the assessment proceedings under the said Act.
22. In view of the aforesaid discussion, the notice dated 28.03.2013 issued
by the respondent under section 148 of the said Act is liable to be quashed.
It is ordered accordingly. All proceedings pursuant to the notice dated
28.03.2013 also stands quashed.
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23. The writ petition is allowed and disposed of accordingly. Pending
applications also stand disposed of.
24. There shall be no order as to costs.
SIDDHARTH MRIDUL, J
BADAR DURREZ AHMED, J
OCTOBER 17, 2014
dn
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