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GLOBAL SIGNAL CABLES (INDIA) PVT. LTD. Vs. DEPUTY COMMISSIONER OF INCOME TAX
October, 30th 2014
         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.




WP(C) 747/2014                                                       Page 3 of 11
 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/-.




WP(C) 747/2014                                                      Page 4 of 11
 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




WP(C) 747/2014                                                       Page 5 of 11
 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




WP(C) 747/2014                                                              Page 6 of 11
 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.







WP(C) 747/2014                                                                Page 7 of 11
 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


WP(C) 747/2014                                                                  Page 9 of 11
 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.




WP(C) 747/2014                                                             Page 10 of 11
 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




WP(C) 747/2014                                                Page 11 of 11

 
 
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