IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 28.08.2014
W.P.(C) 1226/2014 & CM 2558/2014
DECCAN DIGITAL NETWORKS PRIVATE LIMITED & ANR.
.....Petitioners
versus
INCOME TAX OFFICER & ORS. .....Respondents
Advocates who appeared in this case:
For the Petitioners : Mr Arvind Datar, Sr. Advocate with Mr Tarun Gulati, Mr Kishore
Kunal and Ms Amrita Chatterjee.
For the Respondents : Mr Balbir Singh and Mr Abhishek Singh Baghel for R-1 to R-4.
Mr Vivek Goyal and Mr R.P.Singh for R-5.
CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This writ petition challenges the impugned notice dated 13.06.2013
issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred
to as the ,,said Act). A prayer is also sought for quashing the order dated
19.12.2013, which has been passed by the Assessing Officer rejecting the
objections, which the petitioner had raised against the issuance of the notice
WP(C) 1226/2014 Page 1 of 17
dated 13.06.2013 and the purported reasons for the ,,belief that income had
escaped assessment, which were said to have been recorded prior to the
issuance of the notice under Section 148 of the said Act. The writ petition
also seeks the setting aside of the impugned notice dated 07.02.2014
whereby the Assessing Officer has proceeded with the assessment
proceedings pursuant to the rejection of the objections.
2. The main and primary plea of the petitioner is that the notice under
Section 148 of the said Act was time-barred. The notice was issued in
connection with the assessment year 2006-07. The maximum period of six
years within which the notice could have been issued expired on 31.03.2013,
whereas the notice was issued on 13.06.2013. It is the case of the petitioner
that the initial notice dated 13.06.2013 did not have any reference to Section
149(1)(c) of the said Act but subsequently when the objection was taken by
the petitioner that the impugned notice was time-barred, the respondent had
placed reliance on the provisions of Section 149(1)(c) of the said Act in
order to justify the issuance of the impugned notice under Section 148
beyond the period of six years. Before we go on with the discussion on the
facts of this case it would be appropriate to set out the relevant provisions:-
"147. If the Assessing Officer has reason to believe
that any income chargeable to tax has escaped assessment
WP(C) 1226/2014 Page 2 of 17
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):
Provided that where an assessment under sub-section (3)
of section 143 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:
Provided further that nothing contained in the first
proviso shall apply in a case where any income in relation
to any asset (including financial interest in any entity)
located outside India, chargeable to tax, has escaped
assessment for any assessment year:
Provided also that the Assessing Officer may assess or
reassess such income, other than the income involving
matters which are the subject matters of any appeal,
reference or revision, which is chargeable to tax and has
escaped assessment.
Explanation 1. Production before the Assessing Officer of
account books or other evidence from which material
evidence could with due diligence have been discovered by
the Assessing Officer will not necessarily amount to
disclosure within the meaning of the foregoing proviso.
WP(C) 1226/2014 Page 3 of 17
Explanation 2. For the purposes of this section, the
following shall also be deemed to be cases where income
chargeable to tax has escaped assessment, namely:-
(a) Where no return of income has been furnished
by the assessee although his total income or the
total income of any other person in respect of
which he is assessable under this Act during the
previous year exceeded the maximum amount
which is not chargeable to income-tax;
(b) where a return of income has been furnished by
the assessee but no assessment has been made
and it is noticed by the Assessing Officer that
the assessee has understated the income or has
claimed excessive loss, deduction, allowance or
relief in the return;
(ba) where the assessee has failed to furnish a report
in respect of any international transaction which
he was so required under section 92E;
(c) where an assessment has been made, but
(i) income chargeable to tax has been
underassessed; or
(ii) such income has been assessed at too low
a rate; or
(iii) such income has been made the subject
of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance
or any other allowance under this Act has
been computed;
(d) where a person is found to have any asset
(including financial interest in any entity)
located outside India.
Explanation 3. For the purpose of assessment or
reassessment under this section, the Assessing Officer may
assess or reassess the income in respect of any issue, which
has escaped assessment, and such issue comes to his notice
subsequently in the course of the proceedings under this
section, notwithstanding that the reasons for such issue
WP(C) 1226/2014 Page 4 of 17
have not been included in the reasons recorded under sub-
section (2) of section 148.
Explanation 4. For the removal of doubts, it is hereby
clarified that the provisions of this section, as amended by
the Finance Act, 2012, shall also be applicable for any
assessment year beginning on or before the 1st day of April
2012."
"149. (1) No notice under section 148 shall be
issued for the relevant assessment year, -
(a) if four years have elapsed from the end of the
relevant assessment year, unless the case falls
under clause (b) or clause (c);
(b) if four years, but not more than six years, have
elapsed from the end of the relevant assessment
year unless the income chargeable to tax which
has escaped assessment amounts to or is likely
to amount to one lakh rupees or more for that
year;
(c) if four years, but not more than sixteen years,
have elapsed from the end of the relevant
assessment year unless the income in relation to
any asset (including financial interest in any
entity) located outside India, chargeable to tax,
has escaped assessment.
Explanation. In determining income chargeable to tax
which has escaped assessment for the purposes of this sub-
section, the provisions of Explanation 2 of section 147
shall apply as they apply for the purposes of that section.
(2) The provisions of sub-section (1) as to the issue of
notice shall be subject to the provisions of section 151.
(3) If the person on whom a notice under section 148 is to
be served is a person treated as the agent of a non-resident
under section 163 and the assessment, reassessment or
recomputation to be made in pursuance of the notice is to
be made on him as the agent of such non-resident, the
notice shall not be issued after the expiry of a period of six
years from the end of the relevant assessment year.
WP(C) 1226/2014 Page 5 of 17
Explanation. For the removal of doubts, it is hereby
clarified that the provisions of sub-section (1) and (3), as
amended by the Finance Act, 2012, shall also be applicable
for any assessment year beginning on or before the 1st day
of April, 2012."
3. From the above provisions it is evident that under Section 147 if the
Assessing Officer has reason to believe that any income chargeable to tax
has escaped assessment for any assessment year, he may assess or reassess
such income. This is, however, subject to the provisions of Sections 148 to
153 of the said Act. Where the assessment/reassessment is sought to be done
after the period of four years from the end of the relevant assessment year,
further conditions are stipulated, inter alia, under the first proviso to Section
147 of the said Act. One of the conditions being that the assessee had not
made a return either under Section 139 or in response to notice under sub-
section (1) of Section 142 or Section 148. Another condition is that even if
the assessee had made a return he has failed to disclose fully and truly all
material facts necessary for his assessment pertaining to that assessment
year. But, by virtue of the second proviso to Section 147, these conditions
(prescribed in the first proviso) would not apply to a case where any income
in relation to any asset (including financial interest in any entity) located
outside India, chargeable to tax, has escaped assessment for any assessment
WP(C) 1226/2014 Page 6 of 17
year. It is also clear that while the first proviso stipulates that no action can
be taken under Section 147 after the expiry of four years from the end of the
relevant assessment year unless the conditions stipulated therein are not
satisfied, there is no such time limit stipulated in the second proviso. In other
words, if a case falls under the second proviso, action can be taken under
Section 147 before and even after the expiry of the period of four years from
the end of the relevant assessment year. It must also be noticed that the end
points of time for action under both the first and second proviso are not
specified in the said proviso. The end points have been specified in section
149. We shall examine that provision but, before we do that, one more
provision of Section 147 needs to be noticed. And, that is, Explanation 2 in
Section 147 which stipulates that for the purposes of that Section, where no
return of income has been filed by the assessee, despite his total income
exceeding the maximum amount which is not chargeable to income tax, it
shall be deemed that income chargeable to tax has escaped assessment.
4. Now, let us examine Section 149 of the said Act. As would be evident
from the above extract, this section prescribes the time limits for notices to
be issued under Section 148. The wordings of the section make it clear that
there is complete bar to the issuance of a notice under Section 148 unless and
WP(C) 1226/2014 Page 7 of 17
until the conditions stipulated in clauses (a), (b) or (c) of Section 149(1) of
the said Act are satisfied. It is evident from the above provision that if the
notice under Section 148 is to be issued beyond the period of four years but
not more than six years then it is required to be shown that the income
chargeable to tax which has escaped assessment is or is likely to be `1 lakh
or more for that year. This is, of course, coupled with the requirement of the
first proviso to Section 147 of the said Act. Insofar as the period of limitation
extending up to sixteen years, as stipulated under Section 149(1)(c), is
concerned, it would have to be further shown that the income which is said
to have escaped assessment was in relation to any asset (including financial
interest in any entity) located outside India. We may note that the
explanation after sub-section (1) of Section 149 makes Explanation 2 to
147 applicable for the purpose of Section 149 also.
5. It is clear that if the extended period of sixteen years provided in
Section 149(1)(c) is to be invoked, the pre-condition is that income which is
said to have escaped assessment must have relation to any asset (including
financial interest in any entity) located outside India. This is also the same
pre-condition stipulated in the second proviso to Section 147. In this context,
it must be remembered that unless the second proviso to Section 147 applies,
WP(C) 1226/2014 Page 8 of 17
all cases beyond four years of the end of the relevant assessment year would
have to satisfy the pre-conditions in the first proviso read with Section
149(1)(a) and (b)
6. In this backdrop, let us now return to the facts of the case. When the
notice under Section 148 of the said Act was issued to the petitioner, the
petitioner at the threshold sent a response dated 10.07.2013 wherein it was
clearly stated as under:-
"At the outset, it is submitted that the Notice has been
issued without jurisdiction and is barred by limitation
applicable under Section 149 of the Act. The Notice has
been issued on 13.06.2013 for the AY 2006-07 which is
beyond the period 6 years prescribed for the purpose of
issuing a Notice under Section 148 of the Act. We are an
Indian Company and have no foreign assets or income and
the Notice is therefore, clearly beyond limitation and liable
to be withdrawn.
Further, in any event and without prejudice to the
aforementioned, it is also pointed out that during the FY
2005-06, we did not undertake any activity and as such, did
not have any income, for the purpose of the Act. Therefore,
on the face of it, there could be no reason to believe for
initiating re-assessment proceedings in the present case. In
this regard, attached herewith and marked as Annexure-1
is our financial statement showing that there was no income
during the FY 2005-06.
Accordingly, in the light of the above, it is requested that
the Notice may kindly be withdrawn forthwith and the re-
assessment proceedings may kindly be dropped."
(underlining added)
WP(C) 1226/2014 Page 9 of 17
7. A similar letter was also sent on 12.08.2013 reiterating the stand of the
petitioner that the notice was time barred. Along with the said letter dated
12.08.2013 the petitioner filed its nil return of income under protest.
Thereafter, the Assessing Officer sent a letter dated 21.10.2013 to the
petitioner which contained the purported reasons which had been recorded
prior to the issuance of notice under Section 148. The said letter reads as
under:-
" To,
M/s Deccan Digital Networks Pvt. Ltd.
13, Abul Fazal Road, Bengal Market,
New Delhi-110001.
Sir,
Sub: Notice u/s 148 read with Sec.149(1)(c) of the
I.T.Act 1961 for Assessment Year 2006-2007
- reg.
Please refer to the above subject.
Notice u/s 148 read with Sec.149(1)( c) of the I.T.Act,
1961 was issued in your case for A.Y. 2006-2007 on 13th
June 2013. In response to the same you filed return of income
for A.Y. 2006-2007 (Under protest) on 12.08.2013.
Alongwith return of income letter dated 12.08.2013 was also
filed. On going through the return of income it was observed
that the return of income was not accompanied with balance
sheet, profit and loss account and audit report. The deficiency
was brought into your notice by letter dated 16.09.2013 of
this office.
In response to this, vide letter dated 08.10.2013 it
was stated that alongwith letter dated 10.07.2013 the
assessee company had submitted the balance sheet, profit
and loss account for the subject assessment year. It was
WP(C) 1226/2014 Page 10 of 17
also stated by letter dated 08.10.2013 that the balance
sheet, profit and loss account were not audited.
Now since you had complied with the provisions of
section 148, I am giving the-reasons recorded before issue
of notice u/s 148/148 which are as follows.
"A report or coordination meeting of CBI, ED and
Income Tax Department, sharing of information in the case
of 2G related companies/ entities alongwithh the shoe
cause notice issued to M/s. Deccan Digital Networks Pvt.
Ltd. and Shri Sumesh sawhney Director of M/s. Deccan
Digital Networks Pvt. Ltd., 13, Abul Fazal Road, Bengali
Market, New Delhi-1, by the Special Director of
Enforcement was received through Dy. Director of Income
Tax (Investigation), Unit-1(2); New Delhi in the above
mentioined case pertaining to this Ward for taking
appropriate action, as per the report the facts mentioned in
the show cause notice / complaint are as under:
Copy of form FCGPR filed by M/s. Deccan Digital
Networks Pvt. Ltd. (DDNPL) to RBI interaLia reveals that:
i. M/s. Deccan Digital Networks Pvt. Ltd. is a
recently formed company and activities are to
hold investments. There was no description of
NIC code.
ii. On 21.03.2006, a sum of Rs.11,828/- crore was
received by Deccan from. M/ s. Global
Comminication Services Holdings Ltd.
(GCSHL), Mauritius and on the same day i.e.,
21.03.2006, 11828440 equity shares were allotted
to GCSHL Mauritius.
iii. There was delay in reporting to RBI about receipt of
FIX/ in submissions of form
FCGPR within 30 days from the date of receipt of
funds/date, of issue of shares to the foreign investor
(GCSHL, Mauritius) (11828440 shares were issued on
21.03.2006 for Rs.11,82,84,400/-). That DDNPL
intimated receipt of FDI/issue of shares on 22.08.2006
i.e., after stipulated time limit.
Therefore, there is contravention of the provisions of Para
9(1) (A) & (B) of schedule 1 of Regulation 5(1) of the Foreign
Exchange Management (Transfer or issue of security by a person
resident outside India) Regulations, 2000 read with sub-section
(3)(b) of section 6 of the Foreign Exchange Management Act
(FEMA), 1999 and also read with section 42(1) of the FEMA,
1999, for having failed to submit a report to the Reserve Bank of
WP(C) 1226/2014 Page 11 of 17
India, inrespect of receipt of the amount of consideration to the
tune of Rs.11.82/- crore of India, in respect of 11828440 equity
shares issued against FDI of Rs.11.82/- crore (Rs.11,82,84,440/-)
within the stipulated period of 30 days from the date of the receipt
of the amount of consideration and issuance of equity.
On perusal of records, it is found that the assessee
company has not filed its return of income for the
assessment year 2006-2007.
In view of the above facts and circumstances of the
case and as per the provisions of Section 149(1)(c) of the
LT.Act, notice u/s 148 is to be issued for reopening the cas
of M/s. Deccan Digital Networks Pv t. Ltd. for the
assessment year 2006-07.
In view of the above,. I have reason to belive that the
assessee company during the financial year 2005-2006 relevant
to assessment year 2006-2007 has escaped assessment.
Therefore, the approval of the Addl. CIT, Range-10, New Delhi
is solicited as per provisions of Section 151(2) of the I.T.Act"
As the reasons for issue of notice u/s 148 have been
furnished to you, you are required to furnish following
details.
11. Please furnish name and address with
confirmation of the persons from which equity
share capital Non-convertible, Redeemable
preference share capital of Rs.1639.59 crore has
been received.
12. Please furnish documentary evidence of investment
of Rs.1684.89 crores.
13. Please furnish confirmed copy of accounts sundry
creditors of Rs. 2.32 crores.
14. Please furnish documentary evidence of claim
of preliminary expenses of Rs.2.32 crore.
15. Please furnish complete bank statement with
narrations.
16. A perusal of profit and loss account for the period
ending 31.03.2006 reveals that you had claimed
loss of Rs.23268723/-., Since no return of income
WP(C) 1226/2014 Page 12 of 17
for A.Y. 2006-2007 has been filed please explain,
as to how the loss had been accounted in the return
of imameralediozAY.2017-2008 if any.
17. Please furnish proof of tilling of income tax
return for A.Y. 2007-2008, 2008-2009, 2009-
2010 with audit report of M/s. Deccan Digital.
Networks Pvt, Ltd.
18. Please furnish proof of income tax return of
directors for A.Y. 2006-2007, 2007-2008, and
2009-2010.
19. Please furnish name and address of directors
with details of change if any, during the period
relevant to A.Y. 2006-2007 and later on.
20. Please furnish computation of income for 2006-2007.
Your reply should reach this office within seven days of
the receipt of the receipt of this letter, statutory notice u/s 142(1)
are enclosed herewith fixing the date of hearing on 28.10.2013.
Yours faithfully
(Bason Sanyal)
Income Tax Officer
Ward 10(1), New Delhi"
8. Thereafter, the petitioner submitted its objections dated 27.11.2013. In
the said objections the petitioner reiterated its stand that the notice under
Section 148 was barred by limitation. The stand taken by the petitioner was
as under:-
"a) The Notice under section 148 is barred by
Limitation: The Notice is clearly time barred and is
beyond the period of limitation prescribed under the
Act, having been issued beyond the period of six years
WP(C) 1226/2014 Page 13 of 17
from the end of the relevant assessment year as
prescribed under Section 149(1)(b) of the Act. The
assessee is an Indian company and has no foreign
assets or foreign income, and Section 149(1)(c) of the
Act has no application to the facts of the case. As the
company does not have any foreign assets, there is no
question of any escapement of income in relation to
foreign assets to justify the reliance on this provision.
This position was made explicitly clear in the letter
dated 08.10.2013 but there is no response to this issue
in the letter dated 21.10.2013. It is submitted that while
the notice has been justified by placing reliance on
Section 149(1)(c) when the issue of Limitation was
pointed out by us, it is clear that the reasons recorded
made no reference to any foreign asset or foreign
income. It can clearly be inferred that the issue of
foreign assets and foreign income has been raised
subsequently only to get over the plea of limitation and
is a clear after thought and does not constitute a
reasons for issuing the Notice. In view of the aforesaid,
the notice under section 148 is clearly time barred and
should be withdrawn forthwith."
(underlining added)
9. It is evident from the above extract that the petitioner had taken the
specific stand that it was an Indian company and that it has no foreign asset
and no foreign income and that Section 149(1)(c) of the said Act had no
application in the facts of the case. It was urged that as the company did not
have any foreign asset there was no question of any escapement of income in
relation to a foreign asset and that the reliance of the department on the
provisions of the Section 149(1)(c) of the said Act was misplaced.
WP(C) 1226/2014 Page 14 of 17
10. This was succeeded by the order dated 19.12.2013 which is impugned
before us whereby the objections including the objection with regard to time
bar were rejected by the Assessing Officer. The point of time bar was
"considered" by the Assessing Officer in the said letter dated 19.12 .2013 in
the following manner:-
"1. The notice u/s 148 is barred by limitation:-
At the first instance I would like to draw your kind
attention that this point has already been raised by you by
your letter dated 10.07.2013, 08.10.2013 and appropriate
reply has been furnished to you vide this office letter dated
16.09.2013 (copy of letter enclosed again). It has been
informed that notice was issued u/s 149(1)(c) of the Act. As
per provisions of Sec 149(1)(c) notice could be issued for
16 years. For your convenience and a ready reference
relevant part of Sec 149(1)(c) is reproduced herewith.
"149(1)(c)- No notice u/s 148 shall be issued for
the relevant assessment year, if four years, but not
more then 16 years have elapsed from the end of
the relevant assessment years unless the income in
relation to any asset (including financial interest in
any entity) located outside India, chargeable to
tax, has escaped assessment."
On the basis of above the objection raised may please be
treated as settled."
(underlining added)
11. Since there is a reference to the Assessing Officers earlier letter of
16.09.2013 in the above-mentioned extract, it would be pertinent to see as to
what has been said in that letter by the Assessing Officer with regard to the
WP(C) 1226/2014 Page 15 of 17
plea of bar of limitation raised by the petitioner. In the letter dated
16.09.2013 this is exactly what the Assessing Officer had stated:-
"Your query that the notice u/s 148 has been issued after
lapse of statutory time I would like to draw your kind
attention to Sec-149(1)(c) of the I.T.Att, 1961. For a ready
reference the section is quoted herewith.
'149(1)(c)- No notice u/s 148 shall be issued for the
relevant assessment year, if four years, but not
more then 16 years have elapsed from the end of
the relevant assessment years unless the income in
relation to any asset (including financial interest in
any entity) located outside India, chargeable to tax,
has escaped assessment'"
12. It is, therefore, clear from both the letter dated 16.09.2013 as well as
the impugned order dated 19.12.2013 that there is no reasoning indicated as
to how Section 149(1)(c) has been invoked other than simply re-producing
the contents of Section 149(1)(c). Furthermore, neither the letter dated
16.09.2013 nor the impugned order dated 19.12.2013 nor the counter
affidavit filed by the respondent before this court controvert the statement
made by the petitioner that it has no asset located outside India. Therefore,
the question of deriving an income from any such asset also does not arise.
In these circumstances, it will have to be accepted that the petitioner does not
have any asset outside India and, therefore, the question of the petitioner
having any income in relation to such an asset would not arise. The very
WP(C) 1226/2014 Page 16 of 17
condition precedent for issuing a notice under Section 148 read with Section
149(1)(c) invoking the extended period of limitation of sixteen years is that
the income which has escaped assessment must have relation to any asset
located outside India. This pre-condition is not satisfied. Therefore, there is a
complete bar to the issuance of such a notice beyond the period of four years.
13. In view of the foregoing discussion, the impugned notice dated
13.06.2013, the impugned order dated 19.12.2013 and all proceedings
pursuant to the notice dated 13.06.2013 are set aside. We are, however,
making it clear that this order has been made on the basis of the reasons as
recorded and in the context of the plea of limitation.
14. The writ petition is accordingly allowed. There shall be no order as to
costs.
BADAR DURREZ AHMED, J
SIDDHARTH MRIDUL, J
AUGUST 28, 2014
mk
WP(C) 1226/2014 Page 17 of 17
|
