DELOITTE HASKINS AND SELLS V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 1(2)(1)

SCA/18637/2018

AI Insights

The case involves Deloitte Haskins and Sells challenging a notice issued by the Assistant Commissioner of Income Tax under section 148 of the Income Tax Act, 1961, for the Assessment Year 2011-2012. The notice was issued based on the grounds that the petitioner had not disallowed and added to the total income certain payments related to Employees' Provident Fund contributions, which were not paid by the due date as prescribed under the Employees Provident Fund Act. The petitioner argued that the payments were made before the due date of filing the return and were thus allowable as deductions. The court examined whether there was a failure to disclose fully and truly all material facts necessary for the assessment, which would justify the reopening of the assessment beyond the four-year period.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 683576 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 09-04-2019
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax v. P.V.S. Beedies (P) Ltd., N.K. Industries Ltd. v. Income-tax officer, OSD
• Laws Referred To: Income Tax Act, 1961, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: MANISH SHAH
• Keywords: Assessment Year 2011-2012; Disallowance; Employees Provident Fund; Income Tax; Reopening of assessment; Tax audit report
• Section: 147; 148; 143(3); 142(1); 143(2); 36(1)(va); 151(1); 2(24)(x)

Judgement Text

"C/SCA/18637/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 18637 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== DELOITTE HASKINS AND SELLS Versus ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 1(2)(1) ========================================================== Appearance: MR MANISH J SHAH(1320) for the Petitioner(s) No. 1 MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 09/04/2019 ORAL JUDGMENT Page 1 of 13 C/SCA/18637/2018 JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. Rule. Mr. Varun K. Patel, learned senior standing counsel waives service of notice of rule on behalf of the respondent. 2. As the controversy arising in the present petition is in narrow compass, with the consent of both the sides, the same is taken up for final hearing. 3. By this present petition, the petitioner has challenged notice dated 28.03.2018 issued under section 148 of the Income Tax Act, 1961 (\"the Act\" for short) by respondent for the Assessment Year (‘A.Y’ for short) 2011­2012 under Articles 226 of the Constitution of India. 4. Brief facts of the case are as under: 4.1 The petitioner filed return of income for the A.Y. 2011­2012 declaring a total income of Rs.40,64,20,630/­ and thereafter, filed revised return on 21.3.2013 of the same total income. 4.2 The respondent issued notice dated 14.8.2013 under section 143(2) of the Act to provide information in respect of various points. The petitioner in reply, addressed a letter dated 10.9.2013 to the respondent submitting computations of total income along with note to the return of income and tax audit report for A.Y. 2011­2012. Another notice under section 142(1) of the Act was issued on 20.9.2013 by the respondent to submit details in respect of 23 points enumerated Page 2 of 13 C/SCA/18637/2018 JUDGMENT therein. The petitioner by letter dated 3.10.2013 furnished details/replies sought by the respondent. Further, letters dated 16.12.2013 and 26.12.2013 were also addressed by the petitioner furnishing the details required during the course of assessment. The respondent passed the assessment order under section 143(3) of the Act on 31.12.2013 computing the total income of Rs.40,64,20,625/­, accepting the returned income as per the return filed by the petitioner. 4.3 Thereafter, the respondent issued notice under section 148 of the Act on 28.3.2018 for A.Y. 2011­ 2012. The petitioner filed the return of the same income on 24.4.2018 and upon request of the petitioner, reasons for reopening were provided by the respondent which read as under : “Reasons u/s 147 In the case of M/s. Deloitte Haskins & Sells Asst Year­2011­12 PAN No. AADFD2337G The assessee firm is a practising Chartered Accountant had filed the return of inocme for AY 2011­12 on 30/09/2011 declaring total income of Rs.40,64,20,630/­. The assessment u/s 143(3) of the IT Act was finalized on 31.12.2013 and the total income was assessed at Rs. 40,64,20,630/­. It has been observed from the Tax Audit Report that the auditor has reported that the following payments of employees EPF contribution was not paid in time. Page 3 of 13 C/SCA/18637/2018 JUDGMENT Sr. No. Month Type of payment Due date of payment Date of payment of EPF Amount of EPF 1 06/01/10 EPF 15/07/2010 06/09/10 18,60,886/­ On perusal of the computation of income it has been found that the assessee has not disallowed and added to the total income according to section 2(24)(x)RWS 36(1)(va) of the Income Tax Act. Under section 36(1)(va) of the Income Tax Act, 1961, any sum received by the assessee from any of his employees to which the provisions of sub­clause (x) of clause (24) of section apply, deduction shall be allowed only if such sum is credited by the assessee to the employee account in the relevant fund or funds on or before the due date. However, it has been observed from the statement of computation of income that such sum was not disallowed and included in the total income as laid down in section 2(24)(x) RWS 36(1)(va) of the Income Tax Act. It is evident from the facts that the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration thereby necessitating reopening u/s 147 of the l T Act. Therefore, on the basis of records available & in view of this statutory provisions contained in the T Law, I have to reason to believe that the taxable income to the tune of Rs. 18,60,886/­ has escaped assessment. It is true that the assessee has filed audited profit and loss account and balance sheet along with the return of income were various information/material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above It is pertinent to Page 4 of 13 C/SCA/18637/2018 JUDGMENT mention here that even though the assessee has produced books of accounts, audited P & L A/c balance sheet or other evidence as mentioned above, 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 A0 and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the Act. It is pertinent to mention here that in this case assessment was made as stipulated u/s 2(40) of the Act. However, as discussed in reason to believe in this case the income chargeable to tax has been under assessed by an amount of Rs.18,60,886/­. In view of the above facts the provisions of sub Clause (i) of clause (c) of Explanation­2 section 147 are applicable to the facts of this case and the assessment year under consideration is deemed to be case where income chargeable has escaped assessment because of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year under consideration. In view of the above l have reason to believe that the taxable income to the extent of Rs. 18,60,886/­ chargeable to tax has escaped assessment by reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment for AY 2011­2012 and is a fit case for initiation of proceedings u/s 147/148 of the IT Act, 1961. Therefore, on the basis of the reasons recorded based on the records found, the approval under section 151(1) may kindly be accorded if deemed fit.” 4.4 The petitioner filed objections to the reopening of Page 5 of 13 C/SCA/18637/2018 JUDGMENT assessment under section 147 of the Act on 13.8.2018 contending inter­alia that during the course of original assessment proceedings, as required by the respondent, the petitioner vide letter dated 10.9.2013 has submitted the computation of income along with notes forming part of the return of income, audited financial statement and tax audit report. Further, as required by the respondent, the petitioner has also submitted details called for from time to time during the assessment proceedings. The fact that there was delay in payment of Employees' Provident Fund contribution for the month of June 2010 was clearly reflected in the tax audit report. The petitioner relied upon Annexure­VII of the tax audit report and forming part of the return of income, in order to demonstrate that though there was delay in payment of Employees' Provident Fund contribution for the month of June 2010, the same was paid before due date of filing the return and hence, the same was not added to income on the basis of various decisions of the courts available at the relevant time as clearly stated in the notes forming part of the return of income. The petitioner therefore, contended that there was no failure on part of the petitioner to disclose fully and truly all material facts necessary for the assessment and no new material for forming the reasons have been brought on record for reopening of the assessment after expiry of four years from the end of relevant A.Y. 2011­2012 and the same is based on facts submitted by the petitioner and there is no new/fresh fact brought on Page 6 of 13 C/SCA/18637/2018 JUDGMENT record for reopening the case and hence, the respondent has no jurisdiction to reopen the assessment beyond four years, when there has been no failure to disclose fully and truly all material facts relevant for the assessment year. 4.5 The petitioner therefore, urged to the respondent that Explanation 1 to section 147 of the Act is wrongly invoked and submitted that the proceedings pursuant to the impugned notice should be dropped. 4.6 The respondent however, by order dated 15.11.2018 rejected the objections raised by the petitioner. The petitioner therefore, being aggrieved has challenged the impugned notice issued by the respondent under section 148 of the Act by filing this petition. 5 Mr. Manish Shah, learned advocate for the petitioner invited the attention of the court to the reasons recorded to submit that the assessment is sought to be reopened on the ground that the assessee has not disallowed expenditure of Rs.18,60,886/­ pertaining to Employees' Provident Fund contribution for the month of June 2010 under section 43B of the Act, as the same was not paid before prescribed date under the provisions of the Employees Provident Fund Act. He submitted that as the said amount was paid on 6.9.2010 i.e. before the due date of filing the return of income, no disallowance of same was made in the return of the income. He further submitted that the impugned notice is issued on the basis of the tax audit report and computation of income filed by the petitioner, and on perusal of the same, the Page 7 of 13 C/SCA/18637/2018 JUDGMENT respondent found that the petitioner has not disallowed and added to the total income the aforesaid amount according to section 2(24)(x) read with section 36(1)(va) of the Act. It was submitted that fact of delay in payment of Employees' Provident Fund contribution was duly disclosed in the tax audit report as well as notes forming part of the return of income filed by the petitioner. It was therefore, submitted that in absence of any failure on part of the petitioner to disclose fully and truly all material facts, assumption of jurisdiction on part of the Assessing Officer to issue the impugned notice for reopening of assessment is invalid. 6 Learned advocate for the petitioner submitted that since the payment of Employees' Provident Fund contribution was made before the due date of filing of return, it was considered by the petitioner as an allowable expenditure while computing the total income because at the time of filing of the return by the assessee and even at the time of framing the assessment order under section 143(3) of the Act, settled legal position was to the effect that if such payment is made before the due date of filing of the return, same will be an allowable expenditure and no disallowance under section 36(1)(va) of the Act could be made. He therefore, submitted that the assessment is reopened only upon the facts on record submitted by the petitioner during the assessment and there is no fresh or tangible material outside the existing record brought on record by the respondent for reopening the assessment. It was therefore, submitted that the impugned notice for reopening which is based upon the audit objection is on the basis of mere change of opinion which is not permissible in law. He further submitted that mere fact that Page 8 of 13 C/SCA/18637/2018 JUDGMENT while finally passing the assessment order, there is no specific mention that the aforesaid facts have been considered, does not lead to conclusion that there is no application of mind on the issue by the Assessing Officer at the time of passing the assessment order under section 143(3) of the Act. 7 Mr. Varun Patel, learned senior standing counsel appearing on behalf of the respondent submitted that the present petition under Article 226 of the Constitution of India challenging the impugned notice does not deserve to be entertained. The petitioner has failed to disclose violation of any of his legal or statutory rights. It was further submitted that the impugned notice is neither erroneous, arbitrary, illegal or without jurisdiction and the Assessing Officer has jurisdiction to issue the impugned notice. It was submitted that in the reasons recorded by the Assessing Officer, it has been observed that the petitioner had failed to make payment of Employees' Provident Fund contribution of Rs.18,60,886/­ on or before the prescribed date and hence, the said amount is required to be disallowed and the petitioner was accordingly required to disallow the said amount and add the same to the total income as per the provisions of section 2(24) (x) read with section 36(1)(va) of the Act. As the petitioner had failed to add the said amount in the total income in the return of income, the Assessing Officer had formed a belief and recorded the satisfaction that the petitioner had not disclosed fully and truly all material facts necessary for the assessment and the income of Rs.18,60,886/­ has escaped assessment. It was further submitted that the Assessing Officer has issued the impugned notice after following the due Page 9 of 13 C/SCA/18637/2018 JUDGMENT procedure and in consonance with the provisions of the Act. 8 Reference was made to the affidavit­in­reply filed on behalf of the respondent, wherein reliance is placed on the decision of Apex Court in case of Commissioner of Income­tax v. P.V.S. Beedies (P) Ltd., (1999) 237 ITR 13, to contend that even if the reopening has been done on the report given by the audit department, the notice cannot be quashed provided the Assessing Officer has applied his mind to the factual information pointed out by the audit party which is so in facts of the present case. Further reliance is placed on the decision of this Court in case of N.K. Industries Ltd. v. Income­tax officer, OSD, (2014) 49 taxmann.com 216 (Gujarat) to contend that despite the fact that a certain instance has been brought to the notice of the Assessing Officer by the audit party, does not preclude the Assessing Officer to apply his mind to the material available on record and take a remedial action in the interest of revenue. It was therefore, submitted that the present petition does not deserve to be entertained. 9 On bare perusal of the reasons recorded by the respondent Assessing Officer for issuance of the impugned notice under section 148 of the Act, it emerges that no new, fresh or tangible material outside the existing record is brought on record by the Assessing Officer inasmuch as the contents of the reasons recorded clearly show that the Assessing Officer has formed his belief that taxable income to the extent of Rs.18,60,886/­ has escaped assessment by reason of failure on part of the petitioner to disclose fully truly and all material facts necessary for assessment for A.Y. 2011­2012 only on material available on record i.e. tax audit report wherein the Page 10 of 13 C/SCA/18637/2018 JUDGMENT auditor has reported that payment of Employees' Provident Fund contribution was not paid in the prescribed time and further, that on computation of income it has been found that the assessee­petitioner has not disallowed and added to the total income the aforesaid amount according to section 2(24)(x) read with section 36(1)(va) of the Act. For any sum received by the assessee from any of his employees to which the provisions of sub­clause (x) of clause 24 of section 2 apply, deduction thereof can be allowed only if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date as per the provisions of the Employees' Provident Fund Act. The Assessing Officer however, formed a belief that income has escaped assessment without considering the fact that the assessee has fully and truly disclosed all material facts which is evident from the impugned notice itself. Therefore, the Assessing Officer cannot issue notice under section 148 to reopen a concluded assessment i.e. scrutiny assessment under section 143(3) of the Act beyond a period of four years in absence of existence of any tangible material outside of the existing record and in absence of failure on part of the petitioner to disclose truly and fully all material facts necessary for assessment for the relevant assessment year. Admittedly, no new fact is brought on record by the Assessing Officer and nor there is any failure on part of the petitioner to disclose fully and truly all material facts necessary for the relevant assessment year and, therefore, as per First Proviso to section 147 of the Act, Assessing Officer cannot assume jurisdiction. 10 The record of the case shows that the respondent has called Page 11 of 13 C/SCA/18637/2018 JUDGMENT for all the details during the assessment proceedings including the tax audit report and computation of income which were duly submitted and were considered at the time of original assessment proceedings. Note no.3 forming part of the notes to return of income, reads as under : “3. Payment of employee’s Provident Fund before the due date of filing the return is considered as allowable as deduction in view of the following decisions: 1) CIT v. ALMIL Limited (229 C T R 418 (Del) 2) Pick Pen Pvt. Ltd. vs. ITO (ITA no. 6847/M/2008) (T Mum) 3) Seagram Distilleries Ltd. (ITA No. 2532/Del/2006) (T Del) 4) Radhakrishna Foodland (ITA no. 4211/Mum/2006) (Mum)” It is therefore, not in dispute that the petitioner was claiming deduction for belated payment of Employee's Provident Fund contribution as it was paid before due date of filing the return. The petitioner also relied upon various decisions which were available at the relevant point of time for filing the return of income. Therefore, as all the relevant details called for were submitted and perused during the course of original assessment proceedings and the Assessing Officer after considering the same, accepts the claim of the petitioner. The respondent, therefore, now seeks to reopen the assessment on mere change of opinion, which is not permissible in law and on that count also the impugned notice cannot be sustained. Page 12 of 13 C/SCA/18637/2018 JUDGMENT 11 For the foregoing reasons, the petition succeeds and is accordingly allowed. Impugned notice dated 28.3.2018 for the Assessment Year 2011­2012 issued by the respondent and all subsequent consequential proceedings taken pursuant thereto are hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 13 of 13 "