MAK PLYWOOD INDUSTRIES PVT LTD. V. UNION OF INDIA,

WP(C)/15458/2022

AI Insights

Mak Plywood Industries Pvt Ltd filed a writ petition challenging the re-assessment proceedings initiated by the Income Tax authorities for the Assessment Year 2014-15. The re-assessment was based on the valuation of shares during the acquisition of 'National Wood Products', which was alleged to have exceeded the fair market value and thus should be taxed as 'Income from Other Sources'. The petitioner argued that the issue was already addressed in the original assessment and that re-opening the assessment constituted a change of opinion. The court, however, found that there was a failure to disclose material facts fully and truly, justifying the re-assessment under Section 147 of the IT Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 725146 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 16-11-2023
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Kelvinator of India Ltd, Marico Ltd v. Assistant Commissioner of Income Tax, Assistant Commissioner of Income Tax v. Marico Limited, The Parashuram Pottery Works Co. Ltd. v. The Income Tax Officer, Circle-1, Raza Textiles Ltd. v. Income Tax Officer, Commissioner of Income Tax v. Chhabil Dass Agarwal
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM
• Assessee Lawyers: GOPIKRISHNAN NAMBIAR; JOHN MATHAI; JOSON MANAVALAN; KURYAN THOMAS; PAULOSE ABRAHAM; RAJAKANNAN
• Keywords: Escapement of income; Income from other sources; Jurisdiction; Re-assessment; Valuation of shares
• Section: 147; 148; 143(3); 143(2); 271(1)(c); 274; 149; 151; 56(2)(viib)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH THURSDAY, THE 16TH DAY OF NOVEMBER 2023 / 25TH KARTHIKA, 1945 WP(C) NO. 15458 OF 2022 PETITIONER/S: MAK PLYWOOD INDUSTRIES PVT LTD. MP III 130A, PADAV, KUNJATHUR POST, MANJESWARAM, KASARGOD-671 323, REPRESENTED BY ITS DIRECTOR - MR. ABDUL MUNEER.K. BY ADVS.M.GOPIKRISHNAN NAMBIAR; K.JOHN MATHAI; JOSON MANAVALAN; KURYAN THOMAS; PAULOSE C. ABRAHAM; RAJA KANNAN RESPONDENT/S: 1 UNION OF INDIA, REPRESENTED BY ITS REVENUE SECRETARY, MINISTRY OF FINANCE, NEW DELHI 110 004. 2 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, KANNUR RANGE, AYAKAR BHAVAN, KANNOTHUMCHAL, CHOVVA P.O., KANNUR-670 006. 3 THE INCOME TAX OFFICER, WARD-1 & TPS, AYAKAR BHAVAN, KANNOTHUMCHAL, CHOVVA P.O., KANNUR-670 006 4 THE ADDITIONAL/ JOINT/DEPUTY/ ASSISTANT COMMISSIONER OF INCOME TAX/INCOME TAX OFFICER, NATIONAL FACELESS ASSESSMENT CENTRE, DELHI- 110 003. BY ADV CHRISTOPHER ABRAHAM THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 16.11.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C) No.15458/2022 -2- J U D G M E N T The present writ petition has been filed by the petitioner impugning Ext.P8 notice issued by the 3rd respondent, Exts.P21 order and Ext.P22 penalty notice issued by the 4th respondent. The petitioner is also seeking a writ of mandamus to declare the re-assessment proceedings initiated by the 3rd and 4th respondents as without jurisdiction. 2. The petitioner, an assessee under the provisions of the Income Tax Act 1961 (for short, ‘the IT Act’), filed returns of its income for the Assessment Year 2014-15 on 26.11.2014. The petitioner’s case was selected for scrutiny under the Computer Aided Scrutiny System (CASS), and a notice under Section 143(2) of the IT Act was issued to the petitioner on 18.09.2015. According to the petitioner, the petitioner had acquired the business of ‘National Wood Products’ as a going concern, against the issuance of sharers of the petitioner at a W.P.(C) No.15458/2022 -3- premium. 2.1 The petitioner was issued a notice dated 17.08.2016 in Ext.P1 directing it to produce certain documents. In response to the said notice, the petitioner had produced the documents vide covering letter dated 06.09.2016 in Ext.P2. The petitioner was directed to submit additional documents, which, according to the petitioner, he submitted vide covering letter dated 05.10.2016 (Ext.P3). These documents would include a certificate of valuation of shares issued by the Chartered Accountant (Statutory Auditor). The 2nd respondent completed the assessment for the Assessment Year 2014-15 on 21.10.2016 under Section 143(3) of the IT Act. 2.2 The 3rd respondent thereafter issued a notice (Ext.P8) under Section 148 of the Act proposing to assess/re- assess the income of the petitioner under the provisions of Section 147 of the IT Act. The said notice was issued beyond four years from the end of the relevant assessment year by W.P.(C) No.15458/2022 -4- taking recourse to Section 149 of the IT Act. 2.3 In response to Ext.P8 notice dated 31.03.2021, the petitioner filed its return of income and sought ‘reasons for re- opening’ the assessment of the petitioner. The 3rd respondent issued a letter dated 18.06.2021 providing the reasons for re- opening of the assessment vide Ext.P10 letter. The reasons for re-opening as per Ext.P10 letter is consideration of the issue of shares on the acquisition of ‘National Wood Products’, which exceeded the face value of the shares, and the aggregate consideration received for such shares exceeds the fair market value of the shares and the same would be chargeable to income tax as ‘Income from Other Sources’. It was also said that the Certificate issued by the Chartered Accountant (Ext.P6) was dated 31.03.2013, whereas the net asset value of the Company adopted was on the date 30.06.2013, and therefore, the valuation made by the external Chartered Accountant was not correct. W.P.(C) No.15458/2022 -5- 2.4 The 3rd respondent was of the view that there was no full and true disclosure made by the petitioner at the stage of assessment, which had led to the escapement of income from the assessment in the relevant Assessment Year. The 3rd respondent issued a notice dated 05.07.2021 under Section 143(2) of the IT Act, again communicating the reasons for re- opening. The jurisdiction of assessment proceedings was transferred to the Faceless Assessment Unit on 11.11.2021 for completion of the proceedings as prescribed under the National Faceless Assessment Scheme. After the said transfer, the 4th respondent issued a communication dated 09.12.2021 (Ext.P13) wherein the reasons for re-opening recorded in the approval under Section 151 of the Act were intimated. The petitioner filed its objection to the said Ext.P13 notice vide Ext.P14. The 4th respondent issued an order dated 20.01.2022 disposing of the objections filed by the petitioner vide Ext.P15 order. W.P.(C) No.15458/2022 -6- 2.5 The 4th respondent thereby issued a notice (Ext.P17) dated 04.02.2022 under Section 142(1) of the IT Act seeking the working of the valuation of the shares as well as the copy of the Audit Report, Profit and Loss Account and the Balance Sheet along with Annexures. The petitioner filed a reply to the said notice in Ext.P18. Draft Assessment Order was passed on 25.03.2022 proposing variation as per the show cause notice dated 25.03.2022 (Ext.P19). The petitioner submitted a response to the said proposed assessment and notice vide letter dated 27.03.2022. The 4th respondent passed the final assessment order on 30.03.2022, along with the computation sheet and demand notice in Ext.P21. The penalty proceedings were initiated under Section 274, read with Section 271(1)(c) of the IT Act. 3. Learned Counsel for the petitioner submits that the issue of valuation of shares was the subject matter of the Original Assessment under Section 143(3) of the IT Act, which W.P.(C) No.15458/2022 -7- was concluded vide Ext.P7 order. After examination of the Share Valuation Certificates, the Assessing Authority decided not to make any assessment with reference to Section 56 of the IT Act while passing the Ext.P7 original Assessment Order. It is submitted that when the subject matter of fair valuation of shares at the time of original assessment proceedings, re- opening in respect of shares valuation would amount to a change of opinion by the Assessing Authority. And, on the basis of a change of opinion, a notice under Section 148 of the IT Act for re-opening the assessment proceedings cannot be issued. In support of the said submission, learned Counsel for the petitioner has placed reliance on the judgment in Commissioner of Income Tax v. Kelvinator of India Ltd1. 3.1 It is further submitted that merely on the ground that the Assessing Authority did not record any discussions and findings for not making additions under Section 56 of the 1 (2010) 2 SCC 723/(2010) 320 ITR 561 (SC) W.P.(C) No.15458/2022 -8- IT Act in the Original Assessment Order would not make any difference as the issue was raised during the assessment proceedings and the assessee answered the said issue. Thereafter, having satisfied with the response of the assessee, the assessment proceedings were finalised. For this proposition, learned Counsel for the petitioner has placed reliance on the judgment in the case of Marico Ltd v. Assistant Commissioner of Income Tax2 and Assistant Commissioner of Income Tax v. Marico Limited3. 3.2 Learned Counsel for the petitioner further submits that the valuation reports/certificates produced at the time of the original assessment were on record of the assessment files and re-opening of assessment on the issue of valuation of shares would be beyond the jurisdiction of the respondents under Section 147 of the IT Act. The correctness or otherwise 2 (2020) 425 ITR 177 (Bom.) 3 (2020) 16 SCC 354 W.P.(C) No.15458/2022 -9- of the mode of valuation cannot be a reason for invoking the larger period of limitation (beyond four years) under the proviso to Section 147 of the IT Act. For invocation of a larger period of limitation, twin conditions are to be satisfied: (i) escapement of income and (ii) non-disclosure on the part of the assessee. In the present case, the petitioner has made all disclosures before the Assessing Authority. In view thereof, even if the inferences drawn by the Assessing Authority at the time of the original assessment based on the disclosures made by the petitioner are inconsistent with the statutory provisions, re-opening of the assessment is not permitted, invoking the larger period of limitation. In support of the said submission, learned Counsel for the petitioner has placed reliance on the judgment in the case of The Parashuram Pottery Works Co. Ltd. v. The Income Tax Officer, Cirlce-14. 3.3 Furthermore, learned Counsel for the petitioner 4 (1977) 1 SCC 408 W.P.(C) No.15458/2022 -10- also submits that when the Assessing Authority has acted beyond the jurisdiction and/or the Assessing Authority has assumed the jurisdiction erroneously, the petitioner can approach this Court under Article 226 of the Constitution of India for a writ of certiorari. The petitioner’s Counsel has placed reliance in respect of the said submission in the case of Raza Textiles Ltd. v. Income Tax Officer5. 4. Sri Christopher Abraham, learned Standing Counsel for the Revenue, has submitted that the learned Counsel of the petitioner’s submission that the petitioner had disclosed fully and truly all material and relevant facts for completion of the assessment does not appear to be correct. The petitioner had produced its account and valuation certificate of Chartered Accountant estimating the fair market value of the share of the petitioner–Company indicating that no income under Section 56(2)(viib) of the IT Act would be assessable in its hand. 5 (1973) 1 SCC 633 W.P.(C) No.15458/2022 -11- The valuation of the shares of the petitioner was not done on the date when the petitioner had acquired ‘National Wood Products’, but the valuation of the shares of the petitioner was done after acquiring the assets of ‘National Wood Products’. In this sense, there was a failure on the part of the assessee in disclosing fully and truly all material facts of the assessee for the computation of its income. 4.1 Sri Christopher Abraham further submits that Explanation 1 to Section 147 of the IT Act provides that the production of books of accounts or other evidence before the Assessing Officer from which material evidence could, with due diligence, be discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the ‘proviso’ to Section 149. The petitioner’s case is one falling within the meaning of ‘proviso’ to Section 147 in the light of Explanation 1 to Section 147, and therefore, there is no substance in the submission that the assessment has been re- W.P.(C) No.15458/2022 -12- opened merely on the basis of ‘change of opinion’. 4.2 Sri Christopher Abraham furthermore submits that the re-assessment proceedings have now culminated in the passing of the impugned Ext.P21 assessment order against which the statutory remedy of appeal under Section 246A of the IT Act is available to the petitioner, and the petitioner is free to assail the assessment order taking all the grounds regarding the validity of re-opening of the assessment order as well as on merits against the additions made in the assessment. When there is an equally efficacious remedy of appeal available to the petitioner, filing of the present writ petition under Article 226 of the Constitution of India for invoking the extraordinary writ jurisdiction is not permitted. Learned Counsel for the Revenue has placed reliance on the judgment in the case of Commissioner of Income Tax v. Chhabil Dass Agarwal6 and prayed for dismissal of the writ petition. 6 Order dated 08.08.2013 in Civil Appeal No.6704/2013 [357 ITR 357 (SC) W.P.(C) No.15458/2022 -13- 5. The question which needs to be considered in the present writ petition is whether the re-assessment proceedings initiated are vitiated in any manner inasmuch as the same is said to be based on a change of opinion? 6. The petitioner had not filed the return of his income under Section 56(2)(viib) of the IT Act. Considering the provisions of Explanation 1 to Section 147 of the IT Act, the mere submission of books of accounts and other material would not discharge an assessee from the obligation of disclosing fully and truly all material facts necessary for the assessment of the income. The question whether the petitioner had discharged his duty of disclosing fully and truly all material facts is to be considered while coming to the conclusion that whether the re-opening of the assessment is based on a mere change of opinion or the Assessing Authority has reason to believe that the income in the hands of the assessee has escaped assessment because of the non-disclosure W.P.(C) No.15458/2022 -14- of fully and truly all material facts necessary for assessment. The reasons recorded by the Assessing Officer would disclose that the Assessing Officer has formed an opinion and has the belief that the income in respect of the transfer of the petitioner’s shares while acquiring ‘National Woods Products’ had escaped assessment under Section 56(2)(viib) of the IT Act. The reasons recorded by the Principal Commissioner of Income Tax to accord sanction for the issue of notice under Section 148 cannot be said that the sanction was granted mechanically and without application of the mind. 6.1 From the facts narrated above, the mere submission of books of accounts and the certificate issued by the Statutory Auditor would not amount to the fact that the petitioner has disclosed fully and truly all material facts in his returns for completion of the assessment proceedings in respect of his income. I, therefore, find that there is no error of jurisdiction committed by the authorities by re-opening the assessment. W.P.(C) No.15458/2022 -15- The petitioner has participated in the re-assessment proceedings, and now the final order has been passed. The petitioner has the remedy of approaching the Appellate Authority under Section 246A of the IT Act against the said assessment order. 6.2 In view thereof, the present writ petition is dismissed. However, liberty is granted to the petitioner to file an appeal against the assessment order in Ext.P21 within a period of three weeks from today, and if such an appeal is filed, the Appellate Authority shall decide the appeal in accordance with the law, without being influenced by any of the observations made herein above. If the appeal is filed within a period of three weeks, the Appellate Authority shall proceed to decide the appeal on merit without going into the question of limitation. Sd/- DINESH KUMAR SINGH JUDGE jjj W.P.(C) No.15458/2022 -16- APPENDIX OF WP(C) 15458/2022 PETITIONER EXHIBITS Exhibit P1 THE TRUE COPY OF THE NOTICE DATED 17.08.2016 ISSUED BY THE 2ND RESPONDENT. Exhibit P2 THE TRUE COPY OF THE REPLY (WITHOUT ANNEXURES) DATED 06.09.2016 SUBMITTED BEFORE THE 2ND RESPONDENT. Exhibit P3 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 05.10.2016 SUBMITTED BEFORE THE 2ND RESPONDENT. Exhibit P4 THE TRUE COPY OF THE CERTIFICATE OF THE CHARTERED ACCOUNTANT DATED NIL, WHICH WAS SUBMITTED BEFORE THE 2ND RESPONDENT. Exhibit P5 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 20.10.2016 SUBMITTED BEFORE THE 2ND RESPONDENT. Exhibit P6 THE TRUE COPY OF THE CERTIFICATE DATED 30.06.2013 ISSUED BY THE EXTERNAL CHARTERED ACCOUNTANT. Exhibit P7 THE TRUE COPY OF THE ASSESSMENT ORDER (WITHOUT ANNEXURES) DATED 21.10.2016 ISSUED BY THE 2ND RESPONDENT. Exhibit P8 THE TRUE COPY OF THE NOTICE DATED 31.03.2021 ISSUED BY THE 3RD RESPONDENT UNDER SECTION 148 OF THE ACT. Exhibit P9 THE TRUE COPY OF THE LETTER DATED 28.04.2021 SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT. (WITHOUT ENCLOSURES) Exhibit P10 THE TRUE COPY OF THE LETTER DATED 18.06.2021 ISSUED BY THE 3RD RESPONDENT. W.P.(C) No.15458/2022 -17- Exhibit P11 THE TRUE COPY OF THE NOTICE DATED 05.07.2021 ISSUED BY THE 3RD RESPONDENT. Exhibit P12 THE TRUE COPY OF THE OBJECTION DATED 02.08.2021 SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT Exhibit P13 THE TRUE COPY OF THE COMMUNICATION DATED 09.12.2021 (ALONG WITH ITS ATTACHMENT). ISSUED BY THE 4TH RESPONDENT Exhibit P14 THE TRUE COPY OF THE OBJECTION (WITHOUT ANNEXURES) DATED 31.12.2021 SUBMITTED BEFORE THE 4TH RESPONDENT Exhibit P15 THE TRUE COPY OF THE ORDER DATED 20.01.2022 ISSUED TO THE PETITIONER BY THE 4TH RESPONDENT. Exhibit P16 THE TRUE COPY OF THE ORDER DATED 04.02.2022 ISSUED BY THE 4TH RESPONDENT TO THE PETITIONER. Exhibit P17 THE TRUE COPY OF THE NOTICE DATED 04.02.2022 ISSUED BY THE 4TH RESPONDENT UNDER SECTION 142(1). Exhibit P18 A TRUE COPY OF THE REPLY (WITHOUT ANNEXURES) DATED 09.02.2022 SUBMITTED BY THE PETITIONER BEFORE THE 4TH RESPONDENT ALONG WITH THE E- ACKNOWLEDGMENT. Exhibit P19 THE TRUE COPY OF THE SHOW CAUSE DATED 25.03.2022, ALONG WITH THE DRAFT ASSESSMENT ORDER DATED 25.03.2022. ISSUED BY THE 4TH RESPONDENT. Exhibit P20 THE TRUE COPY OF THE LETTER DATED 27.03.2022 SUBMITTED BEFORE THE 4TH RESPONDENT. Exhibit P21 THE TRUE COPY OF THE ASSESSMENT ORDER DATED 30.03.2022 PASSED BY THE 4TH RESPONDENT ALONG W.P.(C) No.15458/2022 -18- WITH THE COMPUTATION SHEET AND DEMAND NOTICE. Exhibit P22 THE TRUE COPY OF THE PENALTY NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271 (1)(C) DATED 30.03.2022 ISSUED BY THE 4TH RESPONDENT. Exhibit P23 THE TRUE COPY OF THE APPLICATION DATED 14.04.2022 SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT. Exhibit P24 THE TRUE COPY OF THE CERTIFICATE COMMUNICATION DATED 21.04.2022 ISSUED BY THE 3RD RESPONDENT. Exhibit P25 THE TRUE COPY OF THE STANDARD OPERATING PROCEDURE (SOP) DATED 19.11.2020 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, FUNCTIONING UNDER THE FIRST RESPONDENT Annexure-H Raza Textiles Ltd. Vs. Income Tax Officer (1973) 1 SCC 633 Annexure-G ACIT v. Kalpataru Land Pvt. Ltd [2022] 447 ITR 364 (SC) and State Bank of India v. ACIT [2019] 418 ITR 485 (Bom) affirmed in PCIT and Others v. State Bank of India [2022] 447 ITR 368 (SC) Annexure-F Calcutta Discount Co. Ltd ITO AIR 1961 SC 372 Annexure-E The Parashuram Pottery Works Co. Ltd v. Income Tax Officer (1977) 1 SCC 408 Annexure-D ACIT v. Marico Limited (2020) 16 SCC 354 Annexure-C Marico Ltd v. ACIT reported in (2020) 425 ITR 477 (Bom) Annexure-B CIT Vs. Kelvinator of India Ltd, reported in (2010) 2 SCC 723 W.P.(C) No.15458/2022 -19- Annexure-A GKN Driveshafts' case 2003 (1) SCC 72 "