MANGALORE REFINERY AND PETROCHEMICALS LTD V. PRINCIPAL COMMISSIONER OF INCOME TAX

WP/10551/2022

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The case involves Mangalore Refinery and Petrochemicals Ltd., which filed two writ petitions against the Principal Commissioner of Income Tax, Panaji, and the Assistant Commissioner of Income-Tax, Mangaluru, challenging the certificates issued under the Direct Tax Vivad Se Vishwas Act, 2020. The certificates were issued following the petitioner's partial acceptance under the Act, which led to disputes over the tax arrears calculated on disallowances made under Section 40(a)(i) of the Income Tax Act, 1961, for the assessment years 2008-09 and 2009-10. The petitioner argued that the certificates and the subsequent orders were illegal and arbitrary, seeking rectification to align with the facts and the provisions of the DTVSV Act.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 771303 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 18-11-2022
• Assessment Year: misc
• Laws Referred To: Direct Tax Vivad Se Vishwas Act, 2020, Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: K K CHAITHANYA
• Keywords: Disallowance; Form No. 3; Income Tax; Rectification; Tax arrears; Writ petition
• Section: 143(3); 5(1); 2(j); 2(o)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 18TH DAY OF NOVEMBER, 2022 BEFORE THE HON'BLE MR.JUSTICE S.R.KRISHNA KUMAR WRIT PETITION No. 10551 OF 2022 C/W WRIT PETITION No.10523 OF 2022(T-IT) IN W.P. No. 10551/2022 BETWEEN: MANGALORE REFINERY AND PETROCHEMICALS LTD., KUTHETHOOR, P.O. VIA KATIPALLA, MANGALURU-575030. A COMPANY REGISTERED BY COMPANIES ACT 1956 REPRESENTED BY ITS MANAGER-FINANCE. ...PETITIONER (BY SRI. K.K.CHAITHANYA, SENIOR COUNSEL FOR SRI. GEORGE PHILIP, ADVOCATE) AND: 1 . PRINCIPAL COMMISSIONER OF INCOME TAX PANAJI, 2ND FLOOR, AAYKAR BHAWAN, E.D.C. COMPLEX, PATTO PLAZA, PANAJI-403001. 2 . ASSISTANT COMMISSONER OF INCOME-TAX CIRCLE 1(1), MANGALURU, 1ST FLOOR, ANNEXE, C.R.BUILDING, ATTAVARA, MANGALURU 575 001. …RESPONDENTS (BY SRI. E.I. SANMATHI, ADVOCATE) THIS W.P. IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED CERTIFICATE IN FORM NO.3 VIDE ANNEXURE-P DTD 16TH OCTOBER 2020 ISSUED BY THE PRINCIPAL COMMISSIONER OF INCOME-TAX, PANAJI, R1 HEREIN, U/S 5(1) OF THE DIRECT TAX VIVAD SE VISHWAS ACT, 2020 AS WELL AS IMPUGNED ORDER DTD 1ST APRIL 2022 AND DIRECT R1 TO ISSUE A FRESH CERTIFICATE IN FORM NO.3 VIDE ANNEXURE-T IN CONFORMITY WITH THE FACTS ON RECORD AND ETC. 2 IN W.P. No.10523/2022: BETWEEN: MANGALORE REFINERY AND PETROCHEMICALS LTD KUTHETHOOR P.O. VIA KATIPALLA, MANGALURU-575030. A COMPANY REGISTERED BY COMPANIES ACT 1956 REPRESENTED BY ITS SENIOR MANAGER (FINANCE) J. BALASUBRAMANI ...PETITIONER (BY SRI. K.K.CHAYTHANYA, SENIOR COUNSEL FOR SRI. GEORGE PHILIP., ADVOCATE) AND: 1 . PRINCIPAL COMMISSIONER OF INCOME TAX PANAJI, 2ND FLOOR, AAYKAR BHAWAN, E.D.C. COMPLEX, PATTO PLAZA, PANAJI-403001. 2 . ASSISTANT COMMISSONER OF INCOME-TAX CIRCLE 1(1), MANGALURU, 1ST FLOOR, ANNEXE, C.R.BUILDING, ATTAVARA, MANGALURU 575 001. …RESPONDENTS (BY SRI. E.I. SANMATHI, ADVOCATE) THIS W.P. IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED CERTIFICATE IN FORM NO.3 DATED: 6TH JANUARY 2021 ISSUED BY THE PRINCIPAL COMMISSIONER OF INCOME TAX, PANAJI, R-1 HEREIN, U/S 5(1) OF THE DIRECT TAX VIVAD SE VISHWAS ACT, 2020 VIDE ANNEXURE – Q AS WELL AS IMPUGNED ORDER DTD: 1ST APRIL 2022 AND DIRECT R-1 TO ISSUE A FRESH CERTIFICATE IN FORM NO.3 VIDE ANNEXURE – U IN CONFORMITY WITH THE FACTS ON RECORD AND ETC. THESE PETITIONS COMING ON FOR PRELIMINARY HEARING ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:- 3 ORDER In W.P.No.10551/2022, petitioner has sought for the following reliefs:- “ a) Issue of writ of certiorari and directions in t he nature of certiorari quashing the impugned certificate in Form No.3 vide Annexure-P dated: 16th October 2020 issued by the Principal Commissioner of Income-tax, Panaji, Respondent No.1 herein under Section 5(1) of the Direct Tax Vivad Se Vvishwas Act, 2020 and as well as impugned Order dated: 1st April 2022 and direct Respondent No.1 to issue a fresh certificate in Form No.3 vide Annexure-T in conformity with the facts on record; b) Declare that the impugned certificate is in violation of the provisions of the VSV Act and contrary tot he facts on record; c) Pass such other orders as the Hon’ble Court deems fit and proper in the interest of justice and equity; d) for costs of this Petition. “ In W.P.No.10523/2022, petitioner has sought for the following reliefs:- “ a) Issue of writ of certiorari and directions in t he nature of certiorari quashing the impugned certificate in Form No.3 dated: 6th January 2021 issued by the Principal Commissioner of Income- 4 tax, Panaji, Respondent No.1 herein under Section 5(1) of the Direct Tax Vivad Se Vishwas Act, 2020 vide Annexure-Q as well as impugned Order dated: 1st April 2022 and direct Respondent No.1 to issue a fresh certificate in Form No.3 vide Annexure-U in conformity with the facts on record; b) Declare that the impugned certificate is in violation of the provisions of the VSV Act and contrary to the facts on record; c) Pass such other orders as the Hon’ble Court deems fit and proper in the interest of justice and equity; d) for costs of this Petition. “ 2. Both the petitions are by the same petitioner – assessee seeking identical reliefs. While W.P.No.10551/2022 is in relation to the assessment year 2008-09, W.P.No.10523/2022 is in relation to the assessment year 2009-10. Since common issues arise for consideration in both the matters, they are taken up together and disposed of by this common order. 3. Heard learned Senior counsel for the petitioner and learned counsel for the respondents-Revenue and perused the material on record. 5 4. In addition to reiterating the various contentions urged in the petitions and referring to the material on record, learned Senior counsel for the petitioner submits that the impugned Certificates issued by the respondents in Form - 3 under Section 5(1) of the Direct Tax Vivad Se Vishwas Act, 2020 (for short ‘the DTVSV’ Act) as well as the impugned orders rejecting the claim of the petitioner to correct / recalculate the amount mentioned in Form – 3 issued to the petitioner are illegal, arbitrary and contrary to the material on record as well as the DTVSV Act and the same are liable to be set aside and necessary directions are to be issued to the respondents to issue fresh Certificate in Form – 3 as claimed by the petitioner. 5. Per contra, learned counsel for the respondents in addition to reiterating the various contentions urged in the statement of objections, submit that there is no merit in the petition and the same is liable to be dismissed. 6. The material on record discloses that the petitioner in the instant petitions has challenged the Certificates issued in Form - 3 under Section 5(1) of the 6 DTVSV Act. Against the aforesaid Certificates, the petitioner filed rectification applications which were also rejected by the respondents by passing the impugned orders which are also challenged in the present petitions. 7. It is seen that pursuant to the petitioner filing Returns for the subject assessment years 2008-09 and 2009-10, the Assessing Officer passed the assessment orders under Section 143(3) of the Income Tax Act, 1961 (for short ‘the I.T.Act’) by making certain additions/disallowance to the returned income. The details of the same are as under: Assessment Year - 2008-09 Particulars AY 2008-09 Disallowance of freight charges under section 40(a)(i) of the IT Act 66,66,00,074 Disallowance of Depreciation 15,35,39,722 Disallowance under section 14A of the IT Act 3,84,26,370 Assessment Year - 2009-10 Particulars AY 2009-10 Disallowance of freight charges under section 40(a)(i) of the IT Act 80,19,59,658 Disallowance of Depreciation 13,09,37,839 Disallowance under section 14A of the IT Act 9,03,79,391 7 8. Being aggrieved by the aforesaid assessment orders, the Petitioner filed appeals before the Commissioner of Income Tax (Appeals), which were partly allowed in favour of the petitioner vide orders dated 08.03.2013 and 24.09.2014 respectively, for the aforesaid assessment years 2008-09 and 2009-10. 9. Being aggrieved by the aforesaid orders of the Commissioner of Income Tax (Appeals), both the Petitioner and the Revenue filed appeals before the Income Tax Appellate Tribunal (for short ‘the ITAT’). Subsequent to filing of appeals by both the Petitioner and the Revenue, the Assessing Officer passed orders dated 27.05.2013 and 19.01.2015 respectively, giving effect to the orders of the Appellate Authority. 10. Subsequently, the ITAT passed orders dated 08.06.2018 and 07.09.2018 respectively, by allowing the appeals of the Petitioner and dismissing the appeal filed by the Revenue for both the assessment years 2008-09 and 2009-10. In pursuance of the same, the Assessing Officer passed orders dated 22.10.208 and 04.01.2019 8 respectively giving effect to the orders of the Income Tax Appellate Tribunal. 11. Aggrieved by the orders of the ITAT, the Revenue preferred appeals before the Bombay High Court. During the pendency of the appeals before the Bombay High Court, the DTVSV Act came into force. The Petitioner being eligible to opt for the same, filed declaration in Form - 1 on 02.04.2020 before the prescribed authority. Subsequent to filing of declaration in Form -1 by the Petitioner, the 1st respondent issued the impugned Certificates dated 16.10.2020 and 06.01.2021 respectively in Form 3 by accepting the declaration of the Petitioner only partially. Against the said Certificates, which accepted the claim / declaration of the petitioner only partially, petitioner filed rectification applications which were also rejected by the respondents by passing the impugned orders dated 01.04.2022. Aggrieved by the impugned Certificates and orders, petitioner is before this Court by way of the present petitions. 9 12. The question / issue that arises for consideration in the present petitions is with respect to quantification of tax arrears in respect of disallowance under Section 40(a)(i) of the I.T Act. The details of the same are as under: AY 2008-09: Disallowance under Section 40(a)(i): Particulars Disputed Income Disputed tax [i.e., tax @ 33.99% on disputed income] Payable under DTVSV Act @ 50% of tax As per Petitioner 37,28,12,027 12,67,18,808 6,33,59,404 As per Revenue 66,66,00,074 22,65,77,365 11,32,88,683 AY 2009-10: Disallowance under section 40(a)(i): Particulars Disputed Income Disputed tax [i.e., tax @ 33.99% on disputed income] Payable under DTVST Act @s 50% of tax As per Petitioner 42,92,10,516 14,58,88,654 7,29,44,327 As per Revenue 80,19,59,658 27,25,86,088 13,62,93,044 13. A perusal of the DTVSV Act will indicate that the term The term ‘tax arrears’ is defined under Section 2(o) of the DTVSV Act as under:- (o)\"tax arrear\" means,— 10 (i)the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax; or ………… The term ‘disputed tax’ is defined under Section 2 (j) of the DTVSV Act as under:- (j) \"disputed tax\", in relation to an assessment year or financial year, as the case may be, means the income-tax, including surcharge and cess (hereafter in this clause referred to as the amount of tax) payable by the appellant under the provisions of the Income-tax Act, 1961, as computed hereunder:— (A) in a case where any appeal, writ petition or special leave petition is pending before the appellate forum as on the specified date, the amount of tax that is payable by the appellant if such appeal or writ petition or special leave petition was to be decided against him; ……… 14. In the instant case, the appeals pending before the Bombay High were filed by the Revenue. Hence, the disputed tax means the income tax including surcharge and cess (i.e., amount of tax) payable by the Petitioner, if the appeals filed by the Revenue were to be decided against the Petitioner. 15. It is relevant to state that in respect of disallowance under Section 40(a)(i), the Petitioner raised two fold arguments before the first Appellate authority i.e., 11 (a) the freight charges payable to non-residents outside India are not chargeable tax in India, hence, the Petitioner is not liable to deduct tax source under IT Act and, (b) without prejudice, those payees of freight charges who are residents of Singapore, UAE& Turkey, as per India’s double taxation avoidance agreements with the said countries, the aforesaid freight cannot be taxed in India. 16. The 1st Appellate Authority did not agree with the first contention, i.e., the freight charges payable to non- residents outside India are not chargeable tax in India and hence, the Petitioner is not liable to deduct tax at source under the I.T. Act and held against the Petitioner. However, the 1st Appellate Authority upheld the second contention of Petitioner and held that Petitioner is not liable to deduct tax at source if the payees are residents of Singapore, UAE & Turkey as per treaty with the respective countries. 17. Insofar as the finding of the 1st Appellate Authority rejecting the first contention of the petitioner is concerned, the Petitioner preferred appeals before the 12 ITAT as stated supra. Insofar as the finding of the 1st Appellate Authority accepting the second contention of the petitioner is concerned, the Revenue did not prefer any appeal against the said findings. In fact, the material on record discloses that the order of the 1st Appellate Authority was challenged by the respondents – Revenue on other grounds before the ITAT and the findings and order of the 1st Appellate Authority accepting the second contention of the petitioner was not challenged by the respondents – Revenue and the same attained finality and became conclusive and binding upon the respondents. Hence, the relief granted by the 1st Appellate Authority in favour of the petitioner in respect of payments made to payees who are residents of Singapore, UAE & Turkey as per Indo DTAA with respective countries, became final. In pursuance of the same, the Assessing Officer passed Order Giving Effect [OGE] to the Orders of the 1st Appellate Authority as under:- AY 2008-09: Disallowance under section 40(a)(i): Particulars Amount in Rs. Amount in Rs. Relief allowed by CIT(A) Freight Charges (Para 04 of CIT(A) Order) Singapore 25,02,52,995 UAE 4,35,35,052 29,37,88,047 13 AY 2009-10: Disallowance under section 40(a)(i): Particulars Amount in Rs. Amount in Rs. Relief allowed by CIT(A) Freight Charges Singapore 13,89,95,282 Turkey 2,79,28,997 UAE 20,78,28,883 37,27,49,142 Year-wise relief granted by the Commissioner of Income Tax (Appeals) is as under:- AY 2008-09 AY 2009-10 Particulars Amount in Rs. Amount in Rs. Amount in Rs. Amount in Rs. Freight Charges 66,66,00,074 80,19,59,658 Less: Relief given by CIT(A) Singapore 25,02,52,995 13,89,95,282 Turkey - 2,79,28,997 UAE 4,35,35,052 29,37,88,047 20,78,28,883 37,27,49,142 Balance 37,28,12,027 42,92,10,516 18. A perusal of the orders of the ITAT will indicate that it upheld even the first contention of the Petitioner that the freight charges payable to non-residents outside India are not chargeable tax in India and hence, that the Petitioner is not liable to deduct tax at source under IT Act. As regards the second contention which was held in favour of the Petitioner by the 1st Appellate Authority, since the revenue did not challenge the same before the ITAT, the Tribunal did not deal with the same and the said issue in 14 relation to cases of payments to payees who are residents of Singapore, UAE & Turkey which were held in favour of the petitioner by the 1st appellate authority attained finality and became conclusive and binding upon the respondents- Revenue. 19. In this context, a reference may be made to OGE to ITAT passed by the Assessing Officer as under: Relief given by ITAT AY 2008-09 AY 2009-10 Disallowance under section 40(a)(i) of freight charges 37,28,12,027 42,92,10,516 20. It is relevant to state that the material on record indicates that the respondents – Revenue have filed appeals against the orders of the ITAT only insofar as the first contention of the petitioner is concerned and the same are pending adjudication; however, the said appeals before the Bombay High Court are not in relation to the second contention of the petitioner which has attained finality and become conclusive in favour of the petitioner and binding upon the respondents – Revenue. Hence, in so far as disallowance under section 40(a)(i), the disputed tax which 15 is subject matter of departmental appeal before the High Court is as under:- AYs Tax Arrears Disputed tax [i.e., tax @ 33.99% on disputed income] Payable under VsVs @ 50% of tax 2008-09 37,28,12,027 12,67,18,808 6,33,59,404 2009-10 42,92,10,516 14,58,88,654 7,29,44,327 21. As stated earlier, disputed tax as per Section 2(1)(j)(A) of the DTVSV Act is the income tax including surcharge and cess (i.e., amount of tax) payable by the petitioner - assessee, if the Revenue’s appeals were to be decided against the petitioner - assessee. Accordingly, in the instant case, if the Revenue’s appeals were to be allowed in its favour and against the Petitioner, amount of tax (i.e., disputed tax) payable by the Petitioner is as under: AYs Disputed income Disputed tax [i.e., tax @ 33.99% on disputed income] 2008-09 37,28,12,027 12,67,18,808 2009-10 42,92,10,516 14,58,88,654 22. It is significant to note that the orders passed by the Assessing Officer giving effect to the orders of the ITAT confirm the aforesaid facts and figures. Accordingly, as per 16 Section 2(1)(o)(i), the tax arrears mean the disputed tax and as per the table given in Section 3(1) read with the first proviso thereunder, the Petitioner has to pay 50% of tax arrears. The details of the same are as under: AYs Disputed income Disputed tax [i.e., tax @ 33.99% on disputed income] Payable under DTVSV Act @ 50% of tax 2008-09 37,28,12,027 12,67,18,808 6,33,59,404 2009-10 42,92,10,516 14,58,88,654 7,29,44,327 23. It is therefore clear that the impugned Certificates and orders passed by the respondents demanding much higher sums from the petitioner are clearly illegal, arbitrary and contrary to the material on record and law as well as the provisions of the DTVSV Act and the same deserve to be quashed and necessary directions are to be issued to the respondents in this regard. 24. In the result, I pass the following:- ORDER (i) W.P.No.10551/2022 is hereby allowed; (ii) The impugned Certificate at Annexure-P in Form – 3 dated 16.10.2020 issued by the 1st respondent – Principal Commissioner as well as the impugned orders at 17 Annexure-R dated 12.07.2021 and Annexure-T dated 01.04.2022 are hereby quashed. (iii) The respondents are directed to issue fresh Form – 3 in favour of the petitioner in terms of Form -1 submitted by the petitioner after carrying out necessary rectifications / revisions / modifications as sought for by the petitioner in its representations / requests as expeditiously as possible. (iv) W.P.No.10523/2022 is hereby allowed; (v) The impugned Certificate at Annexure-Q in Form – 3 dated 06.01.2021 issued by the 1st respondent – Principal Commissioner as well as the impugned orders at Annexure-T dated 13.07.2021 and Annexure-U dated 01.04.2022 are hereby quashed. (vi) The respondents are directed to issue fresh Form – 3 in favour of the petitioner in terms of Form -1 submitted by the petitioner after carrying out necessary rectifications / revisions / modifications as sought for by the petitioner in its representations / requests as expeditiously as possible. Sd/- JUDGE Srl. "