2021 (5) TMI 881 - HC - Income Tax

Court Validates Income Tax Notices Under Section 148 for Assessment Year

Watanmal Boolchand & Co., Ltd. Versus The Assistant Director of Income Tax, International Taxation-II, Chennai., The Deputy Commissioner of Income Tax, International Taxation – 2 (2), Chennai.

The court upheld the validity of notices issued under Section 148 of the Income Tax Act, 1961, finding that the respondents had jurisdiction to initiate ... Reopening of assessment u/s 147 - Income deemed to accrue or arise in India - writ against the show cause notice - as contended that absolutely there is no business activity in India, there is no manufacturing unit, not even a single product is sold within the territory of India by the petitioner-company - the company is only providing logistic support to the company at Hong Kong and goods are supplied in African Countries and South America and in other countries - HELD THAT:- As show cause notice cannot be assailed in view of the fact that many informations and evidences as well as the modus operandi of the petitioner-company are elaborated with reference to certain informations, statements and evidences collected by the respondents. All such details, informations and evidences are to be answered by the petitioner-company in order to cull out the truth and to form an opinion with reference to the grounds raised by the petitioner. A writ against the show cause notice may be entertained, however on certain limited grounds. A writ against the show cause notice is entertained only to ascertain whether the show cause notice has been issued by the competent authority or if there is any lack of jurisdiction. Even in other cases, where a mala fide intention is raised, then also a writ against the show cause notice may be entertained. Regarding the disputed facts, circumstances and evidences, no writ can be entertained against a show cause notice. The petitioner cannot be permitted to adjudicate the disputed facts and circumstances in a writ proceedings with reference to the documents and evidences. Such an exercise is to be done by the authorities competent by examining the evidences and the documents and by affording opportunity to the persons concerned. The law is settled regarding the entertainability of the writ petition against a show cause notice, so also the notice issued under Section 148 of the Act. In both the cases, it is to be construed that the facts are to be adjudicated. However, if the petitioner is able to establish that the proceedings are initiated without jurisdiction or authority, then alone a writ can be entertained and even in such circumstances, the order passed without jurisdiction is to be quashed and the matter is to be remanded back for reconsideration by the competent authority. Looking into the spirit of Section 9(1)(i) of the Act, in the context of the contents made in the show cause notice dated 05.03.2015, it is sufficient to form an opinion that the matter requires effective and elaborate adjudication in order to cull out the truth with reference to the pleadings and grounds raised by the petitioner. Petitioner has approached this Court at initial stage only on the ground that the respondents have no authority to invoke Section 147 of the Act. However, perusal of the reasoning given in the show cause notice, it is suffice to arrive a conclusion that there are materials and evidences enough to allow the Department to proceed with the issues and adjudicate the same based on the materials and evidences available and by affording opportunity to the petitioner. As far as the contentions of the petitioner are concerned, this Court is of the considered opinion that the case of the petitioner squarely falls under Section 9(1)(i) of the IT Act, which contemplates income deemed to accrue or arise in India and to satisfy the provisions of Section 9(1), the respondent-Department elaborated the details and made an analysis on the modus operandi of the petitioner and thus, the details are unambiguously recorded in the impugned show cause notice issued in proceedings dated 05.03.2015. Thus, all such analysis as well as evidences collected are to be answered and to be adjudicated and a final decision is to be taken by the authority. In view of the fact that the requirements of Section 9(1) of the Income Tax Act are satisfied with reference to the reasons furnished in the show cause notice, and further, this Court considered the implications of Section 5(2)(a) and 5(2)(b) of the Income Tax Act and Section 6(3)(ii) of the Income Tax Act in earlier paragraphs of this order. Once the income deemed to accrue or availed in India is prima facie established by the respondents, then all further adjudications are to be done by following the procedures contemplated under the Statutes and with reference to the grounds raised by the petitioner. Thus, this Court cannot entertain such disputed facts in the present writ proceedings. Entire reading of the impugned show cause notice throws light on the issue and therefore, this Court has no hesitation in forming an opinion that there are prima facie materials and evidences enough to proceed against the petitioner under the provisions of the IT Act. The contentions in the impugned show cause notice alone cannot be a conclusive factor and all such facts, circumstances as well as the documents and evidences collected and recorded in the impugned show cause notice are to be adjudicated elaborately by the authorities competent by affording opportunity to the petitioner, Thus, the petitioner is bound to avail the opportunity in order to defend their case. The petitioner may not make an attempt to escape from the clutches of law based on unsustainable grounds, which all are not substantiated. Sanction under Section 151 - Department able to establish that the sanction as contemplated under Section 151 has been granted by the competent authority and further regarding the plea that the petitioner has not been assessed in India, the said facts are controverted by the Department by placing evidences and materials and the details. All those materials and evidences were analysed by the competent authority and the findings made during the analysis were also made available in the impugned show cause notice dated 05.03.2015. The show cause notice dated 05.03.2015 is selfsufficient to form an opinion that the matter requires an elaborate adjudication in depth in order to cull out the truth behind the pleadings made by the petitioner. The business transactions, which all are complex in nature and made by the traders, many times in a calculated manner are to be adjudicated with expertise in the field and such an exercise must be allowed to be done by the competent authorities of the Income Tax Department and in the event of interference at the earliest stage and in the absence of any ground regarding the jurisdiction, the Court must in all fairness allow the authorities to proceed with the adjudication and pass an order of assessment enabling the petitioner to prefer an appeal even thereafter if any grievance exists. Order - Petitioner could not able to establish any acceptable ground for the purpose of interference at the stage of issuance of a notice under Section 148 and the issuance of show cause notice and contrarily the respondents could able to establish that sufficient materials are available on record, which were considered and scrutinised and a finding on such analysis is also recorded in the impugned show cause notice, there is no reason whatsoever to interfere with the actions of the respondent and thus, all the writ petitions fail and stand dismissed. In view of the fact that the respondents had already completed the assessment process and passed an assessment order and kept the same in a sealed cover, the respondents are permitted to open the sealed cover and communicate the assessment orders to the petitioner without any further delay enabling the petitioner to proceed further, if any grievance exist Issues Involved:1. Jurisdiction and validity of notices under Section 148 of the Income Tax Act, 1961.2. Business connection and permanent establishment in India under Section 9 of the Act.3. Compliance with procedural requirements under Section 151 of the Act.4. Validity of reassessment under Section 147 of the Act.Detailed Analysis:1. Jurisdiction and Validity of Notices under Section 148:The petitioner-company sought to quash notices issued under Section 148 of the Income Tax Act, 1961, which initiated assessment proceedings for the assessment year 2006-07. The petitioner argued that it had no business operations or taxable income in India, thus rendering the notices beyond jurisdiction and without authority of law. The respondents countered that the petitioner had a business connection in India through Watanmal India, constituting a permanent establishment. The court found that the respondents had sufficient material to issue the notices, and the petitioner’s contention that the notices were without jurisdiction was not upheld.2. Business Connection and Permanent Establishment in India:The petitioner argued that it had no income derived in India, and thus the provisions of the Act, particularly Section 9, were not applicable. The respondents presented evidence that the petitioner had a business connection in India through Watanmal India, which provided various services under an Administration Agreement and a Trade Services Agreement. The court noted that the petitioner had significant business activities in India, including negotiation and conclusion of contracts, and thus fell within the scope of Section 9(1)(i) of the Act, which deems income to accrue or arise in India through a business connection.3. Compliance with Procedural Requirements under Section 151:The petitioner contended that the sanction for issuing notices under Section 148 was not obtained from the competent authorities as required under Section 151 of the Act. The respondents produced documents showing that necessary sanctions were granted by the competent authorities. The court found that the respondents had complied with the procedural requirements of Section 151, and the petitioner’s argument on this ground was dismissed.4. Validity of Reassessment under Section 147:The petitioner argued that the initiation of reassessment proceedings under Section 147 was without basis, as there was no income derived in India. The court analyzed the provisions of Section 147, which allows for assessment or reassessment if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. The court found that the respondents had sufficient reasons, based on material evidence, to believe that the petitioner’s income had escaped assessment. The court also noted that the petitioner had not filed any return of income, and thus the case fell within the ambit of Section 147 for assessment.Conclusion:The court concluded that the respondents had sufficient material to initiate proceedings under Section 147 and issue notices under Section 148. The petitioner’s arguments regarding jurisdiction, business connection, procedural compliance, and validity of reassessment were not upheld. The court dismissed the writ petitions, allowing the respondents to proceed with the assessment and communicate the assessment orders to the petitioner.