TaxTMI 
TaxTMI 
2015 (4) TMI 942
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....ame to be filed on 30.09.2009 declaring a total loss of Rs. 39,56,399/-. Under section 143(3) of the Act assessment was taken up and after the details called for by the Assessing officer and same being produced a draft assessment order came to be passed on 28.03.2013 proposing to make several additions to the income of the petitioner. Petitioner filed its objections to draft assessment order before Dispute Resolution Panel, which ultimately confirmed the proposed addition to the income of the petitioner on the basis of which order under section 143(3) read with Section 144C of the Act came to be passed on 31.01.2014, Annexure-H. Being aggrieved by the same petitioner is said to have filed an appeal and same is filed before first appellate authority and same is pending. 3. First respondent has issued a notice under section 148 of the Income Tax Act to the petitioner-assessee on 27.03.2014 Annexure-K indicating thereunder that he has reason to believe that income in respect of which petitioner-assessee is assessable to tax for the assessment year 2009-10 has escaped assessment within the meaning of section 147 of the Act. Hence, in order to assess/re-assess the income under section ....
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....09-10 is not based on a mere change of opinion but is based on the fact an amount of Rs. 216,89,00,773/- which was deferred in AY 2009-10 has not been offered in the subsequent assessment year. 3. Regarding deferment of revenue, the DRP in its order for AY 2010-11 has upheld the stand taken by the Assessing Officer that such deferral may work against revenue not just because it is not permitted under the IT Act but also because TDS credit is claimed in full in the year in which revenue accrues. It is also possible as in the present case that the company may not offer such amount to tax". 4. Hence, petitioner has approached this court for quashing of notice issued under section 148 dated 27.03.2014 Annexure-K and order/communication dated 24.02.2015 Annexure-P passed by first respondent rejecting petitioner's preliminary objection. 5. I have heard the arguments of Sriyuths Perly Pardiwalla, Learned Senior Counsel appearing on behalf T. Suryanarayana, for petitioner and K.V.Aravind, learned panel counsel appearing for respondents. 6. It is the contention of Sri. Perly Pardiwala, learned senior counsel appearing for petitioner that Rs. mere change of opinion' would not be ....
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....subsequent years and that therefore, in line with the revenue recognition principles, the revenue from such services would have to be recognized over the period of providing services. He would also contend that revenue to be so recognized in the subsequent years is accounted under the head Rs. other liabilities' in the balance sheet of the petitioner company and this policy is consistently being followed by the petitioner which is in para materia with the accounting pattern and system formulated by Institution of Chartered Accountant of India. He would draw the attention of the court to assessment order for the assessment year 2009-10 where under the Assessing officer had an occasion to particularly examine the accounting policy adopted by petitioner and after noticing the explanation offered by the petitioner, Assessing Officer had accepted the same for the said year with regard to detailed break up of deferred revenue relating to a total amount of Rs. 216,89,00,773/- and no disallowance came to be made by the Assessing Officer on account of revenue itself recognizing the accounting policy followed by petitioner and same came to be accepted. He would also submit that subsequen....
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....y. Hence, he prays for allowing the writ petition and seeks for quashing of the impugned notice and prays for setting aside the reasons assigned by the respondent for sustaining the notice which is at Annexure-P. 8. Per contra, Sri.K.V.Aravind, learned counsel appearing for respondents would support the impugned notice issued to the petitioner and contends that the petitioner having adopted the policy of deferred revenue on the ground that it would be amenable to taxation only after warranty claim arises is not a procedure provided under the Income Tax Act, 1961 or the issue of deferred revenue is not provided under the Income Tax Act, 1961 and contends that petitioner company having received the amounts by way of warranty from its customers and having not established as to when the said amounts received had been offered to tax, Assessing officer had reason to believe that it has escaped assessment and as such Assessing Officer had called upon the petitioner to prove that such income in respect of which petitioner has declared in the return of income as deferred revenue having suffered tax with details thereof and contends that inspite of several particulars being given it was not....
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.... error calling for exercise of extraordinary jurisdiction by this court? 2. Whether reasons assigned by the 1st respondent vide communication dated 25.04.2014 Annexure-M rejecting the objections raised by petitioner for reopening the assessment for the year 2009-10 can be held to satisfy the criteria prescribed under Section 147 of the Act?" 11. In order to delve upon the points formulated herein above it would be necessary to extract the relevant provisions which has bearing on the issue namely Section 147 and same is extracted herein below: "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment 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 a....
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....essing officer is essentially within his subjective satisfaction at the stage of issuing notice under section 148. The only question is whether there was sufficient material on which a man of reasonable prudence could have formed such belief or not. As to whether commencement of re-assessment proceedings is valid or not can be considered when questioned in a court by examining it from the point of view of an Assessing officer namely as to whether there was prima facie Rs. reasonable belief' entertained by the Assessing officer prior to issue of such notice or it is only because of change of opinion. Sufficiency of such material cannot be a ground which can be examined by the court while examining a plea, attacking such notice issued under section 148 read with section 147. For this proposition judgment of Hon'ble Apex Court in the case of Raymond Woollen Mills Ltd., Vs ITO reported in (1999) 236 ITR 34 (SC) can be looked up. 13. The Assessing officer at the stage of issuing notice is required to have Rs. reason to believe' but not the established fact of escaping of income to tax. At the stage of issuing notice the only question is whether there was relevant material a....
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....o be examined. While so examining it has been held by the Apex Court that expression Rs. reason to believe' cannot be read to mean that Assessing officer should have ascertained the fact by legal evidence or conclusion. It has been held by Apex Court as under: "16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO (1991) 98 CTR (SC)161:(1991) 191 ITR 662 (SC), for initiation of action under sect....
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..... So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued". 15. Keeping these principles in mind when the facts on hand are examined it would indicate that during the course of assessment proceedings for the assessment year 2009-10 assessee had requested the Assessing officer to reconcile the sales as per sales tax return and sales declared in the return of income. Said returns on comparison was found by Assessing officer that sales as per sales register and sales tax return was Rs. 3185,47,04,713/- and a sum of Rs. 81,26,94,037/- was further added as service income not included in the VAT return. On this various adjustments were made to reach the net revenue of Rs. 3110,85,96,000/-. One of the reduction which was claimed was in a sum of Rs. 216,89,00,773/- as smart debits deferred revenue account in the schedule of other liabilities as smart debits deferred revenue account. In the reasons furnished by 1st respondent for re....
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....It is because of this precise reason Assessing officer has called upon the assessee to furnish details thereof in order to ascertain as to whether said warranties in respect of which the assessee had claimed as deferred revenue had been factually offered in the subsequent year/s. Though Sri.Perly Pardiwalla, Learned Senior Counsel for petitioner was correct in contending that in respect of warranties which has been issued for two years would not arise immediately in the next financial year that by itself would not be a ground to reject the notice issued for reopening the assessment and it would be always open to the assessee to place all such material in support of its contention before the Assessing officer to establish as to when and how and in what mode such warranty which is claimed by it as deferred revenue would accrue as its income which has been treated as deferred revenue and same having been offered to tax in the subsequent year/s. 18. As already noticed hereinabove, the words used in Section 147 of the Income Tax Act, 1961 empowers the Assessing Officer to issue notice for reopening the assessment, if he has "reason to believe" and it would not be in his domain at that ....
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....d any jurisdictional error having been committed by the Assessing Officer to reopen the assessment for the assessment year 2009-10 by issue of impugned notice and also over-ruling of objections raised by the petitioner assessee to such notice. For these myriad reasons, it has to be held that impugned notice dated 27.03.2014 (Annexure-K) and reasons assigned in the endorsement issued by 1st respondent to reopen the assessment for the assessment year 2009-10 dated 24.02.2015 (Annexure-P) does not suffer from any jurisdictional error or infirmity and said notice issued is in consonance with Sections 147 and 148 of the Income Tax Act, 1961. 20. Though Sri.K.V.Aravind, has made an attempt to contend that this Court has no jurisdiction to entertain the writ petition on the ground of petitioner having alternate and efficacious remedy available under law, this court is not inclined to accept the said contention inasmuch as in catena of Judgments, this Court as well as the Hon'ble Apex Court has held that exercise of extraordinary jurisdiction is available where the petitioner assails action of the authorities on the following grounds: i) without jurisdiction, ii) violation of princi....