DIRECTOR OF INCO:ME-TAX-I vs. JC BAMFORD EXCAVATORS LIMITED,

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 1 of 15 $~8 & 9 * IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: 25th October 2017 8 + W.P.(C) 480/2016 SAMVARDHANA MOTHERSON INTERNATIONAL LTD ..... Petitioner Through: Dr. Rakesh Gupta, Mr. Ashwani Taneja, Mr. Somil Agarwal, Mr. Rohit Kumar Gupta and Mr. Lakashya Goyal, Advocates. versus ASSISTANT COMMISSIONER OF INCOME TAX & ANR. ..... Respondents Through: Mr. Ashok Manchanda and Mr. Raghvendra Singh, Advocates. AND 9 + W.P.(C) 526/2016 SAMVARDHANA MOTHERSON INTERNATIONAL LTD. (FORMERLY KNOWN AS(M/S SAMVARDHANA MOTHERSON FINANCE LTD.)AUTHORISED SIGNATORY, SHRI MANOJ MAHESHWARI, ..... Petitioner Through: Dr. Rakesh Gupta, Mr. Ashwani Taneja, Mr. Somil Agarwal, Mr. Rohit Kumar Gupta and Mr. Lakashya Goyal, Advocates. versus ASSITANT COMMISSIONER OF INCOME TAX, CIRCLE 22(1) & ANR. ..... Respondents

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 2 of 15 Through: Mr. Ashok Manchanda and Mr. Raghvendra Singh, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MS. JUSTICE PRATHIBA M. SINGH SANJIV KHANNA, J. (ORAL) We with the consent of the parties have heard the arguments and the writ petitions are taken up for final disposal. 2. M/s. Samvardhana Motherson International Ltd. (formerly known as Samvardhana Finance Ltd.) has filed the present writ petitions impugning two notices dated 30th March, 2015, issued by the Additional Commissioner of Income Tax, Circle 22(1), New Delhi under Section 148 of the Income Tax Act, 1961 (‘the Act’ for short) relating to Assessment Years (‘AY’) 2010-2011 and 2011-2012. 3. The Petitioner has also placed on record a copy of the order dated 16th December, 2015 passed by the Assessing Officer (‘AO’) disposing of objections of the Petitioner against reopening of assessments under Section 147/148 of the Act on the ground of `change of opinion'. 4. The undisputed position is that the Petitioner company is engaged in the business of establishing subsidiaries, making majority or minority investments and/or to promote technical collaborations and to act as a holding company. The Petitioner in paragraph 4 of the petition has stated that the Petitioner company makes strategic investments.

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 3 of 15 Original Assessment proceedings for AY 2010-11. 5. For the AY 2010-2011, the return filed by the Petitioner company had disclosed dividend income of Rs. 20,48,37,585/- which it claimed as exempt from tax under Section 10(34) of the Act. The Assessee had disallowed expenditure amounting to Rs. 9,75,26,937/- for earning the exempt income under Section 14A of the Act for AY 2010-11. 6. The return was taken up for scrutiny assessment after issue of notice under Section 143(2) of the Act. In terms of notice dated 16th May, 2012 under Section 142(1) of the Act, the Petitioner was required to furnish several details, including details of dividend income received, and details of expenses attributable for earning of this income. The aforesaid notice was followed by another notice dated 18th October, 2012 by which the Petitioner was asked to give a detailed calculation of the disallowance under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (‘the Rules’ for short). 7. In response to the first notice, the Petitioner filed a reply dated 12th June, 2012 stating that it had received dividend income of Rs.20,48,37,585/- which was claimed as exempt under Section 10(34) of the Act. In its subsequent reply dated 11th February, 2013, the Petitioner submitted calculation of disallowance under Section 14A read with Rule 8D of the Rules and computation of the disallowance made by them. For the sake of convenience, since counsels for both parties rely on the same, we would like to reproduce the aforesaid computation, which reads as under:

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 4 of 15 Samvardhana Motherson Finance Limited Expenditure in relation to Dividend Income S. No. Particulars Detail Amount 1 2 3 Expenditure Directly relating to Dividend Income Interest Expense allocated 0.5% of Average Investment Since the total expenditure which is Disallowed is Rs 97,526,937/-, hence it is restricted to Rs 97,526,937 – Rs 73,566,653) 73,566,653 50,854,376 73,566,653 23,960,283 Total Amount 124,421,029 97,526,937 Working Interest expense allocated Interest Cost Allocated = Interest * Average Value of Investment Average of Total Assets Interest Total Interest Cost as per Balance Sheet 79,528,600 Less: Expenses incurred to earn Interest Income 5,937,096 Less: Interest on delay in ITDS 24,851 Expenses made directly for Investment 73,566,653 Average Value of Investment Total Investment 11,582,908,669 8,923,821,95 Less:- Overseas Investment (99,512,139) (65,468,209) Investment in Indian Companies 11,483,396,530 8,858,353,744 Average Value 10,170,875,137 Average of Total Assets Fixed Assets 162,378 22,714 Investments 11,582,908,669 8,923,821,953 Current Assets, Loans and Advances 218,130,657 196,786,639 Deferred Tax Asset 181,144 _______________________________ 11,801,382,848 9,120,631,305 Average Value 10,461,007,077

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 5 of 15 Total disallowance Total Expenses Less: Interest Expenses to earn Interest Income Less: Expenses for Consultancy Less: Expenses which is disallowed as per Provisions of PGBP Donation 50,000 Provision for diminution in the value of Investment 53,891,189 Provision for Leave Encashment 311,096 Loss on Sale of Investment 178,403 Gratuity Provision 272,448 Interest Paid on TDS 24,851 Less: Expenses Incurred directly for investments 171,277,589 5,937,096 165,340,493 13,085,569 152,254,924 54,727,987 97,526,937 73,566,653 23,960,284 8. After examining the aforesaid information and details, the assessment order for AY 2010-11 dated 18th February, 2013 was passed under Section 143(3) of the Act, accepting the returned income of the Assessee of Rs.88,56,759/-. Original assessment proceedings for AY 2011-12 9. For the AY 2011-12, the return filed by the Petitioner company had disclosed dividend income of Rs.28,55,09,111/-, which it claimed as exempt from tax under Section 10(34) of the Act. The Assessee had disallowed expenditure amounting to Rs. 12,44,11,096/- for earning the exempt income under Section 14A of the Act for the AY 2011-12. 10. The case was taken up for scrutiny. During the course of the assessment proceedings, the Assessing Officer (AO) issued a questionnaire,

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 6 of 15 enclosed as Annexure 3 to the writ petition, which had required the Petitioner to file detailed computation of disallowance made under Section 14A of the Act, in the computation of the total income. 11. In response to the aforesaid questionnaire, the Petitioner filed its reply dated 29th January, 2014, enclosed therewith as Annexure 16, enclosing detailed computation of disallowance under Section 14A of the Act. For the sake of convenience, since counsels for both the parties rely on the same, we would like to reproduce the aforesaid computation, which reads as under: Samvardhana Motherson Finance Limited Annexure to Form 3 CD Clause 17(1) Expenditure in relation to Dividend Income S. No. Particulars Detail Amount 1 Expenditure Directly relating to Dividend Income 1,581,654 1,581,654 2 Interest Expense allocated 121,581,256 115,704,382 3 0.5% of Average Investment 56,521,295 7,125,060 Total Amount 179,684,205 124,411,096 Working Interest expense allocated Interest Cost Allocated = Interest * Average Value of Investment Average of Total Assets Interest Total Interest Cost as per Balance Sheet 165,983,855 Less: Expenses incurred to earn Interest Income 44,402,599 Less: Interest on delay in ITDS Expenses made directly for Investment 121,581,256 Average Value of Investment Total Investment 11,359,310,551 11,529,017,479 Less:- Overseas Investment 180,297,977 99,512,139 Investment in Indian Companies 11,179,012,574 22,429,505,340

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 7 of 15 Average Value 11,304,258,957 Average of Total Assets Fixed Assets 380,948 162,378 Investments 11,359,310,551 11,529,017,479 Current Assets, Loans and Advances 649,670,082 218,130,657 Deffered Tax Asset 181,144 ______________________________ 12,009,361,581 11,747,491,657 Average Value 11,878,426,619 Total disallowance Total Expenses Less: Interest Expenses to earn Interest Income Less: Expenses for Consultancy & others Less: Expenses which is disallowed as per Provisions of PGBP Donation 1,300,000 Provision for diminution in the value of Investment 43,841,819 Provision for Leave Encashment 745 Loss on Sale of Investment Gratuity Provision 490,436 Interest Paid on TDS Less: Interest Expenses un allocated 251,139,740 44,402,599 206,737,141 32,397,824 174,339,317 45,633,000 128,706,317 121,581,256 7,125,060

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 8 of 15 Operating Non-Operating Section 14A (Rule 8D) Total Income (X) 120,471,781 285,509,111 405,980,892 Personnel Expenses Salary & Wages Employer’s Contribution to PF Bonus 5,414,576 460,806 286,227 896,779 638,466 46,409 6,311,355 1,099,273 332,636 Total (A) 6,161,608 1,581,654 7,743,263 Administrative Expenses Regd. Office Rent Repair & Maintenance (Others) Courier & Postage Expenses Rates and Taxes Legal and Professional Charges Business Promotion Travelling Expenses Telephone Expenses Insurance Expenses Provision for diminution in long term investments (net) Printing and Stationery Donation Miscellaneous Expenses - 353,718 - - 20,359,985 3,184,063 1,862,969 37,636 - - 6,439 - 431,406 39,708 247,012 62,583 87,020 3,786,410 152,390 1,628,856 12,895 7,613 43,841,819 - 1,300,000 10,100 39,708 600,730 62,583 87,020 24,146,395 3,336,453 3,491,825 50,531 7,613 43,841,819 6,439 1,300,000 441,506 Total (B) 26,236,216 51,176,406 77,412,622 Interest and Finance Charges Interest on Secured Term loans from Other than Banks Unsecured loans from Other than banks Bank Charges Processing Fee 44,402,599 - - - 115,883,363 512,781 919,846 4,265,266 160,285,962 512,781 919,846 4,265,266 Total (C) 4,402,599 121,581,256 165,983,855 Grand Total Expenses (A+B+C) 76,800,423 174,339,317 251,139,740 Profit (X-(A+B+C)) 43,671,358 111,169,794 154,841,152 12. Vide assessment order dated 28th February, 2014, the AO assessed the income of the Assessee for the assessment year 2011-12 at Rs.3,59,35,409. The disallowance made by the Assessee of Rs.12,44,11,096/- under Section

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 9 of 15 14A of the Act was accepted. Reassessment proceedings; Reasons to believe 13. To examine the contention of the Petitioner and the respondent on the question of change of opinion, we would like to reproduce the reasons to believe recorded by the AO for AY 2010-11 and 2011-12. The relevant portions have been underlined. Reasons recorded for initiating proceedings u/s 147/148 AY 2010-2011 "In this case, the assessment proceedings u/s 143 (3) of the I.T. Act,1961 for the A.Y. 2010-11 was completed on 18.02.2013 at an income of Rs.88,56,759/-. On scrutiny of records it was found that an amount of Rs.2,68,94,092/- has escaped assessment on account of incorrect computation of disallowance u/s 14A of the I.T. Act, 1961. It was noticed that the assessee had claimed deduction of Rs. 20,48,37,585/- on account of Dividend income and disallowed expenditure amounting to Rs.9,75,26,937/- u/s 14A. Further scrutiny revealed that the assessee had major income from Dividend and had investments of Rs. 8,92,38,21,953/-(as on 31.03.2009) and Rs. 11,52,90,17,479/- (on 31.03.2010) respectively. The total disallowance u/s 14A r/w Rule 8D should be amounted to Rs.12,44,21,029/-, however assessee restricted it to Rs.9,75,26,937 /- in contravention to Section 14A of the I.T. Act, 1961. Hence it resulted in underassessment of income Rs.2,68,94,092/- (Rs.12,44,21,029- Rs.9,75,26,937). In this case, it has also been observed that the assessee had itself calculated disallowance u/s 14A amounting to Rs.12,44,21,029/- but restricted the same to Rs. 9,75,26,967 /-. As Section 14A of the I.T. Act, 1961 r/w Rule 8D does not permit any restriction in this regard and therefore the whole amount of Rs. 12,44,21,029/-, should have been disallowed. In view of the above mentioned facts, it is clear that the assessee company has not disclosed fully and truly all material facts

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 10 of 15 before the A.O. resulting in under assessment of income. Hence, I have reasons to believe that a sum of Rs.2,68,94,092/- has escaped assessment in the case of assessee relevant to A.Y. 2010-11, within the meaning of Section 147 of the IT Act." Reasons recorded for initiating proceedings u/s 147/148 for AY 2011-2012. "In this case, the assessment proceedings u/s 143 (3) of the I.T. Act, 1961 for the A.Y. 2011-12 was completed on 28.02.2014 at an income of Rs.3,59,35,409/-. On scrutiny of records it was found that an amount of Rs.5,00,95,760/- has escaped assessment on account of incorrect computation of disallowance u/s 14A of the I.T. Act, 1961. It was noticed that the assessee had claimed deduction of Rs. 28,55,09,111/- on account of Dividend income and disallowed expenditure amounting to Rs.12,44,11,096/- u/s 14A. Further scrutiny revealed that the assessee had major income from Dividend and had investments of Rs. 11,52,90,17,479 (as on 31.03.2010) and Rs. 11,35,93,10,551/- (as on 31.03.2011) respectively. The total disallowance u/s 14A r/w Rule 8D should be amounted to Rs.17,45,06,856/-, however assessee restricted it to Rs. 12,44,11,096/- in contravention to section 14A of the I.T. Act, 1961. Hence it resulted in underassessment of income of Rs. 5,00,95,760/- (Rs. 17,45,06,856 - Rs.12,44,11,096). In this case, it has also been observed that the assessee had itself calculated disallowance u/s 14A amounting to Rs.17,38,07,331/- but restricted the same to Rs. 12,44,11,096/-. As section 14A of the I.T. Act, 1961 r/w Rule 8D does not permit any restriction in this regard and therefore the whole amount of Rs. 17,45,06,856/-, should have been disallowed. In view of the above mentioned facts, it is clear that the assessee company has not disclosed fully and truly all material facts before the A.O. resulting in under assessment of income. Hence, I have reasons to believe that a sum of Rs. 5,00,95,760/- has escaped assessment in the case of assessee relevant to A.Y. 2011-12, within the meaning of Section 147 of the IT Act." (emphasis supplied)

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 11 of 15 Analysis and Findings: 14. The contention of the respondent-Revenue is that this is not a case of change of opinion because the Assessee had made an incorrect or wrong calculation which was accepted by the AO. In particular, reliance is placed upon the computation charts submitted by the Petitioner in response to the questionnaire/queries raised, which have been reproduced above. Hence, it is the Revenue's submission that in the present case the assessment proceedings have been validly initiated under the provisions of Section 147 read with Section 148 of the Act and the judgment of the full Bench of the Delhi High Court in the case of Commissioner of Income Tax v. Usha International, (2012) 348 ITR 485 (Del) (hereafter ‘Usha International’) would support the case of Revenue and not the case of the Petitioner. 15. There could not be a more clear and obvious case of change of opinion. The AO doing the original assessment had focused himself and examined the question of appropriateness of the expenditure which was disallowed by the Assessee under Section 14A of the Act. The AO was aware of the difference between the disallowance of expenditure made by the Assessee in its computation under Section 14A of the Act, and disallowance if made by applying Rule 8D of the Rules. The AO not only raised a specific query but did so twice in respect of the disallowances for the AY 2010-11. The details called for in the two notices/questionnaires for AY 2010-11 read as under: "Notice dated 16.5.2012: 21. Details of dividend received, if any. Also give details of expenses attributable for earning this income."

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 12 of 15 "Notice dated 18.10.2012: -Calculation of Disallowance U/s 14A read with Rule 8D." In AY 2011-12, the AO had asked for the details vide questionnaire dated NIL as under: “Questionnaire dated NIL: 45. Detailed computation of Disallowance made u/s 14A of the Act as per the Computation of Total Income.” 16. From the queries raised during the course of assessment proceedings and the replies thereto, there can be no doubt that the AO specifically examined and went into the question of disallowance of expenditure under Section 14A of the Act as the Assessee had declared substantial dividend income, which was exempt from tax. The AO was certainly conscious and aware of the nature of business activities undertaken by the Petitioner as a strategic investor in shares, making majority or minority investments. 17. In the aforesaid circumstances, principle of change of opinion as enunciated in Usha International (supra) would be applicable. The majority opinion in Usha International (supra) holds:- "12. It is, therefore, clear from the aforesaid position that: (1) Reassessment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion; (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of "change of opinion". (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 13 of 15 original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. 13. In the second and third situation, the Revenue is not without remedy. In case the assessment order is erroneous and prejudicial to the interest of the Revenue, they are entitled to and can invoke power under Section 263 of the Act. This aspect and position has been highlighted in CIT vs. DLF Powers Limited, ITA 973/2011 decided on 29th November, 2011 and BLB Limited vs. ACIT Writ Petition (Civil) No. 6884/2010 decided on 1st December, 2011. In the last decision it has been observed: 13. Revenue had the option, but did not take recourse to Section 263 of the Act, inspite of audit objection. Supervisory and revisionary power under Section 263 of the Act is available, if an order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. An erroneous order contrary to law that has caused prejudiced can be correct, when jurisdiction under Section 263 is invoked. 14. Thus where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to Section 263 of the Act is available and should be resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion." (emphasis supplied) 18. The Supreme Court recently in Godrej and Boyce Manufacturing Company Limited v. Deputy Commissioner of Income Tax, Mumbai & Anr., (2017) 7 SCC 421 on the question of disallowance under Section 14A

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 14 of 15 of the Act and the effect of Rule 8D of the Rules has held as under: "37. We do not see how in the aforesaid fact situation a different view could have been taken for Assessment Year 2002-2003. Sub- sections (2) and (3) of Section 14-A of the Act read with Rule 8-D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the assessing officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8-D or in the best judgment of the assessing officer, what the law postulates is the requirement of a satisfaction in the assessing officer, what the law postulates is the requirement of a satisfaction in the assessing officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Sections 14-A(2) and (3) read with Rule 8-D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. 38. In the present case, we do not find any mention of the reasons which had prevailed upon the assessing officer, while dealing with Assessment Year 2002-2003, to hold that the claims of the assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier assessment years were not acceptable to the assessing officer, particularly, in the absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing a reasonable nexus between the expenditure disallowed and the dividend income received. That any part of the borrowings of the assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available (Rs 270.51 crores as on 1-4-2001 and Rs 280.64 crores as on 31-3-2002) remains unproved by any material whatsoever. While it is true that that the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard, we may remind ourselves of what

W.P.(C) 480/2016 & W.P.(C) 526/2016 Page 15 of 15 has been observed by this Court in Radhasoami Satsang v. CIT (1992) 1 SCC 659: (1992) 193 ITR 321. “16. We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.” (emphasis supplied) 19. The chronology of events leading up to the passing of the orders under Section 143(3) of the Act, clearly shows that the AO was `satisfied with the claim of the assessee' while passing the original orders. Rule 8D is triggered only in a case where the AO is not satisfied with the deduction made by the Assessee. The reasons to believe assume and are predicated on the belief that the AO should not have accepted the Petitioner’s deduction as explained and justified, albeit should have applied Rule 8D. Thus, the view and opinion formed by the AO, while passing the original assessment orders is doubted as erroneous. This is obviously a case of change of opinion. 20. In view of the aforesaid position, we allow the present writ petition and quash the reassessment notices dated 30th March, 2015 in the case of the Petitioner for the AYs 2010-11 and 2011-12. In the facts of the case, there will be no order as to costs. SANJIV KHANNA, J PRATHIBA M. SINGH, J OCTOBER 25, 2017/dk