M/S. JINDAL ALUMINIUM LIMITED vs. THE ADDITIONAL COMMISSIONER OF INCOME-TAX

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 16TH DAY OF MARCH 2022

BEFORE

THE HON’BLE MR. JUSTICE B. M. SHYAM PRASAD

WRIT PETITION NO. 44636/2017 C/W WRIT PETITION NO.52268/2017 AND WRIT PETITION NO.52269/2017 (T-IT)

IN WP NO. 44636/2017

BETWEEN :

M/S. JINDAL NATURECARE LIMITED JINDAL NAGAR, TUMKUR ROAD BANGALORE – 560 073 REPRESENTED BY ITS DIRECTOR SRI B D GARG, AGED ABOUT 61 YEARS S/O LATE B L GARG. ... PETITIONER (BY SRI. S. PARTHASARATHI, ADVOCATE A/W MS. JINITA CHATTERJEE, ADVOCATE)

AND:

2 BMTC BUILDING, 80 FT ROAD KORAMANGALA VI BLOCK BANGALORE – 560 095. ... RESPONDENTS

(BY SRI K.V. ARAVIND, ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRYAING TO QUASH THE NOTICE ISSUED UNDER SEC. 148 OF THE ACT DATED 28.9.2016 FOR THE ASSESSMENT YEAR 2013-14 BY R-1 AT ANNEX-F; QUASH THE ORDER OF R-2 DATED 10.08.2017 FOR THE ASSESSMENT YEAR 2013-14 IN FILE F.NO. 148/DCIT4(1)(1)/2017-18/ DISPOSAL OF OBJECTION/1 AT ANNEXURE-K; QUASH THE NOTIFICATION DATED 06.09.2016 ISSUED BY CBDT, WHICH WAS PUBLISHED VIDE GEZETTEE DATED 7.9.2016 AT ANNEX-L.

IN WP NO. 52268/2017

BETWEEN :

M/S. JINDAL NATURECARE LIMITED JINDAL NAGAR, TUMKUR ROAD, BANGALORE - 560 073,

REPRESENTED BY ITS DIRECTOR, SRI. DHIRAJ SINGH, AGED ABOUT 41 YEARS, SON OF SRI. OMPAL THAKUR. ... PETITIONER

(BY SRI. S. PARTHASARATHI, ADVOCATE A/W MS. JINITA CHATTERJEE, ADVOCATE)

AND:

(BY SRI K.V. ARAVIND, ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRYAING TO QUASH THE NOTICE ISSUED UNDER SEC. 148 OF THE ACT DATED 28.9.2016 FOR THE ASSESSMENT YEAR 2015-16 BY R-1 AT ANNEX-D; QUASH THE ORDER OF R-2 DATED 10.08.2017 FOR THE ASSESSMENT YEAR 2015-16 IN FILE F.NO. 148/DCIT4(1)(1)/2017-18/ DISPOSAL OF OBJECTION/1 AT ANNEX-H; QUASH THE NOTIFICATION DATED 6.9.2016 ISSUED BY THE CBDT WHICH IS PUBLISHED VIDE GEZETTEE DATED 7.9.2016 AT ANNEX-J.

IN WP NO. 52269/2017

BETWEEN :

M/S. JINDAL ALUMINIUM LIMITED JINDAL NAGAR, TUMKUR ROAD, BANGALORE - 560 073, REPRESENTED BY ITS CHIEF FINANCIAL OFFICER, SRI. RAJESH KUMAR SONI,

4 AGED ABOUT 53 YEARS, SON OF SRI. RAM GOPAL SONI. ... PETITIONER

(BY SRI. S PARTHASARATHI, ADVOCATE A/W MS. JINITA CHATTERJEE ADVOCATE) AND:

... RESPONDENTS (BY SRI K.V. ARAVIND, ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRYAING TO QUASH THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT DATED 27.3.2017 FOR THE ASSESSMENT YEAR 2012-13 BY THE R-2 [ANNEXURE-F];

QUASH THE ORDER OF THE R-1 DATED13.9.2017 FOR THE ASSESSMENT YEAR 2012-13 IN FILE REF: NO. NOTICE/U/S 148/ADDL. CIT (LTU)/17-18 [ANNEXURE- K]; QUASH THE NOTIFICATION DATED 6.9.2016 ISSUED BY THE CBDT, WHICH WAS PUBLISHED VIDE GEZETTEE DATED 7.9.2016 [ANNEXURE-L].

THESE PETITIONS HAVING BEEN HEARD AND COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THIS COURT MADE THE FOLLOWING:

5 O R D E R

The common petitioner in WP Nos. 44636/2017 and 52268/2017 has impugned the notices issued under section 148 of the Income-tax Act [for short, ‘I-T Act’] for the AY:2013- 14 and 2015-16 and the second respondent’s corresponding order dated 10.08.2017. The second respondent, by these orders, has rejected the petitioner’s objections contesting the reasons offered for reopening the assessment for the aforesaid assessment years. In addition, the petitioner has also challenged the notification dated 06.09.2016 issued by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance.

6 No.35/2008 with effect from 01.04.2007 with the stipulation that this notification dated 14.03.2008 shall not be deemed to have been issued for any tax benefits under the I-T Act or any other law for the time being in force. The petitioner in WP No. 52269 of 2017 is also similarly placed as the petitioner in the other two writ petitions, and this petitioner has also challenged similar notices and orders but for the AY:2012- 2013 and the Notification dated 07.09.2016.

3.1 The petitioner, a company incorporated under the provisions of the Companies Act, 1956, has filed its returns of income for the AY 2013-2014 offering certain income for tax and paying the income tax computed on the basis of such income. During this assessment year, the petitioner has donated a sum of Rs.5,50,00,000/- to M/s Herbicure Healthcare Herbal Research Foundation, Kolkata [referred to

7 as ‘M/s Herbicure’], an organisation which is notified vide the notification dated 14.03.2008 [referred to as ‘the notification dated 14.03.2008’] for the purpose of 35(1)(ii) of the I-T Act, 1961 read with rule 5C and 5E of the Income Tax Rules 1962 with effect from 01.04.2007 in the category of the other Institution engaged in research activities.

3.2 The notification dated 14.03.2008 is subject to certain conditions, and these conditions include that M/s. Herbicure shall carry out scientific research through its faculty members or its enrolled students; shall maintain separate books of accounts in respect of the sums received by it for scientific research reflecting the amounts used for carrying out research; shall get such books audited by an Accountant as mentioned therein; shall maintain a separate statement of donations received and amounts applied for scientific research.

8 3.3 This approval is also subject to the condition that the Central Government shall withdraw the approval if M/s Herbicure fails to maintain separate books of accounts as required, or fails to furnish its audit report, or fails to furnish its statement of the donation received and sums applied for scientific research, or if it ceases to carry on its research activities, or its research activities is found to be not genuine or ceases to conform and to comply with the provisions of section 35(1)(ii) of the I-T Act and the related rules.

3.4 The petitioner in the AY 2015-16 has again donated a sum of Rs.1,00,00,000/- M/s Herbicure and this is also disclosed in the returns filed. After the returns are filed, the petitioner is issued with the intimation dated 24.10.2016 under section 143 (1) of the I-T Act and consequently the income offered to tax is accepted. However, the petitioner’s returns for the AY:2013-14 is allowed by the assessment order dated 14.03.2016 under section 143(3) of the I-T Act.

9 Admittedly, before the conclusion of the assessment for these two respective assessment years as aforesaid, a survey under section 133A of the I-T Act is conducted on 03.03.2016 and statement of one of the officers of the petitioner, Sri S.K. Gupta is recorded, and this survey, admittedly, is the result of another survey conducted in the office of M/s Herbicure.

3.5 On 26.09.2016, the impugned notification dated 06.09.2016 is issued withdrawing the notification dated 14.03.2008 with effect from 01.04.2017 and with the stipulation that it shall be deemed that this notification has not been issued for any tax benefits under the I-T Act or any other law for the time being in force. Thereafter, notice under section 148 of the I-T Act is issued on 28.09.2016 informing the petitioners that the Assessing Officer [AO] has reason to believe that income chargeable to tax for the assessment years 2013-14 and 2015-16 has escaped Income tax; the petitioners are also called upon to deliver returns in the

10 prescribed form for the respective assessment years within 15 days from the date of receipt of this notice.

3.6 The petitioner has responded to these notices under the provisions of section 148 of the I-T Act on 03.10.2016 informing the AO that returns are filed and the returns already filed could be considered as returns filed in compliance with the notice issued under section 148 of the I- T Act. Further, the petitioner, referring to the decision of the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd v. Income Tax Officer and Others1, has requested the AO to provide reasons to justify the belief that income chargeable to tax in the relevant years has escaped assessment.

3.7 The AO, in response, has furnished the reasons for recording that income has escaped assessment. The petitioner is informed that as per the survey conducted on M/s Herbicure, it is seen that donations received were not

1 (2003) 1 SCC 72

11 genuine as there is nexus between the donor and donee and therefore the notification dated 14.03.2008 is withdrawn retrospectively. The petitioner is also informed that the M/s Herbicure is engaged in bogus donation transaction through various brokers in lieu of commission; bogus donations are affected through cheque/RTGS and the amounts are rooted back to the donor in the form of cash through 3-4 layers of bogus billing or other accommodation entries in the book, and the petitioners have given donation to M/s Herbicure and claimed deduction under section 35 (1)(ii) to an extent of 175% of the donation.

3.8 The petitioner has responded to the reasons offered denying and disputing the allegations of bogus transactions emphasizing that M/s Herbicure is a company registered under section 25 of the Companies Act, 1956 and is granted approval under section 35(1)(ii) of the I-T Act. The petitioner has relied upon the provisions of section 35(1) of the I-T Act to contend that the benefit under the aforesaid

12 provisions cannot be denied merely on the ground that, subsequent to donation of the amounts to M/s Herbicure, the approval granted is withdrawn; even if the withdrawal should apply, it must only apply prospectively. The petitioner has also contended that assessment cannot be reopened only because of suspicion, and the reason for reassessment must be rooted in probable reasoning to sufficiently believe that there was indeed bogus transaction and not otherwise.

3.9 The AO has rejected the petitioner’s objection referring to the withdrawal of the notification dated 14.03.2008 retrospectively and reiterating that M/s Herbicure was engaged in bogus donation transactions through various brokers for commission. The entire information was not available during the assessment, and complete information in this regard is received upon receipt of the details from the Deputy Director of Income-tax (IV), Kolkata. The petitioner is informed that the AO has not examined the allowability of the claim for deduction during the assessment proceedings. The

13 petitioner is further informed, relying upon Explanation 2 to section 147 of the I-T Act, that an AO is free to examine the correctness of a regular assessment and decide whether tax assessed, rate applied, relief and allowances granted, et cetera, are in terms of the provisions of the Act/ Rules.

4.1 The facts are similar inasmuch as the petitioner has filed returns for the AY: 2012-13 disclosing that a sum of Rs.20,00,00,000/- is donated to M/s Herbicure upon its recognition as an organisation admitted to the benefits of receipts as donation for scientific research. Even in this case, a notice is issued under section 143 (1) of the I-T Act requiring the petitioner to furnish ledger copy of the donation, details of the donee and the supporting documents. The petitioner has produced such details. After verifying the details and the determination of the income for assessment,

14 the AO has raised a demand by his order dated 12.03.2015 under section 143 (3) of the I-T Act.

4.2 After this assessment order dated 12.03.2015, a survey is conducted in the petitioner’s office under section 133A of the I-T Act and the statement of one of the officers of the petitioner is recorded. The facts and circumstances recorded in the other two petitions would be equally true even in this petition. This petitioner’s objection is also rejected for similar reason, and in addition it is recorded that M/s Herbicure did not contribute anything to the research articles attributed to it; these articles are written by certain retired scientists, and during survey neither chemical stock nor other research materials were found in M/s Herbicure’s premises. The AO was not informed that the organisation is a facade. These details were not available to the AO when the scrutiny assessment was completed and the petitioner also did not place all the circumstances to the AO.

15 5. The submissions by Sri. S. Parthasarathi, the learned counsel for the petitioners:

5.1 The learned counsel submits that the petitioners have impugned the notification dated 06.09.2016 inter alia on the ground that the notification could have been issued only by the Central Government and not by the Central Board of Direct Taxes. This canvas can be justified in the light of the decision of the High Court of Bombay in Indian Planetary Society v. Central Board of Direct Taxes and others2. But the petitioners cannot really challenge this notification for lack of locus and if there is to be any challenge to this notification, it must be from M/s Herbicure. But, the petitioners have challenged the notification to emphasize that the approval granted to M/s Herbicure, pursuant to which the donations are made by the petitioners, cannot be withdrawn retrospectively to the petitioners’ detriment.

2 (2009) 318 ITR 102 (BOM)

5.2 However, it would be open to the petitioner, who is obviously affected by the retrospective withdrawal of the approval granted to M/s Herbicure, to successfully contend that the benefit extended to the donor/assessee [the petitioners in these cases] cannot be denied the benefit of the allowance under section 35(1)(ii) of the I-T Act notwithstanding the withdrawal when there is no evidence to substantiate that the amount given in donation is received back. In support of the proposition that an assessee cannot be denied the benefit of the allowance under section 35 (1)(ii) of the I-T Act, Sri. S. Parthasarathi relies upon the decision of the High Court of Gauhati in Chotatingrai Tea Estate Private Limited and others v. Commissioner of Income- tax3 and confirmation thereof by the Hon’ble Supreme Court in its decision between the same parties in the appeal filed by the Revenue.

3 (1999) 236ITR644 (GAUHATI)

17 5.3 Sri. S. Parthasarathi emphasizes that in the absence of any material to demonstrate that the petitioners have received back the amounts given in donation, there cannot be any reason to believe [a condition precedent for reopening of the assessment under section 147 read with 148 of the I-T Act] that there must be reassessment of the income offered on the ground that M/s Herbicure is a facade and is engaged in the business of receiving bogus donations for commission. The AO has not even mentioned in the reasons offered or in the impugned order rejecting the petitioner’s objections, that the petitioners have received back the amounts given in donation and therefore, the notices issued under section 148 of the I-T Act is without jurisdiction and these notices and the subsequent orders must be quashed.

5.4 Sri. S. Parthasarathi next contends that the reason to believe that there must be re-assessment is based on the statement recorded in surveys under section 133A of the I-T Act, but it is settled that a statement recorded during

18 the survey proceedings cannot be evidence because those statements are not recorded after administration of oath and in this regard, Sri. N Parthasarathi relies upon the decision of the Division Bench High Court of Madras in Commissioner of Income tax v. S. Khader Khan Son4.

5.5 Sri. S. Parathasarathi lastly argues that even when the statement of one of the officers of the petitioners’ was recorded, this officer was only confronted with statements purportedly by a founder director and an associate of M/s Herbicure recorded on 27.01.2015, and the officer has not only denied knowledge of such statement and but also the suggestion that the amounts given in donation are received back by the petitioners. This statement was recorded on 03.03.2016 much prior to the assessment order dated 14.03.2016 for the assessment year 2013-14 and therefore, even the survey at the premises of the M/s Herbicure cannot have a live nexus to the reason to believe

4 (2008) 300 ITR 157 (MAD)

19 that there should be reassessment, and when there is no nexus, the reassessment would be impermissible. Hence, this Court must intervene even on this ground.

6 The submissions by Sri K.V. Aravind, the learned counsel for the revenue:

6.1 Sri K.V. Aravind, relying upon the decision of the Honourable Supreme Court in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stockbrokers (P) Ltd.5 submits that at the stage of issuance of notice the only question which is to be examined is whether there is any relevant material upon which a reasonable person could form the requisite belief, and at this stage whether the material can conclusively prove the escapement would not be a relevant test. Relying upon this decision, Sri K.V. Aravind also submits when the two conditions viz., when the assessing officer has reason to believe that income chargeable to tax has escaped

5 (2008) 14 SCC 208

20 assessment and escapement is because the assessee has not fully and truthfully disclosed all the relevant material, the AO will have jurisdiction to issue notice under section 148 of the I-T Act.

6.2 Shri K.V. Aravind also emphasizes that the notification dated 06.09.2016 is issued withdrawing the approval granted to M/s Herbicure after a detailed survey and investigation during which it is established that it was indulging in bogus donation transactions for commissions through brokers and re-rooting the amounts paid as donations through cash and accommodation entries. It is because of the survey/ Investigation and the subsequent notification withdrawing the approval, the reassessment proceedings are commenced. The AO, when he completed the assessment for the corresponding years, did not have this information. The AO upon receipt of this information is able to justifiably opine that there is a reason to believe that

21 income chargeable to tax has escaped and therefore there must be re-assessment.

6.3 Sri K.V. Aravind also relies upon the decision of the Hon’ble Supreme Court in Commissioner of Income Tax v. Kelvinator of India Ltd.6 to canvas that when the assessment orders were made in the respective cases, the AO, who did not have the full information about the outcome of the survey/investigation at the premises of M/s Herbicure, could not have formed any opinion as regards the escapement of income from assessment because of the bogus donation transaction by M/s Herbicure and this new material, which has come to AO’s knowledge after the assessment orders, would constitute live link for the formation of the belief that there is escapement of tax from assessment. Sri K.V. Aravind strenuously argues that, as informed by the AO to the petitioners, there is nexus between M/s Herbicure and the

6 (2010) 2 SCC 723

22 petitioners. As such, there is no reason for interference by this Court at this stage.

Whether in the facts and circumstances of the case, this Court could opine that the initiation of reassessment proceedings with the issuance of the impugned notices under Section 148 of the I-T Act is without jurisdiction.

8.1 Firstly, it is settled that at the stage of initiation, the question for consideration would be whether there is relevant material on record from which a reasonable person could have form the requisite belief that there is reason to

23 opine that income has escaped assessment, and the question whether these materials would conclusively prove the escapement is not of significance7.

8.2 Secondly, the question whether there are relevant materials from which requisite belief as aforesaid could be formed will have to be tested against the requirements such as the AO’s tentative or prima facie opinion that there is either under assessment or escapement of assessment; the opinion must be in writing and the opinion cannot be a mere suspicion; the reasons recorded for the opinion and the documents available should show a nexus that is germane and relevant to the subjective opinion; where the assessment is under Section 143[1] of the I-T Act, there should be failure or omission on the part of an assessee to disclose full and true material facts.

7 Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stockbrokers (P) Ltd. supra

24 8.3 Thirdly, the respective amendments to section 147 of the I-T Act in the year 1988 and 1989 combined the earlier provisions of section 147[a] and 147[b] with certain changes and reintroduced the test of reason to believe by substituting the test of reasons to be recorded in writing for the opinion. While the second test mentioned8 in Kalyanji Mavji and Co. vs. Commissioner of Income Tax9 is declared to be an incorrect position in law, the first and the third and fourth

8 (1) where the information is as to the true and correct state of the law derived from relevant judicial decisions; (2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority; (3) where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment; (4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law." 9 (1976) 1 SC 985

25 tests are reiterated10. Consequentially, even information obtained from the record of the original assessment proceedings from an investigation of the material on record or from other enquiry or research into facts and law would justify initiation of reassessment proceedings.

10 A.L.A Firm v. CIT reported in (1991) 2 SCC 558

26 another assessment year] in W.P. No.52268/2017, the assessment is under section 143[1] of the I-T Act. The assessment Orders are dated 14.03.2016 and 12.03.2015 respectively. The intimation under Section 143(1) of the I-T Act is issued on 24.10.2016, which is after the withdrawal of the approval granted to M/s. Herbicure on 14.03.2008 with retrospective effect vide the Notification dated 06.09.2016. The survey in the premise of M/s. Herbicure is in the months between January and April of 2015. Thus, all the assessments are not concluded prior to the survey in the premises of M/s Herbicure. These circumstances would be material and will have to be given due importance, especially at this stage when this Court is testing the initiation of the reassessment proceedings in the light of the settled propositions referred to above.

27 and an Assistant of this organization is put to the petitioners’ Account Officer, and he has responded to those statements saying he has no knowledge. Significantly, when queried about M/s. Herbicure giving accommodation entries for the donation made for a commission and the donation amount being given back to the original beneficiary in the form of cash, the petitioners’ Account Officer has stated thus:

“I am not aware of the situation. I do not decide to whom donations should be given. As already mentioned the matter was directly decided by Sri. B. Ravindranath and Sri. H.S. Bansal, who were entrusted with this duty. I only follow their recommendation.”

28 aforesaid survey] and the nature of the information shared by the petitioners’ Account Officer, this Court must opine that the threshold bar for initiation of the reassessment proceedings is satisfied. This Court must conclude, at this stage, that the AO’s subjective prima facie opinion, though is based on the records made available during the assessment proceedings, is because of further enquiry into the affairs of M/s. Herbicure, and this is not a case of ‘change of opinion’.

29 that would be available on record by the petitioner and would not be a reason for interference at this threshold.

For the foregoing, leaving open all contentions, the petitions are rejected.

SD/-

JUDGE

AN/-