MPHASIS LTD vs. DEPUTY COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KARNATAKA, BENGALURU

DATED THIS THE 21ST DAY OF JANUARY, 2020

BEFORE

THE HON'BLE MR. JUSTICE KRISHNA S.DIXIT

WRIT PETITION NO. 55355 OF 2017 (T-IT)

BETWEEN:

MPHASIS LTD BAGAMANE WORLD TECHNOLOGY CENTRE, WTC-3, 1ST FLOOR, KR PURAM, MARATHAHALLI OUTER RING ROAD, DODDANEKUNDI, BANGALORE 560048. REP BY ITS EXECUTIVE VICE PRESIDENT & CFO MR. VENKATASUBRAMNIAN SURYANARAYAN. ... PETITIONER (BY SRI. T SURYANARAYANA, ADVOCATE)

AND:

THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT THE IMPUGNED PROCEEDINGS INITIATED BY THE R-1 UNDER SECTION 147 READ WITH SECTION 148 OF THE ACT ARE BARRED BY LIMITATION AND OPPOSED TO THE SAID

PROVISIONS AND THEREFORE WITHOUT JURISDICTION AND ETC.,

THIS PETITION COMING ON FOR FINAL HEARING THIS DAY, THE COURT MADE THE FOLLOWING:-

O R D E R

Petitioner being an Income Tax Assessee having been found fault with in not making the Tax Deduction at Source during the Financial Year 2009-10 is knocking at the doors of writ court for assailing the re-opening of the proceedings u/s.147 of the Income Tax Act, 1961, a copy whereof is at Annexure-D which is founded on the notice dated 01.09.2017, a copy whereof is at Annexure-K.

(a) Sec.147 of the Act provides for re-opening of assessment where the income has escaped assessment; the Proviso to this section prescribes a limitation period of four years to be reckoned from the end of the assessment year unless inter alia there is a failure on the part of the assessee “to disclose fully and truly all material facts necessary for his assessment” for that assessment year. The Proviso going by its text and context needs to be construed strictly since the re-opening of an assessment is a power of an extraordinary nature vide ITO vs. MEWALAL DWARKAPRASAD, 176 ITR 529 (SC). The said section along with this Proviso (other parts not being much relevant) is reproduced below for easy reference:

“147. Income escaping assessment: If the Assessing Officer has reason to believe that any income 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 recomputed 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 assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken

under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year”.

(b) in the notice dated 01.09.2017 at Annexure-K the 2nd respondent has assigned the reasons for resorting to re-opening of the assessment, relevant part of which reads as under: “ From the above discussion, is clear that assessee was liable to deduct TDS but failed to do so before making payments for onsite services and selling commission to the AEs. Hence, it is required to disallow the said expenses u/s.40(a)(i) of the IT Act. Therefore I have reason to believe that Rs.722,02,48,792/- has escaped assessment within the meaning of section 147 of the IT Act”.

The text of the reasons nowhere states that there is failure on the part of the petitioner to disclose the alleged non- deduction of TDS; what is stated is that the petitioner had failed to deduct the TDS; the Proviso employs the expression “by reason of the failure on the part of the assessee … to disclose fully and truly all material facts”; the expression implies some guilt in mind howsoever little it may be, attributable to the assessee; in other words, a

failure to deduct the TDS per se does not fit into the said expression as rightly contended by the counsel for the petitioner;

(c) a Division Bench of Bombay High Court in HINDUSTAN LEVER LTD., vs. R.B.WADKAR, 268 ITR 332 at page 337 has observed as under:

“Reading of the proviso to section 147 makes it clear that 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 section 147, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the concerned assessment year.

However, where an assessment under sub-section (3) of section 143 has been made for the relevant assessment year, no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year.(Emphasis supplied by us)

The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by

the Assessing Officer. No substitution or deletions is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer.”

The reason assigned by the answering respondent for re- opening the assessment does not satisfy the requirement of the Proviso to sec.147 as interpreted in the above decision, the ratio of which this Court is in full agreement with;

(d) the contention of Panel Counsel for the Revenue that the reasons assigned by the Assessing Officer should be viewed objectively and that the words employed by the Proviso to the section need not be reproduced in the notice, is true vide I.P.PATEL & CO., vs. DEPUTY COMMISSIONER OF INCOME TAX, 346 ITR 207 at para 16, 17 & 18; there is no quarrel with the said proposition

at all; the quarrel is with the invokability thereof in the case at hands, regard being had to a specific reason assigned by the answering respondent as to non- deduction of TDS and not as to failure on the part of the assessee to disclose such deduction; even otherwise, the decision cited does not come to the rescue of the Revenue since there was sufficient material on record, to form an opinion as to the failure on the part of the assessee to disclose in that case; thus the facts of the present case are miles away from that of the decision cited; and,

(e) the last contention of the counsel for the Revenue that the matter be remanded for consideration afresh inasmuch as the file relating to the petitioner may disclose some reasons is bit difficult to countenance, even by assuming that the said contention is factually true; the Constitution Bench of the Apex Court in the case of MOHINDER SINGH GILL vs. CHIEF ELECTION COMMISSIONER, AIR 1978 SC 851 at paragraph 8 observed as under: “8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the share of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the

time it comes to court on account of a challenge, get validated by additional grounds later brought out”.

In the above circumstances, the writ petition is allowed; a Writ of Certiorari issues quashing the impugned notice and proceedings and consequently the re-opening of assessment of the income of the petitioner for the Assessment Year 2010-11 is interdicted.

No costs.

Sd/- JUDGE

Snb/