Quashed

Tata Capital Financial Services Limited v. Assistant Commissioner of Income Tax Circle 1(3)(1) Mumbai and 3 Ors.

Bombay HC15 Feb 2022WP/546/2022

Case brief

AI extract

What is this about?

This High Court quashed an order rejecting objections to an assessment reopening under Sections 147 and 148 of the Income Tax Act. The court held that the Assessing Officer failed to provide required documents and reasons. It directed strict adherence to procedural guidelines for future cases and appointed the matter for de novo consideration with a personal hearing.

What did the court decide?

The impugned order dated 17th December, 2021 was quashed and set aside; matter remanded for de novo consideration with personal hearing; Revenue directed to follow procedural guidelines.

Tata Capital Financial Services Limited Vs Assistant Commissioner… — Income Tax | Bombay HC (2022)

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Digitally signed by PURTI PURTIPRASAD PRASADPARAB IN THE HIGH COURT OF JUDICATURE AT BOMBAY PARAB Date:2022.02.24 ORDINARY ORIGINAL CIVIL JURISDICTION 10:37:09 +0530

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WRIT PETITION NO. 546 OF 2022

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Tata Capital Financial Services Limited

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….Petitioner

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 V/s.

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Assistant Commissioner of Income Tax
Circle 1(3)(1) and Ors.

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…Respondents

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----

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Mr. J.D. Mistri, Senior Advocate a/w Mr. Niraj Sheth i/b Mr. Atul K. Jasani
for Petitioner.

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Mr. Suresh Kumar for Respondents.

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 ----

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 CORAM : K.R. SHRIRAM &

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N. J. JAMADAR, JJ.
 DATED : 15th FEBRUARY, 2022

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P.C. :

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1.Petitioner is a wholly owned subsidiary of Tata Capital Limited

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and a Systematically Important Non-Deposit Accepting Non-Banking
Finance Company (NBFC) registered with Reserve Bank of India (RBI).
Petitioner is required to comply with the directions issued by RBI from time
to time to all NBFCs. It is petitioner’s case that RBI had, by Notification
No.DNBS 193/DG(VL) – 2007 dated 22nd February, 2007, issued directions
relating to prudential norms to NBFC in exercise of its powers conferred
under Reserve Bank of India Act, 1934 (RBI Act). Clause 3(2) of the said
directions require that income including interest/discount or any other
charges of NPA (Non-Performing Assets) shall be recognised only when it is
actually realised. In compliance with said requirement petitioner recognised
income of NPA only when it is actually realised. The said income

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Purti Parab

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accordingly was not offered to tax in the return of income on accrual basis
but is offered to tax on actual receipt basis. Petitioner stated that in its
Annual Report of previous year ending 31st March, 2013 relevant to the
Assessment Year 2013-14, this fact was specifically disclosed in the
significant account policies. Petitioner also states that in the tax audit report
it is also stated that interest and other charges due Rs.25,66,54,010/- on
Non-Performing Assets are not credited to statement of Profit and Loss
Account pursuant to RBI directions.

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2.Petitioner’s case was selected for scrutiny and during the course
of assessment proceedings, petitioner received a notice dated 7th August,
2015 under Section 142(1) of the Income Tax Act, 1961 (the Act) calling
upon petitioner to furnish various details. In reply, petitioner, by a letter
dated 20th August, 2015, submitted copies of return of income, computation
of income, annual report, financial statements including schedules and
notes to accounts and tax audit report in Form 3CD along with exhibits.
After this was filed, the assessment order dated 8th March, 2016 came to be
passed under Section 143(3) of the Act making a disallowance only under
Section 14A of the Act. Petitioner challenged the disallowance which is still
pending but that is not relevant to the petition at hand.

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3.Thereafter, petitioner received a notice dated 30th March, 2021
under Section 148 of the Act stating that there are reasons to believe that

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Purti Parab

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petitioner’s income chargeable to tax for A.Y. 2013-14 has escaped
assessment within the meaning of Section 147 of the Act. By a letter dated
18th May, 2021 petitioner filed its objections to the said notice. Thereafter,
by a letter dated 6th August, 2021 from respondent petitioner received
reasons for re-opening. In the objections to the re-opening, petitioner
raised various points including the fact that interest and other charges on
NPA ought to be taxed on actual realisation basis and not on accrual basis
and placed reliance on judgment of the Delhi High Court in the matter of
Commissioner of Income Tax vs. Vasisth Chay Vyapar Ltd.1 It was also
brought to the notice of respondent that the Delhi High Court has held that
where the assessee was NBFC it was governed by the provisions of RBI Act.
In such a case, interest income could not be said to have accrued to the
assessee having regard to the provisions of Section 45Q of the RBI Act and
prudential norms issued by RBI in exercise of its statutory powers. As per
these norms, the ICD has become NPA and on such NPA where the interest
was not received and possibility of recovery was almost NIL, interest could
not be treated to have been accrued in favour of the assessee. It was also
brought to the notice of the Assessing Officer that the Delhi High Court in
the said judgment of Vasisth Chay Vyapar Ltd. (supra) had considered the
Hon’ble Apex Court’s decision in Southern Technologies Ltd. vs. Joint
Commissioner of Income Tax2 (relied upon by the Assessing Officer to re-
open the assessment) and held its applicability is dependent on facts. It was

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1 [2011] 330 ITR 440 (Delhi)

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2 [2010] 320 ITR 577 (SC)

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also brought to the notice of the Assessing Officer that the decision of the
Delhi High Court in Vasisth Chay Vyapar Ltd. (supra) has been confirmed by
the Hon’ble Supreme Court of India in Commissioner of Income Tax vs.
Vasisth Chay Vyapar Ltd.3

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Apart from these, various other judgments have also been cited
in support of petitioner’s case that notice under Section 148 of the Act
should not have been issued.

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4.In the order passed on 17th December, 2021, rejecting the
objections the Assessing Officer has not dealt with all these points. The
Assessing Officer was duty bound to deal with all the submissions made by
petitioner in its objections and not just brush aside uncomfortable objections
under the carpet. We have to note that petitioner had, with the objections,
also requested the Assessing Officer to provide photocopies of documents
evidencing request sent by the Assessing Officer to the Principal Chief
Commissioner of Income Tax/Chief Commissioner/Principal Commissioner/
Commissioner in terms of Section 151(1) of the Act for obtaining an
approval for re-opening of the assessment for the year under consideration
and documents evidencing the approval received from the Principal Chief
Commissioner of Income Tax/Chief Commissioner/Principal Commissioner/
Commissioner.

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The Assessing Officer instead of providing these documents

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3 [2019] 410 ITR 244 (SC)

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Purti Parab

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simply dismissed petitioner’s request by saying it is purely an administrative
matter and all correspondence have been made through system. The
Assessing Officer was duty bound to provide all the documents called for by
petitioner and his reluctance to provide these documents only would make
the court draw adverse inference against respondent. It will be apposite to
quote the following from the judgment of the Delhi High Court in case of
Sabh Infrastructure Ltd. vs. Assistant Commission of Income Tax4 which

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reads as under :

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Before parting with the case, the Court would like to observe that
on a routine basis, a large number of writ petitions are filed
challenging the reopening of assessments by the Revenue under
Sections 147 and 148 of the Act and despite numerous judgments
on this issue, the same errors are repeated by the concerned
Revenue authorities. In this background, the Court would like the
Revenue to adhere to the following guidelines in matters of
reopening of assessments:

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(i) while communicating the reasons for reopening the
assessment, the copy of the standard form used by the
Assessing Officer for obtaining the approval of the
Superior Officer should itself be provided to the assessee.
This would contain the comment or endorsement of the
Superior Officer with his name, designation and date. In
other words, merely stating the reasons in a letter
addressed by the Assessing Officer to the assessee is to be
avoided;

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(ii) the reasons to believe ought to spell out all the reasons
and grounds available with the Assessing Officer for re-
opening the assessment - especially in those cases where
the first proviso to Section 147 is attracted. The reasons to
believe ought to also paraphrase any investigation report
which may form the basis of the reasons and any enquiry
conducted by the Assessing Officer on the same and if so,
the conclusions thereof;

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(iii) where the reasons make a reference to another
document, whether as a letter or report, such document

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4 [2017] 398 ITR 198 (Delhi)

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and/or relevant portions of such report should be enclosed
along with the reasons;

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(iv) the exercise of considering the assessee's objections to
the reopening of assessment is not a mechanical ritual. It is
a quasi- judicial function. The order disposing of the
objections should deal with each objection and give proper
reasons for the conclusion. No attempt should be made to
add to the reasons for reopening of the assessment beyond
what has already been disclosed.

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5.Therefore, the order dated 17th December, 2021 impugned in
this petition is quashed and set aside. The matter is remanded for denovo
consideration. The concerned officer shall keep in mind that the exercise of
considering the assessee’s objections to the re-opening of assessment is not a
mechanical ritual but a quasi judicial function. The order disposing of the
objections should deal with each objection and give proper reasons for the
conclusion. He shall also grant a personal hearing to petitioner and the
notice of personal hearing shall be communicated atleast seven working
days in advance. If the said officer is relying on any judgment or order of
any Court or Tribunal, a list thereof shall be provided to petitioner
alongwith notice of personal hearing so that petitioner will be able to deal
with or distinguish these judgments/orders in the personal hearing. The
Assessing Officer shall deal with all previous submissions while considering
the assessee’s objections, deal with each objections and give proper reasons
for its conclusion.

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Purti Parab

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6.Before we part with the case, we would like to observe that on
a routine basis a large number of Writ Petitions are filed challenging the re-
opening of assessments by the Revenue under Sections 147 and 148 of the
Act and despite numerous judgments on this issue, the same errors are
repeated by the Revenue authorities. In this case also the reasons for re-
opening the assessment have been stated in letter dated 6th August, 2021
addressed by the Assessing Officer. For ease of reference, the same is
scanned and reproduced herein below :-

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Purti Parab

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Before the objections were disposed, petitioner had received a

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notice dated 11th November, 2021 under Section 143(2) read with Section
147 of the Act, annexed to which was the actual reasons recorded. The
annexure, i.e., the reasons for ease of reference is scanned and reproduced
herein below :-

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Purti Parab

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Purti Parab

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We are surprised to notice that paragraph no.3 in the actual
reasons is missing in the letter dated 6th August, 2021. Paragraph no. 4 in
the letter dated 6th August, 2021 is missing in the reasons given for
obtaining approval.

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7.If one considers paragraph no.3 of the actual reasons submitted
for obtaining approval, which is missing in the letter of 6th August, 2021, it
clearly shows change of opinion. It also gives us an impression this
omission was deliberate, being aware of the legal position. We are also
surprised how the approval was also given after reading paragraph no.3 of
the actual reasons.

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8.In the circumstances, the Revenue is directed to adhere to the
following:

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(a)While communicating the reasons for re-opening
the assessment, a copy of the standard form/request sent

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Purti Parab

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by the Assessing Officer for obtaining approval of the
Superior Officer should itself be provided to the assessee.
This would contain comment or endorsement of the
Superior Officer with his name, designation and date.

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The Assessing Officer shall not merely state the
reasons in the letter addressed to the assessee.

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(b)If the reasons make reference to any other
document or a letter or a report, such document or letter
or report should be enclosed to the reasons. Such
portion as it does not bear reference to the assessee
concerned could be redacted.

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(c)The order disposing the objections should deal
with each objections and give proper reasons for the
conclusion.

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(d)A personal hearing shall be given and minimum
seven working days advance notice of such personal
hearing shall be granted.

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(e)If the Assessing Officer is going to rely on any
judgment/order of any Tribunal or Court reference/
citation of these judgment/orders shall be provided
alongwith notice for personal hearing so that the assessee
will be able to deal with/distinguish these judgments/

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orders.

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9.A copy of this order be placed before the members of the
Central Board of Direct Taxes who shall issue guidelines to all its officers
based on the directions given above with clear instructions that they shall be
strictly followed. We only hope that, this will reduce the same errors being
repeated by the concerned revenue authorities and will not drive the
assessee to rush to the court. Thereby, the burden on the court will also get
reduced.

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10.Petition accordingly disposed with no order as to costs.

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(N. J. JAMADAR, J.) ( K.R. SHRIRAM, J.)

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Purti Parab

Tata Capital Financial Services Limited v. Assistant Commissioner of Income Tax Circle 1(3)(1) Mumbai and 3 Ors.

Case brief

What is this about?

What did the court decide?

Tata Capital Financial Services Limited v. Assistant Commissioner of Income Tax Circle 1(3)(1) Mumbai and 3 Ors.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

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