IN HIGH COURT OF DELHI AT NEW DELHI W.P.(C) 614/2014 YUM! RESTAURANTS ASIA PTE.LTD. ..... Petitioner Through: Mr. Salil Kapoor, Advocate with Ms. Ananya Kapoor, Mr. Sumit Lalchandani, Mr. Sanat Kapoor, Advocates. Versus DEPUTY DIRECTOR OF INCOME TAX ..... Respondent Through: Mr. Rahul Chaudhary, Sr.Standing Counsel. CORAM: JUSTICE S.MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER 31.08.2017 Dr. S. Muralidhar, J.: 1. This writ petition by Yum Restaurants Asia PTE Ltd. seeks quashing of notice dated 28th March, 2013 issued by Deputy Director of Income Tax (Assessing Officer - AO ) under Section 148 of Income Tax Act, 1961 ( Act ) for Assessment Year ( AY ) 2006-07. It also challenges order dated 26th December, 2013 passed by AO rejecting objection filed by Assessee to reopening of assessment. 2. One of grounds of challenge to re-opening of assessment is that since return originally filed was processed under Section 143 (1) of Act, and reopening was after expiry of 4 years from end of relevant AY, requirement under Section 151 (2) of Act, as it then stood, had to be mandatorily complied with. case of Petitioner can W.P.(C) No.614/2014 Page 1 of 10 be better understood by examining Section 151 of Act as it then stood. It reads thus: 151. Sanction for issue of notice :- (1) In case where assessment under sub- section (3) of section 143 or section 147 has been made for relevant assessment year, no notice shall be issued under section 148 by Assessing Officer, who is below rank of Assistant Commissioner or Deputy Commissioner, unless Joint Commissioner is satisfied on reasons recorded by such Assessing Officer that it is fit case for issue of such notice: Provided that, after expiry of four years from end of relevant assessment year, no such notice shall be issued unless Chief Commissioner or Commissioner is satisfied, on reasons recorded by Assessing Officer aforesaid, that it is fit case for issue of such notice. (2) In case other than case falling under sub- section (1), no notice shall be issued under Section 148 by Assessing Officer, who is below rank of Joint Commissioner, after expiry of four years from end of relevant assessment year, unless Joint Commissioner is satisfied, on reasons recorded by such Assessing Officer, that it is fit case for issue of such notice. Explanation - ..... 3. There are two scenarios that Section 151 envisages. One is where original return has been picked up for scrutiny and assessment order has been passed under Section 143 (3) of Act. In such event, procedure outlined under Section 151 (1) of Act has to be followed. Where reopening is sought to be made after expiry of 4 years from end of relevant AY, and where return originally filed has been processed under Section 143 (3) of Act then in terms of proviso to Section W.P.(C) No.614/2014 Page 2 of 10 151(1) of Act, approval of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner has to be obtained to effect that it is fit case for issuance of such notice. 4. It is not in dispute that in present case, return originally filed by Assessee for AY 2006-07 was processed under Section 143 (1) of Act and not under Section 143 (3) of Act. Therefore, as far as Petitioner is concerned, Department ought to have proceeded in terms of Section 151 (2) of Act. Since re-opening of assessment was after expiry of 4 years from end of relevant AY, proposal of AO to reopen assessment should have had approval of officer of rank of Joint Commissioner which in this case was Additional DIT. 5. factual scenario, however, is that note put up by AO to DIT read as under: Form of recording reasons for initiating proceedings under Section 148 and for obtaining approval of Director of Income-tax/Central Board of Direct Taxes 1 Name and Address of : M/s. Yum! Restaurants (Asia) assessee PTE Limited 99, Bukit Timah Road # 04-01 02, Singapore - 999999 2 Permanent Account No. : AAACY2204M 3 Status : Non Resident 4 District/Circle/Range : Circle 2(2), Intl. Taxation, New Delhi 5 Assessment Year in respect of : 2006-07 which it is proposed to issue notice u/s 148 W.P.(C) No.614/2014 Page 3 of 10 6 Quantum of income which : Exceeding Rupees 1 lakhs ha escaped assessment 7 Whether provisions of Sec. : Yes 147 (a) to be made first time. If reply is in affirmative please state. 8 Whether assessment is : No proposed to be made first time. If reply is in affirmative please state. (a) Whether any voluntary return : N.A. had already been filed and (b) If so, date of filing said : N.A. return 9 If answer to item 8 is in : negative please state (a) income originally assessed : (b) Whether it is case of under : Under assessment assessment that too low rate, assessment which has been made subject to excessive relief or allowing of excessive loss or depreciation 10 Whether provisions of Sec. : No 150 (1) are applicable. If reply is in affirmative, relevant facts may be stated against item no.11 and it may also be brought out that provisions of Sec. 150 (2) would not stand in way of initiating proceedings u/s. 147 11 Reasons for believe that : As per Annexure income has escaped assessment Dated: 26.03.2013 W.P.(C) No.614/2014 Page 4 of 10 (Mazhar Akram) Deputy Director of Income Tax Circ 2 (2), Intl. Taxation, New Delhi 12. Comments of Addl. DIT, R-2, Intl. Tax., Delhi, if any o On persual of reasons I have reasons to believe that income of more than one lakh has escaped assessment. o proposal is approved. Sd/- (Manish Mishra) Addl. Director of Income Tax Range-2, Intl. Tax., New Delhi 13. Whether Director of Income I have perused reason Tax : (Intl. Tax.)-II, New Delhi is recorded and find there is satisfied on reasons recorded income escaping assessment by ITO/ADIT/DDIT) that it is making this fit case for action fit case for issue notice u/S 148 U/S 147/148 of IT Act, 1961. (Poonam K. Sidhu) Director of Income Tax Intl. Taxation-II, New Delhi 6. Two of columns in above note are of immediate relevance. Column 8 poses question whether assessment is proposed to be made for first time. This question is directly relatable to Section 151 (2) of Act since it seeks to ascertain whether return filed for AY in question has only been processed under Section 143 (1) of Act or was it subject to scrutiny assessment? If, as in present case, return was only processed under Section 143 (1) of Act, then answer to question in Column 8 should have been in affirmative i.e. Yes . If answer is W.P.(C) No.614/2014 Page 5 of 10 in affirmative, AO then proceeds to fill up Columns 8 (a) and 8 (b). 7. As is evident from above note prepared by AO, he chose to answer question in Column No. 8 in negative. This meant that according to AO, return filed by Assessee for AY 2006-07 had in fact been picked up for scrutiny and assessment order was passed under Section 143 (3) of Act. However, factual position was to contrary. only conclusion, therefore, to be drawn is that when AO filled up Column 8 with negative answer, he did not himself peruse file as that would have clearly shown him whether return was subject to scrutiny or not. This was definitely, therefore, instance of non-application of mind by AO. 8. If in fact AO had seen record, then apart from answering question at Column 8 in affirmative, he would have, in response to question in Column 8 (a), again answered in affirmative and in Column 8 (b) given date on which return was filed. Clearly, therefore, it appears that AO did not peruse record containing return filed by Assessee. 9. At this stage, it must be noted that for AY 2005-06, where separate order has been passed by Court today in W.P. (C) No.1353/2013, stand taken by Department was that file for that AY was not traceable. However, as far as present AY is concerned, Department has not stated anywhere that file was not traceable. W.P.(C) No.614/2014 Page 6 of 10 10. One mistake led to other. Having answered question in Column 8 in negative, then logically AO should have filled up Columns 9 (a) and 9 (b). Not only was Column 9 (a) left blank but Column 9 (b) was answered by stating under assessment , when in fact there was no pending assessment as far as AY in question was concerned. 11. purpose of Section 151 of Act is to introduce supervisory check over work of AO, particularly, in context of reopening of assessment. law expects AO to exercise power under Section 147 of Act to reopen assessment only after due application of mind. If for some reason, there is error that creeps into this exercise by AO, then law expects superior officer to be able to correct that error. This explains why Section 151 (1) requires officer of rank of Joint Commissioner to oversee decision of AO where return originally filed was assessed under Section 143 (3) of Act. Further, where reopening of assessment is sought to be made after expiry of four years from end of relevant AY, further check by further superior officer is contemplated. 12. In present case, having started off on wrong note that original assessment was scrutinized and order was passed under Section 143(3) of Act, AO proceeded to put up note to DIT as is evident from title of note but, through Additional DIT. Both Additional DIT and DIT appear to have concurred with reasons for reopening assessment but without applying their minds to fact that return originally filed was only processed under Section 143(1) of Act and not W.P.(C) No.614/2014 Page 7 of 10 under Section 143(3) of Act. Had Additional DIT realised this mistake, he would not have put up file further for approval of DIT. Clearly, therefore, at level of Additional DIT there was non- application of mind. Had DIT realized mistake, he would have declined to make noting and would have returned file to Additional DIT drawing his attention to Section 151 (2) of Act which did not require any further approval by DIT where return originally filed is only processed under Section 143 (1) of Act. On contrary, DIT again recorded his concurrence with views of AO and Additional DIT. Therefore, at second level also plainly there was non-application of mind. 13. Mr. Rahul Chaudhary, learned Senior Standing Counsel for Department, sought to characterise this whole exercise as over- application of mind. According to him, it was out of anxiety that reopening of assessment might ultimately be invalidated, that these officers enthusiastically participated in exercise by treating return originally filed as having been subjected to scrutiny under Section 143 (3) of Act. 14. What is evident to Court is non-application of mind by three officers of Department - AO, Additional DIT and DIT. Plainly they did not bother to examine record themselves. 15. counter affidavit filed by Department, in present case, makes for interesting read. In para 9, it seeks to explain lapse as under: W.P.(C) No.614/2014 Page 8 of 10 9. That, contents of Para No. 23, are wrong, prejudiced and out of context, hence, same are denied in totality as objections raised by assessee company has been validly and correctly disposed off vide office letter dated 26.12.2013. Furthermore, case laws cited by assessee were distinguishable from facts & circumstances of case of assessee, and, hence, out of context. In respect of case laws relied for sanction of issuance of notice u/s 148, same are distinguishable from present case. From records available in this circle for A.Y 2006-07, it was not clear as to whether scrutiny assessment was done. Therefore, as matter of abundant caution, prior approval of both Addl. DIT, Range-2, Intl. taxation, New Delhi and DIT (Intl. Tax)-II, New Delhi was taken. Besides, as detailed at Para 2, 3 & 7 above, there was valid reasons for reopening of reassessment proceedings. 16. It is not understood how from records available for AY 2006-07 it was not clear whether scrutiny assessment was made. records obviously would have contained order of AO under Section 143 (3) of Act. If, as is case, there was no such order then clearly only conclusion to be drawn was that return was processed under Section 143 (1) of Act. Since it is not case of Department that file for AY 2006-07 went missing, as was case for AY 2005-06, above statement in counter affidavit filed on 9th September 2014, more than year after reopening, is inexplicable. 17. At highest, note prepared by AO should have been candid in Column 8 that it was not clear whether assessment was being made for first time or not. That, at least, would have told Court that AO had applied his mind to facts of case. In any event, if such W.P.(C) No.614/2014 Page 9 of 10 note had been put up to Addl. DIT and thereafter to DIT, either of those officers could have applied their minds and ascertained if indeed return was processed under Section 143 (1) of Act or picked up for scrutiny. explanation now offered in counter affidavit only underscores non-application of mind at all three levels in Department. 18. Court, therefore, quashes impugned notice dated 28th March 2013 issued by AO under Section 148 of Act seeking to reopen assessment for AY 2006-07. order dated 26th December 2013 of AO rejecting Petitioner's objections is also set aside. 19. writ petition is accordingly allowed but, in circumstances, with no order as to costs. S.MURALIDHAR, J. PRATHIBA M. SINGH, J. AUGUST 31, 2017 anb W.P.(C) No.614/2014 Page 10 of 10 Yum Restaurant Asia Pte. Ltd. v. Deputy Commissioner of Income-tax