IN HIGH COURT OF DELHI AT NEW DELHI W.P.(C) 11541/2017 & CM Appl.No.47020/2017 (stay) VEDANTA LTD. (SUCCESSOR OF STERLITE INDUSTRIES (INDIA) LIMITED) Petitioner Through: Mr.Sachit Jolly and Mr.Aarush Bhatia, Advocates. versus ASST. COMMISSIONER OF INCOME TAX, CIRCLE-26 (1), NEW DELHI Respondent Through: Ms.Vibhooti Malhotra, Senior Standing Counsel. CORAM: JUSTICE S.MURALIDHAR JUSTICE TALWANT SINGH ORDER 20.08.2019 Dr. S. Muralidhar J.: 1. This is writ petition challenging notice dated 31st March, 2017, issued by Respondent, Assistant Commissioner of Income Tax, Circle- 26 (1), New Delhi (hereafter, Assessing Officer) (AO) seeking to reopen assessment of Petitioner for Assessment Year (AY) 2010-2011 under Section 147 of Income Tax Act, 1961 (the Act). 2. background facts as stated in petition are that erstwhile Sterlite Industries (India) Ltd., which stands amalgamated with Sesa Sterlite Ltd., and now known as Vedanta Ltd., was incorporated in 1975. During relevant AY, Petitioner was engaged in business of manufacturing of W.P.(C) 11541/2017 Page 1 of 12 copper and other non-ferrous metals, phosphoric acids, sulphuric acid etc, in AY 2010-2011. return of income was filed on 8th October, 2010 and was, thereafter, revised on 31st March, 2012. Petitioner was required to file its audited accounts, tax audit report and Form 3CEB, containing details of international transactions entered into between Petitioner and its affiliates. These were duly filed with its return. 3. According to Petitioner, in audited accounts filed before AO, it made disclosures in respect of consultancy and management fees paid to Vedanta Resources PLC (VR PLC). This was in sum of Rs.23.71 crores. Likewise, in Form 3CEB, disclosure was made regarding aforementioned sum paid to VRPLC. Also, in Schedule M and Schedule V of tax audit report, details of payments made to VR PLC towards long- term incentive plan, management fees and Corporate Guarantee Commission were duly disclosed. Note 4 below said Schedules reads as under: "4. Company has accounted for management consultancy fees of Rs.142,248,300/- equivalent to USD 3 million payable to Non resident Company during year under review. Company has submitted that payment is not in nature of fees for technical services chargeable to tax under provisions of Act. obligation to deduct tax source arises, according to Company, only when payment is chargeable to tax under provision of Act. Accordingly, Company has not deducted tax at source from above management consultancy fees. " 4. case of Petitioner was referred by AO to Transfer Pricing Officer (TPO) on 26th February, 2013, after obtaining approval from jurisdictional Commissioner. W.P.(C) 11541/2017 Page 2 of 12 5. By order dated 28th January, 2014, TPO made certain Transfer Pricing (TP) (adjustments) to income of Petitioner. TPO noted that management and consultancy services had been rendered by VRPLC to Petitioner. This was indicated in tabular form by TPO in aforementioned order. 6. On 6th November, 2013, notice was issued by AO to Petitioner calling upon it to furnish details which included following: "7. Disallowance u/s. 40 (a) (ia) last year, allowed this year of Rs.60,95,322/-. 8. As seen from annexure L certain amounts were paid without TDS u/s. 194J and 194C. Please submit details. 10. Please submit details of commission expenses paid unit wise and details of TDS done along with ledger copy. " 7. Petitioner replied to aforementioned queries on 12 th December, 2013 and 14th March, 2014. In assessment order dated 2nd May, 2014, passed under Section 143(3) of Act, AO made note of above transactions. 8. final Assessment Order dated 2nd May, 2014, was challenged by Petitioner by filing W.P. (C) No. 15937/2014 in High Court of Madras. said High Court stayed recovery of demand, subject to payment of 15% of total tax demand, by order dated 20th June, 2014. said petition is stated to be pending. W.P.(C) 11541/2017 Page 3 of 12 9. By way of notice dated 14th March, 2017, Deputy Commissioner of Income Tax (International Taxation) (Madurai) [ DCIT (IT)] initiated proceedings against Petitioner under Section 201(1)/(1A) of Act for AYs 2010-2011 and 2011-2012. These proceedings culminated in two separate orders dated 31st March, 2017, holding Petitioner to be Assessee in default for failure to withhold tax under Section 195 of Act in respect of management and consultancy services received by Petitioner. 10. Petitioner challenged said orders of DCIT (IT), Madurai, in Madurai bench of Madras High Court by Writ Petition (MD) Nos. 8269-70/2017. By orders dated 27th April, 2017 and 16th June, 2017, Madurai Bench of Madras High Court stayed recovery of demand. said writ petitions are stated to be pending. 11. On same date that DCIT (IT) issued above orders i.e. 31st March, 2017, impugned notice was issued to Petitioner by AO under Section 148 of Act seeking to reopen assessment for AY 2010- 2011. Petitioner states that it received said notice on 1st April, 2017. 12. It must be noted here that said notice under Section 148 was issued by ACIT Circle-1, Panaji, Goa and subsequently, jurisdiction of Petitioner came to be transferred to that of present Respondent in New Delhi. Thereafter, Respondent issued notice dated 24th November, 2017, again asking Petitioner to file its return of income. By letter dated 1st December, 2017, Petitioner filed its return of income declaring W.P.(C) 11541/2017 Page 4 of 12 income as reported in its revised return filed on 31st March, 2012. 13. Petitioner then sought and was provided with reasons for reopening of assessment, relevant portion of which read thus: Reasons recorded for reopening income tax assessment U/s. 147 of I.T.Act. 1961 assessee filed its return of income for AY 2010-11 on 08.10.2010 declaring total income of Rs.3,15,87,44,760/- which was revised by filing revised return on 18.10.2010 showing income of Rs.3,24,66,48,940/- under normal provision. assessment was completed on 02.05.2014 u/s. 143(3) & Sec. 92CA r.w.s. 144Cof LT. Act, 1961, assessing total income of assessee at Rs.729,30,12,330 under normal provisions & Rs.760,03,73,643/- u/s. 115JB of LT. Act, 1961. 2. Order u/s. 201(1) & (1A) of LT. Act, 1961 dt. 31.03.2017 was passed by DCIT (International Taxation) Madurai in which DCIT (International Taxation) Madurai has stated that assessee has not deducted TDS in respect of following remittances, for detailed reasons discussed in body of said order(was liable to do so) :- F.Y Amount Description Recipient Nature 2009- Rs.22,91,15,590/- Consultancy Ms Vedanta FTS 10 Fees Resources Pic, UK assessee is clearly in default for non-deduction of TDS u/s. 201(1)/1A of I.T. Act, 1961 for above referred remittance, thereby said payment/remittance made is not allowable u/s: 40(a)(i) of I. T. Act, 1961, and which is to be added to total income of assessee and brought to tax. W.P.(C) 11541/2017 Page 5 of 12 In view of above facts, it is abundantly clear that there is failure on part of assessee to disclose fully and truly all material facts necessary for its assessments for AY 20110-11. Therefore, I have reason to believe that income chargeable to tax amounting to Rs.22,91,15,590/- has escaped assessment, within meaning of provision of section 147 of Income Tax Act, 1961. Accordingly, assessment for A.Y. 2010-11 is proposed to be reopened by issuing notice u/s 148 of I.T. Act, 1961. Asst. Commissioner of Income Tax Circle-1(1), Panaji 14. Petitioner by letter dated 4th December, 2017, raised objections to reopening of assessment. These objections were rejected by Respondent by order dated NIL received by Petitioner on 6th December, 2018. 15. Thereafter, present Petition was filed. On 22nd December, 2017, while directing notice to be issued in petition, this Court passed following order: W.P. (C) No. 11541/2017 & CM No. 47020/2017 Issue notice returnable on 7th March, 2018. Learned counsel for petitioner has stated that issue involved in two writ petitions before Madras High Court relates to (i) jurisdiction of Assessing Officer, who had passed order under Section 143 (3) of Income Tax Act, 1961 and (ii) whether order passed under Section 201/201(A) was passed within limitation period. submission is that this is case of change of opinion and secondly conditions stipulated in proviso are not satisfied as reopening is after four years. It is stated that in W.P.(C) 11541/2017 Page 6 of 12 first round question of international transactions, which would include transaction recorded in reasons for re- opening, were examined. question of failure to deduct TDS, cannot be made subject matter of re-assessment, as jurisdictional preconditions are not satisfied. Counter affidavit would be filed within four weeks. Rejoinder, if any, within four weeks after service of counter affidavit. respondents would ensure that original records, including records of Assessing Officer, who had recorded reasons, are available at time of hearing. Re-assessment proceedings can continue, but no final order would be passed till next date of hearing. Copy of this order will be given dasti to learned counsel for parties under signature of Court Master. 16. In counter-affidavit filed in response to present petition, stand taken by Respondent is that in view of order of DCIT International transaction passed on 31st March, 2017 holding Assessee to be Assessee in default for non-deduction of TDS under Section 201(1)/(1A) of Act for remittance of management consultancy fee, said payment/remittance was not allowable as deduction under Section 40 (a) (i) of Act, and therefore, there was failure on part of Assessee to disclose fully and truly all material facts necessary for its assessment for AY 2010-2011. 17. above order passed by DCIT (IT) is characterised by Respondent as fresh information, specific in nature and reliable in character relating to concluded assessment which exposes paucity of Assessee s W.P.(C) 11541/2017 Page 7 of 12 statement during original assessment and that this forms legitimate basis for reopening assessment. It is further contended that mere disclosure of said transaction at time of oral assessment cannot be said to be disclosure of true and full facts of case. Reliance is placed on decisions in Commissioner of Income Tax v. Velocient Technologies Ltd. (2015) 376 ITR 131 and New Delhi Television Ltd. vs Deputy Commissioner of Income Tax (2017) 84 taxman.com 136 (Del). 18. Mr. Sachit Jolly, learned counsel appearing for Petitioner refers to above facts of Assessee having made full disclosure of its payment of management consultancy fees to VR PLC in its audited accounts and in audit report. He also refers to fact that specific queries were raised by AO during course of assessment proceedings under Section 143 (3) of Act on this aspect. He submits that this was not case of failure on part of Assessee to make full and true disclosure of all material facts. He placed reliance on decision in Commissioner of Income Tax, Calcutta v. Burlop Dealers Limited, (1971) 79 ITR 609 (SC). 19. Ms. Vibhooti Malhotra, learned senior standing counsel for Revenue on other hand referred to decision in Honda SIEL Power Products Limited vs. Deputy Commissioner of Income Tax (2011) SCC OnLine (Del) 804 and urged that merely because material evidence was embedded which Assessing Officer could have uncovered but did not, is not good ground to invalidate notice for re-assessment. W.P.(C) 11541/2017 Page 8 of 12 20. reasons for reopening of assessment in present case, make it clear that what triggered reopening of assessment was order dated 31st March, 2017 passed by DCIT (IT) Madurai holding Assessee to be Assessee in default for not deducting TDS from above payment made to VR PLC towards management and consultancy fees. 21. admitted position is that proviso to Section 147 of Act would stand attracted in present case since reopening was after four years and after initial assessment was under Section 143 (3) of Act. only question that then arises is whether this was sufficient for AO to have reason to believe that income had escaped assessment on account of failure of Assessee to make full and true disclosure of all material facts relevant for assessment. 22. From narration of facts, which have not been disputed by Respondent, it appears that above transaction regarding payment by Petitioner of management consultancy fees to VR PLC was indeed disclosed by Petitioner, not only in accounts but also in audit report. 23. It is also seen that reference was made by AO to TPO after forming initial opinion about need for such step in terms of Section 92 B of Act. Without noticing that it was international transaction, it is unlikely that AO would have made reference to TPO. Further, TPO himself appears to have discussed this aspect in his order and this led AO to again dealing with it in assessment order. Therefore, this W.P.(C) 11541/2017 Page 9 of 12 was clearly not case where there was any failure on part of Assessee to make disclosure of all material particulars. 24. It is sought to be contended that although transaction may have been disclosed, failure by Assessee to deduct TDS was not disclosed. In this context, what needs to be noticed is note 4 appended to audit report where Assessee offered explanation for non-deduction of TDS. As explained by Supreme Court in CIT v Burlop Dealers Ltd. (1971) 79 ITR 609, once Assessee has placed all material facts necessary for assessment before AO, he is under no obligation to instruct AO about what AO should do on basis of such facts. Supreme Court in that case observed as under: We are of view that under Section 34(1) if Assessee has disclosed primary facts relevant to assessment, he is under no obligation to instruct Income-tax Officer about interference which Income-tax Officer may raise from those facts. terms of Explanation to Section 34(1) also do not impose more onerous obligation. Mere production of books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within meaning of Section 34(1), but where on evidence and materials produced Income-tax Officer could have reached conclusion other than one which he has reached, proceeding under Section 34(1)(a) will not lie merely on ground that Income-tax Officer has raised inference which he may later regard as erroneous. W.P.(C) 11541/2017 Page 10 of 12 25. In this context, following observations in Calcutta Discount Company Ltd. v. ITO (1961) 41 ITR 191 (SC) are also relevant: words used are omission or failure to disclose fully and truly all material facts necessary for his assessment for that year . It postulates duty on every Assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, assessing authority will, for purpose of computing or determining proper tax due from Assessee, require to know all facts which help him in coming to correct conclusion. From primary facts in his possession, whether on disclosure by Assessee, or discovered by him on basis of facts disclosed, or otherwise, assessing authority has to draw inferences as regards certain other facts; and ultimately, from primary facts and further facts inferred from them, authority has to draw proper legal inferences, and ascertain on correct interpretation of taxing enactment, proper tax leviable. 26. As far as decision in Honda Siel Power Products Ltd. v DCIT (supra) is concerned, Court notices that in said case, stand of Assessee about making full and true disclosure of material facts was found to be illusionary and ambiguous . In para 10 of judgement, this Court noted that Petitioner had admitted and accepted that he had not given details with regard to proportionate expenses relatable to tax free or exempt income... . It is in those circumstances that Court came to conclusion that reopening of assessment could not be held to be bad in law. W.P.(C) 11541/2017 Page 11 of 12 27. In present case, Court is satisfied that there was no omission or failure on part of Petitioner to disclose all material facts relevant to original assessment proceedings under Section 143(3) of Act. Accordingly, in terms of proviso to Section 147 of Act, assumption of jurisdiction by AO for reopening assessment was bad in law. 28. Consequently, impugned notice dated 31 st March 2017 and consequential order rejecting objections of Petitioner are hereby set aside. 29. writ petition is allowed in above terms, but in circumstances, with no orders as to costs. pending application is disposed of. S. MURALIDHAR, J. TALWANT SINGH, J. AUGUST 20, 2019 pa W.P.(C) 11541/2017 Page 12 of 12 Vedanta Ltd. (Successor of Sterlite Industries (India) Limited) v. Asst. Commissioner of Income-tax, Circle-26(1), New Delhi