W.P.Nos.30564 & 32477 of 2016 IN HIGH COURT OF JUDICATURE AT MADRAS Reserved On 31.01.2020 Pronounced On 19.05.2020 CORAM HON'BLE MR.JUSTICE C.SARAVANAN W.P.Nos.30564 & 32477 of 2016 and W.M.P.Nos.26506 & 28176 of 2016 M/s. T.Stanes & Company Limited, 8/23-24, Race Course Road, Coimbatore 641 018, Rep. by its Whole time Director Shri P.S.Bopaiah. ... Petitioner in both W.Ps. Vs. Deputy Commissioner of Income Tax Corporate Circle I(2), Income Tax Department, Race Course, Coimbatore 641 018. ...Respondent in both W.Ps. Writ Petitions filed under Article 226 of Constitution of India praying to issue Writ of Certiorarified Mandamus, to call for records of respondent and quash impugned notices under Section 148 of Act in PAN:AAACT7126P dated 08.09.2015 and 21.09.2015 http://www.judis.nic.in Page No 1 of 13 W.P.Nos.30564 & 32477 of 2016 and consequential orders in PAN No: AAACT7126P dated 20.07.2016 & 26.08.2016 respectively and direct respondent to drop reassessment proceedings for Assessment Years 2010-2011 & 2011-2012. For Petitioner : Mr.Vikram Vijayaraghavan for Mr.Subbaraya Aiyar Padmanabhan in both W.Ps. For Respondent : Mr. A.N.R. Jayaprathap Standing Counsel, in both W.Ps. COMMON ORDER By this common order both Writ Petitions are being disposed. 2. In these Writ Petitions, petitioner has challenged impugned notices dated 08.09.2015 and 21.09.2015 issued by respondent under Section 148 of Income Tax Act, 1961 seeking to reopen of assessments for Assessment Years 2010-2011 & 2011- 2012 and consequential communications dated 20.07.2016 and 26.08.2016 for respective Assessment Years overruling objections of petitioner. petitioner has prayed for directing respondent to ____________ http://www.judis.nic.in Page No 2 of 13 W.P.Nos.30564 & 32477 of 2016 drop proposed re-assessment proceedings initiated by respondent. 3. petitioner is engaged in manufacture of fertilizers, mixtures, micro nutrient fertilizers, bio pesticides, high quality seeds, and marketing of agro inputs, marketing of consumer industrial products, distributors of agro chemicals, Estate stores, Bata products, Tarpaulins etc. It is also engaged in manufacture of coffee powder, purchase and sale of coffee seeds and tea and retreading of automobile tyres. 4. According to petitioner, pursuant to order dated 05.03.2010 of this Court, M/s.Stanes Tyre& Rubber Products Limited (Transferror Company) merged with petitioner (M/s.Stanes & Company limited) with effect from 01.04.2009. 5. petitioner filed its Income Tax Return of for Assessment Years 2010-2011 and 2011-2012 and declared income after setting off carry forward loss and unabsorbed depreciation of M/s. StanesTyre and Rubber Products Ltd. (Transferror Company), on book profit under Section 115JB of Act was determined. ____________ http://www.judis.nic.in Page No 3 of 13 W.P.Nos.30564 & 32477 of 2016 6. returns were scrutinized and assessment orders were passed as detailed below:- W.P.No.30564/2016 W.P.No.32477/2016 Assessment Year 2010-2011 2011-2012 Date or Return 13.10.2010 14.3.2013 Income Returned under normal Provisions for Nil 5,72,38,789/- payment of Tax under Section 115JB of Income Tax Act, 1961. Book Profit as per Return 7,35,89,144/- Nil Assessment Order 31.03.2013 25.03.2014 Taxable Income returned in 11,09,65,797/- 7,32,73,599/- Assessment Order. Tax Paid before Assessment. 1,25,06,475/- * Nil Tax payable after 1,66,44,870/- 2,43,39,658/- Assessment. rounded off to rounded off to Rs.83,81,851/- after Rs.61,22,650/- after adjustments. adjustments. * Under Section 115JB of Income Tax Act, 1961. 7. These returns were sought to be re-opened under Section 148 of Income Tax Act, 1961. To which petitioner was also filed its ____________ http://www.judis.nic.in Page No 4 of 13 W.P.Nos.30564 & 32477 of 2016 objections. By impugned orders, respondent has rejected/ overruled objections of petitioner against reopening of assessments. details are as follows:- W.P.No. Assessment Notice Objection Impugned Year u/s.148 of date communications Act date overruling objections 30564/2016 2010-2011 08.09.2015 19.01.2016 20.07.2016 32477/2016 2011-2012 21.09.2015 19.01.2016 26.08.2016 8. reasons for re-opening assessments of respective Assessment Years as communicated are as follows:- For Assessment Year 2010-11 For Assessment Year 2011-2012 "The assessment in this case was "The assessment in this case was completed u/s 143(3) of IT completed u/s 143(3) of IT Act, 1961 on 31.03.2013 by Act, 1961 on 25.03.2014 by assessing book profit of assessing total income of Rs.11,09,65,797/- u/s.115JB of Rs.7,32,73,599/- under Normal IT Act. Provisions of IT Act. Subsequently it is noticed that on Subsequently it is noticed that on 05.03.2010 assessee company 05.03.2010 assessee company has obtained order from has obtained order from Hon'ble Madras High Court Hon'ble Madras High Court approving scheme of approving scheme of ____________ http://www.judis.nic.in Page No 5 of 13 W.P.Nos.30564 & 32477 of 2016 amalgamation between amalgamation between Holding company T. Stanes& Co. Holding company T. Stanes& Co. Ltd. (Assessee company) and Ltd. (Assessee company) and fully fully owned subsidery company owned subsidery company M/s. M/s. Stanes Tyre and Rubber Stanes Tyre and Rubber Products Products Ltd., w.e.f. 1.04.2009. In Ltd., w.e.f. 1.04.2009. In consequence of amalgamation consequence of amalgamation assessee company has assessee company has adjusted adjusted sum of sum of Rs.2,98,02,930/- as loss Rs.7,02,40,408/- as loss brought brought forward from forward from amalgamating amalgamating company, by virtue company, by virtue of of amalgamation u/s.72A of IT amalgamation u/s.72A of IT Act, 1961. Act, 1961. In this connection it was observed For adjusting brought forward that as per provisions u/s. loss u/s.72A of amalgamating 72A(1)(a) and 72A97)(aa) for company, assessee company adjusting brought forward loss should be Industrial of amalgamating company, it undertaking engaged in should be industrial manufacture or processing of undertaking engaged in goods. In this case, Stanes manufacture or processing of Tyre and Rubber Producers were goods. In this case, Stanes engaged in business of tyre Tyre and Rubber Producers retreading only. As per were engaged in business of judicial decision of Hon'ble tyre retreading only. As per Kerala High Court in case of judicial decision of Hon'ble CIT Vs. Vijaya Retreders (2001) Kerala High Court in case of no manufacturing is involved in CIT Vs. Vijaya Retreders (2001) tyre retreading. Therefore, no manufacturing is involved in assessee company is not eligible tyre retreading. supreme to adjust brought forward Court also held that tyre loss of amalgamating retreading is not industrial company." undertaking in CIT Vs. T.N.State Transport Corporation 252 ITR 883 (SC). Therefore, assessee ____________ http://www.judis.nic.in Page No 6 of 13 W.P.Nos.30564 & 32477 of 2016 company is not eligible to set off brought forward loss of Rs.2,98,02,930/- pertaining to amalgamating company." 9. Challenging same, learned counsel for petitioner relied on following decisions:- i. Additional Commissioner of Income Tax Vs. Kalsi Tyre (P) Ltd., (1981) 131 ITR 0636. ii. Fenner (India) Ltd. Vs. Deputy Commissioner of Income Tax, (2000) 241 ITR 0672. iii. Commissioner of Income Tax Vs. Vijaya Retreaders, (2002) 253 ITR 0053. 10. Defending impugned notices and impugned communications issued for respective Assessment Years, it is submitted that mere production of documents before Assessing Officer books of account or other document from which material evidence could be gathered with due diligence by assessing officer will not amount to disclosure contemplated in Section 147 of Income Tax Act, 1961. It is further submitted that Explanation 2 to Section 147 of Income Tax Act, 1961 is attracted. It is further submitted that it is ____________ http://www.judis.nic.in Page No 7 of 13 W.P.Nos.30564 & 32477 of 2016 open for petitioner to make all submissions before respondent and in case there is case for dropping on merits, proceedings will be dropped on merits. 11. From reading of above it is evident that only reason for reopening assessment of petitioner was that it was not entitled to adjust loss of transferor company as said company was not engaged in manufacturing activity within meaning of Section 72A(1)(a) of Income Tax Act, 1961. 12. In this connection, reliance has been placed on decision of Kerala High Court in CIT Vs. Vijaya Retreaders, (2002) 253 ITR 53 and that of decision of Hon ble Supreme Court in CIT Vs. Tamil Nadu State Transport Corporation (2001) 252 ITR 883. For Assessment Year 2010-11, tax was paid under Section 115JB of Income Tax Act, 1961 and it has been proposed to be recomputed by denying adjustment of loss brought forward from said company amounting to Rs.7,02,40,408/- similarly for Assessment Year 2011-12 sum of Rs.2,98,02,930/- is sought to be added back to taxable ____________ http://www.judis.nic.in Page No 8 of 13 W.P.Nos.30564 & 32477 of 2016 income. 13. However, it is noticed that petitioner disclosed this aspect in return of income and it is pursuant to which respective assessment orders dated 31.03.2013 and 25.3.2014 were passed by Assessing Officer. Thus, there was no material suppression of facts on part of petitioner to either truly or fully furnish information that were required for completing assessment. Therefore invocation of Section 148 of Income Tax Act, 1961 for purpose of proviso to Section 147 is clearly without jurisdiction. 14. impugned communication dated 20.07.2016 for Assessment Year 2010-11 and impugned communication dated 26.08.2016 for Assessment Year 2011-2012 issued pursuant to decision of Supreme Court in GKN Drive Shafts indicates that invocation of Section 148 for purpose of proviso to Section 147 qua denial of adjustments under Section 72A(1)(a) of Income Tax Act, 1961 is inspired from change of opinion as petitioner has disclosed basis on which petitioner was claiming deductions. ____________ http://www.judis.nic.in Page No 9 of 13 W.P.Nos.30564 & 32477 of 2016 Thus, proposal in impugned communications would clearly be in violation of decision of Honourable Supreme Court in CIT Vs. Kelvinator of India Ltd, (2010) 2 SCC 723. 15. issue as to whether petitioner was entitled to adjust loss of brought forward from books of accounts of transferor company was subject matter of discussion before assessment orders were passed for respective Assessment Years. 16. Reopening of assessment to deny adjustments made under is therefore without jurisdiction. Therefore, proviso to Section 147 of Income Tax Act, 1961 puts embargo on respondent from proceeding further as no action shall be taken under this section after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under Section 139 or in response to 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. ____________ http://www.judis.nic.in Page No 10 of 13 W.P.Nos.30564 & 32477 of 2016 17. At same time, if in course of such proceedings respondent comes to conclusion that there were other grounds on which assessment can be reopened, respondent can assess or reassess such income in light of Explanation 3 to Section 147 of Income Tax Act, 1961. 18. In light of above discussion, I direct petitioner to participate in proceedings before respondent. respondent is however precluded from disturbing adjustments made by petitioner and allowed in their respective assessment orders under Section 72A(1)(a) of Income Tax Act, 1961. 19. respondent may however look for such other aspects which may come within purview of Explanation 3 to Section 147 of Income Tax Act, 1961, for them to demand while passing orders. 20. Since dispute pertains to Assessment Years 2010-2011 & 2011-2012, in light of above observations, respondent is ____________ http://www.judis.nic.in Page No 11 of 13 W.P.Nos.30564 & 32477 of 2016 directed to bring closure to proceedings within period of three months from date of receipt of copy of this order through videoconferencing, if situation so warrants on account of Covid19 Pandemic. 21. present Writ Petitions stand disposed with above observations. No cost. Consequently, connected Miscellaneous Petitions are closed. .05.2020 Index : Yes/No Internet :Yes/No jen C.SARAVANAN, J. jen To Deputy Commissioner of Income Tax Corporate Circle I(2), Income Tax Department, Race Course, Coimbatore 641 018. ____________ http://www.judis.nic.in Page No 12 of 13 W.P.Nos.30564 & 32477 of 2016 Pre-Delivery Common Order in W.P.Nos.30564 & 32477 of 2016 and W.M.P.Nos.26506 & 28176 of 2016 .05.2020 ____________ http://www.judis.nic.in Page No 13 of 13 T.Stanes & Company Limited v. Deputy Commissioner of Income-tax Corporate Circle I(2), Coimbatore