Bombay High Court Rules KVSS Determination Provides Protection Against Reassessment.

Court Name : Bombay High Court

Parties : Citibank N.A Vs S.K. Ojha

Decision Date : 09 May 2023

Judgement ref : Writ Petition No. 2189 of 2000

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION NO.2189 OF 2000

Citibank N.A.,

a Body Corporate incorporated under the

laws of the United States of America and

having its main Branch Office in India at

5th Floor, Plot C-61, Bandra Kurla Complex,

G-Block, Bandra (E), Mumbai – 400 051

....Petitioner

V/s.

1. S.K. Ojha,

the Joint Commissioner of Income-Tax,

Special Range – 15, Mumbai, having his

Office at Room No.621, 6th Floor,

Aayakar Bhavan, Maharshi Karve Road,

Mumbai – 400 020

2. N.C. Tewari,

the Commissioner of Income-Tax, Mumbai

City-III, having his office at Aayakar Bhavan,

Maharshi Karve Road, Mumbai – 400020

3. The Union of India

Aayakar Bhavan, M.K. Road, Churchgate,

Mumbai – 400 023

....Respondents

Mr. Percy Pardiwalla, Senior Advocate a/w. Ms. Bindi Dave, Mr. Raghav

Gupta, Ms. Treesa Ann Benny and Ms. Sanyukta Karne i/b. Wadia Ghandy

and Co. for petitioner.

Mr. Suresh Kumar for respondents.

----

CORAM : K. R. SHRIRAM &

M.M. SATHAYE, JJ.

DATED : 9th JUNE 2023

ORAL JUDGMENT : (PER K.R. SHRIRAM, J.) :

1. Rule came to be issued on 23rd January 2008 on which date the

interim protection granted on 6th November 2001 was continued pending

the hearing and final disposal of the petition.

2. Petitioner is a body corporate incorporated in the United States

of America and has been carrying on business in India through its branches.

Petitioner has been an assessee under the Income Tax Act, 1961

[hereinafter referred to as “the Act”].

3. By this petition, petitioner is challenging the action of

respondent no.1 seeking to reopen the completed assessment of petitioner

for the Assessment Year 1992-1993. According to petitioner, despite

repeated request to provide the reasons to believe, petitioner was not

provided the same. The same, however, is annexed to the affidavit in reply

filed by respondent no.1.

4. Petitioner had, on 1st January 1993, filed its return of income

for the Assessment Year 1992-1993. During the course of assessment

proceedings, respondent no.1 called for voluminous and comprehensive

details and raised queries on various issues, one of which was relating to

the amount assessable in the hands of petitioner in respect of its Portfolio

Management Scheme (PMS) including transactions in units and

transactions with Public Sector undertakings. All requisitions and queries of respondent no.1 were fully complied with and answered by petitioner. In

addition to obtaining detailed information from petitioner, respondent no.1,

for the purposes of making the assessment, even exercised his powers under

Section 133(6) of the Act to call for information from third parties and also directed a special audit under Section 142(2A) of the Act. Respondent no.1 also raised queries based on certain observations in the reports of the

Janakiraman Committee and the Joint Parliamentary Committee. The

report of the special audit was also submitted on 15th April 1994. After fully examining the information provided by petitioner and also considering the material collected under Section 133(6) of the Act etc., the assessment was completed on 8th September 1995. Respondent no.1 made certain additions

and disallowances in his order. Against a returned total income of

Rs.2,75,98,77,220/- respondent no.1 assessed the income at

Rs.3,34,51,56,300/- and computed a tax demand of Rs.35,11,67,448/- at

the rate of 60% on the additionally assessed income and consequential

interest under Section 234B and Section 234C of the Act of

Rs.30,27,71,582/-. This assessment order dated 8th September 1995 was

challenged by petitioner by filing an appeal on 11th October 1995 before the

Commissioner of Income Tax (Appeals) [hereinafter referred to as

“CIT(A)”].

5. Respondent no.2 by exercising his powers of revision under

Section 263 of the Act passed an order on 25th September 1997 revising the

assessment order of respondent no.1 on the ground that it was erroneous

and prejudicial to the interest of Revenue since it omitted to charge

petitioner’s income tax at the rate of 65% instead of 60% tax rate actually

charged by the Assessing Officer. This order was challenged by petitioner by

filing an appeal on 3rd December 1997 before the Income Tax Appellate

Tribunal [hereinafter referred to as “ITAT”].

6. On 17th November 1997 respondent no.1 gave effect to the

revisionary order of CIT by applying the tax rate of 65% and directed

respondent no.2 to revise the entire income returned by petitioner. Against

this order, an appeal was filed by petitioner before CIT(A) on 15th January

1998.

7. While these three appeals were pending, the Finance Act

introduced the Kar Vivad Samadhan Scheme 1998 [hereinafter referred to

as “the KVSS”]. The object of the KVSS was to declog the system of

litigation by giving assessees an opportunity to settle finally all the tax

issues relating to an assessment year upon payment of certain amounts. The

KVSS enabled assessees, who had tax arrears and whose appeals were

pending, to make a full and final settlement by following the procedure set

out in the KVSS. The period of the operation of the scheme was also

extended from 31st December 1998 to 31st January 1999. Mr. Pardiwalla

submitted that though it had very good chance of success in the appeals

filed by petitioner, in order to settle all issues finally pertaining to the

Assessment Year 1992-1993 and to put an end to all controversies, disputes

and litigation, petitioner decided to take advantage of the KVSS.

Accordingly petitioner, as per the requirements of the KVSS, on 6th

November 1998 filed a declaration in prescribed Form 1A under Section 89

read with Section 88 of the Finance Act.

8. The office of respondent no.2, in response to petitioner’s

declaration, determined the amount payable at Rs.14.18 Crores, which was

reduced to Rs.9,83,65,400/-. Respondent no.2, by an order dated

18th December 1998 issued under Section 90(1) of the Finance Act,

certified, by issuing Form 2A, the amount payable by petitioner pursuant to

the declaration at Rs.9,83,65,400/-. Respondent no.2 subsequently issued a

fresh certificate dated 7th January 1999 in Form 2A redetermining the

amount payable at Rs.10,30,20,815/-. According to petitioner, though

respondent no.2 did not have the power to issue such a revised Form 2A

certificate, to put an end to all its proceedings for Assessment Year 1992-

1993 and since the difference was only about Rs.47 lakhs, petitioner paid a

sum of Rs.10,30,20,815/- in full and final settlement of its tax arrears

under Section 90(2) read with Section 91 of the Finance Act. Consequently,

respondent no.2 issued a certificate to petitioner in Form 3 on 8th January

1999.

9. It is petitioner’s case that by virtue of Section 90(4) of the

Finance Act, petitioner’s three appeals, that were pending before the CIT(A)

and ITAT for Assessment Year 1992-1993, were deemed to have been

withdrawn on 8th January 1999 and were subsequently formally dismissed.

CIT(A) dismissed the two appeals pending before him by an order dated

12th January 1999 and ITAT dismissed the appeal pending before the

Tribunal on 1st July 1999.

10. It is petitioner’s case that by virtue of Section 90(3) of the

Finance Act, the certificate, viz., Form 3, was conclusive as to the matters

stated therein and no matter covered thereby could be reopened in any

other proceeding under any direct or indirect tax enactment or under any

other law for the time being in force.

11. On 15th January 2000 petitioner received a notice dated

10th January 2000 from respondent no.1 under Section 148 of the Act

alleging that petitioner’s income for Assessment Year 1992-1993 had

escaped assessment and requiring petitioner to file a return of its income

for the said Assessment Year within 30 days. Petitioner challenged the

validity of the notice and called upon respondent no.1 to furnish the

reasons to believe recorded prior to issuance of the notice. Respondent no.1

refused to provide the same and hence, petitioner approached this Court.

12 Mr. Pardiwalla submitted that the notice issued on 10th January

2000 has to be quashed and set aside for the following reasons :

(a) once the assessment for the entire year was settled by

following the provisions of the KVSS and the Designated Authority after

application of mind had made an order under Section 90, which has been

complied with by making payment of the tax computed under the KVSS,

there was no question of reopening any issue which was subject matter of

the order of the Designated Authority;

(b) the order of the Designated Authority passed under the

KVSS is not mechanically passed but upon careful scrutiny of all the facts

and circumstances pertaining to the declarant assessee and intended to

bring about certain legal consequences under the KVSS. It was not open to

the Income Tax Authorities to put back the clock by going back thereupon;

(c) the order of the Designated Authority is conclusive on all

items/heads which go into the computation of the total income of the

assessee and not confined only to the heads of income in respect of which

an appeal or reference may be pending;

(d) once the payment has been made by the assessee of the

sum determined by the Designated Authority and order by the Designated

Authority has been passed, it shall be conclusive as to the matters stated

therein and no matter covered by such order shall be reopened in any other

proceeding under the direct tax enactment or indirect tax enactment or

under any other law for the time being in force. Therefore, petitioner

having paid the amount as determined by the Designated Authority and

Form 3 has been issued under Section 90 of the Finance Act, the notice

impugned in the petition could not have been issued. This has been so held

in Killick Nixon Ltd. V/s. Deputy Commissioner of Income Tax, Mumbai and

Ors.

(e) infact under Section 91 of the Finance Act, there is even

immunity from prosecution and imposition of penalty;

(f) in the alternative, respondent no.1 in the course of

assessment proceedings had called for voluminous and comprehensive

details and raised queries on various issues including the amount assessable

in the hands of petitioner in respect of its PMS and in particular relating to Grasim Industries Ltd. The reasons to believe only raises an issue regarding petitioner’s dealings with Grasim Industries Ltd. under the PMS account and nothing more. The Assessing Officer, in his assessment order dated 8th September 1995, has extensively dealt with the facts relating to the PMS scheme under the head “Irregularities in Portfolio Management Scheme” where under heading 5, the Assessing Officer has dealt with Grasim

Industries Ltd. Therefore, once a query is raised during the assessment

proceedings and the assessee has replied to it, it follows that the query

raised was a subject of consideration of the Assessing Officer while

completing the assessment. It would, therefore, follow that the reopening of

the assessment for the same subject matter is merely on the basis of change

of opinion of the Assessing Officer from that held earlier during the course

of assessment proceeding and this change of opinion does not constitute

justification and/or reasons to believe that income chargeable to tax has

escaped assessment.

Mr. Pardiwalla concluded that on these grounds the notice has

to be quashed and set aside.

13. Mr. Suresh Kumar for Revenue basically reiterated what is

stated in the affidavit in reply of respondent no.1. Of course, in fairness

Mr. Suresh Kumar also submitted that in the affidavit in reply reliance has

been placed on the judgment of the Bombay High Court in Killick Nixon

Ltd. V/s. Deputy Commissioner of Income Tax, Mumbai and Ors. to submit

that having filed a declaration under the KVSS, does not mean that there

has to be a closure. But that is no more the position in law, the Apex Court

having taken a view as explained below.

14. Mr. Suresh Kumar also submitted that there was

misdeclaration. Mr. Suresh Kumar submitted that under Section 90(1) of

the KVSS the proviso provides that if there is any misdeclaration, then the

declaration shall be presumed as it has never been made.

We would not agree with Mr. Suresh Kumar because that is not

the case of respondent no.1 in the reasons to believe for reopening the

assessment and there is no order withdrawing the Form 3 issued.

15 As regards the case of Killick Nixon Ltd. (Supra), which was a

similar case, the Apex Court has held that once the Designated Authority

has issued the order under Section 90, it will be conclusive in respect of tax arrears and sums payable after such determination towards full and final

settlement of tax arrears. Once the declarant makes payment of the amount

so determined under Section 90, the immunity under Section 91 springs

into effect. The Apex Court has also expressed a view that upon such

declaration being made, tax arrears being determined, paid and certificate

issued under the KVSS, there is no jurisdiction for the Assessing Officer to

reopen the assessment by a notice under Section 143 of the Act, except

where the case falls under the proviso (2) of sub-section (1) of Section 90

where it is found that any material particular furnished in the declaration is found to be false. Paragraphs 5 to 10 and 19 read as under :

5. Pursuant to the order of the CIT (Appeal), the Assessing

Officer made an order dated 25.9.1998 giving effect to the

appellate order. The Assessing Officer determined the assessed

income of the appellant at Rs. 33,65,298.00 and raised a

demand of Rs. 26,27,545.00 In the meanwhile, Kar Vivad

Samadhan Scheme, 1998 (herein after referred to as KVSS) was

brought into effect by Finance (No. 2) Act, 1998. The appellant

filed a declaration under the KVSS on 20.11.1998 disclosing its

assessed income as Rs. 33,65,298.00 and working out the tax

payable under the Scheme at Rs. 8,65,795.00. The said

declaration was accepted by the Designated Authority under the

KVSS by an order dated 19.1.1999 made under Section 90(1) of

the Finance (No. 2) Act, 1998. The Designated Authority

accepted the assessed income of the appellant at Rs.

33,65,298.00 and determined the tax payable by the appellant

at Rs. 9,35,888.00. This amount of Rs. 9,35,888.00 was paid by

the appellant on 12.02.1999 upon which a final certificate

under Section 92 read with Section 91 of the Finance (No. 2)

Act, 1998 and the KVSS, 1998 was issued certifying that the

appellant had paid towards full and final settlement of the tax

arrears determined in the order dated 19.1.1999 on the

declaration made by the appellant and granting immunity

consequent under the provisions of the Scheme.

6. By an order made on 16th August, 1999 purportedly under

Section 142 (1) of the Act, the Assessing Officer called upon the

appellant to furnish details in respect of Assessment Year 1992-

93 in connection with taxing of the licence fee of Rs.

24,12,114.00 received from the State Bank of India for let out

portion of its property under the head "Income from House

Property" as also to furnish evidence to establish that the

written-off debts had become bad and have been written-off in

the books of accounts.

7. The appellant protested by its letter dated 21st January, 2000

and pointed out that the assessment for the Assessment Year

1992-93 had obtained finality in view of the declaration under

KVSS, the determination of the tax under the Scheme and the

final certificate issued by the Designated Authority The

Assessing Officer refused to accept it as final closure of the

proceedings pertaining to Assessment Year 1992-93. Hence, the

appellant moved the High Court under Article 226 to quash the

impugned notice and further proceedings consequent thereto.

The High Court by its judgment dated 04.12.2000 dismissed the

writ petition. Hence this appeal.

8. A look at the material provisions of KVSS is necessary to

appreciate the contentions urged :

Section 87 - In this Scheme, unless the context otherwise

requires -

(e) "disputed income", in relation to an assessment year

means the whole or so much of the total income as is

relatable to the disputed tax;

(f) "disputed tax" means the total tax determined and

payable in respect of an assessment year under any direct

tax enactment but which remains unpaid as on the date of

making the declaration under Section 88;

(m) "tax arrear" means -

(1) in relation to direct tax enactment, the amount of tax

penalty or interest determined on or before the 31st day of

Mach, 1998 under that enactment in respect of an

assessment year as modified in consequence of giving

effect to an appellate order but remaining unpaid on the

date of declaration;

Section 88 - "Subject to the provisions of this Scheme,

where any person makes, On or after the 1st day of

September, 1998 but on or before the 31st day of

December, 1998, a declaration to the designated authority

in accordance with the provisions of Section 89 in respect

of tax arrear, then, notwithstanding anything contained in

any direct tax enactment or indirect tax enactment or any

other provision for any law for the time being in force, the

amount payable under the Scheme by the declarant shall

be determined at the rates specified hereunder, namely :-

(a) Where the tax arrear is payable under the Income-tax

Act, 1961 (43 of 1961), -

(i) in the case of a declarant being a company or a firm, at

the rate of thirty-five percent of the disputed income;"

Section 90 - (i) "Within sixty days from the date of receipt

of the declaration under Section 89, the designated

authority shall, by order, determine the amount payable by

the declarant in accordance with the provisions of the

Scheme and grant a certificate in such form as may be

prescribed to the declarant setting forth therein the

particulars of the tax arrear and the sum payable after such

determination towards full and final settlement of tax

arrears;"

Section 94 -"For the removal of doubts, it is hereby

declared that, save as otherwise expressly provided in sub-

section (3) of Section 90, nothing contained in this Scheme

shall be construed as conferring any benefit, concession or

immunity on the declarant in any assessment or

proceedings other than those in relation to which the

declaration has been made."

9. The Scheme of the KVSS is to cut short litigations pertaining

to taxes which were frittering away the energy of the Revenue

Department and to encourage litigants to come forward and pay

up a reasonable amount of tax payable in accordance with the

Scheme after declaration thereunder.

10. The learned Senior Counsel for the appellant contended that

once the assessment for the entire year was settled by following

the provisions of the Scheme and the Designated Authority after

application of mind had made an order under Section 90, which

was complied with by making payment of the tax computed

under the Scheme. there was no question of reopening any issue

which were subject matters of the Order of the Designated

Authority. He urged that the order of the Designated Authority is

not mechanically passed, but upon Careful scrutiny of all the

facts and circumstances pertaining to the declarant assessee and

intended to bring about certain legal consequences under the

KVSS. It was not open to the Income Tax Authorities to put back

the clock by going back thereupon. The order of the Designated

Authority is conclusive on all items/heads, which go into the

computation of the total income of the assessee and not

confined only to the heads of income in respect of which an

appeal or reference may be pending.

19. As far as the provisions of KVSS are concerned, we agree

with the contention of the learned Senior Counsel for the

assessee that the order to be made by the Designated Authority

under Section 90 is a considered order which is intended to be

conclusive in respect of tax arrears and sums payable after such

determination towards full and final settlement of tax arrears.

Once the declarant makes payment of the amount so

determined under Section 90, the immunity under Section 91

springs into effect. We are also of the view that upon such

declaration being made, tax arrears being determined, paid and

certificate issued under the KVSS, there is no jurisdiction for the

Assessing Officer to reopen the assessment by a notice under

Section 143 of the Act except where the case falls under the

provisio (2) of sub-section (1) of Section 90 as it is found that

any material particular furnished in the declaration is found to

be false. In the present case, it is not the case of the Revenue

that any material particular furnished by the appellant-assessee

in the declaration was found to be false. Consequently, the

Assessing Officer could not have re-opened the assessment by a

notice under Section 143 of the Act.

Therefore, on this ground alone, petitioner has to succeed.

16. In any event, since query had been raised during the

assessment proceedings and the assessee had replied to it, as held by the

Division Bench of this Court in Aroni Commercials Ltd. V/s. Deputy

Commissioner of Income Tax-2(1)2, it follows that the query raised was a

subject of consideration of the Assessing Officer while completing the

assessment. Infact it was so and the issue of PMS relating to Grasim

Industries Ltd. has been raised by the Assessing Officer during the

assessment proceedings, detailed reply has been furnished and has been

dealt with in detail in the assessment order. Therefore, this reopening of

assessment, in our view, is merely on the basis of change of opinion of the

Assessing Officer and that does not constitute justification and/or reasons

to believe that income chargeable to tax has escaped assessment.

17. We would also add that the notice of reopening has been issued

after the expiry of four years from the end of the relevant assessment year.

Under Section 148 of the Act, where the notice has been issued after the

expiry of four years from the end of the relevant assessment year, the onus

is on the Assessing Officer to show that income chargeable to tax has

escaped assessment by reason of the failure on the part of assessee to

disclose fully and truly all material facts necessary for its assessment for

that assessment year. There is not even a whisper in the reasons to believe

that there was any such failure on the part of petitioner to disclose fully and truly all material facts necessary for its assessment.

18. In the circumstances, petition made absolute in terms of prayer

clause – (a).

19. Petition accordingly stands disposed.

(M.M. SATHAYE, J.) (K. R. SHRIRAM, J.)