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2021 Supreme(Kar) 125
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
Abhay S. Oka, R. Devdas, Sachin Shankar Magadum, JJ.
Dell India Private Limited (Now Dell International Services India Private Limited) – Appellant
Versus
The Joint Commissioner of Income Tax Large Tax Payers Unit (LTU) and ors. – Respondents
Writ Appeal No. 1145 of 2015 (T-IT)
Decided On : 27-01-2021
Important Points
Subject
Taxation Law - Income Tax
Act Referred
Headnote
Income Tax Act, 1961 - Section 142 (3), 147 and 148 - Direct Tax Laws (Amendment) Act, 1987 - Manufacturers and sells computer hardware - Service tax - Income Tax -Reopening of assessment - Appellant manufacturers and sells computer hardware and other related products - Appellant provides warranty services to customers and price of standard warranty period is covered by sale price of computer hardware and other products - Appellant provides extended or upsell warranty which covers period beyond the standard warranty - Appellant charges additional amount of consideration for extended warranty provided to customers - Though, appellant recovers the consideration for extended warranty with price of products along with sales tax or service tax, as case may be, revenue in connection with extended warranty is recognized and offered to Income Tax proportionately over period of service contract, which spreads beyond the financial year in which sale in relation to product in respect of which extended warranty is issued is made –
Finding of the Court:
Subsequently, a larger Bench of three Hon’ble Judges in case of M/s. Indian and Eastern Newspaper Society (supra) has clearly held that oversight, inadvertence or mistake of Assessing Officer or error discovered by him on reconsideration of same material does not give him power to reopen a concluded assessment. It was expressly held that decision in case of Kalyanji Mavji and Company (supra), on this aspect does not lay down correct law - In view of consistent decisions of Apex Court holding that “reason to believe” in context of Section 147 of Income Tax cannot be based on mere change of opinion of Assessing Officer - It clear that we have not made any adjudication on controversy on merits of Writ Appeal and now Appeal will have to be placed before concerned Division Bench for deciding same on merits in light of what Court have held above - Questions whether a case for reopening of assessment in accordance with Section 147 of said Act is made out and whether a Writ Court ought to interfere with impugned notice, are left to be decided by a Division Bench –
Result: Order accordingly
Advocate Appeared:
For the Petitioner:Shri Percy Pardiwalla, Senior counsel for Shri Suryanaryana T., Advocate
For the Respondent:Shri K.V. Aravind, Advocate
JUDGMENT :
Abhay S. Oka, J.
By the order dated 2nd September 2015, a Division Bench of this Court directed that this Writ Appeal should be placed before the Chief Justice for considering the issue of referring following three questions to a larger Bench. The said three questions are as under:
“1. Whether the Division Bench judgment in the case of Commissioner of Income Tax Vs Rinku Chakraborthy (2011) 242 ITR 425 lays down good law?
2. Whether the judgment in the Rinku Chakraborthy (supra) is per incurium in view of the fact that it relies upon the judgment of the Apex Court in the case of Kalyani Mavi & Co. Vs Commissioner of income Tax 1976 CTR 85, which has been specifically overruled by the Apex Court in the case of Indian & Eastern Newspaper Society Vs Commissioner of Income Tax (1979) 110 ITR 996?
3. Whether ‘reason to believe’ in the context of Section 147 of the Income Tax Act can be based on mere ‘change of opinion’ of the Assessing Officer?”
2. By an order dated 31st October 2017, the then Chief Justice placed the Appeal before a Full Bench. The constitution of Full Bench underwent change from time to time. The reference was heard on 8th January 2021.
3. Though, the scope of adjudication is limited to decide three questions of law framed by the Division Bench and this Bench is not really concerned with the merits of the case, it is necessary to make a brief reference to the facts of the case only for the purpose of understanding how the controversy arises.
4. The appellant manufacturers and sells computer hardware and other related products. The appellant provides warranty services to the customers and the price of the standard warranty period is covered by the sale price of the computer hardware and other products. The appellant provides extended or upsell warranty which covers the period beyond the standard warranty. The appellant charges additional amount of consideration for the extended warranty provided to the customers. Though, the appellant recovers the consideration for extended warranty with the price of the products along with sales tax or service tax, as the case may be, the revenue in connection with extended warranty is recognized and offered to Income Tax proportionately over the period of the service contract, which spreads beyond the financial year in which the sale in relation to the product in respect of which extended warranty is issued is made. The appellant has adopted “deferred revenue” system under the mercantile system of accounting.
5. Scrutiny assessment proceedings as per Sub Section (3) of Section 142 of the Income Tax Act, 1961 (for short “the said Act”) were held for the Assessment Year 2009-10. According to the case of the appellant, at that stage, the Assessing Officer examined the issue of deferred revenue by calling for details from the appellant. According to the case of the appellant, the Assessing Officer agreed with the said accounting system followed by the appellant as regards accounting of the consideration for extended warranty. A notice dated 27th March 2014 under Section 148 of the said Act was issued to the appellant by the Joint Commissioner of Income Tax stating therein that he had reason to believe that the income in respect of which the appellant is assessable to tax for the Assessment Year 2009-10 has escaped assessment within the meaning of Section 147 of the said Act. By a communication dated 25th April 2014, the joint Commissioner of Income Tax communicated the reasons to the appellant for reopening the assessment for Assessment Year 2009-10. While arriving at net revenue of Rs.31,10,85,96,000/-for the Assessment Year 2009-10, reduction of Rs.2,16,89,00,773/-was made as smart debits deferred revenue account. It is alleged in the reasons that the said income of Rs.2,16,89,00,773/-had escaped assessment for the Assessment Year 2009-10.
6. The appellant replied to the notice under Section 148 of the said Act and objected to the reasons recorded by its reply dated 9th May 2014
