14 WP.1964.2022 OS-J..doc

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION NO. 1964 OF 2022

Tata Consultancy Services Ltd.}

being a company incorporated }

under the Companies Act, 1956}

and having its registered offce }

at 9

th

Floor, Nirmal Building }

Nariman Point, Mumbai 400021.} …Petitioner

Versus

1.Deputy Commissioner of Income}

-tax Circle-3(4), Mumbai having }

his offce at 29

th

Floor, Centre One,}

World Trade Centre, Cuffe Parade,}

Mumbai – 400005. }

2. Principal Commissioner of}

Income-tax-3, Mumbai having his}

offce at Room No. 612, 6

th

Floor,}

Aayakar Bhavan, Maharshi Karve}

Road, Churchgate, Mumbai – }

400020. }

3. Additional/Joint/Deputy/Assis-}

tant Commissioner of Income Tax}

/Income-tax Offcer, National Face-}

less Assessment Centre, Delhi.}

4. Union of India, Through Joint}

Secretary & Legal Adviser Branch}

Secretariat, Department of Legal}

Affairs, Ministry of Law and }

Justice, 2

nd

Floor, Aayakar Bhavan}

M. K. Road, New Marine Lines,}

Mumbai – 400 020. } …Respondents

****

Mr. J. D. Mistri, Senior Advocate a/w Mr. Nitesh Joshi i/b Mr. Atul

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K. Jasani, Advocate for petitioner.

Mr. Suresh Kumar, Advocate for respondents.

****

CORAM : DHIRAJ SINGH THAKUR AND

KAMAL KHATA, JJ.

RESERVED ON : 19

th

APRIL, 2023

PRONOUNCED ON : 27

th

JUNE, 2023

J U D G M E N T

[PER DHIRAJ SINGH THAKUR, J.]

1.The petitioner challenges the notice, dated 31

st

March, 2021

issued under section 148 of the Income Tax Act, 1961 (“the Act”)

whereby the Assessing Offcer (A.O.) seeks to reopen the

assessment for the assessment year 2013-14 on the ground that

income for the said assessment year had escaped assessment

within the meaning of section 147 of the Act. The petitioner also

challenges the order dated 3

rd

January, 2022 disposing of the

objections to the re-assessment.

2.Briefly stated the material facts are as under :

The petitioner claims that it is engaged in providing

information technology and information technology enabled

services, besides India also in countries across the globe. It is

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stated that as a part of its business, it provides on-site services to

its clients for which employees have to be deputed and in this

particular case to the United States of America (“USA”). The

employees of the company are sent on deputation and a deputation

agreement is executed between the petitioner and the concerned

employees, as per which the tax payable in India would be borne by

the employee and the tax payable in USA by that employee was to

be borne by the employer company i.e. the petitioner.

It is stated that contractual obligations were discharged

by the petitioner company by paying taxes in USA on the income of

the employees deputed in that country. It is stated that on certain

occasions the employees were held entitled to deductions and

rebates in regard to the tax returns fled by such employees, which

would result in a refund to an employee from out of the tax so

deposited by the petitioner as an employer. The said amount of

refund in respect of the tax paid in USA on account of

deduction/rebate was to be further refunded to the petitioner

company in accordance with an undertaking executed by such

employees alongwith enabling documents.

3. It is stated that some of the employees considered this action

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of the petitioner to be improper under the California Labour Code.

A Class Action Law Suit, therefore, was fled by the employees led by

one Mr.Gopi Vedachalam in the United State District Court in the

Northern District of California, wherein damages were claimed

against the petitioner. The employees had also raised certain other

disputes in the said civil suit which had been fled, wherein a

settlement was fnally arrived at between the parties and an

agreement dated 5

th

February, 2013 came to be executed.

4.As per the agreement, an amount of Rs.29.75 million USD

equivalent to Rs.161.63 crores was to be paid to the concerned

employees. The United Sates District Court for the Northern District

of California (‘the US Court’), by virtue of its order dated 18

th

July

2013, allowed the application and granted approval to the service

awards.

5.Return of income was fled by the petitioner for the

assessment year 2013-14 on 14

th

November 2013, declaring an

income of Rs.84,04,81,15,610/- and while computing the said

income claimed deduction inter-alia of Rs.161.63 crores forming a

part of the other expenses in the proft and loss account. The

amount aforementioned was debited under the head ‘other

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expenses’ in the proft and loss account. The fact relating to the said

settlement had also been adequately reflected in Note No.49 in the

stand-alone accounts, in Note No.46 of the consolidated account and

in the balance-sheet under the head “Other Current Liabilities”.

This fact had also been mentioned in the annual report for the

fnancial year 2012-13 as also in the Notes forming part of the

substantial statements.

6.The petitioner claims that its return of income was selected

for scrutiny by issuing a notice under section 143(2) of the Act,

dated 5

th

September 2014. During the course of scrutiny

assessment, as is reflected from the order-sheet of the Assessing

Offcer dated 16

th

November 2016, the petitioner was directed to

furnish details in regard to various issues, one of which pertained to

“details of claim made under class action suit (Rs.161.63 crores)

and its allowability” The queries and the issues on which

clarifcation was sought by the Assessing Offcer were answered

vide communication dated 28

th

November 2016 in the following

manner :

“8. Note on class action suit :

During the year, the Company entered into

an agreement to settle for a sum of Rs.161.63

crores (USD 29.75), a class action suit fled in the

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United States of America Court relating to

payments to employees on deputation. Based on

the settlement TCS is relieved from all past and

present litigation made by the company. Thus,

the amount paid by TCS is towards settlement of

employee litigation.”

7.An additional reply was submitted on 16

th

November 2016,

wherein it was yet again reiterated that the payment made under

the settlement agreement was a cost incurred by TCS to put an end

to the ongoing litigation for purposes of ensuring smooth

functioning of the business in USA and further that expenses were

neither penal in nature nor in respect of any wrongdoing committed

by TCS US Branch but were expenses incurred during the course of

carrying out the business. It was, therefore, stated that payments

made were deductible expenditure in the hands of TCS for tax

purpose under section 37 (1) of the Act. As they were recovered

wholly and exclusively for the purposes of business of the company.

8.An order of assessment then came to be passed on 16

th

February 2017 under section 143(3) of the Act, without making any

disallowances in regard to the claim of Rs.161.63 crores, although

there was no specifc discussion in the order of assessment in that

regard.

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9.A notice under section 148 dated 31

st

March 2021 came to be

issued by respondent No.1. Return of income was fled pursuant to

the receipt of the said notice on 21

st

April 2021 declaring a total

income of Rs.84,54,68,32,080/-. Copy of the reasons recorded for

purposes of reopening the assessment were sought along with a

copy of the approval obtained under section 151 of the Act. The

reasons which were provided to the petitioner stated as under :

The assessee had fled return of income on

14.11.2013 declaring its income of Rs

8404,81,15,610/- under normal provisions of the

Income Tax Act and book proft of Rs.

15656,52,27,545/- u/s 115JB of the Income Tax

Act. The case was selected for scrutiny and the

assessment for AY 2013-14 was completed on

16.02.2017 determining income of Rs.

11351,41,97,376/- under normal provisions of

the Income Tax Act and Book Proft of Rs.

15956,01,97,867/- u/s 115JB of the Income Tax

Act.

2. In the instant case, information has been

received from DDIT (Investigation) Unit-2(4),

Mumbai vide email dated 09.06.2020 that Tata

Consultancy Services Ltd (hereinafter referred

as “TCS”) has paid penalty of Rs161.63 crores

(29.75 million USD) in USA. TCS has not shown

the penalty paid in USA in the annual report for

the FY 2012-13 and FY 2013-14 by their

directors and the auditor report.

This is clear violation of provisions of Foreign

Exchange Violation and Tax Avoidance. The Act

said that such adverse loss by violation, has to

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be in italics or bold letters. Such penalty cannot

be shown as operational expenses and evade

tax.

2.1 The information has been considered and

analyzed carefully. Going through the

information, it has been observed that an open

enquiry was initiated by DDIT (Investigation)

Unit-2(4), Mumbai in this case requesting the

assessee to provide the details of law suit and

payment by assessee of penalty of Rs 161.63

crores (29.75 million USD) and details of

treatment of said amount in the books of

accounts for AY 2013-14. It was seen from the

submission that assessee had claimed the

payments made in the USA against the Law suit

in their books of accounts as an expense under

the head “Other Expenses” for the FY 2012-13.

Further Assessee was asked to explain the

nature and allowability of the said expenses and

was asked to submit the computation of income.

However, it is seen that assessee has claimed it

as “allowable expense” and has claimed that the

said expense is paid by the TCS is towards the

settlement against the class action suit and not

the penalty. The amount incurred is towards the

settlement cost is a cost incurred by the TCS to

put an end to the on-going litigation and to

ensure smooth functioning of its business in the

USA. Thus, the assessee has claimed the said

expenditure as deductible expenditure. Under

section 37(1) of the Income Tax Act 1961.

Further as per information available with the

department, Class action Law suit was over the

wages dispute and breach of contract and US

federal laws. TCS was facing the class Suit action

and was made to pay Rs 161.63 crores (29.75

million USD) settlement over its’ practice of

forcing its’ employees to sign over their tax

refunds cheques when they fnished working in

the USA. Also, no response for the same has

been clearly brought out in the reply fled by the

Assessee. The Assessee has also not fled the

copy of the legal suit, in support of the Rs.161.63

crores expenses claimed by it in it’s

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consolidated fnancial statements for the FY

2012-13.

2.2 As it is evident from the material evidence

on records that assessee has failed to submit the

copy of legal suit in support of Rs.161.63 crores

expenses. Therefore I am of the view that

income to the extent of amount of Rs 161.63

vrores (29.75 million USD) as explained above,

has escaped assessment.

3. In view of the above the undersigned has

reason the believe that the income exceeding

Rs.1,00,000/- has escaped assessment within

the meaning of Section 147 of the Act. Therefore

proposal for reopening of AY 2013-14 by issuing

notice u/s 148 of the Act is being made u/s 151 of

the Act for your kind perusal and approval.

4. In view of the reasons recorded above, I am

of the opinion that income chargeable to tax has

escaped assessment for A. Y. 2013-14 by reason

of the failure on the part of the assessee to

disclose fully and truly all material facts

necessary for its assessment for A. Y 2013-14.

10.Objections to the reopening of the assessment were fled by

the petitioner in which it was highlighted that the reassessment

was bad in law and without jurisdiction on account of the fact that

since the notice under section 148 was issued after four years from

the end of the relevant assessment year 2013-14, the Assessing

Offcer had to show that there was failure on the part of the

petitioner to disclose fully and truly all material facts during the

original assessment proceedings under section 143(3) of the Act. It

was also highlighted that Rs.161.63 crores had been paid and

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claimed as deduction had not only been reflected in the return and

the documents reference whereto has already made in the

preceding paragraphs, but further that the said issue had

specifcally been flagged by the Assessing Offcer under Section

143(3) proceedings, an explanation called which was accordingly

rendered and deemed to have been considered notwithstanding the

fact that there was no formal reference to such a claim in the order

of assessment which came to be passed fnally under section 143 on

3

rd

January 2022. It was also stated that the reopening was nothing

but a mere change of opinion based upon the report of the

investigation wing of the department. Even otherwise it was

highlighted stated that there was no legal basis for the Assessing

Offcer to believe that income had escaped assessment.

11.The objections to the reopening were rejected by virtue of

order dated 3

rd

January 2022. The basis for rejecting the

contentions of the petitioner can be found in paragraph No.2 of the

order, which reads as under :

(d). The re-opening is on the basis of a mere change of

opinion:

All the three above noted objections are dealt

collectively and found not tenable in the light of the

information available NOW with the department that

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Class action Law suit was over the wages dispute and

breach of contract and US federal laws. You were facing

the class Suit action and were made to pay Rs 161.63

crores (29.75 million USD) settlement over your

‘practice of forcing your employees’ to sign over their

tax refunds cheques when they fnished working in the

USA.

The documents submitted by you during the course

of original assessment proceedings u/s 143(3) were

furnished in routine course in compliance to regular

notices. THE REAL NATURE OF SO-CALLED

SETTLEMENT AMOUNT was of a penalty for settlement

of allegations of wrong doing and liability. This fact

couldn’t be deciphered by the AO in a normal manner

and good faith even after with due diligence at the time

of original assessment. Above information received by

DDIT (Investigation) Unit-2(4), Mumbai vide email

dated 09.06.2020 is suffcient to establish the

availability of tangible incriminating material with the

current offcer having jurisdiction over the case. As per

explanation 1 of the section 147 “mere production

before the AO of account books or other evidence from

which material evidence could with due diligence have

been discovered by the AO will not necessarily amount

to disclosure within the meaning of the foregoing

provisions of section 147 of the I Act.”

Evidently, the issue had not been examined

during the original assessment proceedings as you

had not submitted the facts fully and truly at that

time. Hence the reopening of the case after four

years is justifed and its not a case of change of

opinion as THE REAL NATURE OF SO-CALLED

SETTLEMENT AMOUNT could not be ascertained by

the then Assessing Offcer with due diligence in the

absence of specifc fact which came to the notice of

the department at this time after the receipt of

email in Investigation Wing.

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12. Mr. Mistri, learned Senior Counsel for the petitioner has very

elaborately taken us through the various documents on record to

show how the claim of deduction in regard to Rs.161.63 crores was

reflected in the proft and loss account, in the stand-alone accounts

with the consolidated accounts as also reflected in the balance-sheet

and the annual report. Mr.Mistri besides reiterating the issues

which were highlighted in the objection before the Assessing Offcer

during the re-assessment proceedings urged that the Assessing

Offcer had raised specifc queries and sought justifcation for the

claim of deduction in regard to the amount paid on account of

settlement of the class action suit. It was, therefore, urged that

there was no failure on the part of the petitioner to disclose fully

and truly all material facts and further that the reopening was

nothing but a change of opinion of the Assessing Offcer based upon

the report received by the Assessing Offcer from the Investigation

Wing of the department.

13.Mr. Kumar, on the other hand, sought to urge before us that

the claim of deduction allowed by the Assessing Offcer during the

scrutiny assessment proceedings was otherwise not allowable in

terms of the provisions of section 37 of the Act inasmuch as the

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amount paid by the petitioner to settle the class action suit was in

the nature of the penalty and therefore could not have been claimed

as ‘operational expenses’, which ought to have been disallowed

under section 37 of the Act. It is stated that the assessee had not

fled a copy of the suit in support of its claim during the course of

assessment proceedings, and therefore, there was a failure on the

part of the assessee to disclose fully and truly all material facts. It

was further asserted that the facts which have now been

highlighted, based upon the report received from the investigation

wing of the department, could not have otherwise been discovered

by the Assessing Offcer during the earlier assessment proceedings

despite due diligence, and therefore, it was urged that the reopening

was perfectly legal and justifed.

14.We have heard learned counsel for the parties.

15.It is not denied that the notice that has been issued under

section 148 of the Act, dated 31

st

March 2021 seeks to reopen an

assessment for the assessment year 2013-14. According to the law,

which is applicable to the present case, as it existed before 1

st

April

2021, with a view to invoke the provisions of section 147 for

reopening, the Assessing Offcer had to satisfy the jurisdictional

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condition of ‘his reason to believe that income chargeable to tax had

escaped assessment’. If the reopening of the assessment is beyond

the period of four years from the end of the relevant assessment

year, an additional jurisdictional condition has to be satisfed that in

a case where an assessment under section 143(3) of the Act had

been completed, the assessee had failed to disclose fully and truly

all material facts necessary for assessment during such assessment

proceedings.

16.In the instant case, the Assessing Offcer has in fact alleged

that the petitioner had failed to disclose fully and truly material

facts necessary for the assessment for the assessment year 2013-

14. However, a bald statement made in the reasons recorded would

not satisfy the jurisdictional condition as prescribed for purposes of

invoking section 147 of the Act. Whether or not there was in fact a

failure to disclose fully and truly can be seen from the material on

record. In the present case, as stated in the preceding paragraphs,

the claim of the petitioner with regard to deduction of Rs.161.63

crores on account of settlement of class action suit was not only

specifcally reflected in the relevant documents but the issue had

also been specifcally gone into by the Assessing Offcer.

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17.We have seen that a specifc query was raised by the

Assessing Offcer during the scrutiny assessment proceedings as is

reflected from the order-sheet dated 16

th

November 2016 whereby

the Assessing Offcer had sought specifc details of claims made

under class action suit (Rs.161.63 crore) and had sought

justifcation for its allowability.

The query so raised was responded to by the petitioner which

was before the Assessing Offcer. Finally, an order of assessment

came to be passed on 3

rd

January 2022 wherein the claim was not

disallowed. It, therefore, is clear that the issue with regard to the

claim of deduction on account of payment made to settle a class

action suit was not so embedded in the documents as could not with

due diligence have been noticed by the Assessing Offcer rather in

this case, the claim had been noticed, queries raised, response

called, which came to be furnished, and therefore, must be deemed

to have been considered. In such a case, it cannot by any stretch of

imagination, be said that there was any failure to disclose fully and

truly any of the material facts.

18.The argument that the petitioner had failed to provide to the

Assessing Offcer a copy of the plaint/suit fled against the petitioner

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before the Court in USA which it is alleged constitutes a failure on

the part of the assessee to disclose fully and truly a material fact, in

our opinion, does not at all impress or appeal to us in any manner.

Nothing could have prevented the Assessing Offcer from calling for

a copy of the pleadings which were fled before the Court in USA if at

all it was found to be necessary. Therefore, the argument advanced

clearly deserves to be rejected.

19.Mr. Mistri, learned senior counsel for the petitioner urged that

the re-assessment is nothing but a change of opinion. It was

contended that the Assessing Offcer could not be said to have any

reason to believe that income had escaped assessment as there was

no tangible material to come to a conclusion that there was an

escapement of income from assessment and that in the garb of

reopening the assessment, review would take place. It was also

urged that there was no change of law and there was no new

material on record which would have given the Assessing Offcer

the basis for his reasons to believe that income had escaped

assessment. This assertion, however, was met by Mr.Kumar,

learned counsel for the revenue, who stated that there was

information received from the investigation wing of the department

that the petitioner company had paid a penalty of Rs.161.63 crores

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which had not been shown in the annual report for the assessment

year 2013-14 by the Directors and the Auditors and further that the

penalty could not be shown as ‘operational expenses’ which has

thus resulted in evasion of tax. According to the reasons recorded,

reassessment was justifed as the assessee had claimed the

deduction as allowable expenses and not as penalty. In other words,

what is sought to be alleged is that what was paid was in fact a

penalty and if it had been reflected so in the relevant documents

during the course of assessment proceedings, the same would not

have been allowed under section 37 of the Act.

20.The next question that arises for consideration is whether

what was paid by the petitioner in terms of the agreement to settle

the class action suit was actually a penalty. If it was not, even then,

in our opinion, the case of the revenue would fail for purposes of

reopening under section 147. To see as to whether the payment was

a penalty or not, we need to refer to the relevant documents in the

shape of the agreement executed between the claimants and the

defendant-petitioner herein, as also the order passed by the Court

in USA. As per the agreement, an amount of Rs.29.75 million USD

equivalent to Rs.161.63 crores was to be paid to the concerned

employees. The United Sates District Court for the Northern District

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of California (‘the US Court’), by virtue of its order dated 18

th

July

2013, allowed the application and granted approval to the service

awards.

What is important to note here is that the order dated 18

th

July 2013 did not in the least reflect that there was any violation of

law which had resulted in the payment of the employees in the class

action much less has any such provision been specifcally referred

to or identifed in the said order.

21.Contents of the agreement further reveal that the defendant -

petitioner herein, in the class action suit, did not at any point of

time, admit any wrong doing or violation of any of the laws which

were applicable to the litigating parties. On the other hand, the

petitioner, as a defendant, while reiterating that it had strong

defences on merits to the class action suit expressed a desire to

settle the issues to avoid expense, risk and uncertainty of

continuing the proceedings. The agreement further records as

under :

“…..Nothing in this Agreement should be, is

intended to be, or will be construed as an

admission by Defendants of any wrongdoing,

or that Plaintiff’s claims in this Action have

merit or that Defendants have any liability

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of Plaintiff’s or the Class Members on those

claims…..”

22.On a reading of the settlement agreement as also the order of

US Court it cannot remotely be suggested that the payment made

for settling the litigation was a penalty. A penalty, as defned by the

Black Law Dictionary (9

th

Edition), is “punishment imposed on a

wrongdoer, usually in the form of imprisonment or fne.”

23.According to Corpus Juris, penalty is imposed in exercise of

the police powers of the legislature, which has the power to subject

any particular violation to penalty and may go further and subject

the same violation to both a penalty and criminal prosecution.

It further draws a distinction between a penalty imposed for a

civil obligation and a penalty imposed as a punishment for a crime.

A civil penalty is stated to be a fne assessed for violation of a

statute or regulation and includes a statutory penalty which is a

penalty imposed for a statutory violation.

A penalty imposed for a tax delinquency also has been held to

be a civil obligation, remedial and coercive in its nature and is

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different from the penalty for a crime or a fne or forfeiture

provided as punishment for the violation of criminal or penal laws.

24.It can thus be seen that in a case of civil penalty payment of

an amount as penalty can either be on account of a penalty clause

which may either be paid voluntarily by a party if it abides strictly

by the terms and conditions of the contractual provision, and if not,

the same may be enforced in an adjudicatory process by a Court or

a statutory authority, in which case, the condition precedent would

be a process of adjudication. In the present case there has certainly

not been any ‘assessment’ of a fne to be paid as a penalty by any

judicial, quasi judicial and/or statutory forum. However, there is no

basis for us to hold that the amount paid for settling the class action

suit was in fact an amount representing a predetermined penalty

amount either on the basis of the agreement between the parties

and much less from the order accepting the terms of settlement so

arrived at.

In the present case, a bald assertion made in the reasons

recorded that what was paid was in fact was a penalty would not

make the deduction liable to be disallowed in terms of Explanation –

1 to section 37 of the Act. For purposes of reference, Explanation to

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Section 37 envisages that any expenditure incurred by an assessee

for any purpose which is an offence or which is prohibited by law

shall not be deemed to have been incurred for the purpose of

business or profession and no deduction or allowance shall be made

in respect of such expenditure.

Section 37 reads as under:

37. (1) Any expenditure (not being expenditure of

the nature described in sections 30 to 36 and not

being in the nature of capital expenditure or personal

expenses of the assessee), laid out or expended wholly

and exclusively for the purposes of the business or

profession shall be allowed in computing the income

chargeable under the head “Profts and gains of

business or profession”.

[Explanation 1.- For the removal of doubts, it is

hereby declared that any expenditure incurred by an

assessee for any purpose which is an offence or which

is prohibited by law shall not be deemed to have been

incurred for the purpose of business or profession and

no deduction or allowance shall be made in respect of

such expenditure.

[Explanation 2.- …….

[Explanation 3.- …….

25.In fact if the settlement agreement and consequent payment

made by the Petitioner were indeed in violation of any law, the same

would certainly not have been accepted by the concerned Court in

the U.S.. The fact that the settlement had the approval of the Court

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in the U.S. itself suggests that the payment made was for a lawful

purpose. In any case we would fnd it perverse to even think or hold

that an amount paid towards settling a civil class action suit would

be either an offence or one prohibited by law so as to disallow a

claim of deduction in terms of Explanation to Section 37 of the Act.

In any case a penalty imposed for breach of a civil obligation would

be outside the purview of the Explanation 1 to Section 37 of the Act.

Admittedly, it is not the case of the revenue that the alleged penalty

imposed upon the petitioner was a part of a sentence in criminal

proceedings which if it were, would certainly result in denying to

the petitioner the beneft of the deductions claimed.

26.In Jindal Photo Films Ltd. V/s Deputy Commissioner of

Income Tax

1

, the Court, in the light of the facts before it and in the

background of section 147 of the Act, observed : “

“…………….all that the Income-tax Offcer has said is

that he was not right in allowing deduction under

Section 80I because he had allowed the deductions

wrongly and, therefore, he was of the opinion that the

income had escaped assessment. Though he has used

the phrase "reason to believe" in his order, admittedly,

between the date of the orders of assessment sought

to be reopened and the date of forming of opinion by

the Income-tax Offcer nothing new has happened.

There is no change of law. No new material has come

on record. No information has been received. It is

1[1998] 234 ITR 170 (Delhi)

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merely a fresh application of mind by the same

Assessing offcer to the same set of facts. While

passing the original orders of assessment the

order dated February 28, 1994, passed by the

Commissioner of Income-tax (Appeals) was before

the Assessing Offcer. That order stands till today.

What the Assessing Offcer has said about the

order of the Commissioner of Income-tax

(Appeals) while recording reasons under Section

147 he could have said even in the original orders

of assessment. Thus, it is a case of mere change of

opinion which does not provide jurisdiction to the

Assessing Offcer to initiate proceedings under

Section 147 of the Act.

It is also equally well settled that if a

notice under Section 148 has been issued without

the jurisdictional foundation under Section 147

being available to the Assessing Offcer, the notice

and the subsequent proceedings will be without

jurisdiction, liable to be struck down in exercise of

writ jurisdiction of this Court. If “reason to

believe” be available, the writ court will not

exercise its power of judicial review to go into the

suffciency or adequacy of the material available.

However, the present one is not a case of testing

the suffciency of material available. It is a case of

absence of material and hence the absence of

jurisdiction in the Assessing Offcer to initiate the

proceedings under Section 147/148 of the Act.”

27. In the backdrop of aforementioned law as stated in Jindal

Photo Films Ltd.(Supra) it can be seen that other than the

information which was received by the A.O. from the DDIT

(Investigation) Unit-2(4), Mumbai that the Petitioner had paid a

penalty of Rs.161.63 crores in USA, there was no material available

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with the A.O. in support of such an information that the payment

made was in fact ‘as a result of a penalty imposed’. A plain piece of

information without any cogent material in support thereof in our

opinion would not justify the reopening of the assessment more so

when the A.O. in the regular assessment under Section 143(3) of

the Act had gone into the allowability of the claim for such a

deduction in the said assessment proceedings.

Apart from the bare information received by the A.O., there was

no material received by the said A.O. as the same is not reflected in

the reason so recorded which would justify the reopening of the

assessment, the A.O. in fact seeks to accord a fresh consideration to

an issue which already stands concluded in the regular assessment

proceedings.

28.A reference to the agreement would show that what was

agreed to be paid was on account of a pure settlement between the

parties. It was also made clear in the agreement that the settlement

was being arrived at for purposes of avoiding expense, risk and

uncertainty and further that the agreement would not be construed

as an admission by the defendants of any wrongdoing or that the

plaintiff’s claim had any merit or that the defendants have any

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liability to the plaintiffs or class members on those claims. The

agreement also reflects that the same would not be construed as an

admission of wrongdoing or liability on the part of any party to the

said agreement. Even the order passed by the Court recording

approval to the said agreement did not even in the least refer the

amount payable in any manner as a penalty amount.

29.We are therefore of the view that the A.O. had no reason to

believe that the payment made towards settlement of the class

action suit was a payment towards a penalty imposed and on that

account we hold that there was no reason for the A.O. to believe that

income had escaped assessment.

In the light of the above to hold that what was paid by the

petitioner was a penalty, in fact, would be without any basis and

aimed at reviewing an order passed earlier by the Assessing Offcer

who had specifcally gone into the allowability of the claim. We also

have no hesitation in holding that a mere assertion in the absence

of any material would not constitute a ‘tangible material’ for

purposes of reopening an assessment.

30.In our opinion, therefore, there would be no basis for the

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Assessing Offcer for forming his reason to believe and the basis so

reflected on the face of it appears to us to be totally perverse.

31.Be that as it may, we allow this petition. The impugned notice

dated 31

st

March, 2021 under Section 148 and the impugned order

dated 03

rd

January, 2022 are set aside.

(KAMAL KHATA, J.) (DHIRAJ SINGH THAKUR, J.)

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