Cyberabad Citizens Health Services Pvt. Ltd. v. Deputy Commissioner of Income Tax

  IN THE HIGH COURT FOR THE STATE OF TELANGANA


                  AT HYDERABAD








            THE HON’BLE SRI JUSTICE P.SAM KOSHY


                                           AND


THE HON’BLE SRI JUSTICE NARSING RAO NANDIKONDA





                     WRIT PETITION No.20450 of 2024


                                (CNR No. HBHC010388962024 )











                                 DATE: 07.09.2026








Between:


M/s. Cyberabad Citizens Health Services Private Limited.





                                                                …Petitioner





                                           AND





Deputy Commissioner of Income Tax, Circle 1(1),


IT Tower, AC Guards, Masab Tank,


Hyderabad – 500004 and Another.





                                                              …Respondents








ORDER: (per Hon’ble Sri Justice P.Sam Koshy)


        Heard Mr. T. Suryanarayana, learned Senior Counsel





representing Ms. K. Srilatha, learned counsel for the petitioner; and





Ms. Bokaro Sapna Reddy, learned Senior Standing Counsel for





Income Tax Department representing the respondents.


                              Page 2 of 21











2.    The instant Writ Petition under Article 226 of the Constitution





of India has been filed by the petitioner challenging the order dated





16.04.2024, passed by respondent No.1, under Section 148A(d) of the





Income Tax Act, 1961 (for short, the ‘Act’) and also the notice dated





16.04.2024, issued by respondent No.1, under Section 148 of the Act.








3.    Vide the impugned order; respondent No.1 initiated assessment





proceedings under Section 147 of the Act for the assessment year





2019-20.





4.    The facts of the case are that the petitioner, a private limited





company incorporated in the year 2008, was engaged in the business





of providing healthcare services by operating a multi-speciality





hospital. With a view to restructuring its business, the management





of the petitioner decided to demerge the entire operating business of





the said hospital (‘healthcare service business’) into another company,





namely Artmed Healthcare Private Limited (for short ‘Artmed





Healthcare’) incorporated in the year 2016.








5.    A scheme of demerger came to be filed by the petitioner and





Artmed Healthcare before the National Company Law Tribunal,





Hyderabad Bench, Hyderabad (for short ‘NCLT’). The said scheme


                              Page 3 of 21











was approved by the NCLT vide order dated 08.03.2019, whereby the





healthcare business of the petitioner stood transferred to and vested





with Artmed Healthcare with effect from the appointed date of





01.04.2017. Consequent upon the demerger, the healthcare business





stood transferred to Artmed Healthcare, while the petitioner retained





the healthcare infrastructure property. In terms of the demerger order,





the petitioner and Artmed Healthcare accordingly revised their





financial statements for the year ended 31.03.2018 (the appointed date





being 01.04.2017) with the entire income from healthcare services





being reflected in the financial statements of Artmed Healthcare.








6.    For the year ending 31.03.2019, the petitioner filed its original





return of income on 25.10.2019 and a revised return on 14.11.2019





declaring a loss of Rs.1,13,35,168/-. The said return came to be





processed under Section 143(1) of the Act accepting the business loss





so declared. Pursuant to the demerger, the entire income from the





healthcare services / hospital business was accounted for as income of





Artmed Healthcare in its return of income and financial statements





and the taxable income arising from the healthcare services business


                               Page 4 of 21











after 01.04.2017 was accordingly duly offered to tax by Artmed





Healthcare.








7.    During the previous year 2018-19, customers making payments





had deducted tax at source in the name of the petitioner, since the





NCLT order approving the demerger had not yet been passed as on





08.03.2019. The Artmed Healthcare, however, while filing its return





of income, took into account all transactions pertaining to the





healthcare service business, offered the same to tax, and claimed





appropriate credit for the tax so deducted at source.








8.    Prior to the demerger, the petitioner had carried on the business





of healthcare services on premises owned by it; pursuant to the





demerger, the petitioner leased the said premises to Artmed





Healthcare and earned rental income therefrom, which was duly





disclosed in the petitioner's financial statements and offered to tax





accordingly. Respondent No.1 thereafter issued a notice dated





28.03.2024 under Section 148A(b) of the Act calling upon the





petitioner to show cause as to why a notice under Section 148 of the





Act ought not to be issued for the assessment year 2019-20. In terms


                               Page 5 of 21











of the said notice, respondent No.1 claimed to be in possession of





information suggesting that the petitioner had failed to report:





  i.   Professional receipts of Rs.1,25,85,296/- received from Star





       Health and Allied Insurance Company Ltd.;





 ii.   Receipts towards fees for professional and technical services





       amounting to Rs.43,39,64,639/-;





iii.   Interest income of Rs.7,59,595/-; and





iv.    Contract receipts of Rs.43,65,774/-.








9.     On the basis of which respondent No.1 formed the view that





income chargeable to tax had escaped assessment. In response to the





said notice, the petitioner filed a letter dated 09.04.2024 objecting to





the proposed action on the ground that the entire income from the





healthcare services business had been accounted for in the financial





statements of Artmed Healthcare and duly offered to tax, and that the





receipts towards fees for professional and technical services, interest





income, and contract receipts likewise formed part of the total income





of Artmed Healthcare and had been duly offered to tax therein





furnishing, in support, a detailed explanation as to how and under


                              Page 6 of 21











what heads the entire income had been offered to tax, together with





copies of the relevant supporting documents.








10.   Without appreciating the contentions so raised by the





petitioner, respondent No.1 proceeded to pass an order dated





16.04.2024 under Section 148A(d) of the Act, holding it to be a fit





case for issuance of notice under Section 148 of the Act. In the said





order, respondent No.1 recorded that pursuant to the demerger,





Artmed Healthcare had admitted gross receipts of Rs.109,34,79,773/-,





which was however not forthcoming as per the insight information





available with the Department. That as per such insight information,





the   petitioner   had   entered   into      transactions   amounting   to





Rs.108,36,46,354/-, which, though stated to have been duly offered to





tax in the hands of Artmed Healthcare, could not be verified for want





of specified transaction details on record, thereby warranting further





verification, and that insofar as the sum of Rs.1,25,85,296/- received





from Star Health and Allied Insurance Company Ltd. already offered





to tax by the petitioner was concerned, the same likewise required





verification. On this basis, respondent No.1 concluded that income





chargeable to tax had escaped assessment and consequently issued a


                              Page 7 of 21











notice dated 16.04.2024 under Section 148 of the Act proposing to





assess / reassess the petitioner for the assessment year 2019-20.








11.   The proceedings so initiated, according to the petitioner,





suffered from various infirmities and were without jurisdiction and,





therefore, illegal, inasmuch as the material relied upon for initiating





the proceedings did not fall within the meaning of ‘information’ as





defined under clause (i) of Explanation 1 to Section 148 of the Act,





the transactions referred to in the notice issued under Section 148A(b)





having already been recorded in the books of Artmed Healthcare and





duly offered to tax therein, leaving no scope for any income to have





escaped assessment in the petitioner’s hands. It was contended that





the proceedings, having been initiated in the absence of any





‘information’ as defined under Explanation 1 to Section 148 of the





Act and without any material suggesting that income chargeable to





tax had escaped assessment, were bad in law. Further, the impugned





notice having been issued after a period of four years from the end of





the relevant assessment year, was barred by limitation in terms of the





first proviso to Section 149(1) of the Act and that, in any event, the





notice having been issued beyond a period of three years from the end


                               Page 8 of 21











of the relevant assessment year, no case had been made out for





invocation of the extended period of limitation under Section





149(1)(b) of the Act.











12.    It was accordingly the petitioner’s case that the impugned order





dated 16.04.2024 passed under Section 148A(d) of the Act and the





impugned notice dated 16.04.2024 issued under Section 148 of the





Act were bad, illegal, and liable to be set aside, and permitting the





Department to proceed with the action so initiated would amount to





an abuse of the process of law, causing irreparable loss and hardship





to the petitioner.











13.    The petitioner accordingly being aggrieved by the proceedings





initiated under Section 147 of the Act and thereby constrained to





institute the present writ petition, having no other efficacious





alternative remedy available to secure relief, and it being affirmed that





no other writ petition or proceeding on the same cause of action had





been filed or initiated by the petitioner before this Hon’ble Court or





any other Court or forum.


                              Page 9 of 21











14.   Learned Senior Counsel for the petitioner submitted that





pursuant to the demerger, the entire healthcare business was





demerged to Artmed Healthcare and therefore, any proceedings to





assess the petitioner for the income belonging to Artmed Healthcare is





without jurisdiction and that respondent No.1 having acknowledged





the fact that the petitioner had demerged its healthcare services





business with Artmed Healthcare and that both the companies had





filed their return of income, the Department erred in proceeding with





the impugned reassessment for the sole reason that the insight portal





reflected transactions in the hands of the petitioner is absurd and an





abuse of process of law.








15.   Learned Senior Counsel for the petitioner further submitted that





despite the petitioner giving all necessary details and explanations in





the response dated 10.04.2024 to demonstrate that the income with





respect to the flagged transactions are already offered to tax in the





hands of Artmed Healthcare, the action of respondent No.1 in





continuing the reassessment proceedings only to further verify is





without an objective assessment and application of mind, which





cannot be countenanced.


                              Page 10 of 21











16.   Learned Senior Counsel for the petitioner contended that the





prerequisite for initiation of proceedings under Section 147 of the Act





is the existence of “information” with the Assessing Officer which





suggests that income has escaped assessment and that the proceedings





are initiated without existence of any “information” as defined under





clause (i) of the explanation 1 to Section 148 of the Act, and therefore





the proceedings initiated are without jurisdiction. That if the term





“information” referred to in Section 148 of the Act is interpreted to





mean information which is already on record, it would vest the





Assessing Officer with unbridled power and against the accepted





principle of law that there must be finality in all legal proceedings and





the intention behind the amendment brought vide Finance Act, 2021,





which is unsustainable.








17.   Learned Senior Counsel for the petitioner further contended that





the requirement under Section 149(1)(b) of the Act requiring books of





account, other documents or evidence ‘reveal’ income chargeable to





tax escaping assessment would imply that what is not disclosed earlier





and consequently, where there is disclosure, there can be no question


                              Page 11 of 21











of revelation of any income escaping assessment and thus, section





149(1)(b) would have no application.








18.   On the other hand, the learned Senior Standing Counsel for





Income Tax Department submitted that the “information” based on





which respondent No. 1 initiated proceedings under Section 148 of the





Act is within the meaning of explanation (1) to Section 148 of the Act.





Further, as information in possession of respondent No.1 suggested





that the income chargeable to taxation has escaped assessment and is





more than Rs.50,00,000/-, notice has been issued within the time limit





of six years as prescribed in Section 149(1)(b) of the Act.








19.   Learned Senior Standing Counsel for Income Tax Department





further submitted that the information in respect of said transactions





aggregating to Rs.108,36,46,354/- and the sum of Rs.1,25,85,296/-





received from Star Health and Allied Insurance Company Ltd was





triggered in insight portal only against the petitioner and not against





M/s. Artmed Healthcare Pvt. Ltd. Moreover, the fact that the said





transactions belong to the demerged health services business of





petitioner came to the cognisance of respondent No.1 only when the





petitioner filed its response dated 10.10.2024.


                              Page 12 of 21











20.   Learned Senior Standing Counsel for Income Tax Department





contended on the footing that the mere claim of the petitioner that the





said income with respect flagged transactions in the insight portal was





offered in the hands of M/s. Artmed Healthcare Pvt Ltd. does not





authenticate the genuineness of the disclosure made by M/s. Artmed





Healthcare Pvt. Ltd., as no such information was available in insight





portal against M/s. Artmed Healthcare Pvt Ltd.








21.   Learned Senior Standing Counsel for the Income Tax





Department lastly contended that the time limit for issuance of notice





under Section 148 are prescribed in the Section 149 of the Act and





that the petitioner’s case clearly falls under Section 149(1)(b) of the





Act and the income escaped the assessment is represented in the form





of an entry or entries in the books of account which is exceeding





Rs.50,00,000/- as defined under Section 149(1)(b) of the Act.








22.   Having heard both the contentions put forth on either side and





on perusal of records, the question which falls for our consideration is





whether the material relied upon by respondent No.1 constituted





‘information’ within the meaning of Explanation 1 to Section 148 of





the Act, so as to justify initiation of reassessment proceedings against


                                  Page 13 of 21











the petitioner for the assessment year 2019-20, and whether in any





event the impugned notice issued beyond the ordinary period of





limitation prescribed under Section 149(1)(a) of the Act could be





sustained under the extended period available under Section 149(1)(b)





of the Act in the absence of any ‘revelation’ of undisclosed income of





Rs.50,00,000/- or more?








23.    It would be trite at this juncture to refer to Section 148 and 149





of the Act, which for ready reference is reproduced hereunder:





      “Issue of notice where income has escaped assessment.


      148. Before making the assessment, reassessment or recomputation


      under section 147, and subject to the provisions of section 148A, the


      Assessing Officer shall serve on the assessee a notice, along with a


      copy of the order passed, if required, under clause (d) of section


      148A, requiring him to furnish within [a period of three months from


      the end of the month in which such notice is issued, or such further


      period as may be allowed by the Assessing Officer on the basis of an


      application made in this regard by the assessee], a return of his


      income or the income of any other person in respect of which he is


      assessable under this Act during the previous year corresponding to


      the relevant assessment year, in the prescribed form and verified in


      the prescribed manner and setting forth such other particulars as


      may be prescribed; and the provisions of this Act shall, so far as may


      be, apply accordingly as if such return were a return required to be


      furnished under section 139:


      Provided that no notice under this section shall be issued unless


      there is information with the Assessing Officer which suggests that


                             Page 14 of 21











the income chargeable to tax has escaped assessment in the case of


the assessee for the relevant assessment year and the Assessing


Officer has obtained prior approval of the specified authority to issue


such notice:


Explanation 1.—For the purposes of this section and section 148A,


the information with the Assessing Officer which suggests that the


income chargeable to tax has escaped assessment means,—


(i) any information in the case of the assessee for the relevant


assessment year in accordance with the risk management strategy


formulated by the Board from time to time; or


[(ii) any audit objection to the effect that the assessment in the case


of the assessee for the relevant assessment year has not been made in


accordance with the provisions of this Act; or


(iii) any information received under an agreement referred to


in section 90 or section 90A of the Act; or


(iv) any information made available to the Assessing Officer under the


scheme notified under section 135A; or


 (v) any information which requires action in consequence of the


order of a Tribunal or a Court.]”





 “Time limit for notice.


 149. (1) No notice under section 148 shall be issued for the relevant


 assessment year,—


 (a) if three years have elapsed from the end of the relevant


 assessment year, unless the case falls under clause (b);


 [(b) if three years, but not more than ten years, have elapsed from


 the end of the relevant assessment year unless the Assessing


 Officer has in his possession books of account or other documents


 or evidence which reveal that the income chargeable to tax,


 represented in the form of —


 (i) an asset;


                                  Page 15 of 21











      (ii) expenditure in respect of a transaction or in relation to an event


      or occasion; or


      (iii) an entry or entries in the books of account, which has escaped


      assessment amounts to or is likely to amount to fifty lakh rupees or


      more:]”








24.    Section 148 of the Act, as amended, permits initiation of





reassessment proceedings only where there exists “information” with





the Assessing Officer within the meaning of Explanation 1 thereto,





which suggests that income chargeable to tax has escaped assessment.





The very premise of this statutory scheme is that the “information” in





question must point towards escapement i.e. towards the income that





has not been brought to tax at all and not towards income that stands





duly disclosed, accounted for, and offered to tax, merely because it





happens to be reflected under a different assessee’s PAN on account





of a corporate restructuring exercise such as a demerger.








25.    On the facts before us, it is not in dispute that the healthcare





services business of the petitioner stood demerged into Artmed





Healthcare pursuant to the scheme sanctioned by the NCLT vide order





dated 08.03.2019, with effect from the appointed date of 01.04.2017,





and that the entire income relatable to that business for the period in





question was disclosed and offered to tax in the hands of Artmed


                               Page 16 of 21











Healthcare in its own return of income and financial statements. That





the insight portal happened to flag certain of these transactions against





the petitioner’s PAN for the entirely explicable reason that tax was





deducted at source in the petitioner’s name by counterparties who





transacted with it before the NCLT’s sanction order came to be passed





on 08.03.2019 does not convert genuinely disclosed and taxed income





into income that has “escaped assessment”. The distinction between





income that is undisclosed and income that is merely attributed for





technical or transitional reasons to the wrong PAN number in a





departmental database is fundamental and respondent No.1, in our





view, has failed to appreciate this distinction.








26.   This becomes further apparent from a plain reading of the





impugned order dated 16.04.2024 itself.            Respondent No.1, while





dealing with the sum of Rs.108,36,46,354/-, has recorded in terms that





the said amount though corresponding to the insight information





flagged against the petitioner, was “duly offered in the hands of





Artmed Healthcare” and proceeded to hold that the matter nonetheless





required “further verification” on account of “specified transaction





details” not being forthcoming from the record. Similarly, in respect


                              Page 17 of 21











of the sum of Rs.1,25,85,296/- received from Star Health and Allied





Insurance Company Ltd., an amount the petitioner had admittedly





already offered to tax, respondent No.1 once again fell back on the





same formula, namely that the matter “needed verification”.








27.   We are constrained to observe that an order under Section





148A(d) recording, in the same breath, that an amount has already





been offered to tax by the entity legally entitled to be assessed on it





and yet proceeding to treat the matter as one of escaped income





“requiring verification” discloses an absence of the very application of





mind that Section 148A is designed to ensure.         Furthermore, the





scheme of Section 148A was introduced precisely to interpose a





filtering mechanism before an assessee is subjected to the rigours of





reassessment so that reassessment proceedings are not set into motion





on a mere hunch or for the purpose of a roving or fishing inquiry.





Where the material already before the Assessing Officer, including the





petitioner's detailed response dated 09.04.2024 with supporting





documents demonstrated that the income in question stood duly





disclosed and taxed in the hands of Artmed Healthcare, it was





incumbent upon respondent No.1 to have engaged with that material


                             Page 18 of 21











and recorded reasons as to why it was found unsatisfactory or





insufficient not to invoke the talismanic formula of “further





verification” as a substitute for the objective satisfaction that the





statute requires before a notice under Section 148 can be issued.








28.   We are equally persuaded by the petitioner’s alternative





contention on limitation. Section 149(1)(a) of the Act prescribes an





ordinary period of three years from the end of the relevant assessment





year within which a notice under Section 148 may be issued. The





extended period of up to ten years under Section 149(1)(b) is available





only where the Assessing Officer is in possession of books of account,





other documents, or evidence which “reveal” that income chargeable





to tax represented in the form of an asset, expenditure, or an entry in





the books of account, has escaped assessment to the extent of





Rs.50,00,000/- or more. The operative word in clause (b) “reveal” is a





word that necessarily connotes the surfacing of something that was not





already known or disclosed. Whereas here, the very transactions said





to give rise to escapement stand recorded in the books of Artmed





Healthcare and disclosed in its return of income. The material that





was placed before respondent No.1 by the petitioner itself in response


                             Page 19 of 21











to the show-cause notice cannot be said that any books of account,





document, or evidence has “revealed” undisclosed income of the





requisite threshold. What respondent No.1 possessed, at best, was





information that required correlation and verification against material





that was already disclosed and not a revelation of concealment. The





extended period of limitation under Section 149(1)(b) was therefore,





not available to respondent No.1 on the facts of this case and the





notice dated 16.04.2024 having admittedly been issued beyond three





years from the end of the assessment year 2019-20, the ordinary





period prescribed under Section 149(1)(a) is barred by limitation.








29.     The submission of the learned Senior Standing Counsel for





Income Tax Department that the insight portal reflected the impugned





transactions only against the petitioner and not against Artmed





Healthcare and the fact of the transactions belonging to the demerged





healthcare business came to the Department’s knowledge only upon





the petitioner’s response does not in our view, improve the Revenue’s





case.    If anything, it confirms that respondent No.1, upon being





furnished this explanation together with supporting material ought to





have verified the same against the return and financial statements of


                             Page 20 of 21











Artmed Healthcare, an exercise well within the Department’s own





means. Artmed Healthcare being an assessee on its own rolls, rather





than mechanically proceeding to issue notice under Section 148A(d)





on the basis that the petitioner’s claim was unauthenticated. Tax





administration cannot proceed on the footing that an assessee’s





documented and verifiable explanation furnished with full particulars,





is to be disbelieved merely because the Department finds it





inconvenient to cross-verify against its own records relating to a





connected assessee, particularly given that the demerger itself was a





matter of public record sanctioned by the NCLT and readily





verifiable.








30.   Therefore, we are of the considered opinion that the impugned





proceedings, both on the ground of absence of valid “information”





within the meaning of Explanation 1 to Section 148 of the Act, and on





the independent ground of limitation under Section 149 of the Act, are





unsustainable. The impugned order dated 16.04.2024 passed under





Section 148A(d) of the Act and the consequential notice dated





16.04.2024 issued under Section 148 of the Act, for the assessment





year 2019-20, are therefore set aside.       The question of law is


                             Page 21 of 21











accordingly answered in favour of the petitioner and against the





respondents.








31.   The instant Writ Petition accordingly stands allowed.








32.   As a sequel, miscellaneous petitions pending if any, shall stand





closed. However, there shall be no order as to costs.








                                                 _________________


                                                  P. SAM KOSHY, J











                               _______________________________


                               NARSING RAO NANDIKONDA, J





Date: 07.09.2026


GSD