Bombay High Court
Dil Ltd vs Asst. Commissioner Of Income Tax on 24 January, 2012
Author: D.Y.Chandrachud
Bench: D.Y.Chandrachud, M.S.Sanklecha
VBC 1 wpl2786.11-24.1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
WRIT PETITION (L) NO.2786 OF 2011
DIL Ltd. ...Petitioner.
Vs.
Asst. Commissioner of Income Tax,
Circle 6(2) & Ors. ...Respondents.
....
Mr.Percy J.Pardiwala, Senior Advocate with Mr.Pankaj Toprani
for the Petitioner.
Ms.Suchitra Kamble for the Respondents.
.....
CORAM : DR.D.Y.CHANDRACHUD AND
M.S.SANKLECHA, JJ.
January 24, 2012.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
Rule; with the consent of Counsel for the parties returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.
2. The Petitioner has challenged a notice dated 8 March 2011, issued under Section 148 of the Income Tax Act, 1961, by which the assessment for Assessment Year 2004-05 is sought to be reopened. The reopening of the assessment is admittedly beyond the period of four years from the end of the relevant assessment ::: Downloaded on - 09/06/2013 18:06:45 ::: VBC 2 wpl2786.11-24.1 year.
3. On 30 August 2006, the Assessing Officer passed an order of assessment under Section 143(3). The total income of the assessee was computed at Rs.7.62 lakhs. The book profit of the assessee under Section 115JB was computed at Rs.1.21 crores. The reasons which have been furnished to the assessee for reopening the assessment are as follows :
"Assessment in this case has been completed u/s.143(3) on 30-08-2006 at total income under normal provisions at Rs.7,62,650/- and book profit at Rs.1,21,84,293/-.
Subsequently it is seen that while computing the book profit, the following amounts have not been added to the book profit :-
A) Provisions for
i) Diminution in the value of investment: 1,28,25,452
ii) Gratuity : 2,88,223
iii) Superannuation : 38,36.559 B) Capital expenditure
i) Business Development Expenses : 10,79,876 As per provisions of the Act any amount set aside as provisions made for meeting liabilities other than ascertained liabilities and provisions for diminution in the value of any asset are to be added back to book profit.::: Downloaded on - 09/06/2013 18:06:45 :::
VBC 3 wpl2786.11-24.1 I, therefore, have reason to believe that income (Book profit) chargeable to tax to the extent of Rs.
1,80,30,110/- has escaped assessment. Issue notice u/s.
148 for A.Y. 2004-05."
Counsel appearing on behalf of the Assessee submitted that (i) Ex-
facie the reasons which have been supplied to the assessee do not contain any statement to the effect that the assessee has failed to disclose fully and truly all material facts necessary for the assessment. Hence, the basic requirement in the proviso to Section 147 for reopening the assessment beyond the period of four years has not been fulfilled; (ii) As regards the amount representing a diminution in the value of investment (Rs.1.28 crores), Explanation (1)(i) to Section 115JB was introduced by the Finance (No.2) Act, 2009 with retrospective effect from 1 April 2001. Hence, while, in view of the amended provisions, there may be reason to believe that income has escaped assessment, that in itself cannot sustain the order of reopening in the present case beyond the period of four years since a retrospective amendment of law by Parliament cannot give rise to an inference that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment; (iii) As regards gratuity ::: Downloaded on - 09/06/2013 18:06:45 ::: VBC 4 wpl2786.11-24.1 and superannuation, the claim of the assessee for deduction has been allowed and no disallowance of the expenditure was made on the footing that the liability was neither incurred nor ascertained;
(iv) As regards the business development expenditure (Rs.10.79 lakhs) the Assessing Officer had, as a matter of fact, disallowed the claim of the assessee and the amount was added back in computing the total income. Thus, it is urged that even on merits, there is absolutely no ground for reopening the assessment.
4. On the other hand, Counsel appearing on behalf of the Revenue has relied on the order of the Assessing Officer dated 5 December 2011, disposing of objections to the reopening of the assessment. Reliance was placed particularly on the provisions of Explanation (1) to Section 147 and it was urged that a mere production of books of account by the assessee cannot give rise to an inference that material facts have been disclosed.
5. Admittedly the position is that the reopening in the present case, by a notice dated 8 March 2011 for Assessment Year 2004-05 is beyond the period of four years from the end of the ::: Downloaded on - 09/06/2013 18:06:45 ::: VBC 5 wpl2786.11-24.1 assessment year. The reasons for reopening contain absolutely no reference to there being any failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment.
We, therefore, find merit in the contention of Counsel appearing on behalf of the Assessee that the primary requirement set out in the proviso to Section 147 has not been fulfilled. That apart, it is evident that in so far as the diminution in the value of investment of Rs.1.28 crores is concerned, Explanation (1)(i) was inserted into the provisions of Section 115JB by the Finance (No.2) Act, 2009 with retrospective effect from 1 April 2001. Clause (i) of Explanation (1) was introduced to include the amount or amounts set aside as provision for diminution in the value of investment. In view of the retrospective amendment of law by Parliament, the Assessing Officer may have reason to believe that income has escaped assessment. But that in itself is not sufficient for reopening an assessment beyond the period of four years. Beyond the period of four years when an assessment is sought to be reopened, there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment.
In fact, the retrospective amendment of law by Parliament would ::: Downloaded on - 09/06/2013 18:06:45 ::: VBC 6 wpl2786.11-24.1 negate the inference which is sought to be drawn of the failure to disclose material facts. In so far as the business development expenditure of Rs.10.79 lakhs is concerned, here again it is evident from the order of assessment that the claim of the assessee was disallowed by the Assessing Officer and the amount was added back to the income. Similarly, in regard to the gratuity and superannuation as well, there is merit in the contention of Learned Counsel that there is ex-facie no failure on the part of the assessee to disclose the material facts. The reasons disclosed to the assessee on 11 July 2011, in fact, merely indicate a reason to believe that income has escaped assessment. There is no reference whatsoever to the formation of an opinion that there was a failure on the part of the assessee to fully and truly disclose all material facts. In these circumstances, the basis on which the reopening is sought to be effected is contrary to law. Rule is accordingly made absolute by quashing and setting aside the impugned notice dated 8 March 2011. There shall be no order as to costs.
( Dr.D.Y.Chandrachud, J.) ( M.S.Sanklecha, J. ) ::: Downloaded on - 09/06/2013 18:06:45 :::