Asian Paints Ltd. Asian Paints House, ] 6A, Shanti Nagar, Santacruz East, ] Mumbai – 400 055. ]… v. Shraddha Talekar, Ps_

Digitallysigned bySHRADDHASHRADDHAKAMLESHKAMLESHTALEKARTALEKARDate:2023.01.0918:58:37+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1425 OF 2022 Asian Paints Ltd.Asian Paints House, ]6A, Shanti Nagar, Santacruz East,]Mumbai – 400 055.]… PetitionerVersus1. The Assistant Commissioner of Income-tax,]Circle-3(4), Mumbai,]29[th] Floor, World Trade Centre,]Cuffe Parade, Mumbai-400 005.]]]2. Additional/Joint/Assistant ]Commissioner of Income-tax/]Income Tax Offcer,]National Faceless Assessment Centre,]Delhi.]]3. The Principal Commissioner of Income-tax,]Mumbai-3, Mumbai,]Room No.612, 6[th] Floor,]Aayakar Bhavan, Maharshi Karve Road,]Mumbai – 400 020]]4.Union of India,]Through the Joint Secretary & Legal Adviser,]Branch Secretariat,]Department of Legal Affairs,]Ministry of Law and Justice,]2[nd] Floor, Aayakar Bhavan, M.K. Marg,]New Marine Lines, Mumbai 400 020.]..Respondents **** Mr.Madhur Agrawal with Mr.Fenil Bhatt i/b Mr.Atul K. Jasani,Advocates for petitioner. Mr.Akhileshwar Sharma, Advocate for respondents. ***** CORAM : DHIRAJ SINGH THAKUR &VALMIKI SA MENEZES, JJ. PRONOUNCED ON : 9[th] JANUARY, 2023 J U D G M E N T PER DHIRAJ SINGH THAKUR, J. 1.The petition is taken up for fnal disposal. 2.In the present petition, the petitioner challenges thenotice dated 31[st] March 2021 issued under section 148 ofthe Income Tax Act, 1961 (‘the Act’), whereby it sought toreopen the assessment of the assessment year 2013-14. Thepetitioner also challenges the order dated 7[th] February 2022,whereby the objections to the issuance of notice undersection 148 of the Act were rejected. 3.Briefy stated the material facts are as under : (a)The petitioner is a public limited companyengaged inter-alia in the business of manufacturingengaged inter-alia in the business of manufacturing and selling of paints, varnish, primer etc. The business is carried on through various dealers whopurchase the goods from the petitioner on theprincipal-to-principal basis and sell the same to theultimate customers. (b)With a view to promote its brand and theproducts, manufactured and with a view to increasethe sales, the petitioner claims that it evolved amarketing strategy/scheme called as ‘Colour IdeaStores’. This scheme envisages a specifed anddesignated areas in the shops of the dealers forexclusive display of the petitioner’s products. As perthe scheme, the petitioner had to enter into theagreement with dealers as regards sharing of costsincurred for setting up of the designated area for useand display of the petitioner’s products. The costsincurred comprised of civil work, furniture andfttings, electrical fttings, signboards, advertisementmaterial etc. It is stated that even though thepetitioner incurred expenditure, on setting up of thestores, the stores continue to be belonged to the dealers. It is also stated that the costs incurred by thepetitioner as its shares in the development of theColour Idea Store would be debited to the proft andloss account as advertising and sales promotionexpenses and claim as deduction in computing theincome of the petitioner. (c)A return of income for the assessment year 2013-14 came to be fled by the petitioner declaring a totalincome of Rs.1259.98 crores which was subsequentlyrevised to Rs.1248.74 crores. The case of the petitioneris stated to have been selected for scrutiny assessmentduring the course of which a show cause notice dated7[th] October 2016 was issued by the Assessing Offcer(‘AO’) requiring it, inter-alia, to submit the details ofthe ‘advertisement and sales promotion expenses’. (d)In response to the said show cause notice, thepetitioner fled its reply on 17[th] October 2016 givingdetails regarding advertising and sales promotionexpenses, a break-up of which did refect that an (c)A return of income for the assessment year 2013-14 came to be fled by the petitioner declaring a totalincome of Rs.1259.98 crores which was subsequentlyrevised to Rs.1248.74 crores. The case of the petitioneris stated to have been selected for scrutiny assessmentduring the course of which a show cause notice dated7[th] October 2016 was issued by the Assessing Offcer(‘AO’) requiring it, inter-alia, to submit the details ofthe ‘advertisement and sales promotion expenses’. (d)In response to the said show cause notice, thepetitioner fled its reply on 17[th] October 2016 givingdetails regarding advertising and sales promotionexpenses, a break-up of which did refect that an amount of Rs.17,41,85,275/- was spent under thehead ‘Colour Idea Stores’. 4.The AO fnally passed the order of assessment dated25[th] January 2017 under section 143(3) read with section144C(3) of the Act for the assessment year 2013-14computing the total income of the petitioner at Rs.1351.78crores, after making certain disallowances refected in theadvertisement and sales promotion expenses. However, it isstated that the claim of expenses under the head ‘ColourIdea Stores’ was accepted. 5.Notice under section 148 of the Act dated 31[st] March2021 was issued seeking to reopen the assessment for theassessment year 2013-14. The reasons for reopening read asunder : Reasons for reopening of the assessment in case of M/s. Asian Paints Ltd. for A.Y. 2013-14 u/s 147 of theIncome-tax Act, 1961 : The original return of income has been filedelectronically on 8.11.2013 declaring total income atRs.12,59,97,53,980/-. Subsequently, return of incomewas revised on 27.03.2014 declaring total income atRs.12,48,74,49,480/-. The case of the assessee wasselected for scrutiny under CASS and assessment under section 143(3) was completed on 20.12.2016determining income at Rs.1351,78,51,596/- undernormal provision of the Act and Rs.1485,91,26,894/-under section 115JB of the Act of the Act. 2. During the assessment proceedings u/s 143(3)of the Act in AY 2015-16, it was seen that the assesseehas incurred expenses of Rs.32,44,46,533/- towards“Colour Idea Store” and debited these expenses in theP & L A/c. In A.Y. 2015,16. After thoroughexamination and verification during the scrutinyassessment proceedings of A.Y. 2015-16, the expensesfor “Colour Idea Store” were considered as capitalexpenditure as against the claim of revenueexpenditure by the assessee and Rs.29,20,01,880/-was added to the total income of the assessee afterallowing depreciation of 10%. Further, based on theabove disallowance, the case was reopened for A.Y.2012-13 to examine the above stated issue. 3.The assessee furnished the details regardingthe amounts involved to the above mentioned issuefor A.Y. 2013-14. On perusal of the same, it is seenthat an amount of Rs.17.42 crores escaped assessmentas the assessee failed to disclose such informationduring the course of assessment proceedings. 4.In view of the above, the undersigned hasreason to believe that the income exceedingRs.1,00,000/- has escaped assessment within themeaning of Section 147 of the Act. Therefore,proposal for reopening of A.Y. 2013-14 by issuingnotice u/s 148 of the Act is being made u/s 151 of theAct for your kind perusal and approval. 5.In view of the reasons recorded above, I am ofthe opinion that income chargeable to tax has escapedassessment for A.Y. 2013-14 by reason of failure onthe part of the assessee to disclose fully and truly allmaterial facts necessary for its assessment for A.Y. 6.The petitioner fled its objections to the reopeningnotice which were rejected by virtue of the order dated 7[th]February 2022. Counsel for the petitioner urged that therewas no failure to disclose fully and truly any material factnecessary for the assessment which was a conditionprecedent for reopening the assessment in terms of section148 of the Act. 5.In view of the reasons recorded above, I am ofthe opinion that income chargeable to tax has escapedassessment for A.Y. 2013-14 by reason of failure onthe part of the assessee to disclose fully and truly allmaterial facts necessary for its assessment for A.Y. 6.The petitioner fled its objections to the reopeningnotice which were rejected by virtue of the order dated 7[th]February 2022. Counsel for the petitioner urged that therewas no failure to disclose fully and truly any material factnecessary for the assessment which was a conditionprecedent for reopening the assessment in terms of section148 of the Act. It is stated that based upon a similar reasoning,the respondents had sought to reopen assessmentrelevant to assessment year 2011-12 and 2012-13, waschallenged in writ proceeding, which came to beallowed by virtue of judgment and order dated 17[th]January 2019 and the proceedings were quashed. AnSLP preferred against the said judgment and order too,is stated to have been dismissed by virtue of orderdated 6[th] October 2020 and subsequently a reviewpetition seeking review of the said order was alsodismissed. 7.Counsel for the respondents, on the other hand, generally supported the reassessment proceedings initiatedby the AO. It was stated that the reassessment proceedingswould not be held to be bad as the AO, while passing theorder of assessment, had not expressed any specifc opinionin regard to the expenditure incurred on ‘Colour IdeaStores’, and therefore, at this stage, the reassessmentproceedings could not be permitted to be scuttled. 8.Proviso to section 147 of the Act, as it stood then,envisaged that no action under section 147 of the Act shallbe taken after the expiry of four years from the end of therelevant assessment year unless any income chargeable totax has escaped assessment for such assessment year byreason of the failure on the part of the assessee to make areturn under section 139 or in response to a notice issuedunder sub-section (1) of section 142 or section 148 or todisclose fully and truly all material facts necessary for hisassessment, for that assessment year. 9.In Hindustan Lever Ltd. Vs. R.B. Wadkar, Assistant Commissioner of Income-Tax and Others[1], this Court held : 12004 ITR 332 Vol.268 “ …….The reasons recorded should be clearand unambiguous and should not suffer fromany vagueness. The reasons recorded mustdisclose his mind. The reasons are themanifestation of the mind of the AssessingOfficer. The reasons recorded should be self-explanatory and should not keep the assesseeguessing for the reasons. Reasons provide thelink between conclusion and evidence. Thereasons recorded must be based on evidence.The Assessing Officer, in the event of challengeto the reasons, must be able to justify the samebased on material available on record. He mustdisclose in the reasons as to which fact ormaterial was not disclosed by the assessee fullyand truly necessary for assessment of thatassessment year, so as to establish the vital linkbetween the reasons and evidence. That vitallink is the safeguard against arbitraryreopening of the concluded assessment.” reasons recorded must be based on evidence. 10.From the record, it is clear that during the scrutinyassessment, the AO had sought from the petitioner therelevant details with regard to the advertisement and salespromotion expenses which details were furnished by thepetitioner vide its response dated 17[th] October 2016. It canalso be seen that the AO had disallowed some of theexpenses which had been refected in the break-up underthe head “details of advertisement and sales promotionexpenses” while passing the fnal order of assessment,which refects that the AO had applied its mind to the reasons recorded must be based on evidence. 10.From the record, it is clear that during the scrutinyassessment, the AO had sought from the petitioner therelevant details with regard to the advertisement and salespromotion expenses which details were furnished by thepetitioner vide its response dated 17[th] October 2016. It canalso be seen that the AO had disallowed some of theexpenses which had been refected in the break-up underthe head “details of advertisement and sales promotionexpenses” while passing the fnal order of assessment,which refects that the AO had applied its mind to the appellant’s claim while passing the order under section143(3) of the Act. Moreover, the reasons do not disclose as towhat material or fact was not disclosed by the assessee. It,therefore, cannot be said that there was any failure on thepart of the petitioner to disclose fully and truly facts whichwere material and necessary for assessment. 11.Be that as it may, the notice impugned does not satisfythe jurisdictional requirement of section 147 of the Act and,therefore, is held to be unsustainable, and is accordinglyquashed. 12.The petition is allowed. No costs. [ VALMIKI SA MENEZES, J. ] [DHIRAJ SINGH THAKUR, J.]