Co. Ltd., Mumbai v. Asst. Commissioner Of Income

Dmt IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO. 2787 OF 2011 ICICI Lombard General Insurance Co. Ltd., Mumbai. .. Petitioner. versus Asst. Commissioner of Income Tax 10-(1), Mumbai & Anr... Respondents. ..... Mr. Aarti Vissanji with Mr. S.J. Mehta for the Petitioner. Mr. Tajveer Singh for the Respondents. ...... CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. 20 DECEMBER 2011. P.C. : Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal. 2.By a notice dated 30 March 2011, the assessment of the Petitioner for Assessment Year 2004-05 is sought to be reopened on the ground that the Assessing Officer has found reason to believe that income had escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. The assessee filed its return of income for AY 2004-05 on 30 October 2004 declaring an income of Rs. 30.74 crores. On 2 August 2006 the First Respondent issued a notice in the course of assessment proceedings raising a query on taxability of income arising on the sale of investments. The Petitioner replied to this query on 4 December 2006. An order of assessment was passed on 27 December 2006. On 14 May 2009, the Commissioner of Income Tax (Appeals) dismissed the appeal of the Petitioner. The Petitioner is in appeal before the Tribunal. 3.On 30 March 2011, the assessment was sought to be reopened on the basis of the following reasons : “From the records in this office it is noted that theassessee M/s ICICI Lombard General Insurance Co. Ltd. is taking the profit on realization of investment / sale of shares of companies and redemption of such investment from the journal reserved account to the balance sheet without crediting it to the P&L A/c in the respective A.Y. s. With effect from the’AY 1989-90, the Rule 5(b) of First Schedule to the I.T. Act, has been omitted. After which only the profit reported to the Controller of insurance can be considered by the AO. However the business of non life insurance companies can be split as the pure insurance business and investment business and for investment business the profit is to be calculated as per the RBI guidelines, income for non banking activities of Financial Institution. Therefore the profit of ICICI Lombard, Mumbai pertaining to this activity was required to be taxed as per the normal provisions of income tax without giving benefit of omission of Rule 5(b) from the First Schedule to the IT Act, 1961.” The Petitioner filed its objections on 4 November 2011 which were rejected by the Assessing Officer on 9 December 2011. 4.The submissions which have been urged on behalf of the Petitioner in support of the Petition are : (i)The reasons which have been disclosed to the Petitioner proceed on the clearly erroneous basis that the gains arising on the investment / sale of shares were not credited to the profit and loss account whereas ex-facie that is not the position;that the gains arising on the investment / sale of shares were not credited to the profit and loss account whereas ex-facie that is not the position; (ii)There could be no reason to believe that income had escaped assessment; (iii)Since the reopening is beyond a period of four years and an order of assessment has been passed years and an order of assessment has been passed disregarding profits on the sale of investments specifically, there could be no case of a failure on the part of the assessee to fully and truly disclose all material facts; and (iv)There is only a mere change of opinion on the part of the Assessing Officer. Hence, it is urged that the conditions requisite to the reopening of assessment under Section 147 are not fulfilled. 5.Learned Counsel appearing on behalf of the Revenue has supported the impugned order by relying upon the reasons which have been given by the Assessing Officer. (ii)There could be no reason to believe that income had escaped assessment; (iii)Since the reopening is beyond a period of four years and an order of assessment has been passed years and an order of assessment has been passed disregarding profits on the sale of investments specifically, there could be no case of a failure on the part of the assessee to fully and truly disclose all material facts; and (iv)There is only a mere change of opinion on the part of the Assessing Officer. Hence, it is urged that the conditions requisite to the reopening of assessment under Section 147 are not fulfilled. 5.Learned Counsel appearing on behalf of the Revenue has supported the impugned order by relying upon the reasons which have been given by the Assessing Officer. 6.The reasons which have been disclosed to the assessee for reopening the assessment for AY 2004-05 proceed on the basis that the assessee had realised profits on the sale of shares which were not credited to the profit and loss account for the relevant assessment year. Ex facie, we find substance in the contention of the Petitioner that this is not –factually correct. The return of income (Exhibit 1) disclosednet profits of Rs.31.78 crores. From this amount, the assessee purported to reduce the gains on the sale of investment in the amount of Rs. 7.08 crores. The Assessing Officer in his order under Section 143 (3) dated 27 December 2006 noted that the assessee was called upon to explain why the gains on the sale of investment in the amount of Rs. 7.08 crores had been reduced while computing the income as per the Income Tax Act, 1961. After noting the contention of the assessee, the Assessing Officer held that deduction of gain on the sale of investment of Rs. 7.08 crores could not be allowed and hence an equivalent amount was required to be added back to the return of income of the assessee. Accordingly, an amount of Rs. 7.08 crores was added back representing profit on the sale of investments. In this view of the matter, the basic premise on the basis of which the assessment is sought to be reopened is entirely incorrect. In the circumstances, no prudent Assessing Officer, duly informed, could have formed reason to believe that income has escaped assessment. Moreover, it is evident here that the assessment is sought to be reopened beyond the period of four years of the end of the relevant assessment year. As a matter of fact, the assessee was duly assessed for AY 2004-05 and the amount of Rs. 7.08 crores was added back to the return of income. There was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Assessing Officer has purported to reopen the assessment merely on the basis of a change of opinion which is impermissible. 7.For these reasons, we allow the Petition by quashing and setting aside the impugned notice dated 30 March 2011. Rule is made absolute accordingly. There shall be no order as to costs. (Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.)