Indo European Breweries Ltd v. Oral Judgment (Per Dr.d.y.chandrachud, J

PNP 1 WP2000-20.10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2000 OF 2011 Indo European Breweries Ltd...Petitioner. vs.Income Tax Officer -4(2)(2), Mumbaiand others..Respondents. …. Mr. Sanjay Bansal, Senior Advocate with Mr. Jitendra Singh for the Petitioner.Mr. Vimal Gupta for Respondent No.1. ..... CORAM : DR.D.Y.CHANDRACHUD &A.A. SAYED, JJ. 20 October 2011 ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.): 1.The assessment of the Petitioner for Assessment Year 2004-05 has been sought to be reopened by a notice dated 17 March 2011 issued under Section 148(1) of the Income Tax Act 1961. 2.The Petitioner filed its return of income for Assessment Year 2004-05 on 19 October 2004. The Assessing Officer passed an order of assessment under Section 143(3). The assessee had declared a loss of Rs.2.10 Crores. Depreciation in the amount of Rs.2.11 Crores was claimed by the assessee on fixed assets. The Assessing Officer made a general disallowance on the depreciation claimed by the assessee in the amount of Rs.20 lacs on the following grounds : “On perusal of records and details furnished during the course of assessment proceedings, it is seen that the assessee has claimed depreciation of Rs.2,11,77,238/- on fixed assets. The assessee has furnished the copies of bills of purchase of assets. It is seen that many of the capital assets are purchased at the fag end of the year. The installation and use thereof is not proved. The assessee was asked to produce the books of accounts for verification which were not produced. The profit & loss account shows sales of only Rs.8,02,926/- against which the assessee has claimed various expenses including expenses on account of power, electricity & fuel of Rs.1,51,104/- only. The huge assets are installed including Boiler Rs.16,72,661/-, Generator Rs.15,75,077/- Forklift Rs.16,06,367/-, Water Treatment Plant Rs.59,57,768/-, Plant & Machinery Rs.8,35,63,668/- etc which require huge consumption of electricity whereas the assessee’s claim of expenses on account of power, electricity & fuel are too meager. The list of pre-operative expenses transferred to plant & machinery and other fixed assets have been furnished by the assessee which also does not include any expense on account of electric consumption. Looking at the facts & circumstances of the case depreciation claimed by the assessee is disallowed to the extent of Rs.20,00,000/- and is added to the total income of the assessee.” 3.In appeal, the CIT (Appeals) by an order dated 6 October 2008 held that the Assessing Officer was in error because either the assets were used or were not used. In the event that the assets were not used, the claim of depreciation should have been disallowed in its entirety. The bills of purchase which were furnished by the assessee indicated that the PNP assets were put to use during the year. At that stage, it would appear that there was no reason to disbelieve the veracity or the authenticity of the bills on purchase. 3.In appeal, the CIT (Appeals) by an order dated 6 October 2008 held that the Assessing Officer was in error because either the assets were used or were not used. In the event that the assets were not used, the claim of depreciation should have been disallowed in its entirety. The bills of purchase which were furnished by the assessee indicated that the PNP assets were put to use during the year. At that stage, it would appear that there was no reason to disbelieve the veracity or the authenticity of the bills on purchase. 4.During the course of the assessment proceedings for Assessment Year 2008-09 the assessee claimed depreciation in the amount of Rs.81.67 lacs at 100% of the cost of an asset described as an Effluent Treatment Plant (ETP) system. The assessee, by a notice dated 11 October 2010, was requested to justify the claim and produce documents in support of evidence. In response, the assessee by a letter dated 30 October 2010 produced a copy of a bill pertaining to the purchase of equipment. The bill indicated that the asset was supplied to the assessee by a company by the name of M/s. Praneet Enviroquips Private Limited at Mohali. The Assessing Officer issued a communication dated 29 November 2010 to the alleged vendor under Section 133(6) and sought details of the transaction. In a reply dated 4 December 2010, Praneet Enviroquips Private Limited stated that during the financial year 2007-08, corresponding to Assessment Year 2008-09 no ETP had been supplied to the assessee; no invoice or bill had been issued or raised for the supply of any ETP and no payment had been received from the assessee. Subsequently by a letter dated 13 December 2010 the assessee claimed that it was informed by its Plant Manager that the equipment was purchased from one Narender Mahindra of Delhi. The Assessing Officer added back an amount of Rs.81.67 lacs on account of the bogus claim of depreciation made by the assessee. The assessee has filed an appeal against the order of the Assessing Officer which is stated to be pending. 5.In respect of Assessment Year 2004-05, the Assessing Officer has sought to reopen the assessment by a notice dated 17 March 2011 on the ground that he has reason to believe that the income had escaped assessment. The reasons on the basis of which a belief has been formed that income has escaped assessment, are as follows : “During the assessment proceedings of the assessee company for A.Y. 2008-09, it was observed that the assessee had, inter-alia, claimed depreciation to the tune of Rs.81,67,860/- @ 100% of the cost of asset described as ‘ETP System’. The assessee was requested to justify the claim and submit supporting evidences in respect of the same. In response the assessee filed a copy a bill pertaining to the purchase of the said equipment. The copy of the bill indicated that the said asset was supplied to the assessee by M/s. Praneet Enviroquips Private Limited having address at D-169, Industrial area, Phase 7, Mohali (PB) 160055. On an enquiry under the provisions of section 133(6) of the Act, this company denied having any transaction with the assessee during A.Y. 2008-09. The assessee could not furnish any satisfactory explanation in respect of the claim and the claim of depreciation of Rs.81,67,860/- was disallowed and added back to the income of the assessee holding it to be a bogus claim.” The reasons further state that on perusal of the details of additions to fixed assets, filed during assessment proceedings for the year under PNP WP2000-20.10 The reasons further state that on perusal of the details of additions to fixed assets, filed during assessment proceedings for the year under PNP WP2000-20.10 consideration (A.Y. 2004-05) it was noticed that the assessee had claimed that the components of the ETP System had been purchased from the same company viz. Praneet Enviroquip Private Limited, Mohali. In view of the finding recorded for the Assessment Year 2008-09 it was found necessary to reopen the assessment for Assessment Year 2004-05. The sanction was sought accordingly from the Commissioner of Income Tax which was granted. The assessee submitted its objections to the reopening of the assessment on 20 June 2011. The objections have been disposed of by an order dated 2 August 2011. Reference has been made inter alia to clause (c) of Explanation 2 to Section 147 of the Income Tax Act 1961 under which income would be deemed to have escaped assessment for the purpose of Section 147 where an assessment has been made and (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too a low rate; or (iii) such income has been made the subject of excessive relief; or (iv) excessive loss or depreciation allowance or any other allowance under the Act has been computed. 6.Counsel appearing on behalf of the Petitioner submitted that in the present case (i) No specific information was before the Assessing Officer and there was nothing to indicate that the bills for Assessment Year 2004-05 were fabricated; (ii) The jurisdictional condition for the reopening of an assessment beyond a period of four years of the end of PNP WP2000-20.10 the relevant assessment year is that there must be a failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment for that assessment year; (iii) The jurisdictional condition is absent in the present case and the assessment is sought to be reopened to circumvent the order passed by the CIT (Appeals). 7.On the other hand, it has been urged on behalf of the Revenue by the learned counsel that in the order of assessment for Assessment Year 2004-05, the Assessing Officer had made an ad hoc disallowance of Rs.20 lacs on account of depreciation claimed on fixed assets. In appeal, the CIT (Appeals) held that the ad hoc disallowance of Rs.20 lacs was not warranted since the assets were either put to use or were not put to use during the course of the relevant assessment year. The assessee had furnished bills of purchase. Learned counsel submitted that during the course of the assessment proceedings for Assessment Year 2008-09 the assessee had claimed depreciation on account of the ETP System. In response to the notice of the Assessing Officer, the assessee had furnished a bill of Praneet Enviroquips Private Limited. The Assessing Officer upon a notice under Section 133(6) elicited information from the alleged vendor that no such equipment was supplied; that the bills which were produced were fabricated and that no payment had been made by the assessee to the alleged vendor. The submission of the Revenue is that though the reopening of the assessment is sought to be carried out after a PNP WP2000-20.10 PNP WP2000-20.10 period of four years, the Assessing Officer was within his jurisdiction. There is material to indicate that the assessee had produced fabricated bills relating to the erection of an Effluent Treatment Plant during the Assessment Year 2008-09 from the very same third party viz. Praneet Enviroquips Private Limited. Learned counsel urged that in these circumstances, the reasons on the basis of which the assessment is sought to be reopened clearly indicate that there was a failure on the part of the assessee to disclose fully and truly all material facts. The Assessing Officer has reason to believe that the assessee has claimed depreciation on the basis of an alleged supply of a whole ETP System from a third party which for Assessment Year 2008-09 has confirmed that the bills were bogus, that no supplies were effected and that no payments were received from the assessee. 8.The assessment in the present case is sought to be reopened beyond a period of four years of the end of the relevant assessment year. The powers of the Assessing Officer in such a case are more restricted than when he seeks to reopen an assessment within a period of four years. When an assessment is sought to be reopened within a period of four years, the test to be applied is as to whether there is tangible material before the Assessing Officer to come to the conclusion that the income has escaped assessment. Beyond the period of for years, the law is more stringent in the sense that there must be a failure on the part of the PNP WP2000-20.10 assessee to fully and truly disclose all material facts necessary for his assessment for that assessment year. In the present case, during the course of Assessment Year 2008-09, material was elicited during the course of the proceedings when the assessee had made a claim of depreciation on account of an ETP system alleged to have been supplied from the same party from whom the assessee claims to have made the purchase for Assessment Year 2004-05. The material before the Assessing Officer shows that for Assessment Year 2008-09 the third party had clarified in response to a notice under Section 133(6) that – (i) No ETP was supplied at all; (ii) No invoice or bill had been issued or raised for the supply of the ETP; and (iii) No payments have been received from the assessee. On the basis of this material it is impossible for the Court to accept the contention which has been urged on behalf of the Petitioner that the exercise of the power to reopen the assessment for Assessment Year 2004-05 is in excess of jurisdiction. The alleged purchase during Assessment Year 2004-05 was from the same party from whom the assessee claimed to have purchased an ETP system for Assessment Year 2008-09. The latter purchase from the same alleged vendor is found to be bogus. This is a case where the Assessing Officer has tangible material which has come before him in the course of the assessment proceedings for Assessment Year 2008-09 and which would form the subject matter of further investigation once the assessment proceedings for Assessment Year 2004-05 are reopened. The exercise of the power to reopen the assessment, though beyond a period of four years, is therefore not in excess of jurisdiction so as to warrant the issuance of a writ of certiorari. 9.A Division Bench of this Court presided over by Hon’ble Mr. Justice S.H. Kapadia (as the learned Chief Justice of India then was) held in Dr. Amin’s Pathology Laboratory v.P.N. Prasad, Joint Commissioner of Income Tax1 that the test that must be applied is whether a prudent Assessing Officer has reason to believe that income had escaped assessment. Applying that test and on the basis of the material which has come on the record, exercise of the writ jurisdiction under Article 226 is not warranted. of the power to reopen the assessment, though beyond a period of four years, is therefore not in excess of jurisdiction so as to warrant the issuance of a writ of certiorari. 9.A Division Bench of this Court presided over by Hon’ble Mr. Justice S.H. Kapadia (as the learned Chief Justice of India then was) held in Dr. Amin’s Pathology Laboratory v.P.N. Prasad, Joint Commissioner of Income Tax1 that the test that must be applied is whether a prudent Assessing Officer has reason to believe that income had escaped assessment. Applying that test and on the basis of the material which has come on the record, exercise of the writ jurisdiction under Article 226 is not warranted. 10.On the request of the learned counsel for the Petitioner, we clarify that the assessment for Assessment Year 2004-05 which is now being opened shall be carried out in accordance with law and the observations contained in this order shall not amount to a determination on the merits of the issues which will arise in the course of the assessment. The Petition is accordingly dismissed. (Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.)