Mangalore Refinery And Petrochemicals Limited v. The Deputy Commissioner Of Income Tax, Range 3(2) & Ors

SANTOSHSUBHASHKULKARNI Digitally signed bySANTOSH SUBHASHKULKARNIDate: 2022.02.2216:34:51 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 100 OF 2013 Mangalore Refinery and Petrochemicals Limited ...Petitioner Versus The Deputy Commissioner of Income Tax, Range 3(2) & ors. ...Respondents Mr. J. D. Mistri, Senior Advocate, a/w Mr. Madhur Agrawal,and Mr. Rajesh Poojary, i/b Mulla & Mulla, CB & C, forthe Petitioner. Mr. Suresh Kumar, for the Respondents. CORAM:K. R. SHRIRAM &N. J. JAMADAR, JJDATED:18[th] FEBRUARY, 2022 ORDER: 1.Petitioner is a company engaged in the business ofpetroleum refinery. For Assessment Year 2005 – 2006 petitionerfiled a return of income on 29[th] October, 2005, in which itdisclosed total income of Rs.Nil under the normal provisions ofthe Act and “book profits” of Rs.891,15,21,678 under Section115JB of the Income Tax Act, 1961 (“the Act”). The return ofincome was accompanied with a copy of petitioner’s auditedaccounts for the year ended 31[st] March 2005, the Tax AuditReport dated 20[th] October 2005 in Form 3CA and 3CD and thereport in Form 29B dated 20[th] October 2005 setting out the1/10 computation under Section 115JB of the Act. 2.During the course of assessment of proceedings variousqueries were raised and in particular relating to a sum ofRs.105,45,10,183/- debited to the P&L Account towards“provision for customs duty” and why disallowance should not bemade under Section 143B of the Act. Petitioner gave explanationvide its letter dated 14[th] November 2007. An assessment ordercame to be passed on 30[th] November 2007 in which theAssessing Officer has thoroughly discussed the explanation ofpetitioner on the issue of provision for customs duty ofRs.105,45,10,183/- and held that the same was disallowableunder Section 143B of the Act on the ground that there was noactual payment. 3.Petitioner received a notice dated 19[th] October 2011 issuedunder Section 148 of the Act stating that Assessing Officer hadreason to believe that petitioner’s income chargeable to tax forAssessment Year 2005 – 2006 had escaped assessment withinthe meaning of Section 147 of the Act. Petitioner was alsoprovided reasons for initiating proceedings under Section 147 ofthe Act, which reasons are reproduced below: 4.As we could see from the reasons there are three itemswhich according to JAO has escaped assessment namely: (a)Rs.105,45,10,183/- debited to the P&L Account towardsprovisions for customs duty, (b) Rs.42,94,40,678/- debited to theP&L Account towards advance doubtful of recovery and(c) Rs.20,00,000/- debited to the P&L Account towardsprovisions of non-moving inventory. Objection to reopening wasfiled by petitioner vide its letter 11[th] November 2011 and theobjection came to be rejected by an order dated 26[th] November2012, which is also impugned in this petition. 5.Mr. Mistri submitted that, 4.As we could see from the reasons there are three itemswhich according to JAO has escaped assessment namely: (a)Rs.105,45,10,183/- debited to the P&L Account towardsprovisions for customs duty, (b) Rs.42,94,40,678/- debited to theP&L Account towards advance doubtful of recovery and(c) Rs.20,00,000/- debited to the P&L Account towardsprovisions of non-moving inventory. Objection to reopening wasfiled by petitioner vide its letter 11[th] November 2011 and theobjection came to be rejected by an order dated 26[th] November2012, which is also impugned in this petition. 5.Mr. Mistri submitted that, “(a)under the proviso to Section 147 of the Act anassessment completed under Section 143(3) of the Act,cannot be reopened after the expiry of four years from theend of the assessment year unless it is shown that theassessee has either failed to furnish the return or has notmade a full and true disclosure of all material facts.Respondent no.1 has not alleged in the recorded reasonsthat there has been any failure on the part of petitioner tomake a full and true disclosure of the material facts. Onthe other hand, the record shows that there has been a fulland true disclosure of the material facts and that theassessment completed under Section 143(3) of the Act,cannot be reopened after the expiry of four years from theend of the assessment year unless it is shown that theassessee has either failed to furnish the return or has notmade a full and true disclosure of all material facts.Respondent no.1 has not alleged in the recorded reasonsthat there has been any failure on the part of petitioner tomake a full and true disclosure of the material facts. Onthe other hand, the record shows that there has been a fulland true disclosure of the material facts and that the impugned reassessment proceedings are based on areappraisal of the same material. (b)It is well settled by a number of judgments of thisHon’ble Court that an assessment cannot be reopened inthe absence of fresh material. (c)The impugned reassessment proceeding is clearlybased on a ‘change of opinion’. (d)The impugned reassessment proceeding is based ona misconception that income has escaped assessment.” 6.Mr. Mistri also took us through the documents annexed tothe petition to show that there has been full and true disclosureand the objections raised in the reasons for reopening have beenin the active consideration of the Assessing Officer and theattempt to reopen is relying on the same preliminary facts totake a different view. 7.Mr. Suresh Kumar submitted the reasons recorded byAssessing Officer clearly indicate that there has been incomechargeable to tax which has escaped assessment and there wasreason to believe so. He submitted that there is a clear linkbetween formation of opinion that income chargeable to tax hasescaped assessment and the reason recorded, which in turn isbased on the material available on record. The information is 5/10 clear and based on facts. Mr. Suresh Kumar also submitted thatthe fact that income had escaped assessment can be seen fromthe face of the record as the provisions of customs duty liabilityamounting to Rs.105,45,10,183/-, advance doubtful of recoveryof Rs.42,94,40,678/- and provisions for non-moving of inventoryof Rs.20,00,000/- was erroneously not added to book profitsdetermined for Assessment Year 2005 - 2006 even though suchprovisions were not ascertained liabilities. 8.We have heard the Counsels and considered the petition,the documents annexed to the petition and also the affidavit-in-reply. 5/10 clear and based on facts. Mr. Suresh Kumar also submitted thatthe fact that income had escaped assessment can be seen fromthe face of the record as the provisions of customs duty liabilityamounting to Rs.105,45,10,183/-, advance doubtful of recoveryof Rs.42,94,40,678/- and provisions for non-moving of inventoryof Rs.20,00,000/- was erroneously not added to book profitsdetermined for Assessment Year 2005 - 2006 even though suchprovisions were not ascertained liabilities. 8.We have heard the Counsels and considered the petition,the documents annexed to the petition and also the affidavit-in-reply. 9.The Proviso to Section 147 of the Act provides that wherean assessment under Section 143(3) has been made for therelevant assessment year, no action shall be taken under Section147 after the expiry of four years of the end of the relevantassessment year, unless any income chargeable to tax hasescaped assessment for such assessment year by reason of thefailure on the part of the assessee to disclose fully and truly allmaterial facts necessary for its assessment for that assessmentyear. Reason recorded for reopening does not state that therehas been failure to disclose truly and fully all material facts. Inour view, a full disclosure has been made in the return as under: “(i) Re: Rs.105,45,10,183 debited to the P&L A/c towards“”provision for customs duty. (a)In S.No.16 of Annexure – XI [Clause 21(i)(B) of From3CD] of the tax audit report dated 20.10.2005annexed to the return, the said sum was shown as“Provision for customs duty concession availedpending future export obligation” together with note6 which read “Provision for customs duty concessionavailed pending future export obligation adjustedwith export obligation completed on various dates upto 30.09.2005.”3CD] of the tax audit report dated 20.10.2005annexed to the return, the said sum was shown as“Provision for customs duty concession availedpending future export obligation” together with note6 which read “Provision for customs duty concessionavailed pending future export obligation adjustedwith export obligation completed on various dates upto 30.09.2005.” (ii)Re: Rs.42,94,40,678 debited to the P&L A/c towards “advance doubtful of recovery”: (a)This was disclosed in Schedule Q to the auditedaccounts annexed to the return under the heading“Provision for doubtful debts”;accounts annexed to the return under the heading“Provision for doubtful debts”; (b)In the computation of normal income, the saidamount was added back (disallowed) by way of item(h).amount was added back (disallowed) by way of item(h). (iii)Re: Rs.20,00,000 debited to the P&L A/c towards“provisions for non-moving inventory”:“provisions for non-moving inventory”: (a) This was disclosed in Schedule Q to the auditedaccounts annexed to the return under the heading“Provision for Non-moving stores & spares”;accounts annexed to the return under the heading“Provision for Non-moving stores & spares”; (b) In the computation of normal income, the saidamount was added back (disallowed) by way of item(g).”amount was added back (disallowed) by way of item(g).” Thus there has been a full and true disclosure of the material factsby petitioner. It may be noted at the cost of repetition that in therecorded reasons, it has not been alleged that there has been anyfailure on the part of the assessee to make a full and true disclosureof the material fats. 10.Assessing Officer has also asked petitioner to specificallyexplain the facts relating to the sum of Rs.105,45,10,183/-debited to the P&L Account towards provisions for customs duty (b) In the computation of normal income, the saidamount was added back (disallowed) by way of item(g).”amount was added back (disallowed) by way of item(g).” Thus there has been a full and true disclosure of the material factsby petitioner. It may be noted at the cost of repetition that in therecorded reasons, it has not been alleged that there has been anyfailure on the part of the assessee to make a full and true disclosureof the material fats. 10.Assessing Officer has also asked petitioner to specificallyexplain the facts relating to the sum of Rs.105,45,10,183/-debited to the P&L Account towards provisions for customs duty and why a disallowance should not be made under Section143(3) of the Act. Petitioner has explained the full facts vide itsletter dated 14[th] November 2007. In fact, the amount ofRs.105,45,10,183/- has been offered to tax by petitioner in thesucceeding Assessment Year 2006 – 2007 and assessed. It isonly thereafter the Assessing Officer has passed the assessmentorder dated 30[th] November 2007 in which he has thoroughlydiscussed the explanation of the assessee on the issue ofprovision for customs duty in para 5 of the assessment orderand held that the sum was disallowable under Section 143(b) ofthe Act on the ground that there was no actual payment. 11.In computing the total income under the normal provisionsof the Act, the Assessing Officer started from the businessincome as returned by petitioner, which included self-disallowance of Rs.42,94,40,678/- and Rs.20,00,000/-, debitedto the P&L Account towards advance doubtful of recovery andprovision for non-moving inventory, respectively. 12.Therefore there has been a true and full disclosure of allmaterial facts by petitioner. It is true that in the assessmentorder self-disallowances have not been discussed but at thesame time it has been a subject of consideration during theassessment proceedings since the Assessing Officer has started from the business income as returned by pettiioner, whichincluded self-disallowances of Rs.42,94,40,678/- andRs.20,00,000/-, debited to the P&L Account. Therefore, therecan never be escapement of income. Respondent no.1 -Assessing Officer also applied his mind to the computation of“book profits” under Section 115JB of the Act. In theassessment order, respondent no.1 has held that petitioner’sdeferred tax liability of Rs.512,47,42,000/- had to be added tothe book profits. He computed the book profit atRs.140,362,63,678/- and computed total tax payable bypetitioner at Rs.110,06,18,525/-. 13.Therefore, in our view, there has been a full and truedisclosure of the material facts by petitioner and it is a clearcase of change of opinion to take a different view relying on thesame set of documents. Change in opinion cannot construe“reason to believe”. 14.Even in the order impugned rejecting the objections,respondent no.1 has not disputed that there has been no failureon the part of petitioner to make a full and true disclosure of thematerial facts and has proceeded on an erroneous assumptionthat reopening is permissible even if there is no failure to make afull and true disclosure of the material facts. 15.In the circumstances, petition is allowed in terms of prayer Clause (a), which reads as under: “(a) this Hon’ble Court may be pleased to issue a Writ ofCertiorari or a Writ in the nature of Certiorari or any otherappropriate Writ, order or direction, under Article 226 of theConstitution of India calling for the records of the Petitioner’scase and after examining the legality and validity thereofquash and set aside the notice dated 19[th] October, 2011issued by Respondent no.1 under Section 148 of the Act toreopen the assessment for the assessment year 2005 – 2006together with the order dated 26[th] November, 2012 dealingwith the Petitioner’s objections.” [N. J. JAMADAR, J.] [K. R. SHRIRAM, J.]