Maruti Suzuki India Ltd v. Deputy Commissioner Of Income Tax

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 13.05.2013 +W.P.(C) 8562/2007 & CM Nos. 16150/2007 & 17153/2007 MARUTI SUZUKI INDIA LTD ... Petitioner versus DEPUTY COMMISSIONER OF INCOME TAX ... Respondent Advocates who appeared in this case:For the Petitioner: Mr S. Ganesh, Sr. Adv. with Mr S. Sukumaran,Mr Anand Sukumar & Mr Bhupesh Kumar Pathak,Advs.For the Respondent: Mr N.P. Sahni, Adv. CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE VIBHU BAKHRU JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.This writ petition is directed against the notice dated 18.04.2007 issuedunder section 148 of the Income-tax Act, 1961 (hereinafter referred to as ‘thesaid Act’). The said notice was issued in respect of the assessment year 2003-04. Apart from the said notice, the present petition, after its amendment, alsoseeks to challenge the order rejecting the objections filed by the petitioner, acopy of which was received by the petitioner on 02.11.2007. The petitioneralso seeks to challenge the reassessment order dated 22.11.2007.2.As this juncture, we may point out that initially when the writ petitionwas filed the court had granted a stay insofar as the passing of a reassessmentorder was concerned, though the proceedings were to continue.Apparently there was some confusion in the minds of the respondent with regard to thatorder as a result of which the above mentioned reassessment order came to bepassed on 22.11.2007. And, that order was subsequently stayed by this court byan order dated 27.03.2008. 3.We are not so much concerned about the fact that a reassessmnet orderhad been passed despite there being a direction that no such order be passed.We are, in fact, more concerned about the validity of the notice under section148 and the initiation of proceedings under section 147 of the said Act. 4.Mr Ganesh, the learned senior counsel appearing on behalf of thepetitioner submitted that this was a clear case of change of opinion and as suchthe initiation of proceedings under section 147 of the said Act were invalid. Inthis context, Mr Ganeshsubmitted that in the hearing conducted on27.03.2006, in the course of the original assessment proceedings under section143(3) of the said Act, the assessing officer had made an entry in the note sheetto the following effect:- “Regarding TPO order, nothing new has been said except para 6 &7. I find no reason to disagree with finding of TPO. There is no written agreement which stop the assessee fromrecovering amounts outstanding from Machino Plastics. Regarding revised return, the questions asked was the reason foreach and every modification made in the revised return and how thesame was discovered subsequently and ignored at the original returnstage. What is Misc. Income amounting to `. 5270 lacs, detail thereof, Netprior period adjustment of `. 2 Crore, Other Misc expenses of `.3520 Lacs, Bad debts advance written off: `. 40 Lacs.Sales returnac no. 445001,445002, 445201,445202.How the sales return hasbeen taken care vis a vis stock.How it is considered in stockvaluation.” (underlining added) It will be evident from the above extract that one of the queries raised was withregard to “Bad debts advance written off: `. 40 lacs.”In response to the saidquery, the petitioner submitted a letter dated 29.03.2006 to the assessing officerwherein it was indicated that the details of bad debts written off were asenclosed as per Annexure “C”. Annexure “C” was as under:- What is Misc. Income amounting to `. 5270 lacs, detail thereof, Netprior period adjustment of `. 2 Crore, Other Misc expenses of `.3520 Lacs, Bad debts advance written off: `. 40 Lacs.Sales returnac no. 445001,445002, 445201,445202.How the sales return hasbeen taken care vis a vis stock.How it is considered in stockvaluation.” (underlining added) It will be evident from the above extract that one of the queries raised was withregard to “Bad debts advance written off: `. 40 lacs.”In response to the saidquery, the petitioner submitted a letter dated 29.03.2006 to the assessing officerwherein it was indicated that the details of bad debts written off were asenclosed as per Annexure “C”. Annexure “C” was as under:- On the strength of the above letter dated 29.03.2006, the learned counsel for thepetitioner submitted that specific details had been sought by the assessingofficer with regard to the bad debts which had been written off and the detailswere supplied by the petitioner by virtue of the said letter and which were moreparticularly set out in annexure “C” thereto. Thereafter, the assessing officerframed the assessment order under section 143(3) on 30.03.2006 wherein nodisallowance was made in respect of bad debts written off by the assessee in itsbooks of account. Thus, according to the learned counsel for the petitioner, theassessing officer had asked for specific details which were supplied by the assessee and after the assessing officer examined the same he was satisfied thatno disallowance needed to be made on account of bad debts written off. This,according to the the learned counsel for the petitioner, meant that the assessingofficer had, in fact, applied his mind and had formed an opinion to the effectthat no disallowance could be made in respect of the bad debts written off bythe assessee. 5.Thereafter, the notice dated 18.04.2007 was issued under section 148seeking the reopening of the assessment completed on 30.03.2006. When thepetitioner asked for the reasons which purportedly formed the basis of belief ofthe assessing officer as required under section 147 of the said Act, the assessingofficer furnished the following reasons:- “Maruti Udyog Ltd.Assessment Year-2003-04Reasons for issuing notice u/s 148 of the I.T. Act, 1961 The return of income in this case was filed on 28.11.2003declaring loss of `. 276,16,23,268/-.The return was processed u/s143(1) at the same income and resultant refund was issued to theassessee.The assessment was completed u/s 143(3) in March, 2006at income of ` 562,70,10,730/-. On going through the assessment record, it has been noticedthat the assessee had written off, bad debts/advances amounting of `40 Lacs in the P&L Account. Since it was from the capital head ofthe company it was required to be charged to the capital A/C. If aloan taken on capital account becomes irrecoverable, the lossincurred is capital loss. Consequently, amount of `. 40 lacs claimedby the assessee in the P&L A/c needs to disallowed and added backto the income of the assessee. On the basis of above, I have reason to believe that the income forA.Y. 2003-04 has escaped assessment. Notice u/s 148 of the I.T. Act issued to the assessee. (ANU KRISHNA)Dy. Commissioner of Income-tax,Circle-6(1), New Delhi.” It will be apparent that the only reason indicated therein for reopening theassessment was the issue of bad debts written off which amounted to `. 40lakhs. The issue that was sought to be raised in the reasons was with regard tothe said amount being liable to be disallowed on account of being it deemed tobe on the capital account. On the basis of above, I have reason to believe that the income forA.Y. 2003-04 has escaped assessment. Notice u/s 148 of the I.T. Act issued to the assessee. (ANU KRISHNA)Dy. Commissioner of Income-tax,Circle-6(1), New Delhi.” It will be apparent that the only reason indicated therein for reopening theassessment was the issue of bad debts written off which amounted to `. 40lakhs. The issue that was sought to be raised in the reasons was with regard tothe said amount being liable to be disallowed on account of being it deemed tobe on the capital account. 6.Thereafter, as mentioned above, the petitioner filed its objections on10.10.2007 to the proposed reopening of the assessment which had beencompleted on 30.03.2006. In paragraph 2.4 of the said objections the petitionerhad submitted that the only issue for reopening of the case was with regard tothe bad debts/ advance of `. 40 lakhs which had already been duly considred bythe assessing officer in the original assessment proceedings. Therefore, thepetitioner requested that the proceedings under section 147/148 of the said Actin respect of the assessment year 2003-04 be dropped. 7.The assessing officer, however, did not accede to this request andrejected the objections by an order which was received by the petitioner on02.11.2007.In the said order, the assessing officer noted that thepetitioner/assessee had only filed an annexure giving details of bad debtswithout any note/discussion on the subject and that the issue was nowheredebated by the assessing officer or the assessee at the time of the originalassessment proceedings.Therefore, there was no question of there being achange of opinion, as, according to the assessing officer, no opinion had beenformed in the first instance. Of course in the said order rejecting the objectionsthere was no mention of the issue with regard to the bad debts being on thecapital account. 8.This was followed by the reassessment order dated 22.11.2007 whereinan addition of `. 29,81,515/- was made under the head bad debts disallowedand which were added to the income of the petitioner/assessee. Furthermore,by virtue of the reassessment order dated 22.11.2007 an addition of `. 112,90,00,000/- was also made on account of royalty paid. According to MrGanesh, the learned senior counsel for the petitioner, the issue of bad debts wasonly used as a ‘key’ to open up reassessment proceeding of which the issue ofroyalty was the main target.In any event, he submitted, the petitioner’s casefell squarely within the parameters of the decision of this court in the case ofCIT v. Usha International Ltd.: 348 ITR 485 FB (DEL).He drew ourattention straightway to paragraph 13 of the said decision, which inter alia,reads as under:- “13.It is, therefore, clear from the aforesaid position that: (1)Reassessment proceedings can be validly initiated in casereturn of income is processed under Section 143(1) andno scrutiny assessment is undertaken. In such cases thereis no change of opinion.return of income is processed under Section 143(1) andno scrutiny assessment is undertaken. In such cases thereis no change of opinion. (2)Reassessment proceedings will be invalid in case theassessment order itself records that the issue was raisedand is decided in favour of the assessee. Reassessmentproceedings in the said cases will be hit by principle of"change of opinion".assessment order itself records that the issue was raisedand is decided in favour of the assessee. Reassessmentproceedings in the said cases will be hit by principle of"change of opinion". (1)Reassessment proceedings can be validly initiated in casereturn of income is processed under Section 143(1) andno scrutiny assessment is undertaken. In such cases thereis no change of opinion.return of income is processed under Section 143(1) andno scrutiny assessment is undertaken. In such cases thereis no change of opinion. (2)Reassessment proceedings will be invalid in case theassessment order itself records that the issue was raisedand is decided in favour of the assessee. Reassessmentproceedings in the said cases will be hit by principle of"change of opinion".assessment order itself records that the issue was raisedand is decided in favour of the assessee. Reassessmentproceedings in the said cases will be hit by principle of"change of opinion". (3)Reassessment proceedings will be invalid in case an issueor query is raised and answered by the assessee inoriginalassessmentproceedingsbutthereaftertheAssessing Officer does not make any addition in theassessment order. In such situations it should be acceptedthat the issue was examined but the Assessing Officer didnot find any ground or reason to make addition or rejectthe stand of the assessee. He forms an opinion. Thereassessment will be invalid because the AssessingOfficer had formed an opinion in the original assessment,though he had not recorded his reasons.”or query is raised and answered by the assessee inoriginalassessmentproceedingsbutthereaftertheAssessing Officer does not make any addition in theassessment order. In such situations it should be acceptedthat the issue was examined but the Assessing Officer didnot find any ground or reason to make addition or rejectthe stand of the assessee. He forms an opinion. Thereassessment will be invalid because the AssessingOfficer had formed an opinion in the original assessment,though he had not recorded his reasons.” (underlining added) Particular emphasis was laid on point No. (3) mentioned above. In the facts ofthe present case it was submitted that a specific query had been raised and hadbeen answered by the petitioner in the course of the original assessmentproceedings and the assessing officer did not make any addition in respect ofthat issue in the assessment order. Therefore, in light of the position indicatedin Usha International Ltd. (supra), it was contended by the learned counselfor the petitioner that the position should be accepted that the issue had beenexamained by the assessing officer but he did not find any ground or reason tomake an addition or to reject the stand of the assessee. The crux of the matterbeing that the assessing officer must be considered to have formed an opinion.As a result, the reassessment would be invalid because the assessing officer hadformed an opinion in the original assessment though he had not recorded hisreasons for the same. Thus, according to Mr Ganesh, the facts of the presentcase were squarely covered by point No.3 indicated in Usha InternationalLtd. (supra).9.In response to the aforesaid arguments, Mr Sahni appearing on behalf ofthe revenue referred to paragraph 23 of Usha International Ltd. (supra) andsubmitted that there cannot be a deemed formation of an opinion. Paragraph 23of the said decision reads as under:- “23. The said observations do not mean that even if theAssessing Officer did not examine a particular subject-matter,entry or claim/deduction and, therefore, had not formed anyopinion, it must be presumed that he must have formed anopinion. This is not what was argued by the assessee or heldand decided. There cannot be deemed formation of opinioneven when the particular subject-matter, entry or claim/deduction is not examined.” The above observation is in the context where the assessing officer had notexamained a particular subject matter, entry or claim/deduction. But the facts “23. The said observations do not mean that even if theAssessing Officer did not examine a particular subject-matter,entry or claim/deduction and, therefore, had not formed anyopinion, it must be presumed that he must have formed anopinion. This is not what was argued by the assessee or heldand decided. There cannot be deemed formation of opinioneven when the particular subject-matter, entry or claim/deduction is not examined.” The above observation is in the context where the assessing officer had notexamained a particular subject matter, entry or claim/deduction. But the facts of the present case are different. The assessing officer had raised a specificquery with regard to the issue of bad debts/advances written off. Therefore, inthe present case it cannot be said that the assessing officer did not examine theissueofbaddebts/advanceswhichhadbeenwrittenoffbythepetitioner/assessee.ThemajorityviewoftheFullBenchinUshaInternational Ltd. (supra) quoted in paragraph 23 would therefore not applyto the facts of the present case as it is not a question of a deemed formation ofan opinion but of an opinion being formed inasmuch as the assessing officer inthe original proceedings had raised a specific query which had been answeredspecifically by the petitioner/assessee, though it did not find mention in theassessment order. It is that specific situation which has been categorically dealtwith in point No. 3 referred to above which finds mention in paragraph 13 ofthe very same decision in Usha International Ltd. (supra).Therefore, thereliance placed by Mr Sahni on the observation contained in paragraph 23would be of no avail to the respondent in the factual matrix of this case. Areference had also been made by Mr Sahni to the various decisions discussed inUsha International Ltd. (supra) and, in particular, to the decision in the caseof Kalyanji Mavji and Co. v. CIT: 102 ITR 287 (SC) andA.L.A. Firm v. CIT:189 ITR 285 (SC).A reference was also made to the Supreme Court decisionin the case ofIndian and Eastern Newspaper Society v. CIT: 119 ITR 996(SC). We find after examining these decisions and certain other decisions, themajority opinion in Usha International Ltd. (supra) concluded as under:- “36. The aforesaid observations are complete answer to thesubmission that if a particular subject-matter, item, deduction orclaim is not examined by the Assessing Officer, it willneverthelessbeacaseofchangeofopinionandthereassessment proceedings will be barred.” It is obvious that when a claim for deduction is not at all examined by theassessing officer, it could never be a case of change of opinion.However,where a claim or deduction has in fact been examined by the assessing officer itwould amount to formation of an opinion despite the fact that no addition hadbeen made or reason therefor had been given in the original assessment order.Thus, when, after such an examination in the first round, the matter is sought tobe reopened by issuance of notice under section 148 of the said Act, it wouldclearly be a case of change of opinion and the reassessment proceedings wouldbe invalid. 10.We may also note the observations of the Full Bench in paragraph 39 ofthe said decision in the case Usha International Ltd. (supra) which are to thefollowing effect:- “39. In view of the above observations we must add one caveat.There may be cases where the Assessing Officer does not andmay not raise any written query but still the Assessing Officerin the first round/ original proceedings may have examined thesubject-matter, claim, etc., because the aspect or question maybe too apparent and obvious. To hold that the assessing officerin the first round did not examine the question or subject-matterand form an opinion, would be contrary and opposed to normalhuman conduct. Such cases have to be examined individually.” 10.We may also note the observations of the Full Bench in paragraph 39 ofthe said decision in the case Usha International Ltd. (supra) which are to thefollowing effect:- “39. In view of the above observations we must add one caveat.There may be cases where the Assessing Officer does not andmay not raise any written query but still the Assessing Officerin the first round/ original proceedings may have examined thesubject-matter, claim, etc., because the aspect or question maybe too apparent and obvious. To hold that the assessing officerin the first round did not examine the question or subject-matterand form an opinion, would be contrary and opposed to normalhuman conduct. Such cases have to be examined individually.” It is apparent from the above extract that even in cases where no query is raisedby the assessing officer in the course of the original assessment proceedings itmay yet be held that the assessing officer had examined the subject matter.This is so because the aspect or question in issue may be too apparent andobvious. However, the Full Bench cautioned by stating that such cases wouldhave to be examined individually.It is, therefore, clear that even where noquery is raised by the assessing officer and there is no discussion in theassessment order, it may yet be a case where the assessing officer would beconsidered to have examined the issue. However, we are not concerned with those type of cases inasmuch as in the present case the assessing officer hadclearly raised a specific query with regard to bad debts/ advances written offand the petitioner/assessee had given details in respect thereof. It is obviousthat since no such addition was made on that count, the assessing officer hadconsidredandexaminedthepositionandheldinfavourofthepetitioner/assessee.Therefore, we can safely conclude that, in the facts andcircumstances of the present case, the assessing officer had, indeed, examinedthe issue at the time of the original assessment proceedings and had formed anopinion by not making any addition in respect thereof. Thus, the reopening ofthe assessment which had been concluded on 13.03.2006, would be nothing buta mere change of opinion. 11.Mr Sahni appearing on behalf of the revenue had also submitted that thepoint of bad debts written off may have been missed by the assessing officerinasmuch as the present case was a complicated matter and even the assessmentorder framed on 13.03.2006 ran into 34 pages. He submitted that there wasevery possibility of some aspects being missed out by the assessing officer.And, such aspects which had been inadvertently missed by the assessing officercannot be regarded as those on which the assessing officer had formed anopinion. For this proposition, Mr Sahni relied on the decision of the SupremeCourt in the case of A.L.A. Firm (supra). However, we do not agree with thissubmission because in the present case, the factual positon is different.Whether it was a complicated matter or not is not what is relevant here. In thepresent matter the assessing officer had finally raised only 4 issues, one of thembeing the issue of bad debt/advances written off. Therefore, it is not as if theassessing officer had lost sight of the issue of bad debts/advances. In fact, hehad specifically raised queries in this regard towards the fag end of theassessment proceedings and therefore it must be presumed that he was verymuch alive to the issue. We may also note that in the reasons recorded for reopening of the assessment, the assessing officer does not says that he missedit.The reasons recorded reveal that the assessing officer, in the second roundwas of the view that the addition should have been made in respect of baddebts/advances amounting to `. 40 lakhs because of the fact that it was on thecapital account. Had the assessing officer felt that this point had been missedout in the first round he would have been stated so. The reasons as recordedalso belie the contention raised by the learned counsel for the respondent.12.In view of the foregoing discussion, the notice dated 18.04.2007 undersection 148 and all proceedings pursuant thereto are invalid and they are setaside. The reassessment order dated 22.11.2007 is also set aside.13.The writ petition is allowed as above. There shall be no orders as tocosts. BADAR DURREZ AHMED, J MAY 13, 2013kb VIBHU BAKHRU, J