Sun Tan Trading Co. Pvt. Ltd v. The Deputy Commissioner Of Income Tax-1(3)(1), Mumbai And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 763 OF 2015WITHWRIT PETITION (ST) NO. 458 OF 2015WITH WRIT PETITION (ST) NO. 459 OF 2015 Sun Tan Trading Co. Pvt. Ltd... Petitioner Vs. The Deputy Commissioner of Income Tax-1(3)(1), Mumbai and Ors. .. Respondents….. Mr. Percy Pardiwalla, Senior Advocate a/w Madhur Agarwal andAtul K. Jasani, Advocates for Petitioner.Mr. P.C. Chhotaray, Advocate for Respondents. ….. CORAM : M.S. SANKLECHA & N.M.JAMDAR, JJ.DATE : 23 JULY 2015 P.C.: 1.At the request of the Counsel, the petition is being disposedof at the stage of admission. 2.These three petitions challenge three reopening notices alldated 28 March 2014 issued under Section 148 of the Income TaxAct, 1961 (the 'Act') by the Assessing Officer. The impugnednotices seek to reopen the assessment proceedings for theAssessment Years 2007-08, 2008-09 and 2009-10. 3.The reasons for reopening of the assessment for all the threeyears as furnished to the petitioners are identically worded (savethe assessment year involved and the amount alleged to haveescaped assessment) running into about five pages. The basicground for reopening of assessment is the order passed by theCustoms and Central Excise Settlement Commission enhancing thevalue of imported liquor for the period 2004-05 to 2009-10resulted in payment of differential duty of customs of Rs.58.04crores. It is on the above basis that the revenue seeks to disallowan expenditure of Rs.58.42 crores claimed for the Assessment Year2005-06 to 2010-11 under Section 37 of the Act as advertisements,sales promotions expenses, etc. on the ground that it was incurredfor the exporter of the liquor and appropriately forms part of theconsideration payable for the imported goods by the petitioner. 4.The petitioners objected to the reasons by the letter dated 1August 2014 seeking to establish that there is no reason to believethat income chargeable to tax has escaped assessment warrantingreopening of assessment. The reply filed was a detailed replyrunning into about nine pages objecting to the exercise ofjurisdiction to reopen the assessments. 5.The Assessing Officer by an order dated 15 January 2015 hasdisposed of the objections filed for the three assessment yearsunder consideration by identically worded order except for themention of different Assessment Years and it reads as under: “The notice u/s 148 dated 28/03/2014 was issued toyour good self along with the reasons for reopening forA.Y. 2008-09; however you have filed an objection tothe assessment proceedings raising certain contentionsas mentioned in the submission filed as stated above.In this context this is to bring to your kind notice as- 1.Reasons for reopening have been issued to yourgoodself vide a letter dated 08/08/2014. 2.The administrative approval of CIT-1, Mumbaihas been taken prior to issue of the said notice and thisbeing the administrative sanction it is not mandatory onthe undersigned to provide you the copy of the same. 3.As per the investigations carried on by the DRIand the customs department a penalty had been leviedto the tune of Rs.58 crores and similar amount wasdebited across 6 years by the assessee on salespromotion, discounts, product displays (hereinafterPromotional expenditure) which proves a kind of nexusand these two events cannot be seen separately and allthe expenses are to the tune of 25% to 30% approxover the years. The event as mentioned above requires in depth studyand issue of notice u/s 148 is valid and good in law andyour objections to the issue are hereby settled. 2.The administrative approval of CIT-1, Mumbaihas been taken prior to issue of the said notice and thisbeing the administrative sanction it is not mandatory onthe undersigned to provide you the copy of the same. 3.As per the investigations carried on by the DRIand the customs department a penalty had been leviedto the tune of Rs.58 crores and similar amount wasdebited across 6 years by the assessee on salespromotion, discounts, product displays (hereinafterPromotional expenditure) which proves a kind of nexusand these two events cannot be seen separately and allthe expenses are to the tune of 25% to 30% approxover the years. The event as mentioned above requires in depth studyand issue of notice u/s 148 is valid and good in law andyour objections to the issue are hereby settled. Further, the claim of the promotional expenditure is ata higher side looking at the nature of brands sold byyour company which is worldwide recognized and doesnot require any kind of brand promotion of any sort. Itappears a case of diversion of funds in the garb ofdifferential duty paid by the company to the customsdepartment by way of nature of penalty and by whichexpenses are inflated. Hence, you are hereby show caused as to why anegative inference should not be drawn in your case forconcealment of the facts and inflation of expenditure byway of debiting promotional expenditure. The above mentioned details should reach theoffice of the undersigned on or before 19/01/2015 at4.30 p.m. so as to enable the undersigned to completethe assessment proceedings failure of which theassessment will be completed Ex-parte as per provisionsof IT Act, 1961.” (emphasis supplied) 6.We find that the above order disposing of the objections is a perfunctionary order. It does not deal with the objections filed bythe petitioners. It is a axiomatic that an order passed by the quasi- judicial authority should be a speaking order as a party is entitledto know the reason why its objections are not acceptable to theauthority disposing of the objections. We understand that at thisstage the order may not be a detailed order but nevertheless mustat the very least show consideration of the objections raised by theobjector/assessee. Further it is on the basis of the reasons recordedand the order disposing of the objections, that the revenue shouldbe able to establish that the reopening notice is within jurisdiction. 7.In the above circumstances, we set aside the three ordersdated 15 January 2015 and restore the issue to the AssessingOfficer to enable disposal of the petitioner's objections inaccordance with the law. So as to avoid the reassessmentproceedings becoming time barred, we make clear that the periodof 15 weeks from today would stand excluded for the purpose ofcomputing period of limitation under Section 153 of the Act. It ismade clear that in case the Assessing Officer disposes of theobjections after 10 weeks from today, he would not initiatereassessment proceedings for further period of four weeks as fromthe date of communication of the order disposing of the objections. This further period would also stand excluded for purposes ofcomputing limitations to pass an order on assessment. This further period would also stand excluded for purposes ofcomputing limitations to pass an order on assessment. 8.We notice that the petitioner had sought a copy of thesanction granted to the Assessing Officer in terms of Section 151 ofthe Act to issue the impugned reopening notices. The ordersdisposing of the objections records that as it is administrativesanction and the Assessing Officer is not obliged to provide a copyof the same to assessee. The affidavit-in-reply to the above petitionfiled by the revenue also does not contain a copy of this sanction,although it does mention that the necessary sanction has beenobtained. Mr. Chhotaray, the learned Counsel for the revenuesubmits that revenue cannot be compelled to give a copy of thesanction to the assessee. We find this attitude of the revenue ratherstrange. The law requires the sanction to be obtained while issuingnotice under Section 151 of the Act as in the absence of appropriatesanction, the proceedings itself are without jurisdiction. We wouldhave expected the revenue to have made a copy of sanctionavailable to the assessee, when sought, of its own. This is theminimum fair play expected of the State. The assessee is not an enemy. The attitude of the revenue seems to be that the assesseehas to be taxed and to achieve that object, fair play could bejettisoned. The revenue is certainly expected to ensure that everypaisa due to the State is collected but the same has to be only inaccordance with law and in compliance with rules of fair play. 9.In view of the above, the Assessing Officer is directed to givea copy of the sanction obtained under Section 151 of the Act for therelevant assessment years to the petitioner before disposing of theobjection. 10.All the three petitions are accordingly disposed of in theabove terms. [N.M.JAMDAR, J.] [M.S.SANKLECHA, J.]