Trent Ltd v. The Deputy Commissioner

Digitallysigned bySHRADDHASHRADDHAKAMLESHKAMLESHTALEKARTALEKARDate:2022.01.1110:02:31+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL APPELLATE JURISDICTION WRIT PETITION NO. 2115 OF 2009 Trent Ltd.vs.1. The Deputy Commissionerof Income Tax-2(3) & Anr. ...Petitioner ...Respondents Mr.P.J. Pardiwalla, Senior Advocate i/b Mr.Atul K. Jasani for petitioner.Mr.Suresh Kumar for respondents. CORAM :K.R. SHRIRAM & N. J. JAMADAR, JJ. DATE :6[th] JANUARY, 2022(THROUGH VIDEO CONFERENCE) ORDER : 1.Petitioner is a company engaged in the business of retailing ofreadymade garments etc. through its chain of stores called ‘WESTSIDE’.Petitioner has filed this petition to challenge the issue of notice dated 31[st]March 2009 under section 148 of the Income Tax Act,1961 (‘the Act’) forreopening the assessment for Assessment Year 2004-05. By the saidnotice, assessment is sought to be reopened on the allegation that incomeof petitioner for Assessment Year 2004-05 has escaped assessment.According to petitioner, the notice is without jurisdiction inasmuch as thesame has been issued without formation of a valid belief that the incomeof petitioner has escaped assessment for the assessment year 2004-05,since the issues raised have been the subject matter of consideration while framing the original assessment. Therefore, reopening is sought on thebasis of change of opinion relying on the same set of material. 2.Mr.Pardiwalla also submitted that it is quite obvious from thereasons for reopening recorded by a jurisdictional Assessing Officer thatthere has been non-application of mind while recording the reasons.Consequently, even the approval granted under section 151 of the Actmust have been issued without application of mind. Mr.Pardiwallasubmitted that even in the affidavit in reply, contents of paragraph 4therein confirmed petitioner’s allegation that there has been non-application of mind while recording the reasons for reopening. 3.The basis for reassessment is to disallow “store launching expenses”incurred during the year on the ground that these are classifiable as‘capital expenditure’. In the reasons for reopening, the JAO is proposing toreassess based on the material for subsequent years. 4.Petitioner had debited the revenue expenses incurred till theopening of new stores under the head “store launching expenses” in itsbooks of accounts. Such expenditure incurred by petitioner prior tolaunching a new retail store comprised of cost of advertisement andpromotion, employee recruitment and training, travel etc. and petitionerwas booking these costs as revenue expenditure. 5.Until 31[st] March 2003, petitioner treated these expenses as ‘deferredrevenue expenses’ in its books of account as per its accounting policy. Theaccounting policy is explained in Note No.8 to Schedule ‘M’ forming partof its Annual Accounts for the year 31[st] March 2004. 6.During the year under review, petitioner amortized Rs. 186.23 lakhsof store launch expenses under ‘Manufacturing and Other Expenses’forming part of Profit and Loss Account for the year 31[st] March 2004.Such expenses amounting to Rs.293.34 lakhs incurred during the yearwere debited to natural heads of account under the Profit and LossAccount for the year under review. Petitioner in its return on income forthe assessment year under review had claimed ‘store launch expenses’actually incurred during the year of Rs.293.24 lakhs as ‘revenueexpenditure’ and also added back Rs.186.23 lakhs of such amortizedexpenses of earlier years under its ‘Computation of Business Income’. TheJAO has now sought to reopen the assessment under section 148 of theAct in order to disallow the above deduction in respect of ‘store launchexpenses’ incurred on the ground that its in the nature of ‘capitalexpenditure’. 7.The details mentioned above are contained in computation ofassessable profits filed by petitioner alongwith is annual accounts. Duringthe hearing, the Assessing Officer had also raised query relating to changein accounting policy of store launching expenses with effect from 1[st] April2003 appearing in Note No. 8 in the audited accounts. Petitioner gave anexplanation/clarification/details vide its letter dated 30[th] October 2006. Thereafter the assessment order dated 31[st] October 2006 waspassed. In our view, therefore, since there was a full and truedisclosure by petitioner, there was no reason as stated for theAssessing Officer to come to the conclusion for income chargeableto tax had escaped assessment. It is true that these points have not been discussed in theassessment order but as held by this Court Aroni Commercials Ltd. Vs.1Deputy Commissioner of Income-Tax-2(1) , once a query is raised duringthe assessment proceedings and the assessee has replied to it, it followsthat the query raised was a subject of consideration of the AssessingOfficer while completing the assessment. It is not necessary that anassessment order should contain reference and/or discussion to discloseits satisfaction in respect of the query raised. 8.From the reasons recorded, we also find no new or fresh1[2014] 44 taxmann.com 304 (Bombay) information or fact that has come to the notice of the JAO subsequent tothe assessment so as to initiate proceedings under section 148 of the Act.It is quite obvious that the reopening is based on the material which wasalready on record at the time of passing the assessment order underSection 143 of the Act. Once, the Assessment Officer, on consideration ofthe material on record, and the explanation offered, arrived at a finalconclusion that the assessee is entitled to the deduction as claimed, thenon the basis of the very same material, the Assessing Officer cannot form aprima-facie opinion that the deduction is not allowable and, accordingly,reopen the assessment on the ground that income chargeable to tax hasescaped assessment. A Division Bench of this Court in Cartini IndiaLimited, (Formerly Godrej Appliances Ltd. Vs. Additional Commissioner ofIncome Tax & Ors. 2 has observed that where on consideration of thematerial on record, one view is conclusively taken by the assessing officer,it would not be open to the assessing officer to reopen the assessmentbased on the very same material with a view to take another view. Thishas been followed by another Division Bench of this Court in 3i Infotech3Limited Vs. Assistant Commissioner of Income-Tax & Ors. : “13The record before the court, to which a reference hasbeen made earlier, is clearly reflective of the position thatduring the course of the assessment proceedings the assesseehad made a full and true disclosure of all material facts inrelation to the assessment. As a matter of fact, it would bebeen made earlier, is clearly reflective of the position thatduring the course of the assessment proceedings the assesseehad made a full and true disclosure of all material facts inrelation to the assessment. As a matter of fact, it would be 2(2009) 314 ITR 275 (Bom.) 3(2010) 192 Taxman 137 (Bom.)3(2010) 192 Taxman 137 (Bom.) “13The record before the court, to which a reference hasbeen made earlier, is clearly reflective of the position thatduring the course of the assessment proceedings the assesseehad made a full and true disclosure of all material facts inrelation to the assessment. As a matter of fact, it would bebeen made earlier, is clearly reflective of the position thatduring the course of the assessment proceedings the assesseehad made a full and true disclosure of all material facts inrelation to the assessment. As a matter of fact, it would be 2(2009) 314 ITR 275 (Bom.) 3(2010) 192 Taxman 137 (Bom.)3(2010) 192 Taxman 137 (Bom.) necessary to note that the notice to reopen the assessment onthe first issue is founded entirely on the assessment records.There is no new material to which a reference is to be foundand the entire basis for reopening the assessment is thedisclosure which has been made by the assessee in the courseof the assessment proceedings. In Cartini India Ltd. v. Addl.CIT, [2009] 314 ITR 275 (Bom), a Division Bench of this courthas observed that where on consideration of material onrecord, one view is conclusively taken by the Assessing Officer,it would not be open to the Assessing Officer to reopen theassessment based on the very same material with a view to takeanother view. The principle which has been enunciated inCartini must apply to the facts of a case such as the present.The assessee had during the course of the assessmentproceedings made a complete disclosure of material facts. TheAssessing Officer had called for a disclosure on which a specificdisclosure on the issue in question was made. In such a case, itcannot be postulated that the condition precedent to thereopening of an assessment beyond a period of four years hasbeen fulfilled.” 9.The facts of this case that the claim for deduction of ‘store launch expenses’ are almost similar to that of Cartini India Limited (Supra),where ‘project launch expenses’ were claimed by petitioner as ‘revenueexpenses’ even though in its books of accounts, the petitioner had shownthe expenditure spread over a period of 3 years and was allowed todeduct it by the department. 10. In the circumstances, it is quite clear that the Assessing Officer hadin his possession all primary facts when the original assessment order was passed. It would not be open to reopen the assessment based on the verysame material with a view to take another view, as noted earlier. It is aclear case of change of opinion. An Assessing Officer cannot initiate proceedings for reassessment on the basis of mere change of opinion asheld by the Full Bench of Delhi High Court in the landmark case of CITVs. Kelvinator of India Ltd. 4and followed by many other Courts. On thisground alone, the impugned notice dated 31[st] March 2009 under section148 of the Act together with order dated 16[th] October 2009 dealing withthe objection are required to be quashed and set aside. 11. Before we part, we have to agree with Mr. Pardiwalla’s submissionthat there has been non-application of mind while recording the reasonsfor reopening. First of all, in the reasons, it is stated “Further as per ApexCourt decision cited above”, but there is no decision cited anywhere.Moreover, the reasons record “In view of above, I am satisfied and havereason to believe that the income to the extent of Rs.3.02 lakhschargeable to tax has escaped assessment within the meaning of theprovision of section 147 of the I.T. Act.” 12. In the affidavit in reply, the respondents admit that there is amistake in the reasons recorded for reopening and according torespondents it is a typographical error that the figure of Rs.3.02 lakhs wasmentioned instead of Rs.293.24 lakhs. In our view, this mistakedemonstrates non-application of mind by respondent No.1 at the time of 12. In the affidavit in reply, the respondents admit that there is amistake in the reasons recorded for reopening and according torespondents it is a typographical error that the figure of Rs.3.02 lakhs wasmentioned instead of Rs.293.24 lakhs. In our view, this mistakedemonstrates non-application of mind by respondent No.1 at the time of recording of the reasons for reopening the assessment. Though we do notfind the approval under section 151 of the Act in the record andproceedings, we can certainly hazard a guess that even the ApprovingAuthority would not have applied its mind or read the reasons recordedbefore granting approval. If it had only been read, these errors wouldhave come to light at that stage itself. Therefore, for all the aforesaidreasons, we quash the impugned notice dated 31[st] March 2009 undersection 148 of the Act together with order dated 16[th] October 2009. 13. Rule is made absolute in the above terms with no order as to costs. (N. J. JAMADAR, J.) (K.R. SHRIRAM, J.)