Wp/1505/2014 Of Wyeth Limited v. The Assistant Commissioner Of Income Tax And 2 Others

Digitallysigned byMEERAMEERAMAHESHMAHESHJADHAVJADHAVDate:2022.02.1710:39:10+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO.1505 OF 2014 Wyeth Limited V/s.The Assistant Commissioner of IncomeTax & Ors. ….Petitioner …Respondents ---- Mr. J. D. Mistri, Senior Advocate a/w Mr. Madhur Agrawal i/b Mr. Atul K Jasani for PetitionerMr. Suresh Kumar for Respondents ---- CORAM : K.R. SHRIRAM & N.J. JAMADAR, JJ DATED : 11[th] FEBRUARY 2022 P.C. : 1At the outset, Mr. Mistri stated that petitioner has now amalgamatedwith Pfizer Limited and seeks leave to amend the petition to bring thosepost filing facts on record. Since the amendment proposed do not alter thenature and character of the petition, we have allowed the amendment to becarried out. Amendment shall be carried out within one week,notwithstanding the disposal of this petition. Mr. Suresh Kumar also had noobjection. 2Petitioner is a company engaged in manufacturing sale and trading ofbulk drugs and pharmaceuticals, manufacturing and sale of animal healthand nutrition products. Petitioner had filed return of income for A.Y.-2006-2007 on 30[th] November 2006 declaring total income of Rs.13,43,35,210/-under normal provisions and Rs.82,54,99,551/- under Section 115 JB of the Income Tax Act 1961 (the Act). Petitioner filed revised return of income on31[st] March 2008 declaring total income of Rs.14,52,44,314/- under normalprovisions and Rs.82,54,99,551/- under Section 115JB of the Act. The casewas selected for scrutiny and order under Section 143(3) of the Act waspassed on 29[th] December 2009 assessing total income of Rs.16,17,34,217/-under normal provisions and book profits of Rs.83,05,88,891/- underSection 115JB of the Act. 3Petitioner received a notice dated 28[th] March 2013 from respondentno.1 alleging that respondent no.1 had reasons to believe that petitioner’sincome chargeable to tax for A.Y.-2006-2007 has escaped assessment withinthe meaning of Section 147 of the Act. Subsequently, petitioner alsoreceived, vide letter dated 16[th] May 2013 from respondent no.1, the reasonsfor reopening under Section 148. The reasons are dated 28[th] March 2013.Petitioner filed its objections and respondent no.1 passed an order dated14[th] February 2014 rejecting the objections. 4Mr. Mistri submitted that before a notice under Section 148 is issued,an approval of the concerned authority is required to be taken under Section151 of the Act. Mr. Mistri submitted that the approval that has beenprovided to petitioner and copy whereof has been annexed to the petition isdated 26[th] March 2013 and has been received by respondent no.1 on 28[th]March 2013, whereas the reasons for reopening itself is dated 28[th] March2013 and, therefore, the approval granted could not have been based on thereasons as recorded. Mr. Mistri submitted, how could the approval be granted on 26[th] March 2013 when the reasons itself is recorded on 28[th]March 2013 and on this ground alone the notice issued under Section 148has to be quashed and set aside. 4Mr. Mistri submitted that before a notice under Section 148 is issued,an approval of the concerned authority is required to be taken under Section151 of the Act. Mr. Mistri submitted that the approval that has beenprovided to petitioner and copy whereof has been annexed to the petition isdated 26[th] March 2013 and has been received by respondent no.1 on 28[th]March 2013, whereas the reasons for reopening itself is dated 28[th] March2013 and, therefore, the approval granted could not have been based on thereasons as recorded. Mr. Mistri submitted, how could the approval be granted on 26[th] March 2013 when the reasons itself is recorded on 28[th]March 2013 and on this ground alone the notice issued under Section 148has to be quashed and set aside. 5Mr. Suresh Kumar was confronted with these facts. Mr. Suresh Kumarsubmitted, relying on paragraph 21 of the affidavit in reply, that respondentno.2 had given the approval to issue notice under Section 148 as per theprovisions of section 151 of the Act in accordance with law. Mr. SureshKumar submitted that the reasons were recorded on 25[th] March 2013 andapproval dated 26[th] March 2013 was received in the office of respondentno.1 on 28[th] March 2013 and, therefore, the approval has been correctlygranted. We are unable to accept the submissions of Mr. Suresh Kumarbecause the documents speak otherwise. There is no evidence whatsoeverthat the reasons were recorded on 25[th] March 2013. Even the copy of thereasons for reopening annexed to the petition is dated 28[th] March 2013. Mr.Vishal Makwane, who has affirmed the affidavit in reply as DeputyCommissioner of Income Tax, is the same person who had recorded thereasons for reopening and also issued notice under Section 148 of the Act.At that time, he was an Assistant Commissioner of Income Tax. The sameMr. Vishal Makwane does not annex any document to indicate that reasonswere recorded on 25[th] March 2013, nor has he explained as to how thereasons provided to petitioner show the date 28[th] March 2013. Therefore,we have to reject the explanation given in affidavit in reply and hold thatsanction was not properly obtained. In our view, on this ground alone the notice has to be quashed and set aside. 6The reasons also were attacked by Mr. Mistri, who submitted that asthe notice under Section 148 has been issued more than 4 years after theend of the relevant assessment year and scrutiny assessment has beencompleted under Section 143(3) of the Act, the proviso to Section 147 shallapply and reopening is barred unless respondent is able to show that therewas failure to disclose fully and truly material facts necessary for therelevant assessment year. Mr. Mistri submitted that reasons recorded doesnot indicate any such non disclosure. Mr. Mistri also submitted that reasonsrecorded only indicate change of mind which cannot be a basis forreopening. Mr. Mistri also submitted that all the three points in the reasonshave already considered during the assessment proceedings and even if theassessment order is silent on one or two points, still as held by this courttime and again, the Assessing Officer should be considered to have appliedhis mind, once a query is raised and answers are provided. 7Mr. Suresh Kumar in his submissions justified the reopening and wentinto the merits of the case. In short, he reiterated what is recorded in thereasons. 8The reasons for reopening raised three issues and it read as under:- “……………. 1. During the year assessee made onetime payment to M/s Atul Ltd toget itself released and discharged in respect of all the obligations ofthe company as lessee under the lease deeds including all theenviornmental claim or liabilities, if any, related to the surrenderedleased land. Thus the payment made is capital in nature, as thebenefit derived by the assessee is enduring in nature as the unexpiredlease portion of the lease hold land surrendered by the assessee is 54 years. Thus there is an under assessment to the extent of Rs.10 croreswith tax effect of Rs.3.366 crore. 7Mr. Suresh Kumar in his submissions justified the reopening and wentinto the merits of the case. In short, he reiterated what is recorded in thereasons. 8The reasons for reopening raised three issues and it read as under:- “……………. 1. During the year assessee made onetime payment to M/s Atul Ltd toget itself released and discharged in respect of all the obligations ofthe company as lessee under the lease deeds including all theenviornmental claim or liabilities, if any, related to the surrenderedleased land. Thus the payment made is capital in nature, as thebenefit derived by the assessee is enduring in nature as the unexpiredlease portion of the lease hold land surrendered by the assessee is 54 years. Thus there is an under assessment to the extent of Rs.10 croreswith tax effect of Rs.3.366 crore. 2. As per the schedule of the depreciation, it is observed that thedepreciation on the block of Officer Equipments have been claimed@15% where as the allowable rate is 10%. Therefore the assessee hasclaimed excess depreciation to that extent of Rs.4,17,294/- with thetax effect of Rs.1,40,461/-. 3. As per the clause 22(b) of the TAR the assessee has shown priorperiod expenses of Rs.30,15,135/-. However, these expenses have notbeen disallowed by the assessee while computing the total income.Thus there is an under assessment to that extent with tax effect ofRs.10,14,489/-. ………………..” 9As regards the first ground, that is capitalising the payment made toAtul Ltd., first of all, we do not understand how this amount paid ascompensation could ever be capitalised in the books of petitioner. Be that asit may, during the assessment proceedings the details have been provided tothe Assessing Officer regarding surrender of the lease and payments madeto Atul Ltd. To the petition is annexed a letter dated 9[th] December 2009addressed by Petitioner to ACIT to which a 7 pages note is annexed toexplain why payment of Rs.10 crores towards lease land at Valsad is to beconsidered as revenue in nature and allowable under Section 37(1) of theAct. Also annexed to the petition is a letter dated 24[th] December 2009addressed by petitioner to ACIT once again explaining the back groundregarding surrender of lease to Atul Ltd and also providing a copy of thelease agreement. In the said letter, petitioner has also referred to almost 7replies addressed to the notices received from respondent no.1. Therefore,this has been a subject of consideration during the assessment proceedings. 10As held in Aroni Commercials Ltd. Vs. Deputy Commissioner ofIncome Tax 2(1)1 once a query is raised during the assessment proceedingsand the assessee has replied to it, it follows that the query raised was asubject of consideration of the Assessing Officer while completing theassessment. It is not necessary that an assessment order should containreference and/or discussion to disclose its satisfaction in respect of thequery raised. 11As regards the second ground, that is claiming 15% depreciation onthe block of office equipments against allowable rate of 10%, there can beno non disclosure on the part of petitioner at all. The assessment orderdated 29[th] December 2009 contains a computation of depreciation. TheAssessing Officer in the assessment order states; “I have perused assessee’scontention and the facts on this issue. However, as held above, the claim ofassessee is not acceptable and the depreciation is recomputed as per thestand taken by the Department in earlier years as the issue has not yet beendecided at various appellate stages. The annexure-1 to this order gives thecomputation of depreciation which comes out to be RS.4,79,67,132/-. Inview of the above, assessee’s claim for depreciation will be reduced byRs.2,40,941/-”, and calculates depreciation at 15% for office equipments.Therefore, there can never be a situation of failure to disclose truly and fullyall material facts by petitioner. The Hon’ble Apex Court in Indian & Eastern Newspaper Society vs. Commissioner of Income-tax2 has held that even if 1. (2014) 44 taxmann.com 304 (Bombay) Newspaper Society vs. Commissioner of Income-tax2 has held that even if 1. (2014) 44 taxmann.com 304 (Bombay) 2 [1979] 119 ITR 996 according to respondent no.1 there was an error discovered on areconsideration of the same material (and no more) does not give power to the Assessing Officer to re-open the assessment. Paragraph no. 14 of the said judgment read as under : 14. Now, in the case before us, the Income-tax Officer had, when hemade the original assessment, considered the provisions of Sections 9and 10. Any different view taken by him afterwards on application ofthose provisions would amount to a change of opinion on materialalready considered by him. The Revenue contends that it is open to himto do so, and on that basis to reopen the assessment under Section 147(b). Reliance is placed on Kalyanji Mavji and Co. v. CIT, (1976) 102 ITR287, where a Bench of learned Judges of this Court observed that acase where income had escaped assessment due to the “oversight,inadvertence or mistake” of the Income-tax Officer must fall withinSection 34 (1) (b) of the Indian Income Tax Act, 1922. It appears to us,with respect, that the proposition is stated too widely and travelsfurther than the statute warrants insofar as it can be said to lay downthat if, on reappraising the material considered by him during theoriginal assessment, the ITO discovers that he has committed an errorin consequence of which income has escaped assessment, it is open tohim to reopen the assessment. In our opinion, an error discovered on areconsideration of the same material (and no more) does not give himthat power. That was the view taken by this Court in Maharaj KamalKumar Singh’s case (supra), A. Raman and Co.’s case (supra) andBankipur Club Ltd. v. CIT, (1971) 82 ITR 831, and we do not believethat the law has since taken a different course. Any observations inKalyanji Mavji’s case (supra) suggesting the contrary do not, we saywith respect, lay down the correct law. This view has been followed by a Full Bench of the Karnataka High Court in Dell India (P.) Ltd. vs. Joint Commissioner of Income Tax, LTU,3Bangalore. 12As regards the third ground, that is prior period expenses, petitionerhas, in its letter dated 15[th] December 2009 addressed to the ACIT afterreferring to personal hearing as well as 7 earlier communications and noticeissued by respondent no.1 under Section 142(1) of the Act, explained why 3 [2021] 432 ITR 212 (Karnataka) the amount of Rs.30,15,135/- reported by the Tax Auditor was part of theamount of Rs.1,13,73,436/- as provisions for employee retention strategyand was rightly considered as disallowable in computing business incomeand hence the amount has not been separately disallowed as prior periodexpenditure. Therefore, once again this has been subject of consideration duringthe assessment proceedings and as noted earlier, once a query raised duringthe assessment proceeding and assessee has replied to it, it follows that thequery raised was a subject of consideration of the Assessing Officer whilecompleting the assessment. Change of opinion does not constitutejustification and/or reasons to believe that income chargeable to tax hasescaped assessment. 13For reasons recorded above, petition is allowed in terms of prayer clause (a) which reads as under: “(a) that this Hon’ble Court be pleased to issue a writ of certiorari orany other writ order or direction under Article 226 of the Constitutionof India calling for the records of the case leading to the issue of theimpugned notice and passing of the impugned order and after goingthrough the same and examining the question of legality thereof,quash, cancel and set aside the impugned notice (Exhibit J) andimpugned order (Exhibit O).” 14Petition disposed. (N. J. JAMADAR, J.) (K.R. SHRIRAM, J.)