Wp/1917/2019 Of Marico Ltd v. The Assistant Commissioner Of Income Tax-12 (3)(2) And 3 Ors

JPP IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1917 OF 2019 Marico Ltd. … Petitioner V/s. The Assistant Commissioner of Income Tax-12(3)(2) and Ors.... Respondents Mr. Percy Pardiwala, Senior Advocate a/w. Nitesh Joshi i/b. MandarManohar Vaidya for the Petitioner. Mr. Sham Walve a/w. Pritish Chatterjee for the Respondents. CORAM : M.S. SANKLECHA & NITIN JAMDAR, JJ. DATE : 21 AUGUST 2019. P.C.:- At the request of the learned Counsel for the parties, this Petition is taken up for final disposal at the stage of admission. 2.This Petition under Article 226 of the Constitution of India challenges a notice dated 27 March 2019 issued by theRespondent No.1 – Assistant Commissioner of Income Tax. The impugned notice dated 27 March 2019 has been issued underSection 148 of the Income Tax Act, 1961 (the Act) seeking toreopen the assessment for Assessment Year 2014-15. 3.Briefly, the facts leading to this Petition arise as under :- (i)For the Assessment Year 2014-15 the Petitioner filed itsrevised return of income, declaring a total income of Rs.418.04crores under normal provisions of the Act and Rs.670.82 crores asBook Profits under Section 115JB of the Act. In its return thePetitioner has also claimed a deduction of Rs.47.04 crores onaccount of amortization of brand value, while computing BookProfits at Rs.670.82 crores under Section 115JB of the Act. (ii)The Assessing Officer took up the Petitioner’s returnrelating to Assessment Year 2014-15 for scrutiny assessment. Onexamination of the return of income, the Assessing Officer issued anotice dated 25 September 2017 under Section 142(1) of the Act tothe Petitioner. The above notice at Serial No.5 thereof inter aliacalled for explanation as under :- 5.You have reduced from Book Profits under Section115JB an amount of Rs.47,04,58,042/- (as per revisedreturn), being “Book depreciation on intangibles(Fiancee & Haircode)”. In preceding AY 2013-14 also, exactly the same amount of Rs. 47,04,58,042/- was soreduced from book profits, which amount was addedback to book profits for detailed reasons given in saidassessment order. Pleas show cause as to why the saidamount should not be added to your Book Profits underSection 115JB on similar line as made in AY 2013-14. (iii) The Petitioner responded to the above notice dated 25 September 2017 by its letters dated 10 October 2017 and 21December 2017. In its response, the Petitioner justified claimingdepreciation of Rs. 47.04 crores on intangible i.e. brand value whiledetermining Book Profits under Section 115JB of the Act. It waspointed out that depreciation not debited to profit and loss account,will still have to be taken its account to determine book profits, if thesame is disclosed in the notes to the Balance Sheet and Profit andLoss Account. Reliance in support of the above was made on thedecision of Delhi High Court in CET v/s. Sain Processing &Weaving Mills (P) Ltd. (221 CTR 493). It was further pointed outthat the adjustment of brand against securities premium and capitalredemption reserve is not in accordance with AS (AccountingStandard) 26 and cannot be permitted. (iv) The Respondent No.1 passed an assessment order dated 30 January 2018 under Section 143(3) r/w Section 144C of the Act.The above assessment order accepted the Petitioner’s claim for allowing depreciation for amortization of brand value to determineBook Profits under Section 115JB of the Act at Rs.684.04 crores. (v)Thereafter, on 27 March 2019 the impugned notice wasissued seeking to re-open the Assessment Year 2014-15. Theimpugned re-opening notice has been issued within a period of fouryears from the end of Assessment Year 2014-15. The reasons insupport of the impugned notice as issued to the Petitioner reads asunder :- (iv) The Respondent No.1 passed an assessment order dated 30 January 2018 under Section 143(3) r/w Section 144C of the Act.The above assessment order accepted the Petitioner’s claim for allowing depreciation for amortization of brand value to determineBook Profits under Section 115JB of the Act at Rs.684.04 crores. (v)Thereafter, on 27 March 2019 the impugned notice wasissued seeking to re-open the Assessment Year 2014-15. Theimpugned re-opening notice has been issued within a period of fouryears from the end of Assessment Year 2014-15. The reasons insupport of the impugned notice as issued to the Petitioner reads asunder :- “1)In this case, the assessee has filed its return ofincome on 24.11.2014 declaring total income ofRs.422,17,76,910/- for A.Y. 2014-15. The case wasselected for scrutiny under CASS and scrutinyassessment was completed u/s.143(3) r.w.s. 144C(3) on30.01.2018 determining total assessed income atRs.4,98,28,21,820/- and Book Profit u/s 115JB atRs.684,08,76,976/-. 2)On going through the records of the assesseecompany for A.Y. 2012-13, and the assessment orderpassed by the then AO for that year, it is seen that theassessee has written off an amount of Rs.47,04,58,042/-as amortization for the A.Y. 2014-15. Under theprovisions of section 115JB of the Income tax Act, 1961,the book profit is to be computed after makingadditions and deletions to the net profit specifiedtherein. No deduction is allowable beyond the specifieddeletions or negative adjustments provided in the saidsection. The assessee company had claimed deductionof Rs.47,04,58,042/- from the book profit on theground that after revaluation of the assets of certain brands having the net book value of Rs.473 Cr. werewritten off and charged to Capital redemption reserveand securities premium during A.Y. 2007-08. Theamount written off pertains to brand Manjal and Niharacquired in A.Y. 2006-07 and Fiancee and Haircodeacquired in A.Y. 2007-08. There is no provision insection 115JB for granting deduction for theamortization not charged in the profit and loss accounton a notional basis. The department has consistentlydenied the deduction to the book profit claimed by theassessee from A.Y. 2010-11 onwards. However, duringthe assessment proceedings for the A.Y. 2014-15, thenotional amortization amount of Rs.47,04,58,042/- wasremains to be added back by the assessing officer. Thishas resulted into under assessment of Rs.47,04,58,048/-and income chargeable to tax of equal amount hasescaped assessment within the meaning of clause (c)explanation 2 of section 147 of the income Tax Act,1961. 3)In view of the above, I have reason to believe thatincome amounting to Rs. 47,04,58,042/- chargeable totax has escaped assessment by reason of failure on thepart of the assessee to disclose fully and truly all materialfacts within the meaning of section 147 of the Income-tax Act, 1961 for the A.Y. 2014-15. Hence, it is a fitcase for issue of notice u/s.148 of the I.T.Act, 1961’. (vi)The Petitioner by its letter dated 14 May 2010 objectedto the re-opening notice on the ground that it is without jurisdictioninasmuch as it is based on change of opinion. This very issue/reasonfor reopening the assessment was subject matter of considerationduring the regular assessment proceedings, leading to the assessment (vii)The Assessing Officer by an order dated 9 June 2019rejected the objections by holding that basis of the reopening noticeis not on account of change of opinion. This for the reason that theAssessing Officer had not formed any opinion with regard to thesame in the order dated 30 January 2018 passed under Section143(3) of the Act, as there is no discussion on it, in the impugnedorder dated 30 January 2018. 4.Mr. Pardiwala, learned Senior Advocate appearing insupport of the Petition submits as under :- (vii)The Assessing Officer by an order dated 9 June 2019rejected the objections by holding that basis of the reopening noticeis not on account of change of opinion. This for the reason that theAssessing Officer had not formed any opinion with regard to thesame in the order dated 30 January 2018 passed under Section143(3) of the Act, as there is no discussion on it, in the impugnedorder dated 30 January 2018. 4.Mr. Pardiwala, learned Senior Advocate appearing insupport of the Petition submits as under :- (a) Although the impugned notice for reopening has beenissued within a period of four years from the end of Assessment Yeari.e. 2014-15, yet the jurisdiction to reopen an assessment cannot beexercised on account of change of opinion. It is submitted thatjurisdiction to re-open an assessment is not a jurisdiction to reviewan order as held by the Apex Court in CIT v. Kelvinator of IndiaLtd. (2010) 320 ITR 561; (b)In this case a specific query with regard to the issuewhich forms the basis of the reopening notice was raised during theregular assessment proceeding under Section 143(3) of the said Act.The Petitioner’s explanation to the above specific queries was accepted, as no disallowance on above amounts was done to arrive atbook profits in the assessment order dated 30 January 2018. Thus,on facts the reopening notice is on account of change of opinion; and (c)No discussion in the Assessment Order dated 30 January2018, would not mean that the Assessing Officer had not formed anyopinion. This more particularly so, as query on this aspect was raisedby the Assessing Officer and responded to by the Petitioner to thesatisfaction of the Assessing Officer during the assessmentproceedings. No discussion in the Assessment Order dated 30 January 5.Per contra, Mr. Walve, learned Counsel for theRespondents in support of the impugned notice submits : (a) That the impugned notice has been issued within a period of four years from the end of the relevant Assessment Year,therefore mere disclosure of all material facts truly and fully will notoust the jurisdiction of the Assessing Officer to issue a reopeningnotice; and (b)There is no change of opinion, for the reason that theAssessing Officer while passing the Assessment order dated 30January 2018 under Section 143(3) of the Act had not formed anyopinion on the issue. The opinion, if any, should find mention inthe order by way of adjudication. Thus reopening notice is not on account of opinion to one formed in the assessment order dated 30January 2018 under Section 143(3) of the Act. Thus the Petition bedismissed. 6.We have considered the rival submissions. It is a settledposition in law that the power to reopen an assessment within aperiod of four years from the end of the relevant assessment year,even when the assessment has been made under Section 143(3) ofthe Act, is not curtailed by the proviso to Section 147 of the Act.Therefore, even where an assessee has disclosed all material factstruly and fully for assessment and assessment is completed underSection 143(3) of the Act, the reopening is permissible within aperiod of four years from the end of the relevant assessment year.The only condition precedent for exercising the jurisdiction toreopen an assessment, is the Assessing Officer should havereasonable belief that income chargeable to tax has escapedassessment. This reason to believe that income chargeable to tax hasescaped assessment should not be on the basis of change of opinion,as otherwise the power of reassessment would become a power ofreview, which it is not. 7.The Apex Court in Kelvinator of India Ltd. (supra), haswhile setting out the parameters for the exercise of powers ofreopening an assessment had inter-alia observed as under :- “ However, one needs to give a schematic 7.The Apex Court in Kelvinator of India Ltd. (supra), haswhile setting out the parameters for the exercise of powers ofreopening an assessment had inter-alia observed as under :- “ However, one needs to give a schematic interpretation to the words “reason to believe” failingwhich, we are afraid, Section 147 would give arbitrarypowers to the Assessing Officer to reopen assessmentson the basis of “mere change of opinion”, which cannotbe per se reason to reopen. We must also keep in mindthe conceptual difference between power to review andpower to reassess. But reassessment has to be based onfulfillment of certain pre-conditions and if the conceptof “change of opinion” is removed, as contended onbehalf of the Department, then, in the garb ofreopening the assessment, review would take place.One must treat the concept of “change of opinion” as anin-built test to check abuse of power by the AssessingOfficer. Hence, after 1[st] April, 1989, the AssessingOfficer has power to reopen, provided there is “tangiblematerial” to come to the conclusion that there isescapement of income from assessment. Reasons musthave a live link with the formation of the belief.” 8.In the present facts, we note that the Assessing Officerduring the course of regular assessment proceedings leading to theassessment order dated 30 January 2018, on basis of the profits andloss account and balance sheet and the practice for the earlier yearsi.e. Assessment Year 2013-14 had issued notice on 25 September2017 to the Petitioner to show cause why the amount of Rs.47.04crores being claimed as book depreciation on intangibles should notbe disallowed to determine book profits under Section 115JB of theAct. The above query of the Assessing Officer was responded to bythe Petitioner in great detail by its letters dated 10 October 2017 and21 December 2017. It justified its claim for deductions by placing reliance upon the decisions of the Courts. In support of itscontention that they are entitled to deduction of the current yearsdepreciation from the net profit to arrive at the book profits underSection 115JB of the Act. It was also explained that under sub-section 6 of Section 211 of the Companies Act, reference to a balancesheet or profit and loss account would also include any notes theretoor documents annexed thereto. Thus the notes to the accountshould be taken into account to determine the net profits forworking out the book profits in terms of Section 115JB of the Act.The Assessing Officer thereafter proceeded to pass an assessmentorder dated 30 January 2018 under Section 143(3) of the Act anddid not make the proposed dis-allowance. 9.It is made clear that for the purpose of this petition, weare not called upon to and therefore not examining the correctness orotherwise of the disallowance of depreciation to arrive at bookprofits. Our examination is limited only to jurisdiction of theAssessing Officer to reopen the assessment. 10.It is undisputed position before us, that query was raisedon the very issue of reopening during regular Assessmentproceedings. The parties have responded to it and the AssessmentOrder dated 30 January 2018 makes no reference to the above issueat all. However, once a query has been raised by the AssessingOfficer during the assessment proceedings and the assessee has 9.It is made clear that for the purpose of this petition, weare not called upon to and therefore not examining the correctness orotherwise of the disallowance of depreciation to arrive at bookprofits. Our examination is limited only to jurisdiction of theAssessing Officer to reopen the assessment. 10.It is undisputed position before us, that query was raisedon the very issue of reopening during regular Assessmentproceedings. The parties have responded to it and the AssessmentOrder dated 30 January 2018 makes no reference to the above issueat all. However, once a query has been raised by the AssessingOfficer during the assessment proceedings and the assessee has responded to that query, it would necessarily follow, as held by ourCourt that the Assessing Officer has accepted thePetitioner’s/Assessee’s submissions, so as to not deal with that issuein the assessment order. In fact, our Court in GKN Sinter MetalsLtd. V/s. Ms. Ramapriya Raghavan, Assistant Commissioner ofIncome Tax, Circle 2(1) (371) ITR 225 had occasion to dealt withthe similar/identical submissions on behalf of the Revenue viz. thatan assessment order passed under Section 143(3) of the Act does notreflect any consideration of the issue, it must follow that no opinionwas formed by the Assessing Officer in the regular assessmentproceedings. This submission was negatived by this Court byobserving as follows :- 14. According to the Revenue, it could only be whenthe assessment order contains discussion with regard toparticular claim can it be said that the AssessingOfficer had formed an opinion with regard to theclaim made by the assessee. This Court in Idea CellularLtd. v/s. Deputy Commissioner of Income Tax 301ITR 407 has expressly negatived on identicalcontention on behalf of the Revenue. The Court heldthat once all the material was placed before theAssessing Officer and he chose not to refer to to thededuction/ claim which was being allowed in theassessment order, it could not be contended that theAssessing Officer had not applied his mind whilepassing the assessment order. Moreover in this case, itis evident from the letter dated 6 th August, 2007addressed by the Assessing Officer to the Petitionercontaining the reasons recorded for issuing the impugned notice also record the fact that during theregular assessment proceedings, the Petitioner hasbeen asked to furnish details in support of the claimfor exemption under Section 80IA/IB of the Act. Theletter further records that the details sought for werefurnished and it is now observed that there has been adisproportionate distribution of expenses betweenvarious units belonging to the Petitioner for claimingdeduction under Section 80IA/IB of the Act. This is afurther indication of the fact that the Assessing Officerhad during the regular assessment proceedings forAssessment Year 200203 sought information inrespect of the allocation of expenses and theexplanation offered by the Petitioner was found to besatisfactory. This is evident from query dated 27[th]December, 2004 and the Petitioner's response to thesame on 25 th January, 2005 explaining the manner ofdistribution of common expenses for delaying theprocess of claiming deduction under Section 80IA/IBof the Act. All this would indicate that AssessingOfficer had formed an opinion while passing the orderdated 9 th March, 2005. This Court in AroniCommercials Ltd. v/s. Assistant Commissioner ofIncome Tax 367 ITR 405 had occasion to considersomewhat similar submission made by the Revenueand negatived the same by holding that when a queryhas been raised with regard to a particular issue duringthe regular assessment proceedings, it must follow thatthe Assessing Officer had applied his mind and taken aview in the matter as is reflected in the AssessmentOrder. Besides, the manner in which an AssessingOfficer would draft/frame his order is not within thecontrol of an assessee. Moreover, if every contentionraised by the assessee which even if accepted is to bereflected in the assessment order, then as observed bythe Gujarat High Court in CIT v/s. Nirma Chemicals Ltd. 305 ITR 607, the order would result into an epictome. Besides, it would be impossible for the AssessingOfficer to complete all the assessments which have tounder gone scrutiny at its hand. In the above view, it isclear that once a query has been raised during theassessment proceedings and the Petitioner hasresponded to the query to the satisfaction of theAssessing Officer as is evident from the fact that theAssessment Order dated 9[th] March, 2005 accepts thePetitioner's claim for deduction under Section80IA/IB of the Act. It must follow that there is dueapplication of mind by the Assessing Officer to theissue raised. The above observations apply on all fours to this Petition, so far asthe Revenue’s submission of no change of opinion is concerned. 11.The further submission of Mr. Walve that in the absenceof the Assessing Officer adjudicating upon the issue it cannot be saidthat the Assessing Officer had formed an opinion during the regularassessment proceedings leading to the order dated 30 January 2018.An adjudication would only be on such issue where the assessee’ssubmissions are not acceptable to the Revenue, then the occasion todecide a lis would arise i.e. adjudication. However, where theRevenue accepts the view propounded by the assessee in response tothe Revenue’s query, the Assessing Officer has certainly to form anopinion whether or not the stand taken by the assessee is acceptable.Therefore, it must follow that where queries have been raised duringthe assessment proceedings and the assessee has responded to the same, then the non-discussion of the same or non-rejection of theresponse of the assessee, would necessarily mean that the AssessingOfficer has formed an opinion accepting the view of the Assessee.Thus an opinion is formed during the regular Assessmentproceedings, bars the Assessing Officer to reopen the same only onaccount of a different view. same, then the non-discussion of the same or non-rejection of theresponse of the assessee, would necessarily mean that the AssessingOfficer has formed an opinion accepting the view of the Assessee.Thus an opinion is formed during the regular Assessmentproceedings, bars the Assessing Officer to reopen the same only onaccount of a different view. 12.Thus we find that the reasons in support of theimpugned notice is the very issue in respect of which the AssessingOfficer has raised the query dated 25 September 2017 during theassessment proceedings and the Petitioner had responded to thesame by its letters dated 10 December 2017 and 21 December 2017justifying its stand. The non-rejection of the explanation in theAssessment Order would amount to the Assessing Officer acceptingthe view of the assessee, thus taking a view/forming an opinion.Therefore, in these circumstances, the reasons in support of theimpugned notice proceed on a mere change of opinion and thereforewould be completely without jurisdiction in the present facts.Accordingly, the impugned notice dated 27 March 2019 is quashedand set aside. 13.Petition allowed. NITIN JAMDAR, J. M.S. SANKLECHA, J .