Wp/2542/2009 Of Skol Breweries Ltd v. Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2542 OF 2009 Skol Breweries Ltd.A Company incorporated under theCompanies Act, 1956 having its Registered Office at No.1, Mahal Industrial Estate, Mahakali Road, Andheri (East), Mumbai – 400 093. ))))) ) ..Petitioner. V/s. Deputy Commissioner of Income TaxRange 8(3), Room No.204, 2[nd] Floor, Aayakar Bhavan, M.K. Road,Mumbai - 400 020. ))) )..Respondent. Mr. Deepak Chopra i/b. V.V. Khemka for petitioner. Ms. Suchitra Kamble i/b. Suresh Kumar for respondent. CORAM : DR. D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. DATED : 8TH MARCH, 2010 ORAL JUDGMENT (PER DR. D.Y.CHANDRACHUD, J.) 1)Rule, by consent made returnable forthwith. Counsel for the respondents waives service. With the consent of counsel, the petition is taken up for final hearing. 2 2)In this proceeding, the assessee has challenged the reopening of the assessment for assessment year 2004-05 in pursuance to a notice issued on 26[th] March, 2009 under Section 148 of the Income Tax Act, 1961. 3)In the present case, an assessment order was passed on 29[th] December, 2006 under Section 143(3). In support of the notice for reopening of the assessment, the Assessing Officer furnished three reasons. These reasons are as follows:- A.Expenditure of Rs.95,917,040 being capital in nature has been debited to the profit and loss account. Out of the same the assessee has added back in the computation of income only an amount of Rs,18,911,628 thereby leading to escapement of income amounting to Rs.77,005,412/-.debited to the profit and loss account. Out of the same the assessee has added back in the computation of income only an amount of Rs,18,911,628 thereby leading to escapement of income amounting to Rs.77,005,412/-. B.The liability of Rs.145,413,619 being liability on returnable containers is merely a provision and not allowable as an expenditure and consequently there is escapement of income to that extent.containers is merely a provision and not allowable as an expenditure and consequently there is escapement of income to that extent. C.Rs.132,882,301 was added back as one months investment in the cost of raw materials utilised for making suppressed sales when such addition should have been made for the entire year i.e. for 12 months thereby resulting in escapement of income amounting to Rs.1461,705,311/-.the cost of raw materials utilised for making suppressed sales when such addition should have been made for the entire year i.e. for 12 months thereby resulting in escapement of income amounting to Rs.1461,705,311/-. 4)The assessee filed his objections to the notice that was issued for reopening of the assessment by a letter dated 30[th] July, 2009. The objections have been disposed of by the Assessing 5)On behalf of the assessee, the principal argument is that (i) No fresh material has been relied upon by the Assessing Officer after the close of the original assessment and upon passing of the assessment order under Section 143(3); (ii) The reopening of the assessment constitutes a mere change of opinion in the absence of any tangible material; (iii). 4)The assessee filed his objections to the notice that was issued for reopening of the assessment by a letter dated 30[th] July, 2009. The objections have been disposed of by the Assessing 5)On behalf of the assessee, the principal argument is that (i) No fresh material has been relied upon by the Assessing Officer after the close of the original assessment and upon passing of the assessment order under Section 143(3); (ii) The reopening of the assessment constitutes a mere change of opinion in the absence of any tangible material; (iii). 6) The Assessing Officer has purported to exercise a power of review which is impermissible. In other words, it was urged that the grounds on which the assessment is sought to be reopened cannot be sustained as a valid exercise of power under Section 147 of the Act. The assessee was required to be furnished with an opportunity of objecting to the grounds on which the assessment is sought to be reopened in view of the judgment of the Supreme Court in GKN Drive Shafts V/s. ITO.[1] The Assessing Officer was duty bound to consider the objections raised by the assessee and to deal with them in the order disposing of the objections. In view of the judgment of the Supreme Court in Commissioner of Income Tax V/s. Kelvinator of India Ltd.[2], it is now a settled position of law that even when the Assessing Officer exercises jurisdiction to reopen 1259 ITR 192[2010] 320 ITR 561 (SC)2[2010] 320 ITR 561 (SC) the assessment within a period of four years of the expiry of the relevant assessment year, he cannot do so on a mere change of opinion and in the absence of tangible material. The Supreme Court has held thus:- “...Therefore, post-1[st] April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words ”reason to believe” failing which we are afraid Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1[st] April, 1989, Assessing Officer has power to re-open, provided there is “tangible material ” to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief. “wider. However, one needs to give a schematic interpretation to the words ”reason to believe” failing which we are afraid Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1[st] April, 1989, Assessing Officer has power to re-open, provided there is “tangible material ” to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief. “ 7)The order of the Assessing Officer disposing of the objections does not deal with the objections cogently. The Assessing Officer has quoted from decided cases, but has failed to apply his mind to the merits of the objections which were raised by the assessee. The Assessing Officer was necessarily required to deal with the merits of the objections, particularly in view of the contention of the assessee that there was no fresh material before the Assessing Officer after passing of the original order of assessment and that he was seeking to reopen the assessment only on the basis of a mere change of opinion. The Assessing Officer, having failed to do so, we are of the view that it would be fit and proper to set aside the impugned order dated 14[th] December, 2009 disposing of the objections of the assessee and to remand the proceedings back to the Assessing Officer to pass a fresh order on the objections filed by the assessee to the reopening of assessment. In dealing with the objections, the Assessing Officer shall have due regard to the principles of law laid down by the Supreme Court in the case of Kelvinator of India (supra). As noted earlier, it has been observed by the Supreme Court that there must be tangible material before the Assessing Officer when he seeks to reopen the assessment. 8)In the circumstances, the impugned order dated 14[th ]December, 2009 is quashed and set aside and the proceedings are remanded back to the Assessing Officer for passing a fresh order in terms of the aforesaid observations. The Assessing Officer shall pass an order after furnishing an opportunity to the assessee of being heard within a period of four weeks from today. In the meanwhile, the ad-interim order that was passed on 17[th] December, 2009 shall continue to remain in operation until a fresh order is passed by the Assessing Officer and for a period of four weeks from the date of communication of the order to the assessee to enable the assessee to pursue such remedy as is available in law. 8)shall be no order as to costs. Rule is made absolute in the aforesaid terms. There (J.P.DEVADHAR, J.) (DR. D.Y.CHANDRACHUD, J.)