Wp/3353/2018 Of Marico Limited v. The Assistant Commissioner Of Income Tax, Circle 12 (3)(2) And 2 Ors

Priya Soparkar 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3353 OF 2018 Marico Limited… Petitioner V/s. The Assistant Commissioner of Income taxCircle 12(3)(2) and ors.… Respondents --- Mr.Nitesh Joshi with Mr.Atul Jasani with Mr.Ashok Boghani i/byM/s Ashok Boghani & Co. for the Petitioner.Mr.Akhileshwar Sharma for the Respondents. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : DECEMBER 21, 2018. P.C.:- 1.Heard learned counsel for the parties for final disposal ofthe petition. Petitioner is a limited company. The petitioner haschallenged a notice of re-opening of assessment dated 24[th]September, 2018 issued by the respondent No.1-Assessing Officerto re-open the petitioner's assessment for the assessment year2011-12. 2.Brief facts are as under: The Petitioner is engaged in the business of manufacturing fast moving consumer goods. The petitioner had filed return ofthe income for the assessment year 2011-12. The return wastaken in scrutiny by the Assessing Officer who passed order ofassessment under Section 143(3) of the Income Tax Act (“the Act”for short) on 29[th] April, 2015. In the return the petitioner hadclaimed deductions under Sections 80IB and 80IC of the Act. 3.To re-open such assessment the Assessing Officer hadissued impugned notice. In order to do so, he had recordedfollowing reasons: “Reasons for reopening of the Assessment in the case of M/s-Marico Limited for the A Y 201112 u/s 147 of the IT Act. 1)In this case, the assessee has filed its return of income on25.11.2011 declaring total income of Rs. 69,95,70,781/- for A.Y.2011-12, which was subsequently revised on the same day i.e. on25.11.2011 at revised total income of Rs.69,97,78,630/-.Thereafter, a further revised return was filed on 29.03.2013 at re-vised total income of Rs.69,28,57,599/-. 2)The assessment for AY 2011-12 has been completed u/s143(3) r.w.s. 144C(3) on 29.04.2015 determining incomeunder normal provisions of the IT Act at Rs.1040416024/-(after allowing deduction fo Rs.1,77,24,25,716/- under sections 80IB (4)and 80IC (2)) and book profit u/s 115JB at Rs.356,05,24,496/-and tax on book profit was determined at Rs.70,96,30,335/- andtax was charged u/s 115JB. 3)On perusal of the records for the A Y 2011- 12 the followingissues were found: 2)The assessment for AY 2011-12 has been completed u/s143(3) r.w.s. 144C(3) on 29.04.2015 determining incomeunder normal provisions of the IT Act at Rs.1040416024/-(after allowing deduction fo Rs.1,77,24,25,716/- under sections 80IB (4)and 80IC (2)) and book profit u/s 115JB at Rs.356,05,24,496/-and tax on book profit was determined at Rs.70,96,30,335/- andtax was charged u/s 115JB. 3)On perusal of the records for the A Y 2011- 12 the followingissues were found: (i)The assessee company claimed deduction u/s. 80IB & 80ICfrom the units located at Pondicherry, Paonta Sahib & Solan. Thededuction u/s 80IB (4) is in respect of unit in Pondicherry atRs.68,99,32,933/- and deduction u/s 80IC includes units inPaonta Sahib, District Sirmur and Baddi unit at Lodhimajra, P. O.Manpura, District solan of Himachal Pradesh amounting toRs.39,30,87,552/- and Rs.39,69,25,123/- respectively. As per thassessment order of the A.Y. 2011-12, the assessee ismanufacturing Parachute brand edible coconut oil, amount otheritems in Pondicherry and Baddi undertakings. I tis seen fromrecords that though the Pondicherry unit extract oil from copra toa limited quantity, most of the quantity of edible coconut oil soldwas processed out of raw coconut oil procured by these units. Asper definition of manufacture given in Section 2(29BA) of the ITAct, 1961 the deduction would not be available on sale of theedible coconut oil effected by these tow units, as only refiningand packing are the only activity undertaken by them and noedible oil is manufactured as raw coconut is also edible oil andthis activity do not amount to manufacturing or production.Similarly, in the case of the product called Hair Oil also, theactivity does not amount to manufacture as per the definition ofmanufacture/produce given in the Act. Further, as per Clause 28of Form 3CD, some part of the finished goods were produced fromothers and thus entire quantity of goods cannot be treated aseligible for deduction. It is also to be noted that as per ScheduleQ appended to the P & L account, volume of sale of edible oil ismany times more than the sale of hair oil and other items.Considering the volume of sales of the assessee of different items,not even 25% of the volume of the sale effected in the abovementioned three units qualify for deduction u/s 80IB (4) or80IC as claimed and allowed. However,adopting a very moderatecalculation, at least 50% of the deduction allowed needs t be Priya Soparkar withdrawn and added back to the income of the assessee.Therefore I have a reason to believe that the deduction allowed inrespect of the three units, (i.e. Pondicherry, Paonta Sahib andBaddi) amounted to Rs.1,47,99,45,608 and 50% of the same atRs.73,9972,804/- has been escaped from the assessment ofincome. (ii)Scrutiny of schedule 'O' appended to the P & L accountrevealed that an amount of Rs.40.90 crore was charged to the P& L account under the head miscellaneous expenses. Thisamount includes an amount of Rs.1.00 crore being capitaladvance written off. Since, this being capital in nature, shouldhave been disallowed. Capital advance won't get any deduction inincome tax unless and until the payment made earlier has hit theprofit and loss in earlier years as a sale/profit, no expense can beclaimed. Therefore I have a reason to believe that the capitaladvance written of amounting to Rs.1.00 crore has been escapedfrom the assessment of income. (ii)Scrutiny of schedule 'O' appended to the P & L accountrevealed that an amount of Rs.40.90 crore was charged to the P& L account under the head miscellaneous expenses. Thisamount includes an amount of Rs.1.00 crore being capitaladvance written off. Since, this being capital in nature, shouldhave been disallowed. Capital advance won't get any deduction inincome tax unless and until the payment made earlier has hit theprofit and loss in earlier years as a sale/profit, no expense can beclaimed. Therefore I have a reason to believe that the capitaladvance written of amounting to Rs.1.00 crore has been escapedfrom the assessment of income. (iii) Verification of assessment records for the A.Y. 2011-12revealed that Capital Gain brought to taxation is lossRs.39,32,873/- only. However, as per the Return of Income the 'a'had offered STCG of Rs.39,32,873/- and LTCG ofRs.8,00,00,000/-. The LTCG was set off against brought forwardlong term capital loss. However, scrutiny of the assessment orderfor AY 2011 -11 revealed that Capital Gains of Rs.2,17,829/- wstaxed during that year and no carried forward of losses wasavailable and hence not allowed in the assessment order. Thoughclause 25 of 3CD Form (filed on 30.09.2011) states that broughforward loss(long Term Capital Loss) as Rs.8,45,53,367/- for AY2010-11, the assessment order passed on 18.03.2014 states thatthe Capital Gain as per assessee's revised computation wsRs.2,17,829/-. Therefore I have a reason to believe that there isno carry forward capital loss available to set off the Long TermCapital Gain of Rs.8,00,00,000/- during the A.Y. 2011-12. HenceLong Term Capital Gain of Rs.8,00,00,000/- has been escapedfrom the assessment of income. (iv)Verification of assessment records for the A.Y. 2011-12indicated that the assessee claimed deduction under sections80IB (4) and 80IC (2) of the I.T.Act, 1961 which was recalculatedby the assessing Officer by reallocating rent & storage charges to Priya Soparkar undertakings and disallowing other income from the ambit of theclaim in respect of the respective units. However, whilereallocating rent & storage charges, instead of reducing thethese charges, the same was added to the income resulting in theassessee getting more eligible income and thereby was allowedmore deduction in respect of Pondicherry, Dehradun-1 andDehradun-2 undertakings as shown below. From the above table it is clear that Assessee Company has beenallowed excess claim to the tune of Rs.2,66,66,125/- while re-allocating the expenses. Therefore I have a reason to believethat excess deduction of Rs.2,66,66,125/- resulting in underassessment and escaped from the assessment of income. Priya Soparkar undertakings and disallowing other income from the ambit of theclaim in respect of the respective units. However, whilereallocating rent & storage charges, instead of reducing thethese charges, the same was added to the income resulting in theassessee getting more eligible income and thereby was allowedmore deduction in respect of Pondicherry, Dehradun-1 andDehradun-2 undertakings as shown below. From the above table it is clear that Assessee Company has beenallowed excess claim to the tune of Rs.2,66,66,125/- while re-allocating the expenses. Therefore I have a reason to believethat excess deduction of Rs.2,66,66,125/- resulting in underassessment and escaped from the assessment of income. (v)The income under normal provisions of the Act was arrivedby adopting the income from business of Rs.2,52,66,95,615/-based on the revised return of income dated 29.03.2013. Whilecomputing income from business, an amount of Rs.42,75,27,823/-(schedule BP -A3 of return of income) was reduced from netprofit of Rs.3745533349/- (schedule BP -A 1 of return ofincome). This amount was reduced treating the same as income/receipts credited to P & L account considered under other headsof income. However, scrutiny P & L account revealed that, netprofit of Rs.374.54 crore was arrived at on the basis of sales ofRs.2347.85 crore (including excise duty of Rs.0.98 crore) andother income of Rs.25.17 crore totaling to Rs.2372.04 crore andadding an amount of Rs.65.47 crore under exceptional items. Theexceptional items of Rs.65.47 crore was on account of reversal ofprovision for excise duty of Rs.29.35 crore, profit on divestmentof “Sweekar” brand Rs.50 crore and provision for impairment of“Finance” trademark Rs.(-)13.88 crore. The total expendituredebited to the P & L account amounted to Rs.2062.97 crore. Fromthe amounts credited to the P & L account, as stated above, itcould be seen that other than Rs.25.17 crore under otherincome, no other amount would qualify to be reduced frombusiness income out of Rs.42.75 crore reduced by the assessee.Therefore I have a reasons to believe that an amount ofRs.17,58,00,000/- on account of other income has been escapedfrom the assessment of income. (iv)Scrutiny of P & L account for the A.Y. 2011-12 revealedthat an amount of Rs.65.47 crore under the head exceptionalitems was added to the profit before tax arrived at in the P & Laccount and net profit was arrived 374.54 crore. The exceptionitems of Rs.65.47 crore was on account of reversal of provisionfor excise duty of Rs.29.35 crore, profit on divestment of“Sweekar” brand Rs.50.00 crore and provision for impairmentof “Finance” trademark Rs.(-)13.88 crore. Since the amount of Rs. (1)13.88 crore represents only a provision for impairment of“Finance” trademark, the same should not have been allowed tobe adjusted out of the exceptional items otherwise would haveamounted to Rs.79.35 crore. Therefore I have a reason to believethat provision of Rs.13,88,00,000/- has been escaped from theassessment of income. 4)Since 4 years from the end of the relevant year has expiredin this case, the requirement to initiate proceedings u/s 147 ofthe Act are reason to believe that income for the year underconsideration has escaped assessment because of failure on thepart of the assessee to disclose fully and truly all material factsnecessary for his assessment for the assessment year underconsideration. (1)13.88 crore represents only a provision for impairment of“Finance” trademark, the same should not have been allowed tobe adjusted out of the exceptional items otherwise would haveamounted to Rs.79.35 crore. Therefore I have a reason to believethat provision of Rs.13,88,00,000/- has been escaped from theassessment of income. 4)Since 4 years from the end of the relevant year has expiredin this case, the requirement to initiate proceedings u/s 147 ofthe Act are reason to believe that income for the year underconsideration has escaped assessment because of failure on thepart of the assessee to disclose fully and truly all material factsnecessary for his assessment for the assessment year underconsideration. 5)It is true that the assessee has filed a copy of annual reportand audited P & L A/c and balance sheet alngwith return ofincome where various information/material were disclosed.However, the requisite full and true disclosure of all material factsnecessary for assessment has not been made. It is pertinent tomention her that even though the assessee has produced books ofaccounts, annual report, the requisite material facts as notedabove in the reasons for reopening were embedded in such amanner that material with due diligence, accordingly attractingprovisions of Explanation 1 of section 147 of the Act. 6)It is pertinent to mention here that reason to believe thatincome has escaped assessment for the year under considerationhave been recorded in the above referred paragraph 3 in sub pars(i) to (vi). I have carefully considered the assessment recordcontaining the submission made by the assessee in response tovarious notices issued during the assessment proceedings andhave noted that the assessee has not fully and truly disclosedmaterial facts necessary for his assessment of the year underconsideration thereby necessitating reopening u/s 147 of theAct. 7)In view of the above, I have reason to believe that incomeamounting to Rs.117,12,38,929/- chargeable to tax has escaped Priya Soparkar assessment by reason of failure on the part of the assessee todisclose fully and truly all material facts within the meaning ofsection 147 of the Income-tax Act, 1961 for the A.Y. 2011-12.Hence, it is a fit case for issue of notice u/s 148 of the I.T.Act,1961.” 8)In the light of the above reasons you are requested toexplain with proper documentary evidences as to why theabove additions/ disallowances should not be made in your case. 9)Apart from the above during the course of thesereassessment proceedings, an information has been received inyour case that an amount of Rs.6,94,64,809/- has been creditedin the bank account of Shri K.G.Paraman during the F Y 2010-11.In response to the notice u/s 133(6) of the IT Act you havesubmitted that total amount of Rs.8,79,24,950/- has been paid toShri K G Paraman towards purchase of Copra, Labour charges,service charges and reimbursement charges. From thesecontradicting figures the undersigned has a belief that yourpurchase expenses are inflated to that extent. This issue alsohas been taken up for verification during the reassessmentproceedings within the provisions of the explanation 3 to thesection 147 of the IT Act. 10)You are, therefore, requested to furnish explanation onthe above issues along with proper documentary evidences onor before 26/07/2018. Failure to furnish explanation or notfurnishing satisfactory explanation adverse views shall be takenin respect of the above referred issues while passing order u/s143(3) r w s 147 of the IT Act, 1961.” 4.Upon being supplied the reasons recorded by the AssessingOfficer, the petitioner objected to the notice of re-opening undera letter dated 20[th] August, 2018. Such objections were rejected bythe Assessing Officer by passing an order dated 24[th] September, 10)You are, therefore, requested to furnish explanation onthe above issues along with proper documentary evidences onor before 26/07/2018. Failure to furnish explanation or notfurnishing satisfactory explanation adverse views shall be takenin respect of the above referred issues while passing order u/s143(3) r w s 147 of the IT Act, 1961.” 4.Upon being supplied the reasons recorded by the AssessingOfficer, the petitioner objected to the notice of re-opening undera letter dated 20[th] August, 2018. Such objections were rejected bythe Assessing Officer by passing an order dated 24[th] September, 5.Upon hearing learned counsel for the parties and uponperusal of the documents and record, what we gather is that thenotice of re-opening of assessment has been issued beyond theperiod of four years from the assessment year. The reasonsrecorded by the Assessing Officer are elaborate and refer tovarious issues on which he wishes to carry out the re-assessment. However, the central theme which passes though allthese issues is that the Assessing Officer had gathered theinformation and material from the record of the assessment. Forexample in Paragraph No.3 of the reasons which contains severalsub-paragraphs which are different elements of the grounds forre-assessment begins with the expression “On perusal of therecord for the assessment year 2011-12, the following issues werefound”. Thus, with reference to various issues arise on the basisof the perusal of the record of the assessment year in question.Clearly, therefore, there is no material alien to the record whichthe Assessing Officer has referred to for issuing the impugnednotice. Further, almost for every ground which is part of various sub-paragraphs of Paragraph No.3, he has referred to eitherscrutiny or verification of the case records. In clear terms,therefore, the Assessing Officer was acting on the informationavailable from the record of the assessment. 6.As is well known, in an instance where the Assessing Officerexercises power of re-assessment beyond the period of four yearsfrom the end of relevant assessment year, an essentialrequirement is that the escapement of income chargeable to taxis due to the failure on the part of the assessee to disclose trulyand fully all material facts. This is part of Section 147 of the Actitself and is on number of occasions by various judgments ofHigh Court and Supreme Court held to be mandatory pre-requirement. In view of such settled law, it is not necessary torefer to any judgment. Revenue is unable to bring to our noticeany aspect or element which did not form part of the record andon the basis of which from the reasons recorded, it can be culledout that the Assessing Officer had formed a belief that incomechargeable to tax had escaped assessment. In clear termstherefore, there was no failure on the part of the assessee to disclose truly and fully all material facts. 7.Counsel for the revenue however submitted that one of the issues raised by the Assessing Officer is that the activity carriedon by the assessee does not amount to manufacturing activity.In the present petition, it is not necessary for us to comment onthis aspect of the matter. What is important however is suchbelief also the Assessing Officer has formed on the basis ofmaterial already on record. Looked from any angle, the AssessingOfficer cannot justify issuing the notice of re-opening ofassessment beyond the period of four years from the end ofrelevant assessment year. 8.Under the circumstances, impugned notice is quashed.Petition allowed and disposed of accordingly. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)….