Wp/3361/2018 Of Lsg Sky Chefs (India) Pvt.ltd v. Asst. Commissioner Of Income-Tax, Circle 2(2)(1), Mumbai And 2 Ors

Priya Soparkar 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3361 OF 2018 LSG Sky Chefs (India) Pvt. Ltd. … Petitioner V/s. Asst Commissioner of Income-tax Circle 2(2)(1), Mumbai and ors.… Respondents --- Mr.Jitendra Jain with Mr.Sameer Dalal for the Petitioner.Mr.Suresh Kumar for the Respondent. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : JANUARY 24, 2019. P.C.:- 1.Heard learned counsel for the parties for final disposal ofthe petition. 2.Petitioner-a private limited company has challenged noticeof reopening of assessment issued by the respondent No.1-Assessing Officer on 30[th] March, 2018. This challenge arises infollowing background. 3. For the assessment year 2011-12, the petitioner had filed a Priya Soparkar 2 15 wp 3361-18-o return of income on 30[th] November, 2011 declaring loss ofRs.27.69 crores (rounded off). This included debit of Rs.14.68crores (rounded off) of Tangible Assets written off. In turn, thisamount of Rs. 14.68 crores included a settlement amount ofRs.7.30 crores (rounded off) duly shown by the assessee incomputation of income. 3.The return in question was taken in scrutiny by theAssessing Officer, who passed an order of assessment underSection 143(3) of the Income Tax Act, 1961 (“the Act” for short)on 10[th] March, 2014. To reopen such assessment, he has issuedthe impugned notice, which as can be seen has been done beyondthe period of 4 years from the end of relevant assessment year.In order to do so, the Assessing Officer has recorded followingreasons:- “Reasons for reopening of assessment in thecase of M/s LSG Sky Chefs India Limited forAY 2011-12 u/s 147 of the Act. 1.The assessee company engaged in thebusiness of air-line catering. The assesseecompany filed its return of income on 30.11.2011declaring total income of Rs.(-)27,69,49,480/-further the same was processed on 30.03.2013 u/s 143(1) of the IT Act. The scrutiny assessmentwas completed in this case on 10.03.2014assessed total income of Rs.(-) 13,01,18, 418/-.2.Information obtained from perusal auditedfinancials of the assessee company shows thatthe assessee company has paid amount ofRs.7,30,68,000/- to Joans Woodhead & Sons (I)Ltd. 3.From perusal of the case records it is seenthat the amount of Rs.7,30,68,000/- has beendebited to profit and loss account but noevidence has been furnished by the assesseeconcerning the allowability of the said amount asan expense. Thus, the assessee has failed todisclose fully and truly all material facts relatingto its income at the time of its assessment. 4.Further, it is seen that no details pertainingto the said transaction has been filed by theassessee. 5.The various facts discussed above clearlyimply that the assessee individual hasconsciously and deliberately evaded paying taxes on an income amounting toRs.7,30,68,000/-. Thus, there is clear failure onpart of the assessee to make full and truedisclosure while filing return of income. Hence, Ihave reason to believe that income amountingto Rs.7,30,68,000/- has escaped assessment dueto failure on part of the assessee. 6.By not offering this amount to tax at thetime of filing return of income or during theassessment proceeding u/s 143(3) of the IncomeTax Act, the assessee company has failed todischarge his duties under the Income Tax Act,1961 which has resulted in escapement ofincome chargeable to tax amounting toRs.7,30,68,000/- and any another incomechargeable to tax which has escaped assessmentand which comes to the notice of the assessing officer subsequently in the course of reassessmentproceedings. 6.By not offering this amount to tax at thetime of filing return of income or during theassessment proceeding u/s 143(3) of the IncomeTax Act, the assessee company has failed todischarge his duties under the Income Tax Act,1961 which has resulted in escapement ofincome chargeable to tax amounting toRs.7,30,68,000/- and any another incomechargeable to tax which has escaped assessmentand which comes to the notice of the assessing officer subsequently in the course of reassessmentproceedings. 7.In this case, a return of income was filed on30.11.2011 for the year under consideration.Since four years from the end of the relevantperiod has expired in this case, the requirementsto initiate proceedings u/s 147 of the Act arereason to believe that income for the year underconsideration has escaped assessment because offailure on part of the assessee to disclose fullyand truly all material facts necessary for hisassessment for the Year under consideration. It ispertinent to mention here that reasons to believethat income has escaped assessment for theyear under consideration have been recordedabove (refer paragraphs 4 to 7). 8.It is evident from the above facts that theassessee had not truly and fully disclosed materialfacts necessary for his assessment for the yearunder consideration thereby necessitatingreopening u/s 147. Even though the assessee hasproduced computation of income and filedannual report, audited P & L and balance sheetand other supporting documents, the requisitematerial facts as noted above in the reasons forreopening were embedded in such a mannerthat the material evidence could not bediscovered by the AO and could have beendiscovered with due diligence, accordinglyattracting provision of explanation 1 of section147 of the Act. 8.1It is evident from the above discussion thatin this case, the issues under consideration werenever examined by the AO during the course ofregular assessment. This fact is corroboratedfrom the contents of notices issued by the AO u/s143(2)/142(1) and order sheet entries. It isimportant to highlight here that material factsrelevant for the assessment on issue under consideration were not filed during the course ofassessment proceeding and the same may beembedded in the documents and books ofaccount in such a manner that it would requiredue diligence by the AO to extract theseinformation. For aforesaid reasons, it is not acase of change of opinion by the AO.8.2In this case more than four years haveelapsed from the end of assessment year underconsideration. Hence, necessary sanction to issuenotice u/s 148 are sought from PrincipalCommissioner of Income Tax as per theprovisions of sections 151 of the Act.” 4.Being supplied with the reasons, the assessee filedobjections to the notice of reopening of assessment on 8[th]October, 2018. Such objections were rejected by the AssessingOfficer on 24[th] October, 2018. Hence, the petition. 5.Having heard learned counsel for the parties and havingperused the materials on record, we find that the impugned noticecannot be sustained. Firstly, the notice was issued beyond theperiod of 4 years from the end of relevant assessment year.Reasons recorded by the Assessing Officer for issuing theimpugned notice neither record nor point out that there was anyfailure on part of the assesse to disclose truly and fully all material facts necessary for assessment. Infact, the reasons proceed on theperusal of the case recorded by the Assessing Officer. Thus, clearlythe mandatory requirement for reopening of assessment beyond4 years flowing from the first proviso to Section 147 of the Act inthe present case is not satisfied. 5.Having heard learned counsel for the parties and havingperused the materials on record, we find that the impugned noticecannot be sustained. Firstly, the notice was issued beyond theperiod of 4 years from the end of relevant assessment year.Reasons recorded by the Assessing Officer for issuing theimpugned notice neither record nor point out that there was anyfailure on part of the assesse to disclose truly and fully all material facts necessary for assessment. Infact, the reasons proceed on theperusal of the case recorded by the Assessing Officer. Thus, clearlythe mandatory requirement for reopening of assessment beyond4 years flowing from the first proviso to Section 147 of the Act inthe present case is not satisfied. 6.There is yet another reason why the impugned notice cannotsurvive the legal test. This is so because the reasons proceed onentirely erroneous ground. In other words, the reasons lackvalidity. We may recollect in the reasons the Assessing Officerrefers to a sum of Rs.7.30 crores as having been debited toprofit and loss account without the evidence furnished by theassessee concerning the allowability of such sum by way ofexpenses. In this context, the learned counsel for the assesseewould point out that the said sum of Rs.7.30 crores was part ofthe assessee’s larger claim of Rs.14.68 crores. This claim wasexamined by the Assessing Officer during the original assessmentproceedings. The assessee had made a detailed representationwhy such claim was valid. In successive communications dated10[th] February, 2014 and 13[th] February, 2014 the petitioner Priya Soparkar 7 15 wp 3361-18-o had outlined the reasons why the entire claim of Rs.14.68crores and a part of it of Rs.7.30 crores was allowable. TheAssessing Officer did not agree with the assesse on this countand in the order of assessment dated 10[th] March, 2014disallowed the entire claim of Rs.14.68 crores. After noticing thepetitioner’s representation, in the order of assessment itself, hereproduced the petitioner’s representation in this regard, relevantportion of which reads as under :- “The expenses incurred on the said projects overthe years, which were pooled under one head, werewritten off during the year under consideration.The rental expenditure of Rs.7,30,68,000/- asmentioned in your letter is not a separateexpenditure- it forms part and parcel of the totalamount of Rs.14,68,31,602/- claimed by theassessee as tangible assets written off.” 7.The Assessing Officer rejected the claim in its entiretymaking following observations :- “Reply of the assessee has been considered, butfound not acceptable. The assessee has claimedvarious expenses as revenue expenditure duringthe year as intangible assets which was earliershown as work-in-progress. During the year underconsideration, as per assessee's submission, projectwas abandoned and no income on this account hasbeen generated, despite the fact that construction of 7.The Assessing Officer rejected the claim in its entiretymaking following observations :- “Reply of the assessee has been considered, butfound not acceptable. The assessee has claimedvarious expenses as revenue expenditure duringthe year as intangible assets which was earliershown as work-in-progress. During the year underconsideration, as per assessee's submission, projectwas abandoned and no income on this account hasbeen generated, despite the fact that construction of such assets was carried out by the assessee. Itcannot be accepted that no income even on accountof scrap sale or debris has been generated. Oncethe construction work was started, then it musthave been sold to other persons. It is a fact thatentire expenditure was incurred on capital account.Now assessee's claim as revenue expendituretreating it as a write off when entire expenditurewere in the nature of capital, cannot be acceptedand treated as revenue expenditure. Further,genuineness of the expenses is also not provedbecause assessee has paid huge amount on accountof rent, which is almost 50% of the total expenses.The genuineness was not brought into question inearlier years as the assessee was capitalizing allproject expenses. Now the assessee is claiming towrite off entire expenditure. The assessee failed tojustify rent payment which was paid arbitrarilywithout any comparative rate with market. A vacantpiece of land cannot be charged so much high rent.Assessee's claim that project was abandoned due torecession is also contrary to the facts because whenassessee has started the project, condition of aircatering market were more or less same from startto end of the assessee's project. This fact can beverified from the receipt of the assessee becauserevenue receipt is almost remains the samebetween F.Y. 2008-09 to 2010-11.” 8.Against this order of assessment, the petitioner filed appeal.It can thus be seen that the Assessing Officer had occasion toexamine the claim and infact in the order of assessment, he haddisallowed the same. In the context of such sum, therefore, it Priya Soparkar cannot be stated the income chargeable to tax has escaped assessment. In the result, the impugned notice is set aside. Petition allowed and disposed. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)