Wp/3540/2019 Of Halite Personal Care India Pvt. Ltd v. The Deputy Commissioner Of Income Tax 14(2)(1) And 3 Ors

GAURIAMITGAEKWAD Digitally signedby GAURIAMITGAEKWADDate:2022.01.1811:34:19 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3540 OF 2019 Halite Personal Care India Pvt. Ltd. ….Petitioner V/s. The Deputy Commissioner of IncomeTax 14 (2)(1) & Ors. ….Respondents---- Mr. Nitesh Joshi i/b. Mr. Mandar Manohar Vaidya for petitioner.Mr. Suresh Kumar for respondents. ---- CORAM : K.R. SHRIRAM &N.R. BORKAR, JJ. DATED : 13[th] JANUARY 2022 P.C. : 1Petitioner is impugning a notice dated 30[th] March 2019 issuedunder Section 148 of the Income Tax Act, 1961 (the said Act) and also anorder dated 16[th] November 2019 rejecting petitioner's objections. 2Petitioner had filed return of income for Assessment Year 2012-2013 on 6[th] February 2013. The return was processed under Section 143(1)of the said Act and after the case was selected for scrutiny under CASS, anassessment was made under Section 143(3) of the said Act on 23[rd] March2015 accepting the returned income as such. 3In April 2011, one Reckitt Benckister Investments India PrivateLimited (RBIIPL) acquired 100% stake in a company Paras PharmaceuticalsLimited (Paras) for a consideration of Rs.3272.8 Crores. Petitioner wasincorporated on 15[th] June 2011 to carry on business of trading in personalcare products. Petitioner entered into negotiations with RBIIPL and Paras for acquiring their personal care business. RBIIPL, Paras and petitioner came toan understanding by which RBIIPL would merge with Paras and after themerger, the personal care division of the merged entity to be demerged intopetitioner. Parties approached the Hon'ble Punjab and Haryana High Courtand the Court vide its order dated 18[th] April 2012 approved the scheme bywhich the entire business including all assets, liabilities and reserves relatingto the personal care division of merged entity of RBIIPL and Paras wasvested in petitioner with effect from the appointed date being 1[st] March2012. 4Petitioner filed its return of income on 6[th] February 2013 forAssessment Year 2012-2013 as mentioned earlier declaring total income ofRs.3,54,98,523/-. Petitioner also filed audit report in Form 3CA and itsparticulars in Form 3CD, as mandated by Section 44AB of the said Actalongwith the return of income. 5During the course of original assessment proceedings, theAssessing Officer issued notice dated 2[nd] December 2014 under Section142(1) of the said Act calling for various details mentioned therein. By itsletter dated 23[rd] February 2015, petitioner provided all details called forincluding breakup of various expenses like provisions for sales return andother operating expenses which are subject matter of present reopeningproceedings. Petitioner also submitted a detailed note on the Scheme ofAmalgamation and Demerger alongwith copy of the said Scheme filedbefore the Hon'ble Punjab and Haryana High Court and the order of the Court approving the said Scheme. List of assets transferred under theScheme of Demerger, relevant extracts of financial statements etc. were alsofiled. After considering the documents and the submissions made bypetitioner, the assessment proceedings, as noted earlier, were completedunder Section 143(3) of the said Act and an assessment order dated23[rd] March 2015 accepting the income offered in the return of income waspassed. 6Subsequent to completion of assessment proceedings,respondent, vide letter dated 18[th] July 2017 raised a query regardingprovision for sales return of Rs.4,42,64,416/- and other operating expensesof Rs.85,58,620/-. Petitioner responded vide a detailed letter dated9[th] October 2017. Nothing happened thereafter. Court approving the said Scheme. List of assets transferred under theScheme of Demerger, relevant extracts of financial statements etc. were alsofiled. After considering the documents and the submissions made bypetitioner, the assessment proceedings, as noted earlier, were completedunder Section 143(3) of the said Act and an assessment order dated23[rd] March 2015 accepting the income offered in the return of income waspassed. 6Subsequent to completion of assessment proceedings,respondent, vide letter dated 18[th] July 2017 raised a query regardingprovision for sales return of Rs.4,42,64,416/- and other operating expensesof Rs.85,58,620/-. Petitioner responded vide a detailed letter dated9[th] October 2017. Nothing happened thereafter. 7One fine day, petitioner received a notice dated 30[th] March2019 under Section 148 of the said Act, which is impugned in this petition.Later, petitioner also received reasons recorded for reopening theassessment. We have, with the assistance of Mr. Joshi and Mr. Suresh Kumar,considered the reasons for reopening. In our view, first of all, the reasonsrecorded only indicate a change of opinion by the Jurisdictional AssessingOfficer (JAO) based on the same set of facts and documents. Moreover, theJAO has proceeded on the incorrect premise that the amount of provisionfor sales return as the expenditure incurred was not incurred during therelevant year but the following year. Infact this has been accepted in theorder dated 16[th] November 2019 rejecting petitioner's objections, which 7 order is also impugned in this petition. The JAO, though he admits that hehas erred, states that that issue of difference is not of prime relevance orcontention is not of relevance at this stage. In the order dated 16[th] November 2019 impugned in this petition, it is stated as under : …….It is noted in this regard that the reasons to believe areformed, in the main, in respect of the amount of provision for salesreturn as the expenditure was not incurred during the previousyear (as also the amortization of other operating expenses). To thatextent, the issue of difference between two stages and the detailsof share issuance in two stages is not of prime relevance.Therefore, the contention of the assessee regarding factualcorrectness on this aspect is also not of relevance at this stage………. 8Therefore, once he accepts that the reasons to believe are found mainly in respect of the amount of provision for sales return as theexpenditure was not incurred during the previous year as also the amountof other operating expenses and once he accepts that he was wrong inassuming so, there can be no reason to believe that income has escapedassessment. What the JAO has stated in the reasons for reopening is thateven if the effective date declared by the company was 1[st] March 2012 andthe Hon'ble Punjab and Haryana High Court has endorsed it by approvingthe Scheme of Amalgamation in its order dated 18[th] April 2012 because theorder was passed only on 18[th] April 2012, the effective date cannot be1[st] March 2012. Infact the JAO has sat on appeal over the High Court's orderand has gone to the extent of saying that the High Court's order onamalgamation was irregular. Mr. Suresh Kumar was visibly embarrassed bythis statement and at his request and in view of the fact that the JAO has accepted that there was an error in the order dated 16[th] November 2019impugned in this petition, we will leave the matter to rest at this point. 9Moreover, in any event, all the points, which have been raisedin the reasons for reopening, were raised by the Assessing Officer during theoriginal assessment proceedings and all documents and details wereprovided to the Assessing Officer, as could be seen from the notice dated2[nd] December 2014 issued under Section 142(1) of the said Act, petitioner'sletter dated 23[rd] February 2015 and petitioner's email dated 25[th] February2015 apart from petitioner's financial annexed to the petition. accepted that there was an error in the order dated 16[th] November 2019impugned in this petition, we will leave the matter to rest at this point. 9Moreover, in any event, all the points, which have been raisedin the reasons for reopening, were raised by the Assessing Officer during theoriginal assessment proceedings and all documents and details wereprovided to the Assessing Officer, as could be seen from the notice dated2[nd] December 2014 issued under Section 142(1) of the said Act, petitioner'sletter dated 23[rd] February 2015 and petitioner's email dated 25[th] February2015 apart from petitioner's financial annexed to the petition. 10When the primary facts necessary for assessment are fully andtruly disclosed, the Assessing Officer is not entitled on change of opinion tocommence proceedings for reassessment. As held in 3i Infotech Limited V/s. Assistant Commissioner of Income Tax 1, where on consideration of materialon record, one view is conclusively taken by the Assessing Officer, it wouldnot be open to the Assessing Officer to reopen the assessment based on thevery same material with a view to take another view. In the reasonsrecorded also the JAO in effect says, as could be seen from paragraph 5therein, that it was a change of opinion. Paragraph 5 reads as under : 5. Findings of the AO - Prima-facie it appears that the assessee has erred in claimingdeduction as discussed above and this has resulted in allowance ofexcess deduction of Rs.5,11,10,711/- (44264416 + 6846295).Therefore, following the provisions of Section 2(1B), Section 37and Section 35DD of the Income Tax Act, 1961, it is being inferredhereby that assessee has claimed irregular expenditure in itsaccounts after amalgamation process.deduction as discussed above and this has resulted in allowance ofexcess deduction of Rs.5,11,10,711/- (44264416 + 6846295).Therefore, following the provisions of Section 2(1B), Section 37and Section 35DD of the Income Tax Act, 1961, it is being inferredhereby that assessee has claimed irregular expenditure in itsaccounts after amalgamation process. 11 11 Since the notice under Section 148 of the said Act has beenissued after the expiry of four years from the relevant assessment year andscrutiny assessment under Section 143(3) has been passed, the proviso toSection 147 of the said Act applies. The onus is on respondents to show thatthere was failure on the part of the assessee to fully and truly disclosematerial facts at the time of assessment. The reasons recorded does not evencontain a whisper as to what were the facts which were material and thatwere not disclosed truly and fully. 12Mr. Suresh Kumar relied upon a judgment of this Court inCrompton Greaves Ltd. V/s. Assistant Commissioner of Income Tax,Circle 6 (2) 2 to submit that even if the reason for reopening does notspecifically state that there was any failure on the part of petitioner todisclose fully and truly all material facts necessary for its assessment forthe relevant assessment year, it will not be fatal to the assumption ofjurisdiction under Sections 147 and 148 of the Act. We would certainlyagree with Mr. Suresh Kumar but as held in Crompton Greaves Ltd.(Supra), this is subject to the rider that there must be cogent and clearindication in the reasons supplied, that in fact there was failure on thepart of the assessee to disclose fully and truly all the material factsnecessary for its assessment. If the factum of failure to disclose can beculled from the reasons in support of the notice seeking to reopenassessment, that will certainly not be fatal to the assumption of2. (2015) 55 taxmann.com 59 (Bombay) jurisdiction under Sections 147 and 148 of the Act. The Court held“However, if from the reasons, no case of failure to disclose is made out,then certainly the assumption of jurisdiction under Sections 147 and 148of the Act would be ultra vires, being in excess of the jurisdictionalrestraints imposed by the first proviso to Section 147 of the Act”. jurisdiction under Sections 147 and 148 of the Act. The Court held“However, if from the reasons, no case of failure to disclose is made out,then certainly the assumption of jurisdiction under Sections 147 and 148of the Act would be ultra vires, being in excess of the jurisdictionalrestraints imposed by the first proviso to Section 147 of the Act”. 13Having considered the reasons, we are unable to cull outwhat were the material facts necessary for assessment that were notdisclosed by petitioner truly and fully at the time of assessment. 14In the circumstances, petition is allowed in terms of prayer clause – (a), which reads as under : (a) that this Hon’ble Court may be pleased to issue a writ ofcertiorari or writ in the nature of certiorari or any otherappropriate writ, direction or order under Article 226 of theConstitution of India calling for the records of the caseleading to the issuance of the notice under Section 148 of theAct dated 30[th] March 2019, being Ex.H hereto and aftergoing through the same and examining the question oflegality thereof to quash, cancel and set aside the impugnednotice dated 30[th] March 2019 being Ex.H hereto and theorder rejecting the petitioner’s objections dated16[th] November 2019, being Ex.K hereto. 15Petition disposed with no order as to costs. (N.R. BORKAR, J.) (K.R. SHRIRAM, J.)