Wp/662/2011 Of Sumitomo Mitsul Banking Corporation v. Deputy Director Of Income Tax (International Taxation) 2(1) And 2 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (LOD) NO.139 OF 2011 Sumitoma Mitsui Banking Corporation ..Petitioner. V/s. The Deputy Director of Income Tax (IT)-2(1)& Ors. ..Respondents. Mr. R. Murlidharan with A.K. Jasani for petitioner.Mr. Suresh Kumar for respondents. CORAM : J.P. DEVADHAR AND MRS. MRIDULA BHATKAR, JJ. DATED : 22ND FEBRUARY, 2011 P.C. :- 1. Heard. Rule, returnable forthwith. 2. By consent of the parties, appeal is taken up for final hearing. 3.The petitioner has challenged the notice dated 30/3/2010 issued under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment for AY 2003-04. The petitioner has also challenged the draft reassessment order dated 24/12/2010, which by consent is treated to be an order rejecting the objections raised by the petitioner against the notice dated 30/3/2010. 4.By the impugned notice, the assessment for AY 2003-04 is sought to be reopened by recording the following reasons:- " The assessee is a branch of a foreign banking company incorporated in Japan having banking business in India. The assessment made was in respect of its Indian Branches. In the Assesment order the assessee's claim of deduction u/s.l44C towards Head Office expenses amounting to Rs.1,35,17,551/- was allowed.incorporated in Japan having banking business in India. The assessment made was in respect of its Indian Branches. In the Assesment order the assessee's claim of deduction u/s.l44C towards Head Office expenses amounting to Rs.1,35,17,551/- was allowed. Since the assessee has not debited any amount towards H.O. expenses in the P&L A/c. of Indian Operations, no deduction is allowable as per the provisions of Section 44C. Non debiting of H.O. expenses in the P&L A/c. of Indian Operation indicates that the entire amount has been claimed as deduction against other global operations of the assessee. The Indian Branch of the assessee company is treated as a Permanent Establishment for the purpose of taxation in India and hence it is a separate legal entity, The accounts of the PE is required to be maintain in the same way as in the case of an Indian Co. Hence, it is apparent that all the expenses attributable to the Indian Branch is reflected in the books of accounts of the Indian Branch. The fact that no amount is debited to Profit and Loss Account implies that no Head Office expenses are attributable to Indian branch. Therefore, no deduction is allowable u/s.44C of the I.T. Act. In view of the above, I have reason to believe that income chargeable to tax has escaped assessment as the assessee has failed to disclose fully and truly all material facts necessary for the assessment in the above case within the meaning u/s.147 if the I.T. Act. Accordingly, notice u/s.148 of the I.T. Act is issued for A.Y. 2003-04." 5.From the aforesaid reasons, it is seen that the assessment is sought to be reopened only on the ground that the deduction allowed under Section 44C of the Income Tax Act was erroneous because, the assessee had not debited the amount of Head Office expenses to the profit & loss account. Perusal of the computation of accounts as well as the note attached to the accounts clearly shows that the assessee had specifically disclosed that the head office expenses have not been debited to the profits and loss account. In these circumstances, it cannot be said that there is any failure on the part of the assessee to fully and truly disclose disclose all the material facts necessary for the assessment. Since the assessment in the present case is sought to be reopened beyond four years from the end of the relevant assessment year, in the absence of any material on record to show that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the notice under Section 148 cannot be sustained.