JARUN PHARMACEUTICALS PVT LTD. vs. THE INCOME TAX OFFICER, WARD 2(1)(2)

Facts

The petitioner, Jarun Pharmaceuticals Pvt Ltd., engaged in trading and marketing of pharmaceutical products, filed its return of income for Assessment Year 2013-14 declaring NIL income. The case was selected for scrutiny, and the Assessing Officer (AO) issued notices under Section 142(1) seeking details on purchases, sales, and sales promotion expenses. The petitioner furnished these details, including supporting documents for sales promotion expenses amounting to Rs. 30,43,808/-. The AO completed the assessment under Section 143(3) on October 26, 2015, without making any additions. Subsequently, on March 30, 2018, the respondent Income Tax Officer issued a notice under Section 148 to reopen the assessment for AY 2013-14, citing reasons related to sales promotion expenses (Rs. 20,00,271/-) not being wholly and exclusively for business, and requiring further verification of purchases and sales.

Held

The High Court held that the notice issued under Section 148 of the Income-tax Act, 1961, was not justified and quashed the same. The Court noted that the Assessing Officer had issued a notice under Section 142(1) during the original assessment proceedings, calling for complete details of sales promotion expenses, including account copies, party names, PAN, confirmation, and business expediency. The writ applicant had furnished these details, and the AO had verified them before passing the assessment order under Section 143(3) on October 26, 2015, without making any additions. The Court found that the reasons for reopening, particularly concerning sales promotion expenses and purchases/sales, were based on the very same material that was available and considered during the original assessment. Therefore, the reopening amounted to a change of opinion, which is not a valid ground for reassessment under Section 147. The Court concluded that there was no tangible material that had escaped the AO's consideration during the original assessment, which would warrant reopening. Consequently, the petition was allowed, and the impugned notice was quashed.

Key Issues

1. Whether the notice issued under Section 148 of the Income-tax Act, 1961, for reopening the assessment for AY 2013-14 is valid, considering the original assessment was completed under Section 143(3) after verification of details, and the reopening is based on the same material. The assessee contended that the reopening was based on a mere change of opinion, as all the relevant details regarding sales promotion expenses, purchases, and sales were furnished during the original assessment proceedings under Section 143(3). The assessee argued that the AO had consciously chosen not to make any additions after verifying the provided documents, and therefore, the subsequent reopening under Section 147/148 was unjustified. The assessee relied on the principle that reopening cannot be based on the same material that was considered and found satisfactory during the original assessment. The revenue, through the reasons recorded for reopening, argued that Rs. 20,00,271/- of sales promotion expenses incurred on tours were not expended wholly and exclusively for the business, as details of travelers and dates were not mentioned in some vouchers. Additionally, further verification and investigation of purchases and sales were deemed necessary due to discrepancies in the month-wise figures and branch transfers.