GLAXOSMITHKLINE PHARMACEUTICALS LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 7(1)(1) AND 3 ORS.

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WP/1748/2022HC Bombay10 March 2025Bench: HON'BLE SHRI JUSTICE M.S. SONAKHON'BLE SHRI JUSTICE JITENDRA SHANTILAL JAIN10 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the reassessment notice under Section 148, issued after the expiry of four years from the end of Assessment Year 2013-14, was invalid. The Court found that the first proviso to Section 147 of the Act, which requires a failure to disclose fully and truly all material facts for reopening after four years, was not satisfied. The reasons recorded by the Assessing Officer did not demonstrate any such failure. The Court noted that the reasons themselves admitted that issues like export incentives, security deposits, and rationalisation expenses were not disallowed during the original assessment proceedings. Furthermore, the reasons did not specify what material facts were not fully and truly disclosed. The order rejecting the petitioner's objections also failed to rebut the specific plea of no failure to disclose. Therefore, the condition precedent for reopening the assessment after four years was not met. The Court quashed the impugned notice and the order rejecting objections. Other issues raised by the petitioner were not examined, as the notice was quashed on this preliminary ground.

What were the facts?

The petitioner, GlaxoSmithKline Pharmaceuticals Ltd., is challenging a notice under Section 148 of the Income-tax Act, 1961, dated March 30, 2021, for Assessment Year 2013-14. The original return was filed on November 30, 2013, and an assessment order under Section 143(3) was passed on February 22, 2017, disallowing a portion of expenses on samples given to doctors. This order is under appeal. The impugned notice was issued after four years from the end of the assessment year, alleging that income had escaped assessment. The petitioner filed a return in response to the notice, requested reasons for reopening, and objected to them. The Assessing Officer rejected these objections by an order dated February 1, 2022. The petition is filed against the Section 148 notice and the order rejecting objections.

What were the issues?

1. Whether the notice under Section 148 of the Income-tax Act, 1961, dated March 30, 2021, for Assessment Year 2013-14 is valid, considering it was issued after the expiry of four years from the end of the assessment year, and if the conditions of the first proviso to Section 147 of the Act are met? Assessee's Contention: The assessee argued that since the reassessment notice was issued after four years from the end of the assessment year, the first proviso to Section 147 of the Act is attracted. This proviso requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The assessee contended that no such failure occurred, as all relevant information was disclosed in the Profit & Loss account and balance sheet, and the Assessing Officer's reasons did not specify any non-disclosure. Revenue's Contention: The revenue relied on the reasons recorded by the Assessing Officer for reopening the assessment, which indicated that the assessee had debited various amounts towards security deposits, exceptional items (including expenses on rationalisation of manufacturing site), export incentives, and sales promotion expenses. The revenue implicitly argued that these disclosures were not full and true, necessitating reopening.

Which sections of the Income-tax Act were involved?

Section 148,Section 147,Section 143(3)

AI-generated summary — verify with the full judgment below

1 47-_WP_1748_of_2022(2).docx Tikam IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1748 OF 2022 GlaxoSmithKline Pharmaceuticals Ltd. …Petitioner Versus Assistant Commissioner of Income Tax Circle-7(1)(1) and Ors. …Respondents ______________________________________________________ Mr. Nishant Thakkar a/w. Ms. Jasmin Analsadvala a/w. Mr. Bhavesh Bhatia i/b. Lumiere Law Partner, for the Petitioner. Mr. P.A. Narayanan, for the Respondent- Revenue. ______________________________________________________ CORAM M.S. Sonak & Jitendra Jain, JJ. DATED: 10 March 2025 ORAL JUDGMENT : [Per Jitendra Jain, J.] 1. Heard learned counsel for the parties. 2. Rule. Rule made returnable immediately at the request and with the consent of the learned counsel for the parties. 3. This petition challenges a notice under section 148 of the Income -tax Act, 1961 (the Act) dated 30 March 2021 for the assessment year 2013-14. 4. The petitioner filed its return of income on 30 November 2013. The said return was selected for scrutiny assessment and the petitioner in the course of the assessment proceedings, pursuant to various queries raised by the VAISHALI ANIL TIKAM Digitally signed by VAISHALI ANIL TIKAM Date: 2025.03.19 17:02:04 +0530

2 47-_WP_1748_of_2022(2).docx assessing officer, filed various details, including the details on which the impugned proceedings are initiated. 5. On 22 February 2017, an assessment order under section 143(3) of the Act was passed disallowing certain percentage of expenses on samples given to doctors on the ground that same constitutes sale promotion expenses incurred on the doctor. The said order is a subject matter of an appeal. We are informed that the said appeal is pending as of today. 6. On 30 March 2021, impugned notice under section 148 of the Act was issued for reopening the case calling upon the Petitioner to file its return of income since the assessing officer had reasons to believe that the income has escaped assessment. The petitioner on 23 April 2021, filed its return of income in response to notice under Section 148 of the Act and on 26 April 2021 requested for reasons for reopening the case. On 29 April 2021, the reasons were furnished to the petitioner. On 13 May 2021, the petitioner objected to the said reasons on various grounds and the said objections were rejected by the assessing officer vide order dated 1 February 2022. 7. It is on the above backdrop that the petitioner is before this Court challenging the notice under Section 148 of the Act and the order rejecting the objections. 8. We have heard learned counsel for the petitioner and the respondent. 9. The reasons as furnished reads as under:

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6 47-_WP_1748_of_2022(2).docx 10. Admittedly, the reassessment notice under section 148 has been issued after the expiry of four years from the end of the assessment year 2013-14. In this case, an assessment under Section 143(3) of the Act was completed on 22 February 2017. Therefore, first proviso to Section 147 of the Act gets attracted. The said proviso states that if an assessment is made under Section 143(3) of the Act, same cannot be reopened after a period of four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, the precondition for reopening the case after the expiry of four years is that there has to be a failure to disclose fully and

7 47-_WP_1748_of_2022(2).docx truly all material facts necessary for the assessment. It is also well settled that whether such failure is there or not has to be seen based on the reasons as recorded which we have reproduced above. 11. On a perusal of the reasons reproduced above, it cannot be said that there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. In paragraph 2 of the reasons, it is stated that the assessee has debited an amount of Rs. 30,65,000/- towards security deposit against the interest income under the head of other income in the Profit & Loss account. In paragraph (ii) of the reasons recorded, it is stated that the assessee has debited an amount of Rs.55,14,07,000/- under the head Exceptional items to the Profit & Loss account which included an amount of Rs. 30,68,34,000/- towards expenses on rationalisation of the manufacturing site. In paragraph (iii) of the reasons, again there is a reference to Export Incentive receivable appearing in balance-sheet. In paragraph (iv) of the reasons, it is stated that the assessee had debited an amount of Rs.26,84,50,749/- to the Profit & Loss account. In the said paragraph, it is admitted that certain percentage of this expenditure was disallowed in the assessment order. In paragraph (v) of the reasons, there is a reference of sum of Rs.12,61,44,518/- which is debited under the head “sales promotion expenses” and further there is a reference of the said amount being discussed in the assessment order under Section 143 (3) of the Act. Paragraphs 3 to 6 again refers to the items referred to above. In the

8 47-_WP_1748_of_2022(2).docx reasons recorded and exhibited at page 119 of the petition, the respondent has admitted that the petitioner has filed copy of the annual report and audited Profit & Loss account and balance sheet along with the return of income where various information/ material were disclosed. However, the reason further states that requisite full and true disclosure has not been made by the petitioner. On a query being raised by the Court to the revenue as to what are the requisite full and true disclosure of material facts which the petitioner has not disclosed, the learned counsel for the revenue relied upon the reasons as recorded. On a perusal of the reasons as recorded, we do not find any statement which states as to what are the requisites full and true disclosure of the material facts which have not been disclosed. On the contrary, the officer in the reasons recorded has admitted that the issue for which the reopening is sought has either been disclosed in the Profit & Loss account or in the balance-sheet. The reasons further admits that the issue with respect to sale promotion was disallowed in the course of the assessment proceedings and the reason further admits that export incentives, security deposit and expenses of rationalisation initiatives were not disallowed during the course of the assessment proceedings. We fail to understand if these items were not disallowed during the course of the assessment proceedings, how there can be an allegation that the petitioner has failed to disclose full and true all material facts necessary for the assessment. If at all there has been failure, it is on the part of the assessing officer of not disallowing the same. Certainly, for such a

9 47-_WP_1748_of_2022(2).docx failure of the assessing officer, reopening cannot be initiated after expiry of four years from the end of the relevant assessment year. 12. In the order rejecting the objection, the officer has not rebutted the specific plea of the petitioner that there was no failure to disclose fully and truly all material facts necessary for the assessment. The order merely reproduces the reasons as recorded, certain provisions of the reassessment and the decisions. We, therefore, are of the view that in the absence of any rebuttal of the specific objection raised by the petitioner, it shall be deemed that the respondent has accepted that there was no failure to disclose fully and truly all material facts necessary for the assessment. 13. We have not examined the other issues which were raised by the learned counsel for the petitioner since the impugned notice is required to be quashed on the non fulfillment of the condition prescribed in first proviso to section 147 of the Act itself. Insofar as the other issues are concerned, we keep it open to be adjudicated at the appropriate stage. 14. On this short point, the impugned notice under section 148 of the Act dated 30 March 2021 and the order rejecting the objection dated 1 February 2022 for the assessment year 2013-14 are quashed and set aside. 15. Rule is made absolute in above terms without any costs order. (Jitendra Jain, J) (M.S. Sonak, J)

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