RALLIS INDIA LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX RANGE 3(3) AND 2 ORS.

By this writ petition under Article 226 of the Constitution of India the petitioners seek a writ of Certiorari questioning the validity of notice dated 24 th March, 2010 issued by the first respondent under Section 148 of the Income Tax Act, 1961 (‘the Act') and an order dated 24 th December, 2010 rejecting objections in respect of the Assessment Year 2005-06. 2. The facts in brief are as follows:- The petitioner, a company engaged in the business of manufacturing, trading and marketing of pesticides had filed its return of income on 24 th October, 2005 declaring the income of Rs.8.76 crores accompanied by detailed working as also a report of a Chartered Accountant under Section 115JB of the Act. On 10 th December 2007 an Order U/s 143(3) came to be passed determining total income at Rs.8,87,36,110/- under section 115JB. The respondent no.1-Deputy Commissioner of Income Tax passed an order dated 10 th December, 2007 assessing income under Section 115JB at Rs.8.87 crores. The Assessing Officer made certain additions under the Act. The petitioner being aggrieved, filed an appeal to the Commissioner of Income Tax (Appeals) challenging disallowance.

In the meantime, on 6 th February, 2008, respondent no.1 issued notice under Section 148 to reassess the income in respect of the Assessment Year 2005-06. The reasons for reopening were furnished on 1 st December, 2008 stating that neither assessee nor the AO have considered provisions for doubtful debts and diminution in value of investments and which allegedly resulted in escapement of income. On 29 th December, 2008 the respondent no.1 passed an order under Section 143(3) read with Section 147 enhancing the book profit to Rs.15.12 crores, the reason being that the additions on account of provision for diminution in the value of an asset and provision for doubtful debts.

The petitioner challenged the order of reassessment before the Commissioner of Income Tax (Appeals) who allowed the appeal on merits following the decisions of the Supreme Court in the case of CIT v/s HCL Comnet Systems & Services Ltd. 305 ITR 409 and Apollo Tyres v/s CIT (255ITR 273) holding that the AO has to accept the authenticity of accounts maintained under the Companies Act and as certified by auditors.

The Revenue being aggrieved by the order passed by the Uploaded on - 21/08/2020 wp-328.11(5.12.17).doc Commissioner of Income Tax (Appeals) challenged the same before the Tribunal. The assessee also filed a Cross Appeal on the ground that the AO had erred in resorting to reopening of the assessment. The Tribunal allowed the cross appeal, held that the order dated 29 th December 2008 in reassessment proceedings was bad in law and dismissed the appeal by the revenue as being infructuous.

The Revenue challenged the said order of the Tribunal in this Court by filing Income Tax Appeal (L)No.2160 of 2010. Pending the said appeal, on 25 th March, 2010 the petitioner once again received a notice under Section 148 of the Act dated 24 th March, 2010 in respect of the Assessment Year 2005-06 seeking to reopen/reassess the completed scrutiny and reassessment proceedings. On 30 th March, 2010 and on 19 th April, 2010 the petitioner requested for the reasons recorded for reopening the assessment and also requested that the original return filed on 24 th October, 2005 be treated as return filed in compliance with notice under Section 147. The reasons were furnished on 22 nd April, 2010 stating that the set off of unabsorbed depreciation against book profit or Assessment Year 2005-06 is not in order since it had been set off against the book profit for the Assessment Year 2004-05 and hence, there was no amount of unabsorbed depreciation available for set off in Assessment Year 2005-06. Uploaded on - 21/08/2020 wp-328.11(5.12.17).doc

Objections were filed on 14 th July, 2010. The petitioner informed the respondent no.1-Deputy Commissioner of Income Tax of the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v/s. ITO 259 ITR 19 and requested the Assessing Officer to dispose of the objections before proceeding with the assessment. In terms of the said decision, the petitioner clarified what is set off was unabsorbed business loss on the books amounting to Rs.17.91 crores. On 30 th July, 2010 and on 4 th August, 2010, the respondent no.1 issued a notice under Section 142(1) for commencing reassessment proceedings. On 12 th August, 2010, the petitioner challenged jurisdiction of respondent no.1 inviting attention to the case of GKN Driveshafts (supra) to dispose of the objections before proceeding with the reassessment proceeding. On 1 st October, 2010, the respondent no.1 once again issued a letter calling upon the petitioner to make submissions on merits of the case and show cause by 11 th October, 2010 as to why the excess loss set off should not be rejected. On 11 th October, 2010 the petitioner reiterated its objections and submitted that by virtue of the decision of GKN Driveshafts (supra), the procedure set out for disposal of objection must be followed before proceeding with the assessment.

Meanwhile, the letter was sent on 18 th November, 2010 calling upon the revenue to decide the objections. However, despite this on 20 th November, 2010 the petitioner received an Assessment Order in contravention of the directions

The objections raised were rejected primarily on the ground that there is no change of opinion and the respondent had reason to believe that income has escaped assessment. On 31 st December, 2010, the petitioner filed supplementary objections reiterating the decisions of the Supreme Court and this Court. The petitioner has impugned the notice dated 24 th March, 2010 and the order rejecting objections of reassessment dated 24 th December, 2010 as being contrary to law.

In an affidavit-in-reply filed on behalf of the respondents by one Pankaj Singhania, Deputy Commissioner of Income Tax, it is contended that the challenge in this petition is uncalled for and not justified. He has referred to chronology of events in paragraph 4 and contended that prior to notice under Section 148 then Assessment Officer has recorded reasons for reopening of the Uploaded on - 21/08/2020 wp-328.11(5.12.17).doc assessment as income chargeable to tax has escaped assessment and there was reason to believe so. According to the deponent, there is a clear link between the formation of an opinion that the income chargeable to tax has escaped assessment and the reasons recorded based on the material available on record. He contends that there is a prima facie mistake apparent on the record since the petitioner was not entitled to fetch double benefit on account of unabsorbed depreciation, and therefore, reopening of the assessment was the only solution. According to the Assessing Officer, a false claim had been made to set off unabsorbed depreciation against the book profits of Assessment Year 2005-06 which have already been set off in 2004-05. The contention that there is a change of opinion has been denied.

Mr. Pardiwala, the learned Senior Counsel, appearing on behalf of the petitioner pointed out that the impugned orders were passed in the teeth of settled law. He submitted that the impugned orders were illegal and were liable to quashed and set aside. No personal hearing was granted by the respondent no.1 in order to enable the petitioner to make submissions on the validity of the reassessment proceedings. This Court had vide an order dated 13 th December, 2010 directed the respondent no.1 to decide the objections in accordance with law and the personal hearing was extremely necessary and ought to have been granted. Mr. Pardiwala further submitted that the petitioner had already filed a report of a qualified Chartered Accountant in the requisite form certifying that Uploaded on - 21/08/2020 wp-328.11(5.12.17).doc the book profit has been computed in accordance with the provisions of Section 115JB and the working of book profit was also enclosed and even otherwise the issue of working of book profit had already been provided twice before the impugned order was issued as set out above.

Mr. Pinto, on behalf of respondents asserted correctness of the impugned order dated 24 th October, 2010 for the reasons set out above. Mr.Pinto submitted that the record itself shows that there is an escapement of income assessment to the extent of Rs.17,91,09,548/- which needs to be brought to tax. It is contended that the assessment has been rightly reopened within a period of 4 years of aforesaid. He therefore submitted that the petition is liable to be dismissed.

Having heard counsel for the parties today, we find that after this writ petition was filed, vide ad-interim order dated 24 th January, 2011 the operation of the impugned notice dated 24 th March, 2010 and the order rejecting the objections dated 24 th December, 2010 came to be stayed. The respondents were restrained from taking any steps in the matter. Interim relief has continued to operate till disposal of the petition.

The decision of this Court in the case of the assessee for the Assessment Year 2004-05 [see (2010) 323 ITR 54 (Bom)] holds that a mere change of Uploaded on - 21/08/2020 wp-328.11(5.12.17).doc opinion would not justify the Assessing Officer in seeking a recourse to the powers under Sections 147 and 148 unless there is tangible material before the Assessing Officer to prove that income chargeable to tax has escaped assessment. This Court further held, while allowing the petition, during the course of the assessment proceedings, that the Assessing Officer brought his mind to bear upon the questions involved and there was absence of tangible material on the basis of which assessment could have been reopened.

In the present case the very same assessment year was under consideration whereas this Court has already taken a view in the aforesaid assessee's case. There was no warrant for issue of further notice. It is evident that this has occasioned only as a change of opinion and an afterthought and in any event, the reopening sought to be effected is beyond the period of 4 years. In CIT v/s. Kelvinator of India Ltd. (2010) 320 ITR 561(SC) , it has been held by the Supreme Court that even within the period of 4 years there has to be tangible material on the basis of which assessment can be reopened.

Perusal of the aforesaid judgment in the case of the assessee itself reveals that it pertains to Assessment Year 2004-05 and in view of the decision of this Court in the case of the assessee for the aforesaid Assessment Year 2004-05, Income Tax Appeal (L)no.2160 of 2010 came to be dismissed. What is material to note is that the affidavit in reply admits of the fact that the reasons for Uploaded on - 21/08/2020 wp-328.11(5.12.17).doc reopening were based on the material available on record (emphasis supplied). Even otherwise, perusal of the impugned order reveals that the objections raised by the appellant were on two grounds viz. that the Assessing Officer could not have had reason to believe that income chargeable to tax had escaped assessment and secondly that the assessment had to be reopened only on account of change of opinion. While dealing with the said two, the respondent concluded in paragraph 12 and 13 of the impugned order that it is upon verification of the case records (emphasis supplied) that the claim for unabsorbed depreciation of Rs.17,91,09,548/- was found to have been (allegedly) wrongly claimed and that the reasons recorded are not based on any suspicion but on a solid foundation of law and the facts and placed reliance on the decision of the Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 in support of the rejection of objections.

In our view, considering the facts and circumstances of the case and the decision [(2010) 323 ITR 54 Bom.] of our High Court in the case of very assessee for the same assessment year, there is no justification for reopening the assessment. Lastly we express our displeasure at the conduct of the officer of revenue in issuing a fresh notice despite a binding decision in the case of the assessee and the law laid down by the Supreme Court. The revenue must reign in their officers in matters which have attained finality failing which costs