M/S. GERMAN REMEDIES LTD. vs. DY COMMISSIONER OF INCOME TAX CIRCLE 6(3) AND ORS. MUMBAI

IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION

WRIT WRIT WRIT PETITION NO. 621 OF 2005 . PETITION NO. 621 OF 2005 . PETITION NO. 621 OF 2005 .

WITH WITH WITH

WRIT WRIT WRIT PETITION NO. 619 OF 2005. PETITION NO. 619 OF 2005. PETITION NO. 619 OF 2005.

M/s German Remedies Ltd.

.. Petitioners.

V/s.

Dy. Commissioner of Income-Tax. .. Respondent.

Shri Ajay Singh for the petitioner.

Shri A.S. Rao for the respondent.

CORAM CORAM CORAM : V.C.DAGA AND J.P. DEVADHAR, JJ. : V.C.DAGA AND J.P. DEVADHAR, JJ. : V.C.DAGA AND J.P. DEVADHAR, JJ.

DATED DATED DATED : 28.10.2005. : 28.10.2005. : 28.10.2005.

ORAL ORAL ORAL JUDGMENT (Per V.C.Daga,J.) JUDGMENT (Per V.C.Daga,J.) JUDGMENT (Per V.C.Daga,J.)

These petitions, filed under Article 226 of

the

Constitution of India, are directed against the

notices dated 15.9.2003, issued under section 148 of

the

Income Tax Act, 1961 (‘Act’ for short), seeking

re-open

completed

assessments

the

petitioner-assessee for the assessment years 1997-98

and

1998-99,

along

with

orders

dated

18.2.2005

passed

the Deputy Commissioner

Income-tax,

Range 6(3),Mumbai, rejecting the objections taken by

the petitioners to reopening their completed

assessments.

Parties to the petition are same; issue

involved

is identical;

challenges to the

impugned

orders are common; so this common judgment shall

dispose of both petitions. CNR No : HCBM020042872005 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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The facts necessary to appreciate rival

contentions

are

taken

from

Writ

Petition

No.

619/2005, wherein assessment year involved is

1998-99.

The The The Facts: Facts: Facts:

The petitioners are the public Limited

Company

engaged

in the business

manufacturing

pharmaceutical products and other formulations.

The

return

of income for the Assessment Year 1998 -1999

was filed on 29.11.1998. The last date of the

assessment year was 31.3.1998..

The assessment order was passed under

section

143 (3) of the Act on 7.1.2000.

Last

date

for

issue

notice under section 148(1)

per

proviso to section 147 was 31.3.2003, whereas notice

under section 148(1) came to be issued on 15.9.2003;

which came to be served on the petitioners on

8.10.2003.

The petitioners responded to the notice

under protest and filed a letter seeking the reasons

for issuing the notice to reopen the assessment.

spite

of specific request, respondent No.1 did

not

disclose

reasons.

Hence petitioners were

required Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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file writ petition being Writ Petition No.

3065

2004.

On being noticed, respondent-

department

appeared

and disclosed reasons vide their affidavit

dated

17.1.2005

for

reopening

assessment

under

section

148 of the Act.

In view of the

disclosure

reasons;

petitioners

were permitted

file

objections,

within

two weeks from the date of

the

order

dated

18.1.2005,

with

the

respondents

object

to reopen the assessment.

The petition came

to be disposed of. The reasons disclosed are as

under:

"(i)

Expenses on interest, royalty, consultancy

and

analytic

fees

in the

foreign

currency

were

allowed

though

there is no evidence on

record

show that tax had been deducted before remittance of

the

same.

U/s 40(a) of the Act, the

payments

foreign currency are allowed in the year in which

tax has been deducted.

(ii)

Central excise duty and customs duty payable

finished

goods for the year is not

taken

into

account in valuing closing stock resulting into

under assessment."

The objections to the reasons recorded were

decided

by the respondent No.1 vide its order dated

18.2.2005; whereby objections raised came to be Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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rejected.

Being aggrieved by the aforesaid action of

respondent

No.1,

petitioners

have

invoked

writ

jurisdiction of this Court to challenge their action.

On being noticed, respondents appeared in

this petition and filed their counter affidavit and

tried to justify their action.

Submissions: Submissions: Submissions:

The Learned Counsel appearing for the

petitioners submits that notice issued under section

148

dated 15.9.2003 for A.Y.

1998-99 by respondent

No.1

barred

by limitation since

has

been

issued

beyond the statutory period of 4 years

from

the

end of the relevant assessment year.

According

to the learned Counsel for the petitioners period of

years commences on 31.3.2003 and as such impugned

notice

issued

under section 147 seeking to

reopen

for both the assessment years 1997-98 and 1998-99 is

bad in law and without jurisdiction.

10.

The learned Counsel further submits that

returns

were subject to scrutiny and the assessment

under

sec.

143(3) as such notice notice u/s 148(1)

cannot

issued merely on change of opinion.

No Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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fresh facts have been brought on record to issue the

notice

in question, as such, impugned notice issued

under

section 148 seeking to reopen the

assessment

for years 1998-99 is without jurisdiction and bad in

law.

11.

The Learned Counsel for the petitioners

further

submits

that the approval granted

the

C.I.T, Mumbai, suffers from non-application of mind.

According

him, approval was granted in

most

casual

manner.

He placed reliance on the

judgment

the

Delhi

High

Court in the

case

United

Electrical

Co.P.Ltd

vs.

CIT (2002) 258

ITR

317

(Del),

wherein

the Delhi High Court held that

the

power

vested in the Commissioner under section

151

grant or not to grant approval to the

Assessing

Officer

reopen an assessment is coupled with

duty.

The Commissioner was duty bound to apply his

mind

to the proposal put up to him for approval

the

light

the

material

relied

upon

the

Assessing Officer. That power cannot be exercised

casually, in a routine and perfunctory manner.

12.

The Learned Counsel further submits that the

reasons

recorded

do not attribute any omission

inadvertence

on the part of the petitioners to make

true

and

full

disclosure of its income.

his

submission,

material is available on record

to Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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justify formation of belief that the income of the

petitioners had escaped assessment.

13.

The learned Counsel further submits that

full information with respect to the tax deducted at

source

from

the payments made to

various

parties

towards

its expenditure was disclosed in the return

income

for

the TDS in Form No.

which

was

filed

22.6.1998;

whereas details of party

and

payments

made were also disclosed in the return

income.

The Tax Audit Report accompanied with

the

Annual

Return

filed

with

the

return

clearly

mentioned

that all the obligations with respect

TDS

were properly satisfied and complied with.

also

submits that notice under sec.

148 of the Act

has been issued contrary to the circular issued by

the CBDT No. 549 dated 31.3.1989.

14.

The Learned Counsel for the petitioners

further

submits that second reason for issuing

the

notice

under

sec.

148(1)

with

respect

valuation

of closing stock with Modvat (Excise

and

custom duty paid).

The petitioners submit that this

very

issue

was

considered

detail

the

assessment

order

dated 21.12.2000.

Reference

provisions

of sec.

145A is to be found also in the

assessment

order.

He further submits that on

this

very

same

ground the petitioners had preferred

an Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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appeal

for A.Y.

1998-99;

which was allowed by the

First

Appellate

Authority

and also

the

Tribunal

based

on the decision of this Court in the case

C.I.T.

vs.

Indo Nippon vs.

which was subsequently

affirmed

by the Apex Court in the judgment reported

(2003)

261

ITR 275.

Petitioners

have

placed

reliance

on various judgments of this Court as well

of the Apex Court in the cases of (1)

Caprihens

India

Ltd.

vs.

Tarun Seem- (2004) 266

ITR

566

(Bom),

(2)

CIT vs.

Farmer France- (2004) 264

ITR

566

(SC), (3) Hindustan Lever Ltd vs.R.B.

Wadkar,

ACIT (2004) 268 ITR 339 (Bom), (4) Grindwell Norton

Ltd. vs. ACIT (2004) 267 ITR 673 (Bom)

Per Per Per Contra: Contra: Contra:

15.

The Learned Counsel appearing for the

Revenue submits that notice under section 148 of the

Act was issued after recording reasons for reopening

the assessment.

He further submits that section

149

(1)(b)

empowers the respondents to reopen

the

assessment

with prior approval of the

Commissioner

of Income Tax under section 151(1) of the Act. He

further submits that there was no evidence

record

show

that TDS had been

deducted

after

making

payment under section 40 (a) of the Act.

further

submits that since the assessee had

failed Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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make

full

and

true

disclosure

relevant

material

the assessment remained under section

147

the Act.

He further submits that the respondent

applied

provisions

of section 147

which

empowers

reopening

assessment

completed

under

section

142(3)

after

recording

reasons.

The

reasons

recorded

for

reopening

assessment

were

already

furnished

and, therefore, action of the

respondent

was in accordance with law.

He further submits that

the

reasons

furnished

were

objected

the

petitioner

and same were decided in accordance with

law and, therefore, petition is liable to be

dismissed.

16.

The Learned Counsel for the Revenue also

pressed

into service two affidavits;

one filed

Shri

Samir

Takriwal,

Deputy

Commissioner

Income-Tax,

Circle

6(3),

Mumbai,

who

had

jurisdiction over the petitioners.

He has stated on

oath

that

he had prepared proposal for opening

assessment

year

1998-99

and

since

years

had

already

elapsed, he did obtain prior approval

from

the Commissioner of Income-tax to reopen assessment.

According

to him, he had prepared the proposal

and

himself

had

gone

the

office

the

Commissioner of Income tax on 15.9.2003 with file

for taking his prior approval. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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17.

The second affidavit is that of Shri

Tarkeshwar

Singh,

who

at the relevant

time,

was

working

as Commissioner of Income-tax, City-6.

has

stated

on oath that 15.9.2003,

the

Assistant

Commissioner

Income Tax / Assessing Officer

the

petitioner’s case had approached his office for

taking prior approval to the proposal for re-opening

the

assessment

of the petitioners u/s 148 for

the

A.Y.

1998-99.

He, in the affidavit

states

that

after

discussing

the

matter

with

the

Assistant

Commissioner,

he was satisfied that a case has been

made

out

for

reopening

the

assessment

such

granted approval to the proposal on the same day

i.e. 15.9.2003.

18.

In rejoinder,the petitioner submits that the

contention

raised

with

respect of

provisions

section

149(1)(b)

and

151

not

correct.

submits

that

the

approval

granted

without

application

mind and the same appears

have

been

granted in routine and perfunctory manner.

further reiterated that respondent has not given any

reply

to the petitioner’s specific submissions that

during

the course of original assessment the

issue

of valuation of closing stock was examined in detail

in the light o the ratio laid down by the Apex Court

the

case of British Paints India

Ltd.

(1991)

(188) ITR 44 (SC), as such the power to reopen Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

(10)

exercised by the Revenue is bad and illegal.

Consideration: Consideration: Consideration:

19.

Having heard rival parties and having

examined

averments

made

in the petition

and

the

counter

affidavits,

one

has

reach

the

conclusion

that power to reopen has been

exercised

on unsustainable reasons.

It is not in dispute that

the

return

of income filed by the

petitioner

was

accompanied

audit

report,

profit

and

loss

accounts

and

tax audit report under sec.

44AB

the

Act.

The

record reveals that true

and

full

information

with

respect to TDS from the

payments

made

various

parties towards

expenditure

was

disclosed

the return for TDS in Form

No.27

22nd June 1998m, which is produced on record at Ex.J

alongwith

Challan

page 155.

Details

the

various

parties

and payments were enclosed to

the

return

income

which clearly

showed

that

all

obligations

with

respect

TDS

were

properly

complied

with.

Petitioner

vide

letter

dated

27.11.1998

had also submitted statement of TDS

and

certificate

as such, according to the

petitioners,

the first reason pressed into service to reopen is

unsustainable. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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20.

So far as second reason for issuing notice

under

sec.

148(1)

with respect to

valuation

closing

stock

with Modvat (excise and custom

duty

paid)

concerned,

may

noted

that

the

inventory is required to be valued either at cost or

market

price whichever is lower.

According to this

principle,

assessee had valued its closing stock at

cost.

The

cost of purchase consists

purchase

price

including

duties and taxes, freight

inwards

and

other

expenditure attributable to

acquisition

and

bringing the stock in the present situation and

location

on the date of valuation.

The

excise

duty

and

sales

tax paid on the

purchase

raw

material

forms part of the cost and is required

taken

into

consideration for

the

purpose

valuation not closing stock as laid down by the Apex

Court in the case of British Paints India (supra).

21.

The very same judgment has been followed in

the

assessment

order

dated

21.12.2000

(Ex.D).

Assessment

order

also refers to section

145

(A).

The

same

order related to A.Y.

1998-99 which

was

allowed

the first appellate authority was

also

before

the Income Tax Appellate Tribunal, based

the decision of this Court in the case of Indo

Nippon (supra).

22.

In the above circumstances, the reasons Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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mentioned

are unsustainable.

Those reasons do

not

lead to formation of belief that income has escaped

assessment for a.y. 1998-99.

23.

Having said so, it is necessary to consider

more

submissions

advanced

behalf

the

petitioners.

Firstly, the impugned notice is bared

by limitation since it was issued beyond period of 4

years

from

the

end of relevant

assessment

year.

Failure

on the part of petitioners to disclose full

and

true

material has not been alleged.

this

case,

power

reopen has

been

exercised

after

expiry

years

from

the

end

relevant

assessment

year

which

they

relate.

the

circumstances,

the

impugned

notice

having

been

issued

beyond 4 years from the last date of the

relevant

assessment

year

without

alleging

any

failure to disclose full and true material facts is

liable to be set aside.

24.

It is not in dispute that the Assessing

Officer

15.9.2003 had himaself carried file

the

Commissioner of Income tax and on the very same

day,

rather

same

moment in the

presence

the

Assessing

Officer,

the Commissioner of Income

tax

granted

approval.

matter

fact,

while

granting

approval it was obligatory on his part

verify

whether there was any failure on the part of

the

assessee

disclose full and

true

relevant Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25

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facts

the

return

inocome

filed

for

the

assessment

income of that assessment year.

was

also obligatory on the part of the Commissioner

consider whether or not power to reopen is being

invoked

within a period of 4 years from the end

the

assessment year to which they relate.

None

these

aspects have been considered by him which

sufficient

to justify the contention raised by

the

petitioner

that

the approval granted suffers

from

non-application

of mind .

In the above view of the

matter,

the

impugned notices and consequently

the

order justifying reasons recorded are unsustainable.

The same are liable to be quashed and set aside.

25.

In the result, the petitions are allowed.

Rule made absolute in each petition with no order as

to costs.

(J.P. DEVADHAR, J.)

(V.C. DAGA,J) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:25 Powered by TCPDF (www.tcpdf.org)