S.C., JOHNSON PVT. LTD.,GURGAON vs. ADDI. CIT SPECIAL RANGE-8, NEW DELHI

ITA 1122/DEL/2020Status: DisposedITAT Delhi28 August 2025AY 2008-09107 pages
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What did the Tribunal hold?

The Tribunal held that the reassessment proceedings initiated under Section 147 of the Act were valid. The Tribunal found that the assessee had failed to disclose fully and truly all material facts necessary for assessment, which was a prerequisite for the proviso to Section 147 not to apply. The Tribunal also found that the reasons recorded by the Assessing Officer (AO) were not vague and that there was a valid change of opinion based on fresh tangible material. Regarding the salary expenditure, the Tribunal held that the Ld. CIT(A) erred in upholding the disallowance. It reasoned that under the mercantile system of accounting, expenditure incurred in a particular year is deductible in that year, even if the debit note is received in a subsequent year, provided the liability was ascertainable. For the adjustment to book profits under Section 115JB concerning goodwill amortization, the Tribunal held that the Ld. CIT(A) erred in upholding the AO's action. The Tribunal noted that the Scheme of Amalgamation was approved by the Hon'ble Delhi High Court, and the accounting treatment, including the amortization of goodwill, was in accordance with the scheme and Accounting Standard-14 ('AS-14') using the 'Purchase Method'. The Tribunal emphasized that the AO cannot tinker with a scheme approved by the High Court and that the goodwill amortization was correctly accounted for as per AS-14. The Tribunal directed the deletion of the adjustment made to book profits under Section 115JB.

What were the facts?

The assessee, S.C. Johnson Pvt. Ltd., is challenging the orders of the CIT(A) for assessment years 2006-07, 2007-08, and 2008-09. The appeals stem from reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961. For AY 2006-07, the original assessment was concluded under Section 143(3). Reassessment proceedings were initiated, and a reassessment order was passed on March 30, 2014, computing the assessee's income at NIL but assessing book profit at INR 69,62,80,147/- against a declared book loss. The assessee's objections to the reopening and the subsequent additions were dismissed by the CIT(A). The core dispute involves the validity of the reassessment proceedings and the adjustment made to book profits concerning the amortization of goodwill arising from an amalgamation scheme approved by the Delhi High Court.

What were the issues?

1. Whether the Ld. CIT(A) erred in upholding the initiation of reassessment proceedings under Section 147 of the Act, considering the assessee's grounds that there was no escapement of income, the proceedings were barred by limitation under the proviso to Section 147, the reasons to believe were vague, and it was merely a change of opinion. (Assessee's contention: The reassessment was initiated without any tangible new material and was based on a change of opinion. The assessee had fully and truly disclosed all material facts, making the reassessment barred by limitation. The reasons recorded were vague and lacked proper satisfaction from the CIT under Section 151(2). Revenue's contention: Not recorded in the judgment.) 2. Whether the Ld. CIT(A) erred in confirming the disallowance of salary expenditure of expatriates amounting to Rs. 3,45,62,000/- for AY 2006-07, solely because debit notes were received in the subsequent financial year. (Assessee's contention: Under the mercantile system of accounting and the principle of prudence, the expenditure should be claimed in the year it pertained, irrespective of the debit note's receipt date. Revenue's contention: Not recorded in the judgment.) 3. Whether the Ld. CIT(A) erred in upholding the adjustment of Rs. 85,21,54,503/- in the book profits under Section 115JB of the Act, relating to the amortization of goodwill arising from an amalgamation. (Assessee's contention: The adjustment for goodwill amortization does not fall under Explanation 1 to Section 115JB. The amalgamation was accounted for using the 'Purchase Method' as per AS-14, approved by auditors and the High Court, and the AO cannot alter a High Court-approved scheme. Revenue's contention: Not recorded in the judgment.)

Which sections of the Income-tax Act were involved?

Section 147,Section 143(3),Section 148,Section 139(1),Section 151(2),Section 250,Section 80IB,Section 80IC,Section 115JB,Section 234D

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Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI

Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL

For Appellant: Shri K. M. Gupta, Adv. &, Ms. Shruti Khimta, AR
For Respondent: Shri Mahesh Kumar, CIT DR
Hearing: 02.06.2025Pronounced: 28.08.2025

Heard together (3 matters)

ITA No.1850/Del/2019
ITA No.1470/Del/2020
ITA No.1122/Del/2020

Read from the judgment's own cause title. This page is filed under one of them.

PER MANISH AGARWAL, AM :

The captioned appeals are filed by assessee against the different orders of Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of different assessment orders tabulated as under:

The order continues below.

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