Bombay High Court Judgments — 2023

The High Court held that the notice under Section 148 of the Income Tax Act, 1961, was unsustainable and quashed it. The Court found that during the original scrutiny assessment, the petitioner had furnished details regarding advertising and sales promotion expenses, including the 'Colour Idea Stores' expenditure. The AO had applied its mind to these expenses, even disallowing some, which indicated that the claim was considered. The reasons recorded for reopening did not disclose what specific material or fact was not disclosed by the assessee, failing to establish the necessary link between the reasons and the evidence as required by Section 147 and the principles laid down in Hindustan Lever Ltd. Vs. R.B. Wadkar. Therefore, it could not be said that there was any failure on the part of the petitioner to disclose fully and truly material facts necessary for the assessment. The Court concluded that the notice did not satisfy the jurisdictional requirement of Section 147.

The High Court held that the present case was squarely covered by its previous decision in J.M. Financial & Investment Consultancy Services (P) Ltd. The Court reiterated that the Relaxation Act applied only to cases where the limitation was expiring on March 31, 2020. For Assessment Year 2015-16, the limitation period was six years, expiring on March 31, 2022, making the Relaxation Act inapplicable. The Court found that while the time to issue the notice might have been extended, this did not amount to amending the provisions of Section 151 of the Act. Therefore, the approval for the issuance of the notice under Section 148 ought to have been obtained from the authority specifically mentioned in Section 151(1) of the Act, not the Additional Commissioner. Consequently, the impugned notice dated March 31, 2021, was quashed. The Court did not deem it necessary to decide other grounds raised by the petitioner, as the petition was allowed on the issue of sanction.

The Tribunal held that the impugned notice dated March 30, 2021, under Section 148 and the consequent order dated February 25, 2022, disposing of the objections, were unsustainable and liable to be set aside. The Tribunal reasoned that during the original scrutiny assessment under Section 143(3), the issue related to intangible assets was examined, and the petitioner had furnished details regarding the capitalization of license fees and the claim for depreciation. Although the assessment order did not contain specific discussion on this claim, it was presumed to have been considered and allowed. The Tribunal noted that no new information or material had emerged between the original assessment and the formation of the Assessing Officer's opinion for reopening. Therefore, the reopening was based on a mere change of opinion, which does not satisfy the jurisdictional foundation under Section 147 of the Act. The Tribunal relied on the principles laid down in Jindal Photo Films Ltd. and distinguished the applicability of M/s. Consolidated Photo and Finvest Ltd. in light of subsequent judgments like KLM Royal Dutch Airlines.

The High Court held that the proposed questions did not give rise to any substantial question of law. The Court noted that a similar issue had already been decided in the case of Commissioner of Income Tax Vs. Continental Warehousing Corporation (Supra). Since there was no change in the facts or the law, the Court found no reason to interfere with the ITAT's order. The reasoning was based on the principle of consistency and the established legal position as determined by higher courts in similar matters. The ITAT's finding that the assessee fulfilled the conditions for deduction under Section 80IA(4) was implicitly upheld by the High Court's decision not to frame substantial questions of law. The operative direction was to dismiss the appeal.

The High Court held that the respondents failed to consider the petitioner's contentions and its status as a Trust, instead proceeding based on its old status as a Firm. This was evident from the orders which did not consider the various letters addressed by the petitioner requesting a change in status. The Court relied on the principles laid down in UTI Mutual Fund vs. Income-tax Officer (2012) and UTI Mutual Fund vs. Income-tax Officer (2013), emphasizing that stay applications must be decided objectively, balancing the interests of the revenue and the assessee, and considering the prima facie case and triable issues. The Court found that the respondents had not considered these parameters in their true spirit, particularly by demanding a deposit when a strong prima facie case was made out and the petitioner was a Trust for employee benefit. The Court also referred to Humuza Consultant, where a stay was granted due to a prima facie case and a high-pitched assessment. Consequently, both matters were remanded back to the respondents to consider the petitioner's application as a Trust and dispose of the matter within four months. No coercive steps were to be taken against the assessee for recovery of the demand.

The High Court held that the issues raised in the writ petitions are substantially covered by the Supreme Court's decision in Union of India and others v. Ashish Agarwal. Accordingly, the petitions were disposed of by treating the impugned notices as Show Cause Notices in terms of Section 148A(b) of the Income Tax Act. The Court directed that the respective Assessing Officers shall, within 30 days from the date of the order, provide to the assessees the information and material collected by the Revenue. The assessees would then have two weeks thereafter to reply to these Show Cause Notices. The Court explicitly stated that all defenses available to the assessees, including those under Section 149 of the IT Act, and all rights and contentions available to both the assessees and the Revenue under the Finance Act, 2021, and in law, shall continue to be available. The judgment did not expressly leave any issue undecided.