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Notice for re-assessment issued after four years’ limitation period is unsustainable when there is no failure of assessee to make full & true disclosure of material facts: HC

2019-TIOL-2034-HC-MUM-IT

IN THE HIGH COURT OF BOMBAY

Income Tax Appeal No. 803 of 2017

PRINCIPAL COMMISSIONER OF INCOME TAX-7

Vs

M/s GLAXO SMITHKLINE PHARMACEUTICALS PVT LTD

M S Sanklecha & Nitin Jamdar, JJ

Dated: August 20, 2019

Appellant Rep by: Mr Suresh Kumar
Respondent Rep by:
 None

Income Tax – Section 147 & 148

Keywords – Reassessment

The assessee company had filed its return for the relevant AY, the assessment was completed u/s 143(3) for the AY 2005-06 on 29th December, 2008. Thereafter, on 27th March, 2012, a notice u/s 148 was issued to the assessee, seeking to reopen the assessment for the AY 2005-06. The reopening notice was beyond a period of four years and the AO had not mentioned any failure of the assesssee to disclose fully and truly the material facts has led to escapement of income. On appeal, the CIT(A) as well as the Tribunal quashed the reassessment proceeding, initiated by the AO u/s. 147 r/w 148. Whether notice issued u/s 148 for reopening of assessment after four years is Justified, when there is no failure on part of the assessee to disclose information necessary for assessment.

Whether notice issued u/s 148 for reopening of assessment after four years is Justified, when there is no failure on part of the assessee to disclose information necessary for assessment – NO: HC

++ the notice for reopening of assessment was issued to the assessee beyond a period of four years, and the AO also not mentioned any failure on the part of the assessee to disclose fully and truly all material facts which were necessary for the assessment. The Tribunal while allowing the appeal of the assessee placed reliance upon the decision of this Court in Titanor Components Ltd. v/s. CIT wherein it was held “…it is necessary for the AO to first observe that there is a failure to discloser fully and truly all material facts necessary for assessment and having observed that there is such failure to proceed under Section 147. It must follow that where the A.O. does not record such a failure he would not be entitled to proceed u/s 147….”. Therefore, this court supports the view taken by the Tribunal is in accord with the decision of this Court in Titanor Components Ltd. v.CIT. Thus, no substantial question of law arises for court’s consideration.

Revenue’s appeal dismissed

JUDGEMENT

This Appeal under Section 260A of the Income Tax Act, 1961 (the Act), challenges the order dated 7th April, 2016 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 7th April, 2016 is in respect of Assessment Year 200506.

2. Revenue urges the following questions of law, for our consideration:

“(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in quashing the reassessment proceeding, initiated by the AO u/s. 147 r.w.s. 148 of the IT Act, 1961?

(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in quashing the reopening u/s. 147 of the Act holding that the reasons had not mentioned that the failure of the assesssee to disclose fully and truly the material facts has led to escapement of income without appreciating that mere submission of details during the original proceeding do not tantamount to submission of all material facts truly and fully?

(c) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in quashing the reopening u/s. 147 of the Act without considering the matter on merits of the case?”

3. From the above, it is evident that the only issue which arises is the jurisdiction of the Assessing Officer to reopen an assessment under Section 147/148 of the Act by notice dated 27th March, 2012 beyond a period of four years from the end of the relevant Assessment Year. This in the context of the fact that the regular assessment was completed under Section 143(3) of the Act and the recorded reasons not mentioning any failure on the part of the Respondent to truly and fully disclose all material facts necessary for the Assessment.

4. The reasons recorded in support of the reopening notice dated 27th March, 2012 reads as under:-

“On perusal of the case record, it is noticed that the assessee company had made a provision for doubtful debts of Rs. 1258.61 lacs in the Balance Sheet as on 31/03/2005 and an amount of Rs.11,46,19,000/- had been reduced as amount written off in books as bad debts from the income in the computation of income filed along with the return of income. The said debts had not been debited in the profits and loss account. As the bad debts of Rs.11,46,19,000/- which is not debited in the profit and loss account was required to be disallowed and the omission to do so as has resulted in under assessment of income by Rs.11,46,19,000/-. This view was held in the case of CIT v/s. Hotel Ambassador (2002) 121 Taxman 437, the writing off of bad debts without charging in same the profit and loss account is not writing off at all. So, the bad debt of Rs.11,46,19,000/- which is not debited in the profit and loss account is required to be disallowed.

2. In response, Shri Saurabh Kuwadia, Sr. Manager – Taxation, from the assessee company attended and submitted the details called for from time to time. The assessee vide its reply submitted on 31.10.2012 stated as under:-

(a) Total provision made for doubtful debs/ loans and advances is Rs.2,87,77,700/- (page 16 of the signed accounts). In revised computation of income, whole amount of Rs.2,87,77,000/- has been disallowed.

(b) Amount claimed in the revised computation of income is Rs.11,46,19,000/- as bad debts written off in the books is Rs.12,83,33,000/-. However, we have not claimed bad debts of Rs.11,37,14,000/- pertaining to Horus Pharma.

(c) Also enclosed herewith, is schedule of provision for doubtful debts and advances which demonstrates opening provision + provision for the current year – bad debts written off = closing provision which matches with the signed accounts. (Annexure 1).

(d) Also enclosed is the revised computation of total income ascertaining the above mentioned facts as per Annexure 2. Relevant extracts of the signed accounts are enclosed as per Annexure 3.

Considering the above facts and explanation given by us, we state that there has no understatement of any income/ underassessment of any income. Consequently, we request you to drop the reassessment proceedings for the assessment year 200506.”

5. It is an undisputed position that for the Assessment Year 2005-06, assessment was completed under Section 143(3) of the Act on 29th December, 2008. Thereafter, on 27th March, 2012, a notice under Section 148 of the Act was issued to the Respondent, seeking to reopen the assessment for the Assessment Year 2005-06. Thus, the reopening notice was admittedly beyond a period of four years.

6. It is also an undisputed position that reasons recorded for reopening of an assessment does not mention any failure on the part of the Respondent to disclose fully and truly all material facts necessary for the assessment. The impugned order of the Tribunal while allowing the appeal of the Respondent places reliance upon the decision of this Court in Titanor Components Ltd., v/s. CIT 343 ITR 183 = 2011-TIOL-386-HC-MUM-IT. This Court in the above case has observed as under:

“…. …. …. …. …. …. ….

Moreover, it is necessary for the AO to first observe that there is a failure to discloser fully and truly all material facts necessary for assessment and having observed that there is such failure to proceed under Section 147. It must follow that where the A.O. does not record such a failure he would not be entitled to proceed under Section 147……”

(emphasis supplied)

7. Therefore, the view taken by the Tribunal is in accord with the decision of this Court in Titanor Components Ltd., (supra). Thus, no substantial question of law arises for our consideration. Hence, not entertained.

8. Accordingly, Appeal dismissed.

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