Bombay High Court
Mukund Limited vs The Union Of India, Through ... on 14 July, 2023
Bench: K.R. Shriram, Firdosh Phiroze Pooniwalla
Digitally signed
2023:BHC-AS:19528-DB
by GAURI AMIT
GAURI GAEKWAD
AMIT Date: 1/8 209.WP-10859-2012.doc
GAEKWAD 2023.07.15
13:50:08
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.10859 OF 2012
Mukand Limited )
a company incorporated under the Indian )
Companies Act, 1913 and having its )
registered office at Bajaj Bhavan, 3rd Floor, )
Nariman Point, Mumbai - 400 021 ) ....Petitioner
V/s.
1. The Union of India )
Through the Secretary, Ministry of Finance, )
Government of India, North Block, )
New Delhi - 110 101 )
2. The Deputy Commissioner of Income Tax )
3(2), having office at Room No.608, Aayakar )
Bhavan, M.K. Road, Mumbai - 400 020 ) ....Respondents
----
Mr. Jas Sanghavi i/b. M/s. PDS Legal for petitioner.
Mr. Akhileshwar Sharma for respondents.
----
CORAM : K. R. SHRIRAM AND
FIRDOSH P. POONIWALLA, JJ.
DATED : 14th JULY 2023
ORAL JUDGMENT : (PER K.R. SHRIRAM, J.) :
1 Petitioner has filed this petition challenging the legality and
validity of notice dated 26th April 2011 issued by respondent no.2 under
Section 148 of the Income Tax Act, 1961 (the Act).
2 In respect of Assessment Year 2006-2007, petitioner had filed
return of income on 10 th November 2006 declaring total income at "Nil".
Petitioner also had filed, alongwith return, note to computation of income.
In the original return of income, petitioner computed the total income at
"Nil" after claiming set off of brought forward unabsorbed depreciation
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against the long term capital gains and business income. The total income
of petitioner was computed as follows :
Particulars Rs.
Business Income 87,71,91,932
Long term capital gains 116,23,53,853
Short term capital gains 1,46,56,987
Less Set off of unabsorbed
depreciation
AY 1998-99
18,64,85,685
AY 1999-00
54,33,63,761
AY 2000-01
44,71,61,394 117,70,10,840
Less Set off of business losses
AY 2001-02
55,85,92,862
AY 2002-03
31,85,99,070 87,71,91,932
Business Income Nil
3 By an assessment order dated 16 th November 2009 passed
under Section 143(3) of the Act, respondent no.2 assessed the income of
petitioner at "Nil" after setting off unabsorbed depreciation as under :
Particulars Rs.
Business Income 93,04,19,347
Less Set off of unabsorbed
depreciation
AY 1998-99
18,64,85,685
AY 1999-00
54,33,63,761
AY 2000-01
14,93,93,126 87,92,42,572
Less Set off of business losses 5,11,76,775
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Balance Business Income Nil
Long term capital gains. 116,23,53,853
Short term capital gains 1,46,56,987
Total capital gains 117,70,10,840
Less Set off of unabsorbed
depreciation
AY 2000-01
39,39,81,115
AY 2001-02
40,96,24,602
AY 2002-03
35,02,99,646
AY 2003-04 117,70,10,840
2,31,05,477
Balance Capital Gain Nil
4 Thereafter, petitioner received the impugned notice dated
26th April 2011. In response to petitioner's request and filing of returns,
petitioner was provided with the reasons for re-opening. The reasons for
re-opening read as under :
Reasons for initiating proceedings u/s 147 of the IT Act
During the year under consideration, the assessee is having
income from business and short term capital gains. In this case,
assessment u/s 143 (3) of the IT Act was completed on
16.11.2009, assessing the total income at Rs.Nil after
adjustment of brought forward unabsorbed depreciation of
Rs.93,04,19,347/- against business income and adjustment of
Rs.117,70,10,840/- against income from capital gains. The
income was assessed at Rs.189,01,74,827/- u/s 115JB of the IT
Act. The income from capital gains was adjusted against brought
forward unabsorbed depreciation for AYs 2000-01 to 2003-04.
It has been judicially held by the Hon'ble ITAT bench Mumbai in
the case of Times Guaranty that unabsorbed depreciation
(before AY 2002-03) can be set off only against income under
head 'Profits and Gains of Business & Profession' within a period
of eight assessment years succeeding the assessment year in
which it was first computed. In view of the said decision, the
brought forward unabsorbed depreciation of Rs.80,36,05,717/-
for AY 2000-01 and 2001-02 cannot be adjusted against income
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from capital gains for the year under consideration.
Thus the capital gains of Rs.80,36,05,717/- constitutes the
taxable income of the assessee for the year under consideration.
In view of the same, I have reason to believe that income of
Rs.80,36,05,717/- has escaped assessment. Issue notice u/s 148
of the IT Act, 1961.
5 Petitioner filed its objections vide its Chartered Accountants'
letter dated 11th October 2012. The objections were rejected by an order
dated 30th October 2012. It is at that stage petitioner has filed this petition.
Rule was issued on 22nd July 2014 and further proceedings, in pursuance of
the impugned notice, was stayed.
6 It is petitioner's case that the notice having been issued more
than four years after the expiry of the relevant assessment year, unless any
income chargeable to tax has escaped assessment for such assessment year
by reason of the failure on the part of assessee to disclose fully and truly all
material facts necessary for his assessment, for that assessment year, the
notice issued would be without jurisdiction.
7 Mr. Sanghavi submitted that there is nothing in the reasons to
believe, as quoted above, to indicate that there was any failure to disclose.
Mr. Sanghavi also submitted that even in the affidavit in reply opposing the
petition, infact, there is an admission that petitioner had disclosed
unabsorbed depreciation for Assessment Year 2000-2001 and 2001-2002.
Mr. Sanghavi states that even assuming for the sake of argument that
respondent no.2 is correct in stating that the unabsorbed depreciation could
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not have been adjusted against income from capital gains still that would
not amount to conferring jurisdiction on respondent no.2 because there was
no failure to truly and fully disclose. Moreover, Mr. Sanghavi submitted that
the Hon'ble Gujarat High Court in the case of General Motors India Pvt. Ltd.
V/s. Deputy Commissioner of Income Tax 1 has allowed unabsorbed
depreciation to be set off against other income without the time limit of
eight years and, therefore, has impliedly overruled the decision of the
Mumbai Special Bench in the case of Deputy Commissioner of Income Tax
V/s. Times Guaranty Limited2 relied upon by the Assessing Officer.
8 Mr. Sharma for respondents submitted that the issue of
unabsorbed depreciation and adjustment against capital gains or profit and
gains of business and profession was not subject of the scrutiny assessment
under Section 143(3) of the Act and, therefore, respondent no.2 was
justified in proposing re-opening the assessment.
9 At the outset, the reason for re-opening is because of judicial
pronouncement subsequent to the assessment under Section 143(3) of the
Act made by the ITAT in the case of Times Guaranty (Supra). That is the
only basis on which an allegation is made that there is reason to believe
that income of Rs.80,36,05,717/- has escaped assessment. Paragraph 10 of
the affidavit in reply also reads as under :
10. I submit that the Assessing Officer, in original assessment
proceedings, failed to take into account that brought forward
unabsorbed depreciation of Rs.80,36,05,717/- for the A/Y 2000-
1. (2013) 354 ITR 244 (Guj)
2. (2010) 4 ITR 210
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2001 and A/y 2001-2002 could not have been adjusted against
income from capital gains for A/y 2006 2007. The claim of the
Petitioner of set-off of unabsorbed depreciation for the A/Y
2000-2001 and A/y 2001-2002 against income from capital
gains for A/y 2006-2007 is a false claim made in the Return of
Income and would amount to failure on the part of the assessee
to disclose fully and truly all material facts necessary for its
assessment for A/y 2006- 2007.
10 This cannot take respondents' case any further because more
than four years have expired since the end of the relevant assessment year
and the only basis on which it can be re-opened was if there was failure to
disclose fully and truly all material facts. There is not even such an
allegation in the reasons to believe. Moreover, the Assessing Officer in the
assessment order under Section 143(3) of the Act passed on 16 th November
2009 has considered and discussed this issue under the head "profits and
gains of business or profession". Therefore, in our view, it is nothing but a
clear case of change of opinion and the Assessing Officer has no jurisdiction
to re-open the assessment. Even assuming for the sake of argument, the
Assessing Officer should have taken into account that brought forward
unabsorbed depreciation for Assessment Year 2000-2001 and 2001-2002
amounting to Rs.80,36,05,717/- should not have been adjusted against
income from capital gains but instead against profit and gains of business or
profession, still as held by the Apex Court in Gemini Leather Stores V/s.
Income Tax Officer3, there cannot be a failure on the part of the assessee to
disclose truly and fully all material facts as the Assessing Officer, during the
proceedings under Section 143(3) of the Act, had material facts before him
3. (1975) 100 ITR 1 (SC)
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when he made the original assessment. The Apex Court held that the
Assessing Officer cannot take recourse to re-open to remedy the error. The
relevant portion of the judgment reads as under :
".......... In the case before us the assessee did not disclose the
transactions evidenced by the drafts which the Income- Tax
Officer discovered. After this discovery the Income-tax Officer
had in his possession all the primary facts, and it was for him to
make necessary enquiries and draw proper inferences as to
whether the amounts invested in the purchase of the drafts
could be treated as part of the total income of the assessee
during the relevant year. This the Income-tax officer did not do.
It was plainly a case of oversight, and it cannot be said that the
income chargeable to tax for the relevant assessment year had
escaped assessment by reason of the omission or failure on the
part of the assessee to disclose fully and truly all material facts.
The Income tax officer had all the material facts before him
when he made the original assessment. He cannot now take
recourse to Section 147 (a) to remedy the error resulting from
his own oversight."
11 Whether it is a disclosure or not within the meaning of Section
147 of the Act would depend on the facts and circumstances of each case
and nature of document and circumstances in which it is produced. The
duty of the assessee is to fully and truly disclose all primary facts necessary
for the purpose of assessment. It is not part of his duty to point out what
legal inference should be drawn from the facts disclosed. It is for the
Income Tax Officer to draw a proper inference. In this case, petitioner had
filed all details and the subject of brought forward unabsorbed depreciation
was also considered while passing the assessment order under Section
143(3) of the Act. Therefore, the Assessing Officer had in his possession all
primary facts and it was for him to draw proper inference as to whether the
brought forward unabsorbed depreciation should be adjusted against
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capital gains or profit and gains from business or profession. There was
nothing more to disclose and a person cannot be said to have omitted or
failed to disclose something when, of such thing, he had no knowledge.
12 We are satisfied that petitioner had truly and fully disclosed all
material facts necessary for the purpose of assessment. Not only material
facts were disclosed by petitioner truly and fully but they were carefully
scrutinized and the figures of income as well as deductions were worked
out carefully by the Assessing Officer.
13 In the circumstances, we make the rule issued absolute in
terms of prayer clause - (a). The impugned notice dated 26 th April 2011
issued by respondent no.2 under Section 148 of the Act is hereby quashed
and set aside. In the circumstances of the case, there will be no order as to
costs.
14 Petition disposed.
(FIRDOSH P. POONIWALLA, J.) (K. R. SHRIRAM, J.)
Gauri Gaekwad
