Bombay High Court
Castrol India Ltd vs Dy Commissioner Of Income Tax 1 (2) (1), ... on 5 March, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
Digitally
2024:BHC-OS:4739-DB
signed by
SHAMBHAVI
SHAMBHAVI NILESH
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NILESH SHIVGAN
SHIVGAN Date:
2024.03.20
14:47:12
+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.820 OF 2022
Castrol India Ltd,
being a Company incorporated
under the Companies Act, 1956
and having its registered office at
Technopolis Knowledge Park,
Mahakali Caves Road, Chakala,
Andheri East, Mumbai - 400 093 ...Petitioner
Versus
1. Deputy Commissioner of Income-tax
Circle-1(2)(1),Mumbai,
having his office at Room No.535, 5th Floor,
Aayakar Bhavan, M.K.Road,
Mumbai - 400 020.
2. Principal Commissioner of Income Tax-
1,Mumai,
having his office at Room No.338, 3rd Floor,
Aayakar Bhavan, M.K.Road,
Mumbai - 400 020.
3. National Faceless Assessment Centre,
having access only by email
4. Union of India,
through the Secretary,
Department of Revenue,
Ministry of Finance, North Block,
New Delhi - 100 001. ...Respondents
Mr. Percy Pardiwalla, Senior Advocate, with Mr. Nitesh Joshi, Mr.
Aurup Dasgupta, Ms Sonam Ghiya and Ms Drshika Hemnani i/by
Jhangiani, Narula & Associates, for Petitioner.
Mr. Suresh Kumar for Respondents-Revenue.
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
DATED : 5th March, 2024
JUDGMENT:
(Per Dr. Neela Gokhale, J.)
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1. Rule. Rule made returnable forthwith. By consent of parties,
taken up for final hearing.
2. Petitioner assails the notice dated 27 th March 2021 issued by
the Deputy Commissioner of Income Tax under section 148 of the
Income Tax Act, 1961 ("the Act") seeking to reopen assessment for
the Assessment Year ("AY") 2013-14 and the Order dated 21st
December 2021 passed by Respondent No.3, rejecting the objections
raised by Petitioner to the notice alleging reopening of assessment of
Petitioner on grounds of income having escaped assessment.
3. Petitioner is a company incorporated under the Companies Act,
1956, engaged in the business of manufacture and distribution of
lubricating oils, greases, brake fluids and speciality products.
4. Petitioner filed its return of income ("ROI") for the AY 2013-14
on 22nd November 2013, declaring a total income of
Rs.703,48,65,376/- as per the regular provisions of the Act. In the
said ROI, the dividend declared, distributed or paid during the year
was reflected at Rs.346,19,28,344/- and DDT thereon as paid under
Section 115-O of the Act was reflected at Rs.57,49,83,024/-.
Although disallowance under Section 40(a)(i)/(ia) of the Act in the
tax audit report was reflected at Rs.52,11,62,899/-, the actual
amount of disallowance was only Rs.49,63,20,587/- as the difference
already stood disallowed as transfer price adjustment. Since the
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amount which formed part of excess provision written back in the tax
audit report already formed part of the amount towards service tax
and excise duty refund forming part of the miscellaneous income in
the financial statements, the addition under Section 40(1) of the Act
was restricted to the difference in the two. It is Petitioner's further
case that since the tax deducted at source ("TDS") relatable to an
amount of Rs.42,01,72,321/- being expenditure under different
heads relatable to earlier years of which TDS was already deposited
with the Government or the amount represented write back of
liability for which no deduction was claimed in the past, was now
claimed while computing business income for the year as separate
line item in the computation of income.
5. Petitioner's ROI was selected for scrutiny. Pursuant to initiation
of assessment proceedings, notices dated 23rd April 2015 and 21st
November 2016 were issued under section 142(1) of the Act seeking
various details from Petitioner, including documents, such as ROI,
along with computation there of, financial accounts, tax audit report
with annexures, balance-sheet and P&L A/c for relevant year.
Petitioner replied to the said notice and provided all the documents
required vide letter dated 8th May 2015. Petitioner was also required
to provide a complete party-wise details of transactions resulting into
outward remittances to a non-resident along with a copy of the form
15CA. Petitioner was also required to provide a copy of the tax audit
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report in Form 3CEB obtained under Section 92E of the Act and
details with regard to various deductions claimed in Schedule
Business Profession of ITR. The said information were provided by
Petitioner by letters dated 27th November 2016, 7th December 2016
and 19th December 2016.
6. The assessment order dated 29th December 2016 under section
143(3) of the Act was passed, determining the total income of
Petitioner to be Rs.710,22,47,390/- after taking into account all the
details and the documents provided by Petitioner.
7. Petitioner, thereafter, received notice dated 27 th March 2021
from the Department that Petitioner's income chargeable to tax for
AY 2013-14 had escaped assessment and called upon Petitioner to
deliver within a period of 30 days from the service of notice its ROI.
Petitioner complied with the notice and filed its ROI on 27th April
2021. The reasons to believe such statement were not provided along
with the said notice. Upon request from Petitioner, reasons to believe
escapement of income was provided by Respondent, vide letter dated
30th July 2021.
8. The relevant portion of the letter dated 30 th July 2021
containing the reasons to believe as provided by the AO to Petitioner
reads as under :
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"2. On verification of case records, it is seen from the
Balance sheet as on 31st March 2013, Profit and loss account
for year ended 31st March 2013, the cash flow statement,
computation of income and audited report in Form No. 3CD
that during the year relevant to the A.Y 2013-14 that assessee
company paid dividend to the extent of Rs.370,92,08,940/-.
However, it is verified from the Annexure-U of clause 29 of
3CD report that assessee company paid Tax on distribution of
profit (Dividend Distribution Tax) on distributed profit
(Dividend) of Rs.346,19,28,344/- to the extent of
Rs.57,49,83,024/- instead of total distributed profit of
Rs.370,92,08,940/-. It means the assessee company has not
paid tax on distributed profit of Rs.24,72,80,596/-
(Rs.370,92,08,940/- less Rs. 346,19,28,344/-).
As per sub section (1) and (3) of section 115-O of the
Income Tax Act, 1961, notwithstanding any things contained
in any other provision of this Act and subject to the provisions
of this section, in addition to the income tax chargeable in
respect of the total income of a domestic company for any
assessment year, any amount declared, distributed or paid by
such company by way of dividends (whether intern or
otherwise) on or after the 1 st day of April 2003, whether out of
current or accumulated profits shall be charged to additional
income tax (hereafter referred to as tax on distributed profits)
at the rate of fifteen percent. The company shall be liable to
pay the tax on distributed profit to the credit of the Central
Government within fourteen days from the date of (a)
declaration of any dividend or (b) distribution of any dividend
or (c) payment of any dividend, whichever is earliest. As per
section 115P of the I.T. Act, 1961, where the principal officer
of a domestic company and the company fails to pay whole or
any part of the tax on distributed profits referred to in sub
section (1) of section 115-O within the time allowed under sub
section (3) of that section, he or it shall be liable to pay simple
interest at the rate of one percent for every month or part of
thereof on the amount of such tax for the period beginning on
the date immediately after last date on which such tax was
payable and ending with the date on which tax is actually
paid.
ii) Further, on verification of records, it is seen from the
computation of Income and Audited Report in Form 3CD that
as per Annexure L of Clause 17(f) of 3CD Report an amount
inadmissible u/s. 40(a) is Rs.52,11,62,899/-. (41,05,34,506/-
plus 11,06,28,393/-), whereas in computation of income,
added only Rs.49,63,20,587/-. Hence, the assessee has
claimed excess inadmissible amount u/s. 40(a) to the extent of
Rs.2,48,42,312/- (Rs.52,11,62,899/- less Rs.49,63,20,587/-).
iii) It is seen from the computation of Income and Audited
Report in Form 3CD that as per Annexure N of Clause 20 of
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3CD Report, Profit chargeable u/s. 41(1)(a) excess provision
written back of Rs.12,20,84,579/- whereas it verified from the
P&L a/c. Other Income that assessee company credited to the
extent of Rs.12,13,28,821/- only. Assessee has not added back
the difference of Rs.7,55,758/- (Rs.12,20,84,579/- less
Rs.12,13,28,821/-) to the total income of the assessee.
iv) It is seen from the computation of Income and
assessment records that assessee company claimed deductions
in the computation of income on account of amount
disallowed u/s. 40 in the preceding previous year but
allowable now of Rs.42,01,72,321/-. However, the details of
payment of TDS on amount previously disallowed u/s. 40
were not submitted by the assessee. Assessee company
claimed deductions on amount of Rs.42,01,72,321/- without
furnishing any supporting details of payment of TDS. Hence,
the same may be disallowed." (emphasis supplied)
9. Petitioner filed its objections vide letter dated 7 th September
2021. The objections of Petitioner were rejected by the Department
by order dated 21st December 2021. It is this order along with notice
dated 27th March 2021 alleging that income has escaped assessment
which is the subject matter of challenge in the present petition.
10. Mr. Pardiwalla, learned counsel for Petitioner, submitted that
jurisdictional preconditions have not been fulfilled in the present
case, as the belief found by the AO is based on an audit objection
without fulfilling an objective criteria. Mr. Pardiwalla submitted,
Petitioner had disclosed every detail and document sought by the AO
and the original assessment order was passed on the basis of relevant
material. There was no failure to disclose any information to the AO
and hence, the assessment cannot be reopened on the basis of any
such allegation of nondisclosure.
11. Mr. Pardiwalla, also made submissions on the merits of the
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case. He stated that there is no shortfall in payment of tax on
distributed profit and in any case, even assuming a shortfall, the
same will not result in escapement of income. He further said that
there is no short disallowance under Section 40(a)(i) of the Act as
the amount of Rs.2,50,00,000/- already stood disallowed as suo motu
transfer pricing adjustment and was not required to be again
disallowed. He also contended that the amount already stands
assessed as a part of service tax and excise refund forming part of
miscellaneous income in the P&L A/c. and lastly, that an appropriate
reduction was rightly claimed while computing business income as
either TDS was deposited during the year under consideration or
write back of the expenses relating to the early years were not liable
to be taxed under Section 41(1) of the Act during the current year as
deduction thereof was not allowed in the past years.
12. Mr. Pardiwalla reiterated that each query was already answered
by Petitioner, supported with requisite documents in its reply to the
notices under section 142(1) of the Act and each of the aspect was
duly reflected in the computation of income and the tax audit.
Hence, the original assessment order was passed only when the AO
was completely satisfied regarding the explanations offered by
Petitioner and it is presumed that the AO had replied to the audit
queries as such. Petitioner thus, seeks quashing of the impugned
notice and the order rejecting its objections as assailed herein. Mr.
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Pardiwalla also brings to our attention three separate audit memos
addressed to the AO by the revenue audit officer, which were duly
replied by the AO on the basis of the explanation provided by
Petitioner.
13. Mr Suresh Kumar has tried to justify the impugned order also
on the merits of the matter. According to him, there was fresh
tangible material in the form of three audit memos, which allegedly
came into the possession of the AO after completion of the original
assessment proceedings. It is for this reason that the AO had reason
to believe that income of Petitioner had escaped assessment. He
asserts that the audit objection is a source of information, which
constitutes fresh tangible material. According to Mr. Suresh Kumar,
necessary information was also not provided by Petitioner to the AO
during the original assessment proceedings. Mr Suresh Kumar, thus,
urges us to dismiss the Petition.
14. The parties have explained and advanced arguments on the
merits of the matter. However, we do not find it necessary to delve
into the details of the merits of the assessment since at the outset, in
the writ jurisdiction, our examination is limited to the aspects
relating to the satisfaction of jurisdictional preconditions to justify
reopening of assessment on the ground of income having escaped
assessment. The assessment for the AY 2013-14 is admittedly sought
to be reopened beyond a period of four years from the end of the
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relevant assessment year. Further assessment under Section 143(3) of
the Act has been completed. Where the assessment is sought to be
reopened after the expiry of four years, the proviso to Section 147 of
the Act stipulates a requirement that there must be a failure on the
part of the assessee to disclose fully and truly all material facts
necessary for its assessment for that year. We have considered it
appropriate to emphasize this aspect because much of the
submissions on behalf of the parties in these proceedings has focused
on the merits of the assessment. In the writ jurisdiction, at this stage,
the test to be applied is whether there was reason to believe that
income had escaped assessment and whether the AO has tangible
material before him for the formation of that belief. The test
pertinent is also whether Petitioner had failed to disclose truly and
fully material facts during the original assessment proceedings.
15. From the reasons itself, it is clear that the reasons to believe
are based on information and details which were available to the AO
at the time of the original assessment proceedings, i.e., assessment
records. It says "On verification of assessment records, i.e.,
computation of income, P&L account and audit report etc..........On
verification of other income in the P&L A/c,......claimed deduction in
computation of income on account of amount disallowed under
Section 40 in the preceding previous year but allowable
now.....credited to the P&L A/c.................". The said details
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admittedly, were made available to the AO by Petitioner itself. It is
thus clear that there is no failure on the part of Petitioner to disclose
fully and truly the necessary information.
16. The Department has heavily relied upon the audit objections
received from its own revenue Department to justify reopening of
assessment. But it is clear from the documents themselves that the
AO had sought explanation from Petitioner in respect of queries
raised by the audit party. In paragraph 17 of the Petition, Petitioner
has averred that "In the present case, before the Respondent No.1
made his submissions to the revenue audit objection he called for
submissions from the Petitioner. As explained hereinabove, each of
the said audit objections have been duly explained by the Petitioner's
Chartered Accountant through their letters dated 08.05.2015,
27.11.2016, 07.12.2016 and 19.12.2016. The Petitioner understands
that the then Respondent No.1 had found the said explanation to be
satisfactory and accordingly responded to the revenue audit
objections."
17. In the case of South Yarra Holdings v. Income Tax Officer
16(1)(1)(4), Mumbai1 this court held as follows:
"7. It is a settled position in law that reopening of an
assessment has to be done by an Assessing Officer on his own
satisfaction. It is not open to an Assessing Officer to issue a
reopening notice at the dictate and/or satisfaction of some other
authority. Therefore, on receipt of any information which
suggests escapement of income, the Assessing Officer must
1 [2019]104 taxmann.com 216 (Bom.)
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examine the information in the context of the facts of the case
and only on satisfaction leading to a reasonable belief that
income chargeable to tax has escaped assessment, that
reopening notice is to be issued."
18. Thus, we have no hesitation in holding that there was no
failure on the part of Petitioner to disclose fully and truly the material
facts, nor there was any tangible material with the AO, which could
have otherwise justified the reopening of assessment by issuing the
notice impugned.
19. In the present case, the notice to reopen assessment does not
even remotely make any mention of any tangible material has come
to the notice of the AO after passing original assessment order to
conclude that there was an escapement of assessment. The AO has
failed to aver what material fact that Petitioner has failed to disclose
fully and truly. It is clearly the very information which was before the
AO as provided by Petitioner on the basis of which, a different view is
being taken. In the present case, there is a full and true disclosure by
Petitioner, and information on those transactions have been accepted
under the heads claimed by Petitioner.
20. In view of the above, the Petition is allowed. The impugned
notice dated 27th March 2021 and the order dated 21 st December
2021 are set aside.
21. Rule is made absolute. There will be no order as to cost.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
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