Bombay High Court
Castrol India Ltd vs Deputy Commissioner Of Income-Tax ... on 5 March, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
2024:BHC-OS:4364-DB
1/13 519-oswp-3079-2022-J.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.3079 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. Additional Commissioner of Income-tax
Circle-1(2), Mumbai,
having his office at Room No.530, 5th Floor,
Aayakar Bhavan, M.K.Road,
Mumbai- 400 020.
3. Principal Commissioner of Income Tax-
1,Mumbai,
having his office at Room No.330, 3rd Floor,
Aayakar Bhavan, M.K.Road,
Mumbai - 400 020.
4. National Faceless Assessment Centre,
having access only by email
5. 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 Drishika Hemnani i/by
Jhangiani, Narula & Associates, for Petitioner.
Mr. Suresh Kumar for Respondents-Revenue.
Gaikwad RD
2/13 519-oswp-3079-2022-J.doc
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
DATED : 5th March, 2024
JUDGMENT:
(Per Dr. Neela Gokhale, J.)
S
1. Rule. Rule returnable forthwith. By consent of parties, taken
up for final hearing.
2. A perennial question in income tax jurisprudence, whether
reopening of a concluded assessment that is re-assessment under
Section 147 of the Income Tax Act, 1961 ("the Act") following
issuance of notice under Section 148 of the Act is legally sustainable
or is bad in law, confronts us in the present matter.
3. Petitioner assails notice dated 27 th March 2021 issued under
Section 148 of the Act and order dated 21st December 2021 passed by
the Income Tax Department rejecting the objections of Petitioner in
the present petition. 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 specialty
products.
4. During the Assessment Year 2016-17, Petitioner incurred
expenses of Rs.10,54,06,706/- towards Corporate Social
Responsibility ("CSR") under Section 135 of the Companies Act,
2013. The return of income of Petitioner for the relevant assessment
Gaikwad RD
3/13 519-oswp-3079-2022-J.doc
year, as revised from time to time, declared total income of
Rs.1051,29,97,660/-. A dis-allowance was made for the amount of
CSR in the return of income in consonance with the Explanation 2 to
Section 37 of the Act. Petitioner also claimed deduction of
Rs.1,79,41,595/- (being 50% of the aggregate donation) under
Section 80G of the Act as permissible in law.
5. Petitioner's return of income was selected for scrutiny. Pursuant
to initiation of assessment proceedings, a notice dated 14 th
September 2019 was issued under Section 142(1) of the Act seeking
details along with supporting evidence in respect of the claim of
deduction. Petitioner replied by letter dated 30 th November 2019
inviting another notice dated 14 th November 2019 under Section
142(1) of the Act requesting proof of donation justifying claim for
deduction, which was also replied on 30th November 2019.
Assessment order dated 14th January 2020 was passed under Section
143(3) of the Act, which fully allowed the deduction claimed.
However, Petitioner received notice dated 27 th March 2021 under
Section 148 of the Act conveying reasons to believe that income
chargeable to tax for the relevant assessment year has escaped
assessment and required Petitioner to deliver return for the said
assessment year. Petitioner complied by filing its return on 27 th April
2021, however, requesting the Assessing Officer ("AO") a copy of the
reasons recorded for reopening assessment. The reasons to believe
Gaikwad RD
4/13 519-oswp-3079-2022-J.doc
escapement of income were provided by a letter dated 30 th July 2021
to which Petitioner filed its objections on 28 th August 2021. The AO
rejected the objections by the impugned order dated 21 st December
2021. It is this order along with notice dated 27 th March 2021
alleging that income has escaped assessment which is the subject
matter of challenge herein.
6. Mr. Pardiwalla, learned Senior Advocate appearing for
Petitioner challenged the reopening of assessment contending that
the jurisdictional pre-conditions have not been fulfilled in the present
case as the belief formed by the AO is based on an audit objection
without fulfilling an objective criteria. He also submitted that the
assessment cannot be reopened on the basis of a change of opinion
and the belief so formed must be based on fresh and tangible
material having a rational and a live nexus with the belief. Mr.
Pardiwalla aligned the legal objections with the facts in the matter by
pointing out the following:
(i) Petitioner has not claimed the deduction of CSR expenses as
business expenditure.
(ii) Section 80G of the Act has no condition that such deduction
shall not be allowed in respect of amounts spent out of CSR.
(iii) The AO has formed his belief regarding escapement of income
based on an audit objection without an independent
Gaikwad RD
5/13 519-oswp-3079-2022-J.doc
application of mind and had earlier refused to accept the audit
objection.
(iv) Petitioner had made adequate disclosure regarding
expenditure by way of CSR and deduction under Section 80G
of the Act is made in the annual accounts, the tax audit report,
the computation of income which was already considered by
the AO while passing the original assessment order. Deduction
under Section 80G of the Act was specifically mentioned in the
computation sheet which formed the part of the assessment
order.
(v) The satisfaction of the Sanctioning Authority has not been
provided to Petitioner which indicates that there is no such
approval.
Mr. Pardiwalla thus, contends that the impugned notice and
order is unreasonable and discloses an arbitrary exercise of power.
He, thus, urges the Court to set aside and quash the same.
7. Mr. Suresh Kumar, learned counsel appears for the Revenue
and justifies the impugned order by contending that since the
deduction of CSR expenses are specifically disallowed under Section
37(1) read with Explanation 2 of the Act, the same cannot be allowed
under Section 80G of the Act. While candidly admitting the audit
objection, he however, asserts that the same itself is a source of
Gaikwad RD
6/13 519-oswp-3079-2022-J.doc
information and constitutes 'fresh tangible material'. Mr. Suresh
Kumar further points out that although an amount of
Rs.10,54,06,706/- appears in the profit and loss account showing
debit on account of CSR expenses under the head 'other expenses',
this includes donation expenses of Rs.3,58,83,189/-. This amount
has not been separately debited in the profit and loss account which
was never disclosed by Petitioner directly or indirectly. Mr. Suresh
Kumar relies on the affidavit in reply filed by the Department to
buttress the objectives of providing for CSR which is to share the
burden of the government in providing social services by companies
having a net worth.
8. Mr. Suresh Kumar has tried to unveil an alleged strategy by
which Petitioner firstly incurs CSR expenses, without claiming any
deduction since the same are disallowed as business expenditure, but
thereafter adding back the expenditure in the computation of income.
Thus, the CSR expenses are treated by Petitioner under two different
heads, defeating the very public welfare purpose by converting the
same as a tax saving tool. Mr. Suresh Kumar, thus, urges us to
dismiss the petition.
9. We have heard both the parties and perused the records of the
proceeding with the assistance of counsel.
Gaikwad RD
7/13 519-oswp-3079-2022-J.doc
10. It is seen that prior to the passing of the original assessment
order, AO has raised queries vide notices dated 14 th September 2019
and 14th November 2019, each of which were duly responded by
Petitioner. Petitioner has explained that no deduction was claimed by
it except that under Section 80G of the Act. Copies of receipts of
donations were also provided as proof of donation. All these details
were also included in the computation of income. It is seen from the
revised statement of income that an amount of Rs.20,74,87,608/- is
shown as inadmissible expenses under Section 37 of the Act in
Schedule 1. Schedule 7 specifies the donee's details showing the
50% deductible amount to the tune of Rs.1,79,41,595/- of the
qualifying amount of Rs.3,58,83,189/-. Petitioner has, thus,
submitted detailed explanation along with supporting documents.
11. The documents on record also indicate that the Audit Wing of
the Department raised certain objections to the original assessment
order including the issue of deduction under Section 80G of the Act.
It is seen that the AO justified the original assessment order to the
audit party without accepting any adjustment to the same.
12. The notice providing the reasons to believe itself is based on
verification of the profit and loss account and computation of income
showing the amount of CSR expenses debited under the head 'other
expenses' and the said amount being added back and claimed as
deduction under Chapter VA as donation. The notice further goes on
Gaikwad RD
8/13 519-oswp-3079-2022-J.doc
to say that during the course of original assessment proceedings,
neither the AO has asked for any details and information on this issue
from Assessee nor has Assessee volunteered any details. The relevant
portion of the notice providing the reasons to believe escapement of
income reads thus:
"2. On verification of profit and loss account and
computation of income, it is seen that an amount of
Rs.10,54,06,706/- was debited on account of CSR expense in
Other expenses head. Further, the aforesaid amount was
added back by the assessee in its computation of income as
CSR Expenses and again claimed as deduction as donation of
Rs. 1,79,41,595/- under chapter VA as donation.
In this connection, it is submitted that as per the
amendment made vide Finance Act, 2014, CSR expenses is not
allowable as business expenditure. Hence, the same is required
to be disallowed and added to the total income of the assessee.
3. From the above, it is clear that the assessee has claimed
expenses, which is not allowable as business expenditure and
has escaped assessment by reasons of failure on the part of the
assessee to disclose fully and truly all material facts and
accordingly the same was required to be added to the total
income shown by the assessee. It is also seen that during the
course of assessment proceedings in this case, the A.O. has not
asked any details and information on this issue from the
assessee nor the assessee has submitted any details in respect
of the same.........."
13. From the perusal of the documents, two glaring facts emerge.
One is that all material/documents necessary for computing the
income were disclosed and submitted by Petitioner during the course
of assessment proceedings leading to an irrefutable conclusion that
there was no failure on the part of Petitioner to disclose fully and
truly all material facts. Secondly, there is a notable absence of any
fresh tangible material coming to the knowledge of the AO and the
reopening of assessment is purely on a re-examination of the very
Gaikwad RD
9/13 519-oswp-3079-2022-J.doc
same material on the basis of which the original assessment order
was passed.
14. It is a well settled principle of law that an AO has no power to
review and this power is not to be confused with the power to re-
assess. The Apex Court in Commissioner of Income Tax, Delhi v.
Kelvinator of India Ltd.,1 has reiterated that mere change of opinion
cannot be a ground for reopening concluded assessment. The
observations made in paragraphs 6 and 7 read as below:
"6. We must also keep in mind the conceptual difference
between power to review and power to reassess. The assessing
officer has no power to review; he has the power to reassess.
But reassessment has to be based on fulfilment of certain
precondition and if the concept of "change of opinion" is
removed, as contended on behalf of the Department, then, in
the garb of reopening the assessment, review would take
place.
7. One must treat the concept of "change of opinion" as an
in-built test to check abuse of power by the assessing officer.
Hence, after 1-4-1989, the assessing officer has power to
reopen, provided there is "tangible material" to come to the
conclusion that there is escapement of income from
assessment. Reasons must have a live link with the formation
of the belief............."
15. As held by this Court in Aroni Commercials Limited v. Deputy
Commissioner of Income Tax-2(1)2 once a query is raised during the
assessment proceedings and Assessee has replied to it, it follows that
the query raised was a subject of consideration of the AO while
completing the assessment. It is also not necessary that an assessment
order should contain reference and/or discussion to disclose its
satisfaction in respect of the query raised. Therefore, the reopening of
1 (2010) 2 SCC 723.
2 (2014) 44 taxmann.com 304 (Bombay).
Gaikwad RD
10/13 519-oswp-3079-2022-J.doc
the assessment, in our view, is merely on the basis of change of
opinion of the AO from that held earlier during the course of
assessment proceedings and this change of opinion does not
constitute justification and/or reason to believe that income
chargeable to tax has escaped assessment. Paragraph 14 of Aroni
Commercials Limited (supra) reads as under:
"14. We find that during the assessment proceedings the
petitioner had by a letter dated 9 July 2010 pointed out that
they were engaged in the business of financing trading and
investment in shares and securities. Further, by a letter dated 8
September 2010 during the course of assessment proceedings
on a specific query made by the Assessing Officer, the
petitioner has disclosed in detail as to why its profit on sale of
investments should not be taxed as business profits but
charged to tax under the head capital gain. In support of its
contention the petitioner had also relied upon CBDT Circular
No.4/2007 dated 15 June 2007. (The reasons for reopening
furnished by the Assessing Officer also places reliance upon
CBDT Circular dated 15 June 2007). It would therefore, be
noticed that the very ground on which the notice dated 28
March 2013 seeks to reopen the assessment for assessment
year 2008-09 was considered by the Assessing Officer while
originally passing assessment order dated 12 October 2010.
This by itself demonstrates the fact that notice dated 28 March
2013 under Section 148 of the Act seeking to reopen
assessment for A.Y. 2008-09 is based on mere change of
opinion. However, according to Mr. Chhotaray, learned
Counsel for the revenue the aforesaid issue now raised has not
been considered earlier as the same is not referred to in the
assessment order dated 12 October 2010 passed for A.Y. 2008-
09. We are of the view that once a query is raised during the
assessment proceedings and the assessee has replied to it, it
follows that the query raised was a subject of consideration of
the Assessing Officer while completing the assessment. It is not
necessary that an assessment order should contain reference
and/or discussion to disclose its satisfaction in respect of the
query raised. If an Assessing Officer has to record the
consideration bestowed by him on all issues raised by him
during the assessment proceeding even where he is satisfied
then it would be impossible for the Assessing Officer to
complete all the assessments which are required to be
scrutinized by him under Section 143(3) of the Act. Moreover,
one must not forget that the manner in which an assessment
order is to be drafted is the sole domain of the Assessing
Officer and it is not open to an assessee to insist that the
Gaikwad RD
11/13 519-oswp-3079-2022-J.doc
assessment order must record all the questions raised and the
satisfaction in respect thereof of the Assessing Officer. The only
requirement is that the Assessing Officer ought to have
considered the objection now raised in the grounds for issuing
notice under Section 148 of the Act, during the original
assessment proceedings. There can be no doubt in the present
facts as evidenced by a letter dated 8 September 2012 the very
issue of taxability of sale of shares under the head capital gain
or the head profits and gains from business was a subject
matter of consideration by the Assessing Officer during the
original assessment proceedings leading to an order dated 12
October 2010. It would therefore, follow that the reopening of
the assessment by impugned notice dated 28 March 2013 is
merely on the basis of change of opinion of the Assessing
Officer from that held earlier during the course of assessment
proceeding leading to the order dated 12 October 2010. This
change of opinion does not constitute justification and/or
reasons to believe that income chargeable to tax has escaped
assessment."
16. We have also noted the contents of the impugned order
rejecting the objections of Petitioner. An identical and common place
assertion is seen in various such orders rejecting the objections of
Assessees. The Department routinely relies upon an observation of
the Supreme Court in the case of Assistant Commissioner of Income
Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.,3 which reads as follows:
"At the stage of issue of notice, the only question is whether
there was relevant material on which a reasonable person
could have formed a requisite belief. Whether the materials
would conclusively prove the escapement is not the concern at
that stage. This is so because the formation of belief by the
Assessing Officer is within the realm of subjective satisfaction."
17. However, Assessing Officers without appreciating the true
import of the aforesaid decision of the Supreme Court, continue to
reopen assessments on the ground of income having escaped
assessment despite the fact that all the material and information was
already available with him while passing the original assessment
3 (2008) 14 SCC 208.
Gaikwad RD
12/13 519-oswp-3079-2022-J.doc
order. Furthermore, while conclusive proof of escapement of income
may not be necessary to reopen an assessment, the least that is
required is a requisite belief based on fresh and tangible material
which was not accessible to the AO or that which was deliberately
withheld by Assessee, which then would amount to non-disclosure of
relevant information. The finding of the Apex Court in Rajesh
Jhaveri (supra) must not be used by AO to reopen assessments to
review the original assessment order on the basis of a change of
opinion of the AO, as done in the present case. Further, the reasons
to believe notice itself indicates that the AO was already seized with
information prior to passing of the original assessment order and as
such, there is no tangible information on the basis of which he has
allegedly formed the requisite belief.
18. In these circumstances, we have no hesitation in holding that
the notice dated 27th March 2021 under Section 148 of the Act in
respect of income having escaped assessment and the order dated 21 st
December 2021 passed by the AO rejecting the objections of
Petitioner impugned herein, are untenable and cannot be sustained in
law. The Petition is allowed.
19. Rule is made absolute in terms of prayer clause (A) which
reads as under:
"A. that this Hon'ble Court may be pleased to issue a Writ
of Certiorari or a Writ in the nature of Certiorari or any other
Gaikwad RD
13/13 519-oswp-3079-2022-J.doc
appropriate writ, order or direction under Article 226 of the
Constitution of India calling for the records of the Petitioner's
case and, after examining the legality and validity of the
Impugned Notice dated 27.03.2021 issued under Section 148
of the Act (being EXHIBIT "J" hereto) and the Impugned Order
dated 21.12.2021 (being EXHIBIT "N" hereto) quash and set
aside the same;"
20. There is no order as to costs.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
Signed by: Raju D. Gaikwad
Designation: PS To Honourable Judge
Gaikwad RD
Date: 14/03/2024 21:45:24
