Minda Huf Limited vs Union Of India & Others
2011 Latest Caselaw 4772 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+               WRIT PETITION (CIVIL) NO. 8273 OF 2007

                                 Reserved on :1st September, 2011.
%                        Date of Decision : 26th September, 2011.

MINDA HUF LIMITED                                        .... Petitioner
              Through               Mr. Ajay Vohra, Ms. Kavita Jha,
                                    Mr. Somnath Shukla, Advocates.

                             VERSUS

UNION OF INDIA & OTHERS              .....Respondents

Through Mr. Kamal Sawhney, Advocate for Revenue.

CORAM:

HON'BLE MR. JUSTICE DIPAK MISRA, THE CHIEF JUSTICE HON'BLE MR. JUSTICE SANJIV KHANNA

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not ? YES

3. Whether the judgment should be reported in the Digest ? YES

SANJIV KHANNA, J.:

The petitioner-Minda HUF Limited has challenged

reassessment proceedings under Section 147/148 of the Income

Tax Act, 1961(Act, for short) initiated vide notice dated 18th April,

2007 for the assessment year 2003-04. They have also prayed

for quashing of the order dated 15th October, 2007 passed by

the Assessing Officer, the respondent No. 2 herein rejecting the

objections raised by the petitioner to the reassessment

proceedings and holding that they were valid grounds for

initiation of reassessment.

2. For the assessment year 2003-04, the petitioner had filed

their return on 2nd December, 2003 and an assessment order

under Section 143(3) was passed on 28th March, 2006. The

taxable income was enhanced from Rs.2,78,95,579/- as

declared in the original return to Rs.3,18,14,069/- in the

assessment order dated 28th March, 2006. We are not

concerned with the additions made, which were later on made

subject matter of appellate proceedings.

3. After reassessment notice under Section 147/148 of the

Act dated 18th April, 2007 was served, the petitioner filed the

same return as was originally filed and requested the

respondent No. 2 to furnish the reasons recorded for reopening

of the assessment.

4. The reasons for re-opening read as under:-

"On going through the assessment record, it is noticed that the assessee in its computation of income deducted Rs.42,73,617/- being amount written back credited to P&I. Account considered separately u/s 41. However, out of this sum, the assessee considered only Rs.32,29,341/- as income u/s 41. Thus,

the excess decuction of Rs.10,44,276/- has escaped assessment.

(ii) Also the assessee had debited Rs.1,21,48,167/- as royalty which included Rs.1,17,21,488/- paid to the joint venture foreign company since this expenses were incurred for enduring benefit of the business and is also covered under intangible asset, the same is needed to be capitalized as intangible assets and depreciation @ 25% is allowable. Hence, Rs.87,91,116/- has escaped assessment. "

5. The petitioner filed objections relying upon ITO versus

Lakhmani Mewal Das [1976] 103 ITR 437 (SC), Allahabad

Bank versus CIT [1993] 199 ITR 664 (Cal), CIT versus Punjab

Financial Corporation, [1990] 183 ITR 438 (P&H) contending,

inter alia, that mere change of opinion does not justify, and is not

a valid ground to initiate reassessment proceedings. On merits

it was stated as under:-

" In this regards it is respectfully submitted that;

1. During the course of assessment proceedings the company submitted reply on royalty paid. The company deducted and deposited applicable taxes and proof of taxes (Challans) paid was submitted vide letter dated 22nd March 2006 during the course of assessment proceedings.

2. Regarding the amount of profit chargeable u/s 41 in the computation of income, it has been discussed during the course of assessment proceedings and had been told to the Ld AO that the difference in amount was due to provisions of earlier years written back, which were not allowed in the relevant assessment years. The issue was agreed upon by Ld AO.

6. Order sheet in the above file shows that the aforesaid

reply/objections dated 11th September, 2007 were taken on

record on the same date and the matter was discussed with the

assessee‟s representative.

7. After about a month post the discussion, on 15th October,

2007, the respondent No. 2 passed an order rejecting the

objections and recording the following reasons:-

"The contention of the assessee is not accepted on the reasons given below-

If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section, or recomputed the loss or the depreciation allowance or any other

allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

Reference in this regard may be made to Explanation 2(c)(i) and (iv) u/s 147 of the I.T. Act i.e. Explanation 2,-For the(sic) purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-

(c) where an assessment has been made, but-

(i) Income chargeable to tax has been under-assessed; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

Further, the contention raised that details of royalty paid, proof of challans of tax deducted were furnished during the assessment, the assessee had only provided procedural details like proof of TDS deducted and challan thereon. The substantive issue i.e. whether royalty is to be considered as revenue or capital expenditure was not discussed during the assessment proceedings. No such explanation is available on record. Also, the facts of the case laws quoted by the assessee are not similar to the reasons in this case. Hence, reasoning of the Assessing Officer that the income for the AY 2003-04 had escaped assessment is within the meaning of above explanation.

Hence the objection raised by the asessee is not accepted and the same is rejected."

8. It is apparent from the reasons mentioned above that the

Assessing Officer did not find any justification or ground to

continue with the reassessment proceedings in view of the

objection filed for reason No. 2, i.e. amount of profit chargeable

under Section 41 of the Act. The order dated 15th October, 2007

does not refer to or meet the contention of the petitioner in

respect of reason No. 2. In the original records produced before

us there is a written note by the assessee explaining that

Rs.10,44,276/- had already been added back in the

computation of income for the assessment years 2001-02 and

2002-03, which is apparent from the computations for the said

assessment years, copies of which were enclosed.

9. It also appears on this ground No. 2 in the reassessment

order dated 5th November, 2007, an addition of Rs.10,44,276/-

has been made, inter alia, observing that the assessee had not

been able to establish that the aforesaid amount was included in

the computation for the earlier assessment years though in the

assessment years 2001-02 and 2002- 03, Rs.5,87,617/- and Rs.

17,19,837 respectively were added back as bad and doubtful

debts but their break up was not given. The assesse had to

substantiate its claim, as to why this addition should not be

made. Thus, in the re-assessment order the addition has been

made because the petitioner had failed to substantiate that

Rs.10,44,276/- was added back in the earlier years. The

reasoning establishes that the Revenue did not have any basis

to show and establish whether this amount was, in fact, not

added back in the earlier assessment years. There was,

therefore, no material and ground to reopen the assessment on

account of reason no. 2. The said reason was merely a

suspicion without any material and had no foundation or prima

facie basis.

10. The petitioner had further stated that the aspect of bad and

doubtful debts was examined during the course of the original

assessment proceedings and the then Assessing Officer was

informed that this amount had been added back and accordingly

the Assessing Officer had agreed. It may be noted that in the

original assessment proceedings an addition of Rs.7,41,240/-

was made on account of bad debts written off.

11. Original records maintained by the Revenue have been

produced before us. The original order sheet of the Assessing

Officer is missing and not available. The original assessment

records are scanty and almost anything relevant is not available.

The return, tax audit report including/encloses thereto, one

notice under Section 142(1) and two notices under Section

143(2), in addition to the assessment order, are the only

papers/documents available. What happened to the other

papers is not stated and no answer is forthcoming from the

Revenue.

12. With regard to royalty payment, the petitioner had stated in

the objections that during the course of original assessment

proceedings the petitioner had submitted a reply on the royalty

paid. The respondent No. 2 in the order dated 15th October,

2007 has not adverted to or referred to any reply. It is stated

that no such explanation was available on record. The factum

that the original record, except for the papers mentioned in

paragraph 11 above were missing is not adverted to. The

petitioner has placed on record with this writ petition, as

Annexure B, a note of royalty payment and it is stated that the

said note was furnished during the course of the original

assessment proceedings. Reference to the said note is made in

paragraph 3(f) of the writ petition. In the counter affidavit/reply

filed to the writ petition, the respondents have not specifically

dealt with and denied the allegation that during the course of the

original assessment proceedings the petitioner had filed the note

on royalty paid and claimed that the payments were revenue

expenditure. It may be noted that the counter affidavit/reply has

been filed by Ms. Monika Dhami, then Deputy Commissioner of

Income Tax, Circle VI(1), New Delhi, who was also the

Assessing Officer. Notice under Section 147/148 of the Act was

issued on 18th April, 2007 by her and she is also the author of

the order dated 15th October, 2007 rejecting the objections filed

by the assessee. Thus, there is no specific denial of the fact

that during the course of the original assessment proceedings,

the assessee had filed the reply- Annexure B before the

Assessing Officer on whether or not the payment of royalty were

revenue expenditure in nature. It is a well settled principle in law

that allegations made in the pleadings must be specifically

denied. Absence of specific denial can be construed as

acceptance of the fact stated. (See BSNL versus Abhishek

Shukla, (2009) 5 SCC 368). The said note gives the break up of

the agreements entered into for trade and technical assistance

in the year 1995-96 with Huf Hulsbeck and Furst, Germany and

in the year 2001-02 with All-Tech S.R.L., Italy . The said note

also gives details of the TDS deducted on the payments made

(copies of TDS certificates were enclosed). The details of TDS

as per the order dated 15th October, 2007 were on record. It is

stated that as per the trade and technical agreements, royalty

payable was related to sales by the assessee company, hence,

it was a revenue expenditure. Reliance was placed on case

laws.

13. During the hearing of the writ petition because of this

controversy, the respondents were asked to produce their

original record. In the order dated 22nd September, 2008 it is

recorded as under:-

"WP(C) No. 8273/2007 The learned counsel for the petitioner seeks time to examine the record with regard to the aspect as to whether the petitioner had filed the note on royalty which is at page 45 of the paper book during the course of original assessment proceedings. This would be material because according to the learned counsel for the petitioner, the Assessing Officer had examined this issue in detail and then made the assessment order. The assessment is sought to be reopened on the ground that payment of royalty was in the nature of „capital expenditure‟ and not „revenue expenditure‟ and that this „fact‟ had escaped assessment.

The revenue shall produce the original record on the next date also. Interim orders to continue.

Renotify on 03.11.2008.

CM No. 17313/2007 in WP (C) No. 8273/2007 Renotify on 03.11.2008"

14. Thereafter in the order dated 3rd November, 2008 it is

mentioned that the petitioner, after conducting inspection of the

records, had prepared the affidavit and filed the same. The

respondents were again directed to permit inspection of the

original assessment records to the petitioner so that the query

raised as recorded in the order dated 22nd September, 2008

could be answered properly. Thereafter, on 11th February, 2009

the following order was passed:-

" In the records that have been produced before us Ms Prem Lata Bansal accepts that the Revenue‟s letter dated 27.10.2004 is not available. The only inference that can be drawn is that the complete records have not been brought to Court. We direct that the entire record be produced on the next date of hearing."

15. In view of the aforesaid discussion, the core issue is a

short one. The issue that needs examination is whether the

question that royalty payable was in the nature of revenue

expenditure, and not capital expenditure, was examined during

the original assessment proceedings. In case the said aspect

was discussed/considered, then the petitioner is entitled to

succeed as it is now well settled that reassessment proceedings

cannot be initiated on a mere change of opinion. (See

Commission of Income Tax, Delhi versus Kelvinator of India

Ltd. (2010) 2 SCC 723) In case this aspect was not considered

and examined by the Assessing Officer in the original

assessment proceedings, there is no question of change of

opinion and, therefore, logically and sequentially, the

reassessment proceedings have been validly initiated and at this

stage, a prima facie view is to be taken, and whether or not

finally any addition would be justified and made, is not to be

examined.

16. In view of the pleadings before us, failure of the

respondents to deny the fact that the reply on royalties payable

was filed before the Assessing Officer, we have no option to

accept the petitioner‟s contention. The said aspects have been

discussed in paragraph 12 above. The Revenue has not made

any attempt to even get in touch with the Assessing Officer who

had authored the original assessment order dated 28th March,

2006 and enquired whether or not during the original

proceedings, the said aspect has been examined. As noticed

above, the records maintained by the Revenue are scanty and

only some papers relating to the original assessment

proceedings are available. The reassessment notice was issued

on 18th April, 2007, after about one year from when the original

assessment order of 28th March, 2006 was passed. Thereafter,

the order rejecting the objections was passed on 15th October,

2007. In the objections the petitioner had referred to the reply

filed during the course of the original assessment proceedings.

Nothing prevented the Assessing Officer from examining the

said aspect and stating that no reply was filed by the petitioner in

the course of the original assessment proceedings. The new

Assessing Officer could have also asked and verified facts from

the earlier Assessing Officer who had passed the original

assessment order, as the documents/papers were missing. On

the other hand, a cryptic order was passed without specifically

dealing with the said contention and fact stated by the petitioner.

17. In view of the aforesaid discussion, the present writ

petition is allowed and Writ of Certiorari is issued quashing the

notice under Section 147/148 of the Act dated 18th April, 2007

and the order dated 15th October, 2007 rejecting the petitioner‟s

objections. It is held that the reasons recorded show only a

change of opinion and, therefore, the reassessment proceedings

are not valid. There will be no order as to costs.

(SANJIV KHANNA) JUDGE

(DIPAK MISRA) CHIEF JUSTICE

SEPTEMBER 26th, 2011 VKR