Case Law Details
Piramal Enterprises Limited Vs Additional/joint/Deputy/Assistant CIT/ITO National e-Assessment Centre (Bombay High Court)
The HC declared that assessment for AY 2017-18 made u/s 143(3) vide order dated 22.4.2021 was non est u/s 144B(9) of the Income Tax Act, 1961 for not adhering the procedure laid down u/s 144B(1) and u/s 144B(7/(vii) of the Act and holding that –
1. principles of natural justice firmly runs through fabric of section 144B(1) of the Income Tax Act, 1961 – para 63
2. Section 144B of the Income Tax Act, 1961captioned ‘Faceless Assessment’ commences vide it’s sub-section (1) with non obstante clause and compulsively requires assessment u/ss 143(3) and 144 shall be by prescribed procedure contained under sub-section (1) of section 144B in the cases referred to in sub-section (2) thereof – para 64
3. Going by the provisions of section 144B, when hearing has been envisioned and incorporated, it is imperative to observe principle of natural as stipulated – para 66.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. The petitioner – a registered company – is before the court aggrieved by the draft assessment order dated 22/04/2021 (for the assessment year 2017-18) under Faceless Assessment System / e-Assessment.
2. Petitioner carries on various businesses including pharmaceuticals comprising manufacturing pharmaceutical formulations as well as trading in pharmaceutical goods. It purchases raw material for manufacturing its formulations as well as purchases goods for trading.
3. The petitioner had filed its original return of income for the assessment year 2017-18 in November 2017 declaring NIL income. The petitioner has filed a revised return of income in March 2019 for said assessment year electronically in the prescribed fixed format.
4. According to petitioner, in its profit and loss account, it breaks up expenditure in broad categories viz; cost of material consumed, purchase of stock in trade and change in inventory of finished goods, work in progress and stock in trade. Its details are disclosed in schedule to profit and loss account. In the balance-sheet, inventory (closing stock) comprises the items raw material, work in progress, finished goods, stock in trade and spares and is given in consolidated figures.
5. It is referred to that petitioner has tendered and uploaded profit and loss account and balance-sheet by filling up relevant columns of the format of return of income. Columns in the return of income are predetermined and inflexible and since it provided for only one column for purchase, it was not possible for petitioner to show purchases of raw material and purchases of trading goods separately. There is no column to show opening and closing stocks of stock in trade. In the circumstances, in the profit and loss account, as there are no sufficient columns to give details of transactions, the petitioner had made disclosures in certain columns and schedule to annual accounts.
6. The petitioner submits that the aforesaid disclosures are made for understanding as to the amount shown in profit and loss account of income tax return tallies with annual accounts. It is being submitted that such a method of disclosure in return of income does not, in any way, affect the income declared or the correctness of amount declared in the profit and loss account or the return of income. Since the return of income comprises fixed line items, the petitioner had to make the disclosures as aforesaid in particular form which practice it has been following from the beginning of filing of return of income electronically. The petitioner discloses all types of inventories (closing stocks) as is disclosed in annual accounts, in the balance-sheet.
7. It is referred to, it is considered that there is substantial difference between the value of receipts from services in the service tax return received from CBEC and the values disclosed in income-tax return. It is contended that while the petitioner had sought material to understand the basis of respondent no.1 coming to such consideration, the respondent no.1 had not furnished any material / information and arbitrarily addition was made.
8. It is stated petitioner had also filed along with return transfer pricing audit report in Form 3-CEB showing international transactions entered into and their arm’s length price. It is submitted that the transactions of granting corporate guarantee in respect of borrowing of Associate Enterprises (‘AE’), the petitioner had charged the transaction @ 0.75% or 0.50% of the guarantee amount. The petitioner has made suo-motu adjustment @ 0.25% for certain guarantees given for the performance of AEs as being the arm’s length price of the international transactions. The transfer pricing officer under his order dated 29/01/2021, proposed adjustment of Rs.23.62 crore rejecting submission of petitioner with respect computation of arm’s length price and computed corporate guarantee and performance guarantee @ 1.68% and accordingly proposed the adjustment.
9. The petitioner’s case was selected for scrutiny assessment and during the course of submissions, petitioner wanted to opt out of e-proceedings and to have physical submission but its case was transferred to e-proceedings / faceless assessment.
10. The petitioner also refers to that during course of assessment proceeding, various show-cause notices were issued from time to time seeking details and the petitioner had filed its replies with submissions with respect to issues sought to be raised.
11. Petitioner states, it received a purported draft assessment order in the form of a show-cause notice dated 25/03/2021 stating that certain additions are proposed to be made while completing assessment, purporting to give opportunity to show cause, up to 26/03/2021.
12. The notice, inter alia, also states that the petitioner may file response in writing and may also file request for personal hearing through video conferencing. The notice proposed to disallow a sum of Rs.167.57 crore under section 14A of the Income Tax Act, 1961 (for short, ‘IT Act’) and an amount of Rs.430.35 crore based on difference of turnover disclosed by the petitioner and information received from CBEC, addition to value of closing stock as there being difference between value of closing stock, in the profit and loss account, in the income tax return and in the balance-sheet, addition with respect to opening stock as the opening stock in the profit and loss account in the income tax return is more than the closing stock disclosed in the income tax return of earlier year and transfer price adjustment of Rs.23.62 crore.
13. In its letter dated 26/03/2021, the petitioner asked for time up to 09/04/2021 as a day’s time was not sufficient with respect to issues raised in the proposed draft assessment order. On 28/03/2021, the petitioner submitted a letter seeking hearing through virtual conferencing in the assessment proceedings for AY 2017-18. The petitioner refers to that it filed responses to notice on 07/04/2021 and 08/04/2021 giving explanation, particulars and details with respect to the issues.
14. The petitioner received a draft assessment order dated 22/04/2021 under section 144C(1) read with 143(3) of the IT Act disallowing sum of Rs.167.57 crore under section 14A of the Act, adding Rs.362.72 crore to income rejecting submissions of the petitioner stating that burden was on petitioner to reconcile the data with the service tax returns holding that request of the petitioner for further time for reconciliation is not justifiable, adding a sum of Rs.343.10 crore on account of closing stock, with addition of Rs.810.33 crore on account of opening stock and transfer pricing addition of Rs.23.62 crore.
15. The petitioner is, thus, before the court contending that impugned draft assessment order dated 22/04/2021 by respondent no. 1 for assessment year 2017-18 is ex-facie illegal, untenable, unsustainable, unreasonable and contrary to the provisions of the IT Act and infringes petitioner’s rights under Articles 14 and 19 of the Constitution of India, invoking Articles 226 and 227 of the Constitution of India.
16. The revenue has filed its reply through Deputy Commissioner of Income Tax, Circle 8(2)(1), Mumbai, wherein it has been referred to that the case of petitioner for Assessment Year (AY) 2017-18 had been selected for complete scrutiny and verification, as according to Computer Assisted Scrutiny Scheme (CASS), various aspects had cropped up on account of issues referred to in the reply.
17. It is contended that adjustment of Rs.23.62 crore was based on transfer pricing officer’s order under section 92CA(3) before which the petitioner had been issued notices from time to time and the petitioner’s submissions were duly considered and are incorporated in transfer pricing order.
18. It has been referred to that in CASS, additional income in respect of closing stock has been properly made having regard to the differences of values appearing in profit and loss account and balance sheet. Similar is the case of the opening stock, as there have been differences in the opening stock of the current year which should have been generally the same, as the closing stock of the preceding year. It is sought to be submitted that after satisfaction, there has been disallowance under section 14A of the Act r/w Rule 8D in the draft assessment order. The assessee had failed to furnish computation as per rule 8D and instead had furnished scientific working of disallowance which is less than expenses already debited in profit and loss account for earning exempt income, as such, 1% of investment less expenses had been added to total income.
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