Case Law Details
In the impugned order dt. 13th Dec., 2007 reference has been made to the provisions of Expln. 1 to s. 147 which provides that the production before the AO of account books or other evidence from which material evidence could, with due diligence, have been discovered by the AO will not necessarily amount to disclosure within the meaning of the section. In our view, this is not a case which attracts Expln. 1 to s. 147. This was a case in which the AO raised specific queries on several occasions and all the queries were answered.
It was also sought to be contended that since the AO had not expressed any opinion regarding this matter in his original assessment order, it could not be said that there was any change of opinion in this case. In our view, once all the material was before the AO and he chose not to deal with the several contentions raised by the petitioner in his final assessment order, it cannot be said that he had not applied his mind when all material was placed by the petitioner before him.
HIGH COURT OF BOMBAY
Idea Cellular Limited.
Vs.
Deputy Commissioner Of Income-Tax And Others
(2008) 301 ITR 407 (Bom)
Date 13/2/2008
JUDGMENT-R.S. MOHITE, J.:
This petition filed by Idea Cellular Ltd. (hereinafter referred to as the “petitioner”) impugns a notice dt. 26th March, 2007 issued by respondent No. 1 under s. 148 of the IT Act, seeking to reopen the petitioners’ assessment for the asst. yr. 2001-02. It also impugns a further order dt. 13th Dec., 2007 issued by respondent No.1 rejecting the objections raised by the petitioner to the reopening of the assessment.
2. The brief chronological facts of the case are as under:
(a) On 30th Oct., 2001 the petitioner filed a return in respect of the asst. yr. 2001-02 which indicated a loss of Rs. 1,33,91,49,737. The said return was accompanied by a copy of the petitioner’s audited accounts for the year ended 31st March, 2001. In the computation annexed to the return, the petitioner had disclosed that a company named Tata Cellular Ltd. had amalgamated into the petitioner w.e.f. 1st Jan., 2001. More details of the amalgamation were given in the directors’ report annexed to the audited accounts. In the balance sheet and in Sch. 2 thereof, the petitioner had disclosed that a sum of Rs. 9,984.15 lakhs was credited to the “Amalgamation Reserve” account under the head “Reserves & Surplus”. In note 4(a) of Sch. 19 to the audited accounts, the petitioner had given full details as to how the said sum of Rs. 9,984.15 lakhs was arrived at. It explained that the assets and liabilities of Tata Cellular Ltd. had been accounted for in the accounts as per the “Pooling of Interest method” prescribed in the Accounting Standard on Accounting for Amalgamations (AS-14) as issued by the Institute of Chartered Accountants of India. It was explained that the said sum of Rs. 9,984.15 lakhs was the difference between the net book value of the assets and liabilities so acquired and the share capital to be issued there against.
(b) On the filing of the return, on 30th Jan., 2004 respondent No. 1 issued notices under ss. 142(1) and 143(2) together with a letter of the same date in which he raised a number of queries relating to the return filed by the petitioner. Amongst the various queries were the following:
(i) What is the basis for creation of reserve of Rs. 9,984.15 lakhs and whether same has been brought to tax.
(ii) Is there any payments towards goodwill.
(iii) How the valuation of business has been worked out.
(iv) How the difference between market value and book value of fixed assets has been adjusted/paid.
The letter called upon the petitioner to give specific reply on the aforesaid points, failing which it would be assumed that the amount of Rs. 9,984.15 lakhs which was transferred directly to the capital reserve account would be treated as capital gain in the hands of the petitioner.
(c) By the reply dt. 11th Feb., 2004, the petitioner company furnished answers to the queries raised as aforesaid. In para 10 of the letter, the petitioners explained that the said sum of Rs. 9,984.15 lakhs represented the excess of assets and liabilities acquired by the petitioner as compared to the amount of purchase consideration discharged/paid by the petitioner on the amalgamation of Tata Cellular Ltd. It was emphasized that the said amount was merely an accounting entry for recording the difference in the books of account and did not represent income in the hands of the petitioner. The petitioner relied upon the decision of the Privy Council in CIT Vs.. Shaw Wallace Ltd. 6 ITC 1 78 (PC) to explain that “reserves” arising out of the acquisition of the business of Tata Cellular Ltd. could never have the character of “income” in the hands of the petitioners.
(d) In reply to the petitioners’ letter, respondent No. 1 issued a show cause notice dt. 1st March, 2004 in which he stated the following:
“(3) With reference to our submission on creation of reserve amounting to Rs. 9,984.15 lakhs, following facts are observed:
(i) The assessee has paid Rs. 9,984.15 lakhs less towards acquisition.
(ii) The assessee has valued its assets more by Rs. 9,984.15 lakhs, whereas the net consideration discharged or paid by it is lesser by that amount.
(iii) In simple words the assessee has earned discount of Rs. 9,984.15 lakhs on its acquisition of total assets and liabilities of Tata Cellular Ltd.
Since this discount earned cannot be allocated to a particular asset, it cannot be adjusted against cost of assets. Nonetheless, this discount is income in the hands of the company and same should be brought to tax. Since it is evident that this discount is earned in the course of acquisition of a business asset, hence the same should be treated as business income. Petitioner was called upon to make his submissions on these issues, along with detailed working as to how this amount has been worked out.”
(e) In reply to the show cause notice the petitioner addressed a letter dt. 5th March, 2004 in which he dealt with the contentions raised by respondent No. 1. In para 4 of the said letter, the petitioner termed the contention of respondent No. 1 of treating the reserve arising on amalgamation as business income as “erroneous and absurd” and went on to explain in detail the process by which shares are allotted in an amalgamation. It was explained that in an amalgamation the intrinsic value of the shares was first determined and based on this intrinsic value, the ratio of exchange was determined by the valuer. It was emphasized that the intrinsic value of the shares was equal to the value of the business taken over. The value of the shares over and above the face value was nothing but the premium on issue of the shares though it might be termed as a capital reserve. It was explained that the said premium was a capital receipt which could, by no stretch of imagination, be termed as a business receipt. It was also pointed out that acquisition of a business was the acquisition of an additional source of income and the price paid for the same was a commercially determined price and there was no question of there being a “discount”. The petitioner then furnished further clarification on the issue of taxability of the said sum of Rs. 9,984.15 lakhs. That thereafter, respondent No. 1 sought further clarification regarding this issue vide his letter dt. 10th March, 2004 and this clarification was also given by the petitioner by their letter dt. 12th March, 2004.
(f) Ultimately, respondent No. 1 passed an assessment order dt. 31st March, 2004 in which he computed the petitioner’s loss at Rs. 75,04,02,061 after making several additions and disallowances. However, he did not make any addition in respect of the said amalgamation reserve of Rs. 9,984.15 lakhs. In the order respondent No. 1 made a specific note of the fact of the amalgamation of Tata Cellular Ltd. with the petitioner and disallowed the expenses incurred by the petitioner on the amalgamation.
(g) On 26th March, 2007 respondent No. 1 issued the impugned notice under s. 148 of the Act wherein he stated that he had reasons to believe that the petitioner’s income chargeable to tax for the asst. yr. 2001-02 had escaped assessment within the meaning of s. 147 of the Act. He directed the petitioner to deliver to him, within 30 days from the date of service of the notice, a return in the prescribed form of the petitioner’s income for the said assessment year.
(h) Vide their letter dt. 23rd March, 2007 the petitioner requested respondent No. 1 to provide the reasons recorded for issue of the said notice. In response to this request, respondent No. 1 furnished the copy of the recorded reasons to the petitioner.
(i) In reply to the recorded reasons the petitioner addressed a letter dt. 13th Dec., 2007 in which they made the following points:
(1) That the petitioner had made a full and true disclosure of the material facts necessary for the assessment;
(2) That respondent No. 1 had raised specific queries on the issue and that elaborate submissions had been made by the petitioner and it was only after considering the facts and the details that the assessment order under s. 143(3) of the Act was passed;
(3) It was emphasized that the present proceedings were based on a mere change of opinion;
(4) That the petitioner relied on a number of judicial precedents including that of the Hon’ble Supreme Court in CIT Vs.. Foramer France (2003) 185 CTR (SC) 512 : (2003) 264 ITR 566 (SC) and that of this Hon’ble Court in IPCA Laboratories Vs.. Gajanand Meena, Dy, CIT (2001) 170 CTR (Rom) 582 : (2001) 251 ITR 416 (Rom) to emphasise that the assessment could not be reopened where there was no failure to make a full and true disclosure of the material facts and on the basis of a mere change of opinion.
(5) Without prejudice, the petitioner also dealt with the merits of the matter in detail to explain that an amalgamation reserve could never have the character of “income”. The petitioner explained in detail the nature and circumstances in which an amalgamation reserve is created and why it could never be treated as “income from other sources”.
(j) In reply to the aforesaid letter of the petitioner, respondent No. 1 passed a further impugned order dt. 31st Dec., 2007 in which he made the following points:
(1) That in view of Expln. 1 to s. 147, the mere production of account books and other evidence would not necessarily amount to full disclosure;
(2) That as the issue had not been discussed in the assessment order, it could not be said that respondent No. 1 had formed any opinion and that there was consequently no change of opinion.
(3) That the other contentions would be dealt With in the reassessment order:
(k) That thereafter, after taking inspection of the relevant files the petitioners have chosen to file the present petition.
3. The first point that was argued was that this was a case where an assessment was sought to be reopened after the expiry of 4 years from the end of the relevant assessment year. The assessment year in question was 2001-02 and the notice under s. 148 had been issued in the year 2007. It was contended that the proviso to s. 147 of the IT Act provides that where an assessment under s. 143(3) of the Act has been made for the relevant assessment year, no action shall be taken under s. 147 after the expiry of four years from the end 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 the assessee:
(1) to make a return under s. 139 or in response to a notice issued under s. 142(1) or s. 148 or;
(2) to disclose fully and truly all material facts necessary for his assessment for that assessment year.
It was contended that the first requirement was not attracted to the facts of the present case and as far as the 2nd requirement was concerned, the petitioner had disclosed fully and truly all material facts necessary for the assessment for that year. It was contended that the petitioner’s case was covered by the said proviso because the assessment order passed on 31st March, 2004 was for the asst. yr. 2001-02 and more than 4 years had elapsed from the end of the assessment year. It was contended that there was no failure on the part of the petitioner of the kind envisaged by the proviso as the petitioner had disclosed that the sum of Rs. 9,984.15 lakhs had been credited to the amalgamation reserve in their returns and had also replied to the several queries relating to this aspect of the matter as detailed hereinabove.
4. On behalf of the respondents an affidavit-in-reply dt. 21-5-2008 [sic-21st Jan., 2008] came to be filed. As regards the aforesaid point raised, it was contended that though the assessee was confronted on this issue, no official opinion has been formed in the assessment order by the AO and therefore, it was contended that this was not a case of change of opinion. It was contended that since the assessee had failed to disclose the income accruing on amalgamation, provisions of s. 147 were applicable”.
5. In the affidavit-in-rejoinder dt. 7th Feb., 2008 it was contended on behalf of the petitioners that the stand taken by the respondents was casual and was taken without appreciating the statutory precondition for validly assuming jurisdiction under s. 147, which was that there must be a “failure to make a full and true disclosure of the material facts”.
6. In the circumstances of the present case, we find that this is not a case where it can be said that there was failure on the part of the petitioners to disclose fully and truly all material facts necessary for assessment in the relevant assessment year. The accounting entry for the amount of Rs. 9,984.15 lakhs was mentioned in the returns for the relevant year. In reply to the requisition made by respondent No. 1 on 30th Jan., 2004 concerning this issue, the queries raised were replied to by the petitioner’s letter dt. 11th Feb., 2004. Again, respondent No. 1 raised further queries by show cause letter dt. 1st March, 2004 and this was replied to by the petitioner by letter dt. 5th March, 2004. On 3rd occasion queries were raised by respondent No. 1 by his letter dt. 10th March, 2004 and this was replied to by the petitioner by letter dt. 12th March, 2004. Again, after the issue of the notice dt. 26th March, 2007 and after receipt of recording reasons, the petitioner addressed the issue vide their letter dt. 13th Dec., 2007. There was a full and true disclosure of all material facts placed before the AO at the first instance and thus there was no suppression of any material from the assessment officer. Therefore, all materials were placed before the AO when he passed the order.
7. In our opinion, therefore, the prerequisite condition contained in the proviso to s. 147 to enable the reassessment to be opened after period of 4 years have elapsed have not been met.
8. We further find that in the impugned order dt. 13th Dec., 2007 reference has been made to the provisions of Expln. 1 to s. 147 which provides that the production before the AO of account books or other evidence from which material evidence could, with due diligence, have been discovered by the AO will not necessarily amount to disclosure within the meaning of the section. In our view, this is not a case which attracts Expln. 1 to s. 147. This was a case in which the AO raised specific queries on several occasions and all the queries were answered.
9. It was also sought to be contended that since the AO had not expressed any opinion regarding this matter in his original assessment order, it could not be said that there was any change of opinion in this case. In our view, once all the material was before the AO and he chose not to deal with the several contentions raised by the petitioner in his final assessment order, it cannot be said that he had not applied his mind when all material was placed by the petitioner before him.
10. Petitioner had also contended that there was no reason to believe that any income chargeable to tax had escaped assessment. In view of the finding above, it is not necessary to go into this aspect of the matter.
11. In the net result, writ petition is allowed in terms of prayer cl. (a). There shall be no order as to costs.
