EIH Associated Hotels Ltd. Vs ACIT (Madras High Court)
Conclusion: An audit objection did not satisfy the requirement of AO having an independent ‘reason to believe’ that income had escaped assessment, that too after the elapse of nearly six years from the end of the relevant assessment year, therefore, the impugned reassessment proceedings were vitiated.
Held: AO had neither mechanically adopted the figures supplied by assessee nor the methodology for computation of book profit as he adds expenses attributable to exempt income, increasing the taxable book profit for the purposes of Section 115JB. The order of assessment passed under scrutiny was a reasoned order passed after the application of mind upon the computation furnished by assessee. The notice under Section 148 was issued barely 10 days prior to the expiry of the six-year period, which placed an absolute bar upon reassessment, except in certain stipulated situations. The premise upon which the assessment had been re-opened was that the loss available was a sum of Rs. 50.52 crores and no book loss or depreciation was available to be deducted under Section 115 JB. However, the computation accompanying the revised return revealed a depreciation of a sum of Rs. 18.05 crores. Assessee had challenged the assumption of jurisdiction by AO. It was held that there was no allegation in the reason itself to the effect that there had been any incomplete disclosure or false statement made at the time of assessment that would justify the assumption of jurisdiction beyond the period of four years. Assessee also raised the argument that the impugned proceedings were based on an audit objection though none of the documents on record would evidence this position. However, there was an averment in the affidavit to this effect and the counter filed by the respondent did not specifically deny this. Thus, the settled position that an audit objection did not satisfy the requirement of AO having an independent ‘reason to believe’ that income had escaped assessment, that too after the elapse of nearly six years from the end of the relevant assessment year, the impugned proceedings were vitiated.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The petitioner is a company assessed to income tax on the file of the sole respondent in terms of the provisions of Income Tax Act, 1961 (in short ‘Act’). In respect of assessment year (AY) 2012-13 a return of income had been filed disclosing income both under the regular provisions as well as under the provisions of Minimum Alternate Tax (in short ‘MAT’).
2. Proceedings for amalgamation had been ongoing at that particular juncture, in Company Petition Nos.190 and 191 of 2012 for amalgamation of the petitioner with one, Island Hotel Maharaj Limited. By order dated 06.02.2013 the scheme of amalgamation had been approved by this Court, merging the aforesaid two entities. The appointed date was fixed as 01.04.2011.
3. The scheme provided for the merging of the assets and liabilities as well as the method of accounting to be followed in respect of the merged assets. The accounting was to be under the pooling of interest method adopting accounting standard (AS 14) that provided for the methodology for accounting for amalgamations, issued by the Institute of Chartered Accountants of India.
4. Post-amalgamation, a revised return had come to be filed by the petitioner, once again computing the income both under regular provisions as well the under the provisions of Minimum Alternate Tax (MAT). The brought forward loss in the hands of the petitioner (amalgamated entity) is as follows:-
