Johnson & Johnson Private Limited Vs Add. CIT (ITAT Mumbai)
The issue under consideration is whether the re-opening of assessment u/s 147 of the Act is justified in law?
ITAT state that, the CIT has granted permission to the Assessing Officer for initiating reassessment proceedings without properly examining reasons for reopening. The reassessment proceedings were initiated beyond period of four years and nowhere in the reasons it has been brought out that the assessee has failed to disclose fully and truly all material facts necessary for the assessment. The CIT has not recorded his satisfaction on the reasons recorded by the Assessing Officer for reopening. Further, the Assessing Officer had brought the fact to the notice of CIT that earlier notice was issued under section 148 of the Act on 02/07/2008, however, no assessment order under section 143(3) r.w.s. 147 of the Act was passed within time barring limit, hence, the case cannot be reopened again. The CIT without commenting on the observations made by the Assessing Officer, approved permission for reopening the assessment. Evidently, the permission was granted in a mechanical manner without application of mind. Thus, in the facts of the case and in the light of law laid down by the Hon’ble Jurisdictional High Court, notice dated 29/3/2011 u/s 148 of the Act is held invalid, reassessment proceedings arising therefrom are vitiated and hence, liable to be quashed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals) -24, Mumbai (in short ‘the CIT (A)’) dated 05/03/2013 for the assessment year 2004-05.
2. The assessee in appeal has assailed reopening of assessment, as well as additions/disallowances on merits. The assessee in appeal has raised 14 grounds.
– Grounds of appeal No.1 to 5 are against reopening of assessment under section 147 of the Income Tax Act 1961 (herein after referred to as ‘the Act’);
– Grounds of appeal No.6 to 12 are against disallowance of alleged excess provision of royalty; and
– Grounds of appeal No.13 & 14 are against charging of interest under section 234B of the Act.
3. Shri Rajan Vora, appearing on behalf of the assessee made three fold submissions assailing reopening under section 147 of the Act. The first plank of his argument is against initiation of 2nd reopening proceedings during the subsistence of first reassessment proceedings. The ld. AR contended that the assessee filed its return of income on 01/11/2004. The assessment u/s. 143(3) was completed on 28/11/2006. The first notice under section 148 of the Act was issued to the assessee on 02/07/2008. The assessee filed reply to the said notice on 23/07/2008 and filed return on 30/07/2008. No action was taken by the Assessing Officer on the reply and the return filed in response to the notice. Later on, after a gap of almost three years, second notice under section 148 was issued to the assessee on 29/03/2011. The ld. AR asserted that where the proceedings from first notice issued for reopening assessment are still pending, second notice issued u/s 147/148 of the Act for reopening is bad in law. To support his contentions the ld. AR placed reliance on the following decisions:
(1) A.S.S.P. & Co. vs. CIT 172 ITR 274 (Mad)
(2) CIT vs. P. Krishnankutty Menon, 181 ITR 237 (Ker)
3.1. The second plank of argument against reopening of assessment by the ld. AR of the assesse is, that the second notice for reopening was issued beyond the period of four years. The assessee complied with the second notice. The assessee vide letter dated 19/04/2011 requested to provide reasons for reopening. The ld. Authorized Representative of the assessee pointed that a perusal of reasons recorded for second reopening dated 18/3/2011 (at page 331 of Paper Book) would show that the reopening is not on account of any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It is mere change of opinion. Where assessment has been reopened beyond 4 years it is mandatory that one of the conditions set out in proviso to section 147 are satisfied. To support his contentions the ld. AR placed reliance on the following decisions:
(1) Tao Publishing (P) Ltd. vs. Dy. CIT, 370 ITR 135 (Bom.)
(2) Hindustan Lever Ltd. vs. R.B. Wadkar, 268 ITR 332 (Bom.)
(3) Akshar Anshul Construction LLP vs. Asstt. CIT, 264 Taxman 65 (Bom.)
(4) Parashuram Pottery Works Co. Ltd. vs. ITO, 106 ITR 1(SC)
3.2. The third argument of ld. Authorized Representative of the assesse against reopening is that the Assessing Officer while taking permission from the CIT for issuing notice under section 148 of the Act has expressed his opinion that the case is time barred and hence, cannot be reopened again. However, the CIT in a mechanical manner vide communication dated 25/03/2011 accorded sanction for reopening the assessment under section 147 of the Act. The CIT has given no reason whatsoever overruling the comments of Assessing Officer against reopening of assessment. The ld. Authorized Representative of the assessee submitted that the manner in which reassessment has been sanctioned by CIT clearly indicate that it is without judicious application of mind and in contravention to the proviso to section 147 of the Act. To buttress his contentions, the ld. AR placed reliance on the following decisions:-
(1) German Remedies Ltd. vs. DCIT, 287 ITR 494 (Bom.)
(2) My Car (Pune) (Pvt.) Ltd. vs. ITO, 263 Taxman 626 (Bom.)
(3) Sesa Sterlite Ltd. vs. ACIT, 417 ITR 334 (Bom.)
3.3. The ld. Authorized Representative of the assessee pointed that assessment for assessment year 2004-05 has been reopened for the reason that excess provision for royalty has been created in the books of accounts for financial year 2003-04. The ld. Authorized Representative of the assessee referred to details of royalty payment made during the period relevant to the assessment year 1999-2000 to assessment year 2005-06 (at page 374 of paper book). The ld. Authorized Representative of the assessee submitted that a perusal of the chart would show that in assessment year 2001-02 and 2003-04 there was short provision for royalty. Additional provision was made to cover short provision in the subsequent assessment years. The excess provision for royalty made in assessment year 2004-05 was reversed in assessment years 2005-06 and 2007-08. The ld. Authorized Representative of the assessee submitted that by the time second notice for reopening was issued to the assesse, assessment for assessment years 2005-06 and 2007-08 were already completed. Thus, excess provision made during 2004-05 was tax neutral. The ld. Authorized Representative of the assessee pointed that the royalty was paid in accordance with Agreement dated 14/3/2002 (relevant extract at pages 375 to 377 of the Paper Book).
4. Per contra, Shri Akhtar H. Ansari, representing the Department vehemently defended the impugned order and the action of Assessing Officer in reopening assessment. The ld. Departmental Representative submitted that the assessee had made excess provision for royalty as against actual payment of royalty, therefore, the Assessing Officer was justified in reopening the assessment. The ld. Departmental Representative defending reopening of assessment contended that the Assessing Officer had taken due approval from the competent authority before issuing notice under section 148 of the Act. Thus, there is no procedural violation in issuing notice under section 148 of the Act to the assessee. The ld. Departmental Representative pointed that the objections filed by the assessee against reasons recorded for reopening were disposed of by the Assessing Officer by passing a separate speaking order. The assessee has not challenged the same. Thus, the grounds raised by the assessee challenging reopening of assessment are liable to be dismissed.
5. We have heard the submissions made by rival sides on the issue of reopening. The ld. Authorized Representative of the assessee at this stage has confined his arguments only on the legal issue challenging validity of reopening of assessment. To adjudicate the legal issue assailing validity of reopening of assessment it would be imperative to first examine facts in the case. The chronology of events vital to decide validity of reopening are tabulated herein under:-
