High Court Of Bombay
M.J. Pharmaceuticals Ltd. vs. DCIT & ANR.
Sections 147, 148
Asst. Year 2003-04
F.I. Rebello & J.P. Devadhar, JJ.
Writ Petn. No. 2081 of 2007
17th October, 2007
Counsel Appeared :
P.J. Pardiwala with A.K. Jasani, for the Petitioner : B.M. Chatterji with Mrs. P.P. Bhosale & P.S. Sahadevan, for the Respondents
JUDGMENT
J.P. DEVADHAR, J. :
Heard. Rule. Rule returnable forthwith. By consent of parties, the petition is taken up for final hearing.
This petition is filed to challenge the notice dt. 27th Dec., 2006 issued under s. 148 of the IT Act, 1961 (‘Act’ for short) relating to the asst. yr. 2003-04. Return of income for the assessment year in question was filed by the petitioner (‘assessee’ for short) on 11th April, 2003 declaring loss of Rs. 73,11,996. In the P&L a/c, the assessee had made provision of Rs. 2,16,01,248 for deferred taxation. During the course of the assessment proceedings, the AO called upon the assessee to show cause as to why the provision for deferred taxation amounting to Rs. 2,16,01,248 made in the P&L a/c should not be taken into account for determining the book profit under s. 115JB of the Act.
The assessee in its reply submitted that the provision for deferred taxation was made in accordance with the AS-22 and the same cannot be taken into account for determining the book profit, because, the same is not covered by any of the cls. (a) to (f) set out in the Explanation to s. 115JB of the Act. On being satisfied with the above explanation given by the assessee, the AO passed an order under s. 143(3) of the Act without making any additions to the book profit on account of provision for deferred taxation.
By the impugned notice dt. 27th Dec., 2006 the AO sought to reopen the concluded assessment by recording the following reasons : “M/s M.J. Pharmaceuticals Ltd. Asst. yr. 2003-04.
In this case return of income was filed on 14th Nov., 2003 declaring loss of Rs. 73,11,996. Assessment was made vide order under s. 143(3) dt. 24th March, 2006 and total income was assessed at Rs. 1,06,95,835 which was adjusted with the unabsorbed loss for asst. yr. 2002-03. Book profit of the assessee was computed at Rs. 95,54,873 as disclosed by the assessee. However CIT(A) vide order in Appeal No. CIT(A)/C.VIII/CC 32/IT-62/2006-07 dt. 4th Aug., 2006 had deleted an addition of Rs. 10,920 on account of interest on fixed deposits, addition of Rs. 15,788 made on account of stale cheques was restricted to Rs. 10,236, addition of Rs. 1,79,81,123 on account of unutilized modvat had been deleted, resulting in total relief of Rs. 1,79,97,595, and total loss of assessee company was determined at Rs. 73,01,760 consequent to appeal effect. Subsequently it was gathered that assessee company had considered Rs. 3,30,74,365 as net profit before tax. However book profit under the provisions of s. 115JB had been shown at Rs. 1,07,20,671 which was accepted while computing book profits under s. 115JB. Profit as per P&L a/c was shown at Rs. 3,30,74,365 and after allowing brought forward loss/unabsorbed depreciation (whichever is less) of Rs. 19,18,244 book profit worked out to Rs. 3,11,56,121 as against Rs. 95,54,873 disclosed by the assessee, thus resulting in underassessment of book profit by Rs. 2,16,01,248 which is on account of provision for deferred tax. As provisions for deferred tax is nothing but provision made for making liabilities other than ascertained liabilities to which provisions of Explanations seen (sic) of s. 115JB was applicable. Thus book profits of the assessee have been underassessed by Rs. 2,16,01,248. Thus it is seen that income chargeable has been underassessed and also that excessive relief has been given for which provisions of Expln. 2(c)(i) of s. 147 are applicable.
In view of the above facts, I have reason to believe, that income chargeable to tax has escaped assessment and a proposal is submitted for kind permission and approval as per s. 15(1) of IT Act. The limitation for approval and issue of notice expires on 31st March, 2008. sd/(R.K. Jalali) Dy. CIT Central Circle-32, Mumbai.”
The assessee objected to the reopening of the assessment inter alia by relying upon the judgment of the Tribunal, Kolkata Bench in the case of Asstt. CIT vs. Balarampur Chini Mills Ltd. (2007) 111 TTJ (Kol) 230 : (2007) 14 SOT 372 (Kol). In that case, the Tribunal had considered the very same issue of including the deferred taxation charge in the book profit for the purposes of s. 115JB(2) of the Act. However, the AO by his order dt. 27th Aug., 2007 rejected the objection raised by the petitioner without assigning any reasons. Challenging the above action of the AO, the present petition is filed.
Mr. Pardiwala, learned counsel appearing on behalf of the petitioner submitted that the notice issued under s. 148 of the Act for reopening of the assessment as well as the order rejecting the objections are bad in law because concluded assessments can be reopened only if the AO has valid reason to reopen the assessment and not on mere change of opinion. In the present case, during the assessment proceedings the very same issue was raised by the AO and the assessment order under s. 143(3) of the Act was passed after accepting the explanation given by the petitioner and, therefore, on a mere change of opinion, it is not open to the AO to reopen the concluded assessment. Mr. Pardiwala further submitted that in the absence of any decision to the contrary, the decision of the Tribunal, Kolkata Bench in the case of Balarampur Chini Mills Ltd. (supra) which is directly on the point is binding upon the AO and, therefore, the proceedings for reopening of the assessment in contravention of the order passed by the Tribunal, Kolkata are liable to be quashed and set aside. In this connection, Mr. Pardiwala relied upon the judgment of this Court in the case of German Remedies Ltd. vs. Dy. CIT & Ors. (2006) 201 CTR (Bom) 193 : (2006) 285 ITR 26 (Bom).
Mr. Chatterji, learned counsel appearing on behalf of the Revenue, on the other hand, submitted that where the AO has, on the basis of the material on record reason to believe that income chargeable to tax has escaped income, then, reopening of the assessment within four years from the end of the relevant assessment year on the basis of such material on record is justified. He submitted that the proper course for the assessee is to agitate all the contentions raised herein before the AO and if the reassessment order is adverse, the assessee has statutory remedy of appeal and, therefore, no case is made out for interference under Art. 226 of the Constitution of India. Accordingly, Mr. Chatterji submitted that the petition is liable to be dismissed.
We have carefully considered the rival contentions. In the present case, the question as to whether for determining ‘total income’ under s. 115JB of the Act, the book profit has to be increased by the amount of provision for deferred taxation made by the assessee in its P&L a/c was specifically raised by the AO at the time of the assessment under s. 143(3) of the Act. The assessee explained that the provision for deferred taxation is made in the P&L a/c as per the Accounting Standards and, therefore, the book profit arrived at in the P&L a/c cannot be increased by the amount of provision for deferred taxation. Once the explanation given by the assessee is accepted and the regular assessment is made, the said assessment cannot be reopened for considering the very same issue, unless the AO has some material on the basis of which he forms a prima facie opinion that the regular assessment passed by accepting the explanation given by the assessee was erroneous and consequently, income chargeable to tax has escaped assessment. From the reasons recorded by the AO for reopening the assessment, it is seen that neither the explanation given by the assessee and accepted by the AO is found to be erroneous nor is there any other material/information on the basis of which a prima facie opinion is formed to the effect that by not increasing the book profit with the amount of provision for deferred taxation, income chargeable to tax has escaped assessment. Thus, in the present case, the reopening of the assessment is not based on any material but merely on change of opinion without any basis. It is now well established that reopening of the assessment based on mere change of opinion cannot be sustained. Moreover, when the assessee objected to the reopening of the assessment by relying on a decision of the Tribunal, Kolkata Bench (supra) the AO could not have brushed aside the said objection and proceeded to finalise the assessment. The Tribunal, Kolkata Bench in the above case has considered the very same issue and held that the book profit determined by the assessee cannot be increased by the amount of provision for deferred taxation while determining ‘total income’ under s. 115JB of the Act. In the absence of any decision to the contrary, the AO was bound by the said decision. Therefore, the AO could not ignore the decision of the Kolkata Bench in the case of Balarampur Chini Mills Ltd. (supra) and continue with reassessment proceedings. No doubt, Expln. 2(c) to s. 147 of the Act empowers the AO to reopen an assessment if he has reason to believe that excessive relief has been granted to the assessee under the Act. The belief that the income chargeable to tax has escaped assessment on account of excessive relief must be based on definite basis. As stated earlier, there is no basis for treating the provision for deferred taxation amounts to unascertained liability covered under cl. ‘c’ of Explanation to s. 115JB of the Act. In fact, during the course of regular assessment, the very same question was raised by the AO and the explanation given by the assessee that the provision for deferred taxation cannot be treated as an unascertained liability was accepted by the AO. Apart from that Kolkata Bench in the case of Balarampur Chini Mills Ltd. (supra) has taken similar view. Neither the reasons recorded while reopening the assessment nor the reasons recorded while rejecting the objections raised by the assessee indicate any reason as to why the regular assessment is wrong or the decision of the Kolkata Bench in the case of Balarampur Chini Mills Ltd. (supra) is not acceptable.
In these circumstances, in our opinion, in the present case, since the jurisdictional requirements for reopening of the assessment are not fulfilled, the impugned notice issued under s. 148 of the Act cannot be sustained. Accordingly, the petition succeeds. The impugned notice dt. 27th Dec., 2006 issued under s. 148 of the Act is quashed and set aside.
Rule is made absolute in the above terms with no order as to costs.
[Citation : 297 ITR 119]
