IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.2081 OF 2007
M.J.Pharmaceuticals Ltd., a Company )
a Company incorporated under the )
Companies Act, 1956 and having its )
Registered office at F.P.145, Ram )
Mandir Road, Vile Parle (East), )
Mumbai - 400 057. )..Petitioner.
V/s.
1. The Deputy Commissioner of )
Income-tax, Central Circle 32 )
Room No.4A/15B, Ground Floor, )
Aayakar Bhavan, M.K. Marg, )
Mumbai - 400 020. )
)
2. Union of India, through the )
Secretary, Ministry of Finance, )
North Block, New Delhi -110001. )..Respondents.
Mr.P.J.Pardiwala, Advocate with A.K.Jasani for
petitioner.
Mr.B.M. Chatterji, Advocate with Mrs.P.P.Bhosale anmd
P.S.Sahadevan for respondents.
CORAM : F.I.REBELLO AND
J.P.DEVADHAR, JJ.
DATED : 17TH OCTOBER, 2007.
ORAL JUDGMENT (PER J.P.DEVADHAR, J.)
1. Heard. Rule. Rule, returnable forthwith. By
consent of parties, the petition is taken up for final
hearing.
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2. This petition is filed to challenge the notice
dated 27/12/2006 issued under section 148 of the Income
Tax Act, 1961 (‘Act’ for short) relating to the
assessment year 2003-04.
3. Return of income for the assessment year in
question was filed by the petitioner (‘assessee’ for
short) on 11/4/2003 declaring loss of Rs.73,11,996/-.
In the profit and loss account, the assessee had made
provision of Rs.2,16,01,248/- for deferred taxation.
During the course of the assessment proceedings, the
assessing officer 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 profit and
loss account should not be taken into account for
determining the book profit under section 115 JB of the
Act.
4. The assessee in its reply submitted that the
provision for deferred taxation was made in accordance
with the accounting standard 22 and the same cannot be
taken into account for determining the book profit,
because, the same is not covered by any of the clauses
(a) to (f) set out in the Explanation to Section 115JB
of the Act. On being satisfied with the above
explanation given by the assessee, the assessing
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officer passed an order under section 143 (3) of the
Act without making any additions to the book profit on
account of provision for deferred taxation.
5. By the impugned notice dated 27th December,
2006 the assessing officer sought to reopen the
concluded assessment by recording the following
reasons:-
" M/s.M.J. Pharmaceuticals Ltd.
A.Y. 2003-04.
1. In this case return of income was filed
on 14/11/2003 declaring loss of Rs.7311996.
Assessment was made vide order u/s.143(3) dt.
24.03.2006 and total income was assessed at
Rs.10695835/- which was adjusted with the
unabsorbed loss for A.Y. 2002-03. Book
profit of the assessee was computed at
Rs.9554873 as disclosed by the assessee.
However CIT(A) vide order in Appeal No.CIT(A)
/C.VIII/CC 32/IT-62/06-07 dt. 4.8.2006 had
deleted an addition of Rs.10920 on account of
interest on fixed deposits, addition of
Rs.15788 made on account of stale cheques was
restricted to Rs.10236, addition of
Rs.17981123 on account of unutilized modvat
had been deleted, resulting in total relief of
Rs.17997595/-, and total loss of assessee
company was determined at Rs.7301760/-
consequent to appeal effect.
2. Subsequently it was gathered that
Assessee Company had considered Rs.33074365 as
Net Profit before tax. However book profit
under the provisions of section 115JB had been
shown at Rs.10720671 which was accepted while
computing book profits u/s.115JB. Profit as
per P & L account was shown at Rs.33074365 and
after allowing brought forward loss /
unabsorbed depreciation (which ever is less)
of Rs.1918244 book profit worked out to
Rs.31156121 as against Rs.9554873 disclosed by
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the assessee, thus resulting in underassessment
of book profit by Rs.21601248 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 of sec. 115JB
was applicable. Thus book profits of the
assessee have been under assessed by
Rs.21601248/-.
3. Thus it is seen that income chargeable
has been under assessed and also that
excessive relief has been given for which
provisions of explanation 2(c)(i) of sec. 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 sec. 15(1) of I.T. Act. The Limitation
for approval and issue of notice expires on
31.3.2008.
sd/-
(R.K.Jalali)
Dy.Commissioner of Income-tax
Central Circle-32, Mumbai.
6. The assessee objected to the reopening of the
assessment inter alia by relying upon the Judgment of
the I.T.A.T., Kolkata Bench in the case of A.C.I.T.
V/s. Balarampur Chini Mills Ltd. reported in (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 section 115 JB(2) of the Act. However, the
assessing officer by his order dated 27th August, 2007
rejected the objection raised by the petitioner without
assigning any reasons. Challenging the above action of
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the assessing officer, the present petition is filed.
7. Mr.Pardiwala, learned counsel appearing on
behalf of the petitioner submitted that the notice
issued under section 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 assessing officer has valid
reason to reopen the assessment and not mere change of
opinion. In the present case, during the assessment
proceedings the very same issue was raised by the
assessing officer and the assessment order under
section 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
assessing officer to reopen the concluded assessment.
Mr.Pardiwala further submitted that in the absence of
any decision to the contrary, the decision of the
I.T.A.T. Kolkata Bench in the case of Balrampur Chini
Mills Ltd. (supra) which is directly on the point is
binding upon the assessing officer and, therefore, the
proceedings for reopening of the assessment in
contravention of the order passed by the I.T.A.T.,
Kolkata is 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. V/s.
Deputy Commissioner of Income-tax & Ors. reported in
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285 I.T.R. 26 (Bom.).
8. Mr.Chatterji, learned counsel appearing on
behalf of the revenue, on the other hand, submitted
that where the assessing officer has, on the basis of
the material on record has 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 assessing
officer and if the reassessment order is adverse the
assessee has statutory remedy of appeal and, therefore,
no case is made out for interference under Article 226
of the Constitution of India. Accordingly, Mr.
Chatterji submitted that the petition is liable to be
dismissed.
9. We have carefully considered the rival
contentions.
10. In the present case, the question as to
whether for determining ‘total income’ under section
115 JB of the Act, the book profit has to be increased
by the amount of provision for deferred taxation made
by the assessee in its profit and loss account was
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specifically raised by the assessing officer at the
time of the assessment under section 143(3) of the Act.
The assessee explained that the provision for deferred
taxation is made in the profit and loss account as per
the accounting standards and, therefore, the book
profit arrived at in the profit and loss account 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 assessing officer 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 assessing
officer for reopening the assessment, it is seen that
neither the explanation given by the assessee and
accepted by the assessing officer 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
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that reopening of the assessment based on mere change
of opinion cannot be sustained.
11. Moreover, when the assessee objected to the
reopening of the assessment by relying on a decision of
the I.T.A.T., Kolkata Bench (supra) the assessing
officer could not have brushed aside the said objection
and proceed to finalise the assessment. The I.T.A.T.,
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 section 115 JB of the Act. In the
absence of any decision to the contrary, the assessing
officer was bound by the said decision. Therefore, the
assessing officer could not ignore the decision of the
Kolkata Bench in the case of Balrampur Chini Mills Ltd.
and continue with reassessment proceedings.
12. No doubt, Explanation 2(c) to section 147 of
the Act empowers the assessing officer 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
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taxation amounts to unascertained liability covered
under clause ‘C’ of Explanation to section 115 JB of
the Act. In fact, during the course of regular
assessment, the very same question was raised by the
assessing officer and the explanation given by the
assessee that the provision for deferred taxation
cannot be treated as an unascertained liability was
accepted by the assessing officer. Apart from that
Kolkata Bench in the case of Balrampur Chini Mills Ltd.
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 Balrampur Chini Mills Ltd. is not acceptable.
13. 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 section 148 of the Act
cannot be sustained.
14. Accordingly, the petition succeeds. The
impugned notice dated 27/12/2006 issued under section
148 of the Act is quashed and set aside.
15. Rule is made absolute in the above terms with
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no order as to costs.
(F.I.REBELLO, J.)
(J.P.DEVADHAR, J.)
CAclubindia
