TMI Blog2012 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ad received interest at the rate of 24% on the outstanding amounts. Disclosure in the tax audit report by the assessee that the assessee is closely associated with M/s.Aditya Medisales Ltd., its sister concern would not be a sufficient disclosure. From the facts on record, it was not possible for the Assessing Officer to ascertain that the petitioner received interest from sister concern which was higher than the normal rate of interest, thus such interest was charged at the rate of 24% per annum, were not discernible from the record at all - notice for reopening was valid - in favour of Revenue. - Special Civil Application No. 652 of 2005 - - - Dated:- 6-8-2012 - Akil Kureshi And Harsha Devani, JJ. For Appellant : Mr S N Soprkar, Sr Adv with Mrs Swati Soparkar For Respondent : Mr K M Parikh JUDGEMENT Per : Akil Kureshi, J : 1. Petitioner has challenged notice dated 25.2.2004 issued by respondent, Deputy Commissioner of Income Tax under section 148 of the Income Tax Ac, 1961 ('the Act' for short) by which he seeks to reopen the assessment of the petitioner for the assessment year 1999-2000. 2. The petition arises in following factual background. The petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Debited Into P L Account : Rs.1,54,35,300/- Total Rs.9,77,98,514/-. The Schedule 17 of the Annual Account shows R D expenses of Rs.104.22 lacs whereas in the Tax Audit Report, the assessee has claimed R D capital expenses of Rs.4,49,49,474/- and R D revenue expenses of Rs.3,74,13,840/-. Thus, it is not clear which figure is correct. II. While completing the assessment u/s.143(3) of the act in the case of Aditya Medisales Ltd., a sister concern of the Sun Group, it was found that the profit of the Industrial Unit of Silvasa of the assessee has been inflated because the same is exempt u/s.80IA, by giving more interest on overdue bills by Aditya Medisales Ltd. Aditya Medisales Ltd. has been given the task of distributing the formulation drugs produced by the units of Silvasa and Vapi on Sun Pharma Industries Ltd. It pays the interest @ 24% to the latter on the overdue bills which is much more than the prevailing market rate of interest in this line of business which varies from 15% to 18%. By adopting this modus operandi, the Sun Group has reduced the taxable profit of M/s.Aditya Medisales Ltd. and at the same time it has increased the profit of Silvasa Unit becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, I have reasons to believe that the above incomes chargeable to tax have escaped assessments. Hence, notice u/s.148 of the Act is issued. 5. The petitioner raised objections to such notice for reopening under its communication dated 25th May 2004. Such objections, however, were rejected by the Assessing Officer, by his order dated 16.11.04. At that stage, the petitioner has approached this Court by filing the present petition challenging the notice for reopening on various grounds. 6. Learned counsel Shri Soparkar for the petitioner contended that the notice for reopening is without jurisdiction. He submitted that the reasons recorded by the Assessing Officer would not give him jurisdiction to reopen the assessment previously framed after scrutiny. He pointed out that out of the four reasons separately enumerated by the Assessing Officer, in the order disposing of the objections of the petitioner, he sustained only one reason. Drawing our attention to the details of such reasons recorded, objections of the petitioner and the order passed by the Assessing Officer disposing of such objections, counsel contended that the Assessing Officer himself having given up other ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is that the assessee had sold certain goods to its sister concern Aditya Medisales during the year under consideration. On delayed payments of such goods, Aditya Medisales paid interest at the rate of 24% which was much higher than the prevailing market rate of interest which varies between 15% to 18%. By adopting such modality, the assessee had reduced the taxable profit of Aditya Medisales and at the same time increased the profit of Silvasa unit of the assessee company which was eligible for deduction under section 80-IA of the Act. These facts were not clear from the working out of deductions under section 80IA of the Act along with the return of income. According to the Assessing Officer, case of the petitioner would be covered under section 80IA(10) of the Act. Therefore, interest payable to the petitioner company should be restricted to 15% to 18% which would reduce the profit of the said unit and resultantly deduction under section 80IA of the Act would also be reduced. 25. In the objections raised, the petitioner contended that details of interest charged on overdue sale proceeds were on record. In the original assessment, the assessee had dealt with such interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer, shall in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. Under section 80IA(10) of the Act, thus, if it appears to the Assessing Officer that owing to the close connection between the assessee carrying on the business eligible for deduction under such section, and any other person or for any other reason, the course of business between them is so arranged that the business transacted produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall in computing the profits and gains of such eligible business for deduction, take the amount of profits as may be reasonably deemed to have been derived therefrom. Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case . 31. In the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd., 291 ITR 500 (SC), the Apex Court observed as under : Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662, for initiation of action under Section 147(a) (as the provision stoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. 33. In view of the above settled legal position, at this stage, we do not find that the reasons recorded lack validity. The above observations of various decisions noted would also be relevant when we examine whether such escapement of income was due to failure on the part of the assessee in truly and fully disclosing all material facts. In this respect, the assessee had disclosed that it had received interest of Rs.3,03,48,973/-. It is an admitted position that in the return filed, the assessee did not indicate whether the entire interest or part thereof was received from Aditya Medisales. Further, there is no indication that from Aditya Medisales, which was a sister concern, the assessee had received interest at the rate of 24% on the outstanding amounts. Counsel for the petitioner, however, submitted that in the tax audit report, the petitioner had disclosed that the petitioner company and Aditya Medi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned interest income of Rs.3,03,48,973/-. There was no further information available on record that such interest included overdue payment charges at the rate of 24% received from the sister concern, viz. Aditya Medisales. Even without the aid of explanation (1) to proviso to section 147, therefore, it was perhaps open for the Assessing Officer to contend that there was no true and full disclosure on the part of the assessee in this respect. At any rate, by applying such explanation, it can be easily gathered that the assessee failed to disclose fully and truly all material facts. Counsel for the petitioner, however, vehemently contended that these were not primary facts. Only primary fact was that the assessee had earned interest income. We are, however, of the opinion that in the context of the close connection between the petitioner and Aditya Medisales, the fact that the assessee was eligible for deduction under section 80IA of the Act and the interest income received from the sister concern had relevance to the provisions of section 80IA(10) of the Act, primary facts were not on record. 38. Under the circumstances, in so far as ground No.3 is concerned, we find that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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