TMI Blog2013 (4) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... at such interest was charged at the rate of 24% per annum, were not discernible from the record at all. - Decided against the assessee. - SPECIAL CIVIL APPLICATION NO. 12435 OF 2004 - - - Dated:- 14-8-2012 - AKIL KURESHI AND MS. HARSHA DEVANI, JJ. S.N. Soparkar and Mrs. Swati Soparkar for the Petitioner. Mrs. Mauna M. Bhatt for the Respondent. JUDGMENT Akil Kureshi, J. - The petitioner has challenged a notice dated 25-2-2004 issued by the respondent - Deputy Commissioner of Income Tax by virtue of which he sought to reopen the assessment of the petitioner for the assessment year 1998-99. Facts may be noted in brief. 2. The petitioner is a company registered under the Companies Act and is regularly assessed to tax under the Income Tax Act, 1961 ('the Act', for short). For the assessment year 1998-99, the petitioner filed his return of income on 30-11-1998 declaring a total income of Rs. 2,42,77,000/- under section 115JA of the Act. Such return was taken in scrutiny by the Assessing Officer. Assessment under section 143(3) of the Act was framed on 26-3-2001 at a total income of Rs. 4,48,24,869/-. Such order gave rise to appeal proceedings with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses of Rs.122.91 lacs and deferred revenue expenditure written off of Rs.58 lacs only. So, there is clear cut discrepancy between the R D expenses reported in the Tax Audit Report and that mentioned in the Annual Accounts. Thus, it is not clear as to which figure is correct. The assessee has claimed weighted deduction u/s.35 on the figures mentioned in the Tax Audit Report pertaining to the R D expenses which is much higher than that mentioned in the Annual Accounts. Thus, it is not clear which figure is correct. II. The assessee has shown export of Rs. 46.75 lacs out the goods produced from the Silvasa Unit. This amount has been considered for working out the deduction u/s.80HHC. Again, deduction u/s. 80IA has been claimed @ 100% on this amount. This means that more than 100% deduction has been claimed on the export of Rs. 46.75 lacs from the Silvasa Unit, which is not correct as per the provisions of section 80AB. III. 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.80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, therefore, the best was to allocate the expenses under these circumstances should be on the basis of profitability ratio of various units. Since, the profitability of Silvasa Unit is very high, the allocation of R D expenses should be more in this unit because there is a direct nexus between the profitability of a unit and R D expenses (because better R D means more profit margin in pharmaceutical line) rather that allocating only 10% of the R D expenses. V. In view of the above, I have reasons to believe that the above incomes which exceeds Rs.1 lac chargeable to tax have escaped assessments. Hence, notice u/s.148 of the Act is issued. 5. The petitioner raised objections to the reopening notice vide communication dated 10-5-2004. Such objections were, however, disposed of by the Assessing Officer by an order dated 20-8-2004. The petitioner, therefore, filed the present petition and opposed the proposal for reopening the assessment. 6. In case of this very petitioner, we had occasion to examine the notice for reopening of assessment wherein the reasons recorded were similar in nature. With respect to the first two reasons recorded by the Assessing Officer on 25-2-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 613 Insurance R D Building 1.82 3615 Repairs-Furniture Fixture 2.18 3616 Repairs Elect. Fittings- R D 1.66 3617 Repairs Office Equipment R D 0.14 3618 Repairs Maint-R D A.C. Refgretation 0.50 3621 Material consumption 23.87 3622 Testing Charges 5.16 3623 Demurrage Charges (R D) 0.19 3625 Purchase of Patents 1.76 3627 Product Developments Charges 1.08 3628 Misc. Expenditure for R D 0.91 3713 Gas Cylinder Refiling Charges 1.12 64.81 [B] Sch. No. Nature of Expenses 16 17 Personnel Cost consultancy Charges 14.12 14.12 [C] R D Expenses which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition to Building which are considered in working of depreciation as per income Tax Act 1014.22 Break up: [1] Addition to P M-Others 857.06 [2] Addition to P M-Panoli 111.26 [3] Depreciation @ 100% claimed on Additions to P M at Nagar of Rs. 132.97 lacs which includes additions to P M of Rs. 45.90 Lacs 45.90 1014.22 [3] Additions to Furniture Fixtures as per Schedule 5 of Annual Report: 40.70 Less Addition to R D Furniture Fixture per Annexure No. III of the form No. 3CD 2.28 Difference in additions 0.06 Balance addition to F F which are considered in working of depreciation as per Income Tax Act 38.48 Having perused such detailed account, we find that the relevant entries have been properly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer after he recorded the reasons for reopening of assessment and issued notice for such purpose, surely this cannot be a ground to support the notice. Under the circumstances, ground 1 and 2 noted above would not form valid basis for reopening the assessment." 7. With respect to ground No. IV of the recorded reasons dated 25-2-2004, we notice that such ground had not come up for consideration in the previous matter. We are, therefore, independently examining the same. If we peruse the ground more closely, the same pertains to the weighted deduction under section 35(1) of the Act pertaining to Silvasa unit of the petitioner company. The Assessing Officer was of the opinion that for the year 1998-99, the assessee had not allocated any expenditure on the R D pertaining to the Silvasa unit. Total expenditure towards R D in the books of accounts of the assessee was Rs. 8,88,77,660/-. The assessee had claimed weighted deduction under section 35(1) of the Act at Rs. 9,57,05,076/- pertaining to such Silvasa unit. The Assessing Officer was of the opinion that 10% of such deduction should have been disallowed being allocated as expenditure for R D to Silvasa unit. He was, therefore, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the purpose of computation of deduction under section 80HHC of the Act. Thus there was no non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Under the circumstances, if it is found that the assessee had charged higher rate of interest from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Medisales are closely associated. In our opinion, this would not be a sufficient disclosure. From the facts on record, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erdue 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 same cannot be stated to be invalid. 10. In view of the above discussion, we would not have examined this ground any further. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll material facts. He further submitted that unless and until such material was pointedly brought to the notice of the Assessing Officer, he cannot be expected to correlate the two from independent assessment proceedings merely because the Assessing Officer happens to be common in both the cases. 13. Having thus heard learned counsel for the parties on this sole surviving issue, we are of the opinion that in the present petition, we should not go into such details. As already noted, in absence of this additional element of the rate of interest on outstanding bills being received from Aditya Medisales having come on record, in the assessment proceedings in case of the assessee, we have already concluded that the reopening would be otherwise permissible in law. What would be the effect of the additional material in the present case, must be left to be judged at the time of assessment proceedings and if need be, in further hierarchical appeals under the Act. We say so because in the present case, without minute examination of various facts and details, it would not be possible to give a definite finding whether the requirements of reopening of assessment as per the proviso to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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