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RECKITT BENCKISER HEALTHCARE INDIA PRIVATE LIMITED Versus DEPUTY COMMISSIONER OF INCOME TAX

2016 (9) TMI 338 - GUJARAT HIGH COURT

Reopening of assessment - discrepancy in the turnover - Held that:- AO was not agreeable to the objection of the audit party from the beginning and even during the process between issuance of notice for reopening and rejecting the objections of the petitioner, he had satisfied himself about the correctness of the petitioner's contention in this regard. We have reproduced the relevant portion of the petitioner's objections. The explanation of the petitioner in such objections to the discrepancy i .....

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it would match the correct figures. - We have therefore no hesitation in coming to the conclusion that neither the reasons recorded by the Assessing Officer, nor the decision to issue notice for reopening were those of the Assessing Officer himself. He had acted under the compulsion of the audit party which held a belief that on account of discrepancy in the turnover figures, income chargeable to tax had escaped assessment. The Assessing Officer was inclined to believe the petitioner's expla .....

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h belief of the Assessing Officer cannot be substituted by that of the opinion of the audit party. - Decided in favour of assessee. - SPECIAL CIVIL APPLICATION NO. 3503 of 2016 - Dated:- 31-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR B S SOPARKAR, ADVOCATE FOR THE RESPONDENT : MR NITIN K MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice dated 12.03.2015 issued by the respondent Assessing Officer to r .....

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The case of the company was taken in scrutiny by the Assessing Officer. One of the major claims of the petitioner was of deduction under section 80IC of the Income Tax Act, 1961 ('the Act' for short) relating to its unit eligible for exemption situated in Himachal Pradesh. Such claim was examined by the Assessing Officer in the scrutiny assessment. Many other issues came up for consideration. Eventually, the Assessing Officer passed the order of assessment on 28.03.2014, assessing the p .....

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e at ₹ 25,17,45,874/- The case was selected for scrutiny and assessment u/s 143(3) r.w.s. 144 completed on 28/03/2014 determining total income at ₹ 47,62,72,774/- The assessee ie M/s Paras Pharmaceuticals Pvt Ltd had claimed deduction u/s 80IC of ₹ 72,67,34,821/- for AY 2010-11. Subsequently, it was noticed from case records that the turnover figures of the assessee were not verified with Central Excise Authority. On verification with Excise Authority it was found that the asse .....

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s required to be reopened u/s 147 of the I.T.Act. Necessary approval for reopening of assessment u/s 147 of the Act has been granted by Addl. CIT, Range-3(1), Ahmedabad vide letter No. Addl CIT/R3( 1)/Audit/201415 dated 02/03/2015. Issue notice u/s 148 of the Income Tax Act, 1961. 5. Upon receipt of the notice and the reasons recorded with the Assessing Officer, the petitioner raised detailed objections to the reopening of the assessment under communication dated 10.07.2015. In such objections, .....

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s of RBHIL are opposite to the usual situation. It is not a case where turnover as per excise is higher than the turnover as per the financial statements. As per reasons recorded, turnover of Baddi unit as per the financial statements is more than the turnover as per excise records by ₹ 2,841.77 lakhs. Since, Baddi unit of RBHIL is eligible to deduction under section 80IC of the Act, it appears that there is an allegation of traded products or products manufactured at Kalol unit may have b .....

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s governed by the provisions of Central Excise Act, 1944. Excise Duty is levied on manufacture of goods and collected at the time of removal of goods from the registered unit as per the provisions of the said Act. In the instant case, the moment the manufactured products are cleared from Baddi unit, the same are reflected in the excise records. However, the same may not have been sold and hence, may not be recorded as sales in the audited financial statements, at a given point of time. 2.3.5 Val .....

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manufactured by RBHIL for the purpose of charging excise duty is governed by section 4A (MRP based abatement) of the Central Excise Act, 1944. In respect of the products manufactured by RBHIL during the year, Government of India has notified abatement of 35 percent. The relevant notification is attached as Annexure 2 for your ready reference. 2.3.7 Accordingly, turnover as per Excise Records was required to be reported at MRP less abatement of 35 percent which made the turnover value equal to 6 .....

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e 65% of MRP. Copies of sample invoices, reflecting MRP and actual sale price, are enclosed as Annexure 3 for your reference. 2.3.9 Since, the standard abated value of the products is lower than the actual sale price, the turnover recorded in the audited financial statements is higher than turnover as per the excise records. 2.3.10 Summary of MRP of products cleared during each month of FY 2009-10 from Baddi unit is enclosed as Annexure 4. During the year, MRP of products cleared during the year .....

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the actual sale price is generally above 65% of MRP. 2.3.12 Percentage of actual sale price as percentage of MRP of products sold shown in a sample invoices is enclosed as Annexure 6 for your reference. 2.3.13 On perusal of the sample sales invoices of products manufactured at Baddi unit, it can be observed that actual sale price is generally above 65% of MRP, which broadly correspondto 70% being the percentage of actual sales to MRP. Accordingly, it can be understood that sales of Baddi unit a .....

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e or material information showing or indicating traded products or products manufactured at Kalol unit being considered by RBHIL, which contains no such comment/remark, in absence of any tangible / material information and merely on the basis of difference in two separate records, reassessment proceedings is bad in law. 6. The Assessing Officer however, by an order dated 08.02.2016, rejected the objections. The petitioner thereupon filed this petition. 7. Learned counsel for the petitioner conte .....

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[1979] 119 ITR 996 II. In case of Adani Exports v. Deputy Commissioner of IncomeTax (Assessments) reported in [1999] 240 ITR 224 Though in the petition other grounds are raised, counsel for the petitioner, after some discussion at the bar, pressed only the above contention. 8. On the other hand, learned counsel Shri Nitin Mehta for the department opposed the petition contending that the Assessing Officer has recorded independent reasons and the petition may therefore be rejected. 9. The law on .....

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ch has now come to his notice, he can reasonably believe that income has escaped assessment. The basis of this belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. 10. In case of Adani Exports (supra), Division Bench of this Cour .....

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of Supreme Court in case of Indian and Eastern Newspaper Society (supra) observed as under: The ratio fully governs the present case and the record illuminates the failure of the AO to adhere to this principle while issuing notice under section 148 in the present case. It is true that satisfaction of the AO for the purpose of reopening is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement .....

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old such belief in good faith or the belief which is projected in papers is not belief held by him in fact, the exercise of authority conferred on such person would be ultra vires the provisions of law and would be abuse of such authority. As the aforesaid decision of the Supreme Court indicates that though audit objection may serve as information, the basis of which the ITO can act, ultimate action must depend directly and solely on the formation of belief by the ITO on his own where such infor .....

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as been consistent in his submission of his report to the superior officeRs. The mere fact that as a subordinate officer he added the suggestion that if his view is not accepted, remedial actions may be taken cannot be said to be belief held by him. He has no authority to surrender or abdicate his function to his superiors, nor the superiors can arrogate to themselves such authority. It needs hardly to be stated that in such circumstances conclusion is irresistible that the belief that income ha .....

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80HHC, for the reasons stated by the audit. The reason is not far to seek. 11. In case of Commissioner of IncomeTax v. P. V. S. Beedies Pvt. Ltd., reported in [1999] 237 ITR 13, the Supreme Court found that the audit party had merely pointed out a fact which was overlooked by the Assessing Officer in the assessment. In such background, it was observed that there can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. It was observed as unde .....

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of information on a question of law. The dispute as to whether reopening is permissible after audit party expresses an opinion on a question of law is now being considered by a larger Bench of this Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. In view of that we hold that reopening of the case under Section 1 .....

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ontents of the file documents, we may recall, as per the reasons recorded by the Assessing Officer, the assessee had claimed deduction under section 80IC of the Act of ₹ 72.67 crores. The record showed that the assessee had furnished a turnover of ₹ 247.87 crores (rounded off) in P&L account for claiming such deductions in respect of unit eligible for exemption. These figures were not verified with the Central Excise Authorities. On verification, it was found that the assessee ha .....

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to consideration, there would be no mismatch between the excise turnover and the turnover reflected in the P&L account of the company. 13. The original departmental files reveal that the audit party had brought such discrepancy to the notice of the department under a letter dated 23.12.2014. The Assessing Officer however, replied to such audit objection that the turnover of the unit of the assessee which was eligible for deduction under section 80IC of the Act, had been verified from the ava .....

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ver, the files made available to us show a letter dated 13.07.2015 which was written by the Assessing Officer after the issuance of notice for reopening, nevertheless, reflects his consistent thought process leading to only one possible conclusion viz. that at no point of time, he agreed with the point of view of the audit party that on account of discrepancy in the two sets of turnover data, there had been under assessment of income. In the said letter, the Assessing Officer after reproducing t .....

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Excise Act, 1944. Excise Duty is levied on manufacture of goods and collected at the time of removal of goods from the registers unit as per the provisions of the said act. Valuation of excisable goods for purposes of charging of excise duty is governed by Section 4A (MRP based abatement) of the Central Excise Act, 1944. In respect of the products manufactures by Reckitt Benckiser Healthcare India Ltd. (herein and after referred to as RBHIL) during the year under consideration, Government of Ind .....

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erification of the bills of the assessee reveals that the actual sales for relevant A.Y. had taken place at prices more that 65% of the MRP (Copies of sample sales bills attached at Annexure 'B'). Since the analysis of highly voluminous unit wise data of each and every product is unviable, a ramdom verification of sales bill had been done. On averaging the same over multiple products manufactures and sold by the assessee, their prices and unit sold during the relevant year the 'Sales .....

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unit reported to Excise authority stands at ₹ 21974.42 lacs, which if extrapolated, is 65% of ₹ 33757.57 lacs. The turnover reported to Income Tax department stands at ₹ 24783.89 lacs which is 73.4% of the extrapolated turnover of ₹ 33757.57 lacs attributable to baddi unit of RBHIL. So, the difference in percentae terms would be 8.42 percent. This is approximately same as what was reached to in para 4.2 above. 6. Further, if 8.42% of the extrapolated turnover of ₹ 3 .....

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ntly clear that he was not agreeable to the objection of the audit party from the beginning and even during the process between issuance of notice for reopening and rejecting the objections of the petitioner, he had satisfied himself about the correctness of the petitioner's contention in this regard. We have reproduced the relevant portion of the petitioner's objections. The explanation of the petitioner in such objections to the discrepancy in the turnovers convinced the Assessing Offi .....

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