THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 29.09.2015
+ W.P.(C) 1772/2014 & CM 3695/2014
M/S SWAROVSKI INDIA PVT. LTD ... Petitioner
versus
DEPUTY COMMISSIONER OF INCOME TAX ... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr M. S. Syali, Sr Advocate with Ms Husnal Syali,
Mr Mayank Nagi and Mr Harkunal Singh
For the Respondent : Mr Rohit Madan with Mr Zoyeb Shaikh and Mr Ajay Kshatriya
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SANJEEV SACHDEVA
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This petition is directed against the notice dated 28.03.2013 issued by
the Assessing Officer under Section 148 of the Income Tax Act, 1961
(hereinafter referred to as `the said Act'), whereby re-assessment of the
income for the assessment year 2006-07 was initiated. The petition is also
directed against the order dated 18.02.2014, whereby the Assessing Officer
rejected the objections taken by the petitioner.
WPC 1772/2014 Page 1 of 12
2. The original assessment was completed under Section 143(3) of the
said Act on 04.12.2009. Since the brought forward losses of the Delhi Unit
had not been accounted for in the assessment order, the petitioner moved an
application under Section 154 of the said Act seeking rectification, which
was allowed by the Assessing Officer, by an order dated 05.03.2010 after
verifying the records. This is where the matter rested for more than four
years when the impugned notice under Section 148 was issued on
28.03.2013. The reasons for invoking Section 147 of the said Act were
supplied to the petitioner and to which the petitioner filed its objections on
07.01.2014. Thereafter, the impugned order dated 18.02.2014 was passed by
the Assessing Officer rejecting the objections.
3. The purported reasons, which were supplied to the petitioner for the
belief that the income has escaped assessment, were as under:-
"The original assessment u/s 143(3) was completed after scrutiny
in December 2009, at 18712850/-u/s 143(3) as against the
returned loss of Rs. (-) 9082195/-, and further assessed at Nil by
way of rectification by order dated 05/03/2010. Perusal of records
revealed that:-
1. The assessee had debited Rs. 27637716/- to the
P&L account on account of provision for obsolete. As the
provision made was not an ascertained liability, it should
have been disallowed and added back to the total income
of the assessee. The assessee has not done so. There is
WPC 1772/2014 Page 2 of 12
mistake on the part of the assessee, no justification or
detail of obsolete inventory has been given in the
assessment proceedings.
2. The assessee company was running two units
namely "100% EOU undertaking at Pune and Trading
Unit at Delhi." The income of 100% EOU undertaking at
Pune was exempted u/s 10B of the Income Tax Act, while
framing the assessment order, the AO has set off the B/f
losses of Previous year which were pertaining to 100%
EOU undertaking at Pune. The Income of the trading unit
was required to be assessed separately and cannot be set
off against the b/ f losses of Pune unit.
3. The assessee company was running two units
namely,'100% EOU undertaking at Pune & Trading unit
at Delhi. The assessee has claimed and was allowed
deduction of Rs. 108380645/- before set off unabsorbed
depreciation and business losses of earlier year to the
extent of income available. Had this loss been taken into
account for computing the Profit of the business eligible
for deduction u/s 10B, the assessee company would have
been left with no income and thereby no deduction would
have been allowed. The omission to do so resulted in
incorrect allowance of deduction of Rs. 108380645/- u/s
10B. There is a failure on the part of the assessee to
furnish complete details of brought forward losses,
unitwise and its allowabiltiy against the current income
before claiming the deduction.
4. On perusal of records revealed that goods in
transit of Rs.1,77,53,040/-and stores & spares of Rs.
1443503/- was not taken into account while crediting the
closing stock in P& L account which resulted in under
valuation of closing stock and consequently resulted in
under assessment of income by like amount i.e. by Rs.
1,91,96,543/-. There is a failure on the part of the
assessee to disclose the method of accounting followed
WPC 1772/2014 Page 3 of 12
by it in respect of the goods in transit and stores & spares.
There is further failure on the part of the assessee in
showing the same as closing stock and thereby
suppressing the assessable profits. I have therefore,
reason to believe that an amount of Rs.17,39,27,754/- has
escaped assessment within the meaning of section 147(c)
of the IT Act, 1961. The escapement of the income has
been by the reason of failure on the part of the assessee to
disclose fully & truly, all material fact necessary for
assessment. Since the assessment has been completed u/s
143(3) of the IT Act, 1961 and 4 years have since
elapsed. The assessment record is being submitted for
kind perusal and approval u/s 151(1) of the IT Act, 1961
for issuance of notice u/s 148 of the IT Act, 1961."
4. The learned counsel for the petitioner submitted that the notice under
Section 148 of the said Act and the proposed re-assessment of income in
respect of the assessment year 2006-07 was bad in law because there was no
failure on the part of the assessee to disclose particulars which were material
for its assessment which was a requirement of the first proviso to Section
147 of the said Act. It was also pointed out by the learned counsel for the
petitioner that the reasons were also based on mere change of opinion. All
the four points, which were raised in the `reasons', were considered by the
Assessing Officer at the time of the original assessment.
5. The learned counsel for the respondent/revenue supported the re-
WPC 1772/2014 Page 4 of 12
assessment proceedings as also the order dated 18.02.2014 and submitted
that the petitioner's case was validly taken up for re-assessment because of
failure on the part of the assessee to fully and truly disclose all the particular
materials for its assessment.
6. After having heard the learned counsel for the parties, we are of the
view that the impugned notice under Section 148 dated 28.03.2013 and the
impugned order dated 18.02.2014 are liable to be set aside. The reasons for
the same are given herein below.
7. The reason No. 1 pertains to an allegation that the assessee had
debited an amount of Rs 2,76,37,773/- to the profit and loss account by way
of provision for obsolete stock. According to the said `reason', the provision
could not have been made and there was a mistake on the part of the
assessee. We find that on the aspect of obsolete stock, a specific question
was raised in the questionnaire furnished to the assessee by the Assessing
Officer at the time of the original assessment. Question No. 17 of the
questionnaire dated 17.09.2009 required the assessee to furnish details of
valuation of stock along with related computation. The details were
WPC 1772/2014 Page 5 of 12
provided by the assessee on 03.11.2009 by stating that the summary of
stocks as on 31.03.2006 were enclosed as per Annexure-7. The said
Annexure-7 clearly indicated the details of valuation of stock as on
31.03.2006. It disclosed that the assessee had deducted provision for
obsolete goods in respect of both traded goods and manufactured goods to
the extent of Rs 2,73,11,377/- and Rs 3,26,396/-, respectively. The sum of
these two figures adds up to Rs 2,76,37,773/-, which is the amount referred
to in the first reason given in the purported reasons for re-opening the
assessment. This point was also taken in the objections preferred by the
assessee before the Assessing Officer. But, we find that no heed has been
taken thereof. All that this discloses is that the very point which is now
sought to be raised in the re-assessment proceedings had been examined and
considered by the Assessing Officer in the original assessment proceedings.
Therefore, this issue cannot now be raised as it would be a mere change of
the opinion. Apart from this, there was full disclosure on the part of the
assessee to the specific queries raised by the Assessing Officer and,
therefore, the re-assessment proceedings, being beyond four years, even the
conditions stipulated in the proviso have not been satisfied.
WPC 1772/2014 Page 6 of 12
8. The second reason for initiating re-assessment proceedings indicates
that income of the trading unit was required to be assessed separately and
could not be set off against the brought forward losses of the Pune unit. First
of all, we agree with the learned counsel for the petitioner that this is
factually incorrect. The losses of the 100% EOU undertaking at Pune had
not been set off against the income of the trading unit at Delhi. Furthermore,
the questionnaire which was given to the assessee at the time of the original
assessment sought for details of brought forward losses etc. as per question
No.14 thereof. The said question No. 14 reads as under:-
"14. Details of b/f assessed losses and unabsorbed depreciation
longwith evidence. Also give the same details in respect of b/f book
losses and unabsorbed depreciation."
9. The reply to this was given by the assessee in the following manner:-
"Point No.14: Regarding brought forward losses/deprecation
allowance, your kind attention is drawn to Schedule X of the Tax
Audit Report for AY 2006-07 filed by the assessee with your
goodself."
10. A reference was made to Schedule X of the Tax Audit Report for the
assessment year 2006-07 which was already with the Assessing Officer
where all the necessary details were provided. Furthermore, it may be
recalled that the assessee had sought rectification under Section 154 with
WPC 1772/2014 Page 7 of 12
regard to the brought forward losses which had not been accounted for by the
Assessing Officer in the original assessment order. In the rectification order
dated 05.03.2010, the Assessing Officer had examined this aspect of brought
forward losses in detail and clearly noted as under:-
"After verifying the records and facts, the contention of the assessee
is found to be correct. Since this is a mistake apparent from record,
the same is being rectified under Section 154 of IT Act".
As a result of the rectification, the income/loss of the assessee was re-
computed as under:-
"Income assessed u/s 143(3) 1,87,12,850/-
Less: B/f losses adjusted to the extent of 1,87,12,850/-
Revised assessed income NIL"
11. These facts also disclose clearly that the second reason, which was
given by the Assessing Officer for initiating re-assessment proceedings, had
also been examined in detail by the Assessing Officer and, therefore, the
only conclusion that can be arrived at is that the second reason was also a
mere change of opinion which cannot be permitted. This is apart from the
fact that nothing new has been brought to the fore by the Assessing Officer
and all the details were available with the Assessing Officer at the time of
the original assessment. Therefore, there can be no failure on the part of the
WPC 1772/2014 Page 8 of 12
assessee to disclose full and true particulars of its income for the purposes of
assessment.
12. The third reason given in the purported reasons to believe that income
had escaped assessment pertains to an allegation that an incorrect allowance
of deduction of Rs 10,83,80,645/- had been given to the assessee when it was
not eligible for the same. The learned counsel for the petitioner pointed out
that the sum of approximately Rs 10.83 crores was exempted income of the
assessee in respect of the 100% EOU Unit at Pune under Section 10B of the
said Act. Therefore, it is incorrect to suggest that it was a deduction. It was
an exemption. Furthermore, even if, for the sake of arguments, it is taken
that the brought forward losses and unabsorbed depreciation were to be
adjusted against this figure, the resultant figure would be Rs 7.8 crores and
consequently, there would be no escapement of income which is an essential
ingredient for invoking the provisions of Section 147 of the said Act. In any
event, there is no failure on the part of the assessee to disclose full particulars
with regard to its assessment of income. We agree with the submission
made by the learned counsel for the petitioner on this aspect also.
WPC 1772/2014 Page 9 of 12
13. Lastly, the fourth reason was with regard to goods in transit as also
stores and spares of the amount of Rs 1,77,53,040/- and Rs 14,43,503/-
respectively. In this connection also, we find that the details of the stock had
been given by the assessee at the time of the original assessment and
particularly, in response to the questionnaire that the Assessing Officer had
handed over to the assessee. The details given to the Assessing Officer at
that time were, inter alia, has under:-
"Swarovski India Private Limited
Assessment Year: 2006-07
Details of Valuation of Stock as on 31.03.2006
SR.NO DESCRIPTION Total Value Delhi Pune
1 Raw Material 13,351,037.00 10,912,162 2,438,875
PACKING
2 MATERIAL 2,687,740.00 2,687,740
3 WIP 745,532.00 745,532
4 Finished Goods 3795050 928,196 2,866,854
5 Traded Goods 76468791 76,468,79
6 Goods in Transit 17753040 17,753,040
7 Stores and Spares 1443503 1,443,503
Grand Total 116,244,693 106,062,189 10,182,504
"
WPC 1772/2014 Page 10 of 12
14. It is evident from the above extract that the goods in transit as well as
the stores and spares had been clearly indicated. This aspect had, therefore,
been specifically examined by the Assessing Officer during the original
assessment. Apart from this, the goods in transit as well as the stores and
spares, which were also in transit, could not have been taken as part of the
stock particularly, in view of the fact that the assessee had not received the
same and the purchases had not been claimed as a deduction.
15. We may also point out that in CIT v. Usha International: 348 ITR
585 (Delhi) (Full Bench), it was clearly held as under:-
"13. It is, therefore, clear from the aforesaid position that:
(1) xxxx xxxx xxxx xxxx
(2) xxxx xxxx xxxx xxxx
(3) Reassessment proceedings will be invalid in case an issue or
query is raised and answered by the assessee in original assessment
proceedings but thereafter the Assessing Officer does not make any
addition in the assessment order. In such situations it should be
accepted that the issue was examined but the Assessing Officer did not
find any ground or reason to make addition or reject the stand of the
assessee. He forms an opinion. The reassessment will be invalid
because the Assessing Officer had formed an opinion in the original
assessment, though he had not recorded his reasons."
WPC 1772/2014 Page 11 of 12
16. In the present case, this is exactly what has happened as queries and
issues have been specifically raised and answered by the assessee in the
original assessment proceedings. Thus, even though the Assessing Officer
did not make any addition in the assessment order, it would have to be
accepted that the issue was examined but the Assessing Officer did not find
any ground or reason to make any addition or to reject the stand of the
assessee. Consequently, it will have to be presumed that the Assessing
Officer had formed an opinion which is now sought to be changed through
the re-assessment notice, which cannot be permitted.
17. For all the foregoing reasons, the impugned notice under Section 148
dated 28.03.2013 and the impugned order dated 18.02.2014 are set aside and
the re-assessment proceedings in respect of the assessment year 2006-07
stand quashed. There shall be no order as to costs.
BADAR DURREZ AHMED, J
SEPTEMBER 29, 2015 SANJEEV SACHDEVA, J
SR
WPC 1772/2014 Page 12 of 12
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