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MARUTI SUZUKI INDIA LTD Vs. DEPUTY COMMISSIONER OF INCOME TAX
May, 30th 2013
       THE HIGH COURT OF DELHI AT NEW DELHI
%                                      Judgment delivered on: 13.05.2013

+       W.P.(C) 8562/2007 & CM Nos. 16150/2007 & 17153/2007

MARUTI SUZUKI INDIA LTD                                        ... Petitioner

                                        versus

DEPUTY COMMISSIONER OF INCOME TAX                              ... Respondent
Advocates who appeared in this case:
For the Petitioner           : Mr S. Ganesh, Sr. Adv. with Mr S. Sukumaran,
                               Mr Anand Sukumar & Mr Bhupesh Kumar Pathak,
                               Advs.
For the Respondent           : Mr N.P. Sahni, Adv.


CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE VIBHU BAKHRU

                                  JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1.      This writ petition is directed against the notice dated 18.04.2007 issued
under section 148 of the Income-tax Act, 1961 (hereinafter referred to as `the
said Act'). The said notice was issued in respect of the assessment year 2003-
04. Apart from the said notice, the present petition, after its amendment, also
seeks to challenge the order rejecting the objections filed by the petitioner, a
copy of which was received by the petitioner on 02.11.2007. The petitioner
also seeks to challenge the reassessment order dated 22.11.2007.
2.      As this juncture, we may point out that initially when the writ petition
was filed the court had granted a stay insofar as the passing of a reassessment
order was concerned, though the proceedings were to continue. Apparently






WP(C) 8562/2007                                                       Page 1 of 11
there was some confusion in the minds of the respondent with regard to that
order as a result of which the above mentioned reassessment order came to be
passed on 22.11.2007. And, that order was subsequently stayed by this court by
an order dated 27.03.2008.
3.      We are not so much concerned about the fact that a reassessmnet order
had been passed despite there being a direction that no such order be passed.
We are, in fact, more concerned about the validity of the notice under section
148 and the initiation of proceedings under section 147 of the said Act.
4.      Mr Ganesh, the learned senior counsel appearing on behalf of the
petitioner submitted that this was a clear case of change of opinion and as such
the initiation of proceedings under section 147 of the said Act were invalid. In
this context, Mr Ganesh        submitted that in the hearing conducted on
27.03.2006, in the course of the original assessment proceedings under section
143(3) of the said Act, the assessing officer had made an entry in the note sheet
to the following effect:-
        "Regarding TPO order, nothing new has been said except para 6 &
        7. I find no reason to disagree with finding of TPO.

        There is no written agreement which stop the assessee from
        recovering amounts outstanding from Machino Plastics.

        Regarding revised return, the questions asked was the reason for
        each and every modification made in the revised return and how the
        same was discovered subsequently and ignored at the original return
        stage.

        What is Misc. Income amounting to `. 5270 lacs, detail thereof, Net
        prior period adjustment of `. 2 Crore, Other Misc expenses of `.
        3520 Lacs, Bad debts advance written off: `. 40 Lacs. Sales return
        ac no. 445001,445002, 445201,445202. How the sales return has
        been taken care vis a vis stock. How it is considered in stock
        valuation."
                                               (underlining added)




WP(C) 8562/2007                                                       Page 2 of 11
It will be evident from the above extract that one of the queries raised was with
regard to "Bad debts advance written off: `. 40 lacs." In response to the said
query, the petitioner submitted a letter dated 29.03.2006 to the assessing officer
wherein it was indicated that the details of bad debts written off were as
enclosed as per Annexure "C". Annexure "C" was as under:-


        "MARUTI UDYOG LIMITED                                                  Annexure- C
        Assessment Year 2003-04
        Details of Bad Debits/Advance written off.

        Voucher No.              Voucher     Amout (`)               Particulars
                                 Date
        99271287                 30-Sep-     1,034,012    Simultaneously        offered  in
                                 02                       Miscellaneous        Income    as
                                                          submitted vide submission dated
                                                          18.02.2005
        99269896                 30-Sep-     1,421,800    This is on account of damages for
                                 02                       late delivery of vehicles sold to
                                                          Director General of Ordinance
                                                          services, MGO Branch, Army
                                                          Hqrs. New Delhi
        99292760                 31-Dec-     831,986      Provision made for non-recovery
                                 02                       of amount due from dealers
        99294443                 31-Dec-     1,683        Provision made for non recovery
                                 02                       of amount due from Dealers
        99313332                 31-Mar-     726,046      Advances given to parties written
                                 03                       off as irrecoverable
                                 Total       4,015,528"


On the strength of the above letter dated 29.03.2006, the learned counsel for the
petitioner submitted that specific details had been sought by the assessing
officer with regard to the bad debts which had been written off and the details
were supplied by the petitioner by virtue of the said letter and which were more
particularly set out in annexure "C" thereto. Thereafter, the assessing officer
framed the assessment order under section 143(3) on 30.03.2006 wherein no
disallowance was made in respect of bad debts written off by the assessee in its
books of account. Thus, according to the learned counsel for the petitioner, the
assessing officer had asked for specific details which were supplied by the




WP(C) 8562/2007                                                                     Page 3 of 11
assessee and after the assessing officer examined the same he was satisfied that
no disallowance needed to be made on account of bad debts written off. This,
according to the the learned counsel for the petitioner, meant that the assessing
officer had, in fact, applied his mind and had formed an opinion to the effect
that no disallowance could be made in respect of the bad debts written off by
the assessee.

5.      Thereafter, the notice dated 18.04.2007 was issued under section 148
seeking the reopening of the assessment completed on 30.03.2006. When the
petitioner asked for the reasons which purportedly formed the basis of belief of
the assessing officer as required under section 147 of the said Act, the assessing
officer furnished the following reasons:-
                               "Maruti Udyog Ltd.
                           Assessment Year-2003-04
                  Reasons for issuing notice u/s 148 of the I.T. Act, 1961

                The return of income in this case was filed on 28.11.2003
       declaring loss of `. 276,16,23,268/-. The return was processed u/s
       143(1) at the same income and resultant refund was issued to the
       assessee. The assessment was completed u/s 143(3) in March, 2006
       at income of ` 562,70,10,730/-.
                On going through the assessment record, it has been noticed
       that the assessee had written off, bad debts/advances amounting of `
       40 Lacs in the P&L Account. Since it was from the capital head of
       the company it was required to be charged to the capital A/C. If a
       loan taken on capital account becomes irrecoverable, the loss
       incurred is capital loss. Consequently, amount of `. 40 lacs claimed
       by the assessee in the P&L A/c needs to disallowed and added back
       to the income of the assessee.
       On the basis of above, I have reason to believe that the income for
       A.Y. 2003-04 has escaped assessment.
                Notice u/s 148 of the I.T. Act issued to the assessee.
                                                    (ANU KRISHNA)
                                            Dy. Commissioner of Income-tax,
                                            Circle-6(1), New Delhi."




WP(C) 8562/2007                                                          Page 4 of 11
It will be apparent that the only reason indicated therein for reopening the
assessment was the issue of bad debts written off which amounted to `. 40
lakhs. The issue that was sought to be raised in the reasons was with regard to
the said amount being liable to be disallowed on account of being it deemed to
be on the capital account.
6.      Thereafter, as mentioned above, the petitioner filed its objections on
10.10.2007 to the proposed reopening of the assessment which had been
completed on 30.03.2006. In paragraph 2.4 of the said objections the petitioner
had submitted that the only issue for reopening of the case was with regard to
the bad debts/ advance of `. 40 lakhs which had already been duly considred by
the assessing officer in the original assessment proceedings. Therefore, the
petitioner requested that the proceedings under section 147/148 of the said Act
in respect of the assessment year 2003-04 be dropped.
7.      The assessing officer, however, did not accede to this request and
rejected the objections by an order which was received by the petitioner on
02.11.2007.        In the said order, the assessing officer noted that the
petitioner/assessee had only filed an annexure giving details of bad debts
without any note/discussion on the subject and that the issue was nowhere
debated by the assessing officer or the assessee at the time of the original
assessment proceedings. Therefore, there was no question of there being a
change of opinion, as, according to the assessing officer, no opinion had been
formed in the first instance. Of course in the said order rejecting the objections
there was no mention of the issue with regard to the bad debts being on the
capital account.
8.      This was followed by the reassessment order dated 22.11.2007 wherein
an addition of `. 29,81,515/- was made under the head bad debts disallowed
and which were added to the income of the petitioner/assessee. Furthermore,
by virtue of the reassessment order dated 22.11.2007 an addition of `.



WP(C) 8562/2007                                                        Page 5 of 11
112,90,00,000/- was also made on account of royalty paid. According to Mr
Ganesh, the learned senior counsel for the petitioner, the issue of bad debts was
only used as a `key' to open up reassessment proceeding of which the issue of
royalty was the main target. In any event, he submitted, the petitioner's case
fell squarely within the parameters of the decision of this court in the case of
CIT v. Usha International Ltd.: 348 ITR 485 FB (DEL).              He drew our
attention straightway to paragraph 13 of the said decision, which inter alia,
reads as under:-
        "13. It is, therefore, clear from the aforesaid position that:

        (1)       Reassessment proceedings can be validly initiated in case
                  return of income is processed under Section 143(1) and
                  no scrutiny assessment is undertaken. In such cases there
                  is no change of opinion.

        (2)       Reassessment proceedings will be invalid in case the
                  assessment order itself records that the issue was raised
                  and is decided in favour of the assessee. Reassessment
                  proceedings in the said cases will be hit by principle of
                  "change of opinion".

        (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."

                                                  (underlining added)







WP(C) 8562/2007                                                       Page 6 of 11
Particular emphasis was laid on point No. (3) mentioned above. In the facts of
the present case it was submitted that a specific query had been raised and had
been answered by the petitioner in the course of the original assessment
proceedings and the assessing officer did not make any addition in respect of
that issue in the assessment order. Therefore, in light of the position indicated
in Usha International Ltd. (supra), it was contended by the learned counsel
for the petitioner that the position should be accepted that the issue had been
examained by the assessing officer but he did not find any ground or reason to
make an addition or to reject the stand of the assessee. The crux of the matter
being that the assessing officer must be considered to have formed an opinion.
As a result, the reassessment would be invalid because the assessing officer had
formed an opinion in the original assessment though he had not recorded his
reasons for the same. Thus, according to Mr Ganesh, the facts of the present
case were squarely covered by point No.3 indicated in Usha International
Ltd. (supra).
9.      In response to the aforesaid arguments, Mr Sahni appearing on behalf of
the revenue referred to paragraph 23 of Usha International Ltd. (supra) and
submitted that there cannot be a deemed formation of an opinion. Paragraph 23
of the said decision reads as under:-
        "23. The said observations do not mean that even if the
        Assessing Officer did not examine a particular subject-matter,
        entry or claim/deduction and, therefore, had not formed any
        opinion, it must be presumed that he must have formed an
        opinion. This is not what was argued by the assessee or held
        and decided. There cannot be deemed formation of opinion
        even when the particular subject-matter, entry or claim/
        deduction is not examined."

The above observation is in the context where the assessing officer had not
examained a particular subject matter, entry or claim/deduction. But the facts




WP(C) 8562/2007                                                       Page 7 of 11
of the present case are different. The assessing officer had raised a specific
query with regard to the issue of bad debts/advances written off. Therefore, in
the present case it cannot be said that the assessing officer did not examine the
issue of bad debts/advances which had been written off by the
petitioner/assessee.   The majority view of the Full Bench in Usha
International Ltd. (supra) quoted in paragraph 23 would therefore not apply
to the facts of the present case as it is not a question of a deemed formation of
an opinion but of an opinion being formed inasmuch as the assessing officer in
the original proceedings had raised a specific query which had been answered
specifically by the petitioner/assessee, though it did not find mention in the
assessment order. It is that specific situation which has been categorically dealt
with in point No. 3 referred to above which finds mention in paragraph 13 of
the very same decision in Usha International Ltd. (supra).         Therefore, the
reliance placed by Mr Sahni on the observation contained in paragraph 23
would be of no avail to the respondent in the factual matrix of this case. A
reference had also been made by Mr Sahni to the various decisions discussed in
Usha International Ltd. (supra) and, in particular, to the decision in the case
of Kalyanji Mavji and Co. v. CIT: 102 ITR 287 (SC) and A.L.A. Firm v. CIT:
189 ITR 285 (SC). A reference was also made to the Supreme Court decision
in the case of Indian and Eastern Newspaper Society v. CIT: 119 ITR 996
(SC). We find after examining these decisions and certain other decisions, the
majority opinion in Usha International Ltd. (supra) concluded as under:-
        "36. The aforesaid observations are complete answer to the
        submission that if a particular subject-matter, item, deduction or
        claim is not examined by the Assessing Officer, it will
        nevertheless be a case of change of opinion and the
        reassessment proceedings will be barred."




WP(C) 8562/2007                                                        Page 8 of 11
It is obvious that when a claim for deduction is not at all examined by the
assessing officer, it could never be a case of change of opinion. However,
where a claim or deduction has in fact been examined by the assessing officer it
would amount to formation of an opinion despite the fact that no addition had
been made or reason therefor had been given in the original assessment order.
Thus, when, after such an examination in the first round, the matter is sought to
be reopened by issuance of notice under section 148 of the said Act, it would
clearly be a case of change of opinion and the reassessment proceedings would
be invalid.
10.     We may also note the observations of the Full Bench in paragraph 39 of
the said decision in the case Usha International Ltd. (supra) which are to the
following effect:-
        "39. In view of the above observations we must add one caveat.
        There may be cases where the Assessing Officer does not and
        may not raise any written query but still the Assessing Officer
        in the first round/ original proceedings may have examined the
        subject-matter, claim, etc., because the aspect or question may
        be too apparent and obvious. To hold that the assessing officer
        in the first round did not examine the question or subject-matter
        and form an opinion, would be contrary and opposed to normal
        human conduct. Such cases have to be examined individually."

It is apparent from the above extract that even in cases where no query is raised
by the assessing officer in the course of the original assessment proceedings it
may yet be held that the assessing officer had examined the subject matter.
This is so because the aspect or question in issue may be too apparent and
obvious. However, the Full Bench cautioned by stating that such cases would
have to be examined individually. It is, therefore, clear that even where no
query is raised by the assessing officer and there is no discussion in the
assessment order, it may yet be a case where the assessing officer would be
considered to have examined the issue. However, we are not concerned with



WP(C) 8562/2007                                                       Page 9 of 11
those type of cases inasmuch as in the present case the assessing officer had
clearly raised a specific query with regard to bad debts/ advances written off
and the petitioner/assessee had given details in respect thereof. It is obvious
that since no such addition was made on that count, the assessing officer had
considred and examined the position and held in favour of the
petitioner/assessee. Therefore, we can safely conclude that, in the facts and
circumstances of the present case, the assessing officer had, indeed, examined
the issue at the time of the original assessment proceedings and had formed an
opinion by not making any addition in respect thereof. Thus, the reopening of
the assessment which had been concluded on 13.03.2006, would be nothing but
a mere change of opinion.
11.     Mr Sahni appearing on behalf of the revenue had also submitted that the
point of bad debts written off may have been missed by the assessing officer
inasmuch as the present case was a complicated matter and even the assessment
order framed on 13.03.2006 ran into 34 pages. He submitted that there was
every possibility of some aspects being missed out by the assessing officer.
And, such aspects which had been inadvertently missed by the assessing officer
cannot be regarded as those on which the assessing officer had formed an
opinion. For this proposition, Mr Sahni relied on the decision of the Supreme
Court in the case of A.L.A. Firm (supra). However, we do not agree with this
submission because in the present case, the factual positon is different.
Whether it was a complicated matter or not is not what is relevant here. In the
present matter the assessing officer had finally raised only 4 issues, one of them
being the issue of bad debt/advances written off. Therefore, it is not as if the
assessing officer had lost sight of the issue of bad debts/advances. In fact, he
had specifically raised queries in this regard towards the fag end of the
assessment proceedings and therefore it must be presumed that he was very
much alive to the issue. We may also note that in the reasons recorded for



WP(C) 8562/2007                                                        Page 10 of 11
reopening of the assessment, the assessing officer does not says that he missed
it. The reasons recorded reveal that the assessing officer, in the second round
was of the view that the addition should have been made in respect of bad
debts/advances amounting to `. 40 lakhs because of the fact that it was on the
capital account. Had the assessing officer felt that this point had been missed
out in the first round he would have been stated so. The reasons as recorded
also belie the contention raised by the learned counsel for the respondent.
12.      In view of the foregoing discussion, the notice dated 18.04.2007 under
section 148 and all proceedings pursuant thereto are invalid and they are set
aside. The reassessment order dated 22.11.2007 is also set aside.
13.      The writ petition is allowed as above. There shall be no orders as to
costs.



                                          BADAR DURREZ AHMED, J



                                                   VIBHU BAKHRU, J
MAY 13, 2013
kb




WP(C) 8562/2007                                                       Page 11 of 11
 
 
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