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2023 (2) TMI 468 - HC - Income TaxReopening of assessment u/s 147 - notice issued beyond the period of four years from the end of the relevant assessment year - Disallowance on account of gift expenses - admissibility of expenses incurred in providing freebees to Medical Practitioner by Pharmaceutical and allied Heath Sector Industry - HELD THAT - Although in the Order of assessment, the assessing officer had entertained a doubt regarding genuineness of the expenses, which as per him had not at all been established to have been incurred wholly and exclusively for the purpose of business, yet he had proceeded to disallow on an estimate basis expenses to the tune of 10 per cent and made an addition of Rs.2,31,82,889/- to the total income of the assessee. Therefore, it cannot be said that the Petitioner had not disclosed the relevant material facts during the assessment proceedings. The Petitioner was only obliged to disclose the material primary facts and was certainly not obliged to refer to the statutory provisions or the regulations of 2002 at the time of fling the return or during the course of the assessment proceedings. Circular No.5/2012 referred to the position of the regulations of 2002 after its amendment in the year 2009 and, therefore, neither the circular nor regulation 6.8 incorporated w.e.f. 10 December 2009 would be applicable to the instant case pertaining to assessment year 2008-09. It is settled that law to be applied is the one that is in force in the relevant assessment year, unless otherwise provided expressly or by necessary implication - CIT Vs. Insthmian Steamship Lines 1951 (11) TMI 1 - SUPREME COURT and Reliance Jute Industries Ltd. Vs. Commissioner of Incometax 1979 (10) TMI 2 - SUPREME COURT . Since the CBDT Circular No.5/12 as also Regulation 6.8 of 2002, were not applicable to the case of the Petitioner for the relevant assessment year 2008-09, there would be no tangible material or basis for the assessing officer to have reason to believe that income for the said assessment year 2008-09 had escaped assessment. Decided in favour of assessee.
Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the assessment year 2008-09. 2. Validity of the Order rejecting the objections to the re-assessment proceedings. 3. Applicability of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and CBDT Circular No.5/2012 to the assessment year 2008-09. 4. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment. 5. Whether the re-assessment was based on a change of opinion. 6. Tangibility of the material for reopening the assessment. Detailed Analysis: 1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the assessment year 2008-09: The Petitioner challenged the notice dated 27 March 2015 issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the assessment year 2008-09. The notice was issued beyond the period of four years from the end of the relevant assessment year. According to the proviso to Section 147, no action shall be taken after the expiry of four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Court found that the reasons furnished for reopening did not reflect any material facts that were not disclosed by the Petitioner, which would have led the assessing officer to bring to tax such income in the scrutiny assessment. Therefore, the notice was deemed invalid. 2. Validity of the Order rejecting the objections to the re-assessment proceedings: The Petitioner also challenged the Order dated 16 December 2015, which rejected the objections to the re-assessment proceedings. The Order stated that the expenses claimed under 'physicians Sample' and 'Gifts to Healthcare Professionals' were non-admissible as they were prohibited by law, and the assessee failed to disclose full and true material facts. However, the Court found that the Petitioner had disclosed all relevant material facts during the original assessment proceedings, and the assessing officer had already scrutinized these expenses. Therefore, the rejection of the objections was not justified. 3. Applicability of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and CBDT Circular No.5/2012 to the assessment year 2008-09: The Court noted that the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 were amended on 10 December 2009 to include Clause 6.8, which prohibited medical practitioners from receiving gifts, travel facilities, hospitality, and cash or monetary grants from the pharmaceutical industry. The CBDT Circular No.5/2012 dated 1 August 2012 reiterated these regulations. However, the Court held that neither the amended regulations nor the circular were applicable to the assessment year 2008-09, as the law to be applied is the one in force during the relevant assessment year. 4. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment: The Court found that the Petitioner had disclosed all relevant material facts during the original assessment proceedings. The assessing officer had called for and received detailed information regarding the expenses on publicity and propaganda, and had made an estimated disallowance of 10% of these expenses. Therefore, there was no failure on the part of the Petitioner to disclose fully and truly all material facts necessary for assessment. 5. Whether the re-assessment was based on a change of opinion: The Court held that the re-assessment was indeed based on a change of opinion. The original assessment had already scrutinized the expenses in question, and the assessing officer had made an estimated disallowance. The reasons for reopening the assessment did not provide any new tangible material that was not already considered during the original assessment. Therefore, the re-assessment was not justified. 6. Tangibility of the material for reopening the assessment: The Court found that there was no tangible material or basis for the assessing officer to have 'reason to believe' that income for the assessment year 2008-09 had escaped assessment. The reasons for reopening were based on the amended regulations and the CBDT circular, which were not applicable to the relevant assessment year. Therefore, the reopening of the assessment was not justified. Conclusion: The Court allowed the Petition and set aside the impugned notice dated 27 March 2015 and the impugned Order dated 16 December 2015, with no Order as to costs. The reopening of the assessment for the assessment year 2008-09 was deemed invalid due to the lack of failure on the part of the Petitioner to disclose material facts, the inapplicability of the amended regulations and CBDT circular, and the absence of new tangible material.
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