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TMI Blog2012 (7) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... e by AO except to read the audited profit & loss account, balance sheet etc. along with the schedules and notes on accounts in order to draw the inference whether the three items in question were to be added back to the book profit or not. The tax audit report and audit report in Form No.29B along with its annexures including the settlement agreement were also before him - The alleged escapement of income cannot be attributed to any failure on the part of the petitioner to furnish full and true particulars - Writ petition allowed - in favour of assessee. - W.P. (C) 1884/2012 - - - Dated:- 16-7-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Ajay Vohra with Mr. Amit Sachdeva and Mr. Somnath Shukla, Advocates. For Respondents : Mr. Sanjeev Rajpal, Sr. Standing Counsel. R. V. EASWAR, J.: (OPEN COURT) 1. M/s. Sak Industries Pvt. Ltd. has filed the present writ petition under Article 226/ 227 of the Constitution of India seeking a writ of certiorari or prohibition or any other appropriate writ or direction to quash the Notice dated 08.03.2010 issued by the first respondent under Section 148 of the Income Tax Act, 1961 (here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being provision for gratuity as also the amount of Rs.2,62,30,297/- being provision for diminution in the value of mutual funds. In respect of the provision for the gratuity the petitioner had furnished the profit and loss account which showed a separate debit under the head administrative and other expenses , the details of which were shown in Schedule 8 to the profit and loss account. In the computation of income filed by the petitioner showing taxable income under the normal provision of the Act, the provision for gratuity was added back to the profit as per the profit and loss account. The report of the Chartered Accountant in Form No.29B required to be given under Section 115JB of the Act also disclosed that no adjustment on account of provision for gratuity had been made to the book profit. In addition to these particulars, Schedule 1 to the return of income, which declared the book profit under Section 115JB as Rs. nil expressly referred to the report of the Chartered Accountant in Form No.29B and also recorded that no adjustment had been made to the book profit on account of provision for gratuity. 4. As far as the provision for diminution in the value of investment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility. The mistake has resulted in underassessment of income by Rs.16,59,906/- with consequent short levy of tax by Rs.1,72,873/- including interest u/s 234B. The assessee had credited a capital reserve of Rs.66,64,20,487/- as settlement amount in terms of settlement agreement with foreign promoters (Milacron Inc. USA, Widia Gmbh and Meturit AG) the amount of Rs.66,64,20,487/- accrued to assessee on discharge of his liabilities on account of debts, dues, bonds, bills contracts, agreements, promises, damages, executions, claims, demands, etc. The assessee acknowledged and confirmed that on after the date of settlement agreement, any of the foreign promoters were entitled at their discretion to carry on the business as they may deem fit, or to transfer and deal with all or any of the shares or assets of the company, or to terminate the operations of the company or wind up the company. Since the amount had accrued to assessee in the course of business, it should have been taxable as business income. Omission to do so has resulted in underassessment of income of Rs.66,64,20,487/- involving undercharge of tax of Rs.32,38,92,850/- including interest. The assessee debited Provision f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order had also been passed in the meantime on 19.11.2010. At the request of the petitioner the court permitted the petitioner to amend the writ petition so as to also assail the reassessment order. The order of the Court was passed on 16.02.2012 and on 16.03.2012 the first respondent dismissed the objections raised by the petitioner to the reassessment proceedings, prompting the petitioner to file the amended writ petition which is the present one. 9. We find no difficulty in accepting the contention of the petitioner to quash the notice under Section 148 and all consequent proceedings and orders initiated and passed by the first respondent, who is the Assessing Officer. The assessment year concerned is 2003-04. The notice under Section 148 of the Act was issued on 08.03.2010 i.e. after a period of 4 years from the end of the relevant assessment year. This can be done only under the first proviso to Section 147 of the Act which reads as under: - Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material or relevant fact was omitted or had not been disclosed by the petitioner. The reasons recorded show that the only thing remained to be disclosed by the petitioner was the inference that the three items in question were to be added back to the book profit, a duty which is not placed on the assessee. The reasons also show that it was from the same facts which were disclosed by the petitioner, the first respondent formed the view or drew the inference that the items were to be added to the book profit. The question then is what was the petitioner‟s failure. 11. Explanation 1 to Section 147 reads as under: - Explanation 1. Production before the Assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. This Explanation cannot come to the rescue of the first respondent. As to the true effect and purport of the Explanation, we must go back to Calcutta Discount Company Ltd. (supra). It was observed as under: - There can be no doubt that the duty of disclosing all the primary facts rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the balance sheet which explains the investments of Rs.119,26,13,296/- the petitioner reduced the provision for diminution in the value of investment in mutual funds from the aggregate investment in mutual funds (unquoted). As regards the amount of Rs.66,64,20,487/- which the petitioner received under the settlement and claimed the same to be a capital receipt not liable to tax, a separate Note (Note No.10) was made under the head notes of accounts which reads as under: - 10. During the year the company has received Rs.666,420,487/- (net) in terms of settlement agreement as settlement amount. This amount as per the legal opinion had been accounted for as Capital Receipt and credited to Capital Reserve and is not liable to tax. In Note No.8 under the head retirement benefit it has been stated as under: - 8. RETIREMENT BENEFIT (a) Provision for gratuity payable to employee is made on the basis of actuarial valuation. 13. As to what further disclosure was required to be made by the petitioner at the time of original assessment proceedings has not been explained in the reasons recorded for reopening the assessment. The words not necessarily appearing in Explanation 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not. The tax audit report and audit report in Form No.29B along with its annexures including the settlement agreement were also before him. The petitioner is a company to which the provisions of Section 115JB are attracted. For the purpose of applying the section, the most important, basic and relevant documents to be looked into are the company‟s audited profit and loss account, balance sheet (with their schedules, notes, etc.), audit report under Section 115JB in Form No.29B with its annexures etc. These were filed at the time of the original assessment proceedings. No further documents were to be called for or examined in order to apply the provision and compute the book profit in accordance with the same. The first respondent was not bound to accept the stand taken by the petitioner that in the computation of book profit the three items in dispute were not includible. The alleged escapement of income cannot be attributed to any failure on the part of the petitioner to furnish full and true particulars. Going by the reasons recorded for the reopening of assessment in the present case we are unable to uphold the reassessment proceedings on the ground that the petitioner fai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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