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TMI Blog2013 (1) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... to the claim of club expenditure. It was not a piece of evidence which was hidden in some books of accounts from which the Assessing Officer could have possibly, with due diligence, discovered the same. On the contrary, this was material which was placed before the Assessing Officer along with the return which the Assessing Officer was duty bound to go through before completing the assessment. Clearly this does not fall in the category of material which is referred to in Explanation 1 to Section 147 of the said Act. Thus this is clearly not a case of failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. This is of material significance because the notice under Section 148 has been issued after expiry of four years from the end of the relevant assessment year. Therefore, the notice is time barred. Apart from this,it amounts to a mere change of opinion - in favour of assessee. - W.P.(C) 6728/2011 - - - Dated:- 24-1-2013 - MR. BADAR DURREZ AHMED AND MR. R.V.EASWAR, JJ. For the Petitioner : Mr M. S. Syali, Sr Advocate with Mr V. P. Gupta, Mr Mayank Nagi and Mrs Husnal Syali Nagi For the Respondents : Mr Abhishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was 30 percent of R D (Revenue) expenses and 75 percent of head office expenses in the separate accounts of individual undertaking in the ratio of sales whereas 100 percent expenses were required to be apportioned. The omission resulted in excess allowance of deductions of Rs. 29,00,11,919/- involving tax effect of Rs. 10,65,79,380/-. Incorrect allowance of deduction in respect of profit and pains from newly established industrial undertakings. The assessment of M/s Ranbaxy Laboratories Ltd. for the assessment year 2003-04 was completed u/s 250/143(3) on 1.08.05 determining an income of Rs. 3,10,79,46,649/-. It was later observed that while allowing deductions under section 80 IB, the assessee had apportioned allowed by AO and was 30 percent of R D (Revenue) expenses and 75 percent of head office expenses in the separate accounts of individual undertaking in the ratio of sales whereas 100 percent expenses were required to be apportioned. The omission resulted in excess allowance of deductions of Rs. 17,20,35,049/- involving tax effect of Rs. 6,32,22,880/-. Incorrect allowance of non-business expenditure. The assessment of Ranbaxy Laboratories Ltd. for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.03.2010 was served upon the assessee. The assessee complied with the notice and asked for a copy of reasons recorded. The reasons vide letter dated 10.08.2010 were supplied to the assessee on 16.08.2010. Vide its letter dated 06.09.2010, the assessee filed objections and the same are discussed as under:- 1. Assessee raised the objection that there was no fresh material on the basis of which belief was formed by AO that some income has escaped assessment. Assessee's objection is not acceptable as the AO had fresh material in the form of Audit Memos which were analyzed by the AO and only after properly recording the reasons for the same, AO issued notice u/s 148 of The Act. The Hon'ble Apex Court in the case of CIT Vs P.V.S. Beedies Ltd. 237 ITR 13, has held the reopening done u/s 147, on the basis of factual error pointed out by the Audit, as valid in law. 2. Assessee raised the objection that each of the items mentioned in the reasons recorded were duly considered by the AO while passing the order u/s 143(3). These items were specifically claimed as deduction in the Return of income and similar claims were also made in earlier years and the same were allowed in earlier ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Judicata is not applicable to Income Tax proceedings, the objection is not acceptable. In view of the same the objections filed by the assessee are rejected and area held to be devoid of any merits. 4. Mr Syali, the learned senior counsel appearing on behalf of the petitioner, submitted that the impugned notice dated 29.03.2010 under Section 148 of the said Act is invalid inasmuch as it has been issued beyond the period of four years and there has been no failure on the part of the petitioner to fully and truly disclose all material facts necessary for the assessment. Mr Syali also submitted that although the purported reasons merely state that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment, the reasons do not disclose as to which facts were not pointed out by the assessee for the purposes of the assessment in respect of the assessment year 2003-04. He further submitted that even the order dated 29.07.2011/ 01.08.2011 rejecting the objections, does not point out as to which fact was not disclosed by the assessee which was necessary for his assessment under Section 143(3) of the said Act. He also sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) of the said note to the effect that only expenses which were directly or indirectly related to earning of income could be deducted provided the same had been incurred during the year in question. It was the plea of the petitioner that there was no direct expenditure during the year relating to earning from the foreign enterprise. The point that was made by the learned counsel for the petitioner was that the issue of deduction under Section 80-O was specifically considered by the Assessing Officer and the query which was raised had been replied to in detail. It was after considering the reply given by the assessee that the Assessing Officer had allowed the deduction in the assessment order on 28.03.2004. Thus, it was contended that not only had the assessee disclosed all the material facts that were necessary for the claim of the deduction under Section 80-O of the said Act but that the Assessing Officer had also raised a specific query with regard to the same and it is only after receipt of a detailed reply from the assessee that the deduction was allowed. 6. Similarly, with regard to the purported reason of incorrect allowance of deduction in respect of export profits, a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale price and deducted from the bill. The cash discount is allowed for timely payment. The other discounts are also allowed as per the pharma industry practice to boost the company's sales and therefore, the same is allowable as a business expenditure. 7. Thereafter, it was pointed out by Mr Syali that there was discussion of the claim under Section 80HHC in the assessment order itself in paragraphs 5.5 and 5.6 of the said assessment order. The claim was ultimately allowed, as indicated in paragraph 6 of the assessment order as per annexure-A thereto. Therefore, it was contended by Mr Syali that here also, the assessee had fully disclosed all the material facts and the Assessing Officer had also applied his mind to the point in issue. 8. We find that there are similar submissions made with regard to the purported reasons for incorrect allowance of deduction in respect of profit and gains from newly established undertakings, both on the capital account as well as on the revenue account and the research and development expenses both on the capital account as well as on the revenue account as also the question of apportionment insofar as the research and development expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blicity through different platforms. One of these platforms is club where executives and officers of the company develop contacts with potential customers. The assessee company is a corporate member of some of the clubs to promote its business interest through its employees. As per the tax audit report u/s 44AB filed by the assessee, these expenses mainly represent club subscription fee. Secondly, the assessee's employees in terms of their appointment are also required to become members of clubs and payment of subscription is included in the amount having been paid under a contractual obligation. The club fee paid is considered by the assessee as additional compensation and tax at source has been deducted out of the employee's salary on the same. Such expenses are taxed as perquisites in the hands of employees and therefore, the additional compensation paid to the employees under a contractual obligation has been rightly allowed as a business deduction. Thus the clubs expenses incurred for promoting company business is not a personal expense of the company. The Hon'ble courts including the Bombay High Court in the case of Oits Elevator Co. (India) Ltd. vs. CIT, 195 ITR 682 and Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned at serial No. 17(d) of the tax audit report in Form No. 3CD which was annexed along with the return. This was a clear statutory disclosure on the part of the assessee with regard to the claim of club expenditure. It was not a piece of evidence which was hidden in some books of accounts from which the Assessing Officer could have possibly, with due diligence, discovered the same. On the contrary, this was material which was placed before the Assessing Officer along with the return which the Assessing Officer was duty bound to go through before completing the assessment. Clearly this does not fall in the category of material which is referred to in Explanation 1 to Section 147 of the said Act. 14. Having considered the matter at length, we find that this is clearly not a case of failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. This is of material significance because the notice under Section 148 has been issued after expiry of four years from the end of the relevant assessment year. Therefore, the notice is time barred. Apart from this, we also feel that it amounts to a mere change of opinion. On both count ..... X X X X Extracts X X X X X X X X Extracts X X X X
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