PHARMACIA HELATHCARE LTD (SINCE MERGED WITH PFIZER LTD), MUMBAI v. ITO 2(2)(1), MUMBAI

ITA 1045/MUM/2010 | 1998-1999
Pronouncement Date: 11-03-2011 | Result: Allowed

Appeal Details

RSA Number 104519914 RSA 2010
Assessee PAN AAACA5994Q
Bench Mumbai
Appeal Number ITA 1045/MUM/2010
Duration Of Justice 1 year(s) 1 month(s) 1 day(s)
Appellant PHARMACIA HELATHCARE LTD (SINCE MERGED WITH PFIZER LTD), MUMBAI
Respondent ITO 2(2)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 11-03-2011
Date Of Final Hearing 28-02-2011
Next Hearing Date 28-02-2011
Assessment Year 1998-1999
Appeal Filed On 09-02-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH MUMBAI BEFORE SHRI N.V.VASUDEVAN (JM) AND SHRI RAJENDRA S INGH(AM) ITA NO.1045/M/2010 ASSESSMENT YEAR 1998-1999 M/S. PHARMACIA HEALTHCARE LIMITED THE ITO 2(2)(1) ROOM NO.545 PFIZER CENTRE PATEL ESTATE AAYAKAR BHAVAN M.K . ROAD S.V.ROAD JOGESHWARI WEST MUMBAI 400 020. MUMBAI 400 102. PAN : AAACA5994Q APPELLANT RESPONDENT ASSESSEE BY : SHRI R.MURLIDHAR REVENUE BY : SHRI HARI GOVIND SINGH O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 24.12.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 1998-9 9. THE ASSESSEE IN THIS APPEAL HAS CHALLENGED THE LEGAL VALIDITY OF REOPENI NG OF ASSESSMENT BY THE AO UNDER SECTION 147 OF THE INCOME-TAX ACT IN ADDITIO N TO RAISING DISPUTES ON ADDITIONS MADE IN THE REASSESSMENT ON MERIT. 2. WE FIRST TAKE UP THE DISPUTE IN RELATION TO THE LEGAL VALIDITY OF REOPENING OF THE ASSESSMENT AS THIS IS THE BASIS ISSUE HAVING A BEARING ON THE VALIDITY OF THE ASSESSMENT ITSELF. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ORIGINAL ASSESSMENT IN THIS CASE HAD BEEN COMPLETED UNDER SE CTION 143(3) ON 31.1.2001. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED BY ISSUE OF NOTICE 2 UNDER SECTION 148 DATED 23.2.2005 OF THE INCOME-TAX ACT. IN RESPONSE TO NOTICE UNDER SECTION 148 THE ASSESSEE VIDE LETTER DATED 23.3.2005 STATED THAT THE ORIGINAL RETURN FILED ON 21.3.2000 MAY BE TREAT ED AS THE RETURN FILED UNDER SECTION 148. THE ASSESSEE VIDE LETTER DATED 15.3.20 05 ASKED THE AO TO SUPPLY THE REASONS RECORDED FOR REOPENING OF THE ASSESSMEN T. THE AO VIDE LETTER DATED 20.9.2005 SUPPLIED THE REASONS RECORDED TO THE ASSE SSEE WHICH WERE AS UNDER : ON VERIFICATION OF THE RECORDS IT IS OBSERVED TH AT THERE WAS NO LOSS AS PER BOOKS AND WHILE COMPUTING THE INCOME UNDER SECT ION 115JA THE FOLLOWING ITEMS WERE NOT ADDED TO THE BOOK PROFIT OF THE ASSE SSEE COMPANY : SR NO DESCRIPTION AMOUNT 1 PROVISION FOR DOUBTFUL DEBTS 5 76 503 2 LOSS ON SALE OF FIXED ASSETS 5 61 747 3 PROVISION FOR ROYALTY 34 70 794 4 PROVISION FOR GRATUITY 43 30 000 IN VIEW OF THE ABOVE FACTS THERE IS SUFFICIENT CAU SE TO BELIEVE THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL NECESSARY MATERIAL WHICH HAS LED TO ESCAPEMENT OF INCOME RES ULTING IN UNDERASSESSMENT FOR A.Y.1998-99. 3. THE ASSESSEE OBJECTED TO THE REOPENING OF THE AS SESSMENT STATING THAT THE ASSESSMENT WAS REOPENED ON THE BASIS OF CHANGE OF OPINION. THE AO HOWEVER DID NOT ACCEPT THE CONTENTION RAISED BY THE ASSESSEE AND OBSERVED 3 THAT THE ASSESSMENT HAD BEEN REOPENED AS PER LAW AS THERE WAS PRIMA FACIE MATERIAL FOR REOPENING OF THE CASE. THE AO ACCORDIN GLY REJECTED THE PLEA OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE DECISION OF T HE AO IN THE MATTER OF REOPENING AND SUBMITTED BEFORE CIT(A) THAT REOPENIN G OF ASSESSMENT WAS NOT VALID AS THE SAME WAS NOT BASED ON CHANGE OF OPINIO N. THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT I N CASE OF CCIT VS FORMARE FRANCE (264 ITR 566). THE CIT(A) HOWEVER DID NOT FI ND ANY MERIT IN THE CONTENTIONS OF THE ASSESSEE. IT WAS OBSERVED BY HIM THAT PROVISO TO SECTION 147 WAS NOT APPLICABLE AS THE ASSESSMENT HAD BEEN REOPE NED WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR UNDER CONSIDERA TION. CIT(A) ALSO OBSERVED THAT ASSESSMENT HAD BEEN REOPENED FOR UNDERSTATEMEN T OF INCOME BY NOT MAKING ADJUSTMENTS AS PER EXPLANATION TO SECTION 11 5JA WHILE COMPUTING THE BOOK PROFIT. THE INCOME HAD THEREFORE BEEN UNDER AS SESSED. IN THE ORIGINAL ASSESSMENT ORDER THE AO HAD NOT CONSIDERED THESE A SPECTS AND THEREFORE THERE WAS NO CHANGE OF OPINION. THERE WAS MATERIAL FOR THE AO TO FORM A REASONABLE BELIEF THAT INCOME HAD ESCAPED ASSESSMEN T. IT WAS OBSERVED BY HIM THAT SUFFICIENCY OF THE MATERIAL COULD NOT BE INVES TIGATED. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF RAYMOND MILLS LTD. VS ITO (236 ITR 34). CIT(A) OBSERVED THAT IN THIS CASE THERE WAS SUFFICIENT MATERIAL FOR FORMATION OF BELIEF. CIT(A) REFERRED T O SEVERAL JUDGMENTS IN FAVOUR OF THE REVENUE AND ACCORDINGLY UPHELD THE LEGAL VAL IDITY OF ASSESSMENT AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT NOTICE UNDER SECTION 148 HAD BEEN ISSUED ON 23.2.2005 A COPY OF WHICH WAS PLACED AT PAGE 1 OF THE PAPER BOOK. THE ASSESSEE HAD VIDE LETTER D ATED 15.3.2005 REQUESTED THE AO TO SUPPLY THE REASONS RECORDED IN RESPONSE T O WHICH THE AO HAD GIVEN A 4 COPY OF REASONS RECORDED VIDE LETTER DATED 20.9.200 5 COPY OF WHICH WAS PLACED AT PAGE 2 OF THE PAPER BOOK. IT WAS THUS CLEAR THAT THE ASSESSMENT HAD BEEN REOPENED AFTER A LAPSE OF MORE THAN 4 YEARS FROM TH E END OF THE RELEVANT ASSESSMENT YEAR AND THEREFORE PROVISO TO SECTION 14 7 WAS APPLICABLE AS PER WHICH IN CASE OF ASSESSMENT HAVING ALREADY MADE UND ER SECTION 143(3) IT COULD BE REOPENED AFTER A LAPSE OF 4 YEARS FROM THE END O F RELEVANT ASSESSMENT YEAR ONLY IF THERE WAS FAILURE ON PART OF THE ASSESSEE T O DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS. IN THIS CASE THERE WAS NO FAILURE O N THE PART OF THE ASSESSEE WHICH WAS CLEAR FROM THE REASONS RECORDED ITSELF WH ICH SHOWED THAT THE OMISSIONS POINTED OUT BY AO WERE BASED ONLY ON VERI FICATION OF RECORD WHICH SHOWED THAT MATERIAL WAS ALREADY ON RECORD. THE DET AILS REGARDING ALL THE FOUR ITEMS PROPOSED TO BE ADDED BY THE AO HAD ALREADY BE EN PLACED ON RECORD BY THE ASSESSEE. HE REFERRED TO THE COMPUTATION OF INC OME MADE BY THE ASSESSEE FOR THE RELEVANT YEAR A COPY OF WHICH WAS PLACED AT PAGES 3 & 4 OF THE PAPER BOOK IN WHICH THE ASSESSEE ITSELF HAD ADDED THE PRO VISION FOR GRATUITY OF RS.72 30 000/- AND DEDUCTION CLAIMED WAS ONLY RS.29 LACS. THUS THE ASSESSEE HAD ITSELF ADDED BALANCE OF RS.43 30 000/-WHICH THE AO PROPOSED TO ADD UNDER SECTION 115JB. AS REGARDS PROVISION FOR DOUBTFUL D EBTS OF RS.5.76 LACS AND LOSS ON SALE OF FIXED ASSETS OF RS.5.61 LACS THE DETAILS WERE GIVEN BEFORE THE AO AS PART OF OTHER EXPENSES WHICH ARE AVAILABLE ON PAGE 11 OF THE PAPER BOOK. IN RELATION TO ROYALTY IT WAS SUBMITTED THAT THE AO IN THE REGULAR ASSESSMENT ORDER DATED 31.1.2001 HAD HIMSELF NOTED IN PARA 1 THAT TH E ASSESSEE HAD REVISED THE RETURN ON 21.3.2000 IN WHICH THE ROYALTY EXPENSES W ERE ADDED BACK TO THE TOTAL INCOME UNDER SECTION 40(A)(I). 4.1 IT WAS THUS CLEAR THAT THE ASSESSEE HAD TRULY AND FULLY DISCLOSED ALL MATERIAL FACTS. HE REFERRED TO THE JUDGMENT OF HON BLE HIGH COURT OF MUMBAI IN 5 CASE OF HLL VS R.B. WADKAR (NO.1) BOMBAY (268 ITR 3 32) IN SUPPORT OF THE PROPOSITION THAT THE REASONS AS RECORDED BY THE AO HAD TO BE READ WHILE EXAMINING THE VALIDITY OF REOPENING. THE HIGH COURT IN THE SAID CASE ALSO HELD THAT THE AO MUST DISCLOSED IN THE REASONS AS TO THE FACT OR MATERIAL NOT DISCLOSED BY THE ASSESSEE TRULY AND FULLY SO AS TO ESTABLISH VITAL LINK BETWEEN REASON AND BELIEF. THE REOPENING OF THE ASSESSMENT WAS THEREFORE HELD NOT VALID. THE LEARNED AR FURTHER ARGUED THAT THERE WER E OTHER FACTORS ALSO TO SUPPORT THE ILLEGALITY OF THE REOPENING. IT WAS PO INTED OUT THAT THE CIT WHILE APPROVING OF THE PROPOSAL OF REOPENING HAD ONLY MEN TIONED AGAINST THE RELEVANT COLUMN I AM SATISFIED. IT WAS SUBMITTED THAT IN A SIMILAR CASE OF CHUGMAL RAJPAL VS CHALIAH AND OTHERS (79 ITR 603) THE HONB LE SUPREME COURT HELD THAT THE PERMISSION HAD BEEN GRANTED BY THE CIT MEC HANICALLY. THE HONBLE SUPREME COURT OBSERVED THAT HAD THE CIT READ THE RE PORT CAREFULLY HE WOULD HAVE NEVER COME TO THE CONCLUSION REGARDING ESCAPEM ENT OF INCOME. SIMILAR WAS THE POSITION IN THE PRESENT CASE. THE REASONS F OR REOPENING WERE PATENTLY WRONG AND YET THE SAME HAD BEEN APPROVED BY THE CIT . THERE WAS ALSO CHANGE OF OPINION. RELIANCE FOR THIS PROPOSITION WAS PLACE D ON THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF ASTROID TRADING & I NVESTMENT PVT. LTD. VS DCIT (308 ITR 190) IN WHICH THE HIGH COURT HAS FOLLOWING THE FULL BENCH DECISION OF DELHI HIGH COURT IN CASE OF KELVINATOR OF INDIA (25 6 ITR 01) HELD THAT THERE WAS CHANGE OF OPINION. IT WAS ALSO POINTED OUT THAT THE REASONS WERE COMMUNICATED TO THE ASSESSEE AFTER A LAPSE OF SIX Y EARS AND ON THIS GROUND ALSO THE REOPENING COULD BE HELD INVALID IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT OF DELHI IN CASE OF HARIYANA ACRYLIC MAR KETING LTD. VS CIT (308 ITR 38). THE SAID JUDGMENT WAS FOLLOWED BY THE DELHI BE NCH OF TRIBUNAL IN CASE OF BALVANTRAO WADHWA VS ITO IN ITA NO.4806/DEL./10 IN WHICH THE REOPENING WAS HELD INVALID ON THE GROUND THAT THE REASONS WERE NO T COMMUNICATED TO THE 6 ASSESSEE WITHIN SIX YEARS. IT WAS THUS URGED THAT T HE REOPENING SHOULD BE HELD INVALID. 5. THE LEARNED DR APPEARING FOR THE REVENUE ON THE OTHER HAND ARGUED THAT REOPENING OF ASSESSMENT WAS VALID. IT WAS SUBM ITTED THAT THE REASONS RECORDED HAD ALREADY BEEN SUPPLIED TO THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE AO IN THE ASSESSMENT UNDER SECTION 143(3) HAD N OT DISCUSSED THE INDIVIDUAL ITEMS OF INCOME AND THEREFORE IT COULD NOT BE SAID THAT HE HAD APPLIED MIND IN THE ORIGINAL ASSESSMENT. THEREFORE THERE WAS NO CHA NGE OF OPINION. AS REGARDS THE APPROVAL BY CIT IT WAS SUBMITTED THAT CIT HAD M ENTIONED THAT HE WAS SATISFIED WITH RESPECT TO REASONS RECORDED BY THE A O AND THEREFORE IT COULD NOT BE SAID THAT SATISFACTION WAS NOT PROPER. IT WAS AC CORDINGLY URGED THAT THE VALIDITY OF REOPENING SHOULD BE UPHELD. 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING LEGAL VALIDITY OF REOPENING OF THE ASSESSMENT. THE ORIGINAL ASSESSMENT IN THIS CASE HA D BEEN COMPLETED UNDER SECTION 143(3) ON 31.1.2001. SUBSEQUENTLY THE ASSES SMENT WAS REOPENED BY THE AO BY ISSUE OF NOTICE UNDER SECTION 148 DATED 2 3.2.2005. THE REASONS RECORDED FOR REOPENING OF ASSESSMENT HAVE BEEN REPR ODUCED AT PAGE 2 EARLIER WHICH SHOW THAT THE AO HAD REOPENED THE ASSESSMENT FOR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL NECESS ARY MATERIALS AS A RESULT OF WHICH CERTAIN ITEMS OF INCOME MENTIONED THEREIN WER E OMITTED TO BE ADDED TO THE BOOK PROFIT. FIRSTLY WE NOTE THAT ASSESSMENT I N THIS CASE HAD BEEN REOPENED AFTER A LAPSE OF FOUR YEARS FROM THE END O F RELEVANT ASSESSMENT YEAR AS NOTICE UNDER SECTION 148 HAD BEEN ISSUED ON 23.2 .2005. THEREFORE THE PROVISIONS OF PROVISO TO SECTION 147 ARE ATTRACTED AS PER WHICH IN CASE THE 7 ORIGINAL ASSESSMENT HAVE BEEN MADE UNDER SECTION 14 3(3) AND FOUR YEARS HAVE ELAPSED FROM THE END OF THE RELEVANT ASSESSMENT YEA R THE ASSESSMENT CAN BE REOPENED ONLY ON THE GROUND OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR AS SESSMENT. THEREFORE THE CASE OF REOPENING HAS TO BE EVALUATED IN TERMS OF THE SA ME PROVISO AND IT HAS TO BE SEEN WHETHER THERE WAS FAILURE ON THE PART OF THE A SSESSEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE CASE OF THE AO APPARENTLY IS THAT THE ASSESSEE HAD NOT DISCLOSED TRULY AND FU LLY ALL MATERIAL FACTS RELATING TO THE PROVISIONS FOR DOUBTFUL DEBTS LOSS ON SALE OF ASSETS PROVISION FOR ROYALTY AND PROVISION FOR GRATUITY. HOWEVER PERUSAL OF REC ORDS SHOWS THAT THE ASSESSEE HAD DISCLOSED TRULY AND FULLY ALL MATERIAL FACTS RE LATING TO THE ABOVE FOUR ITEMS. 6.1 THE ASSESSEE IN THE COMPUTATION OF INCOME PLACE D AT PAGES 3 AND 4 OF THE PAPER BOOK HAD HIMSELF ADDED THE ENTIRE PROVISI ON FOR GRATUITY OF RS.72 30 000/- AND THEN CLAIMED DEDUCTION OF ONLY R S.29 LACS CLEARLY SHOWING THAT THE BALANCE AMOUNT OF RS.43 30 000/- HAD BEEN ADDED BY THE ASSESSEE IN THE COMPUTATION OF INCOME. THIS COMPUTATION OF INCO ME WAS BEFORE THE AO AT THE TIME OF ASSESSMENT UNDER SECTION 143(3) AND THE REFORE IT CANNOT BE SAID THAT THE ASSESSEE HAD NOT DISCLOSED TRULY AND FULLY ALL MATERIAL FACTS RELATING THERETO. SIMILARLY THE ASSESSEE HAD GIVEN DETAILS O F OTHER EXPENSES A COPY OF WHICH HAS BEEN PLACED AT PAGE 11 OF THE PAPER BOOK IN WHICH PROVISIONS FOR DOUBTFUL DEBTS OF RS.5.76 LACS AND LOSS OF SALE OF FIXED ASSETS OF RS.5.61 LACS ARE CLEARLY MENTIONED. THESE DETAILS WERE ALSO BEFO RE THE AO AND THEREFORE IT COULD NOT BE SAID THAT THE ASSESSEE DID NOT DISCLOS E TRULY AND FULLY ALL MATERIAL FACTS. AS REGARDS THE FOURTH ITEM I.E. PROVISIONS F OR ROYALTY THE AO IN THE REGULAR ASSESSMENT ORDER DATED 31.1.2001 HAD HIMSELF NOTED IN PARA 1 THAT THE ASSESSEE HAD REVISED THE RETURN ON 21.3.2000 IN WHI CH ROYALTY EXPENSES WERE 8 ADDED BACK TO THE TOTAL INCOME UNDER SECTION 40(A) (I). THEREFORE IN OUR VIEW THE ALLEGATION OF THE AO THAT THE ASSESSEE HAD NOT DISCLOSED TRULY AND FULLY ALL MATERIAL FACTS RELATING TO ASSESSMENT IS NOT CORREC T. IN FACT THE REASONS RECORDED ALSO SHOW THAT THE AO HAD NOTED THE FOUR I TEMS OF CLAIMS ONLY ON VERIFICATION OF RECORDS WHICH ALSO SHOWS THAT THESE WERE ALREADY AVAILABLE ON RECORD. THE AO IN THE REASONS RECORDED HAD ALSO NOT SPECIFICALLY MENTIONED AS TO THE FACT OR MATERIAL NOT DISCLOSED BY THE ASSESS EE TRULY AND FULLY WHICH IS A MANDATORY REQUIREMENT TO BE FULFILLED IN THE REASON S RECORDED IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF HLL VS R.B. WADKAR (NO.1) BOMBAY (SUPRA). THE ASSESSMENT HAD ALREADY B EEN COMPLETED UNDER SECTION 143(3) AND THERE BEING NO FAILURE ON THE PA RT OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSA RY FOR ASSESSMENT AND PERIOD OF FOUR YEARS HAVING ALREADY ELAPSED IN OUR VIEW REOP ENING OF THE ASSESSMENT CANNOT BE HELD VALID ON THIS GROUND ALONE. THE LEAR NED AR FOR THE ASSESSEE HAS ALSO MENTIONED CERTAIN OTHER FACTORS WHICH ALSO VIT IATE THE REOPENING OF THE ASSESSMENT. HOWEVER WE DO NOT CONSIDER IT NECESSAR Y TO GO INTO ALL THOSE ASPECTS AS WE HAVE ALREADY HELD THAT REOPENING OF A SSESSMENT WAS NOT VALID FOR THE REASONS GIVEN EARLIER. THE REASSESSMENT PROCEED INGS ARE THEREFORE QUASHED BEING ILLEGAL. AS THE REASSESSMENT PROCEEDINGS HAV E BEEN QUASHED IT IS NOT NECESSARY FOR US TO GO INTO THE MERIT OF ADDITIONS WHICH HAVE BECOME INFRUCTUOUS. 9 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED. 8. ORDER WAS PRONOUNCED IN THE OPEN COURT 11.03.201 1. SD/- SD/- ( N.V.VASUDEVAN ) (RAJENDR A SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 11.03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR C BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK