The Delhi High Court on 22.02.2016 has quashed the notice issued by the DCIT enclosing the reasons for reopening the assessment made against the petitioners, M/s Munjal Showa.
M/s Munjal Showa is a public limited company incorporated in 1985 as a joint venture between Showa Corporation, Japan and Hero Group, India, engaged in the business of manufacture and sale of shock absorbers for vehicles. The Assessee filed a return of income at a total income of Rs. 25,10,74,700 for the AY 2008-09. The return was picked up for scrutiny.
According to the Petitioner, after making exhaustive examination and proposing several disallowances a draft assessment order was passed by the Assessing Officer under Section 143(3) of the Act on 28th November 2011. This was a draft assessment order since one of the issues examined concerned the determination of arm’s length price (‘ALP’) of the international transaction entered into by the Assessee with its foreign associate.
During the course of the assessment, notices under Section 143(2) and 142(1) were issued by the AO on 21stJune 2011 requiring the Assessee to furnish the(i) the details of the short term loans taken by the Petitioner Kotak Mahindra Bank and Nova Scotia Bank (ii) the details of the investment made during the year and, (iii)the details of the dividend income earned during the year along with a justification for making ‘nil’ disallowances under Section 14A of the Act.On 19th September 2011, the Petitioner furnished the above details including the details of interest bearing funds borrowed during the year as well as the justification for inapplicability of Section 14A of the Act to the expenses, including interest expenses incurred, on the ground that the investment yielding exempt income was not yielded from borrowed funds.
On 6th July 2012, the AO framed the assessment of the Assessee by the final order of assessment under Section 143(3) read with Section 144C of the Act assessing the total income of the Assessee at Rs. 44,29,50,186 as against the returned income of Rs. 25,10,74,695.
On 11th March 2013, the DCIT issued a notice to the Assessee under Section 148 of the Act enclosing therewith the reasons proposed for the reopening of the assessment for the aforementioned AY 2008-09. On 17th September 2013, the Petitioner filed its legal objections to the reopening of the assessment. On 19th February 2014, an order was passed by the DCIT dismissing the objections raised by the Petitioner to the reopening of the assessment under Section 148 of the Act. Thereafter the petitioner filed a Writ Petition under Article 226, before the High Court of Delhi challenging the said order.
The main issues before the Court were that whether the Assessee had made complete disclosure during the assessment proceedings and whether there was any new tangible material available with the respondents for forming reason to believe that income had escaped assessment.
The main contention of the assessee was that that in the course of the assessment proceedings, the relevant queries regarding both the issues were raised by the Respondents. Replies were filed by the Petitioner in response to such queries. It is only after an exhaustive verification of the information supplied that the Respondents passed the original assessment order dated 6th July 2012.
After hearing the arguments from both sides, it was held by the Court that in the original assessment proceedings there was complete disclosure made by the Assessee of the relevant particulars. The Revenue has been unable to counter the assertion made by the Petitioner that the investment was in mutual funds and made under the growth plan scheme that did not yield any exempt income. The income accrued by appreciation in the net value of the units held. Where the investors redeems such units before the expiry of twelve months from the date of their purchase/acquisition, then capital gains are chargeable in the hands of the investor at the maximum marginal rate prescribed under Section 111A of the Act. The Court upheld the contention raised by the learned counsel on behalf of the petitioner that while reopening the assessment, its reasons have to be confined to those set out in the impugned order. It cannot be improved upon by filing subsequent affidavits. In the words of J Muralidhar “The assumption of jurisdiction cannot said to be justified by supplying reasons extraneous to the recorded reasons”.
While disposing the petition, the Court in favor of the petitioner, quashed the notice issued by the Respondent dated 11th March 2013.
Read the Judgment here.
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