Win for Asian Paints as Bombay High Court quashes Reassessment Order

Win for Asian Paints as Bombay High Court quashes Reassessment Order

The Bombay High Court by its division bench comprising of Justices Dhiraj Singh Thakur and Valmiki SA Menezes, quashed the reassessment order in the case of Asian Paints Ltd. vs. The Assistant Commissioner of Income Tax and others., on the ground that the assessee/petitioner- Asian Paints had disclosed fully and truly all facts material and necessary for the assessment.

The assessee/petitioner is a public limited company engaged inter-alia in the business of manufacturing and selling of paints, varnish, primer etc. The business is carried on through various dealers who purchase the goods from the petitioner on the principal-to-principal basis and sell the same to the ultimate customers.

A return of income for the assessment year 2014-2015 was filed by the petitioner declaring a total income of Rs. 1403.68 crore which was subsequently revised to Rs. 1382.57 crore. The petitioner stated to have been selected for scrutiny assessment during the course of which a show cause notice dated 7 October, 2016 was issued by the Assessing Officer (in short AO) requiring it, inter-alia, to submit the details of the 'advertisement and sales promotion expenses.'

Counsel for the petitioner urged that there was no failure to disclose fully and truly any material fact necessary for the assessment which was a condition precedent for reopening the assessment in terms of section 148 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act').

Counsel for the respondents, on the other hand, supported the reassessment proceedings initiated by the AO. It was stated that the reassessment proceedings would not be held to be bad as the AO, while passing the order of assessment, had not expressed any specific opinion regarding the expenditure incurred on 'Colour Idea Stores' (a scheme launched by the petitioner), and therefore, at this stage, the reassessment proceedings could not be permitted to be scuttled.

Section 147 of the Act was discussed in detail and it was noted by the Court that the proviso to Section 147 of the Act, envisaged that no action under Section 147 of the Act shall be taken after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Section 142(1) or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

The High Court from the record, found that it was clear that during the scrutiny assessment, the AO had sought from the petitioner the relevant details regarding the advertisement and sales promotion expenses and the details were furnished by the petitioner vide its response dated 17 October, 2016.

The Court further noted, that the AO had disallowed some of the expenses which had been reflected in the break-up under the head 'details of advertisement and sales promotion expenses' while passing the final order of assessment, which reflected that the AO had applied its mind to the petitioner's claim while passing the order under section 143(3) of the Act. Moreover, the reasons did not disclose as to what material or fact was not disclosed by the assessee.

The Court observed that there was a complete disclosure of all the primary material facts on the part of the petitioner and it was not justified to state that there was any failure on the part of the petitioner to disclose fully and truly facts which were material and necessary for assessment.

Lastly, the Court ruled that the notice impugned did not satisfy the jurisdictional requirement of Section 147 of the Act and, therefore, held to be unsustainable, and was accordingly quashed.