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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
SUNIL P. DESHMUKH, ABHAY AHUJA, JJ.
Piramal Enterprises Limited – Petitioner
Versus
Additional/Joint/Deputy/Assistant Commissioner of Income Tax – Respondent
Writ Petition (L) No. 11040 of 2021
Decided On : 30-07-2021
Income Tax Act, 1961 - Sections 144C(1) read with 143(3) and 144-B - Articles 14, 19, 226 and 227 - Assessment order - Profit and loss account of income tax return - Businesses including pharmaceuticals comprising manufacturing pharmaceutical formulations - Petitioner - a registered company - is before court aggrieved by the draft assessment order under Faceless Assessment System/e-Assessment - petitioner had filed its original return of income for assessment year 2017-18 in November 2017 declaring NIL income - Petitioner has filed a revised return of income in March 2019 for said assessment year electronically in prescribed fixed format - Whether prejudicial to interest of assessee or not - If matter is referred to RU, process according to clauses (xvii) to (xx) is to take place culminating into, a final draft assessment order (FDAO) by an Assessment Unit.
Finding of the Court:
Whenever DAO, FDAO is prejudicial to interest of assessee or RDAO is prejudicial to the interest of assessee in comparison to DAO or FDAO, upon a response to show- cause notice - When draft assessment order (DAO) or final draft assessment order (FDAO) is prejudicial to interest of the assessee, it entails an opportunity to show-cause pursuant to sub-clause (b) of clause (xvi), giving option under clause (xxii) to assessee of furnishing response to NFAC - It appears that under clause (xv) sub-clause (a) item (A) contemplates similar treatment to an eligible assessee as in item (A) under clause (a) of clause (xxiii) and matter has to be forwarded to assessee in case variations proposed in the case of eligible assessee are not prejudicial to the interest in comparison to DAO or FDAO and in case of other assessees under item (B) of sub-clause (a) of clause (xxv), similar treatment as accorded under item (B) of sub-clause (a) of clause (xxiii) is given if RDAO is not prejudicial in comparison to DAO or FDAO. However, in case of variations irrespective of whether assessee is eligible assessee or other, are prejudicial to the interest of assessee in comparison to DAO or FDAO, there is a further provision for opportunity to assessee by serving notice, to receive treatment mutatis mutandis in accordance with clauses (xxii), (xxiv) and (xxv) - There is nothing to reflect upon that after receipt of response to show-cause-notice, prescribed procedure has been followed. The petitioner appears to be losing out on an opportunity as would be available to it under clause (xxiii)(b) read with sub-section (7) sub-clause (vii).
Result: Petition is allowed.
JUDGMENT :
SUNIL P. DESHMUKH, J.
1. The petitioner - a registered company is before the court aggrieved by the draft assessment order dated 22.04.2021 (for the assessment year 2017-18) under Faceless Assessment System/e-Assessment.
2. Petitioner carries on various businesses including pharmaceuticals comprising manufacturing pharmaceutical formulations as well as trading in pharmaceutical goods. It purchases raw material for manufacturing its formulations as well as purchases goods for trading.
3. The petitioner had filed its original return of income for the assessment year 2017-18 in November 2017 declaring NIL income. The petitioner has filed a revised return of income in March 2019 for said assessment year electronically in the prescribed fixed format.
4. According to petitioner, in its profit and loss account, it breaks up expenditure in broad categories viz. cost of material consumed, purchase of stock in trade and change in inventory of finished goods, work in progress and stock in trade. Its details are disclosed in schedule to profit and loss account. In the balance-sheet, inventory (closing stock) comprises the items raw material, work in progress, finished goods, stock in trade and spares and is given in consolidated figures.
5. It is referred to that petitioner has tendered and uploaded profit and loss account and balance-sheet by filling up relevant columns of the format of return of income. Columns in the return of income are predetermined and inflexible and since it provided for only one column for purchase, it was not possible for petitioner to show purchases of raw material and purchases of trading goods separately. There is no column to show opening and closing stocks of stock in trade. In the circumstances, in the profit and loss account, as there are no sufficient columns to give details of transactions, the petitioner had made disclosures in certain columns and schedule to annual accounts.
6. The petitioner submits that the aforesaid disclosures are made for understanding as to the amount shown in profit and loss account of income tax return tallies with annual accounts. It is being submitted that such a method of disclosure in return of income does not, in any way, affect the income declared or the correctness of amount declared in the profit and loss account or the return of income. Since the return of income comprises fixed line items, the petitioner had to make the disclosures as aforesaid in particular form which practice it has been following from the beginning of filing of return of income electronically. The petitioner discloses all types of inventories (closing stocks) as is disclosed in annual accounts, in the balance-sheet.
7. It is referred to, it is considered that there is substantial difference between the value of receipts from services in the service tax return received from CBEC and the values disclosed in income-tax return. It is contended that while the petitioner had sought material to understand the basis of respondent no. 1 coming to such consideration, the respondent no. 1 had not furnished any material/information and arbitrarily addition was made.
8. It is stated petitioner had also filed along with return transfer pricing audit report in Form 3-CEB showing international transactions entered into and their arm’s length price. It is submitted that the transactions of granting corporate guarantee in respect of borrowing of Associate Enterprises (‘AE’) the petitioner had charged the transaction @ 0.75% or 0.50% of the guarantee amount. The petitioner has made suo-motu adjustment @ 0.25% for certain guarantees given for the performance of AEs as being the arm’s length price of the international transactions. The transfer pricing officer under his order dated 29.01.2021, proposed adjustment of Rs. 23.62 crore rejecting submission of petitioner with respect computation of arm’s length price and computed corporate guarantee and performance guarantee @ 1.68% and accordingly proposed the adjustment
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