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2014 Supreme(Guj) 555
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
AKIL KURESHI and SONIA GOKANI, JJ.
INDIA GELATINE AND CHEMICALS LTD – Petitioner
Versus
ASSTT. COMMISSIONER OF INCOME TAX - Respondent
SPECIAL CIVIL APPLICATION NO. 12552 of 2002
Decided On : 23/04/2014
Advocate Appeared:
MR MANISHJ SHAH and MR JP SHAH, ADVOCATE for the Petitioner(s) No. 1
MR MANISH BHATT SR COUNSEL WITH MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1
The main legal point established in the judgment is that the grounds for reopening an assessment must be valid, and the tax liability of the assessee under section 115JA of the Income Tax Act should be considered in determining the impact of any proposed additions or disallowances.
Headnote:
Assessment Reopening - Income Tax - Section 115JA, Section 37(1), Section 43A - The court discussed the validity of the notice seeking to reopen the completed assessment for the assessment year 1998-1999 under section 115JA of the Income Tax Act. The court analyzed the reasons recorded by the Assessing Officer and the petitioner's contentions regarding the validity of the grounds for reopening the assessment. The court referred to the Supreme Court decisions in Commissioner of Incometax vs. Woodward Governor India P. Ltd. and Oil and Natural Gas Corporation Ltd. v. Commissioner of Incometax to interpret the provisions of section 37(1) and section 43A of the Act, emphasizing that the loss suffered by the assessee on account of fluctuation in the rate of foreign exchange is an item of expenditure under section 37(1) and that the amendment of Section 43A applies prospectively. The court also considered the petitioner's argument regarding the tax liability under section 115JA of the Act and referred to the decision in PKM Advisory Services P. Ltd. v. Incometax officer to support its finding that the petitioner's tax liability would not change even if the disallowance of expenditure is made.
Fact of the Case:
The petitioner challenged a notice seeking to reopen the completed assessment for the assessment year 1998-1999 under section 115JA of the Income Tax Act. The petitioner contended that the grounds for reopening the assessment were not valid and that even if the addition proposed by the Assessing Officer is sustained, it would make no difference to the ultimate tax liability of the assessee.
Finding of the Court:
The court found that the notice seeking to reopen the assessment was invalid and quashed the impugned notice dated 11.10.2002.
Issues: Validity of notice seeking to reopen the completed assessment, grounds for reopening the assessment, and the impact on the petitioner's tax liability under section 115JA of the Act.
Ratio Decidendi: The court held that the grounds for reopening the assessment were not valid and that even if the addition proposed by the Assessing Officer is sustained, it would make no difference to the ultimate tax liability of the assessee.
Final Decision: The petition was allowed, and the impugned notice dated 11.10.2002 was quashed. No costs were awarded.
AKIL KURESHI, J.
1. The petitioner has challenged a notice dated 11.10.2002 issued by the respondent Assessing Officer seeking to reopen the petitioner’s completed assessment for the assessment year 1998 1999.
2. Brief facts are as under :
2.1. The petitioner is a company registered under the Companies Act and is assessed to tax regularly. For the assessment year 19981999, the petitioner filed its return of income on 27.11.1998. Such return was taken in scrutiny. The Assessing Officer framed scrutiny assessment on 14.9.2000. The assessee had declared loss of Rs.1.44 crores(rounded off) after availing various deductions, depreciations and exemptions. The Assessing Officer computed the petitioner’s total income at Rs.2.89 crores(rounded off) under section 115JA of the Act and taxed the petitioner accordingly.
2.2. It is this scrutiny assessment, which the returning officer seeks to reopen in which the impugned notice within a period of four years from the end of relevant assessment year came to be issued. The petitioner was supplied the reasons recorded by the Assessing Officer for issuing such notice which read as under :
“As per Schedule 19 of notes annexed and forming part of the accounts for the year ended 31st March 19985(B) of Annual Report of 1997-98, India Gelatine and Chemicals Ltd. the term liability incurred in foreign currency for acquisition of fixed assets has been translated at the year and exchange rate and the resultant deficit amounting to Rs. 116.86 lakh was charged to Revenue Account.
The allowance of this expenditure under Revenue account is not to be allowed in view of clarification made by the Ministry of Law. The Ministry of Law clarified in October 1984 that exchange loss arrived at on the basis of fluctuation in the rate of exchange and not backed by actual remittance cannot be allowed as deduction in computing the total income under the Income Tax Act.
As the expenditure of Rs.116.86 lakh debited to Revenue Account was not backed by the actual remittance and loss arisen due to fluctuation on the first and the last day of accounting year the allowance of exchange loss as deduction in the computation of the business income has resulted in underassessment of income of Rs.116.86 lacs.
The above is handed over to the AR(Shri A.S. Parikh M.N. Shah and Co.) of the Assessee Company personally.
2.3. The petitioner thereupon filed the petition challenging the notice itself.
3. Learned counsel Shri Manish Shah for the petitioner raised two contentions. Firstly, he submitted that the ground on which the Assessing Officer desires to tax the petitioner’s income is not valid. Drawing our attention to the reasons recorded, he submitted that the reference is to para 5(C) of the annual report and not para 5(B) as erroneously typed in the reasons recorded. It is in para 5(C) that the amount of Rs.116.86 lakhs is reflected and charged to revenue account. In this context, the objection of the Assessing Officer is that such amount is not to be allowed in the revenue account by virtue of circular of Ministry of law on the ground that the exchange loss calculated on the basis of fluctuation in foreign exchange rate was not supported by actual remittance. Same therefore, cannot be allowed as deduction in computing total income under the Act. Counsel submitted that the view of the Assessing Officer is incorrect in view of decision of Supreme Court in case of Commissioner of Incometax vs. Woodward Governor India P. Ltd. reported in (2009) 312 ITR 254(SC) and in case of Oil and Natural Gas Corporation Ltd. v. Commissioner of Incometax reported in (2010) 322 ITR 180(SC).
3.1. The second contention of the petitioner is that even if the addition proposed by the Assessing Officer is sustained, it would make no difference to the ultimate tax liability of the assessee since on the computation of book profit under section 115JA of the Act, the assessee had paid tax on much higher income of Rs.2.89 crores.
3.2. We may recall tha
