Pfizer Limited v. Deputy Commissioner of Income-tax

1. This petition challenges notice under Section 148 of the Income-tax Act,1961 (hereinafter referred to as 'the Act') dated 29 March 2016 for the Assessment Year (AY) 2009–10 seeking to reopen the assessment made on 18 April 2013 under Section 143 of the Act. This petition was admitted on 20 December 2016, and the impugned notice dated 29th March 2016 was stayed till final disposal of the petition. Brief Facts:

2. The original income return for AY 2009-10 was filed on 30 September 2009 and revised on 25 March 2011. The return was selected for scrutiny assessment by issuing notice under Section 142(1) of the Act.

3. During the assessment proceedings, various details were sought for including details relating to promotional expenses and allowability of such expenses in the light of the CBDT Circular No.5 of 2012. The petitioner vide various letters filed the details of these promotional articles and the submissions on allowability of such expenditure in the light of CBDT Circular No.5 of 2012.

4. In the assessment order under Section 143(3) of the Act passed on 18 April 2013, 1/3rd of the expenses on promotional article were disallowed and an assessment order was passed. Being aggrieved interalia on the said disallowance, an appeal was filed by the petitioner and the Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A)] vide order dated 1 September 2014 confirmed 1/3 disallowance on promotional articles.

5. On 29 March 2016, the impugned notice under Section 148 of the Act was issued for reassessment of income. Vide communication dated 5 October 2016, the reasons for reopening were furnished. Briefly the reason admits that the issue of promotional expenses was a subject matter of assessment proceedings and 1/3rd of such expenses were disallowed and since the entire expenditure was not disallowed in view of the CBDT Circular No.5 of 2012 the reassessment proceedings were initiated. On 18 October 2016, the petitioner protested to these reasons by filing detailed objections interalia on the ground that there is no failure to disclose fully and truly all material facts necessary for the assessment, the issue was examined by the assessing officer and was also subject matter of appeal and therefore there was no escapement of income. On 15 November 2016, an order rejecting the objections raised was passed. In the said order, it was stated that CBDT Circular No.5 of 2012 was not considered by the petitioner and therefore, there was failure on the part of the petitioner to disclose the material facts. The said order further states that there is no bar on reopening the assessment to correct the view of the predecessor and since in the assessment order, there was ad hoc disallowance, the impugned proceedings cannot be said to be based on change of opinion.

6. It is on the above backdrop that the petition was filed and was admitted by this Court. Submissions of the Petitioner:

7. Mr. Agrawal, learned counsel for the petitioner submits that the issue for which the reopening is sought was subject matter of detail enquiry in the course of the assessment proceedings including the applicability of CBDT Circular No.5 of 2012 and therefore pre-conditions provided in first proviso to Section 147 of the Act is not satisfied. He further submitted that the subject matter of allowability of promotional expenses was already decided by the CIT(A) and therefore the proceedings are barred by third proviso to Section 147 of the Act. He also submitted that the impugned proceedings if permitted would amount to review of the assessment order which is not permissible. He further submitted that there is no tangible material and further in the light of the decision of the Supreme Court in the case of Apex Laboratories Pvt. Ltd. Vs DCIT[1], there is no reason to believe that income has escaped assessment. He also submitted that the notice is issued on a non-existing entity and therefore the proceedings are bad in law. Submissions of the Respondent:

8. Mr. Suresh Kumar learned counsel for the respondent defended the impugned proceedings by relying upon the 1 (2022) 442 ITR 1 reasons recorded and the order rejecting the objections. He submitted that these expenses are not allowable at all and therefore the proceedings initiated are in accordance with law. Analysis and Conclusion:

9. We have heard learned counsel for the Petitioner and the Respondent.

10. At the outset, it is not disputed that in this case, the present proceedings are initiated after a period of 4 years from the end of relevant assessment year and therefore the precondition for reopening the case as per first proviso to Section 147 of the Act is that there has to be a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment.

11. The reasons as recorded for reopening reads as under;

2. In the instant case, the income of the assessee was assessed at Rs. 1,14,73,60,286/- after completion of scrutiny. Verification of records revealed that during the course of scrutiny the assessing officer vide para 4 of the order discussed on allowance of promotional expenses by way of promotional articles (also known as reminder items in medical parlance). These are distributed to doctors for promotion of assessee's products. The assessing officer disallowed 1/3rd of such expenses amounting to Rs. 1,93,80,002/- and allowed balance expense of Rs. 3,87,60,006/ on the ground that recipient details and documentary evidence thereof was not furnished. In view of the CBDT Circular 5 of 2012, the entire expenditure on promotional articles should have been disallowed. This resulted in under assessment of income by Rs 3,87,60,006/-, involving tax effect of Rs. 1,31,74,526/-.

3. From all these specific facts and examination thereof it can be seen that assessee has failed to disclose truly and fully all material facts required during the assessment proceedings completed u/s. 143(3) and hence I have reason to believe that the income of the assessee to the extent of Rs. 3,87,60,006/- has escaped assessment for A.Y. 2009-10 within the meaning of section 147 of the IT Act.

4. Further, in this case assessment was previously completed u/s. 143(3), since the four year period has lapsed, hence as per the provisions of section 151(2) of the Income-tax Act, 1961, a notice u/s. 148 of the Income-tax Act, 1961 may be issued after the Pr. Commissioner of Income Tax-10, Mumbai is satisfied that it is a fit case for issue of such notice. Accordingly, the approval of Pr. Commissioner of Income Tax-10, Mumbai is sought to issue the notice u/s. 148 of the Income Tax Act, 1961 for the A.Y. 2009-10.

12. On a perusal of the reasons recorded, it is admitted that the proceedings are based on the records filed during the course of the original assessment proceedings. The reasons recorded also admits that the issue was examined during the course of the assessment proceedings and 1/3rd of the promotional expenses were disallowed and the balance expenses were allowed. If this is an admitted position as per the reasons recorded, then we fail to understand how the precondition of failure to disclose fully and truly all material facts necessary for the assessment can at all be satisfied. If at all, there is a failure, it was on the part of the assessing officer to have not disallowed the entire expenditure and not the failure on the part of the petitioner-assessee. Therefore, in our view, the pre-condition required by first proviso to Section 147 of the Act based on the admission made in the reasons for reopening are not satisfied and therefore on this short ground itself, the impugned notice dated 29 March 2016 is required to be quashed and set aside.