E-Land Apparel Ltd. v. ACIT

Case snapshot

Sections / provisions: 147

Questions before the Court / Tribunal

• S. 147 : Reassessment-After the expiry of four years-Interest and property tax paid subsequently after slump sale-Claimed as deduction in the year of payment-Amount disclosed in tax audit report relying on case law-Reassessment notice for incorrect claim- Change of opinion-Reassessment notice was quashed. [S. 43B, 44AB, 148 , Art. 226] In the Form No 3CD tax audit report the assessee has mentioned that the deduction on account of interest and tax liability was claimed u/s. 43B of the Act, based on the case law CIT v. Diza Electricals (1996) 222 ITR 156 (Ker.)(HC). The assessment was completed us. 143(3) of the Act. There was no discussion in the assessment order. The Reassessment notice was issued after the expiry of four years on the ground that the claim was incorrect which was discovered subsequent to the original assessment hence there is no change of opinion. Allowing the petition…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

1/7 907-wp-951-22.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 951 OF 2022 E-Land Apparel Ltd. ….Petitioner V/s. Assistant Commissioner of Income Tax Central Circle-6(3) & Ors. …Respondents ---- Mr. Nishant Thakkar a/w Mr. Hiten Chande i/b Lumiere Law Partners for Petitioner Mr. Suresh Kumar for Respondents ---- CORAM : K.R. SHRIRAM & N.J. JAMADAR, JJ DATED : 21st FEBRUARY 2022 P .C. : 1 Petitioner carried on business of manufacturing different types of fabric and clothing. This business was carried on through two separate units. In previous year relevant to A.Y.-2014-2015, the unit carrying on the business of manufacturing of fabrics was transferred by petitioner under a slump sale agreement with all assets and liabilities to subsidiary of petitioner. The transfer of liabilities also included the loan taken by petitioner from various banks in connection with the business of the said unit. 2 Petitioner received a consideration of Rs.46.49 crore for transferring the fabric business factoring in the liabilities transferred by petitioner. The slump sale agreement was approved by the Corporate Debt Restructuring Committee in F .Y.-2014-2015 and thereafter an agreement was entered into Meera Jadhav

2/7 907-wp-951-22.doc by E-Land Fashion, the transferee, with various banks for taking over the liabilities payable to banks. The assets and liabilities including the interest payable to banks and interest converted into a loan was transferred to the transferee who took over the liabilities to various banks. Petitioner, therefore, was discharged of all its liabilities to the banks. 3 During the Financial Year relevant to A.Y.-2015-2016, the transferee paid outstanding interest which was originally payable by petitioner to the banks. Petitioner claimed the deduction for the aforesaid payment aggregating to Rs.28,59,25,817/- even though the payment was made by transferee while filing the return of income for A.Y.-2015-2016. 4 In the original return of income that petitioner filed on 30 th November 2015, petitioner declared the total income at Nil. Subsequently , case was selected for scrutiny and assessment order under Section 143 (3) of the Act was passed on 28 th December 2017, with assessed loss of Rs.28,25,35,180/- after making various additions. In the assessment year, the assessed loss also included deduction as interest paid on Rs.28,59,25,817/- on loss or borrowing from Public / State / Industrial financial institution as claimed by the assessee vide Income Tax Return. This is an admitted position, as could be seen in the reasons recorded for reopening. 5 Thereafter, petitioner received a notice dated 31 st March 2021 under Section 148 of the Act from respondent no.1 stating that there were reasons to believe that petitioner’s income chargeable to tax for A.Y.-2015-2016 has escaped assessment. Petitioner was provided the reasons recorded for Meera Jadhav

3/7 907-wp-951-22.doc reopening vide communication dated 14 th May 2021. As per the reasons recorded, the deduction of interest paid of Rs.28,59,25,817/- on loan or borrowing from Public / State / Industrial financial institution as claimed by petitioner should not have been allowed because after slump sale, assets and liabilities belonged to the transferee and it was the transferee who paid the interest to these financial institutions in a subsequent Financial Year. Therefore, income of Rs.28,25,35,180/- which was the total loss that was assessed, has escaped assessment within the meaning of Section 147 of the Act. 6 In our view, the reasons expressly state that the Assessing Officer, who passed the original assessment order, had allowed this deduction of Rs.28,59,25,817/- and, therefore, reopening in our view, is only due to change of opinion, which, as held time and again by various courts, is not permissible.

Moreover, in the notes to the Form 3CD submitted by petitioner alongwith its return of income expressly provided as under: “Pursuant to the slump sale in the previous year 13-14, the liability on account of interest payable and property tax payable was transferred to E-land Fashion India Private Limited. In case of E-land Apparel Limited, the said interest and property tax liability was disallowed u/s 43B of the Income Tax Act 1961 and was remaining unpaid as at the end of the previous year 13-14. The assessee has relied on the decision in the case of CIT V Diza Electrical (222 ITR 156), wherein the deduction on payment has been granted to the predecessor while the payment was made by successor.

Accordingly , based on the payment of interest by E-land Fashion India Private Limited, that was outstanding on the first day of the rpevious year 14-15, the deduction of interest paid of Rs.28,59,25,817 has been claimed by the assessee u/s 43B of the Income Tax Act, 1961 in the previous year 14-15.” Meera Jadhav

Appellant / petitioner / assessee submissions

Petitioner fulfilled its obligation. Paragraphs 14 and 15 of 3i Infotech Ltd. (supra) read as under: 14. The third ground on which the assessment has been sought to be reopened is that from Annexure 2, clauses 20 and 22(b), of Form 3CD an amount of Rs.31.32 lakhs is found to be debited to the profit and loss account on account of prior period expenses. This according to the Assessing Officer is not allowable under the Act and should be added back. To this extent, the Assessing Officer has found that there was an escapement of income. During the course of the submissions, the attention of the Court has been drawn by the learned counsel appearing on behalf of the assessee to the particulars of income and expenditure of the prior period, credited or debited to the account.

Revenue / respondent submissions

This has not been discharged by respondents. 10 In the affidavit in reply , as submitted by Mr. Suresh Kumar, what has been merely submitted is that there was incorrectness of the claim on the part of petitioner while filing its return of income, which has been discovered subsequent to the original assessment and, therefore, there is no Meera Jadhav

Court / Tribunal analysis and reasoning

4/7 907-wp-951-22.doc 7 Therefore, as held by this court in 3i Infotech Ltd. vs. Assistant Commissioner of Income Tax1, petitioner had brought to the attention of the Assessing Officer this facet while submitting the tax audit report as a part of its return of income. This is not a case where petitioner can be regarded as having merely produced its books of account or other evidence during the course of the assessment proceedings on the basis of which material evidence could have been deduced by the Assessing Officer with the exercise of due diligence. Petitioner, under Section 139 of the Act had a mandatory obligation to furnish with its return of income the report of audit.

5/7 907-wp-951-22.doc 15. These notes, according to the assessee are consistent with the guidance note issued by the Institute of Chartered Accountants on tax audit under Section 44AB of the Act. By its note, the assessee has recorded that the expenditure of the earlier years means expenditure which arose or which accrued in any earlier year and excludes any expenditure of an earlier year for which the liability to pay has crystallized during the year. Similarly, the assessee has clarified that excess/short of provision of an earlier year and income and expenditure crystallized during the year, though shown in the statement, have not been considered as prior period items. The assessee, as the material on record would show, therefore brought to bear the attention of the Assessing Officer to this facet while submitting the tax audit report as a part of its return of income.

On the contrary, this was material which was placed before the Assessing Officer along with the return which the Assessing Officer was duty bound to go through before completing the assessment. Clearly this does not fall in the category of material which is referred to in Explanation 1 to Section 147 of the said Act. 14. Having considered the matter at length, we find that this is clearly not a case of failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. This is of material significance because the notice under Section 148 has been issued after expiry of four years from the end of the relevant assessment year.

Therefore, the notice is time barred. Apart from this, we also feel that it amounts to a mere change of opinion. On both counts, the petitioner is entitled to succeed. Consequently, the impugned notice dated 29.03.2010 is quashed and all proceedings pursuant thereto are also quashed. The writ petition is allowed. There shall be no order as to costs.” 9 In the case at hand, the reopening is proposed after the expiry of 4 years after the end of relevant assessment year and assessment has been completed under Section 143(3) of the Act. Therefore, the proviso to Section 147 would apply and the onus is on respondents to show that there was a failure on the part of petitioner to fully and truly disclose all material facts necessary for assessment.

Operative decision and relief

7/7 907-wp-951-22.doc change of opinion. We are afraid, we cannot agree with the view expressed by respondents. 11 In the circumstances, we allow the petition and grant prayer clause (a) which reads as under: (a) that this Hon’ble Court be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction under Article 226 and/or Article 227 of the Constitution of India calling for the records of petitioner’s case and after examining the legality and validity thereof quash and set aside the impugned notice under Section 148 of the Act (Exhibit E) the impugned order (Exhbit I) passed by respondent no.1, the notice dated 14 th May 2021 issued under Section 143(2) (Exhibit G) and the Notice dated 18 th October 2021 issued under Section 142(1) of the Act (Exhibit J). 12 Petition disposed accordingly .

Ratio and legal principle

The narrow proposition associated with E-Land Apparel Ltd. v. ACIT concerns s. 147 : reassessment-after the expiry of four years-interest and property tax paid subsequently after slump sale-claimed as deduction in the year of payment-amount disclosed in tax audit report relying on case law-reassessment notice for incorrect claim- change of opinion-reassessment notice was quashed. [s. 43b, 44ab, 148 , art. 226] in the form no 3cd tax audit report the assessee has mentioned that the deduction on account of interest and tax liability was claimed u/s. 43b of the act, based on the case law cit v. diza electricals (1996) 222 itr 156 (ker.)(hc). the assessment was completed us. 143(3) of the act. there was no discussion in the assessment order. the reassessment notice was issued after the expiry of four years on the ground that the claim was incorrect which was discovered subsequent to the original assessment hence there is no change of opinion. allowing the petition… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in WRIT PETITION NO. 951 OF 2022.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Quashed / set aside” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: S. 147 : Reassessment-After the expiry of four years-Interest and property tax paid subsequently after slump sale-Claimed as deduction in the year of payment-Amount disclosed in tax audit report relying on case law-Reassessment notice for incorrect claim- Change of opinion-Reassessment notice was quashed. [S. 43B, 44AB, 148 , Art. 226] In the Form No 3CD tax audit report the assessee has mentioned that the deduction on account of interest and tax liability was claimed u/s. 43B of the Act, based on the case law CIT v. Diza Electricals (1996) 222 ITR 156 (Ker.)(HC). The assessment was completed us. 143(3) of the Act. There was no discussion in the assessment order. The Reassessment notice was issued after the expiry of four years on the ground that the claim was incorrect which was discovered subsequent to the original assessment hence there is no change of opinion. Allowing the petition… Its practical value lies in the way the Bombay High Court connected the governing provisions—147—to the procedural posture and evidence before it.

The authority level is High Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 147 and the decision date 2022-02-21; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is E-Land Apparel Ltd. v. ACIT, the proceeding is WRIT PETITION NO. 951 OF 2022, and the decision is dated 2022-02-21. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as K.R. SHRIRAM & N.J. JAMADAR, JJ. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 147. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Quashed / set aside. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is REVIEW_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 147 — apply the exact version considered in the judgment.

Case network

• Adityaraj Builders v. State of Maharashtra — Bombay High Court · Quashed / set aside
• Sanket Vinayak Nagvekar v. ITO — Bombay High Court · Quashed / set aside
• Hero Products India Pvt. Ltd. v. NFAC — Bombay High Court · Quashed / set aside
• Pr. CIT v. Macleods Pharmaceuticals Ltd. — Bombay High Court · Quashed / set aside

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