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January 20, 2023

Reopening the evaluation is unnecessary because full disclosure of the most important material facts has already been provided

by Admin in Income Tax

Reopening the evaluation is unnecessary because full disclosure of the most important material facts has already been provided

Fact and issue of the case

Briefy stated the material facts are as under :

The 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.

With a view to promote its brand and the products, manufactured and with a view to increase the sales, the petitioner claims that it evolved a marketing strategy/scheme called as ‘Colour Idea Stores’. This scheme envisages a specified and designated areas in the shops of the dealers for exclusive display of the petitioner’s products. As per the scheme, the petitioner had to enter into the agreement with dealers as regards sharing of costs incurred for setting up of the designated area for use and display of the petitioner’s products. The costs incurred comprised of civil work, furniture and fittings, electrical fittings, signboards, advertisement material etc. It is stated that even though the petitioner incurred expenditure, on setting up of the stores, the stores continue to be belonged to the dealers. It is also stated that the costs incurred by the petitioner as its shares in the development of the Colour Idea Store would be debited to the profit and loss account as advertising and sales promotion expenses and claim as deduction in computing the income of the petitioner.

A return of income for the assessment year 2014-­15 came to be filed by the petitioner declaring a total income of Rs.1403.68 crores which was subsequently revised to Rs.1382.57 crores. The case of the petitioner is stated to have been selected for scrutiny assessment during the course of which a show cause notice dated 7th October 2016 was issued by the Assessing Officer (‘AO’) requiring it, inter-alia, to submit the details of the ‘advertisement and sales promotion expenses’.

In response to the said show cause notice, the petitioner filed its reply on 17th October 2016 giving details regarding advertising and sales promotion expenses, a break-up of which did refect that an amount of Rs.22,50,16,050/- was spent under the head “Colour Idea Stores”.

Observation of the court

The assessee furnished the details regarding the amounts involved to the above mentioned issue for A.Y. 2014-15. On perusal of the same, it is seen that an amount of Rs.22.50 crores escaped assessment as the assessee failed to disclose such information during the course of assessment proceedings.

In view of the above, the undersigned has reason to believe that the income exceeding Rs.1,00,000/- has escaped assessment within the meaning of Section 147 of the Act. Therefore, proposal for reopening of A.Y. 2013-14 by issuing notice u/s 148 of the Act is being made u/s 151 of the Act for your kind perusal and approval.

In view of the reasons recorded above, I am of the opinion that income chargeable to tax has escaped assessment for A.Y. 2014-15 by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for A.Y. 2014-15.

From the record, it is clear that during the scrutiny assessment, the AO had sought from the petitioner the relevant details with regard to the advertisement and sales promotion expenses which details were furnished by the petitioner vide its response dated 17th October 2016. It can also be seen 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 fnal order of assessment, which reflects that the AO had applied its mind to the appellant’s claim while passing the order under section 143(3) of the Act. Moreover, the reasons do not disclose as to what material or fact was not disclosed by the assessee. It, therefore, clear that there was, in fact, a complete disclosure of all the primary material facts on the part of the petitioner and it cannot be said that there was any failure on the part of the petitioner to disclose fully and truly facts which were material and necessary for assessment.

Be that as it may, the notice impugned does not satisfy the jurisdictional requirement of section 147 of the Act and, therefore, is held to be unsustainable, and is accordingly quashed.

Read the full order from here



The tribunal has ruled in favour of the assessee and dismiss the appeal

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