Delhi High Court Refuses To Quash ₹8.12 Crore Income Tax Reassessment Notice Against Pernod Ricard

The Delhi High Court has refused to quash an income tax reassessment notice issued to Pernod Ricard India Private Limited, the maker of popular liquor brands Royal Stag and Blenders Pride, over an alleged discrepancy of more than ₹8 crore between its turnover declared in Value Added Tax (VAT) returns and its income tax records for the assessment year 2013-14.

The Division Bench of Justices Dinesh Mehta and Aditi Choudhary dismissed the company's writ petition challenging the notice issued under Section 148 of the Income Tax Act, 1961, holding that the company's explanations for the discrepancy involved factual issues that could be examined during the assessment proceedings.

The company had challenged the reassessment notice dated March 31, 2021, arguing that the original assessment had already examined the relevant aspects of its income, including the purchase price paid by it.

It further contended that since the reassessment proceedings were initiated beyond four years from the end of the relevant assessment year, the Assessing Officer was required to establish that the company had failed to disclose fully and truly all material facts necessary for the assessment.

The company also argued that the notice was based on information received from the Directorate of Revenue Intelligence or the Income Tax Department's Investigation Wing, without independent application of mind by the AO.

Rejecting these submissions, the High Court noted that the reassessment proceedings were initiated after the department found a discrepancy between the turnover reported in the company's VAT returns and the sales recorded in its profit and loss account.

According to the reasons recorded by the AO, the company had reported total sales of approximately ₹189.87 crore to the Canteen Stores Department (CSD) in its VAT returns, whereas its books of accounts reflected sales of approximately ₹181.75 crore for income tax purposes.

This resulted in a difference of approximately ₹8.12 crore, which the department suspected had escaped assessment.

The company had explained that differences in the figures arose from the manner in which turnover was calculated under the VAT laws of different States, including the treatment of maximum retail price, excise duty, freight charges and local sales tax.

The Court however observed that the correctness of these explanations could not be determined while examining preliminary objections to the reassessment proceedings.

“The issue as raised by the petitioner is not a question of jurisdiction or question of law but of facts, which can neither be decided by the AO while deciding preliminary objections, nor can they be decided by this Court in its jurisdiction under Article 226 of the Constitution of India,” it observed,

On the question of limitation, the Court noted that the Assessing Officer had relied on the VAT returns filed by the company. The company had failed to establish that these returns had been furnished to the AO during the original assessment proceedings.

The Court held that the AO was justified in invoking the extended limitation period and issuing the reassessment notice in view of the difference between the turnover disclosed in the VAT returns and the figures reflected in the income tax records.

The Court also rejected the argument that the AO had cursorily dealt with the company's objections. It clarified that the notice had been issued before the new reassessment regime, including Section 148A of the Income Tax Act, came into effect on April 1, 2021.

For Petitioner: Senior Advocate Deepak Chopra, with Advocates Anmol Anand & Priya Tandon

For Respondents: Siddhartha Sinha, SSC