Gujarat High Court
Pr.Commissioner Of Income ... vs Gujarat State Fertilizer & Chemicals ... on 22 December, 2015
Author: Akil Kureshi
Bench: Akil Kureshi, Mohinder Pal
O/TAXAP/814/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 814 of 2015
With
TAX APPEAL NO. 815 of 2015
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PR.COMMISSIONER OF INCOME TAX-VADODARA-1....Appellant(s)
Versus
GUJARAT STATE FERTILIZER & CHEMICALS LTD....Opponent(s)
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Appearance:
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE MOHINDER PAL
Date : 22/12/2015
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. These appeals arise in similar background. We may therefore, record facts from Tax Appeal No. 814/2015. the Revenue has challenged the judgement of Income Tax Appellate Tribunal raising the following questions for our consideration :
"(i) Whether Tribunal was justified on facts and in the circumstances of the case and in law in not appreciating the undisputed fact that the income escaped within the meaning of "income escaping assessment" as envisaged in the Section 147 of the IT Act and therefore, Assessing Officer had rightly exercised the provisions of the aforesaid Page 1 of 5 HC-NIC Page 1 of 5 Created On Thu Dec 24 01:49:10 IST 2015 O/TAXAP/814/2015 ORDER Section?
(ii) Whether Tribunal was justified on fact and in the circumstances of the case and in law in setting aside the reopening of the assessment, without going into the merits of the issues?
(iii) Whether Tribunal was justified on facts and in the circumstances of the case and in law in holding that the Assessing Officer already formed an opinion with regard to disallowance made under section 14A of the IT Act and therefore, reopening on account of disallowance under section 14A of the IT Act would be a case of change of opinion?"
2. Issue pertains to the assessment year 20062007 and concerns the validity of reopening of assessment which was previously framed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The reasons recorded by the Assessing Officer for issuing the notice for reopening read as under :
"On verification of the case records, it is revealed that while passing an order u/s. 143(3), the Assessing Officer had made the disallowance of Rs.142.82 lakh being 10% of exempt income (Dividend) of Rs.14,28,21,715/ u/s.14A. The Assessing Officer was required to make disallowance as per the provisions of rule 8D which amounts to Rs.761.34 lakh. During the year the assessee had paid the interest of Rs.8167.94 lakh. Total investment during the year was Rs.12984.55 lakh as per the schedule6 of B/S. Thus, in view of application of Rule 8D and the decision of the ITAT spl Bench, Mumbai in case of M/s. DAGA Capital Management Pvt. Ltd v/s. ITO (117 ITD 169) that provisions of 14A(2) and (3) are clarificatory in nature and would apply retrospectively and in result rule 8D would Page 2 of 5 HC-NIC Page 2 of 5 Created On Thu Dec 24 01:49:10 IST 2015 O/TAXAP/814/2015 ORDER also apply accordingly. An amount of Rs.761.34 was actually required to be allowed u/s.14A as expenses pertaining to earn exempt income.
Further it was revealed that while computing the book profit assessee company had reduced Fringe Benefit Tax amounting to Rs.4,80,00,000/ from the net profit to arrive at the book profit for the purpose of MAT. The same was irregular and in contravention to the provisions of section 2(43). FBT is a tax levied under the income tax only and thus, was required to be added back as per clause(a) of explanation 1 to section 115JB."
3. The Tribunal by the impugned judgement held that the reopening was bad in law making the following observations :
"7. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the original assessment was framed u/s.143(3) vide order dated 26.12.2008 and thereafter the notice under section 148 has been issued on 12.03.2010 and thus reopening has been initiated within a period of 4 years from the end of the relevant assessment year. Since the reopening is with a period of 4 years, the proviso to Section 147 of the Act is not applicable and therefore it is not necessary for the Revenue to prima facie establish that there has been a failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment while issuing a notice for reopening a completed assessment. However it is a settled law that even in case of reopening of assessment within a period of 4 years from the end of relevant assessment years, the Assessing Officer has to have reasons to believe that income chargeable to tax has escaped assessment on the basis of tangible material. Further, when all material facts necessary for determination of the income has been disclosed by the Page 3 of 5 HC-NIC Page 3 of 5 Created On Thu Dec 24 01:49:10 IST 2015 O/TAXAP/814/2015 ORDER Assessee and the Assessing Officer has taken a particular view on those disclosed facts while passing the assessment order in regular proceedings, then without anything more, it would not be open for the Assessing Officer to reopen the assessment proceedings as reopening in such a case would be reopening on account of change of opinion. In the present case, the reasons for reopening indicate that the reopening has been initiated on two grounds namely disallowance under section 14A and on account of non addition of FBT to determine the book profit for the purpose of computing tax u/s. 115JB. With respect to the disallowance under section 14A we find that the Assessing Officer at para 5 of the original assessment order passed on 26.12.2008 after considering the submissions of the assessee had come to the conclusion that as against nil expenses said to have been incurred by the assessee and therefore no disallowance under section 14A, Assessing Officer worked out the disallowance under section 14A at Rs.1.43 crores. Thus it can be seen that the Assessing Officer in the course of original proceedings and on the basis of submissions made by the assessee had formed an opinion about the disallowance to be made under section 14A and had accordingly made the disallowance and in such a situation the reopening on account of disallowance under section 14A would be in our view a case of change of opinion. With respect to the addition of FBT to book profit we find that CBDT in circular No.8/05 dated 29.08.2005 has opined that FBT is allowable deduction in computation of book profit under section 115JB of the Act and in such a situation in the present case, it cannot be said that the assessee's action in not adding the FBT to book profit has resulted into escapement of income. Further, before us Revenue has not brought any material on record to demonstrate that the aforesaid Circular issued by CBDT has been withdrawn by the appropriate authorities. In view of the aforesaid facts and relying on the decisions relied upon by ld A.R. we are of the view that in the present case, the reopening is not permissible as per law. We thus set Page 4 of 5 HC-NIC Page 4 of 5 Created On Thu Dec 24 01:49:10 IST 2015 O/TAXAP/814/2015 ORDER aside the reopening of the assessment order dated 29.11.2010 and also all consequential orders. Thus the grounds of assessee is allowed. Since the issue of reopening has been decided in favour of the assessee, the other two grounds of the assessee have become academic and therefore not adjudicated."
4. From the above it can be seen that the Assessing Officer had pressed in service two elements for issuing notice for reopening. First was with respect to the disallowance of expenditure under section 14A of the Act. Such issue was examined by the Assessing Officer in the original order of assessment and made suitable disallowances. The Tribunal therefore, correctly held that any reconsideration of the issue would only amount to change of opinion. With respect to the second element namely, of non addition of FBT benefit tax while considering the book profit for the purpose of section 115JB of the Act, the Tribunal noted that the CBDT in the circular dated 29.8.2005 clarified that FBT is an allowable deduction for computation of book profit under section 115JB of the Act. That being the position, the Tribunal was correct in holding that the reopening was invalid.
5. No question of law arises. Tax appeals are dismissed.
(AKIL KURESHI, J.) (MOHINDER PAL, J.) raghu Page 5 of 5 HC-NIC Page 5 of 5 Created On Thu Dec 24 01:49:10 IST 2015