Income Tax Appellate Tribunal - Ahmedabad
Niko Resources Ltd.,, Baroda vs Assessee on 22 September, 2011
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before S/Shri D.K.Tyagi, JM A. Mohan Alankamony, A.M.
ITA No.93/Ahd/2007
Asst. Year :1998-99
Niko Resources Ltd., 4 t h Floor, Vs. Asstt. CIT, Circle-
Land Mark, Race Course, 6, Baroda.
Circle, Baroda.
(Appellant) (Respondent)
..
Appellant by :- Shri Vispi T. Patel & Rajesh
Athavale, ARs
Respondent by:- Shri S. K. Gupta, CIT(A), DR
& Shri Vinod Tanwani, Sr.DR
Date of hearing : 22/9/2011
Date of pronouncement : 25-11-2011
ORDER
Per D. K. Tyagi, Judicial Member.
This is an appeal filed by the assessee against the order of ld. CIT(A)-VI, Baroda dated 30.11.2006 raising following grounds :-
(1) The ld. CIT(A)-VI, Baroda [hereinafter referred to as the CIT(A)] erred on the facts and circumstances of the case and in law, in upholding the assessment order dated February, 17, 2006 issued by the ld. Asstt. CIT, Circle-6, Baroda [hereinafter referred to as the AO].
(2) That the ld. CIT(A) has erred on the facts and circumstances of the case and in law, in confirming the action of the AO in ITA No.93/Ahd/2007 Asst. Year 1998-99 reopening of assessment of the Appellant under section 147 of the Act.
The ld. CIT(A) has erred in observing that the appellant had failed to disclose fully and truly all material facts in relation to deduction claimed u/s 42.
The appellant prays that the re-assessment u/s 147 be treated as invalid.
(3) That the ld. CIT(A) has erred on the facts and circumstances of the case and in law, in confirming the disallowance of deduction of Rs.1,95,26,259/- claimed under section 42 of the Income-tax Act, 1961 (the Act) in respect of GSPC -Niko Joint Venture fields and in treating the appellant not eligible to claim any deduction u/s 42 of the Act, on the basis that the production sharing contracts (PSC) do not provide for the deductibility of such expenses.
The appellant prays that it be held eligible to claim deduction under section 42 of the Act in respect of the expenditure incurred by the appellant in connection with the drilling and exploration activities carried on by it in pursuance of the PSCs relating to GSPC-Niko Joint Venture fields.
2. The first ground is general in nature hence no adjudication is required.
3. The second ground relates to reopening of assessment u/s 147 of the Act. The facts of the case are that M/s Niko Resources Ltd., a non- resident company registered under Laws of Canada, derives income from sale of natural gas and crude oil. The assessee company entered into an agreement on 23.09.1994 with the Government of India on a joint venture with Gujarat State Petroleum Corporation Ltd. (GSPCL), a company incorporated under the laws of India, for exploration and extraction of oil and natural gas in certain oil and gas fields in Gujarat namely Cambay, 2 ITA No.93/Ahd/2007 Asst. Year 1998-99 Hazira, Bhandut, Matar and Sabarmati. The details of these fields and share of assessee company are tabulated below :-
Sl.No. Field Joint Venture Participating Operator interest of Niko 1 Hazira GSPC-NIKO 33.33% NIKO 2 Bhandut GSPC-NIKO 40.00% NIKO 3 Cambay GSPC-NIKO 33.33% NIKO 4 Sabarmati GSPC-NIKO 40.00% NIKO 5 Matar GSPC-NIKO 40.00% NIKO The assessee's over-all share in the oil and gas field comes to 37.33%.
The remaining share is held by GSPCL. The assessee is the operator of these fields.
During the year under consideration, assessee-company also participated in an unincorporated joint venture under a production sharing contract for block KG-OS-09/1. The participating interest of the joint venture partners was as follows :-
Parties Share Niko Resources Ltd. 25% Hindustan Oil Exploration Co. Ltd. 25% (HOEC) Nagarjuna Fertilizers and Chemicals Ltd. 20% Hardy Exploration and Production Ltd. 30%
For KG Block, the operator was Hardy Exploration and Production Ltd. The proportionate cost of KG Block of Rs.6,41,89,724/- is related to Niko and assessee has claimed it as deduction u/s 42 of the Act on account of infructuous & abortive exploration expenses. The well in question was plugged and abandoned as it was not successful and the contract was cancelled by Government of India on 19.2.1998.
3 ITA No.93/Ahd/2007Asst. Year 1998-99 The assessee filed its return of income on 30.11.1998 declaring a total loss of Rs.10,92,27,877/-. This return was processed u/s 143(1) on 15.3.2000. Subsequently the assessee submitted a revised return on 16.3.2000 declaring a loss of Rs.4,09,24,063/-. This case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 27.9.1999 which was served on assessee on 4.10.1999. The assessment u/s 143(3) of the Act was finalized on 29.3.2001 with assessed loss of Rs.4,08,35,802/-. Thereafter, the case was reopened u/s 147 by issuing notice u.s 148 of the Income-tax Act, 1961 on 24.3.2005 which was served to the assessee on 28.3.2005. Assessment u/s 143(3) r.w.s. 147 was completed on 17.2.2006 determining the total revised loss at (-) Rs.2,27,96,315.
4. The notice was issued after obtaining necessary saction from the CIT-IV, Baroda. The assessee was also provided the reasons for reopening the case. The reasons for reopening were as under:-
"In this case, the assessment was made u/s 143(3) of the IT Act on 29.3.2001 determining total loss of Rs.4,08,35,802/-. In the revised return filed by the assessee on 16/3/2000, it has claimed deduction u/s 42 of the IT Act of Rs.8,37,15,984/-. The deduction claimed u/s 42 included claim of deduction in respect of expenditure of Rs.1,95,26,260/- in respect of Bhandut, Hazira, Cambay and Baroda and Surat.
2. During the course of assessment proceedings for the subsequent assessment years it is held that the assessee is not entitled to deduction u/s 42(1) of the IT Act, as it was not specified in the agreement entered into by the assessee with the Central Government. In view of the provisions of Section 42(1) of the IT Act, the expenditure incurred by the assessee in respect of drilling and exploration activities or for services or in respect of physical asset used in that connection is allowable only if such allowance is specified in the agreement entered into by the assessee with the Central Government. The assessee has not submitted copy of the agreement with the Central Government either in the return of income filed or during the course of assessment proceedings. This makes it clear that the assessee has sought to avail of the deduction wrongfully by not disclosing full facts necessary for the entitlement for the deduction.4 ITA No.93/Ahd/2007
Asst. Year 1998-99 Though the assessee has made passing reference of the agreement in the note attached to the financial statement along with return what was specified in the agreement is not mentioned. The assessee has claimed deduction u/s 42 without disclosing some of the expenditure specified in the agreement. The income has therefore escaped assessment for failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of its assessment.
3. From the plain reading of section 42, it can be seen that there are two basic conditions which should be fulfilled, firstly there should be an agreement of the assessee with the Central Government. The second condition is that only those allowances are allowable which are specified in the agreement and these allowances should be in relation to various specific nature as mentioned in sub-clause (a), (b) & (c) of section 42(1). Out of these allowances, allowances which are specified in the agreement only those allowances are to be allowed under sub-clause (b) which are in respect of drilling or exploration activities or services.
4. As no such allowance has been specified in the agreement and in absence of any allowance being specified in the agreement, no additional allowance can be allowed to be deducted by virtue of Section 42 over and above the normal allowance allowable under the other section of the Act. This point further gets fortified from the fact that not only these allowances should be specified in the agreement but even the computation of such allowance has to be made in the manner specified in the agreement. It is undisputed fact that nowhere in the agreement, computation of such allowance has been specified, no such allowance u/s 42 can be computed in absence of manner of computation being specified in the agreement.
5. Therefore, the assessee's claim for deduction u/s 42 of the IT Act in respect of expenditure incurred at Bhandut, Hazira, Cambay, Baroda and Surat of Rs.1,95,26,260/- is not allowable. As the deduction u/s 42 of the IT Act claimed by the assessee amounting to Rs.1,95,26,260/- is not allowable in view of the reason that the same is not specified in the agreement entered into by the assessee with the Government of India, the deduction u/s 42 of the IT Act has been wrongly allowed which has resulted in the under assessment of income within the meaning of section 147 of the IT Act. The assessee has not produced the copy of the agreement with the Government of India for the exploration of oil at Cambay, Bhandut and Hazira field. Though, the assessee has mentioned in the note appended with the financial statement about the agreement, no copy of the same was furnished along with the return of income. Further 5 ITA No.93/Ahd/2007 Asst. Year 1998-99 as mentioned above, deduction under section 42(1) can be allowed only if the same is mentioned in the agreement entered into by the assessee with the Central Government. The assessee has not disclosed whether such allowance under section 42(1) was mentioned in the agreement entered into by the assessee with the Central Government. The income has escaped assessment for failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of its assessment.
6. I have therefore reason to believe that the deduction claimed u/s 42(1) of the IT Act in respect of expenses for various gas field like Bhandut, Hazira, Cambay and for Baroda and Surat has been wrongly claimed u/s 42(1) of the IT Act which has resulted in the under assessment of income within the meaning of section 147 of the IT Act. The deduction claimed and allowed u/s 42 of the IT Act of Rs.1,95,26,260/- requires to be withdrawn."
5. The assessee vide its letter dated 7.6.2005 raised preliminary objections against the reopening of the case.
(a) The company received the notice dated 24 March 2005 issued under section 148 of the Act The said notice proposing to initiate the . re-assessment proceedings was issued after the expiry of four years from the end of the relevant assessment year. For Assessment year 1998-99, the company had filed return of income within the stipulated time and disclosed fully and truly ail material facts necessary for its assessment.
(b) Further it submitted that the reasons recorded for reopening the assessment that the Company had wrongly claimed the deduction under section 42 of the Act, are not correct. The assessee submits that at the time of the assessment proceedings the Company had provided to the then AO, all the information that was requested for in connection with the allowability of deduction claimed by it under section 42 of the Act.
(c) The assessee further submitted that the erstwhile AO had assessed the income under section 143(3) of the Act only after complete application of mind by taking into account all requisite information.
6 ITA No.93/Ahd/2007Asst. Year 1998-99
(d) Further it submitted that reassessment proceedings were proposed to be initiated merely because in the years subsequent to the assessment year under consideration, the deduction under section 42 of the Act was disallowed. In this respect, the assessee stated that it was a well settled law that mere fresh application of mind to the same set of facts or mere Change in opinion does not confer jurisdiction on an assessing officer to initiate proceedings under section 147 of the Act:.
(e} Without prejudice to the above, it was submitted that the company was eligible for deduction under section 42 of the Act. The Company was engaged in the business of exploration and development of oil and gas fields. The Company had entered into a production sharing contract for 25 years with the Government of India for exploration and development of mineral oil at designated fields. During the current year, the Company has claimed a deduction of Rs. 1,95,26,260/- under section 42 of the Act towards the said expenditure. The production sharing contract between the company and the Government of India clearly provided for the deducibility of expenses incurred for extraction and production of mineral oil.
(f) It is thus, submitted that there was no infirmity in the claim of the company and the same was rightly allowed by the then AO alter due verification of the submissions made by the assessee.
6. The contentions of the assesses, objecting to proceedings, were examined and it was recorded by the Assessing Officer that ;
(a) The notice is issued with in time limit as per section I49(l)(b) and sanction was obtained as per section 151(1) of Income Tax Act,
(b) In the instant case, the earlier assessment was completed under section 143(3), No doubt, the proviso to section 147 is attracted. However, such a case can be re-opened even beyond four years provided any of the two conditions mentioned there in are satisfied. The present case is reopened as the assessee failed to fully and truly disclose ail material facts necessary for the assessment.
Explanation 1 below the proviso to section 147 explicitly states that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing officer wilt not necessarily amount to disclosure with in the meaning of proviso. In this particular case also, 7 ITA No.93/Ahd/2007 Asst. Year 1998-99 same explanation applies. The assessee did not furnish the copy of agreement. Only routine details were filed. The main condition that the disclosure should be self-clarificatory and the assessing officer should not put in extra efforts to dig out the clinching material has not been fulfilled by the assessee.
In fact while recording reasons for reopening the assessment the assessing officer had recorded that he had reason to believe that the income has escaped within the meaning of section 147 of the Income Tax Act on grounds mentioned supra. The stand of the Assessing officer is vindicated by decision in the case of Bawa Abhaistngh 168 CTR 521.
In the case of Praful Chunilal Patel vs. M.J.Makwana, Assistant Commissioner of Income tax (1999) 236 ITR 832 (Guj), Hon'ble Gujaiat High Court has held as under: -
Reassessrnent - Reason to believe - Non consideration of facts -In cases where the AO has not made assessment of an item of Income while passing the assessment order it cannot be said that such income was subjected to assessment - Merely because during the assessment proceedings the relevant material was on record or could have been discerned by AO for assessing a particular item of income it cannot be inferred that AO must necessarily have deliberated over it or formed any opinion in thereof - Thus, if a particular item though reflected on record was not subjected to assessment AO can initiate proceedings - Cases of non-assessment of art warrant formation of requisite belief
- words . "escaped assessment" are apt to cover the case of discovery of a in assessment caused by either an erroneous of transact/on or due to its non-consideration -Words "reason to believe" cannot mean that the AO should have finally ascertained the facts by legal evidence.
(c) For a claim under section 42, two basic conditions need to be fulfilled- Firstly, there should he an agreement of the assessee with the Central Government. Secondly, only those allowances are allowable which are specified in the agreement and these allowances should be in relation to various specific nature as mentioned in Sub Clause (a), (b) and (c.) of section 42(1). Out of these allowances, allowances which are specified in the agreement only are to be allowed under Sub Clause (b) which are in respect of drilling or exploration activities or services. It is already stated in reasons that assessee did not submit the copy of Agreement with the Govt. of India during filing of return or during assessment proceedings.8 ITA No.93/Ahd/2007
Asst. Year 1998-99
(d) The order u/s 143(3) does not debar the department to take action under section 147 of the Act. The section stipulates that if AO has reason to believe that any income chargeable to tax has escaped assessment. In this case all the preconditions as laid down in Income-tax Act have been duly followed.
(e) The assessee failed to disclose fully and truly all the material facts necessary for assessment for the relevant assessment year. This is not a case of the mere fresh application of mind to the same set of facts or mere change of opinion which is argued by assessee in light of Supreme Court decisions, but as already stated in reasons in this case, assessee failed to submit all material fact necessary for assessment.
(f) It is submitted by the assessee that company is eligible for deduction u/s 42 of the Income-tax Act. As discussed in following paras claim was wrongly made on the Production Sharing Contracts with Govt. of India did not provide for any claim u/s 42. The fact that the contracts did not contain such clause, was not discloses by assessee in assessment. It was discovered post assessment.
(2.4) In view of the facts mentioned and discussed above, It is abundantly clear that notice u/s 148 of the Act issued by this office on 24.3.2005 is validly issued and objections of the assessee are misplaced.
7. In appeal it was submitted by the assessee that according to the proviso to section 147, if an assessment under section 143(3) of the Act had already been made for any assessment year, the reassessment proceedings could not be initiated after the expiry of four years from the end of that assessment year unless the following conditions are met:
• There is a failure on part of assessee to file a return of income under section 139; or • There is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.9 ITA No.93/Ahd/2007
Asst. Year 1998-99 For Assessment Year 1998-99, it was submitted that the assessee had filed its return of income within the stipulated time (the original return submitted on 30 November 1998 and the revised return was filed on 16 March 2000) and had disclosed fully and truly all material facts necessary for its assessment.
It was submitted that the assessee had provided all the details which were required to be provided under the provisions of the Act and under the various requirements in the return form. Reliance in this regard was placed on the ruling of the Hon'ble Supreme Court in the case of V.D.M. RM. M.RM. Muthiah Chettiar vs Commissioner Of Income Tax, Madras
- 74 ITR 183 (SC) wherein it has been held that in the form of return prescribed under Rule 19 of the Indian Income Tax Rules, framed under Section 59 of the Indian Income Tax Act 1922, there was no clause which required disclosure of the income of any person other than the income of the assesses, which was liable to be included in his total income. Nor was the assessee required, under Section 22(5) of the Act, in making a return, to disclose that any income was received by his wife or minor child admitted to the benefits of the partnership in a firm of which he was a partner 10 ITA No.93/Ahd/2007 Asst. Year 1998-99 Further assessee submitted that neither the return form nor the provisions of the Act required disclosure about the agreements entered into by the Assessee. Therefore, if there was no requirement to furnish the details of the agreement, there could not be question of failure or omission on the part of the Assessee. In any case, the manner in which the Assessee had computed its income in the year in question was clearly stated in the statement of computation of income enclosed with the return of income.
Further, along with the statement of computation of income, the Assessee had also enclosed a statement of computation of the claim under section 42 of the Act Accordingly, there was no failure on the part of the Assessee to disclose fully and truly all material facts.
It was indicated by assessee that the AO issued the following letters requesting the Appellant to provide various details, in the course of assessment proceedings:
* Reference no: BRD/Scr/Niko/00-01 dated 2 March 2001 * Reference no: BRD/Scr/Niko/00-0l dated 23 February 2001 Particularly, following details were called for:
* Details of expenses on Bhandut well with brief note on expenses (point no.5 of the letter dated 2 March 2001);
* Details of expenses on Hazira Gas Well with brief note on expenses and of General and Administrative cost (point no. 6 of the letter dated 2 March 2001);
* Detailed working of claim for deduction of depletion of mineral oil in the mining are in accordance with section 42(1)(c) of the Act as 11 ITA No.93/Ahd/2007 Asst. Year 1998-99 mentioned in the Notes forming part of the revised return (point no.10(c) of the letter dated 2 March 2001);
* Details of Rs.8,37,15,984 claimed as expenses allowable under section 42 of the Act with reasons as to how the same are eligible. Fixed assets register site wise and management report on this verification as per audit report (point no. 10(d) of the letter dated 2 March 2001);
* Brief note on production facilities in progress and details of such addition during the year under consideration (point no. 11 of the letter dated 7 March 2001) The assessee added that detailed replies to the aforesaid queries were provided for in the regular assessment proceedings vide the Assessee's written submissions dated 16, 26 and 28 March 2001 along with relevant supporting schedules.
It was also emphasized that the AO had specifically asked for the details of expenses claimed under Section 42 of the Act and has also referred to the eligibility of such expenses for deduction under Section 42 of the Act.
This makes it abundantly clear that the AO had sought to examine the nature of expenses eligible for deduction under Section 42 of the Art and also the eligibility of such expenses. That being so it could not be said that the Assessee had not applied his mind to the facts of the case.
It was contended that the AO had in fact, specifically mentioned in his assessment order that the Assessee had entered into a production sharing 12 ITA No.93/Ahd/2007 Asst. Year 1998-99 contract for 25 years with the Government of India on maintenance of the oil and gas fields at Gujarat Attention was also invited to decision of full bench of the Delhi High held in the case of CIT vs Kelvinator of India Ltd (Delhi)[FB] 256 ITR 1 (Del) wherein it is held that when a regular order of assessment in terms of sub-section (3) of Section 143 of the Act a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of Section 114 of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of the mind would itself confer jurisdiction on the AO to reopen proceedings without any thing further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong. Hence it is clear that Section 147 of the Act does not postulate conferment of power upon the AO to initiate reassessment proceedings upon a mere change of opinion.
Further the assessee relied on following decisions to support its contentions:-
CIT vs. Foramer France 264 ITR 566 (SC) A.V. Thomas Exports Ltd. vs. Dy. CIT, Co.Circle -IV(1) (Trib)Chennai) 13 ITA No.93/Ahd/2007 Asst. Year 1998-99 Vare;o Weaves (P) Ltd. 240 ITR 77 (Guj) Calcutta Discount Co. Ltd. vs. ITO 41 ITR 191 (SC) CIT vs. Burlop Dealers Ltd. 79 ITR 609 (SC) The ld. CIT(A) after taking into consideration all the contentions of assessee and the decisions relied on by the assessee dismissed this ground by observing as under:-
"4.3 I have gone through the contentions of the appellant as well as the reasons recorded by the Assessing Officer for reassessment and also the assessment records. In the return of income for Asst. Year 1998-99 filed on 30.11.1998 the following computation of total income was filed :-
1.Income from Business
Loss as per profit & loss a/c (6,51,188)
(revised)
Add: Share of profit as per joint 52,852,839
venture a/c included in profit &
loss a/c of the company
Total Rs. 53,504,027
Add: Claim as per attached 23,643,226
statement u/s 42 being share in
ratio of participation share as
per joint operating agreements
Add: Claim as per attached
statement u/s 42 being amount of
Krishna Godawari block as
under 54,161,249
K.G. Block off shore well capital
cost as per statement of dep.
Less: Depreciation on KG block
debited to profit & loss a/c of
NIKO RESOURCES LTD. under 32,080,625 32,080,624
section E of Indirect cost
Total Loss Rs. 1,09,227,877
Schedule-D of schedule to return forming part of the profit and loss account gives the following details :
14 ITA No.93/Ahd/2007 Asst. Year 1998-99 Bhandut production cost Exp. At Bhandut Oil Well 3566201 Processing & Lab charges 210645 Share of Gen & Admn cost 132553 General Depreciation of office 3859 Depreciation Bhandut 4938274 8851432 Hazira Production cost Exp. At Hazira Gas well 3110772 Share of Gen & Admn cost 6287621 Prior period item 38105 Depreciation -Surat 38432 Depreciation Hazira 6011843 General depreciation of office 183069 Cambay Production cost Exp. At Cambay Oil well 971909 Share of Gen & Admn cost 6058 General depreciation of office 176 Prior period item 15156 Depreciation Cambay 132350 1125649 Total 25646923
4.3.2 Further the notes forming part of account 'para -H' mentions that
-
'As explained to us, company is covered u/s 42 & 293A of the Indian Income-tax Act under which there is no liability arising for the income- tax on the income of the current year'.
4.3.3 The then AO during the course of scrutiny assessment vide letter dated 2.3.2001 has asked for details of expenses on Bhandut oil well and Hazira gas well. This is the part of the questionnaire.
4.3.4 In the assessment order for Asst. Year 1998-99 passed on 29.3.2001 in regard to deduction u/s 42 finds mention at para 6.
"6. In the year 1994-95 relevant to Asst. Year 1995-96, the company in Joint Venture with GSPCL has taken physical possession of four of the five fields awarded on 23.9.1994. Out of which Bhandut field has commenced commercial production from 16.11.1994, Hazira field from 15 ITA No.93/Ahd/2007 Asst. Year 1998-99 6.7.1995 and Cambay field from 13.3.1997. During the year under consideration, the company Niko Resources Ltd. had participated in the unincorporated Joint Venture with HOEC, Nagarajuna Fertilizers and Chemicals Ltd. and Hardy Exploration and Production Ltd. for exploring K.G. block-os-90/1. The entire cost of K.G. block of Rs.6,41,61,249/- was written off due to the expenditure being infructuous nature. The block was also surrendered to Government. The well was not successful and was plugged and abandoned by the operator and contract was cancelled by the Government of India on 19.2.1998. The assessee company has filed the details and correspondence with authorities. Accordingly, the assessee company has claimed deduction u/s 42 of the IT Act as infructuous or abortive exploration expenses."
4.3.5 The original return was revised on 16.3.2000 wherein claim of deduction u/s 42 of Rs.83,715,984/- was made of expenditure for Bhandut, Hazira, Cambay, Baroda and Surat. The assessment was completed on 29.3.2001 making disallowance in respect of prior period expenses and guest house expenses.
4.3.6 It is also seen from original and revised return that in respect of claim u/s 42 no details were submitted as to how the figure of expenditure u/s 42 of Rs.83,715,984/- was arrived at. The computation in the revised return.
Amount (Rs.) Amount (Rs.)
A) income/loss profit profits
and gains of business or
profession
Profit after tax for the year as (651188)
per the P & L account
Add: Disallowances and items
considered separately
Provision for taxation
Depreciation for the year as 43389848
per books
Provision for gratuity
Prior period expenditure 53261
Loss on sale of asset 43443109
Total 42791921
Less:allowances and items
considered separately
16
ITA No.93/Ahd/2007
Asst. Year 1998-99
Expenditure deductible u/s 42 83715984
of the Income-tax Act, 1961
(refer annexure)
Total less (revised) (40924063)
4.37 It is seen that the auditor M/s A.C. Shah & Co., CA vide letter dated 27.11.1998 has indicated :
"II) As per the opinion of the Institute of Chartered Accountants of India and that of the Company Law Board, A company cannot reopen and revised the accounts, once adopted by the shareholders at the Annual general meeting. Contrary to these opinions, the Board of the director's of the company has reopened and revised the aforesaid accounts.
III) We have considered our earlier Audit report dated 11th July, 1998 given on the original accounts and hence examined the changes made therein, which are as under :-
A) The changes made in the cost of Krishna Godavari Well, resulting into lowering in the value of fixed assets by Rs.1,92,94,468/- than shown in the previous audit report. B) The rate of depreciation on Krishna Godavari well is changed consequently the loss is increased by Rs.1,95,62,267/- C) The general and administration expenses have increased to the tune of Rs.1,92,94,468/-
D) In our earlier report the remark pertaining to these changes was as under :
"Expenditure incurred for the drilling of the KG Block well amounting to Rs.834.56 lacs and administrative expenses of Rs.11.42 lacs is included on the basis of certification given by the head office."
4.3.8 It is also noticed that in the annexure 2 there is no reference to section 42 or the deduction, although in the revised return it is mentioned that expenditure under section 42 are detailed at Annexure-2. Further in clause 4 to form 3CD the following narration appears :
"04. Amount of expenditure incurred by the Assessee by way of, or on -
(i) Capital expenditure debited to : No except expenses covered the profit and loss account under 42 of IT Act."17 ITA No.93/Ahd/2007
Asst. Year 1998-99 In other words from assessment records and also from the details filed during the course of assessment proceedings, no details were furnished providing as to why the claim u/s 42 is admissible. From the assessment order also it is seen that the claim u/s 42 has not at all been discussed and order was passed by the AO making routine disallowances.
4.3.9 The original return in this case was filed on 30.11.1998 and notice u/s 148 was issued on 24.3.2005 i.e. beyond 4 years from the relevant assessment year. Hence the proviso to section 147 was attracted and action u/s 147 cannot be said to be valid unless it is found that the escapement of income was by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In the reasons recorded by the AO the assessment is reopened on the ground that complete details were not furnished as regards expenditure incurred by assessee in respect of drilling and exploration activities or for services or in respect of physical aspects used in that connection. Deduction u/s 42 is allowable only if such allowances are specified in the agreement entered into by the assessee with the Central Government. It has been indicated by AO in his reasons for reopening that and that no such copy of agreement was filed along with the return. A deduction u/s 42 is allowable if the following two conditions are fulfilled:
1. there should be an agreement of the assessee with the Central Government.
2. only those allowances which are specified in relation to various specific nature as mentioned in sub-clause, a, b & c of section 42(1) are allowable.
Since no such allowances are been specified in the agreement, the assessee's claim of deduction in respect of expenditure of Rs.195262621 is not allowable and was wrongly allowed which resulted in under- assessment of income.
4.3.10 From perusal of assessment records and details furnished during the course of assessment proceedings and also the provisions of section 42, I find that full and true disclosure of all material fact were not made by the assessee."
While dismissing the ground raised by the assessee the ld. CIT(A) relied on the following decisions :-
18 ITA No.93/Ahd/2007Asst. Year 1998-99 Praful Chunilal Patel vs. M.J. Makwana, ACIT (1999) 236 ITR 832 (Guj) Renu Sagar Power Company vs. ITO 117 ITR 719 (All) ITO vs. Mahadeo Lal Tulsiyan 111 ITR 25 (Cal) CIT vs. Kelvinator of India Ltd. 256 ITR 202 (Del) CIT vs. Foramer France (2003) 264 ITR 566 (SC) Calcutta Discount Co. Ltd. vs. ITO 41 ITR 191 (SC) A.V. Thomas Exports Ltd. vs. DCIT Vareli Weavers (P) Ltd. 240 ITR 77 Guj) Against this order of ld. CIT(A) the assessee is in appeal before the Tribunal.
8. Before us the ld. counsel of the assessee argued at length and filed synopsis of his arguments as under :-
"Reassessment proceedings initiated u/s 147 of the Income-tax Act is invalid:
1. Reasons for reopening the assessment were communicated to the appellant beyond a period of 6 years from the end of the assessment year as per section 149(1)(b) of the Act.
1.1 In the present case, the notice for reopening the assessment u/s 148 was issued on 24.03.2005 while it was served on the appellant on 29.03.2005 (refer page 43 of the paper book). The reopening of assessment was getting time barred on 31.03.2005 (i.e. 6 years from the end of the assessment year 1998-99). As the notice was received only on 29.03.2005 the appellant requested the AO to provide reasons for reopening on 31.03.2005 (refer page 387 of the paper book).
1.2 The AO communicated the reasons for reopening the assessment (his letter dated 14.03.2005) only on 06.05.2005 (refer pages 390- 392 of the paper book) i.e. five weeks after the expiry of period of limitation of issuing notice (31.03.2005). Mere signing of notice cannot be equated with issuance of notice, date of receipt should be considered as issuance of notice Kanubhai M. Patel (HUF) vs. Hiren Bhatt (Guj) (2010) TIOL 531-HC-AHM-IT).19 ITA No.93/Ahd/2007
Asst. Year 1998-99 1.3 As per Section 148(2), the reasons are required to be communicated to the appellant along with the notice issued u/s
148. In this connection, reliance can be placed on the decision in the case of Mithlesh Kumar Tripathi vs. CIT 280 ITR 16 (All) which it has been observed as under :-
"In our considered opinion, if reasons are supplied along with the notice under section 148(2) of the Act, it shall obviate unnecessary harassment to the assessee as well to the Revenue by avoiding unnecessary litigation which will save courts also from being involved in unproductive litigations. Above all it shall be in consonance with the principles of natural justice, as discussed above."
1.4 Without prejudice to the above, it is submitted that if the reasons are communicated to the assessee beyond the period of limitation i.e. 6 years, the reassessment proceeding is bad in law. In this connection reliance is placed on the decision of Haryana Acrylic Manufacturing Co. vs. CIT (308 ITR 38)(Del), wherein it has been held that -
"This means that a notice under section 148 in the present case, could not, in any event, have been issued after six years from the end of the assessment year t998 after 31.03 2005. In whichever way we look at it, a notice under Section 148 without communication of the reasons therefor is meaningless inasmuch as the Assessing Officer is hound to furnish the reasons within a reasonable time. In a case. where the notice has been issued within the said period of six years, but the reasons have not been furnished within that period, in our view, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. The expression "within a reasonable period of time" as used by the Supreme Court in GKN Driveshafts (supra) cannot be stretched to such an extent that it extends even beyond the six years stipulated in Section 149. For this reason also, even assuming that we overlook all that has happened between 11.05.2004, when the petitioner sought the reasons, and 05.11 .2007, when the said form annexed to the counter-affidavit was filed in this court, the validity of the notices under Section 148 issued on 29.
03. 2004 and any proceedings pursuant thereto cannot be upheld."
1.5 The decision of Haryana Acrylic Manufacturing Co. (supra) has been followed in the case of Shri Balwant Wadhwa v. ITO (I.T.A. 20 ITA No.93/Ahd/2007 Asst. Year 1998-99 No. 4806/Del/10) (Del) whcrein the facts of above case are identical to that of the appellant. In that case, the reassessment notice was served on the assesses on 28.03.2008. three days prior to the expiry of period of limitation of 6 years and the reasons were supplied only on 15.05,2008 i.e five weeks after expiry of period of limitation of notice. The Delhi Tribunal quashed the reopening proceedings and held that if the Assessing Officer fails to issue reasons along with notice lien such notice is invalid in law. In that case, the Tribunal has held as under :
"A plain reading of the above exposition of law at the end of Hon'ble Jurisdictional High Court make it clear that issuance of the notice and the communication and furnishing of reasons would go hand in hand. The reasons are to be supplied to the assessee before the expiry of period of 6 years. If it has not done then validity u/s. 148 could not be upheld. It is not in the income tax proceeding alone. In any proceeding say, civil or criminal, if a summon is issued to the defendant/respondent, is not accompanied with the copy plaint or complaint then it is to be construed that no valid service of notice has been effected upon the defendant or the respondents whichever may be the case. The notice could he served at any point of time before the expiry of 6 years, if AO has reasons to believe that income has escaped assessment but, such reasons are also to be communicated to the assessee before the expiry of the limitation otherwise validity of such notice could not be sustainable. Being a subordinate authority to the Hon'ble High Court., we are bound to follow the authoritative exposition of law at the end of Hon'ble High Court. In view of the above discussion, we allow ground no. 2 of the assessee wherein he has pleaded that notice u/s. 148 has not been served within the period of limitation upon the assessee. The assessment is not sustainable. It is quashed."
1.6 The decision of Haryana Acrylic Manufacturing Co. (supra) has also been followed in the case of Gomti Textiles (P) Ltd. vs. ITO (ITA No.1528/Del/2011(Del). In this case, the facts involved are also similar to the facts of the appellant; the reopening notice was issued on 28.03.2007, three days prior to expiry of period of limitation. And the reasons were communicated on 26.04.2007. As the reasons were not communicated along with the reopening notice, the Delhi Tribunal following the Delhi High Court decision in the case of Haryana Acrylic Manufacturing Co. (supra) quashed the reopening notice. In this case, it has been held that :
"The plain reading of the exposition of law by the jurisdictional high court made it clear that the issuance of notice and communication and furnishing of reasons would go hand in hand. The reasons for the reopening of the assessment are to be supplied to the assessee before 21 ITA No.93/Ahd/2007 Asst. Year 1998-99 expiry of six years in terms of the provisions of section 149(1)(b) of the Act. Since that has not been done, the validity of the department action u/s 148 cannot be upheld. If the AO has reasons to believe that income has escaped assessment but such reasons are not communicated to the assessee before the expiry of period of limitation, the validity of such notice could not be sustained."
1.7 There are no other decisions of the High Courts on the said subject and therefore, the decision of Allahabad High Court and Delhi High Court as stated above should be considered as judicial precedents and therefore, the same should be followed. Reliance in this regard can be placed on the following :
CIT vs. Mangalal Mohanlal Panchal (HUF) 210 ITR 580 (Guj) CIT vs. Smt. Godavari Saraf 113 ITR 589 (Bom)
2. Assessment cannot be reopened if there is a change of opinion.
2.1 The appellant's claim under section 42 had been accepted in scrutiny assessment proceedings for the Asst. Year 1997-98, Asst. Year 1999-00, Asst. Year 2000-01 and 2001-02 (refer pages 250- 299 of the paper book).
2.2 During the assessment proceedings for Asst. Year 2001-02 the appellant filed a copy of the PSC in Annexure-D to submission made vide letter No.NRL/2003-04/Finance/16. The AO passed scrutiny assessment order under section 143(3) accepting appellant's claim of section 42 on 3.03.2004 for Asst. Year 2001-
02. The appellant's claim under section 42 was not denied on the ground that section 42 was not specified in the PSC, however the partial deduction was granted due to some other grounds.
2.3 It was the first time, when the CIT(A) enhanced the assessment for Asst. Year 2001-02 by way of disallowance of the appellant's claim under section 42 as the expenses claimed under section 42 were not specified in the PSC. This was the first time in the assessment history of the appellant that claim for section 42 deduction was denied.(Refer pages 300- 386 of the paper book).
2.4 Following the said order of CIT(A) the notice under section 148 was issued for AYs 1998-99, 1999-00 and 2000-01.
2.5 The reassessment notice for Asst. Year 1998-99 was issued four years after the end of assessment year. There was no new material 22 ITA No.93/Ahd/2007 Asst. Year 1998-99 which had come to the possession of the AO except the CIT(A)'s order.
2.6 The AO had allowed section 42 deduction after due application of his mind. Therefore, the reopening based on the subsequent decision of the CIT(A) amounts to change of opinion. In this regard, reliance is placed on the following -
CIT vs. Kelvinator of India Ltd. 320 ITR 561 (SC) "However, one needs to give a schematic interpretation to the words "reason to believe" failing which we are afraid, section 147 would give arbitrary powers to the AO to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re- assessee. The AO has no power to review, he has the power to re-assessee. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed as contended on behalf of the Department, then in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as on in-built test to check abuse of power by the AO. Hence after 1st April, 1989, AO has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
CIT vs. Kelvinator of India Ltd.256 ITR 1 (Del) "An order of assessment can be passed either in terms of sub-section (1) of sec.143 or sub-s (3) of s.143. When a regular order of assessment is passed in terms of the said sub-s.(3) of sec.143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of cl.(e) of s.114 of the Indian Evidence Act the judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without anything further the same would amount to giving premium to an authority exercising quasi judicial function to take benefit of its own wrong.
In the event it is held that by reason of s.147 if ITO exercises its jurisdiction for initiating a proceeding for reassessment only upon mere change of opinion, the same may be held to be unconstitutional. We are, therefore, of the opinion that s.147 of the Act does not postulate conferment of power upon the AO to initiate reassessment proceeding upon his mere change of opinion."
23 ITA No.93/Ahd/2007Asst. Year 1998-99 In this decision of Delhi High Court, the Court had overruled the decision of the Gujarat High Court in the case of Praful Chunilal Patel vs. M.J. Makwana 236 ITR 832.
Austin Engineering Co. vs. JCIT 310 ITR 70 (Guj) "The only question that would then survive would be whether there was any failure on the part of the petitioner -assessee to disclose fully and truly all material facts necessary for the assessment. Though in the reasons recorded, the respondent has stated so, apparently, the said statement does not merit accept for the simple reason that if all material facts had not been fully and truly disclosed by the assessee, there was no occasion for the AO to frame the assessment under section 143(3) of the Act by allowing the claim of the assessee. In fact, the law, as it then stood was understood identically both by the assessee and the AO. Merely because subsequently the apex court pronounced the law to be otherwise, on the date of the filing of the return of the income when the assessee made a claim for deduction the claim could not be termed to be either lacking in material particulars or could not be termed to be untrue. In other words, all the material facts were fully disclosed and no false facts were stated in support of the claim made. The reasons recorded themselves show that the AO has changed his opinion only on the basis of subsequent judgment rendered by the apex court. Thus, this is a case of change of opinion by the AO and not a case of any failure on the part of the assessee."
Garden Silk Mills vs. DCIT 222 ITR 68 (Guj) "The AO cannot take any action under this section merely because he happens to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts."
Birla VXL vs. ACIT 217 ITR 1 (Guj) "Another requirement which is necessary for assuming jurisdiction is that the AO shall record his reasons for issuing notice. This requirement necessarily postulates that before the AO is satisfied to act under the aforesaid provisions, he must put in writing as to why in his opinion or why he holds belief that income has escaped assessment."Why" for holding such belief must reflect from the record of reasons made by the AO. In a case where AO holds opinion that because of excessive loss or depreciation allowance the income has escaped assessment, reasons recorded by the AO must disclose that by what process of reasoning he holds such belief that there has been excessive loss or depreciation allowance has been computed in original assessment. Merely saying that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief, in our opinion, does not confer jurisdiction on the AO to take action under ss.147 and 148 of the Act. We are also of the opinion that howsoever wide the scope of taking action under s.148 of the Act be, it does not confer 24 ITA No.93/Ahd/2007 Asst. Year 1998-99 jurisdiction on change of opinion on interpretation of a particular provision earlier adopted by the assessing authority."
CIT vs. Baer Shoes (India) (P) Ltd. 331 ITR 435 (Mad) The judgment rendered by the Hon'ble Supreme Court is an expression of opinion on the interpretation of statute. The power under section 147 will have to be invoked by the AO in accordance with the said provision. In other words, merely because a judgment has been rendered, the same cannot be a ground for reopening the assessment u/s 147 of the Act. The Hon'ble Gujarat High Court in Austin Engineering Co. Ltd. vs. JCIT 312 ITR 70 has taken the view that in a case where the material facts were fully disclosed and the assessment was completed allowing deduction under section 80HHC on export incentive, such an assessment cannot be reopened based upon a subsequent decision of the Supreme Court, since it merely would amount to a change of opinion. We are in respectful agreement with the judgment of the Gujarat High Court on the proposition of law laid down therein."
Jindal Photo Fils 234 ITR 170 (Del) "It is clear from the reasons placed by the AO on record as also from the statements made in the counter-affidavit that all that the ITO has said is that he was not right in allowing deduction under s.80-I because he had allowed the deduction wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase "reason to believe"
in his order, admittedly between the date of the orders of assessment sought to be reopened and the date of forming of opinion by the ITO nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same AO to the same set of facts. While passing the original orders of assessment the order dt.28th February, 1994 passed by the CIT(A) was before the AO. That order stands till today. What the AO has said about the order of the CIT(A) while recording reasons under s.147 he could have said even in the original orders of assessment. Thus it is a case of mere change of opinion which does not provide jurisdiction to the AO to initiate proceedings under s.147 of the Act."
2.7 Reliance can also be placed on the following :
CIT vs. Foramer France 264 ITR 566 (SSC) Ritu Investment vs. DCIT 2010 TIOL-82-HC-Del-IT(Del) Inducto Ispat Alloys Ltd. vs. ACIT 2009 TIOL-264-HC-AHM- IT(Guj) ACIT vs. Bhagyawanti S. Maradia 6 SOT 367 (Ahd) Annapurna Industries vs ITO 2 SOT 54 (Ahd) H.K.Buildcon vs ITO 2010 TIOL-254-HC-Ahd-IT (Guj) ICICI Prudential Life Insurance vs. ACIT 325 ITR 471 (Bom) 25 ITA No.93/Ahd/2007 Asst. Year 1998-99 IPCA Laboratories Ltd. DCIT 251 ITR 416 (Bom) 2.8 The decision in the case of Renuka Sagar Power Company vs. ITO 117 ITR 719 (All), which was relied upon by the CIT(A) as well as the Department's Representative, has been distinguished by the Subsequent decision of Kerala High Court in the case of Pala Marketing Co-operative Society Ltd. vs. State of Kerala 236 ITR
604. Further, the decision in the case of ITO vs. M.L. Tylsyan 111 ITR 25 (Cal) relied upon by the CIT(A) as well as the Department's representative is distinguishable based on the facts as the case was pertaining to bogus hundi loans.
3. Reassessment cannot be reopened after a period of 4 years from the end of the assessment year in the case of assessment being done under section 143(3) if the assessee discloses fully or truly all material facts necessary for the assessment.
3.1 The original assessment was completed under section 143(3) for Asst. Year 1998-99. The notice under section 148 was issued for escaped assessment on 24.03.2005. As the notice had been issued under section 148 after expiry of four years from the end of the assessment year i.e 31.03.2003, the appellant's case fall under 1st proviso to section 147 of the Act.
3.2 In terms of 1st proviso to section 147 assessment can be reopened under section 147 after the expiry of four years if (i) assessee failed to make a return under section 139 or in response to a notice issued under section 142(1) or section 148 or; (ii) he failed to disclose fully or truly all material facts necessary for the assessment.
3.3 The appellant's case falls under part (ii) above.
3.4 In the appellant's case, the primary information on deduction claimed under section 42 were submitted along with the return of income as well as tax audit report and also during the course of original assessment proceedings (refer pages 1-39 of the paper book) particularly:
26 ITA No.93/Ahd/2007Asst. Year 1998-99 In the return of income, a break up of deduction claimed under section 42 of the Act for all the Production Sharing Contracts (PSCs) was given.
The above break up was also tied up with the Fixed Assets Schedule given along with the Balance Sheet.
This amount was also disclosed in Tax Audit Report (para 4 of Form 3 CD/Para 4.3.8/Page 19 of CIT(A) order for Asst. Year 1998-99).
Notes forming the balance sheet for the year ended 31 March 1998 also provide the details of the PSC/Joint Venture Agreements along with the ratio participating interest.
3.5 This shows that the appellant had made full disclosure of primary facts required for section 42 claim in his submissions to AO during the scrutiny assessment proceedings. It was the duty of the AO to call upon all the further material required by him to complete the assessment proceedings. Therefore, the question of non-disclosure of all primary facts in respect of deduction claimed under section 42 does not arise. Reliance in this regard is placed on the following:
Calcutta Discount Co. vs. ITO 41 ITR 191 (SC):
"Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is faor him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-for less the assessee -to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences -whether of facts or law -he would draw from the primary facts. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority."
Gemini Leather Shoes vs. ITO 100 ITR 1 (SC) "The amount invested by the assessee in purchase of drafts, which came to notice of the ITO independently, could be treated as part of the total income of the assessee after due enquiry. The assessee did not disclose the transaction evidenced by these drafts. After this discovery the ITO had in his possession all the primary facts and it was for him to make necessary enquiries and draw 27 ITA No.93/Ahd/2007 Asst. Year 1998-99 proper inference as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. This the ITO did not do. It was plainly a case of oversight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The ITO had all the material facts before him when he made the original assessment. He cannot now take recourse to s.147(A) to remedy the error resulting from his own oversight."
ITO vs. Nawab Mir Barkat Ali Khan 97 ITR 239 (SC) wherein the Supreme Court held that non-production of deeds in the case of re- assessment proceedings did not amount to non-disclosure of particulars, hence it did not warrant initiation of proceedings under section 147.
Gaekwad Investment Corporation (P) Ltd. vs. ACIT 129 TTJ 379 (Ahd) wherein was held that disclosure through notes to accounts in financial statements was disclosure of primary facts and AO was not authorized to reopen the proceedings to review his own assessment order."
In view of above submissions the ld. counsel of the assessee submitted that the re-assessment proceedings u/s 147 is not at all justified and the same be quashed.
6. On the other hand the ld. DR supported the orders of lower authorities and relied on the following written submissions :-
"2.1 This is regarding the CIT(A) confirming the AO's action of reopening the assessment u/s 147 and holding that the appellant had failed to disclose fully and truly all material facts in relation to deduction claimed u/s 42. The appellant has argued that the notice u/s 148 read with sec 147 be treated as invalid.
2.2 In this ground the appellant has argued that re-assessment u/s.147 should be treated as invalid for the following two reasons -
(i) The notice is invalid because the reasons have been given beyond the time barring limit and in this regard the appellant has relied on (tie decision of Hon'ble Delhi High Court In the case of Haryana Acrylic Manufacturing Co - 308 ITR 38.28 ITA No.93/Ahd/2007
Asst. Year 1998-99
(ii) There was no failure on the part of the assessee to disclose full and true ail material facts in relation to the deduction claimed u/s 42 and hence the notice is time barred as it is beyond four years.
2.3,1 With respect to the first reason, it is stated that the appellant has submitted a list of events according to which the assessment under consideration being A.Y.1998-99, the original income-tax return was fifed on 30 11 98 which was processed on 15.3.2000 but a revised return was filed on 16.3.2000. Assessment u/s. 143(3) was completed on 29.3.2001. Notice u/s 148 was issued on 24.3.2005 and served on the appellant on 28.3.2005. From this it is clear that the appellant has admitted that the notice has been served before the end of six years from 31.3.99 i.e. from the end of the assessment year under consideration. The appellant has further stated that the request for disclosure of reasons for reopening the assessment was made on 31.3.2005 and the reasons were provided on 6th May, 2005 i.e. within five weeks from the date on which the request was made which is a very reasonable period. The appellant has stated that the reopening is time barred because the Hon'ble Delhi High Court in the case of Haryana Acryiic Manufacturing Co.(supra) has stated that the reasons should be given within the reasonable time before the end of six years period.
2.3.2 The contention of the appellant with respect to the Delhi High Court is taken up first. In this regard, the contention of the appellant is totally wrong The observation made by the Delhi High Court in the case of Haryana Acrylic Manufacturing Co.(supra) is on peculiar facts of that case and it cannot be regarded as explaining the law-
2.3.3 From the provisions of Section I49(1)(b) it is clear that a notice can be issued before the end of six years from the end of relevant assessment year. Nowhere in the provisions of Section 147 or 148 or 149 it has been mentioned that the reasons have also to be given before the end of six years from the end of the relevant assessment year. In this regard the attention of the Hon'ble Tribunal is brought to the decision of Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd, - 259 ITR 19 wherein the Hon'ble Supreme Court pointed out the following procedure and which has also been quoted in the decision of Defhi High Court in the case of Haryana Acryiic Manufacturing Co (supra). The Hon'ble Supreme Court has stated as under:
" . . However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the 29 ITA No.93/Ahd/2007 Asst. Year 1998-99 noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years." (p. 964) 2.3.4 The Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. (supra) itself has relied on the above decision of the Supreme Court from which it is clear that when the notice u/s.148 is issued, need to be kept in mind :
i) The first point is that the assessee has to fife the return and the second is that, where the assessee seeks reasons for the issuance of the notice, the A.O is bound to supply them within the reasonable time. Thereafter the assessee may file objections and if so, the AO is bound to dispose off the same by a speaking order. From this observation of the Hon'ble Delhi Court in the decision of Haryana Acrylic Manufacturing Co (supra), it is clear that the reasons can be provided within reasonable time from the issue of notice u/s. 148. Further as per the provisions of Section 149(1)(b) notice can be issued before the end of 6 years from the end of relevant assessment year.
ii) In view of the above, as per Section 149, as stated above, the notice can be issued and served in the present case upto 31.3.2005. The notice has been issued on 24.3.2005 and served on 28.3.2005 about which there is no dispute and the reasons were supplied on 06/05/2005 i.e. within 5 weeks of application as stated above in para 2.3.1 and hence within reasonable time.
2.3.5 The appellant has relied on the observation of the Honble Delhi High Court in para 24 of the order wherein the Hon'ble Delhi High Court has observed as under:
"Thirdly, it could be argued that the reasons supplied to the petitioner in September. 2004 he disregarded so also the objections filed by it as also the impugned order dated 2-3-2005 and the reasons noted in the said form be now taken as the for the issuance of the notice under section 148 and the petitioner may 30 ITA No.93/Ahd/2007 Asst. Year 1998-99 now prefer his objections, if any, and thereupon the Assessing Officer be directed to pass a speaking order. In other words an argument requires us to sweep all the proceedings emanating from the supply of reasons in September 2004 and culminating in the passing of the order dated 2-3-2005 'under the carpet' as it were. And, starting the process as per the directions given in GKN Driveshafts (India) Ltd 's case ( supra ) afresh considering the reasons noted in the said form to be the actual or the issuance of the notice under section 148. If we were to accept this argument, we would have to ignore the directions given by the Supreme Court in GKN Driveshafts (India) Ltd.'s case (supra) that the Assessing Officer is bound to furnish reasons within a reasonable time The notice under section 148 was issued on 29-3-2004 The petitioner filed the return and sought reasons by its letter dated 11-5-2004. If the dale of fifing of the counter-affidavit in this writ petition is taken as the date of communication of the reasons which forms part of the said form, a copy of which is Annexvre-A to the counter- affidavit, then the date of supply of reasons, based on this argument, would be 5-11-2007. This immediately makes it clear that the Assessing Officer, who was bound to furnish his reasons within a reasonable time did not do so. The period which elapsed between 11-5-2004, when the petitioner made the request for communicating the reasons, and 5-11-2007 the date when the counter-affidavit was filed, can certainly not be regarded as a reasonable period of time Apart from this, we must not forgot the provisions of section J49 which prescribes the time-limit for a notice under section 148 Section 149(1)( b ) stipulates the outer limit of six years from the end of the relevant assessment year where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees one lakh or more for that year This means that a notice under section 148 in the present case, could not. in any event, have been issued after six years from the end of the assessment year 1998-99, i.e. after 31-3-2005. In whichever way we look at it, a notice under section 148 without the communication of the reasons therefore is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time in a case, where the notice has been issued within (he said period of six years, hut the reasons have not been furnished within that period, in our view, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. The expression 'within a reasonable period of time' as used by the Supreme Court in GKN Driveshafts 31 ITA No.93/Ahd/2007 Asst. Year 1998-99 (India) Ltd.'s case (supra) cannot be stretched to such an extent that it extends even beyond the six years stipulated in section 149.
For this reason also ,even assuming that we overlook all that has happened between 11-5-2004, when the petitioner sought the reasons and 5-11-2007, when the said form annexed to the counter-affidavit was filed in this court, the validity of the notices u/s 148 issued on 29-3-2004 and any proceedings pursuant thereto cannot be upheld."
2.3.6 From the above, it is seen that the observation of the Hon'ble Delhi High Court relied upon by the appellant are that:
"In a case the notice has been issued within the said period of six years, but the reasons have not been furnished within that period, any proceedings pursuant thereto would be hit by the bar of limitation in as much as the issuance of the notice and the communication furnishing of reasons go hand in hand. The expression 'within a reasonable period of time' as used by the Supreme Court in GKN Drivesnafts (India) Ltd. case (supra) cannot be stretched to such an extent that it extends even beyond the six year's stipulated in Section 149. For this reason a/so, even assuming that the Court overlooks all that has happened between 11.5.04 when the petitioner sought the reasons, and 5.11.07, when the said form annexed to the counter affidavit, was fifed in this Court the validity of notice u/s 148 issued on 29 3 2004 and any proceedings pursuant thereto cannot be upheld"
2.3.7 The above observations were made by the Hon'ble Delhi High Court in the context of the fact that the reasons supplied by the department on 6.5.2005 were different from the reasons which were recorded on which approval of the CIT was obtained. As per the Hon'ble Delhi High Court the communicated to the assessee, had no mention of failure of assessee to disclose fully and truly all material facts and hence the reasons could not have given to the AO power to issue notice beyond four years but before the end of six years. When the department pointed out that the actual reasons contained, the remark of the AO that the assessee has failed to disclose fully and truly all material facts and when the department requested the High Court to substitute these reasons for the old reasons then the Hon'ble Delhi High Court made the above remarks since by that time the Court was in the month of November, 2007 much beyond the six years from the end of relevant year.
32 ITA No.93/Ahd/2007Asst. Year 1998-99 2.3.8 In view of the above, it is clear that the Hon'ble Delhi High Court has not passed any such decision that the notice will have to be accompanied with reasons or that the reasons will have also to be given before the end of six years limit mentioned in Section 149(1)(b). It would not be out of place to mention that there is no such conclusion drawn by any of the major Income-tax Reports like ITR, CTR or Taxman. The copy of their head notes, facts and decisions in respect of CTR, ITR as well as Taxman are enclosed herewith.
2.3.9 If the interpretation drawn by the appellant is accepted then the decision of Hon'ble Supreme Court relied upon by Delhi High Court gets negated and becomes invalid because the Hon'ble Supreme Court in the case of GKN Drive shafts (India) Ltd. (supra) has very clearly stated that reasons have to be given after the issue of notice u/s.148 and when the assessee applies for the same. The provisions of Section 149(1)(b) is very clear that notice can be issued before the end of six years from the end of relevant assessment year. Therefore, the interpretation made by the assessee deserves to be ignored as there is no such decision made by the Delhi High Court. Further, it is not out of place to mention that this decision was delivered in November, 2008 in a writ petition filed by the appellant. From that date and till today no Court has interpreted this decision in the manner being sought by the appellant. The Hor'ble Court made those observations when the department wanted new reasons to be substituted in November, 2007.
2.4.1 The observations of the Hon'ble Delhi High Court if followed blindly in other cases which on facts are divorced from the peculiar facts before the Hon'ble Court would make the whole assessment machinery under the Income-tax unworkable. This is amply demonstrated by its application to the facts at hand itself. As per the sequence given in the decision of GKN Driveshafts (supra) in response to notice u/s 148 the assessee should first file a return and thereafter if_he so desires make a request for fumbling of reasons to the A.O. Reasons cannot be given alonq with the notice because the I. T. Act and the Hon'ble Supreme Court in G. K. N._Driveshafts (supra) realized that the assessee must come clean by filing the return of true income in response to the notice u/s 148 and thereafter on demand.the reasons are to be given. On receipt of such a request AO should furnish the reasons within a reasonable time 2.4.2 It is suggested by the appellant that the observations of the Hon'ble Delhi High Court tantamount to laying out the position that in all cases where the reasons are not furnished within the time limit prescribed u/s.149 the assessment would be barred by limitation. As mentioned 33 ITA No.93/Ahd/2007 Asst. Year 1998-99 above in the case at hand for AY 1998-99, the notice u/s 148 was issued on 24.03.2005 and was served on 28 03.2005. The request for furnishing of the reasons was made on 31-03-2005 Thus as per this if the observations of the Hon'bJe Delhi Hjgh Court are blindly applied, .revenue did not have a single day's time to furnish the reasons as the time limit of 6 years from the end of the relevant A.Y, for 1998-99 was 31.03.2005, the date on which the request for reasons was made. More so if the appellant had made the request for reasons after 31.03.2005 in fact as per the interpretation suggested by the appellant Revenue was trapped. As the request itself would have been made after the time limit u/s 149 even if reasons were to be furnished as per the appellant the case would any way be time barred just because the assessee requested for the reasons after the end of six years from the end of Asst. Year. Thus whether a case could be properly assessed or would be barred would be a free choice available to the assessee and such a thing is patently absurd.
2.4.3 The situation would be even more absurd if for a case for Asst. Year 1998-99 the notice u/s 148 were to be issued and served on 31.03.2005. In such a case if the assessee was granted any time, leave alone reasonable time, to file the return in response then as per the construction suggested by the appellant, the resultant proceedings any way would be time barred as in such a case the request of the assessee for furnishing of reasons can in no way be entertained within the time limit prescribed u/s 149.
2.4.4 Wfth respect to the second reason that the proceedings u/s.148 is invalid, it is stated that the assesses had not disclosed truly and fully all material facts. This is clear from the fact that in para 4.3.6 on page 18 of the CIT appeal order, the CIT appeal has stated that "It is also seen from original revised return that in respect of claim u/s.42 no details were submitted as to how the figure of expenditure u/s.42 of Rs.83,715,984/- was arrived at in the revised return. The CIT appeal has further stated that in para 3.4.7 that the Auditors have also made a remark :
"As per the opinion of the Institute of Chartered Accountants of India and that of the Company Law Board, a Company cannot reopen and revised the accounts, once adopted by the shareholders at the Annual general meeting Contrary to these opinions, the Board of the Directors of the Company has reopened and revised the balance-sheet accounts."34 ITA No.93/Ahd/2007
Asst. Year 1998-99 2.4.5 The CIT appeal further stated in para 4.3.8 on page 18 that it is noticed that in Annexure-2 there is no reference to Section 42 or the deduction although in the revised return it is mentioned that expenditure u/s 42 are detailed at Annexure. Further in Clause No.4 of Form 3CD it has only been mentioned that there are no capital expenditure debited to the P & L account except expenses covered u/s.42. In other words from the assessment records and also from the details filed during the course of appellate proceedings it is clear that no details were furnished providing as to why the claim u/s 42 is admissible. The AO and CIT appeal therefore held that the assessee has not disclosed truly and fully all the material facts.
2.4.6 In this regard, it is stated that as per General Circular No 1 of 2003 (copy enclosed) of Department of Company Affairs dated 13th January, 2003 it has been made very clear that the company can reopen and revise its accounts oven after its adoption in the annual general meeting but only in order to comply with technical requirements of taxation laws and further if it adopts the revised annual accounts in the subsequent annual general meeting and file with the Registrar of Companies. Therefore revision of accounts is with a very strict rider. From this Circular it is also very clear that for the purpose of making a claim of deduction the assessee cannot reopen the accounts. Further as clearly stated by the A.C. Shah & Co. CA quoted by the CIT appeal in para 4.3.7, the C.A. has also clearly stated that neither the Institute of Chartered Accountants nor the Company Law Board allows a company to revise its accounts once it has been admitted by the shareholders at the Annual General Meeting except permitting any technical requirement of law. Therefore, the assessee has riot disclosed any such claim.
2.4.7 Therefore, the assessee could not have revised its accounts and even after revising its accounts as stated by the AO and quoted by C.A and also as stated by the CIT(A) in para 4.1.3 to para 4.3.16 the assessee had not disclosed fully and truly all material facts and therefore, the reopening was valid. This ground of appeal therefore, needs to be dismissed.
2.4.8 In this regard reliance is also placed on the decision of CIT(A) contained in para 4.3 of the appellate order wherein it has been clearly discussed by the CIT(A) that the claim was made for the first time u/s 42 in the revised return (para 4.3.5 of the appellate order). The CIT(A) has further stated in para 4.3.6 -page 18 of the appellate order that no such details were submitted as to how this expenditure was arrived at. In view of these reasons as stated by the CIT(A) in para 4.3.8 that neither from 35 ITA No.93/Ahd/2007 Asst. Year 1998-99 the assessment records nor the details filed during the assessment proceedings it is clear that reasons as to why the claim of deduction u/s 42 is admissible was not given. In view of these reasons, the CIT(A) has correctly relied on the following decisions to say that it is not a case of change of opinion:
i) Praful Chunilal Patel vs. M.J. Makwana, ACIT -236 ITR 832 (Guj) wherein the Hon'ble Gujarat High Court stated as under :
".....Since the Assessing Officer at the first assessment in the year 1991-32 never really formed an opinion on the question whether there was a transfer on 19-9-1990 of the land in question to the firm and that the amounts credited to the accounts of the partners who had contributed the lands to the firm, were meant to be the price of the land which was to be actually paid from the collections received by the firm from membership fees as soon as received, there was no question of any change of opinion when on the relevant facts being found the Assessing Officer white protectively assessing the assessee for the year 1993-94, noted that this was a case for issuance of a notice under section 148, which came to be issued thereafter. When the amount of taxable income and of the tax payable thereon were not ascertained at all by the Assessing Officer in respect of the transfer made by the assessee in favour of the firm on 19-9-1990, there obviously was no opinion formed in that regard and, consequently, there would not arise any question of a mere change of opinion. In cases where the Assessing Officer had overlooked something at the first assessment, there can be no question of any change of opinion when the income which was chargeable to tax is actually taxed as it ought to have been under the law but was not, due to an error committed at the first assessment"
ii) The reliance is also placed on the decision of Hon'ble Allahabad High Court in the case of Renu Sagar Power Company vs.ITO 117 ITR 719 (All) wherein it was observed that "question of change of opinion would arise only when the same has already been expressed on the materials of record. If the materials were not before the Assessing Officer the question of change of opinion does not arise". Similar view has been expressed by the Hon'ble Calcutta High Court in the case of ITO vs. M.L Tulsyan - 111 iTR 25 (Cal.) wherein it is been stated that "The formation of opinion is a positive on the part of Assessing Officer and the opinion is said to be formed where there is application of mind with reference to material on record and the provisions of the statute and in case in earlier proceedings no such opinion is formed it cannot be contented that the reassessment proceedings were initiated on mere change of opinion. Mere assessment in routine manner did not lead to inference that the opinion wan formed in respect of issues involved in the assessment."
The ld. DR placing reliance on the decision of Hon'ble Delhi High Court in the case of Mayawati 222 CTR 117 and the decision of Hon'ble ITAT 36 ITA No.93/Ahd/2007 Asst. Year 1998-99 Delhi Bench in the case of e-Funds Corporation vs. Asstt. Director of Income-tax, Circle 1(2), International Taxation, New Delhi (2010) 42 SOT 165 (Delhi) submitted that reliance placed by the assessee on the decision of Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. vs. CIT 308 ITR 38 (Del) as well as the decision of the ITAT in the case of Gomti Textiles (P) Ltd. vs. ITO (ITA No.1528/Del/2011 (Del) was not correct as the decision of Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. vs. CIT (supra) was purely on facts of that case where wrong reasons were communicated to the assessee whereas actual reasons were communicated only during the course of writ petition before the Hon'ble High Court. Concluding his argument, the ld. DR submitted that in view of the above, the ground taken by the assessee may kindly be dismissed.
10. Heard both the parties. Perused the record and carefully gone through the written submissions, arguments advanced by both the parties before us and the case laws relied upon by both the parties. The undisputed facts of the case are that the assessee filed its return of income on 30.11.1998 declaring total loss of Rs.10,92,27,877/-. This return was processed u/s 143(1) on 15.3.2000. Subsequently the assessee filed a revised return declaring loss of rs.4,09,24,063/-. The assessment u/s 143(3) of the Act was finalized on 29.3.2001 with an assessed loss of Rs.4,08,35,802/-. Thereafter the case was reopened u/s 147 by issuing notice under section 148 of the Act on 24.3.2005 which was served on the assessee on 28.3.2005. The assessee requested the AO to provide the 37 ITA No.93/Ahd/2007 Asst. Year 1998-99 reasons for reopening the assessment on 31.3.2005. The AO communicated the reasons for reopening of assessment on 6.5.2005. Preliminary objections raised by the assessee against the reopening were also met by the AO before assessment u/s 143(3) r.w.s. 147 was completed on 17.2.2006 determining total revised loss of Rs.2,27,96,315/-. Aggrieved by this order of AO the assessee went in appeal before the first appellate authority and reopening of the assessment was challenged on the ground that according to the proviso to section 147 if an assessment u/s 143(3) of the Act has already been made for any assessment year the reassessment proceedings cannot be initiated after the expiry of 4 years from the end of that Asst. Year, unless there was failure on the part of the assessee to file a return of income u/s 139 or there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It was further submitted that the assessee filed its return of income within the statutory time limit and had disclosed fully and truly all material facts necessary for its assessment, therefore, reopening of the assessment carried out by the AO was bad in law. However, ld. CIT(A) dismissed, the appeal of assessee by holding that full and true disclosure of all material facts was not done by the assessee during the original assessment proceedings, therefore, he held the re-assessment proceedings to be valid. Further aggrieved, now the assessee is in appeal before us.
11. Before us, the assessee's arguments against re-assessment u/s 147 are two folds-
(i) the notice issued u/s 148 was invalid because the reasons for reopening have been given beyond the time barring limit and in this regard the 38 ITA No.93/Ahd/2007 Asst. Year 1998-99 assessee has relied on the decision of Hon'ble Delhi High Court in the case of Haryana Acrilyc Manufacturing Co. (supra)and
(ii) there was no failure on the part of the assessee to disclose full and true all material facts in relation to the deduction claimed under section 42, hence the notice was invalid as it was time barred as it is beyond four years.
12. Coming to the first argument of the assessee we find that the notice for reopening the assessment u/s 147 was issued on 24.3.2005 and it was served on the assessee on 28.3.2005 according to the Revenue and on 29.3.2005 according to the assessee. The reopening of assessment was getting time barred on 31.3.2005 i.e. 6 years from the end of the assessment year 1998-99. The assessee requested the AO to provide reasons on 31.3.2005 for reopening the assessment. The AO communicated the reasons on 6.5.2005. The assessee's case is that as per section 148(2) reasons are required to be issued to the assessee along with the notice issued u/s 148. For making this submission reliance was placed on the case of Mithlesh Kumar Tripathi vs. CIT 280 ITR 16 (All). It was also submitted that if the reasons are not communicated to the assessee during this period the re-assessment proceedings were bad in law. For making this submission the assessee relied on the decision of Hon'ble Delhi High Court in the case of Haryana Acrilyc Manufacturing Co.
(supra).
39 ITA No.93/Ahd/2007Asst. Year 1998-99
13. At this stage it will be pertinent to refer to the relevant sections with regard to the reopening of assessment i.e. section 147, sec.148 & sec.149 which are as under :-
Sec.147. If Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 153, assessee or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section (3) of section143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
[ Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment].
Explanation 1 - Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2 - For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-40 ITA No.93/Ahd/2007
Asst. Year 1998-99
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(c) where an assessment has been made, but -
(i) income chargeable to tax has been understated; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowances under this Act has been computed.
Explanation 3 - For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. ] [Issue of notice where income has escaped assessment.
Sec. 148. [(1)] Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section139:] [Provided that in a case -
41 ITA No.93/Ahd/2007Asst. Year 1998-99
(a) where a return has been furnished during the period commencing on the lst day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and
(b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice:
[Provided further that in a case -
(a) where a return has been furnished during the period commencing on the lst day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and
(b) subsequently a notice has been served under clause (ii) of sub-
section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice.] Explanation - For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.] [(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.] Time limit for notice.
Sec. 149. [(1) No notice under section 148 shall be issued for the relevant assessment year, -
42 ITA No.93/Ahd/2007Asst. Year 1998-99 [(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year under the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. ] Explanation - In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they for the purposes of that section.] (2) The provisions of sub-section (1) as to the issue of notice shall subject to the provisions of section 151.
(3) If the person on whom a notice under section 148 is to be served is a person treated as agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after expiry of a period of two years from the end of the relevant assessment year.
It is clear from the above that nowhere in the provisions of sections 147, 148 & 149 it has been mentioned that reasons have also to be given before the end of 6 years from the end of relevant Asst. Year. As a matter of fact Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) has laid down the following procedure to be followed in such cases:-
" . . However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the 43 ITA No.93/Ahd/2007 Asst. Year 1998-99 objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years." (p. 964) In view of the above, it is clear that the AO is not bound to give reasons for reopening the assessment along with notice under section 148 and it is only when assessee desires to seek the reasons for issuing notice u/s 148 the AO is bound to furnish reasons within a reasonable time. In this case there is no dispute about the fact that assessee sought the reasons on 31.3.2005 i.e. the last date on which the reopening of the assessment was getting time barred. This is also not in dispute that this letter dated 31.3.2005 seeking reasons for reopening was filed by the assessee in Tapal. The reasons were supplied to the assessee on 6.5.2005 i.e. within 5 weeks of application which according to us is a reasonable time. Reliance on the decision in the case of Haryana Acrilyc Manufacturing Co. (supra) by the assessee is misplaced as it was purely on facts of that case where wrong reasons were communicated to the assessee whereas actual reasons were communicated only during the course of writ petition before the Hon'ble High Court. This view of ours gets support from the decision of the Hon'ble Delhi High Court itself in the case of Mayabati vs. CIT 222 CTR 117 and the decision of ITAT in the case of e-Funds Corporation (2010) 42 SOT 165. In the case of Mayavati vs. CIT the Hon'ble Delhi 44 ITA No.93/Ahd/2007 Asst. Year 1998-99 High Court the judgment in the case of Haryana Acrilyc Manufacturing Co. (supra) was explained as under :-
"Mr. Salve learned senior counsel appearing for the petitioner, has sought strong support from the decision of a Division Bench of this Court of which my esteemed Brother, Rajiv Shakdher, I. was a Member, in Haryana Acrylic Mfg. Co. vs. CIT decided on 3rd Nov.2008 [reported at (2008) 220 CTR (Delhi) 450-ed.]. Various issues had arisen in that case, none of which, in our opinion is of any relevance to the determination of the question which fall for determination by us. In Haryana Acrylic (supra) it had, inter alia, beenopined that for section 147 to become operational it is essential that it should be alleged that escapement of income is a consequence of the assessee having failed to fully and truly disclose all material facts necessary for the comprehensive completion of the assessment. What had transpired in that case was that whilst the initiation of the proceedings by the AO for approval of the CIT mentioned the failure on the part of the assessee to disclose fully and truly all material facts relating to the alleged accommodation entries, the "reasons" disclosed to the assessee on its request merely mentioned those accommodation entries as being the foundation for the belief that income to the extent of Rs.5,00,000/- had escaped assessment. The distinction between these two situations has been perspicuously emphasized and adumbrated. The finding was that a reason to believe, without the essential concomitant of it being a result of the failure of the assessee to fully and truly disclose all material facts would render the reassessment under section 147/148 unsustainable. In order to overcome this difficulty, it has been argued on behalf of the Revenue that since the AO had duly recorded the failure on the part of the assessee to fully and truly disclose all material facts this notation should be acted upon and the reasons conveyed to the assessee which were predicated on the CIT's noting should be ignored. The contention of the Revenue was that the assessee had been made aware of the opinion of the AO in the counter affidavit of the Revenue filed on 5th Nov., 2007. It was in that context that it was observed in Haryana Acrylic (supra) that six years had elapsed by that time GKN Driveshafts (India) Ltd. vs. ITO (2003) 179 CTR (SC) 11: (2003) 1 SCC 72 was applied to emphasise the fact that the reasons should have been furnished within a reasonable time. It was clarified that "where the notice has been issued within the said period of six years, but the reasons have not been furnished within that period in our view, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go hand in hand. The expression 'within a reasonable period of time' as used by the Supreme Court in GKN Driveshafts (supra) cannot be stretched to such an extent that it extends even beyond the six years stipulated in section 149".
The factual matrix in Haryana Acrylic (supra) is inapplicable to the sequence of events before us and therefore, reliance by Mr. Salve to this decision is inapposite."
45 ITA No.93/Ahd/2007Asst. Year 1998-99 And in the case of e-Funds Corporation the ITAT Delhi (2010) 42 SOT 165 vide its order dated 30.09.2010 has explained the judgment in the case of Haryana Acrylic 220 CTR 450 as under :-
"7.13 For assessment year 2000-01, the assessee has contended that the reasons for reopening were not recorded and therefore the subsequent assessment proceedings becomes invalid. The contention of the assessee that no reasons were recorded for assessment year 2000-01 is factually wrong as relevant assessment records have been produced before the Bench which reveals that reasons are duly recorded and placed on file. Copies of such reasons have been provided to the counsel for the assessee.
7.14 In this regard, it is submitted that issue has been discussed by CIT(A) on page 56 onwards of his order. The AO has reopened different assessment years by writing similar reasons as the facts were exactly the same for all assessment years concerned. The assessee says that reasons for all assessment years except assessment year 2000-01 were communicated and objections therein were filed which were duly responded to by the AO. However, because of change in jurisdiction of these cases from one AO to another, the successor AO was not in knowledge of any request of the assessee asking for a copy of reasons for assessment year 2000-01 as such request if any was never brought to his knowledge. The reasons for assessment year 2000-01 are similar to those for other assessment years, which were undisputedly communicated to the assessee. At the most, it may be called procedural lapse, which is curable and which is not fatal to the reassessment proceedings. Hon'ble Delhi Tribunal in case of ITO vs. Smt. Gurinder Kaur (2006) 102 ITD 189 has held that -
"In the light of judgment of Supreme Court in the case of S. Narayanappa vs. CIT 63 ITR 219 there is no requirement in the Act that the AO has to communicate the reasons for reopening the assessment to the assessee. Non- communication of reasons even according to judgment of the Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO 259 ITR 19 is not considered to be fatal to the validity of the reassessment proceedings..."
7.15 Assessees' reliance on the case of Haryana Acrylic Manufacturing Co.'s case (supra) is mis placed as the facts in that case are absolutely different. In that case, wrong reasons were communicated to the assessee whereas actual reasons were communicated only during the course of writ petition before the Hon'ble High Court. The court on basis of these peculiar facts has held that such a long delay cannot be regarded as reasonable period. In present case under consideration, the successor AO was not at all requested by the assessee to supply reasons and no such request was made even before CIT(A). In response to letter dated 22.11.2008 made by the assessee before successor AO the concerned AO supplied copy of reason of assessment years as requested on 28.11.2008. Therefore, it cannot be said that 46 ITA No.93/Ahd/2007 Asst. Year 1998-99 AO has not complied with ratio of decision of GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19' (SC).
In view of above, it is clear that the reliance by the assessee on the decision of Hon'ble Delhi High Court in the case of Haryana Acrylic Mfg. Co. (supra) as well as that of ITAT, Delhi Bench in the case of Gomti Textiles (P) Ltd. vs. ITO ITA No.1520/Del/2011 which was passed by the Tribunal following the decision of Haryana Acrylic Mfg.
Co. (supra) was misplaced. In view of the above decision of GKN Driveshafts (India) Ltd. (supra), Mayavati vs. CIT and e-Funds Corporation (supra) the action of the AO in giving reasons within 5 weeks of request of supply of reasons by the assessee is as per law. There is no requirement of law to give reasons before the end of limitation period of issuing notice u/s 148. All that the law requires is that the AO should record the reasons and notice should be issued and served within six years from the end of relevant Asst. Year. In the present case the reasons have been recorded which is clear from the assessment record being produced before us and notice u/s 148 was issued on 24.3.2005 and the same was served on assessee on 28.3.2005. The assessee asked for the reasons vide letter dated 31.3.2005 given in Tapal on 31.3.2005 and the reasons were received by the assessee on 6.5.2005. Therefore, the requirement of law as laid down by the Hon'ble Apex Court decision in the case of GKN Drive-shafts (India) Ltd. (supra) has been fulfilled by 47 ITA No.93/Ahd/2007 Asst. Year 1998-99 the AO by giving the reasons within a reasonable time. The notice issued by the AO u/s 148 is therefore, valid.
14. Now coming to the second argument advanced by the assessee that there was no failure on the part of the assessee in furnishing full and true all material facts in relation to the deduction claimed u/s 42 and hence notice was time barred as it is beyond 4 years. The original return was filed by the assessee on 30-11-1998. Notice u/s. 148 was issued by A.O. on 24-3-2005 i.e. beyond 4 years from the relevant assessment year. As per the proviso to section (4) no action under section147 can be initiated unless it is found that the assessment of income was by reason of failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. Paragraph-2 of reasons recorded for reopening of assessment by A.O. reads as under:-
"2. During the course of assessment proceedings for the subsequent assessment years it is held that the assessee is not entitled to deduction u/s. 42(1) of the I.T. Act, as it was not specified in the agreement entered into by the assessee with the Central Government .In view of the provisions of section 42(1) of the I.T. Act, the expenditure incurred by the assessee in respect of drilling and exploration activities or for services or in respect of physical asset used in that connection is allowable only if such allowance is specified in the agreement entered into by the assessee with the Central Government. The assessee has not submitted copy of the agreement with the Central Government either in the return of income filed or during the course of assessment proceedings. This makes it clear that the assessee has sought to avail of the deduction wrongfully by not disclosing full facts necessary for the entitlement for the deduction. Though the assessee has made passing reference of the agreement in the note attached to the financial statement along with return what was 48 ITA No.93/Ahd/2007 Asst. Year 1998-99 specified in the agreement is not mentioned. The assessee has claimed deduction u/s. 42 without disclosing some of the expenditure specified in the agreement. The income has therefore escaped assessment for failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of its assessment."
The Ld. CIT (A) after analyzing the facts of the case in detail also held that there was no full and true disclosure of all material facts for claiming deduction u/s.42 of the Act. At this stage it will be pertinent to refer to relevant provisions of section 42 of the Act:-
"Section 42 [(1)] For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation [of the Central Government or any person authorized by it in such business] (which agreement has been laid on the Table of each House of Parliament), there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement in relation -
(a) to expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the assessee;
(b) after beginning of commercial production, to expenditure incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowances for depreciation is admissible under section 32:
[Provided that in relation to any agreement entered into after the 31st day of March, 1981, this clause shall have effect subject to the modification that the words and figures "except Assets on which allowance for depreciation is admissible under section 32" had been omitted; and] 49 ITA No.93/Ahd/2007 Asst. Year 1998-99
(c) to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified in the agreement;
And such allowances shall be computed and made in the manner specified in the agreement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement."
15. It is clear from the above that claim of deduction under section 42 is allowable if the following three conditions are fulfilled:-
(i) There should be an agreement of the assessee with the Central Government.
(ii) Only those allowances which are specified in relation to various specific nature as mentioned in sub-clauses (a), (b) & (c) of section 42 are allowable.
(iii) Such allowances shall be computed and made in the manner specified in the agreement.
There is no dispute about the fact that the agreement between assessee and Central Government was neither filed by the assessee alongwith the return of income nor during the original assessment proceedings. This fact was admitted by Ld. Counsel of the assessee during the course of hearing before us, when specific query was raised by the Bench in this respect. In view of the admitted failure on the part of the assessee to file the primary requirement of filing of agreement between assessee and Central Government to claim deduction u/s.42 of the Act, it 50 ITA No.93/Ahd/2007 Asst. Year 1998-99 cannot be said that there was full and true disclosure of all material facts in relation to deduction claimed u/s. 42 of the Act. We further find that in the original assessment order claim u/s.42 was not discussed and the assessment was completed by making routine disallowances. Therefore, the action of the AO in reopening the assessment of the assessee u/s. 147 of the Act is valid in our considered opinion. This view of ours get support from the decision of the Hon'ble Gujarat High Court in the case of Shri Praful Chinubhai Patel vs. Shri M.J.Makwana, ACIT 236 ITR 832 wherein Hon'ble Gujarat High Court held as under:-
"In cases where the Assessing Officer had overlooked something at the first assessment, there can, in our opinion be no question of any change of opinion when the income which was chargeable to tax is actually taxed as it ought to have been under the law but was not, due to an error committed at the first assessment."
We further find that in view of the above mentioned peculiar facts of the case the ratio as laid down in the case laws relied by Ld. Counsel of the assessee is not applicable to the facts of the present case.
16. In view of the above discussion, we have no hesitation in holding that the Ld. CIT (A) has rightly upheld the action of the AO., in reopening the assessment of the assessee u/s. 147 of the Act. Therefore, this ground of the assessee is dismissed.
51 ITA No.93/Ahd/2007Asst. Year 1998-99
17. The third issue raised by the assessee is regarding confirmation of disallowance of deduction of Rs.1,95,26,259/- claimed under section 42 of the Income-tax Act, 1961.
18. At the time of hearing both the parties agreed that this issue is covered against the assessee by the decision of the Tribunal in assessee's own case for Asst. Year 2001-02 in ITA No.789/Ahd/2005.
19. After considering the rival submissions and going through the material on record we find that the issue has been decided by the Tribunal in assessee's own case in Asst. Year 2001-02 by observing as under :-
"28. We have heard the parties and considered the rival submissions. To claim a deduction u/s 42 the expenditure claimed should in connection with drilling and exploration activity as envisaged u/s 42(l)(b). There is no doubt that the expenses claimed by the assessee are capital in nature not allowable in normal course. The claim of the assessee is for special expenditure/allowances u/s 42(1) and we have to examine it under this section. Section 42(1) reads as under:-
"42(1): For the purpose of computing the profits and gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation of the Central Government or any person authorized by it in such business (which agreement has been laid on the Table of each House of Parliament), there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such as are specified in the agreement in relation;
a)............,
b) after the beginning of commercial production, to expenditure incurred by the assesses, whether before or after commercial production, in respect of drilling and exploration activities or services or in respect of physical assets used in that connection, 52 ITA No.93/Ahd/2007 Asst. Year 1998-99
c) ............., and such allowances shall be computed and made in the manner specified in the agreement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement"
29. On a close reading of this section, we find that the deduction under this section is allowed for computing the profits and gains of the business of prospecting for or extracting or production of mineral oil in relation to which the Central Government has entered into an agreement. Only such deductions are allowed u/s 42(1) as are specified in the agreement and that also when they fall in any of the sub clause (a),
(b) or (c) of section 42(1). Sub clause (a) applies to an activity prior to beginning of commercial production and. sub clause (b) applies to the situation, after the beginning of commercial production. Sub clause (c) applies to allowance in relation to depreciation on mineral oil in the year where production has begun and in succeeding year. The assessee has already started commercial production, its case therefore falls in sub clause (b) of section 42(1), To summarize, the following conditions should be satisfied for claiming deduction u/s 42(1) of the Act. i) there should be an agreement of the assesses with Central Government;
ii) that the agreement should be laid on the table of each house of the Parliament; iii) that the allowances sought to be allowed are those specified in the agreement; iv) that such specified allowances should be the expenditure incurred in respect of drilling or exploration activities or services or in respect of physical assets used in that connection; and v) that such allowances is to be computed and allowed in the manner specified in the agreement.
30. The assessee has no doubt entered into agreement (PSC) with the Central Government in respect of various fields, but except one the other agreements are not shown to have been laid on the table of the both the houses of the Parliament. The agreement does not provide the manner of computation such deduction. Further the allowances are not of the nature specified in the agreement, nor of various specific nature mentioned in sub clause (a), or (b) or (c) of section 42(1). As we are concerned in this case with sub clause (b), these specified allowances should be in relation to expenditure in respect of drilling or exploration activities or services.
53 ITA No.93/Ahd/2007Asst. Year 1998-99
31. There are five Contracts which the assessee and M/s. GSPCL jointly entered with the Government of India. They are Production sharing contracts (PSC) and these are similarly worded with the same contents and language. In all these agreements Article 15 deals with computation of profits and gains for the purpose of Income-tax. It is titled as "taxes, royalties, rentals, custom duties etc". Clause (3) is :relevant and on which reliance is placed reads: -
' "15.3 The profits and gains of the a company consisting of petroleum operations shall, for the purpose of levy of income-tax under the Income-tax Act, 1961 be computed on the basis of the value, determined in accordance with Article18, of its Participating Interest share of Crude Oil produced and saved and sold, or otherwise disposed of, from the Contract Area and from any revenue realised on the same or disposal of Associated or Non-Associated Natural Gas referred to in Article 20 as well as any other gains or receipts from Petroleum Operations as reduced by the allowable deductions"
32. This article provides as to how the profits and gains of a company consisting of petroleum operations shall, for the purpose of levy of income-tax under the Income-tax Act, 1961 be computed. It is on the basis of the value, determined in accordance with Article 18, of its Participating Interest share of Crude Oil produced and saved and sold, or otherwise disposed of, from the Contract Area and from any revenue realised on the same or disposal of Associated or Non-Associated Natural Gas referred to m Article 20 as well as any other gains receipts from Petroleum Operations as reduced by the allowable deductions. The assessee submits that the phrase used in above Article is "allowable deductions" It is to be read as "allowable deductions under the Act including, section 42 of the Act". We are afraid, it cannot be read like that because the PSC is an agreement between the Government of India and assessee .and GSPCL and was laid/to be laid on the table of both the houses of Parliament. It being a legal document, no word or phrase can be added It has to read as it is. Accordingly the C1T(A) is right in not accepting submission of the assessee that "as reduced by allowable deduction "
should be read as "as reduced by allowable deduction under the Act including 42 of the Act". Even otherwise Section 42 contains a specific mention of the phrase "such allowances as specified in the agreement" and that in absence of any allowances being specified in the agreement, no additional allowance can be deducted by virtue 54 ITA No.93/Ahd/2007 Asst. Year 1998-99 of section 42, over and above the normal allowance allowable under other section of the Act. It is not only that these allowances should be specified in the agreement, but even the computation of such allowances has to be made in the manner specified in the agreement The same is quite clear from the phrase used below sub clause (c) of section 42(1) i,e,, "and such allowances shall be computed and made in the manner specified in the agreement". Nowhere in the PSC agreements, the computation and manner of such allowances, is stated or specified. Accordingly, no such deduction can be allowed u/s 42 in absence of manner of computation and the- manner specified in the agreement.
33. Article 18 providing for valuation of petroleum in accordance with the appropriate basis for that type of sale or disposal specified therein. It does not deal with any, deductions of expenses and therefore it may not have relevance to determine the issue of deduction allowable or otherwise. As per clause 18.11 of PSC the price of Natural Gas shall be in terms of Article 20. Again the Article 20 deals with marketing rights and sale price of natural gas and it has also nothing to do with expenses as in Article 18. Article 24 provides for record of all its activities, expenditures and receipts, reports, accounts in accordance with the Accounting Procedure and audit by a qualified, independent firm of recognized chattered accountants, registered in India. These may not be extracted in extensor.
34. ANNEXURE - C Section-1 provides General Provisions which "Purpose", "Definitions", "Inconsistency", "Documentation and Statements to be submitted by the Contractor", "Language and Units or Account", "Currency Exchange Rates", "Payments", "Arms Length Transactions", "Audit and Inspection Rights of the Government"
and "Revision of the Accounting Procedures"
35. None of these clauses do not specify for the computation of income and the manner in which they are to be allowed. What section that "there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement in relation" Nothing is specified in the agreements and therefore deduction under section 42 would not be granted for any expenditure except that is allowable under the Act otherwise.
55 ITA No.93/Ahd/2007Asst. Year 1998-99
36. An expenditure on storage, transportation and other facilities is more relatable to the production and/or sale rather than exploration and drilling. Exploration is an activity carried out to find out the possibility of oil/gas by collecting geological data and seismic survey etc and thereafter the drilling is done at a place where probability of finding the oil/gas is comparatively high. At the time of exploratory drilling, these facilities have hardly any role to play. Similarly, the land in question was taken by the assessee basically as a passage to the Oil field land and also to have its supporting structure including building. This is quite separate from the land allotted by the Government for the purpose of drilling the oil/gas well. Accordingly, this land & building has no exploratory drilling activity,
37. The contention that section 42 is an incentive provision and therefore, should be interpreted liberally is to be viewed in the light of the decision of the Supreme Court in the case of Pandian Chemicals Ltd. (supra) wherein it is held that the rule liberal interpretation comes into play only if there were any doubts with regard to the express language used in the provision and where the words are unequivocal, there is no scope for importing the rule of liberal or other interpretation of an incentive provision. The Supreme Court in Petron Engineering Construction P. Ltd (supra) again held that liberal conception cannot be doing violence to the plain reading of the provision of the Act. It reaffirmed that liberal construction can be resorted to only when it is possible without impairing the legislative requirement and the spirit of provision. The language in the statute has to be read plainly and normally. The words used in the provision may be read from the context in which they have been used. The rule of interpretation has only to be used where there is any doubt with regard to the express language used in the provision or where the plain literal interpretation, of statutory provision produces a manifestly unjust result, one might modify the language so as to achieve the intention of legislature. One should not loose sight of the decision of the Supreme Court in Navopan India Ltd.(supra) holding that "Exemption being in the nature of exception, it is to be construed strictly at the stage of determination whether the assessee falls within its terms or not and in case of doubt the benefit must go to the State. Once it is found applicable, full effect may be given.
38. In this case there is no any doubt in the language used in section 42(1) of the I T Act as well as Production Sharing Contract. The language used is quite clear and plain and therefore there is no scope of double interpretation. The language of the statutory provision is not 56 ITA No.93/Ahd/2007 Asst. Year 1998-99 resulting or creating any unjust result. In fact the language used in the provisions of section 42 is plain, simple and is quite clear admits of no doubt in as much as that only those allowances are to be allowed which .are specified m the agreement entered into by the assessee with Central Government.
39. The assessee had made this miss rectified in subsequent agreements and itself has provided specifically the allowances to be deducted u/s 42 and the manner thereof and department has allowed it does exonerate the assessee from complying with the requirements in these agreements appearing in this year. The letters between two departments of the Govt. to this effect also do assessee as they only requested for clarification and more. No action taken thereon for a long time might be indication or an impression otherwise. It only proves that while entering contracts with the assessee and GSPCL, the Central Government at that time have not have thought fit to provide special deduction u/s 42 of I T Act and therefore, no benefit thereof can be in the circumstances, A plain reading of the statute is not producing any manifestly unjust results and accordingly, there is no merit in reading down or modifying the language of the statutory provisions. We therefore hold that the CIT (A) is right in denying the claim of the assessee and holding that the assessee is not entitled to any deduction u/s 42."
20. Respectfully following the above order of the Tribunal, we decide this issue against the assessee. This ground of the assessee is dismissed.
21. In the result, the appeal filed by the assessee is dismissed.
Order was pronounced in open Court on 25-11-11.
Sd/- Sd/- (A. Mohan Alankamony) (D.K. Tyagi) Accountant Member Judicial Member Ahmedabad, Mahata/- 57 ITA No.93/Ahd/2007 Asst. Year 1998-99 Copy of the Order forwarded to:- 1. The Assessee. 2. The Revenue. 3. The CIT(Appeals)- VI, Baroda. 4. The CIT concerns. 5. The DR, ITAT, Ahmedabad 6. Guard File. BY ORDER, Deputy/Asstt.Registrar ITAT, Ahmedabad 1.Date of dictation 22/9/2010.
2.Date on which the typed draft is placed before the Dictating Member................Other Member 14/11/2011
3.Date on which the approved draft comes to the Sr.P.S./P.S22-11-2011
4.Date on which the fair order is placed before the Dictating Member for Pronouncement 25-11-2011.
5.Date on which the fair order comes back to the Sr.P.S./P.S 25-11-2011
6.Date on which the file goes to the Bench Clerk 25-11-11.
7.Date on which the file goes to the Head Clerk 25-11-11
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................
58