Gujarat High Court
Nila Infrastructures Limited vs Assistant Commissioner Of Income Tax ... on 18 September, 2023
Author: Biren Vaishnav
Bench: Biren Vaishnav, Bhargav D. Karia
NEUTRAL CITATION
C/SCA/21945/2019 ORDER DATED: 18/09/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 21945 of 2019
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NILA INFRASTRUCTURES LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3(1)(1)
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Appearance:
MR B S SOPARKAR(6851) for the Petitioner(s) No. 1
for the Respondent(s) No. 1
MR NIKUNT RAVAL, ADVOCATE FOR MRS KALPANA K RAVAL(1046) for
the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 18/09/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. By way of this petition, under Article 226 of the Constitution of India, the petitioner has challenged the legality and validity of the impugned notice dated 26.03.2019 issued under Section 148 of the Income Tax Act, 1961 (for short 'the Act').
2. The case of the petitioner is that it is a company registered under the provisions of the Companies Act and Page 1 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined most of the shareholders are citizens of India. The petitioner had filed its original return for assessment year 2012-13 on 20.09.2012 declaring total income of Rs.17,41,26,150/-. The case of the petitioner company was selected for scrutiny and the assessment under Section 143(3) was finalized on 10.02.2015 determining total income at Rs.17,45,89,780/-. Thereafter, the case was reopened pursuant to the provisions of Section 147 of the Act and the assessment under section 147 read with section 143(3) of the Act was finalized on 22.11.2018 determining a total income of Rs.17,45,89,780/- under the normal provisions and Rs.17,90,79,200/- under section 115JB of the Act.
2.1 It is the case of the petitioner that after the impugned notice dated 26.03.2019, reasons recorded for reopening the assessment for the assessment year 2012- 13 were supplied on 12.03.2019. The petitioner raised several objections to the reopening. The objections were filed on 22.11.2019 and the objections were disposed of Page 2 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined on 02.12.2019. This is under challenge before this court.
3. Mr. B.S. Soparkar, learned counsel for the petitioner has raised several contentions to challenge the notice namely that the reopening was beyond a period of four years and that there was no failure on the part of the assessee to fully and truly disclose its income. That the notice was bad because specific questions were raised and answers were given at the time of scrutiny. It was therefore a change of opinion. He would further submit that it was the case of borrowed satisfaction as the Assessing Officer had borrowed the satisfaction from DDIT-I, Faridabad's communication dated 13.03.2018.
He had not applied his independent mind to record the reasons.
3.1 Mr. Soparkar would submit that in case of the petitioner itself, a notice under Section 148 was issued for the assessment year 2011-12 and the two reasons assigned in the present facts were reason nos. 3 & 6 of Page 3 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined the said notice of the assessment year 2011-12 which was a subject matter of challenge in Special Civil Application No. 16916 of 2018. This court by a CAV judgement dated 02.01.2023, having examined the relevant reasons which are a part of the present notice, allowed the petition. He would therefore place reliance on the decision of this court in the aforesaid petition.
3.2 Mr. Soparkar would submit that there is one more ground on which the notice deserves to be quashed and set aside. Reliance was placed on a decision in the case of the Bombay High Court of Patel Engineering Ltd.
vs. Deputy Commissioner of Income Tax, Central Circle 3(4) reported in (2022) 136 taxmann.com
115. In the case before the Bombay High Court, according to Mr. Soparkar, where the assessment was sought to be reopened on the ground that the assessee had received a contract from one SEPCL, the court found that the assesee had disclosed the entire details as required by the Assessing Officer and therefore Page 4 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined reopening was not justified.
4. Mr. Nikunt Raval, learned Senior Standing Counsel appearing for the revenue would justify the notice and the reasons for reopening of the assessment. Reliance was placed on the affidavit-in-reply filed to submit that the opinion of the Assessing Officer on the basis of correct facts/law is a good basis for formation of belief of escapement of income. Since a new fact had been unearthed as a result of search regarding certain entities from whom the assessee company had benefited it cannot be said that the exercise of jurisdiction was bad.
5. We have considered the submissions made by learned counsel for the respective parties and perused the CAV judgement dated 02.01.2023 in the assessee's own case rendered by this court in Special Civil Application No. 16916 of 2018 for the assessment year 2011-12. The reopening of the assessment in the present case is for the assessment year 2012-13. The reasons to Page 5 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined believe reproduced as Sr. No. 3 & 6 in Special Civil Application No. 16916 of 2018 when compared to the reasons to believe namely reasons no. 1 & 2 of the present case, except for the figures, the company being SECL in the present case and the intimation letter only being one of a different date i.e. 13.03.2018, the reasons to believe in the present petition are completely identical to the reasons no. 3 & 6 in the aforesaid petition. The court therefore had extensively considered these very reasons. For the sake of brevity, the reasons to believe in the present case read as under:
"2. The DDIT (Inv.)-1, Faridabad, on 13.03.2018 has passed on certain information regarding M/ s Nila Infrastructure Ltd, which is assessed with the undersigned. As per the said letter it has been informed that a survey u/s 133A of Income Tax Act, 1961 was conducted, on 31.10.2014 at the business premises of M/s Richa Industries Ltd. on 31.10.2014. During the survey proceedings, certain documents of significance related to SECL Industries Pvt. Ltd. (formerly known as Singla Engg. & Contractors Pvt. Ltd., (PAN: AAACN5059K) were also impounded. During the investigation process it was found that there is an organized Page 6 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined syndicate of construction companies where work is assigned by one company to second company on contract and that second company further assigns that work to third company on contract after keeping some margin as profit and so on. None of the companies had done actual work. Nature of work was development of agriculture land including clearance, excavations, leveling, dressing etc. which is not very conspicuous and physical verification of the same is very difficult. Companies involved in these transactions just received the work contract and immediately sub contracted the same without doing any work. Further, no commission was paid or any other expenses were incurred for receiving work contract or for sub-contracting the work. It has been further intimated that M/s Nila Infrastructure Ltd has received Rs. 8,63,06,120/- during F.Y. 2011-12 from M/s SERCL Industries Pvt. Ltd. for sub contract.
2.1 Further, on verification of Form 3CD report of the assessee by the undersigned, it is seen that the accountant in clause 21B (bII) has clearly mentioned that VAT, sales tax and service tax do not pass through P & L account. This means the assessee is not including such taxes in value of goods and services as income and not debiting any amount on account of payment of such taxes. It was also verified that the assessee has debited VAT (1594297) & service Tax (7408532) in P & L under the head other project expenses. The method adopted by assessee of not crediting the tax component in Page 7 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined sales but debiting such expenditure result in concealment of income of Rs. 90,02,829/-."
5.1 The Division Bench of this court by the order of 02.01.2023, on examination of the reasons, held as under:
FOR REASON 2 IN THE PRESENT PETITION, THE RELEVANT PARAGRAPHS OF REASONINGS IN SCA NO. 16916 OF 2018 ARE AS UNDER:
13. The second reason or second issue relates to reopening of the assessment is that as per Form-
3CD in Clause 21(b)(bii), it was clearly mentioned that VAT, sales tax and service tax do not pass through P & L Account, which means the assessee is not including such taxes in value and goods and service as income and is not debiting any amount on account of payment of such taxes. Though it was noticed that assessee has debited VAT of Rs.89,87,990/- and service tax of Rs.61,35,736/- under the head "Project Expenses", assessee having not accounted tax component in sales, expenditure on such payment was not includable as expenses. In other words, the method adopted by the assessee of not crediting the tax component in sales, the debiting such expenditure resulted in under assessment of income of Rs.1,51,23,726/- is the ground. At the time of assessment itself, the assessee had disclosed that it was carrying on two (2) types of project namely (i) contract project and Page 8 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined
(ii) residential project. It has been explained by the assessee in its objections against the reasons recorded for reopening of assessment as under :
"2.2 In this regard we are submitting herewith project wise details of service tax/VAT paid vide Annexure-2. It has been alleged that the assessee has debited the VAT/service tax expenses but tax component in sale was not considered. We wish to state that the assessee is doing two type of project one is contract project and second is residential project. With regard to contract project of Surat the assessee has paid Rs.38,25,124/-. The same shown separately as expenses and the gross amount is shown as income in the P&L Account. The copy of work order entered into with RJD Integrated Textile Park Ltd. is enclosed herewith vide Annexure- 3 from which your good self will find that the said order is inclusive of all taxes. For example if Rs.100 is amount of work order which is inclusive of service tax. Then assessee is crediting Rs.100 in the income and debiting Rs.10 as expenses as service tax. Further, in residential project the assessee is paying service tax under abetment scheme and as per the said scheme the assessee is not eligible for any input credit and hence it has debited the amount of service tax charged for services received. For example if it has received services bill of Rs.110/- which is inclusive of Rs.10 as service tax then the company is showing Rs.100 under expenses and Rs.10 as service tax paid instead of showing Rs.110 as expenses. On the similar line the assessee is paying VAT under composition scheme and as per the said Page 9 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined scheme it has to pay VAT/service tax at certain percentage of the turnover. It means that the assessee has not collected anything from the customer but it has to pay VAT from its pocket. Further, also it is not eligible for any input credit and hence any tax charged on the material purchase is treated as expenses. The relevant pages of the respective scheme is attached herewith for your perusal vide Annexure-4. The sample copy invoices are attached herewith as Annexure-5. The copy of account of service tax and VAT is also enclosed herewith vide Annexure-6. In view of the above the assessee has correctly followed the system of accounting and rightly claim the service tax and VAT being paid out of pocket and or not eligible for input credit."
14. Thus, there was no suppression or withholding of information by the assessee at the time of framing of the assessment or during the assessment proceedings. The fact that assessee was paying VAT under the composition scheme and said scheme envisages payment of VAT/service tax on certain percentage of turnover cannot be disputed. In other words, assessee has followed the system of accounting rightly and claimed service tax/VAT. This issue though raised in the objections has been washed off or brushed aside without assigning any reason whatsoever. The third issue on which the assessment was sought to be reopened is that the assessee had claimed MAT credit of Rs.1,01,91,317/- for earlier years and reduced the tax liability to that extent by adjusting from tax liability under normal provision of the Act. It is the further case of the Revenue that in the financial year 2010-11, there was amalgamation of Page 10 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined a company named Pearl Stockholding Private Limited (PSPL) with the assessee company and as per assessee, the PSPL had MAT credit of Rs.42,14,285/- at the time of amalgamation and assessee company had MAT credit of Rs.59,79,032/- during assessment year 2010-11 and MAT credit of Rs.42,12,285/- was pertaining to amalgamating company and same was not allowable under Section 105JAA(1A) of the Act. The objections to the reopening on this issue has been objected to by the assessee by contending as under:
"3.1. In this regard we submit that as per the computation of total income the assessee is eligible for the total MAT credit of Rs. 1,01,91,317/- however it has claimed set off of Rs. 51,34,156/- only in the year under consideration and not Rs.1,01,91,317/-.
3.2. It is further submitted that Amalgamation is a process wherein one or more companies merge into another company or two or more companies merge together to form a new company. All the property of the amalgamating company before amalgamation becomes the property of the amalgamated company by virtue of the amalgamation. Similarly, all liabilities of the amalgamating company before amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation. The definition of the term 'amalgamation' u/s.2(1B) of the Act also envisages the above requirement. It is a settled law that the term 'property' as employed in S. 2(1B) is a term of the widest import and, subject to any limitation which the context may require, signifies every Page 11 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined possible interest which a person can clearly hold and enjoy. MAT credit which can be carried forward and set off has the potential of reducing the tax liability during subsequent years and therefore it possesses the characteristics of being considered as a 'property'. Guidance note on accounting, of MAT credit issued by ICAI also recognises that MAT credit has expected future economic benefits in the form of its adjustment against the discharge of the normal tax liability in future years and therefore is an 'asset'. The said Guidance note also permits the accounting and recognition of MAT credit as an 'asset' in the financial statements. Thus, MAT credit of the amalgamating company, which would be considered as a property, becomes the property of the amalgamated company by virtue of the amalgamation.
AS-14 - Accounting for amalgamation in the books of amalgamated company issued by ICAI and notified by Central Government in the form of Companies (Accounting Standard) Rules 2006 envisages two types of amalgamation viz ., amalgamation in the nature of merger (pooling of interest method) and amalgamation in the nature of purchase (purchase method).] If the amalgamation is that of type one i.e., amalgamation in the nature of merger, all the assets and liabilities of amalgamating company are recognised in the books of amalgamated company at their book value. Under this method, if MAT credit is recognised as an asset in the balance sheet of Page 12 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined the amalgamating company, the amalgamated company is also required to recognise the same in its balance sheet.
Under type two amalgamation i.e., the purchase method, the amalgamated company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the amalgamating company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the amalgamating company. [para 12 of AS-14] Under this method, if MAT credit of amalgamating company (irrespective of whether such credit is recognised as an asset in the balance sheet of amalgamating company or not) is taken over by the amalgamated company or if the consideration in respect of amalgamation includes consideration for taking over MAT credit in the scheme of amalgamation, the latter company recognises the same in its balance sheet.
Thus, under both the types of amalgamation, the MAT credit of amalgamating company could be recognised as an asset in the balance sheet of the amalgamated company. MAT credit is thus an accounting derivative, It could be regarded as a 'capital asset' u's.2(14). On transfer of such capital asset in a scheme of amalgamation, it could be said that the amalgamated company becomes the Page 13 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined owner, enabling it to carry forward and set off MAT credit: The principle underlying some of the provisions wherein deduction is attached to the undertaking and not to the owner thereof could also be extended to MAT credit. Therefore, it could be said that on amalgamation the amalgamated company gets the right to carry forward and set off the MAT credit.
3.3. Various amendments were made to the Income-tax Act, 1961 by the Finance Act 1999 concerning tax implications of business reorganisations by way of amalgamation and demerger. The Finance Minister's speech in Budget 1999 [236 ITR (St.) 1] stated that a comprehensive set of amendments is being proposed to make business re-organisations fully tax neutral. In the speech the following was stated "it is proposed that all fiscal concessions will survive for the unexpired period in the case of amalgamation and de- mergers." It may be noted that MAT credit in respect of tax paid u/s. 115JA was already on the statute books when the provisions of Finance Act 1999 were introduced: The intention of the legislature appears to be that the benefits/reliefs available to the amalgamating company should vest in the amalgamated company so that the latter company can claim such benefits/reliefs for the unexpired period, on a premise that the amalgamation had not been effected.
3.4. There is no prohibition or restriction in S. 115JAA with regard to carry forward and set off of MAT credit belonging to the amalgamating company by the amalgamated Page 14 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined company. The memorandum explaining the provisions of Finance Bill, 2005 [273 ITR (St.) 60] and Circular no. 3 of 2006, dated 27-2- 2006 [(2006) 281 ITR (St.) 222] explaining the provisions of Finance Act 2005 also do not state that carry forward and set off of MAT credit is allowable only to the company which has paid tax u's. 115JB. In an amalgamation, one company is subsumed into another. The amalgamated company becomes the 'alter ego' of the amalgamating company. Tax provisions desire that the benefits available to the amalgamating company survive and continue to be effective in the amalgamated company. The benefits are to remain unhindered despite the assumption of new legal garb. As a result, the amalgamated company may carry forward and set off MAT credit belonging to the amalgamating company.
3.5. In DCIT v. Beck India Ltd., (2008) 26 SOT 141 (Mum.) the High Court vide order dated 20- 9-2001 approved the merger of a company with the respondent company with effect from the appointed date of amalgamation being 1- 1-2001. The financial statements presented in the annual general meeting did not consider the unabsorbed losses of the amalgamating company since the said meeting was conducted before the date of the order of the High Court approving the merger. For the same reason, the original return filed by the respondent on 30-10-2001 did not consider the unabsorbed losses of amalgamating company in the process of computation of book profits u/s. 115JB. After the approval of merger by the High Court, the respondent Page 15 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined assessee revised its financial statements so as to consider the effect of amalgamation. The respondent assessee also filed a revised return wherein the unabsorbed losses of amalgamating company .remaining after setting off the same with the surplus of the assessee company was reduced in the process of computation of book profits u/s. 115JB. The Tribunal held that the assessee is eligible for set off based on the revised accounts. Considering the above decision wherein losses of amalgamating company were allowed to be set off by the amalgamated company in computing book profits u/s.115JB, one could contend that MAT credit of amalgamating company. could also be carry forward and set off by the amalgamated company u/s. 115JAA.
3.6. In VST Tillers and Tractors Ltd. v. CIT, ITA No. 588/Bang./2008, a decision of the Bangalore ITAT, VST Precision Components Ltd. ('VPCL or the amalgamating company'), a subsidiary of VST Tillers & Tractors Ltd. ('the assessee') amalgamated with the assessee under a scheme of amalgamation sanctioned by the Karnataka High Court. As per the sanctioned scheme, pursuant to the amalgamation, all assets and liabilities of VPCL would vest with the assessee. The sanctioned scheme inter alia provided that the unabsorbed losses and depreciation of VPCL shall be deemed to be losses and depreciation of the assessee as provided u/s.72 of the Act. The assessee in computing the MAT liability u/s.115JB reduced unabsorbed losses of VPCL (which was less than the unabsorbed depreciation of VPCL) Page 16 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined from book profits: The CIT passed order u/s.263 holding that unabsorbed losses reduced were not as per books of account of the assessee but were as per books of accounts of VPCL and therefore the same cannot be reduced from the book profits of the assessee. On appeal, the Tribunal apart from relying on S. 72 also relied on S. 72A of the Act. It was observed that the sanctioned scheme also provided that the unabsorbed losses and depreciation of VPCL shall be deemed to be losses and depreciation of the assessee as provided u/s.72 of the Act. It was therefore held that the assessee has rightly reduced the unabsorbed losses of VPCL from its book profits in computing MAT liability u/s. 115JB.
3.7. In ITO v. Mahyco Vegetable Seeds Ltd ., (2009) 314 ITR (AT) 37 ITAT (Mum.) it was held that the resulting company is entitled to carry forward unabsorbed scientific research expenditure allocated to it in the process of demerger by the demerged company. The Tribunal held that the amount representing the unabsorbed capital expenditure on scientific research u/s.35(4) was not different from the unabsorbed depreciation for the purposes of .S. 72A(7). The respondent company was therefore allowed carry forward unabsorbed scientific research expenditure of the company even though there is no specific provision in S. 72A amalgamated or resulting company to carry forward and set unabsorbed scientific research expenditure of amalgamating or demerged company.
3.8. In SKOL Breweries Ltd. v. ACIT, 28 ITAT Page 17 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined India 998 (Mum.) ITA No. 313/Mum./07 A.Y. 2003-04 decision dated 15-5-2008 the Tribunal allowed set off of MAT credit of amalgamating company in the hands of the appellant assessee being the amalgamated company. The Tribunal observed :
"We have duly considered the rival contentions and gone through the record carefully. The Ld. CIT(A) while denying the benefit of taxes paid by M/s .. Charminar Breweries Ltd. (CBL) u/s.115JA has observed that M/s .. CBL was amalgamated with erstwhile SKOL and ceased to exist. Once the company ceases to exist then any benefit available to the company would not devolve upon the transferee company. For the above view CIT(A) has relied upon the decision of Hon'ble SC in the case of Sarawati Industries Syndicate 186 ITR 278. In our opinion Ld. first appellate authority has referred to this decision without context. The facts of that case are quite different. In that case, an assessee 'A' has paid certain amount to 'B' towards sales tax liability. 'B' who collected the sales tax from 'A' disputed the liability before the Sales tax Tribunal. During the pendency of the litigation 'A' ceased to exist and its business was taken over by 'C'. The Sales tax Tribunal decided the issue in favour of 'B' and held that no sales tax is payable. Accordingly 'B' returned the money to 'C'. This amount was sought to be taxed u/s.41(1) of the Act according to the provision as it existed in AY 1965
- 66. In the context the Hon'ble Supreme Page 18 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined court has held that this amount is not taxable in the hands of 'C'. The ingredients provided in the definition of amalgamation is altogether different from the condition provided in S. 41(1) in A.Y. 1965-66. The assets and liabilities on the date of amalgamation of the amalgamating company would become assets and liabilities of the amalgamated company. If M/s.
Charminar Breweries has paid tax u/s.115JA of the Act in earlier assessment years and that benefit is permissible u/s.115JA of the Act then that cannot be denied to the assessee simply for the reason that M/s.
Charminar Breweries is not in existence. The Ld. CIT(A) has erred in placing his implicit reliance upon the judgment of Hon'ble Supreme court. In principle we allow this ground of appeal of the assessee, set aside the issue to the file of A.O for verification of the taxes paid by M/s. Charminar Breweries and how that benefit would devolve upon the assessee. The AO shall verify the details and then grant the benefit to the assessee."
3.9. The rationale for allowing credit in respect of taxes paid under MAT, as per the memorandum explaining the provisions of Finance Bill, 1997 [224 ITR (St.) 26] and as per Para 45.4 of CBDT Circular No. 763, dated 18- 2-1998 [230 ITR (St.) 54] is that a company should always pay a minimum tax even while offsetting the MAT credit against regular tax. The objective of the said Page 19 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined provision is to allow relief in respect of tax paid under MAT regime It is a selling low fat provisions granting exemptions and relief should be interpreted liberally so as to advance the objective and not to frustrate It. [Bajaj Tempo Ltd. v. CIT. [10] 106 ITR 188 (SC). Thus, MAT credit of X Ltd, on amalgamation with Y Lid, should be available for carry forward and set off in the hands of the latter company It is also a settled law that when there is any genuine doubt about the interpretation of a fiscal statute or where two opinions are capable of being formed then, that rule of interpretation which is favourable to the assessee is to be preferred. [CIT v. Vegetable Products Ltd., [1973] 88 ITR 192 (SC)].
3.10 Going by the rationale of S. 115 JAA, one could contend that the MAT credit of amalgamating company can be set off by the amalgamated company. One could contend that in the process of amalgamation, one company loses its identity and would be merged with the other company. It could be contended that MAT credit, if utilised by the amalgamated company, would not result in any excessive relief. Denial of carry forward and set off of MAT credit of an amalgamating company to an amalgamated company would be against the legislative intention and reasonable or purposive interpretation of S. 115JB and S. 115JAA. There would be no excessive relief or double deduction if amalgamated company is allowed to carry forward and set off MAT credit of amalgamating company. As explained earlier, MAT credit represents that portion of tax Page 20 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined which was not actually payable by the company but has all the same been collected by the Government. [CIT v. Jindal Exports Ltd ., [2009] 314 ITR 137 (Del.)] If amalgamated company is denied the benefit of carry forward and set off of MAT credit of amalgamating company, it could be termed unauthorised collection of taxes by the Government. Reliance may be placed on the decision in Escorts Lid. v. DCIT, (2007) 15 SOT 368 (Del.) wherein it was observed that if no credit of TDS is to be given to the payee/deductee, the Government would have no authority to treat the same as tax and Article 265 does not empower the Government to make any levy or collection of tax not authorised by law.
3.11. It is settled law that where strict literal construction leads to injustice or a 5 result not intended to be subserved by the object of the legislation, then an equitable construction should be preferred over the strict literal construction. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the court might modify the language used by the legislature so as to achieve the intention of the legislature and produce a rational result.
3.12. Further, the reliance is also placed on the decision of ACIT vs. M/s Caplin Laboratories Ltd. in ITA No. 667/Mds/2013 dated 31.01.2014, the relevant extract from the said decision is reproduced herein under:
Page 21 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined "Upon a careful consideration of the issue we find that, after amalgamation the assessee company is entitled to all the assets, claims etc. of the erstwhile company, which is also supported by Hon'ble High Court order in this regard. Further, when the assessee company is now being assessed in place of erstwhile company and TDS credit pertaining to the erstwhile company is being given credit to the assessee company, there is no reason why a different treatment should be given to the MAT credit available pertaining to the erstwhile company. We do not agree with the learned commissioner of Income Tax (Appeals) that there is need for specific mention in this regard in section 115JAA as the carry forward of MAT credit of erstwhile company by amalgamated company is in-built in the scheme of amalgamation as well as the scheme of MAT credit. Hence, we set aside the order of learned Commissioner of Income Tax (Appeals)in this regard and decide the issue in favour of the assessee."
In view of the above, the assessee company is eligible for the MAT credit of the amalgamating company."
15. Even this objection has been brushed aside and without even considering the foundational facts laid by the assessee in the aforesaid objections.
Though it was specifically contended that there was no prohibition or restriction under Section 115JAA with regard to carry forward and setting off Page 22 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined of MAT credit belonging to amalgamating company by the amalgamated company, yet this fact has been completely ignored. In other words, there is no independent finding recorded for reopening and it is trite law that based on borrowed opinion, reopening of the assessment is impermissible."
FOR REASON 1 IN THE PRESENT PETITION, THE RELEVANT PARAGRAPHS OF REASONINGS IN SCA NO. 16916 OF 2018 ARE AS UNDER:
"16. One another reason which has persuaded the respondent authority to issue notice for reopening the assessment is traceable to the communication dated 16.03.2018 of the ITO, Ward 10(2), Kolkata, who has stated that during the course of the assessment under Section 143(3) read with Section 263 in the case of Solvent Real Estate Private Limited (SREPL) for assessment year 2011-12 addition of Rs.101,01,50,000/- was made under Section 40(a)(ia) of the Act as the said entity had not deducted tax at source on sub-contract payments. The said assessment order which was challenged before the CIT (Appeals) has resulted in a finding being recorded by the appellate authority that SREPL had no genuine business and was engaged only in providing bogus bills to various concerns for commission. Thus, it would clearly emerge from the above that the Assessing Officer has borrowed the view expressed by CIT (Appeals) for issuing the impugned notice. In fact, assessee has specifically contended in its objections that neither the order of CIT (Appeals) or the Page 23 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined communication dated 16.03.2018 of the ITO was furnished to the petitioner. It is the opinion of the ITO, Kolkata and the finding recorded by CIT (Appeals) which perforced the AO to issue the impugned notice partakes the character of borrowed satisfaction and/or without there being independent finding recorded by AO for reopening of the assessment. In fact, Assessing Officer seems to have reopened the assessment to fish out evidence which is impermissible and the pre- requisite for reopening being 'satisfaction of income to tax having escaped', the authority should have reason to believe that income of the assessee has escaped assessment; and, secondly, he must have reason to believe that such escapement is by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. If these twin conditions are not being fulfilled, notice issued by the authority would be one without jurisdiction. The belief which the authority entertains must not be arbitrary or irrational. It must be reasonable or having nexus to the escapement of income to tax. The adequacy of the reasons and its relevancy would form the foundation for reopening of the assessment. In the absence thereof, on borrowed opinion, reassessment proceedings cannot be commenced."
5.2 Based on the aforesaid reasons, the Division Bench subsequently in paragraph nos. 17 & 18 and 20 held as under:
"17. The Hon'ble Apex Court in the case of Ganga Saran and Sons Private Limited vs. Income Page 24 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined Tax Officer, 1981 (6) Taxman 14 (SC) : (1981) (130) ITR 1 (SC) has held :
"6. It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction. The important words under section 147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertain ed by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a ). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Page 25 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined ITO could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid."
18. Thus, it would emerge from the aforesaid discussion that there is no whisper in the impugned order as regards any failure on the part of petitioner to disclose fully and truly all material facts and as such it is not possible for this Court to infer any such failure on the part of the assessee from the reasons recorded. Petitioner had made adequate disclosures during assessment proceedings which is now sought to be reopened and particularly with reference to ground Nos.1 and 2 on which the respondent authority has proposed to reopen the assessment.
19. The first three grounds on which the Assessing Officer has proposed to reopen the assessment as could be discerned from the assessment order, was part of the scrutiny during the assessment and Assessing Officer having consciously taken a particular decision, the change of opinion cannot form the basis for reopening the assessment that too based on same set of facts. In fact, it would be apt and appropriate to note at this juncture that during the course of the assessment proceedings, assessee has submitted three communications dated 16.12.2013, 09.01.2014 and 03.02.2014 (Annexure-F) with reference to the first three issues based on which the assessment is sought to be reopened by highlighting the facts as more specifically stated therein which has gone into the Page 26 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined decision making process at the time of passing assessment orders or in other words, the Assessing Officer took note of these facts and has formed an opinion, which opinion is now sought to be substituted and made as a ground for reopening of the assessment which is impermissible as change of opinion cannot be the basis for reopening the assessment.
20. For the cumulative reasons aforesaid, we are of the considered view that prayer sought for in the petition deserves to be granted by answering the point formulated hereinabove in favour of the assessee and against the Revenue."
5.3 Even in the case of Patel Engineering Ltd. (supra), the Division Bench had held as under:
"5. We are actually having difficulty to make out any sense in the reasons recorded. The entire basis, as we have understood, is certain companies were accepting contracts and were subcontracting those contracts to other entities and respondents came to know about this based on a survey under section 133A of the Act of one Singla Engineers and Contractors Private Limited ("SECPL") on 31st October, 2014. First of all, this survey has been conducted before the assessment order dated 31st March, 2015 for Assessment Year 2012-2013 was passed in the case of petitioner and, therefore, the Assessing Officer should have been aware of any such information but still chose not to raise it during the assessment process. Moreover, according to the Jurisdictional Assessing Officer ("JAO"), who has recorded the reasons, a contract Page 27 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined was received by petitioner from one SECPL during the relevant assessment year for Rs. 24,22,57,252/-. That can not be a reason to reopen because JAO does not even state, whether petitioner executed the contract and received any income.
6. Moreover, petitioner has stated in the petition and it has not been denied by respondent, that petitioner did receive a contract from SECPL but the contract was for Rs. 14,92,47,452/-and not for Rs. 24,22,57,252/- as mentioned in the reasons for reopening. Petitioner had sub-contracted the contract to one Bramhaputra Infrastructure Limited for a consideration of Rs. 14,62,95,999/- and the contracting charges were credited by petitioner to the profit and loss account and offered as income. Petitioner first filed its return of income for Assessment Year 2012-2013 on 30th November, 2012 and thereafter filed revised return of income on 28th February, 2014 along with annual accounts of petitioner. During the assessment proceedings, Assessing Officer had issued notice dated 17th December, 2014 under section 142(1) read with Section 129 of the Act asking details of the sub- contract given by petitioner with details of the parties. Petitioner by its letter dated 5th January, 2015 submitted the details required by the Assessing Officer which included the receipt of Rs. 14,92,47,452/- from SECPL, which was credited as income in the relevant year. Petitioner, thereafter, on 25th March, 2015 filed submissions giving the AIR Reconciliation that included reconciliation of income received from SECPL. Thereafter the assessment order dated 31st March, 2015 under section 143(3) for Assessment Year 2012- 2013 was passed. The assessment order dated 31st March, 2015, copy whereof is annexed to the petition, also Page 28 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined records that the authorised representative of petitioner attended from time to time and furnished details called for.
7. Therefore, by no stretch of imagination, it can be held that there was non-disclosure on the part of petitioner. These facts have been brought to the notice of respondents by petitioner vide letter dated 10th October, 2019, Notwithstanding the same, the order on the objections dated 16th October, 2017 and impugned in the petition has been passed.
8. In our view, having heard the Counsels and considered the petition along with documents annexed thereto, the JAO has not verified the facts with the data available with him and simply on the basis of information received from DDIT, has issued the notice to petitioner. Therefore the condition precedent for taking action under section 147 of the Act that mandates, it is exclusively the satisfaction of the assessing authority based on some direct, correct and relevant material has not been met. This Court in Pr. CIT v. Shodiman Investments (P.) Ltd. [2018] 93 taxmann.com 153/[2020] 422 ITR 337 has held that reopening notice has to be issued by the Assessing Officer on his own satisfaction and not on borrowed satisfaction.
9. The Delhi High Court in Sabh Infrastructure Ltd. v. Asstt. CIT [2018] 99 taxmann.com 409/[2017] 398 ITR 198 had laid down certain guidelines in matters of reopening of assessment and one of the guideline, which the revenue was directed to adhere to was, where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of such Page 29 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023 NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined report should be enclosed along with the reasons. We find that to the reasons recorded, revenue has not annexed the DDIT information received by them. To that extent, the revenue, therefore, is in breach of the orders of the Delhi High Court in Sabh Infrastructure Ltd.'s case (supra).
10. We also notice in the order disposing petitioner's objections, Assessing Officer has relied upon various judgments of which copies have not been provided or were brought to the notice of assessee before the order on objection was passed so that assessee could have suitably dealt with those judgments/orders. Therefore, we would add that there is also breach of principles of natural justice on the part of the Assessing Officer, who as a quasi judicial authority had an obligation to adhere strictly to the principles of natural justice.
11. We also notice that in the order disposing the objections, the JAO has gone beyond the reasons recorded for reopening inasmuch as according to him no bank statements or work contract receipts were inquired or submitted during the original assessment proceedings based on which the actual amount and the nature and genuineness of the work done by assessee for SECPL could have been verified. It is settled law that reasons cannot be improved upon and/or supplemented as held in First Source Solutions Ltd. v. Asstt. CIT [2021] 132 taxmann.com 121/438 ITR 139 (Bom.) In any event, the Assessing Officer is not correct inasmuch as petitioner, as recorded earlier, has provided the details regarding contract with SECPL.
12. In the circumstances, the petition is allowed in terms of prayer clause (a), which reads as under:Page 30 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023
NEUTRAL CITATION C/SCA/21945/2019 ORDER DATED: 18/09/2023 undefined "(a) that this Hon'ble Court be pleased to issue a Writ of Certiorari or any other writ order or direction under Article 226 of the Constitution of India calling for the records of the case leading to the issue of the impugned notice and passing of the impugned order and after going through the same and examining the question of legality thereof quash, cancel and set aside the impugned notice (Exhibit-F) dated 31st March, 2019 and impugned order (Exhibit-J) dated 16th October, 2019."
13. Petition disposed."
6. Adopting the same line of reasoning as that of the Division Bench in the aforesaid case, present petition is allowed. Notice under section 148 dated 26.03.2019 is quashed and set aside. Rule is made absolute.
(BIREN VAISHNAV, J) (BHARGAV D. KARIA, J) DIVYA Page 31 of 31 Downloaded on : Mon Sep 25 20:30:34 IST 2023