Gujarat High Court
Nila Infrastructures Limited vs Assistant Commissioner Of Income Tax ... on 2 January, 2023
Author: Aravind Kumar
Bench: Aravind Kumar, Ashutosh J. Shastri
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16916 of 2018
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NILA INFRASTRUCTURES LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE (3)(1)
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Appearance:
MR SN SOPARKAR, SENIOR ADVOCATE WITH MR B S
SOPARKAR(6851) for the Petitioner(s) No. 1
MR MANISH BHATT, SENIOR ADVOCATE ASSISTED BY MUNJAAL
BHATT FOR MRS KALPANAK RAVAL(1046) for Respondent No. 1
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CORAM:HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND
KUMAR
and
HONOURABLE MR. JUSTICE ASHUTOSH J. SHASTRI
Date : 02/01/2023
CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR)
1. By way of this petition under Article 226 of the Constitution of India, petitioner has challenged the legality and validity of the impugned notice dated 29.03.2018 at Annexure-A and has sought for quashing of the same.
2. The case of the petitioner is that it is a Company registered under the provisions of the Companies Act and most of the shareholders are citizens of India and respondent being authority under Article 12 of the Page 1 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 Constitution of India, it has invoked extraordinary jurisdiction of this Court.
3. The case of the petitioner is that it has filed its original return of income for the A.Y. 2011-12 on 27.09.2011 declaring total income at Rs.11,99,50,930/- and the revised return of income was filed on 27.09.2012 declaring total income at Rs.12,02,45,130/-. The authority has selected petitioner's case for scrutiny and passed an assessment order in exercise of power under Section 143(3) of the Income Tax Act, 1961 (for short the "Act") dated 29.03.2014 assessing the income at Rs.13,64,40,534/-. Thereafter, the authority issued notice to petitioner under Section 148 of the Income Tax Act on 30.03.2016 and an order came to be passed thereafter under Section 143(3) read with Section 148 of the Act. 3.1. It is the case of the petitioner that later on, respondent issued impugned notice under Section 148 of the Tax Act on 29.03.2018 for re-opening the assessment for the A.Y 2011-12 and also supplied the reasons for re- Page 2 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 opening vide letter dated 04.07.2018. The petitioner - assessee raised multiple contentions by way of objections on merit as well and requested to drop the reassessment proceedings vide its communication dated 17.10.2018. Later on, an order came to be passed on 25.10.2018 rejecting the objections raised by petitioner and according to petitioner, impugned notice issued under Section 148 of the Act as well as order disposing of objections, are bad in law, illegal and having no other efficacious remedy, has invoked extraordinary jurisdiction of this Court by way of present petition.
4. On the basis of unilateral submission of learned Senior Advocate Mr. Saurabh N. Soparkar, who appeared for the petitioner, the co-ordinate Bench of this Court vide order dated 30.10.2018 was pleased to issue notice and by way of ad-interim order, impugned notice came to be stayed. It is in this background, petition has come up for consideration before us and pursuant to the request having been made, we took up the matter for final disposal since the pleadings are complete. Page 3 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
5. Mr.S.N.Soparkar, learned Senior Advocate appearing for the petitioner has raised multiple contentions and by referring to various documents attached to the petition compilation, has submitted that the authority while considering the objections has failed to deal with the specific objections which have been raised by petitioner and in a stereo type manner, mechanically, without applying mind, disposed of same and as such, it is under challenge contending it is suffering from vice of non-application of mind and there appears to be no subjective satisfaction by the authority who is under an obligation to consider the same. It has been contended that impugned action in any case is beyond the period of four years and as such, according to the provisions contained under the Act, re-opening of the assessment is impermissible and as such, the authority has acted without jurisdiction. Mr. Soparkar, learned Senior Advocate has further submitted that reasons which are assigned for issuance of notice under Section 148 of the Act of re-opening of assessment are not Page 4 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 germane to law and rather same are factually incorrect. By drawing our attention to specific detailed objections raised by petitioner dated 17.10.2018, Mr. Soparkar, learned Senior Advocate has submitted that specific details have been provided along with necessary documents, the authority in a copy-paste manner has just narrated the reasons and without applying mind has discarded the objections. For the purpose of canvassing this submission, Mr. Soparkar, learned Senior Advocate has drawn attention of this Court to Issue no. 1 which contains in paragraph 2 on page 37 of the part of the reasons for issuance of notice under Section 148 of the Act and has submitted that though details at length have been provided, the authority has chosen not to examine the same. In fact, page nos. 58 to 175 of the present petition compilation is consisting of documents which are self explanatory and clear answer to reason which has been given for re-opening, but surprisingly, the authority has conveyed without examining the said documents that there is nothing on record which may disallow the Page 5 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 expenditure. In fact, though the documents were produced in large numbers as stated above, yet authority has said that there is nothing on record to indicate that TDS was deducted by the petitioner. The authority has not applied its mind by indicting to that extent, that petitioner assessee has not produced any proof of deduction of tax and deposits thereof, in the government account. Mr. Soparkar, learned Senior Advocate has then referred to few documents contained on record in Form No. 16A, reflecting right from page 169 onwards and has submitted that though there is a clear material provided, the same has not been considered at all and as such, the action initiated of re-opening on such reasons having not been examined, deserves to be corrected by quashing and setting aside the same.
5.1. Mr. Soparkar, learned Senior Advocate has further submitted that same is the case with Issue No. 2 which is reflecting from paragraph 3 of the reasons on page 37 and though there is a clear explanation given about such query related to VAT, Sales Tax including Service Tax, by Page 6 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 referring to paragraph 2.2 from the explanation/objections against reasons recorded, the entire issue raised by the authority has been clearly explained and related to this query, project wise details of Service Tax/VAT has been provided and proof of same is also produced, still by just mentioning this in paragraph that no explanation is offered, the detailed explanation has been overlooked. It has been submitted that to explain this, documents running from page 176 to 261 have also been produced and submitted that assessee is paying VAT under the composition scheme and as per the said scheme, it has to pay VAT/Service Tax on certain percentage of turnover, but then, it was specifically submitted that petitioner assessee has correctly followed the system of accounting and rightly claimed the Service Tax/ VAT being paid out of pocket and/or not eligible for input credit. The relevant objections of respective claim was also brought to the notice of the authority while tendering such objections against reasons on that issue, but then, by drawing attention to the order which has Page 7 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 been passed on 18.10.2018, a contention is raised that said detailed explanation has been washed of by merely recording of reasons in verbatim and as such, paragraph 3.3 reflecting on page 276 is nothing but evasive consideration which reflects non application of mind. 5.2. Mr. Soparkar, learned Senior Advocate has further contended that yet another issue on which also, a clear error is committed in not examining the relevant objections namely third issue is relating to claim of MAT credit of Rs.1,01,91,317/- of earlier years and thereby reducing tax liability to that extent by adjusting from its tax liability under the normal provision of the Act. However, it has been alleged that in F.Y. 2010-11, there was amalgamation of company named as 'Pearl Stock Holding Pvt. Ltd. (PSPL) with the assessee company and as per the assessee the PSPL has MAT credit of Rs.42,12,285/- at the time of amalgamation and the assessee company has MAT credit of Rs.59,79,032/- for A.Y. 2010-11 and as such, MAT credit of Rs.42,12,285/- does not pertain to assessee company, but to Page 8 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 amalgamating company and as such, same was not allowable under Section 115JAA(1A) of the Act. For this reason, a specific explanation has been offered in the form of objection reflecting on page 43, whereby, by explaining and by referring to several decisions, it was conveyed that there is no prohibition or restriction under Section 115JAA with regard to carry forward and set off of MAT credit belonging to amalgamating company by the amalgamated company. For the purpose of explaining sume, assessee had relied upon several decisions including the decision delivered by the Karnataka High Court and had requested the authority to consider the same, but again as usual by brief paragraph contained in paragraph 3.4 entire objection is not dealt with at all and it has been mechanically submitted that even this opinion is not independent and it is nothing but mere production of reason, as can be apparently seen if compared with paragraph 4 on page 37 to paragraph 3.4 on page 276 of the impugned order and as such, apparently, this is nothing but a clear example of non-application of mind, Page 9 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 on which count alone, impugned order and further action of respondent deserves to be quashed.
5.3. Mr. Soparkar, learned Senior Advocate has further submitted that insofar as another issue contained in paragraph 6 of the reasons for re-opening, surprisingly, the authority has examined the merit and has gone to the extent of recording a finding that M/s. Solvent Real Estate Private Limited (SREPL) had no genuine business transactions and it was only engaged in providing bogus billing and as such, Mr. Soparkar, learned Senior Advocate has submitted that authority while dealing with such issue has overstepped its jurisdiction and as such, impugned order deserves to be quashed. It has been submitted that a new issue is raised by the authority based upon a letter dated 16.03.2018, and to this objection has been raised by the petitioner as can be seen from paragraph 4 onwards reflecting from page 50. This new issue has been tried to be explained and objected to by raising contention that assessee company was awarded a contract of Rs.5,98,73,300/- by 'Progressive Page 10 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 Constructions Limited' for dismantling of concrete and disposal of the same and clearing debris from the Mumbai International Airport Limited Project Site. The assessee company has assigned work to sub-contractor to SREPL which is also reflecting from page 265 to 268 and the SREPL has carried out the work as per the work order issued to them and in turn it has raised bill on 02.12.2010 for an amount of Rs.5,68,80,000/-. The copy of said bill had also been produced for perusal of the authority and by referring to this document, it has been submitted that assessee company received payment from the 'Progressive Constructions Limited' on various dates ranging from 30.12.2010 to 28.03.2011, after deduction of tax at Rs.11,97,474/-. The assessee company in turn made payment with respect to bill raised by SREPL on various dates after deducting TDS at Rs.11,37,600/-. The ledger account of the said period and the TDS certificate in the form of Form 16A has also been placed on record and as such, on account of aforesaid situation, the assessee company has offered an income of Page 11 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 Rs.5,98,73,700/- and claimed expenditure of Rs.5,68,80,000/- in the Profit and Loss Account for the year under consideration.
5.4. Mr. Soparkar, learned Senior Advocate has raised serious grievance with regard to this new issue which has been raised in the reasons for re-opening, by contending that letter of assessing officer dated 16.03.2018 which is made the base of this reason, a demand was raised to supply information related to it, but though the authority has relied upon certain material which had not been supplied and it has adversely affected the right of making or raising effective objection, which has clearly violated the well recognized principles of natural justice. Non- supplying of such relied upon documents, as per the say of learned Senior Advocate, has given an impression that there is no tangible material available to re-open the assessment and as such, said issue is merely based upon presumption, assumption and suspicion without any concrete basis and hence, has reiterated that impugned order which has been passed is in gross violation of Page 12 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 principles of natural justice.
5.5. Mr. Soparkar, learned Senior Advocate has further submitted that findings arrived at with regard to bogus bills to various concerns is not supported by any concrete material and no such material is provided at least to the petitioner and as such he has submitted that re-opening of assessment is not permissible. By referring to these issues which are raised, a specific contention has been reiterated that while passing the impugned order dated 18.10.2018, the authority has not examined even for arriving at a prima facie opinion, such material which has already been made available and as such, the order under challenge per se reflects non-application of mind, suffers from vice of perversity and that having been done, same requires to be quashed in the interest of justice. 5.6. Yet another substantial contention which has been raised by Mr. Soparkar, learned Senior Advocate is that apart from aforesaid circumstance, in any case, issuance Page 13 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 of notice and order under challenge is without jurisdiction and same is beyond the period of four years and as such, it is impermissible in view of the provisions contained under the Act. It has been submitted that relevant period if to be considered end of relevant A.Y. is 31.03.2012 whereas, initiation is after lapse of four years and four years period was getting lapsed on 31.03.2016 and as such, apparently the action is impermissible. For canvassing this submission, learned Senior Advocate has drawn our attention to provisions contained under Section 147 and 148 of the Act and has submitted that condition precedent is that unless and until income has escaped from assessment, no re-opening of assessment is permissible and therefore, the entire exercise undertaken by the authority is a mechanical exercise of discretion, without any cogent reasons and without any independent application of mind and that being so, in view of catena of decisions, the action under challenge deserves to be quashed.
Page 14 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 5.7. Mr. Soparkar, learned Senior Advocate has also submitted that against the reasons for re-opening, the assessee is entitled to raise objections and raising of objections and considering the same is not merely empty formality. While considering the objections, the authority is under an obligation not only to apply its mind, but also required to consider the same in true sense the material which has been supplied and relied upon. The reflection of impugned order is mere reproduction of the reasons and hence, on this count alone, the order impugned deserves to be quashed . For this purpose, a reference is made to a decision in the case of GKN Driveshafts (India) Ltd., v. Income-Tax Officer & Ors., reported in 259 ITR 91 (SC) and has contended that order is illegal in view of this proposition.
5.8. He would also contend that yet on another issue also the order under challenge is liable to be quashed as it is violative of principles of natural justice inasmuch as the material which has been relied upon is not supplied Page 15 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 though demanded and thereby it has affected the right of making effective representation or raising appropriate objections and for this purpose a reference is made to the decision in the case of Divya Jyoti Diamonds Pvt. Ltd., v. Income-Tax Officer reported in [2021] 439 ITR 471 (Guj.) (paragraphs 6 and 12).
5.9. Mr. Soparkar, learned Senior Advocate has further submitted that in such a situation, when the authority is mechanically reproducing the reasons and disposing of the objections, as if the authority has independently applied its mind, writ jurisdiction can be exercised since writ petition under Article 226 of the Constitution of India is maintainable and for canvassing such submission, a reference is made to a Constitutional Bench decision of the Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income Tax Officer reported in [1961] 41 ITR 191 (SC). A further reference has been made to yet another decision in the case of Shanti Enterprise v. Income Tax Officer, Ward 2(2) reported Page 16 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 in [2016] 76 Taxmann.com 184 (Guj.) and as such submitted that the reflection of exercising of jurisdiction by the authority is hit by principle propounded in this very decision.
5.10. For substantiating the contention about non supply of material though relied upon has affected petitioner's right, a reference is made to yet another decision in the case of Kanak Fabrics v. Income Tax Officer reported in 359 ITR 447 and it has been submitted that authority has exercised the discretion without observance of condition precedent contained in relevant provisions. A further reference is made to a decision in the case of Ganga Saran & Sons (P) Ltd., v. Income-Tax Officer, reported in [1981] 6 Taxman 14 (SC) (paragraphs 5, 6, 8 and 10) and has submitted that raising a mere inference without any cogent material is not sufficient enough to sustain the impugned order. References have also been made to the decisions (i) In the case of P.G. & W. Sawoo (P) Ltd., v. Assistant Page 17 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 Commissioner of Income Tax reported in 385 ITR 60 (SC), (paragraph 8) (ii) In the case of Devesh Metcast Ltd., v. Joint Commissioner of Income Tax reported in [2011] 12 Taxmann.com 458 (paragraph 6, 7, 17 and
18) and by referring to aforesaid decisions, Mr. Soparkar, learned Senior Advocate has submitted that in a situation like this, wirt Court can certainly exercise extraordinary jurisdiction and this is a fit case in which exercise undertaken by the authority requires to be corrected. 5.11. Mr. Soparkar, learned Senior Advocate has further submitted that reasons which are reflecting are not sufficient enough to re-open the assessment and for that purpose, a reference is made to decisions (i) In the case of Commissioner of Income Tax, Ahmedabad-IV v. Ship Gravures Ltd., reported in [2013] 40 Taxmann.com 309 (Guj) (paragraph 7 and 8) ; (ii) In the case of Jagat Jayantilal Parikh v. Deputy Commissioner of Income-Tax reported in [2013] 32 Taxmann.com 161 (Guj) (paragraph 5.1 to 5.9.) and Page 18 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 after referring to these decisions, Mr. Soparkar, learned Senior Advocate has reiterated that this is a clear case in which the exercise of authority requires to be corrected by quashing and setting aside the impugned notice and order.
6. As against this, Mr. M.R.Bhatt, learned Senior Advocate appearing for the respondent has vehemently opposed the stand of the petitioner and has contended that while dealing with the objections, the authority has applied its mind and has formulated an opinion. It has been contended that while formulating the opinion about re-opening the assessment, merit is not to be examined at length and as such, whatever is submitted by the petitioner which having been considered, it is not open for the petitioner to contend that any irregularity has been committed. In fact, while disposing of the objections by order dated 18.10.2018, the material which has been brought before the authority has been verified, examined for the limited aspect to ascertain whether assessment Page 19 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 done is to be reopened and prima facie opined about his belief and said subjective satisfaction is normally not subject matter of judicial review.
6.1. Mr. Bhatt, learned Senior Advocate has further submitted that sufficiency or inadequacy of reasons cannot be a ground to rush to this Court under Article 226 of the Constitution of India by the petitioner since adequate remedial measure forum is very much available with the petitioner. It has also been submitted that while dealing with the objections, the Assessing Officer is not expected to adjudicate in detail the objections and as such, the reasons for formulating the opinion cannot be held as ill-founded. The issue involved is a mixed questions of law and fact, therefore, the opinion which has been expressed on the basis of the available material may not be substituted in exercise of extraordinary jurisdiction.
6.2. To substantiate his contention, Mr. Bhatt, learned Senior Advocate has made a reference to several Page 20 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 decisions and has drawn the attention about principles propounded therein. Following are the decisions referred to for the purpose of substantiating the submission with regard to sufficiency or inadequacy of reasons may not be the sole ground for quashing the opinion which has been formulated by the authority. For this purpose Mr. Bhatt, learned Senior Advocate has produced a compilation of decisions relied upon and few of the decisions are (i) In the case of Calcutta Discount Co. Ltd., v. Income Tax Officer, Companies District I, Calcutta & Anr., reported in [1946] 41 ITR 191 (SC); (ii) In the case of Dishman Pharmaceuticals & Chemicals Limited v. Deputy Commissioner of Income-Tax (OSD) (No.1) reported in [2012] 346 ITR 228 (Guj.), (iii) in the case of Phool Chand Bajrang Lal & Anr., v. Income-Tax Officer & Anr., reported in [1993] 203 ITR 456; (iv) in the case of Yogendrakumar Gupta v. Income-Tax Officer, reported in [2014] 46 Taxman.com 56 (Guj.) ( paragraph 8) and by referring to these decision, Mr. Bhatt, learned Senior Advocate has submitted that Page 21 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 assessing authority has properly considered the objections raised by the petitioner and as such, it is not open for the petitioner to question the same at this stage of the proceedings. A reference is also made to a decision delivered in the case of Assistant CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. - (2007) 291 ITR 500 (SC).
6.3. Additionally, Mr. Bhatt, learned Senior Advocate has submitted that out of four issues even if order could be sustained on one of the issue, then impugned order cannot be set-at-naught. Even finding on one issue is justified in arriving at a conclusion of re-opening of assessment impugned order can be sustained. A reference is made to a decision delivered by this Court in the case Inductotherm (India) (P.) Ltd., v. Deputy Commissioner of Income-Tax reported in [2013] 36 Taxmann.com 401 (Guj) (Paragraph 18). Yet another decision on this issue in the case of Olwin Tiles (India) (P.) Ltd., reported in (2016) 66 Taxman.com 8 (Guj) Page 22 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 (Paragraph 10) and by referring to these judgments a contention is raised that reliance which has been placed by the learned Senior Advocate appearing for the petitioner on a decision reported in 359 ITR (supra) which is to the contrary would not be of any assistance and by referring to few observations contained therein, a contention is raised that no case is made out by the petitioner for quashing the impugned notice and order. 6.4. Mr. Bhatt, learned Senior Advocate has further submitted by referring to a detailed affidavit-in-reply filed by the authority attached to the petition compilation on page 301 onwards, and by referring to paragraph 4.4 he has submitted that objections relating to VAT/Service Tax as well as Tax and set off of MAT credit of amalgamating company, is factually incorrect. On the contrary, the assessee company claimed MAT credit of Rs.42,12,285/- which pertain to M/s. Pearl Stock Holding Private Ltd., an amalgamated company and as such, a categorical opinion was formulated that same is not allowable by virtue of Page 23 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 provisions contained under Section 115JAA (1A) of the Act and as such, he has submitted that relevant material found to be justifiable, and at this stage of the proceedings, the opinion which has been formulated for reopening the assessment may not be set-at-naught. A reference is made to a decision delivered by Hon'ble Apex Court in the case of CIT v. Chhabil Dass Agrawal reported in 357 ITR 357 (SC) (Paragraph 15- 20). 6.5. Yet another contention has been vehemently canvassed by Mr. Bhatt learned Senior Advocate is that there is equally efficacious alternative remedy available to raise all these contentions before the appropriate authority and as such, writ jurisdiction may not be allowed to be invoked by the petitioner. In fact, the explanation/objection which has been given by the petitioner requires proper adjudication and same may not be possible to be scrutinized in exercise of extraordinary jurisdiction and in view of catena of decisions, this Court may not intervene. Few more Page 24 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 decisions are also referred to by way of a separate compilation and has fairly submitted that gist of these judgments are that satisfaction which has been arrived at this stage of the proceedings may not be substituted unless there is apparent illegality which is completely missing in the case on hand. Mr. Bhatt, learned Senior Advocate has further submitted there is a clear case of non disclosure of primary facts and facts which have been disclosed before the authority in the form of objections would require proper adjudication and as such, prima facie opinion and belief which has been formed and as reflecting in the order passed by the authority may not be interfered with. In addition to this, Mr. Bhatt, learned Senior Advocate has further submitted that there exists reasonable ground for formulating the opinion and that being so, this Court may not exercise extraordinary jurisdiction.
6.6. In addition to the aforesaid case laws relied upon, Mr. Bhatt, learned Senior Advocate has also made a Page 25 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 reference to Section 147 of the Act then existing to contend same is applicable to the case on hand. By referring to this provision, it has been contended that assessing officer has formulated an opinion and belief that the income has escaped from assessment and as such, a specific order is passed. Mr. Bhatt, learned Senior Advocate has further submitted that it is not correct on the part of the learned Senior Advocate appearing for the petitioner to submit that beyond four years as if nothing can be done by the department though there is enough material available on record about such income having escaped from assessment and there being non-disclosure of facts, by mere production of documents it would not be sufficient to hold that petitioner - assessee has disclosed before the authority these facts now revealed. In fact in view of specific letter on the fourth issue, it surfaced that assessment deserves to be re- opened. That apart, a reference is made to Explanation-I of Section 147 of the Act then prevailing and to contend that mere production before the assessing officer of Page 26 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 account books and other evidence from which the material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of foregoing provision and by making a reference to the said provision, it has been contended that mere production of books of accounts and relevant material is not sufficient enough to indicate that due diligence material has been placed about voluntary disclosure by the petitioner. Even if other evidence from which material evidence would with due diligence has been discovered by the Assessing Officer will not necessarily mean or amount to disclosure within the meaning of foregoing provision as indicated therein and merely because petitioner has produced material in bunch before the Assessing Officer, will not amount to disclosure by virtue of this explanation itself and as such, reasons assigned for re-opening is justified. To substantiate his contention, Mr. Bhatt, learned Senior Advocate has relied upon several decisions by way of producing a separate bunch which citations are as under: Page 27 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 "1. In the case of Inductotherm (India) (P) Ltd. v.
Gopalan DCIT reported in [2013] 356 ITS 481 (Gujarat).
2. In the case of Gujarat Power Corpn. Ltd.. v. ACIT reported in [2013] 350 ITR 266 (Gujarat).
3. In the case of Krishna Developers& Company v. DCIT reported in [2018] 400 ITR 260 (Gujarat).
4. In the case of Olwin Tiles (India) (P) Ltd., v. DCIT reported in [2016] 382 ITR 291 (Gujarat).
5. In the case of Aaspas Multimedia Ltd., v. DCIT reported in [2018] 405 ITR 512 (Gujarat).
6. In the case of Dishman Pharmaceuticals & Chemicals Ltd., v. DCIT reported in [2012] 346 ITR 228 (Gujarat).
7. In the case of MSK Real Estates (P) Ltd., v. DCIT reported in [2018] 96 taxmann.com 241 (Gujarat).
8. In the case of Kiran Ravjibhai Vasani v. ACIT reported in [2018] 94 taxmann.com 354 (Gujarat).
9. In the case of Yogendrakumar Gupta v. ITO reported in [2014] 366 ITR 39 (Gujarat).
10. In the case of Hemjay Construction Co. (P) Ltd., v. ITO reported in (2019) 419 ITR 39 (Gujarat).
11. In the case of Mehrunnisa Mohammed Fazal Maniar v. ITO reported in (2021) 127 taxmann.com 547 (Gujarat).
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12. In the case of Kaushaliya Sampatlal Dudani v. ITO reported in (2021) 129 taxmann.com 48 (Gujarat).
13. In the case of Backbone Projects v. ACIT reported in (2021) 437 ITR (Gujarat).
14. In the case of DCIT v. M.R. Shah Logisticts (P) Ltd., reported in (2022) 136 taxmann.com
373.
15. In the case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. v. ACIT rendered in Special Civil Application No. 20585 of 2019.
16. In the case of Calcutta Discount v. ITO reported in [1961] 41 ITR 191 (SC).
17. In the case of CIT v. Chhabil Dass Agrawal reported in [2013] 357 ITR 357 (SC).
7. As against this stand, Mr. Soparkar, learned Senior Advocate in rejoinder has in addition to reiterating his submission already made has further relied upon few decisions to contend that order in question is not just and proper. He has submitted that whenever order for reopening assessment is passed by the assessing officer, it must reflect there has been application of mind and must be supported by appropriate reasons since reasons are part and parcel of decision making process, it must Page 29 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 reflect in the actual decision itself and same not being visible from plain reading of the impugned order, it requires to be quashed. Except quoting verbatim reasons for re-opening, impugned order does not disclose independent application of mind and in any case, same is beyond the period of four years which is contrary to the statutory mandate itself. Hence, he submits that relief prayed for deserves to be granted. For this submission, a reference is made to the decision reported in (2017) 390 ITR pg.10. Mr. Soparkar, learned Senior Advocate has further submitted that it is quite evident from the record that certain information obtained and relied upon has been secured behind the back of the petitioner and though copies of said documents were demanded same has not been supplied, which clearly affects the right of petitioner to raise appropriate objections. Hence, he contends impugend order is violative of principles of natural justice and to substantiate his submission, Mr. Soparkar, learned Senior Advocate has relied upon the decision delivered on 22.04.2014 in Special Civil Page 30 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 Application No. 1896 of 2014.
7.1. He has also submitted rather reiterated that unless and until conditions precedent for reopening as stipulated under the provisions are satisfied, such re-opening is impermissible and as such the action of respondent is without authority of law and it is always open for the petitioner to invoke extraordinary jurisdiction of this Court, petition is maintainable in view of the settled position of law. It has been further submitted that relevant audit objections is one of the prime reason for reopening and respondent authority has conveniently remained silent on this aspect in its affidavit-in-reply and as such also, the action is not just and proper. 7.2. In any case, conjoint submission is leading to an ultimate request to grant the relief as prayed for in the petition. Mr. Soparkar has also relied upon the following bunch of decisions which are reproduced hereunder:
"1. Calcutta Discount Co. Ltd., (1961) 41 ITR (191 (SC).Page 31 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
2. Vishwanath Engineers (2013) 352 ITR 549 (Guj).
3. Gujarat Power Corpn Ltd (2013) 350 ITR 266 (Guj).
4. Parixit Industries (P) Ltd (2013) 352 ITR 349 (Guj).
5. Sari a Rajkumar Varma (2014) 43 taxmann.com 372
6. Swati Saurin Shah (2016) 386 ITR 256 (Guj.). 7 . Cliantha Research ltd [2013] 35 taxmarin.com 61 (Guj).
8. Dhruv Dipakbhai Panchal (2018) 93 taxmann.com 286 (Guj).
9. Dhirendra Hansraj Singh [2018] 94 taxmann.com 372 (Guj).
10. Aayojan Developers [2011] 335 ITR 234 (Gujarat).
11. Hindustan Lever Ltd. [2004] 268 ITR 332 (Bombay).
12. Gujarat Narmada Valley Fertilizers [2009] 319 ITR 120 (Guj).
13. PKM Advisory Services [2011) 339 I.TR 585 (Guj).
14. ShiIp Gravures Ltd [20i3] 40 taxmann.com 309 (Guj).
15. Jagat Jayantilal Parikh [2013] 355 ITR 400 (Guj). Page 32 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
16. Sunrise Education Trust [2018] 92taxmann.com74 (Guj).
17. Giriraj Enterprise[2019] 102 taxmann.com 188 (Bom).
Second Compilation
1. Banaskantha Dist. Co. Op. Milk Producers Union Ltd V. Assistant Commissioner of Income-tax 74 taxmann.com 42.
2 Judgment of Hon'ble Gujarat High Court in case of Kisan 20-33 Proteins (P.) Ltd 74 taxmann.com 219. 3 Judgment of Hon'ble Bombay High Court m case of
-34-46 Shanti Enterprise 76 taxmann.com 184. 4 Judgment of Hon'ble Gujarat High Court m case of 47-62 Anupam Rasayan India Ltd. 397 ITR 406. 5 Judgment of Hon 'ble Gujarat High Court in case of 63-70 Gujarat State Board of School Textbooks 75 taxmann.com 281.
6 Judgment of Hon'ble Gujarat High Court in case of 71-78 Prudent Finance (P.) Ltd. 389 ITR 488. 7 Judgment of Hon'ble Gujarat High Court in case of 79 91 Meghmani Energy Ltd 389 ITR 281.
8. Judgment of Hon'ble Gujarat High Court in case of Premium Finance (P.) Ltd 73 taxmann.com 369.
9. Judgment of Hon'ble Gujarat High Court in case of Reckitt Benckiser Healthcare India (P.) L 392 ITR
336."
8. Having heard the learned advocates appearing for Page 33 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 the parties, we are of the considered view that following point would arise for our consideration :
(i) Whether the notice dated 29.03.2018 issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2011-12 is liable to be quashed or sustained?
REASONS, DISCUSSION AND FINDING OF ABOVE POINT
9. Assessee is a company which had filed its returns of income for the assessment year 2011-12 on 27.09.2011 declaring total income of Rs.11,99,50,930/- under normal provision and Rs.17,13,95,125/- under Section 115JB of the Act. Assessee filed revised return of income on 27.09.2012 declaring total income of Rs.12,02,45,130/- under normal provision and Rs.17,13,95,125/- under Section 115JB. Same came to be assessed under Section 143(3) and income was determined at Rs.13,64,40,540/- under normal provision vide order dated 29.03.2014. Subsequently, the impugned notice dated 29.03.2018 came to be issued and as such petitioner sought for Page 34 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 reasons for reopening which came to be furnished vide communication dated 04.07.2018, upon which petitioner submitted its objection which reads as under :
1. M/s Nila Infrastructure Ltd. is assessed with the undersigned. The assessee company had filed return of income for AY 2011-12 on 27.09.2011 declaring total income of Rs.11,99,50,930/- under normal provision and Rs.17,13,95,125 u/s 115JB of the Act. Assessee filed revised return on 27.09.2012 declaring income of Rs.12,02,45,130/- under normal provision and Rs.17,13,95,125 u/s 115JB of the Act. The same was assessed u/s 143(3) and income was determined at Rs.13,64,40,540/- under normal provision vide order dated 29.03.2014.
2. As per the Profit & Loss Account assessee had debited Rs.4,98,56,594/- as interest and financial charges. The assessee had paid interest of Rs.60,27,397/- to Adani Enterprises, Rs.1,05,22,915/- to Indiabulls Financial Services Ltd. and Rs.92,75,843/- to Gruh Finance Ltd. It was further noticed that assessee has disallowed itself of Rs.48,65,972/- being interest payment to Adani Enterprises. But the assessee has not produced any proof of deduction of tax on these payments and subsequent deposit in government account. The assessee has not furnished any copies of non-deduction certificate u/s 197, if any. The provisions of section 40(a)(ia) is squarely applicable and disallowance of Rs.209,60,183/- is to be made.
Thus there is escapement of income to the tune of Rs.209,60,183/-.
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3. As per Form 3CD, the accountant in clause 21B(bll) has clearly mentioned that VAT, sales tax and service tax do not pass through Profit and Loss Account. This means that 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 however noticed that assessee has debited VAT (Rs.89,87,990/- & Service Tax (61,35,736) in P/L under the head other project expenses. As assessee has not accounted tax component in sales, expenditure on such payment was not includible as expenses. The method adopted by assessee of not crediting the tax component in sales but debiting such expenditure resulted in under assessment of income by Rs.1,51,23,726 (89,87,990 +61,35,736).
4. The assessee had claimed MAT credit of Rs.1,01,91,317/- of earlier years and reduced the tax liability to that extent by adjusting from its tax liability under normal provision of the Act. However, in F.Y, 2010-11, there was amalgamation of a company named Pearl Stockholding Pvt Ltd (PSPL) with the assessee company. Further, as per assessee, the PSPL has MAT credit of Rs.42,12,285/- at the time of amalgamation and assessee company has MAT credit of Rs.59,79,032/- of AY 2010-11, As MAT credit of Rs.42,12,285/- does not pertain to assessee company but to amalgamating company, the same was not allowable u/s 115JAA(IA) of the Act.
5. In view of the above, income to the tune of Rs.3,60,83,909/- (209,60,183+151,23,726) has escaped assessment within the meaning of section 147 of the I.T. Act, 1961.
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6. Further, vide letter dated 16.03.2018, ITO, Ward 10(2), Kolkata has forwarded intimation in case of M/s Nila Infrastructure Ltd. As per the said letter it has been informed that during the course of assessment u/s 143(3) r.w.s 263 in case of M/s Solvent Real Estate Private Limited (hereinafter referred as SREPL) for AY 2011-12. addition of Rs.101,01,50,000/- was made u/s. 10(a)(ia) as SREPL had not deducted TDS on subcontract payments. The order u/s 143(3) r.w.s 263 was passed on 24.03.2014. Later matter travelled to CIT (A)-4, Kolkata. Ld. CIT (A)-4, Kolkata made independent factual findings which established that SREPL had no genuine business and it was engaged only in providing bogus bills to various concerns for commission. The order dated 15.03.2018 of CIT (A)- 4, Kolkata has been perused by the undersigned. The relevant findings of CIT(A)-4, Kolkata are as under :
a. None of the 4 purchase parties of SREPL were traceable at the given addresses.
b. None of the Contractors of SREPL could furnish any evidence in support of work done by SREPL.
c. No transport bill/delivery challan could be submitted by SREPL regarding supply of goods to client's sites.
d. SREPL was showing total 4 employees with salary of Rs. 2.1 lacs for turnover of more than 100 crores.
e. SREPL had debited labour charges of Rs. 18 lacs only for turnover of more than 100 crores which defies any logic.
f. 18 of the Entities shown in Investment schedule of SREPL have been declared shell companies by the Government Organizations. Page 37 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 g. As per investigation wing database, Companies where SREPL has shown investment are shell companies operated by entry operator Subhash Kumar Agrawal.
7. The above findings clearly show that SREPL was paper entity involved in providing bogus bills. It has been indicated that M/s. Nila Infrastructure Ltd. has booked bogus expense of Rs.5,68,80,000/- during FY 2010-11 through SREPL. After going through the relevant orders and specific findings listed above, undersigned being jurisdictional AO of M/s Nila Infrastructure Ltd, is satisfied that income to the tune of Rs. 5,68,80,000/has escaped assessment.
8. In view of the above, total income to the tune of Rs.9,29,63,909/- (Rs.5,68,80,000/- - 3,60,83,909/-) has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Therefore, I have reason to believe that income has escaped assessment for A.Y. 2011-12 to the tune of Rs.9.29,63,909/- and accordingly assessment is required to be reopened u/s 147 of the I.T. Act, 1961.
Therefore, notice u/s 148 is required to be issued in case of M/s.Nila Infrastructure Ltd. for AY 2011-12."
10. Thereafter, said objection came to be disposed of on 18.10.2018 (Annexure-E). Hence, petitioner is before this Court.
11. As could be seen from the reasons recorded for reopening and order dated 18.10.2018 disposing of the Page 38 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 objections raised by the assessee for reopening of assessment are one and the same. As such, we have dealt with the said issues and before embarking upon such inquiry, it would be necessary to note that for reopening the assessment, the assessing officer (for short "AO") has to prima facie form an opinion of belief of escapement of income to tax by the assessee. In this background, when facts on hand are examined, it would disclose that first reason assigned for reopening the assessment concluded under Section 143(3) is that the assessee has debited Rs.4,48,56,594/- as interest and financial charges and assessee has paid interest of Rs.60,27,397/- to Adani Enterprise, Rs.1,05,22,915/- to India Bulls and Rs.92,75,843/- to Gruh Finance but has not deducted and paid the TDS on the above amount and hence, there is escapement of income of Rs.2,09,60,183/-. The records on hand would indicate that assessee had duly deducted and paid the TDS on the above payment and copy of the account of the said parties had been tendered at the time of assessment and along with the Page 39 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 objections for reopening at Annexure-1. In fact, in the order disposing of the objections raised for reopening, it has been observed by AO as under :
"It is verified that the company has not deducted the TDS on these interest charges, the Assessing Officer has not disallowed the expenditure and there is nothing on record to show that the TDS was deducted."
12. The aforesaid finding itself would indicate that there was material available with the Assessing Officer and the assessee had not suppressed or withheld any information at the time of assessment proceedings and on this score itself the present impugned notice under which the re-assessment proceeding is to be undertaken or commenced on the said issue cannot be sustained.
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, Page 40 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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
(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 Page 41 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 42 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 a company named Pearl Stockholding Private Limited (PSPL) with the Page 43 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 Page 44 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 employed in S. 2(1B) is a term of the widest import and, subject to any limitation which the context may require, signifies every 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 the amalgamating company, the amalgamated company is also required to Page 45 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 46 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 47 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 48 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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) 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 Page 49 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 50 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 51 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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, Page 52 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 53 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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:
"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."
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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 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.
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/- Page 55 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 56 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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.
17. The Hon'ble Apex Court in the case of Ganga Saran and Sons Private Limited vs. Income Tax Officer, 1981 (6) Taxman 14 (SC) : (1981) (130) ITR Page 57 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 58 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 Page 59 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 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 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 Page 60 of 61 Downloaded on : Tue Jan 03 20:48:46 IST 2023 C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023 formulated hereinabove in favour of the assessee and against the Revenue.
21. Hence, the following ORDER
(i) Special Civil Application is allowed.
(ii) Notice dated 29.03.2018 (Annexure-A)
and order dated 25.10.2018
(Annexure-E) are hereby quashed as
also the consequential proceedings
pursuant thereto.
(ARAVIND KUMAR, CJ)
(ASHUTOSH J. SHASTRI, J)
GAURAV J THAKER/PH
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