AIA ENGEINEERING LIMLITED V. THE ASSISTANT COMMISSIONER OF INCOME TAX

SCA/16130/2018

AI Insights

The case involves AIA Engineering Limited challenging a notice issued by the Assistant Commissioner of Income Tax for the assessment year 2011-12. The notice was related to a scrutiny assessment under Section 143(3) of the Income Tax Act, 1961, which was reopened beyond the permissible period of four years. The primary issues were the addition of unutilized CENVAT credit and profits from international transactions with Vega Industries (Middle East) FZE. The court examined whether the reopening was justified and whether there was a failure to disclose material facts by the assessee. The court concluded that the reopening was based on a change of opinion, as the claims had been previously examined during the original assessment, and thus, the notice was quashed.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 749932 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 01-03-2021
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT; KARAN SANGHANI
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: International transaction; Reopening of assessment; Transfer Pricing Adjustment; Unutilized CENVAT credit; Writ application
• Section: 148; 143(3); 142(1); 144C; 145A

Judgement Text

"C/SCA/16130/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16130 of 2018 ========================================================== AIA ENGEINEERING LIMLITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX ========================================================== Appearance: MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) WITH MR KARAN SANGHANI, ADVOCATEfor the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 01/03/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. By this writ­application under Article 226 of the Constitution of India, the writ­applicant [assessee] has prayed for the following reliefs:­ 7(a) quash and set aside the impugned notice at Annexure “A” to this petition; (b) pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the notice at Annexure “A” to this petition and stay the further proceedings for the Asst. Year 2011­12; (c) any other and further relief deemed just and proper be granted in the interest of justice; (d) to provide for the cost of this petition. 2. The relevant assessment year is 2011­12. The present litigation is one of scrutiny assessment under Section­143(3) of the Income Tax Act, 1961 [for short 'The Act,1961']. Indisputably, the reopening as proposed Page 1 of 4 C/SCA/16130/2018 ORDER is beyond the period of four years. 3. It appears from the materials on record that the original assessment order dated 25/05/2015 was passed under Section­143(3) read with Section­144C of the Act, whereby, the total income was assessed at Rs.205,96,93,093/­ after making various additions. It is brought to our notice that the then Assessing Officer categorically made an observation as to the amount of Rs.18,50,11,635/­ in respect of transfer pricing adjustment on account of international transaction, but consciously chose to make an addition of larger amount of Rs.34,11,19,295/­ in respect of the same. 4. We have heard Mr. Tushar Hemani, the learned senior counsel assisted by Ms. Vaibhavi Parikh, the learned counsel appearing for the writ­applicant and Ms. Mauna Bhatt, the learned senior standing counsel assisted by Mr. Karan Sanghani, the learned counsel appearing for the revenue. 5. The reopening is broadly on the following counts:­ ✔ Addition of Rs.3,83,74,298/­ is to be made under section 145A of the Act in respect of unutilized CENVAT credit; ✔ Addition of Rs.18,50,11,635/­ is to be made in respect of profit earned by Vega Industries (Middle East) FZE. As regards the first issue of unutilized CENVAT credit u/s 145A of the Act, during the year under consideration, the writ­applicant had followed “Exclusive method” of accounting. The opening balance and closing balance of “unutilized CENVAT credit” were Rs.3,83,74,298/­ and Rs.5,75,23,849/­ respectively. Tax Audit Report contained following disclosures in respect of the same: ✔ Clause 12 read with Statement No.1 – Even if “Inclusive method” of accounting is followed in accordance with section 145A of the Act, it would be “revenue neutral”; ✔ Clause 22 read with Statement No.6, Note No.2 – Balance of Page 2 of 4 C/SCA/16130/2018 ORDER MODVAT credit was shown in “Balance­sheet” as “Current Assets” under the head “Loans and Advances”; ✔ SCN dated 11.08.14 –Method of valuation of stock as per S.145A (Point No.17); ✔ Reply – letter dated 09.09.14 (Point No.2). It was submitted that even if adjustment is made in terms of section 145A of the Act, then also the same would be revenue neutral as is evident from “Statement No.1” annexed to the “Tax Audit Report”. ✔ II SCN – dated 16.12.14 issued under section 142(1) of the Act, again called upon the writ­applicant to furnish details of unutilized CENVAT credit (Point No.3). ✔ Reply – letter dated 22.12.14, again furnished complete justification as to why no addition is called for under section 145A of the Act (Point No.3). ✔ The writ­applicant, vide letter dated 12.03.15, made elaborate submissions w.r.t Un­utilized CENVAT credit – Point No.2: As regards second issue of w.r.t. Addition of Rs.18,50,11,635/­ is to be made in respect of profit earned by Vega Industries (Middle East) FZE, the writ­applicant entered into certain international transactions including transactions with “Vega Industries (Middle East) F.Z.E., Ajman, UAE” (hereinafter referred to as “Vega UAE” for the sake of brevity). Such transactions appear in Form 3CEB containing report of an accountant under section 92E in relation to international transactions. ✔ The then AO, vide notice dated 11.08.14, called for various details including details of international transactions (Point No.2); ✔ The writ­applicant, vide letter dated 22.08.14, stated that with respect to international transactions, copy of Form 3CEB along with annexures thereto was already submitted earlier vide letter dated 10.09.12 (Point No.2). ✔ SCN dated 05.03.15 came to be issued under section 142(1) of the Act, called upon the writ­applicant to furnish various details and information w.r.t. Vega Industries (Middle East) FZE in Azman Free Zone, UAE (Point No.1); ✔ The writ­applicant, vide letter dated 12.03.15, made elaborate submissions w.r.t Income from Vega Industries (Middle East) – Point No.1; The writ­applicant preferred an appeal against the aforesaid Assessment Order and the learned Commissioner of Income Tax (Appeals), vide order dated 27.02.17, was pleased to delete following additions among other additions: Page 3 of 4 C/SCA/16130/2018 ORDER ✔ Addition of Rs.34,11,19,295/­ made in respect of profit of Vega UAE; ✔ Addition of Rs.1,91,49,551/­ made in respect of unutilized CENVAT credit. The Department has preferred an appeal bearing ITA No.1112/Ahd/2017 against the order dated 27.02.17 passed by the CIT(A) before the ITAT wherein action as to deletion of both the above additions has been challenged by the Department (Please see Grounds “a” and “e” of appeal memo. 6. The short point for our consideration is whether the case is one of failure on the part of the writ­applicant as to full and true disclosure of all the material facts for the year under consideration? 7. Having regard to the materials on record, more particularly, the reasons for reopening, we are of the view that the case is one of reopening based on change of opinion. It is settled position of law that when claim has already been examined at the original assessment stage, then in such circumstances, the Assessing Officer cannot resort to reopening, more particularly, to re­examine other facts on the very same claim. 8. In the overall view of the matter, we are convinced that the impugned notice under Section­148 of the Act is not sustainable in law. In view of the aforesaid, this writ­application succeeds and is hereby allowed. The impugned notice is hereby quashed and set aside. (J. B. PARDIWALA, J) (ILESH J. VORA,J) A. B. VAGHELA Page 4 of 4 "