EN VISION ENVIRO ENGINEERS PVT LTD V. INCOME TAX OFFICER, WARD - 1(1)(2)

SCA/18343/2018

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EN VISION ENVIRO ENGINEERS PVT LTD challenged the notice issued by the Income Tax Officer under section 148 of the Income Tax Act, 1961, which sought to reopen their assessment for the Assessment Year 2011-2012. The company had claimed deductions under section 80-IA of the Act for profits from their Bio-Medical Waste treatment projects, which were accepted in the original assessment. The reopening was based on the allegation that common expenses were not properly apportioned between the exempted and non-exempted units, leading to an escapement of income. The court found that the issue was already considered in the original assessment and that there was no new tangible material to justify the reopening.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 672109 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 25-07-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income tax v. Kelvinator of India Ltd.
• Laws Referred To: Income Tax Act, 1961, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL; KALPANA RAVAL
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Audit objection; Deduction under section 80-IA; MAT liability; Reopening of assessment; Scrutiny assessment
• Section: 148; 143(3); 115JB; 151; 80-IA; 80-IA

Judgement Text

"C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 18343 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== EN VISION ENVIRO ENGINEERS PVT LTD Versus INCOME TAX OFFICER, WARD - 1(1)(2) ========================================================== Appearance: MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MR NIKUNT RAVAL WITH MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 25/07/2022 ORAL JUDGMENT Page 1 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned Senior Advocate Mr. Tushar Hemani assisted by learned advocate Ms. Vaibhavi Parikh for the petitioner and learned advocate Mr. Nikunt Raval with learned advocate Mrs. Kalpana K. Raval for the respondents. 2.Having regard to the controversy involved in this petition, with the consent of the learned advocates for the respective parties, the petition is taken up for final hearing. 3.Rule returnable forthwith. Learned advocate Mr. Nikunt Raval waives service of notice of rule for the respondents. 4.The petitioner has preferred this petition under Article 226 of the Constitution of India challenging the impugned notice dated Page 2 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 31.03.2018 issued under section 148 of the Income Tax Act, 1961 (For short “the Act”) proposing to reopen the assessment for the Assessment Year 2011-2012. 5.Brief facts of the case are that the petitioner is a company incorporated under the Companies Act, 1956 and is engaged in the activity of pollution control and environmental engineering and consulting. The petitioner, during the year under consideration i.e. Assessment Year 2011-2012, was also running and maintaining Bio-Medical Waste treatment plant at Surat, Udaipur and Ranchi. It is the case of the petitioner that separate books of accounts were maintained for the activities related to Bio-Medical Waste treatment plant projects and income arising from such projects was claimed as deduction under section 80-IA of the Act. Page 3 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 5.1) The petitioner filed the original return of income for the year under consideration on 29.09.2011. The petitioner later on filed revised return of income on 16.09.2012 declaring total income at Rs.3,54,830/- after claiming of deduction of Rs. 1,39,88,951/- under section 80-IA of the Act. It is the case of the petitioner that the claim of deduction under section 80-IA of the Act appeared in the Tax Audit Report and was also supported by Form No.10CCB but since book-profit of the petitioner as per the provisions of section 115JB of the Act worked out to Rs.1,55,29,800/- and the MAT liability @ 18% on such book-profit was higher than the tax on total income under the normal provisions, the petitioner's tax liability was ultimately determined based on MAT provisions. Page 4 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 5.2) The case of the petitioner was selected for scrutiny assessment and various details and information were called for by the Assessing Officer. Such details were duly furnished by the petitioner from time to time and it is the case of the petitioner that after considering such details and documentary evidence placed on record, the then Assessing Officer consciously chose not to disturb the claim of deduction under section 80-1A of the Act while framing assessment under section 143(3) of the Act vide order dated 28.02.2014. 5.3) The respondent thereafter issued the impugned notice dated 31.03.18 under section 148 of the Act, seeking to reopen the case of the petitioner for the year under consideration. Page 5 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 5.4) The petitioner therefore, filed return of income on 26.05.2018 in response to the notice issued under section 148 of the Act. The petitioner, also vide letter dated 28.05.18, furnished a copy of such return of income and requested the respondent to supply copy of reasons recorded for reopening the assessment. 5.5) The respondent, vide letter dated 09.07.18, supplied the copy of reasons recorded for reopening the case of the petitioner. The reasons recorded by the Assessing Officer for reopening the assessment under section 147 of the Act read as under : “Please refer to the notice u/s 148 of the I.T. Act issued for A.Y.2011-12 and your letter dated 28.05.2018 furnishing copy of acknowledgement of Income Tax return for 2011-12 filed on 26.05.2018 in response to notice u/s 148 of the Act and also requesting for copy of reasons Page 6 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 recorded. 2. Further, Your request is considered and the reasons recorded u/s 147 of the I.T. Act for reopening the case for A.Y. 2011-12, is reproduced as under- \"The assesses company filed its return of Income for A.Y. 2011-12 on 29.09.2011 and revised on 16.09.2011 declaring total income of Rs.3,54,830/- after claiming deduction of Rs.1,39,88.951- u/ s. 80IA of the Act and shown Book Profit of Rs.1.55.29.800/- u/s.115JB of the Act. The case was selected for scrutiny and order u/s.143(3) of the Act was completed on 28.02.2014 by determining total Income at Rs.5.39.000/&accepting Book Profit u/s 115JB of the Act at Rs.1.55.29,800/- The assessee company had paid tax u/.11518 of the Act. During the year, the assessee was engaged in business of Pollution Control & Environmental Engineers & Consultants business. 2. The case records of the assessee have been perused. On perusal of scrutiny of P&L account, Balance Sheet, Computation of income, it is revealed that assessee had claimed the deduction of Rr.1.39,88.951/ u/s.801A (100% exemption from tax) of the Act on profit earned from Bio-Medical Waste (BMW) Projects. Further. It is noticed that while calculating the profit BMW project, some of the common expenses were not bifurcated between the main unit and BMW projects. As there is no provision in the Income Tax Act for apportionment of common and indirect expenses between Page 7 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 exempt (BMW) and non-exempted unit (main unit), the common expenses were required to be apportioned on the basis of turnover/sales being logical basis for apportioning of this expenses. The details of turnover/sales of both the units and major common expenses which were required to be apportioned to exempt unit is tabulated as below: Particulars Non exempt unit (Main unit) Income/ Expenses apportioned to BMW project as perhte assessee Income/ Expenses attributable to BMW project on basis of total turnover/sales Total Revenue from operations Sales 59994472 39921848 39921848 99916320 Less other Income 866349 34897 34897 901246 1) Total income eligible for deduction u/s.80IA 59128123 39886951 39886951 99015074 Percentage of sales/turnover 59.72 40.28 40.28 100 2) Direct Expenditure 2(I) Operational Expenses - Surat 12122872 12122872 2(II) Operational Expenses- Udaipur 2753446 2753446 2(III) Financial Charges - Surat 23972 23972 2(IV) Financial Charges – Udaipur 190 190 2(V) Employee remuneration and benefits- Surat 1238133 1238133 2(VI) Employee 499864 499864 Page 8 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 remuneration and benefits - Udaipur Sub total (2) 16638477 16638477 3) Administrative expenses Sub total (3) Administratriv e expenses 10177389 3241878 6864455 17041844 4) Directors remuneration 7763600 2762500 5236400 13000000 5) Depreciation 1104638 3285204 3288717 4389842 6) Total expenses (2) + (3) + (4) + (5) 25928059 32028049 Profit of the project for claiming deduction u/s. 80IA (1)-(6) as per audit 13958892 7858902 Profit of the project for claiming deduction u/s.80IA as per Form 3CD certified by the auditor 13958911 It can be seen from the above that after apportioning the common expenses between exempt unit and non exempt unit the total profit arrived by the BMW unit was of Rs.78.58,902. As against this, the assessee had claimed Rs.1.39.88.591/- in return of income, resulting into more profits and consequent exempt income to the extent of Rs.61.30.049/- (1.39.88,951-78.58,902) in the hands of exempted unit and also escaped the assessment. Page 9 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 In view of above facts/material available on records and after analyzing the same, I have reason to believe that income of the assessee to the extent of Rs.61,30,049/- has escaped assessment for A.Y.2011-12 within the meaning of section 147 of the I.T. Act. 4. In this case a return of income was filed for the year under consideration and regular assessment w/s.143(3) was made on 27.02.2014. Since, 4 years from the end of the relevant year has expired in this case, the requirement to initiate proceedings u/s. 147 are reason to believe that Income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year under consideration. It is pertinent to mention here that reasons to belleve that income has escaped assessment for the year under consideration have been recorded above (refer paragraphs 2 to 3 above). In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 has been obtained separately from Principal Commissioner of Income Tax as per the provisions of section 151 of the Act.\" 5.6) The petitioner, vide letter dated 28.09.2018, raised objections against Page 10 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 reopening of the assessment. 5.7) The respondent, however vide order dated 06.11.2018 disposed of the objections raised by the petitioner holding that the reopening is valid. 5.8) Being aggrieved by the impugned order, the petitioner has preferred the present petition. 6.Learned Senior Advocate Mr. Tushar Hemani for the petitioner submitted that the impugned notice issued by the respondent is patently bad, illegal, contrary to law and in gross violation of the fundamental rights guaranteed to the petitioner under Article 14 of the Constitution of India. 6.1) It was submitted that the assessment for the year under consideration was framed Page 11 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 under section 143(3) of the Act and the same is sought to be reopened beyond the period of four years from the end of relevant assessment year. It was submitted that an assessment framed under section 143(3) of the Act can be reopened beyond the prescribed period of four years from the end of the relevant assessment year if and only an income chargeable to tax has escaped assessment by reason of failure on the part of the petitioner to make a return under section 139 or in response to the notice issued under sub-section 142(1) or section 148 or to disclose fully and truly all material facts necessary for his assessment for that Assessment Year. 6.2) It was submitted that there is no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. The claim of Page 12 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 deduction under section 80-IA of the Act was duly disclosed by the petitioner in the return of income, Tax Audit Report and in Form No.10CCB. Therefore, there was no failure on the part of the petitioner disclose fully and truly all the materials necessary for assessment. Under such circumstances, the impugned notice issued by the respondent under section 148 of the Act beyond the period of four years from the end of the relevant assessment year deserves to be quashed and set-aside. 6.3) It was submitted that the condition precedent for the purpose of resorting to reopening proceedings is that there must be escapement of any income chargeable to tax. In the absence of escapement of any income chargeable to tax, it is not open for the Department to reopen the case. It was submitted that the petitioner’s total income Page 13 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 was Rs.3,54,830/- whereas the book-profit in terms of provisions of section 115JB of the Act was Rs. 1,55,29,800/- and the applicable rate of MAT on such book-profit was 18% during the year under consideration. Accordingly, MAT liability of the petitioner was higher than tax liability under the normal provisions and hence, the petitioner was governed by the provisions of section 115JB of the Act. It was submitted that even if the entire addition proposed by the respondent (i.e. Rs.61,30,049/-) is made to the total income of the petitioner, then also the tax liability on the same would still be less than the MAT liability i.e. the petitioner would still be governed by the provisions of section 115JB of the Act. It was submitted that since the petitioner has already paid much higher tax under the provisions of section 115JB of the Act, there would be no addition to the tax liability of Page 14 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 the petitioner even if the addition proposed by the respondent is made. Thus, there is no escapement of income chargeable to tax. It was submitted that since the condition precedent for resorting to reassessment under section 147 of the Act is not satisfied in the case of the petitioner, reopening is unjustified. 6.4) Learned Senior Advocate Mr. Hemani submitted that no new tangible material has come to the knowledge of the respondent after framing of the assessment which could have enabled him to have reason to believe that income chargeable to tax has escaped assessment in the hands of the petitioner. It was submitted that since no new tangible material has come to the respondent after framing of the assessment, it transpires that the case of the petitioner has been reopened on the basis of audit objection raised by the Page 15 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 audit party and it is a settled law that an assessment cannot be reopening based on audit objection. 7.On the other hand, learned advocate Mr. Nikunt Raval for the respondent submitted that no decision had been taken by Assessing Officer on the issue raised in the reopening assessment, as no discussion is made in the assessment order and had the decision been made by the Assessing Officer, the same would have been mentioned in the order. Therefore, without any such discussion such claim of the petitioner is meritless. 7.1) It was submitted that details given by petitioner were shrouded in such a way that true picture could not be ascertained. Therefore, the allegation of the petitioner that reopening is beyond a period of four years and there is no failure on the part of Page 16 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 the petitioner to disclose truly and fully all material facts cannot be accepted. 7.2) It was submitted that in the present case notice under section 148 of the Income Tax Act has been issued within six years, which is within the time limit given in Act. Moreover, as per section 148, the re-opening can be done, with prior permission of the Pr. Commissioner of Income Tax if there is no true disclosure. In the present case, the due procedure was undertaken as prior permission of the Principal Commissioner of Income Tax, Surat-1 has been taken vide letter dated 30.03.2018. It was submitted that the assessee had not fully disclosed facts as required during proceedings under section 143(3) and therefore, reopening of the assessment was justified. 7.3) It was submitted that making of Page 17 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 addition in income would result in re- calculation of available credit and thus it has cascading effect on other years as also causing deduction in the year in question of available audit. It was submitted that the petitioner has not disclosed full and true facts and has not factored the MAT credit re- calculation and therefore, the contention of the petitioner that there would be no effect on the taxability is devoid of facts and misreporting of facts by the petitioner. It was therefore, submitted that reopening the assessment was justified. 8.Considering the submissions made by learned advocates for both the sides, it is not in dispute that the assessment for the year under consideration i.e., Assessment Year 2011-2012 which is sought to be reopened by the impugned notice dated 31.03.2018 is clearly beyond a period of four years from Page 18 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 the end of relevant assessment year. On perusal of the reasons recorded for reopening the assessment, it nowhere reveals that the assessee has failed to disclose truly and fully all material facts relevant for the assessment. 9.The petitioner assessee availed the deduction under section 80IA of the Act. On the basis of the audit report in Form 10CCB, the reasons assigned by the Assessing Officer to reopen the assessment questioning the apportionment of common expenses between exempted unit and non-exempted unit on the basis of the total turnover of the petitioner company was already considered during the course of the regular assessment under section 143(3) of the Act. 10. Moreover, the petitioner assessee has relied upon the appellate order for the Page 19 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 Assessment Year 2009-2010 dated 30.12.2013 to point out that the books of accounts were separately maintained by the petitioner assessee consistently and the claim of deduction under section 80IA on similar method was accepted by the department in earlier years as well as in the immediately preceding Assessment Year 2010-2011 and after taking into consideration such facts, the Assessing Officer accepted the claim of the assessee in the regular assessment under section 143(3) of the Act in the assessment order dated 28.02.2014 for the Assessment Year 2011-2012. Thus, reopening the assessment is nothing but a mere change of opinion on the part of Assessing Officer with regard to apportionment of common expenses between the exempted unit and non-exempted unit vis-a-vis the quantum of deduction under section 80IA of the Act which was consistently accepted by the department and Page 20 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 further, there was no change in the method of claiming the deduction and the petitioner has worked out profit attributable to BMW project on the basis of separate books of accounts maintained in respect of different BMW treatment plant and calculation and working of eligible profit was truly and fully disclosed in audit report in Form 10CCB along with Schedule which was duly filed along with the return. 11. The Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC) has held as under: “2. A short question which arises for determination in this batch of civil appeals is, whether the concept of \"change of opinion\" stands obliterated with effect from 1st April, 1989, i.e., after substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987? xxxx 6. …………prior to Direct Tax Laws Page 21 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider, However, one needs to give a schematic interpretation to the words \"reason to believe\" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of \"mere change of opinion\", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re- assess. But re-assessment has to be based on fulfillment of certain pre- condition and if the concept of \"change of opinion\" is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of \"change of opinion\" as an in-built test to check abuse of power by the Assessing Officer…..” Page 22 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 12. The Assessing Officer issued notice under section 148 of the Act only to make a roving inquiry into the facts which were already considered by the Assessing Officer at the time of framing the original assessment under section 143(3) of the Act. It appears that the Assessing Officer now wants to re-verify the facts which is not permissible to be an acceptable ground for exercising powers to reopen the assessment. 13. For the foregoing reasons, the impugned notice dated 31.03.2018 issued under section 148 of the Act by the respondent exercising the powers to reopen the assessment for the Assessment Year 2011-2012 is illegal and hereby quashed and set aside. As a consequence, order dated 06.11.2018 of the Assessing Officer disposing of the objections of the petitioner against the impugned notice Page 23 of 24 C/SCA/18343/2018 JUDGMENT DATED: 25/07/2022 is also quashed and set aside. 14. The petition succeeds and is allowed. Rule is made absolute to the aforesaid extent. No order as to costs. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 24 of 24 "