GUJARAT NARMADA VALLEY FERTILIZERS CO.LTD. V. DY.COMMISSIONER OF INCOME TAX

SCA/24985/2006

AI Insights

The case revolves around a notice issued by the Dy. Commissioner of Income Tax to Gujarat Narmada Valley Fertilizers Co. Ltd., proposing to reopen the assessment for the year 1999-2000 under section 148 of the Income-tax Act, 1961. The notice was based on the grounds that the petitioner had claimed an excess deduction under section 35D of the Act related to expenses on Global Depository Receipts (GDR). The petitioner contested the notice, arguing that all material facts had been disclosed in previous assessments, and the claim was consistent with earlier accepted deductions. The court examined the sufficiency of the reasons for reopening the assessment and the disclosure of material facts by the petitioner.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 695963 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-03-2014
• Assessment Year: misc
• Other Referred Cases: Calcutta Discount Co. Ltd. v. Income-tax Officer
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K M PARIKH
• Assessee Lawyers: MANISH SHAH
• Keywords: Deduction under section 35D; Reopening of assessment; Global Depository Receipts; Amortized deduction
• Section: 148; 143(3); 35D

Judgement Text

"C/SCA/24985/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 24985 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI ================================================================ 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, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ GUJARAT NARMADA VALLEY FERTILIZERS CO.LTD.....Petitioner(s) Versus DY.COMMISSIONER OF INCOME TAX....Respondent(s) ================================================================ Appearance: MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1 MR KM PARIKH, ADVOCATE for the Respondent(s) No. 1 =========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI Page 1 of 10 C/SCA/24985/2006 JUDGMENT and HONOURABLE MS JUSTICE SONIA GOKANI Date : 19/03/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice dated March 21, 2006, issued by the respondent­ Assessing Officer under section 148 of the Income­tax Act, 1961 (hereinafter referred to as 'the Act'). Under such notice, he proposed to reopen the assessment of the petitioner for the assessment year 1999­2000, which was framed after scrutiny. The notice was, thus, issued beyond the period of four years from the end of relevant assessment year. 2. The Assessing Officer had recorded the following reasons for issuance of notice : “In this case, return of income declaring total income at Rs.68,09,01,730/­ was filed on 29.12.1999. The assessment u/s.143(3) of the I.T. Act was completed on 30.03.2002 determining total income at Page 2 of 10 C/SCA/24985/2006 JUDGMENT Rs.92,07,62,670/­, which was revised at Rs.69,17,49,861/­ as a result of CIT(A)­VI Baroda order dated 30.04.2004. 2. The assessee has amortized GDR (Global Depository Receipts) issue expenses over a period of 10 years and debited Rs.87.73 lakhs (being 1/10th of the total expenditure on GDR issue) to its P & L A/c. for F.Y. 1995­96 onwards. No adjustment has been made in the statement of total income, in this regard, thereby treating the expenses as deductible u/s.35D as mentioned in clause No.2.3 of Notes forming part of the return of income. In this regard, during the course of reassessment proceedings for A.Y. 2000­ 01, it was seen that part of the GDR issue was used for making investments, which includes the investment of Rs.96.62 crores in UTI. On scrutiny of clause­5 of schedule­ 6 to the balance sheet (Page No.20), investments in UTI and other funds mentioned at Rs.96.64 crores. As such, the assessee has not utilized the full amount of GDR issue for the purpose of investment in the new project. Hence, the admissible deduction per year was worked out at Rs.13,50,000/­ on the basis of 2.5% of cost of project for which the assessee had utilized the proceeds of the GDR issue. Thus, the assessee has claimed excess deduction u/s.35D of the Act Page 3 of 10 C/SCA/24985/2006 JUDGMENT in A.Y. 1999­2000 also. The excess deduction u/s.35D of the Act was allowed to the assessee on account of its failure to disclose all material details like cost of project, necessary for the purpose of working out admissible deduction. Thus, income of Rs.74,23,000/­ has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. 3. I have, therefore, reason to believe that the income chargeable to tax has escaped to the tune of Rs.74,23,000/­. It is a fit case for issue of notice u/s.148 of the I.T. Act.” 3. The petitioner raised several objections under a communication dated October 10, 2006, opposing the Assessing Officer's action of reopening of assessment. It was contended inter alia that in the assessment the claim of deduction under section 35D of the Act was accepted. Any change on the part of the Assessing Officer would be based on similar set of facts and, therefore, Page 4 of 10 C/SCA/24985/2006 JUDGMENT change of opinion. It was also contended that the claim on merits was also otherwise valid. 4. The Assessing Officer rejected the objections by an order dated October 27, 2006. The petitioner, therefore, filed this petition and challenged the notice of reopening. 5. The learned counsel Shri J.P. Shah for the petitioner contended that the sole ground, on which the notice is based, is the petitioner's claim of deduction under section 35D of the Act. According to the Assessing Officer, there was excess deduction under the said head. Counsel submitted that this was the fifth year of the amortised deduction spread over 10 assessment years. After scrutiny in the earlier years, the claim was accepted. Excess claim was made and allowed. Necessary facts were not produced by the assessee. Sufficiency of the reasons recorded by the Assessing Officer cannot be gone into by this Court at this stage. Page 5 of 10 C/SCA/24985/2006 JUDGMENT 6. Having thus heard the learned counsel for the parties, we may recall that notice for reopening has been issued beyond the period of four years from the end of relevant assessment year. The additional requirement flowing from the provisions of section 147 of the Act that the income chargeable to tax had escaped assessment for the reasons of the assessee's failure to disclose truly and correctly all the material facts, must be satisfied. In this context, we may notice that along with the return filed by the assessee, notes which form part of the return of income, were produced. In such notes in the context of claim of deduction under section 35D of the Act, it was stated as under : “Company has incurred expenditure on Euro Issue (GDR) for the first time in A.Y. 1995­ 96 and 1/10th of total expenditure amounting to Rs.87,73,074 is debited to Profit & Loss Account for the year ended 31.03.1999 (A.Y. 99­00). This amount is claimed as deduction u/s 35 D (fifth year) of the Income­tax Act. Similar claim has been allowed in the regular assessment for the A.Y. 1995­96.” Page 6 of 10 C/SCA/24985/2006 JUDGMENT 7. Thus, the assessee not only made a claim in the return filed, but also clarified in the notes that such claim was for expenditure incurred on Euro Issue for the first time in the assessment year 1995­96 and 1/10th out of the total expenditure of Rs.87,73,074/­ is debited to the Profit & Loss Account for the year ended on March 31, 1999. In the current year, such amount is claimed as deduction under section 35D of the Act for the fifth time. Similar claim was also allowed in the earlier regular assessments. 8. In our opinion, the assessee made full and true disclosure of all the material facts. Had this been the first year of assessment for the claim of deduction under section 35D of the Act, we would have been tempted to examine the learned counsel for the Revenue's contention that fully and truly all the material particulars were not produced along with the return or in the notes forming part of the return. In such context, explanation (1) to section 147 of the Act would Page 7 of 10 C/SCA/24985/2006 JUDGMENT assume significance. Such explanation provides that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso to section 147 of the Act. The Revenue's contention is that the deduction under section 35D of the Act is subject to fulfillment of certain conditions. One of them being flowing from sub­section (2) of section 35D is that aggregate amount of expenditure exceeds 2.5% of the costs of the product or the capital employed in the business of the company, the deduction has to be limited to 2.5%. It is true that in the present case, the assessee did not produce either the costs of the project or the capital employed in the business of the company. It was, therefore, not possible for the Assessing Officer to ascertain from such return whether the assessee's claim for deduction was hit by the provision of section 35D(2) of the Act. In that context, as noted above, had this been the first Page 8 of 10 C/SCA/24985/2006 JUDGMENT year of claim, the Revenue's contention would require closer scrutiny. However, this was the fifth year of assessee's claim for deduction under section 35D. As per section 35D of the Act, the expenditure clarifying such deduction would be spread over a span of 10 assessment years. In four previous years, when such claim was made and as pointed out by the assessee in the note forming part of the return, the same was accepted in a scrutiny assessment for the first year of the claim, the rest was a matter of computation. In that context, it can safely be stated that the assessee disclosed all the material facts. As held and observed by the Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income­tax Officer, reported in 41 ITR 191, the duty is on the assessee to disclose all the facts which had a bearing on the question of a claim. 9. In the context of the above decision, the assessee's disclosure that the company had incurred expenditure for the first time in the year 1995­96, which was also allowed after regular assessment and that in Page 9 of 10 C/SCA/24985/2006 JUDGMENT the present year, a 10th of the total amount recognised in the year 1995­96 is claimed under section 35D of the Act, in our opinion, was a sufficient disclosure of material facts. If the Assessing Officer had doubt about the validity of the claim in law, during scrutiny the same could have been examined. However, beyond the period of four years, it would not be open for the Assessing Officer to disturb such claim in absence of failure on the part of the assessee to disclose fully and truly all material facts. Only on this count, the petition is allowed. The impugned notice is quashed. We make it clear that we have not expressed any opinion on the other grounds pressed by the petitioner to question the legality of the impugned notice. Rule is made absolute accordingly. There shall be, however, no order as to costs. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Aakar Page 10 of 10 "