GUJARAT PAGUTHAN ENERGY CORPORATION PVT LTD V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 4,

SCA/13825/2009

AI Insights

The case involves Gujarat Paguthan Energy Corporation Pvt Ltd challenging the reopening of their income tax assessment for the year 2004-2005 under sections 147 and 148 of the Income Tax Act, 1961. The petitioner had initially claimed deductions under section 80IA for income generated from electricity, which was scrutinized and accepted in the original assessment. However, the Deputy Commissioner of Income Tax issued a notice to reopen the assessment, citing non-submission of separate reports for each undertaking and questioning the eligibility of certain income for deductions under section 80IA. The High Court's decision to quash the reopening was based on the legal precedents that the issues raised had been conclusively decided in favor of the assessee, and the procedural requirements for reopening the assessment were not met.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 761081 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 26-02-2014
• Assessment Year: misc
• Other Referred Cases: Nirma Industries Ltd. v. Deputy Commissioner of Income-tax, Income-tax Officer v. VXL India Ltd., Commissioner of Income-tax v. Contimeters Electricity P. ltd., Commissioner of Income-tax v. Web Commerce (India) P. ltd., Commissioner of Income-tax v. Mohmed Juned Dadani
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: S N SOPARKAR; BANDISH SOPARKAR
• Keywords: Assessment Year 2004-2005; Deduction under section 80IA; Income Tax; Reopening of assessment
• Section: 147; 148; 143(3); 115JB; 80IA; 226

Judgement Text

"C/SCA/13825/2009 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 13825 of 2009 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 PAGUTHAN ENERGY CORPORATION PVT LTD....Petitioner(s) Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 4,....Respondent(s) ================================================================ Appearance: MR S N SOPARKAR, SR COUNSEL, WITH MR BANDISH SOPARKAR ADVOCATE for the Petitioner(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and Page 1 of 13 C/SCA/13825/2009 JUDGMENT HONOURABLE MS JUSTICE SONIA GOKANI Date : 26/02/2014 ORAL JUDGMENT (PER : HONOURABLE MS JUSTICE SONIA GOKANI) 1.Present petition is preferred under Article 226 of the Constitution challenging the notice of reopening under section 147 read with section 148 of the Income Tax Act, 1961 (“the Act” here­in­after). 2.Brief facts necessary for the determination of issues presented before us are as follows : 2.1. The petitioner, a private limited company, had filed its return of income on 30.10.2004, claiming a deduction under section 80IA(iv) of the Act of Rs.4,69,73,55,657/­ on generation of electricity and of Rs.3,96,90,05,846/­ for offering book profit. 2.2. The same was selected for scrutiny. Queries were raised and the Assessing Officer had called upon the assessee to submit various details. After the replies were furnished, the Assessing Officer in the original assessment did not make any additions. The assessment was framed under section 143(3) on 25.4.2006 determining the total income at Rs.14,29,18,700/­ and Rs.4,54,65,63,744/­ 2.3. The impugned notice came to be issued on 27.3.2009 seeking to reopen the assessment for the assessment Page 2 of 13 C/SCA/13825/2009 JUDGMENT year 2004­2005. 2.4. The petitioner requested for copy of reasons recorded for the reopening of the assessment and also requested that the original return filed under section 139(1) be treated as return filed under section 148 of the Act. 2.5. The reasons furnished for reopening of the assessment read as follows : “1. The return of income, declaring total income of Rs. Nil was filed by the assessee company on 30.10.2004 claiming deduction of Rs.469,73,55,657/­ u/s. 80IA(iv) of the on generation of electricity. Assessee Company paid tax u/s.115JB of the Act. The assessment was finalised at an income of Rs.14,29,18,700/­ u/s.143(3) of the Act dated 25.04.2006. 2. As per the Notification no.240 of 2002 dated 06/09/2002 whereby it is stated that in exercise of power conferred by section 295 read with sub section 7 of section 80I of the Income Tax Act, amendment is made to income tax rules from 01/04/2002 whereby it is stated that a separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction. However on verification of the records it is seen that no separate report is furnished for each undertaking of the assessee for claiming deduction. 3. Further it is seen that from the records of the assessee company that the assessee company has received an interest of Rs.21761.41 lakhs from GEB for late payment of its sale price i.e. interest from trade debtors. Thus, the deduction of Rs.21761.41 lakhs on interest from trade debtors is not qualified for the deduction u/s 80IA. Page 3 of 13 C/SCA/13825/2009 JUDGMENT 4. In view of the above, I have reason to believe that income to the extent of Rs.469,73,55,657/­(including Rs.21761.41 lakhs) has escaped assessment by way of under assessment to that extent within the meaning of section 147 of the Income­tax Act, 196661.” 2.6. The objections were raised vide communication dated 13.7.2009 inter­alia contending that the assessee had duly submitted the separate reports for all the undertakings claiming deduction under section 80IA during the course of proceedings, as the main contention and allegation on part of the Revenue is that the separate report as required to be submitted by each undertaking and enterprise of the petitioner claiming deduction has not been furnished. 2.7. With regard to the second allegation, it pertains to interest received from GEB for late payment of its sale price which according to the Revenue would not qualify for deduction under section 80IA.it was contended that Gujarat High Court in case of Nirma Industries Ltd. v. Deputy Commissioner of Income­tax reported in (2006) 283 ITR 402(Guj), had rejected the plea of department that income received from trade debtors towards late payment of sales consideration is required to be excluded from the profits of the industrial undertaking as the same cannot be stated to have been derived from the business of the industrial undertaking and therefore, after taking into consideration, the objections raised against the reasons recorded, the Deputy Commissioner of Income tax vide its order Page 4 of 13 C/SCA/13825/2009 JUDGMENT dated 9.12.2009 rejected such objections and directed the petitioner to furnish submissions on merits of the case. In the said order, it was held inter­alia that it was necessary for the petitioner to furnish copy of audit report in the prescribed form No.10CCB along with the return of income and as the audit reports were not attached with the return of income, deduction claimed under section 80IA from the profit and gains derived from an undertaking would not be admissible. It was further held in the said order that deduction under section 80IA is available only in respect of such profit and gain which have a direct or proximate nexus with the activity of manufacture of production and same must have accrued to the assessee in the course of or arising from the manufacture or production of the industrial undertaking. Interest though had its origin in sale, same was not on account of sale of goods of industrial undertaking and, therefore, interest on late payment of sale proceedings would not be eligible for deduction under section 80IA. 3.The petitioner therefore, challenged the said notice. The Court issued notice on 29.12.2009 however, the re­ assessment order was passed by the Assessing Officer the very next day and therefore, the amendment was sought in the petition challenging such order dated 30.12.2009 passed under section 143(3) read with section 147 of the Act. This Court permitted such amendment and also granted the ad interim relief staying implementation and operation of such re­assessment order. Page 5 of 13 C/SCA/13825/2009 JUDGMENT 4. The affidavit in reply has been filed by the respondent wherein it is contended inter­alia that statutory alternative remedies are available to the petitioner and as order of reassessment has been passed, the Commissioner of Income­tax (Appeals) could be approached and thereafter, the Tribunal. It is also contended that issuance of impugned noticed for assessment year 2004­2005 was within period of four years from the end of relevant assessment year and, therefore, also the Court ought not to have interfered. 4.1. It is also contended that the petitioner’s contention of reopening being invalid on the ground that same was at the instance of Revenue audit wing also has no basis inasmuch as the Assessing Officer on being convinced that income taxable has escaped assessment has given a proposal for initiating action under section 147 and thus he himself had the reason to believe that income had escaped the assessment and such reopening proceedings were not solely at the behest of audit parties. 5.We have heard ld. senior counsel Shri S.N. Soparkar for the petitioner who has extensively urged before us that notice for reopening of the assessment issued under section 148 requires interference inasmuch as both the reasons recorded for reopening the assessment are not sustainable. He urged that the first ground raised concerns the separate report to be furnished for each undertaking. Such issue has already been concluded by this Court as also later on by the Apex Court by confirming the Page 6 of 13 C/SCA/13825/2009 JUDGMENT judgement of Delhi High Court. 5.1. He sought to rely upon the following judgements: I) Income­tax Officer v. VXL India Ltd. reported in (2009) 312 ITR 187 (Guj). II) Commissioner of Income­tax v. Contimeters Electricity P. ltd. reported in (2009) 317 ITR 249 (Delhi). III) Commissioner of Income­tax v. Web Commerce (India) P. ltd. reported in (2009) 318 ITR 135(Delhi). IV) The decision of the Apex Court in case of Commissioner of Income­tax v. Web Commerce (India) P. ltd., where department’s Special Leave Petition against the judgement of the Delhi High Court has been dismissed. 5.2. On the second reason, he urged the Court that the judgement rendered by this Court in case of Nirma Industries Ltd. v. Deputy Commissioner of Income­ tax(supra) clinches the issue. The issue according to the learned counsel has been decided in favour of the assessee and the SLP preferred by the department also has been dismissed by the Apex Court and thus on both the counts, notice is not sustainable and therefore, the Assessing Officer had no jurisdiction either to issue the notice or to frame re­assessment. 6.Learned senior counsel Shri Manish Bhatt appearing for the Revenue has urged that when the reasons were Page 7 of 13 C/SCA/13825/2009 JUDGMENT recorded by the Assessing Officer, he had the reason to believe and the law that was prevalent at the relevant point of time permitted him to hold such a reason and therefore, any subsequent change by way of pronouncement of judgement would not invalidate the reasons nor the process of reopening and the Court need not interefere. 6.1. On the contention raised of issuance of the notice of reopening exclusively at the behest of communication received from the audit wing, he urged that the Assessing Officer had applied his own mind as the only objection raised by the audit wing was in respect of interest from the trade debtors as not having been qualified for deduction under section 80IA and directed re­verification of the papers. He further contended that the communication from the audit wing was also received with respect to non filing of separate reports for each undertakings. However, on both the counts, the Assessing Officer himself had formed his belief independently as well and therefore, on that count alone no interference is desirable. 7.Having thus heard both the sides and having considered the material on record at the outset, it needs to be noted that challenge to the notice impugned and subsequently to the order of reassessment, passed consequent upon such issuance of the notice is essentially on two grounds. 8.First ground raised is in respect of requirement of filing separate reports to be submitted by each undertaking of the petitioner. It is to be noted that the fact is not in Page 8 of 13 C/SCA/13825/2009 JUDGMENT dispute that the report was in three parts for each of the undertakings of the petitioner. However, at the time of assessment proceedings for each undertaking, a separate report had already been furnished. 9.This Court in case of Income­tax Officer v. VXL India Ltd. (supra), held and observed that provision of section 80HHC of the IT Act requires that the report of a chartered accountant in the prescribed form should be attached along with the return of income, certifying that the deduction has been correctly claimed in accordance with the provisions of this section, but, that would not mean that such report if is not attached along with the return of income and if is produced before the Assessing Officer during the course of assessment proceedings, the entitlement of the assessee for deduction under section 80HHC would go away. It further held that to obtain the report of the chartered accountant is a condition precedent and it is mandatory in nature. However, non furnishing of such report at the time of filing the return of income but at a subsequent stage before the assessment proceedings get completed, would not result in denial of such benefit. 10. We notice that decision of this Court in case of Income­tax Officer v. VXL India Ltd.(supra) was followed by the Delhi High Court in case of Commissioner of Income­tax v. Contimeters Electricity P. ltd.(supra) and later on in case of Commissioner of Income­tax v. Web Commerce (India) P. ltd. 11. It is to be mentioned at this juncture that the SLP Page 9 of 13 C/SCA/13825/2009 JUDGMENT preferred against judgement of the Delhi High Court rendered in case of Commissioner of Income­tax v. Web Commerce (India) P. ltd(supra) was dismissed by the Apex Court holding that once the audit report is filed before the framing of assessment, the provisions of section 80­IA(7) would be complied with as furnishing of such report at the time of filing of return is directory in nature and not mandatory. 12. Reverting back to the facts of the instant case, in light of aforementioned decisions, the assessee had submitted a separate report for all the undertakings claiming deduction under section 80­IA, during the course of assessment proceedings. Therefore, the first ground of reopening, wherein it is alleged that interest from the trade debtors would be qualified for deduction under section 80­ IA only on the furnishing of separate reports, cannot be upheld. 13. With regard to second ground, it is alleged that the assessee company had received an interest of Rs.21761.41 lakhs from GEB for late payment of its sale price. We notice that in case of Nirma Industries Ltd. v. Deputy Commissioner of Income­tax(supra) the plea of the department has been rejected holding that interest received from trade debtors towards the late payment of sale price, is required to be excluded from the profit of industrial undertaking as same cannot be said to be derived from industrial undertaking. This issue also stands concluded at the stage of Apex Court and therefore, such ground raised in the reasons recorded also in our opinion if Page 10 of 13 C/SCA/13825/2009 JUDGMENT allowed to be proceeded with, cannot be sustained. 14. At this stage, reference is needed of the fact that the petitioner has raised the ground that the notice impugned has been initiated at the behest of audit objections and accordingly has challenged the validity of the same. From the contentions raised in affidavit in reply and the submissions made before us, we are convinced that such challenge on the part of the petitioner deserves not to be sustained, as the Assessing officer appears to have formed his own belief on the basis of reasons while issuing such notice and therefore, it cannot be said that the notice was solely at the behest of audit party. 15. It is a settled position that once the notice for reopening is issued and is allowed to be proceeded, the Assessing Officer can also open other issues, other than those for which the reasons have been recorded and, therefore also, ordinarily in a writ petition, the Court would be slow in interfering with such notices. While so noting, we cannot be also oblivious to the decision of this Court in case of Commissioner of Income­tax v. Mohmed Juned Dadani reported in (2013) 355 ITR 172 (Guj), where in relation to explanation 3 to section 147 of the Act, it has been held that the Assessing Officer cannot make additions with respect to the grounds not raised in the notice and no fresh assessment making any additions on other issues which did not form part of the reasons recorded to be made, if additions with respect to the grounds raised in the impugned notice fail. Explanation 3 to section 147 as held in the said decision, provides that for the purpose of Page 11 of 13 C/SCA/13825/2009 JUDGMENT assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings, this would not be notwithstanding that the reasons for such issue have not been included in the reasons recorded under section 148(2). However, explanation 3 would not and cannot be construed so as to provide that if the reason on which the assessment is reopened fails, the Assessing Officer still can proceed to assess some other income which according to him had escaped assessment and which came to his light during the course of the assessment. Accordingly, this Court had held for assuming jurisdiction under Section 147 of the Act what is essential is a valid reopening of a previously closed assessment and If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturally would not survive. 16. In the case on hand thus, as both the grounds in respect of which the notice has been issued fall and both these reasons recorded in the reopening of the assessment when are held to be unsustainable, for the reasons detailed hereinbefore, we hold that the Assessing Officer would not be in a position to make any additions on some other grounds which never formed part of the reasons recorded by him and therefore, as the very foundation of reopening is gone, also the notice impugned and consequently passed order of re­assessment must be interfered with. 17. We need to briefly touch the submission of learned Page 12 of 13 C/SCA/13825/2009 JUDGMENT counsel Mr Bhatt that while the Assessing Officer recorded his reasons, his belief was sustainable and because of subsequent pronouncement of law changed the scenario, that may not be the ground for interference in a writ jurisdiction. As discussed, a valid reopening of previously closed assessment is a must for assuming jurisdiction under section 147 of the Act. When the very foundation of such reassessment are both the reasons recorded and by virtue of binding decisions, neither of the grounds is sustainable, permitting such notice to be pursued would be an exercise in futility and this Court cannot disregard such vital aspects while addressing the challenge to the notice of reopening. 18. Petition deserves to be allowed quashing the impugned notice for reopening dated 27.3.2009 so also the order of re­assessment dated 30.12.2009 and any further consequential proceedings taken thereunder. 19. Petition stands disposed of accordingly with no order as to costs. Rule is made absolute to the extent above. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 13 of 13 "