M/S. LARSEN & TOURBRO LTD.,MUMBAI V. DY COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-2(2) & 5(4), MUMBAI

ITA 1010/MUM/2022

AI Insights

The case involves M/s. Larsen & Toubro Ltd., which appealed against the reopening of their income tax assessment for the Assessment Year 2004-05. The reopening was initiated by the AO under sections 143(3) r.w.s 147 of the Income Tax Act, 1961, citing various reasons related to deductions claimed under sections 80-IA, 80HHB, 80HHBA, 80HHC, and 80HHE. The Tribunal examined the validity of these reasons, considering whether they were based on new tangible material or merely on a change of opinion. The Tribunal concluded that the reopening was not justified as it was based on a change of opinion without any new tangible material, leading to the quashing of the reopening order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471338 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Other Referred Cases: Bakhtawar Construction Co. P. Ltd. vs. DCIT, CIT vs. Kelvinator of India Ltd, PCIT vs. NESCO Ltd, CIT vs. Nagari Mills Co Ltd, CIT vs. Excel Industries Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K.R. SUBHASH
• Assessee Lawyers: J.D. MISTRY; MADHUR AGARWAL
• Keywords: Difference of opinion; Change of opinion; Reopening of assessment; Reason to believe; Tangible material
• Section: 148; 143(3); 80HHC; 80IA; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “A” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No. 1010/Mum/2022 Assessment Year : 2004-05 M/s. Larsen & Toubro Ltd., L&T House, N.M. Marg, Ballard Estate, Fort, Mumbai PAN : AAACL0140P vs. Deputy Commissioner of Income Tax, Central Circle-5(4), [erstwhile Income Tax Officer-2(2), Mumbai] 19th Floor, Air India Building, Nariman Point, Mumbai (Appellant) (Respondent) For Assessee : Shri J.D. Mistry & Shri Madhur Agarwal For Revenue : Dr. K.R. Subhash, CIT-DR Date of Hearing : 19-12-2024 Date of Pronouncement : 23-01-2025 O R D E R PER B.R. BASKARAN, A.M : The assessee has filed this appeal challenging the order dated 15-03-2022 passed by the Ld.CIT(A)-53, Mumbai for Assessment Year (AY.) 2004-05 against the assessment order dated 24-12-2009 passed by the AO u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 („the Act‟). 2. The assessee, inter alia, is challenging the validity of reopening of assessment. We heard the parties on this legal issue. 2 ITA No. 1010/Mum/2022 3. The assessee company is India‟s largest Engineering and Construction Company. It also manufactures electrical and electronic products, switchgears, heavy engineering equipments etc. The original assessment of the year under consideration was completed by the AO on 05-12-2006 u/s 143(3) of the Act. Subsequently, the AO reopened the assessment by issuing notice u/s 148 of the Act on 26-05-2008, i.e., within four years from the end of the assessment year. 4. The reasons recorded by the AO for reopening of assessment reads as under:- “Reasons for reopening Larsen & Toubro Ltd.: AY 2004-05 In this case, the assessment was completed u/s. 143(3) on 5.12.2006 determining the total income at Rs. 750,57,02,452/-. 1. It is seen from the records that while computing the deduction u/s 80-IA, certain pass through components like Fuel adjustment Charges (FAC), electricity duty, wheeling charges, grid support charges etc. have not been considered for arriving at the market value of the electricity. 2. For the purpose of claiming deduction u/s 80-IA, excess profit from the generation of electricity has been shown as against 16% rate return of investment fixed by the Ministry of Power. 3. Various expenditure like interest, commission, brokerage and corporate overheads were not debited on the separate Profit & Loss A/c. of infrastructure project. Further, sales and administrative expenditure is not proportionate to the expenditure debited in consolidated P&L A/c to the profit of 80-1A units which has resulted in excess deduction u/s 80-IA. 4. The assessee claimed deduction u/s 80-IA, 80HHB, 80HHBA, 80HHC, 80HHE etc. However, exemption claimed u/s 80-IA was not reduced from other chapter VI-A deduction as per provisions contained in section 80-IA. 5. Deduction u/s 80-IA was wrongly claimed in respect of work on contract basis for various Govt. agencies, which cannot be considered as infrastructure provider. 3 ITA No. 1010/Mum/2022 6. Deduction u/s 80HHC and 80HHE has been claimed on the same profit of Rs. 542,68,62,307/- which is contradictory to the provision contained in 80HHC and 80HHE. 7. The prior period expenditure of Rs. 1.12 crore is not added back to the total income. In view of the above, I have reason to believe that income to the tune of Rs. 98.40 crores (approx.) has escaped assessment for AY 2004-05. Therefore, the assessment is hereby reopened as per the provisions of section 147 by issuing notice u/s. 148. Sd/- (C.K.K. NAIR) Dy. Commissioner of Income-tax Circle 2(2), Mumbai.” After receipt of copy of above said reasons, the assessee filed its objections for reopening of assessment, but it was rejected by the AO. In the appeal filed before the Ld.CIT(A), the assessee challenged the validity of reopening of assessment, but the Ld.CIT(A) also confirmed the validity of reopening of assessment. The assessee is aggrieved. 5. We heard the parties on this legal issue and perused the record. It can be noticed that the AO has given seven reasons for reopening of assessment. The reasons No.1 and 2 relate to the alleged claim of deduction made u/s 80IA of the Act in respect of captive power generation unit. The Ld A.R submitted that the assessee did not claim any deduction u/s 80IA for captive power generation unit in this year. The Ld D.R also could not controvert this factual aspect presented by the Ld A.R. Hence the reasons No.1 & 2 are not relevant in this year and accordingly both these reasons would fail. 6. The reasons No.3 and 5 relate to the deduction claimed u/s 80IA of the Act. In this regard, the Ld A.R referred to the notice dated 10th January, 2006 issued by the AO (Placed at pages 233-37 of the Paper book) during the course of original assessment proceedings, wherein the 4 ITA No. 1010/Mum/2022 AO, vide question no.18, had called for the details of deduction claimed u/s 80IA of the Act in respect of infrastructure facility developed by the assessee. It was submitted that the assessee has furnished reply annexing the Certificate in Form 10CCB obtained from a Chartered Accountant and also computation of deduction u/s 80IA for each of the project. The Ld A.R referred to pages 262 to 271 of the paper book in this regard. He submitted that the assessee has also furnished the basis of allocation/apportionment of assets, liabilities, income and expenditure for computation of profit of each of the project. It was specifically mentioned that the interest expenses, if any, and corporate IT have not been considered for the purpose of allocation/apportionment. The AO, after considering the reply of the assessee, has allowed the claim for deduction u/s 80IA of the Act in the original assessment proceedings. Accordingly, the Ld A.R submitted that the AO has reopened the assessment in respect of 80IA deduction only on account of change of opinion, that too, without bringing any new tangible material. He further submitted that the first year of claim for deduction u/s 80IA(4) is AY 2003-04. The AO had reopened the assessment of that year also, but it has been quashed by the Tribunal. 6.1. The Ld D.R, on the contrary, submitted that the AO has, in fact, raised query on the various deductions claimed by the assessee including the deduction claimed u/s 80IA of the Act. However, the AO did not raise any specific query on the apportionment of the income. He submitted that the auditor has specifically noted in Form 10CCB that the interest expenses have not been debited to the Profit and Loss account of the projects, which would show that the profits of projects have been inflated resulting in higher deduction allowed u/s 80IA of the Act. This fact was omitted to be considered by the AO. Further, the AO did not discuss about allocation of commission and brokerage expenses between 80IA and non- 5 ITA No. 1010/Mum/2022 80IA units. Further, there is no discussion about the agreements entered between the assessee and the Government, meaning thereby the AO did not examine them to ascertain the eligibility of the assessee to claim deduction u/s 80IA of the Act. It is also seen that the assessee did not submit those documents also to the AO. Accordingly, he submitted that the reopening of assessment on this ground cannot be said to be on account of change of opinion. 6.2. We heard the parties on this issue. The admitted fact is that the AO has examined the claim for deduction u/s 80IA of the Act during the course of original assessment proceedings by raising a specific query. In response thereto, the assessee has furnished detailed reply along with Audit certificate in Form 10CCB and also the profit and loss account for each of the project. The audit certificate has specifically stated that the interest expenses have not been debited. The AO has allowed the deduction after examining all those details. The Hon‟ble Bombay High Court has held in the case of Bakhtawar Construction Co. P. Ltd. vs. DCIT (Writ Petition No.1400 of 2014 dated 6 October 2003) has held that during the original assessment proceedings, once a query was made with regard to the same issue which was responded to by the assessee and on satisfaction of the same, the assessing officer has passed an assessment order, reopening would be purely on the basis of change of opinion. 6.3. We also notice that the reopening of assessment was done in order to revisit the deduction claimed u/s 80IA of the Act and it is also not based on any fresh tangible material. From the contentions of Ld D.R, we notice that the revenue felt that there were some gaps in the examination conducted by the AO during the course of assessment proceedings and it appears that the assessing officer has reopened the assessment in order to fill those gaps. Certainly, the reopening of the assessment cannot be done 6 ITA No. 1010/Mum/2022 to fill the short fall in the enquiry made during the course of original assessment proceedings, unless any fresh tangible material is brought on record which would warrant such an intervention. We may take support from the decision rendered by Hon‟ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd (2010)(320 ITR 561), wherein the Hon‟ble Supreme Court held as under:- “Hence, after 1.4.1989, Assessing Officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.” The Hon‟ble Supreme Court also observed that the AO cannot reopen the assessment on mere change of opinion. The requirement of tangible material is also reiterated by Hon‟ble Bombay High Court in the case of PCIT vs. NESCO Ltd (ITA No.692 of 2018 dated 21 October 2022). In the case of two issues discussed above, as per the facts discussed above, we are of the opinion that the reopening of these two issues is on account of change of opinion only without bringing any tangible material. Hence, both these reasons would fail. 7. The reason No.4 given by the AO relates to the computation of deduction under other sections of Chapter VIA without reducing the deduction claimed u/s 80IA of the Act. The Ld A.R submitted that the above said proposal of the AO is against the decision rendered by Hon‟ble Bombay High Court in the case of Associated Capsule (P) Ltd vs. DCIT (332 ITR 42), wherein the Hon‟ble jurisdictional High Court has held that the interpretation of sec. 80IA(9) of the Act is that the deduction claimed under various sections of Chapter VIA in aggregate should not exceed the gross total income and not that the profits eligible for deduction u/s 80IA is required to be reduced while computing deduction under other sections of Chapter VIA. Since the reasoning given by the AO on this issue is against 7 ITA No. 1010/Mum/2022 the decision rendered by the jurisdictional High Court, this reason would also fail. 8. The next reason No.6 given by the AO is that the assessee has claimed deduction u/s 80HHC and 80HHE on the same profit of Rs.542.68 crores. The Ld A.R submitted that the assessee has filed a detailed reply dated 31 August 2006 before the AO with regard to the deduction claimed u/s 80HHC and 80HHE of the Act. Accordingly, the AO had allowed the deduction. He further submitted that the deduction u/s 80HHC is allowed for export of goods and the deduction u/s 80HHE is allowed for export of software. Hence there is no scope for overlapping of both the activities and hence the very reasoning given by the AO to reopen the assessment would fail, as the same is on account of misinterpretation of provisions. 8.1. We heard Ld DR on this issue. We notice that the deduction u/s 80HHC and 80HHE are given for two different activities and hence, there is no scope of claiming both the deductions for the same activity. Further, it is noticed that the assessee has furnished relevant details before the AO during the course of original assessment proceedings. Hence, the reopening of assessment on this issue is not only on account of misinterpretation of law and facts, but also on account of change of opinion. Accordingly, this reason would also fail. 9. The last reasoning given in reason No.6 relates to the non- disallowance of claim of prior period expenses of RS.1.12 crores. The Ld AR submitted that the assessee has duly disclosed this item in its annual report and also the Tax auditor has also disclosed this item in the Tax audit report. The AO did not make any disallowance in the original assessment proceedings, even though it was duly disclosed in the above said documents. He submitted that the prior period expenses are bound to arise year after year in the case of the assessee in view of the large scale 8 ITA No. 1010/Mum/2022 of operations carried on by the assessee in various places. Hence it is a recurring issue every year. He submitted that the AO had examined this issue in AY 2003-04 and allowed the claim. He submitted that, in any case, it is a case of timing difference only and if it is not allowed in AY 2004-05, then the same should be allowed in the earlier years. Placing reliance on the decision rendered by Hon‟ble Bombay High Court in the case of CIT vs. Nagari Mills Co Ltd (33 ITR 681)(Bom) and the decision of Hon‟ble Supreme Court in the case of CIT vs. Excel Industries Ltd (358 ITR 295)(SC), the Ld A.R submitted that no purpose is achieved in litigating on issues relating to timing difference, when there is no impact on tax on shifting of profit from one year to another year. 9.1. The Ld D.R, on the contrary, submitted that the AO did not examine the issue of prior period expenses, even though the same has been reported by the assessee. The assessee also did not produce any material to show that these expenses got crystallized during the year under consideration. Hence the question of change of opinion will not arise in this issue. 9.2. We heard rival contentions on this issue. There is no dispute with regard to the fact that the assessee herein is a large engineering and construction company having projects spread all over the country and abroad. They execute huge contracts. During the year ending 31.3.2004, the turnover of the assessee was about 10,000 crores. Since the accounts of various projects are required to be consolidated at the year end, various locations cannot wait for certain bills and further, there is bound to be some errors and omission in accounting of expenses every year. Accordingly, it would be a common feature for the assessees that they would be constrained to account for expenses relating to prior years, if they had been omitted to the accounted in the earlier years. As submitted 9 ITA No. 1010/Mum/2022 by Ld D.R, bills relating to those expenses might have been received in the current year. 9.3. The Ld A.R submitted that it is a recurring issue every year and the AO has allowed similar claim in AY.2003-04 after examining the circumstances under which the prior period expenses were booked by the assessee. Admittedly, the AO did not examine this issue separately in the current year, even though the details of prior period expenses were specifically disclosed in the Annual accounts and Tax audit report. However, it may noticed that the amount of Rs.1.12 crores relating to prior period expenses forms a miniscule part of aggregate expenses of Rs.9232 crores debited in Profit and Loss account. Further, as observed by Hon‟ble Supreme Court in the case of Excel Industries Ltd (supra) and Hon‟ble Bombay High Court in the case of Nagari Mills Co Ltd (supra), the prior period expenses would involve timing difference only and if it is disallowed in this year and allowed in the appropriate year, then there will no impact on taxes. Considering all these facts, i.e., the recurring nature of expenses, the disclosure duly made by the assessee & tax auditor; the fact that similar claim has been allowed in the earlier years; the fact that the same may be tax neutral; the fact that 20 years have already elapsed from the closure of the year and the smallness of the amount vis-à-vis the aggregate expenditure claimed by the assessee, we are of the view that, in the facts and circumstances of the case discussed above, this reason should not be treated as an appropriate reason to reopen the assessment. Accordingly, we are of the view that this reason would also fail. 10. In view of the foregoing discussions, we are of the view all the reasons narrated by the AO for reopening of assessment would fail and in that case, it has to be held that the reopening of assessment is not valid. 10 ITA No. 1010/Mum/2022 We order accordingly. Accordingly, the orders passed by the tax authorities are quashed. 11. Since we have held that the reopening of assessment is not valid, the other grounds raised by the assessee on merits do not require adjudication. 12. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 23-01-2025 Sd/- Sd/- [ANIKESH BANERJEE] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 23-01-2025 TNMM Copy to : 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The D.R. ITAT, Mumbai 5. Guard File. //By Order// //True Copy // Dy./Asst. Registrar, ITAT, Mumbai "