MAPS ENZYMES LTD V. DEPUTY COMMISSIONER OF INCOME TAX

SCA/16016/2013

AI Insights

The case involves MAPS Enzymes Ltd., which challenged a notice issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, for reassessing its income for the assessment year 2007-08. The original assessment was completed in 2009, and the reassessment notice was issued in 2012, beyond the four-year limit. The petitioner argued that the reassessment was based on a change of opinion and audit objections, which are not valid grounds for reopening an assessment after four years. The respondent defended the reassessment, citing incorrect claims made by the petitioner under sections 80JJA and 80IB of the Act. The court, referencing several precedents, concluded that the reassessment was not justified as it was based on a change of opinion and was not supported by new material facts.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 814147 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 03-12-2013
• Assessment Year: misc
• Other Referred Cases: Gujarat Lease Financing Ltd. vs. DCIT, CIT vs. Kelvinator of India Ltd., Gujarat Power Corporation Ltd. vs. ACIT, CIT vs. Lucas T.V.S. Ltd., Sri Krishna Pvt. Ltd. vs. Income Tax Officer, Sowdagar Ahmed Khan vs. Income Tax Office, Nellore
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: HARDIK VORA
• Keywords: Audit objection; Change of opinion; Deduction; Income Tax; Jurisdiction; Notice; Reassessment
• Section: 148; 142(1); 143(2); 139; 44AB; 80IB; 226; 80JJA

Judgement Text

"C/SCA/16016/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 16016 of 2013 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAH Sd/­ and HONOURABLE MR.JUSTICE R.P.DHOLARIA Sd/­ ============================================= 1. Whether Reporters of Local Papers may be allowed to see the judgment ? No 2. To be referred to the Reporter or not ? No 3. Whether their Lordships wish to see the fair copy of the judgment ? No 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 ? No 5. Whether it is to be circulated to the civil judge ? No ============================================= MAPS ENZYMES LTD....Petitioner(s) Versus DEPUTY COMMISSIONER OF INCOME TAX....Respondent(s) ============================================= Appearance: MR. HARDIK V VORA, ADVOCATE for the Petitioner(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA Date : 03/12/2013 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] RULE. Ms. Mauna Bhatt, learned advocate waives service of notice of Rule on behalf of the respondent. In the facts and circumstances of the case and with the consent of learned advocates Page 1 of 9 C/SCA/16016/2013 JUDGMENT appearing on behalf of the respective parties, present petition is taken up for final hearing today. [2.0] By way of this petition under Article 226 of the Constitution of India, petitioner – assessee has prayed for an appropriate writ, direction, order to quash and set aside the impugned notice dated 03.12.2012 issued under Section 148 of the Income Tax Act, 1961 [hereinafter referred to as “Act”] for the assessment year 2007­08. [3.0] That the assessee is engaged in the business of manufacturing of Enzyme. For the assessment year 2007­08, the return was filed on 18.10.2007. The said return of income was accompanied with Tax Audit Report under section 44AB of the Act. The case was selected for scrutiny assessment by issuing the notice under section 143(2) of the Act. Assessee declared income at Rs.NIL after claiming deduction under section 80IB of the Act of Rs.50,89,715/­ and under section 80JJA on other income of Rs.1,69,65,718/­. The Assessing Officer passed the assessment order dated 31.12.2009 assessing the total income at Rs.13,01,119/­ denying the deduction under sections 80IB and 80JJA on other income of Rs.13,01,119/­. That after a period of four years the impugned notice under section 148 of the Act has been issued on 03.12.2012 i.e. after four years of the end of the assessment year for reassessing the income of the petitioner, whereby, jurisdiction has been assumed to reassess the income for the assessment year 2007­08. The reasons recorded under Section 148(2) of the Act was also served upon the petitioner along with the notice. After receipt of the notice alongwith the reasons recorded under section 148(2) of the Act, the petitioner vide letter dated 07.12.2012 requested the respondent to treat the original return of income as return of income. That the petitioner submitted its objection against the reassessment proceedings with detailed submissions vide written objection dated 29.04.2013. That Page 2 of 9 C/SCA/16016/2013 JUDGMENT thereafter by an order dated 13.09.2013, the respondent has overruled the objections raised by the petitioner. Hence, the petitioner has preferred the present special civil application challenging the impugned notice of reassessment issued under section 148 of the Act, which is beyond four years of the end of the assessment year. [4.0] Shri Hardik Vora, learned advocate appearing on behalf of the petitioner has vehemently submitted that the impugned notice issued by the respondent under section 148 of the Act is without jurisdiction and bad in law. [4.1] It is submitted that in the present case admittedly the assessment is sought to be reopened in exercise of powers under section 148 of the Act after a period of four years of the end of the assessment year and therefore, unless the AO has reason to believe that any income chargeable to tax has escaped assessment and that such escapement of assessment was on account of failure on the part of the assessee to file return under section 139 or in response to the notice under section 142(1) of the Act or under section 148 or to disclose fully or truly all material facts necessary for the assessment, it is not open for the AO to reopen the assessment. It is submitted that in the present case the Revenue has failed to point out as to in what manner there was non­ disclosure and/or concealment on the part of the assessee. It is submitted that therefore the impugned notice issued under section 148 of the Act to reopen the assessment proceedings for the assessment year after a period of four years of the end of the assessment year is wholly without jurisdiction which deserves to be quashed and set aside. In support of his above submission, Shri Vora, learned advocate appearing on behalf of the petitioner has heavily relied upon the decision of this Court in the case of Gujarat Lease Financing Ltd. vs. DCIT reported in 36 Taxmann.com 359. It is further submitted that from the perusal of Page 3 of 9 C/SCA/16016/2013 JUDGMENT the record and reasons, it cannot be said that any new material is found on the basis of which assessment can be reopened. It is submitted that as such the assessment is reopened either on review of original material or on audit objection. It is submitted that as held by the Hon’ble Supreme Court and this Court and various High Courts, in catena of decisions, reopening on either of the aforesaid grounds is not valid. [4.2] It is submitted that the reopening is based on change of opinion which is not permissible under the law. It is submitted that in the present case while submitting the return of income and during the original assessment proceedings the petitioner claimed deduction under section 80JJA and on the same the AO send a questionnaire vide communication dated 24.12.2009 and the petitioner replied to the same and thereafter the same has been accepted by the AO while framing the assessment order for the assessment year under consideration. It is submitted that as such AO at the relevant time applied his mind and when thereafter accepted the claim of the deduction under section 80JJA of the Act, it cannot be said that there was any concealment and/or failure on the part of the assessee to submit the correct facts for which reopening under section 148 of the Act is permissible. It is submitted that therefore it can be said that the reopening is based on change of opinion which is not permissible. In support of his above submission, he has relied upon the decision of the Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. reported in [2010] 320 ITR 561 (SC) as well as the decision of this Court in the case of Gujarat Power Corporation Ltd. vs. ACIT reported in [2012]26 Taxmann.com 51 (Guj). [4.3] It is further submitted by Shri Vora, learned advocate appearing on behalf of the petitioner that the original assessment is reopened on the basis of the audit objection which is not permissible. It is submitted Page 4 of 9 C/SCA/16016/2013 JUDGMENT that under the Right to Information Act, the petitioner has gathered information that there was an objection raised by the audited party for AY 2008­09 and LAR has been issued to the AO. It is submitted that the said objection for AY 2008­09 with claim for the year 2007­08 should also be reviewed. It is submitted that therefore when the assessment is reopened on the basis of the audited objection, the same is held to be not permissible. In support of his above submissions, he has relied upon the decision of the Hon’ble Supreme Court in the case of CIT vs. Lucas T.V.S. Ltd. reported in 249 ITR 306 (SC) and other decisions. Making above submissions and relying upon above decisions, it is requested to allow the present special civil application. [5.0] Present petition is opposed by Shri M.R. Bhatt, learned counsel appearing on behalf of the respondent. An affidavit in reply is filed opposing the present special civil application. [5.1] It is submitted by Shri Bhatt, learned counsel appearing on behalf of the respondent that as per the reasons recorded for reopening the assessment for AY 2007­08, the reopening has been effected on two grounds. The first ground is with regard to incorrect claim made by the petitioner under section 80JJA of the Act. It is submitted that according to the respondent, the petitioner had commenced its business in the previous year 1999­00 relevant to the AY 2000­01 and as per the provisions of Section 80JJA of the Act, the said deduction is admissible for a period of five years from the previous year in which the business is commenced. It is submitted that therefore deduction under the said section was available to the assessee only upto AY 2004­05. It is submitted that the assessee during the year under consideration made an incorrect claim despite it being aware of the aforesaid position. It is submitted that therefore as there is suppression of material facts on the part of the assessee, the reopening is justified. It is submitted that the Page 5 of 9 C/SCA/16016/2013 JUDGMENT second ground on which the reopening has been effected is with regard to incorrect claim of deduction under section 80IB of the Act. It is submitted that said claim has also been erroneously made despite the petitioner being aware of the above position. It is submitted that it is in this set of circumstances that the income of the assessment in view of the suppression on the part of the petitioner, of facts material for the purpose of assessment. It is submitted that therefore it cannot be said that the reopening proceedings are bad in law and/or without jurisdiction. [5.2] Relying upon the decision of the Hon’ble Supreme Court in the case of Sri Krishna Pvt. Ltd. etc. vs. Income Tax Officer and Others reported in 221 ITR 538 as well as another decision of the Hon’ble Supreme Court in the case of Sowdagar Ahmed Khan (Deceased) (By his Legal Representatives) vs. Income Tax Office, Nellore reported in 70 ITR 79, it is requested to dismiss the present special civil application. [6.0] Heard Shri Hardik Vora, learned advocate appearing on behalf of the petitioner and Shri M.R. Bhatt, learned counsel appearing on behalf of the respondent. [6.1] At the outset it is required to be noted that by impugned notice issued under section 148 of the Act, the assessment for the AY 2007­08 is sought to be reopened beyond the period of four years of the end of the assessment year. While issuing the notice under section 148 of the Act, the respondent has recorded the reasons as required under section 148(2) of the Act, which reads as under: Reasons recorded u/s.148(2) of the I.T. Act In this case, the assessee Company engaged in the business of Manufacturing and export of Biological Agents (Enzymes) had filed its return of income on 28.09.2008 declaring total income of Rs.NIL. Page 6 of 9 C/SCA/16016/2013 JUDGMENT Assessment in this case was finalized under section 143(3) of the Act on 31.12.2009 and the income of the assessee was assessed at Rs.13,01,119/­. 2. On perusal of the records, it is noticed that the assessee has claimed deduction under section 80JJA of the Act amounting to Rs.1,69,65,718/­. The assessee had commenced its business in previous year 1999­2000 relevant to A.Y. 2000­01. Thus, this was the seventh year of claim of deduction under section 80JJA of the Act. However, the deduction under section 80JJA of the Act was admissible for a period of five years only from the previous year in which the business commences. Hence the assessee is not entitled for deduction under section 80JJA of the Act in AY 2007­08 as mentioned above. Further, the assessee has also claimed deduction under section 80IB of the Act. The deduction under section 80IB is to be restricted @30% of eligible profit as per the provision. Thus the assessee has wrongly claimed deduction under section 80JJA of the Act worked under: Gross total income Rs.1,69,65,718/­ Less : Other Income Rs. 13,01,119/­ Eligible profit of business for Rs.1,56,64,599/­ Deduction u/s.80IB of the Act @30% allowing deduction u/s.80IB of the Act Rs. 46,99,380/­ Wrong claim of deduction u/s.80JJA of the Act. Rs.1,09,65,219/­ 3. In view of the above facts, I have reasons to believe that the assessee has wrongly claimed deduction u/s.80JJA and thereby failed to furnish accurate particulars of its income to the tune of Rs.1,09,65,219/­ (­13,01,119­46,99,380) which has escaped assessment to that extent for the assessment year 2008­09 and is required to be reassessed as there was a failure on the pat of the assessee to disclose fully and truly all material facts.” Therefore, the original assessment is sought to be reopened on the aforesaid grounds. As stated hereinabove, the original assessment is sought to be reopened in exercise of powers under section 148 of the Act after a period of four years of the end of assessment year and therefore, as per first proviso to section 147 of the Act, no action shall be taken for reopening of the assessment after the period of four years from the end of the relevant assessment year, unless any income chargeable to the tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in Page 7 of 9 C/SCA/16016/2013 JUDGMENT response to the notice issued under sub­section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for assessment, for that assessment year. Unless the aforesaid condition is satisfied, there cannot be any reopening of the assessment. Under the circumstances while initiating the reassessment proceedings by which the original assessment is reopened after the expiry of period of four years from the end of the relevant assessment year, it can be only when there was an escapement of assessment when an income chargeable to tax has escaped assessment due to concealment and/or non­disclosure of fully and truly all material facts by the assessee. [7.0] In the case of Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax reported in (2013) 350 ITR 266 (Gujarat), in which the notice for reassessment was challenged, it is held that on change of opinion by the AO subsequently, notice for initiation of reassessment proceedings is not valid. In the case of CIT vs. Kelvinator of India Ltd. reported in (2010) 320 ITR 561 (SC), it is held by the Hon’ble Supreme Court that the AO cannot reopen an assessment on mere change of opinion. [8.0] Considering the facts of the case on hand, it appears that the assessee specifically claimed the deduction under section 80JJA of the Act which has been allowed by the AO on due application of mind. It is required to be noted that after the petitioner submitted the return of income claiming deduction under section 80IB of Rs.50,89,715/­ and under section 80JJA on other income of Rs.1,69,65,718/­., the case was selected for scrutiny assessment and a notice under section 143(2) of the Act was issued and served upon the assessee. A specific query was raised with respect to the claim made by the assessee of deduction under section 80JJA of the Act, vide notice dated 24.12.2009 which was replied by the petitioner and thereafter, after due application of mind, the AO had allowed the deductions under section 80JJA of the Act. Page 8 of 9 C/SCA/16016/2013 JUDGMENT Even with respect to claim under section 80IB of the Act, the claim was made by the petitioner – assessee and the same has been dealt with and considered by the AO and thereafter, after due application of mind, the AO has allowed the said claims. Under the circumstances, as such it cannot be said that there was any concealment and/or non­disclosure of true and correct facts by the assessee. From the reasons recorded it can be said that the original assessment is sought to be reopened in exercise of powers under section 147/148 of the Act on change of opinion by the AO, which is not permissible more particularly when the original assessment is sought to be reopened after a period of four years from the end of the assessment year. Under the circumstances, the conditions stipulated under first proviso to section 147 are not satisfied and therefore, on the aforesaid ground alone, the impugned notice deserves to be quashed and set aside. [9.0] In view of the above and for the reasons stated above, present petition succeeds and the impugned notice dated 03.12.2012 issued by the respondent under section 148 of the Act is held to be without jurisdiction, bad in law and deserves to be quashed and set aside and is, accordingly, quashed and set aside. Rule is made absolute to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs. (M.R. SHAH, J.) (R.P. DHOLARIA, J.) Ajay Page 9 of 9 "