REINHARDT ROTO MACHINES V. ASST. COMMISSIONER OF INCOME TAX CIRCLE 1(2)(1)VADODARA

SCA/17015/2018

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The case involves Reinhardt Roto Machines, a partnership firm, challenging a notice issued by the Assistant Commissioner of Income Tax under section 148 of the Income Tax Act, 1961, seeking to reopen their assessment for the year 2011-2012. The petitioner argued that the reopening was based on a mere change of opinion and that it was beyond the permissible period of four years without any failure to disclose material facts. The respondent contended that the reopening was justified based on the incorrect deduction claimed under section 80IB(3) of the Act. The court found that the issue had been previously examined during the scrutiny assessment and that all material facts had been disclosed, leading to the conclusion that the reopening was not justified.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 750608 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 24-09-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: B S SOPARKAR
• Keywords: Assessment Year 2011-2012; Change of opinion; Income Tax; Reopening of assessment; Deduction under section 80IB(3)
• Section: 147; 148; 143(3); 80IB(3)

Judgement Text

"C/SCA/17015/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17015 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MS. JUSTICE SANGEETA K. VISHEN =============================================================== 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 ? ================================================================ REINHARDT ROTO MACHINES Versus ASST. COMMISSIONER OF INCOME TAX CIRCLE 1(2)(1)VADODARA ================================================================ Appearance: MR B S SOPARKAR(6851) for the Petitioner(s) No. 1 MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MS. JUSTICE SANGEETA K. VISHEN Date : 24/09/2019 ORAL JUDGMENT (PER: HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. Rule. Mr. Varun K. Patel, learned senior standing counsel, waives service of notice of rule on behalf of the respondent. Having regard Page 1 of 13 C/SCA/17015/2018 JUDGMENT to the controversy involved in the present case, which lies in a very narrow compass, the matter was taken up for final hearing today. 2. By this petition under article 226 of the Constitution of India, the petitioner has challenged the notice dated 28 th March 2018 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') whereby he seeks to reopen the assessment of the petitioner for the assessment year 2011- 2012. 3. The petitioner, a partnership firm, filed its return of income for the assessment year 2011- 2012 on 27 th September 2011 disclosing its income at Rs.7,74,91,120/-. The return of income was further revised on 12 th June 2012. The Assessing Officer, thereafter, framed assessment under section 143(3) of the Act on 21 st March 2014, determining the income of the petitioner at Rs.7,78,12,971/-. 4. Subsequently, by the impugned notice dated 28 th March 2018 issued under section 148 of the Act, the Assessing Officer seeks to reopen the assessment of the petitioner for assessment year 2011-2012. Subsequently, the reasons for reopening the assessment came to be furnished to the petitioner. By a letter dated 6 th August 2018, the petitioner raised objections against the Page 2 of 13 C/SCA/17015/2018 JUDGMENT reopening of assessment and requested the respondent to drop the reassessment proceedings. By communication dated 25 th October 2018 the respondent rejected the objections. 5. Mr. B. S. Soparkar, learned advocate for the petitioner, assailed the reopening of the assessment for the assessment year under consideration by submitting that on a perusal of the reasons recorded, it is evident that the same is based upon a mere change of opinion. The attention of this court was invited to the replies dated 19 th February 2014, 27 th February 2014, 05 th March 2014 and 11 th March 2014, submitted by the petitioner during the course of assessment proceedings under section 143(3) of the Act, to submit that at the time of scrutiny assessment, the Assessing Officer has thoroughly examined the issue regarding deduction under section 80IB(3) of the Act has thereafter consciously taken a particular decision and now, with the change of incumbent, it is not open to just change the opinion on the same set of facts. 5.1 It was further submitted that in this case the impugned notice has been issued on 28 th March 2018, seeking to reopen the assessment for assessment year 2011-2012, which is clearly beyond a period of four years from the end of the relevant assessment year. Therefore, in the light of the first proviso to section 147 of the Act, Page 3 of 13 C/SCA/17015/2018 JUDGMENT for the purpose of reopening the assessment, the Assessing Officer is required to record satisfaction to the effect that income chargeable to tax has escaped assessment on account of failure on the part of the petitioner to disclose fully and truly all material facts. Adverting to the reasons recorded for reopening the assessment, it was pointed out that there is not even a whisper therein to indicate any failure on the part of the petitioner to disclose fully and truly all material facts. It was contended that therefore, the assumption of jurisdiction on the part of the Assessing Officer beyond a period of four years from the end of the relevant assessment year, without there being any failure on the part of the petitioner to disclose fully and truly all material facts, is without authority of law. 5.2 Lastly, it was submitted that even on merits, on the reasons recorded, the reopening of assessment is not sustainable, inasmuch as, the Assessing Officer seeks to reopen the assessment on the ground that the assessee has invested an amount of Rs.1,26,31,890/- in plant and machinery on 31 st March 2011 whereas the assessee was required to maintain a limit of Rs.1,00,00,000/- (rupees one crore). It was pointed out that the earlier notification regarding small scale industries has been rescinded and has been Page 4 of 13 C/SCA/17015/2018 JUDGMENT replaced by another notification relating to Micro, Small and Medium Enterprises (MSMEs) whereby the eligible investment has been increased to Rs.3,00,00,000/- (rupees three crore), to submit that therefore, on any count the reopening of assessment is not sustainable. 6. Opposing the petition, Mr. Varun Patel, learned senior standing counsel for the respondent, placed reliance upon the averments made in the affidavit-in-reply filed by the respondent. It was submitted that the petitioner, a small scale industry, had commenced manufacturing from financial year 2001-2002. For the purpose of availing benefit of deduction under section 80IB(3) of the Act, the petitioner was required to maintain investment limit up to Rs.1,00,00,000/-. However, the petitioner has invested an amount of Rs.1,26,31,890/- in plant and machinery as on 31 st March 2011, which exceeds the limit of Rs.1,00,00,000/- (rupees one crore) as envisaged in then applicable limit at the time when its first commenced production in the financial year 2001-2002 for claiming deduction under section 80IB(3) of the Act. 6.1 It was submitted that reclassification of small scale industry as small or medium industry under the Micro, Small and Medium Enterprise Development Act, 2006 (hereinafter referred to as the MSMED Act) does not mean that the investment Page 5 of 13 C/SCA/17015/2018 JUDGMENT limit of the erstwhile small scale industry unit has been enhanced to rupees three crore for claiming deduction under section 80IB(3) of the Act. It was submitted that to claim deduction under section 80IB(3) of the Act, the small scale industry, though re-christened as medium industry under the MSMED Act, should continue to fulfil the conditions of the Income Tax Act, and as such the investment should not exceed rupees one crore. Therefore, the claim for deduction under section 80IB(3) of the Act was required to be rejected. It was, accordingly, urged that the Assessing Officer is wholly justified in reopening the assessment on the reasons recorded and that the petition being devoid of merits, deserves to be dismissed. 7. In the above backdrop, two questions arise for consideration. Firstly, whether the reopening of assessment is based on a mere change of opinion; and secondly, whether the reopening of assessment beyond a period of four years from the end of the relevant assessment year is justified? 8. As can been seen from the reasons recorded, the Assessing Officer seeks to reopen the reassessment mainly on the ground that on the basis of the facts of the case, information and details available on record as well as relevant provisions of law, it is found that the assessee has claimed incorrect deduction to the tune of Page 6 of 13 C/SCA/17015/2018 JUDGMENT Rs.2,26,99,091/- [deduction claimed – deduction disallowed at the time of proceedings under section 143(3)] thereby taxable income to the extent of Rs.2,26,99,091/- has escaped assessment in view of section 80IB(3) of the Act. According to the Assessing Officer, he, therefore, has reason to believe that by not disallowing the sum of Rs.2,26,99,091/-, the petitioner has not truly and fully disclosed the taxable income for taxation. 9. The facts as emerging from the record reveal that in this case there was a scrutiny assessment under sub-section (3) of section 143 of the Act, which culminated into an order dated 21 st March 2014, whereby the Assessing Officer has considered the claim for deduction under section 80IB of the Act. The Assessing Officer has noted that the petitioner had claimed deduction under section 80IB of the Act of Rs.2,30,25,942/- at the rate of 25% of the total profit of Rs.9,21,03,769/-. The amount of deduction under section 80IB of the Act included gains on freight recovery of Rs.9,04,761/-, commission income of Rs.4,91,625/-, interest on FDR of Rs.18,466 and dividend income of Rs.19,529/-. According to the Assessing Officer, since these incomes are not related to the manufacturing activity, the same could not be considered for deduction under section 80IB of the Act. He, therefore, Page 7 of 13 C/SCA/17015/2018 JUDGMENT confronted the petitioner with these facts and asked it to submit a revised computation of eligible deduction under section 80IB of the Act taking into consideration the above facts. Thereafter the petitioner reworked its claim under section 80IB of the Act and submitted a revised claim reducing its claim from Rs.2,30,25,942/- to 2,26,99,091/-. The Assessing Officer accordingly added back an amount of Rs.3,26,851/- to the total income of the assessee. 10. It may be noted that prior to passing the above assessment order, the Assessing Officer had issued various notices to the petitioner under section 143(2) of the Act as well as 142(1) of the Act calling for details with regard to deduction claimed under section 80IB(3) of the Act, specifically with regard to the deduction claimed by it of Rs.2,30,25,942/- in the return of income. Pursuant thereto, the petitioner had submitted its reply dated 27 th February 2014 bringing to the notice of the Assessing Officer the amended notification for SSI unit in terms of the Notification dated 10 th December 1997 whereby the definition of small scale industrial undertaking was amended to a unit which does not exceed Rs.3,00,00,000/- (rupees three crores). It was further brought to the notice of the Assessing Officer that the erstwhile “small scale Page 8 of 13 C/SCA/17015/2018 JUDGMENT industries” (SSIs) have been equated with micro and small enterprise (MSE) as defined in the MSMED Act, 2006 and, therefore, the limit of investment in plant/machinery/equipment of manufacturing enterprise as notified vide S.O.1642(E) dated 29 th September 2006 are as provided thereunder. It was accordingly contended by the petitioner that the limit for purpose of investment in plant and machinery for small enterprises was five crore rupees, whereas the original cost of plant and machinery as on 31 st March 2011 in the case of the petitioner was Rs.1,44,79,028/-. Hence, the petitioner fulfills all the conditions for the purpose of deduction under section 80IB(3)(ii) of the Act. The petitioner, accordingly, requested the Assessing Officer to allow the claim of the petitioner under section 80IB(3)(ii) of the Act. 11. Furthermore, during the course of assessment proceedings, the partner of the petitioner, through their Chartered Accountants had given another reply dated 5 th March 2014 in response to particulars called for by the Assessing Officer, whereby he had furnished further details with regard to the claim under section 80IB(3)(ii) of the Act. Subsequently, yet another reply dated 11 th March 2014 came to be submitted by the petitioner with reference to particulars called for by the Assessing Officer, once again, Page 9 of 13 C/SCA/17015/2018 JUDGMENT relating to the claim of deduction under section 80IB(3)(ii) of the Act. It is after considering the explanation given by the petitioner that the Assessing Officer had, vide order dated 21 st March 2014, framed the assessment under section 143(3) of the Act whereby he had allowed the claim for deduction under section 80IB of the Act to the extent of Rs.2,26,99,091/-. Evidently, therefore, during the course of scrutiny assessment, the Assessing Officer has examined the very issue on which the respondent seeks to reopen the assessment viz. the claim of deduction under section 80IB(3) of the Act, and has thereafter, partly allowed the deduction claimed by the petitioner. Once the Assessing Officer, at the time of scrutiny assessment, had examined the issue and applied his mind to it and thereafter partly allowed the claim of deduction under section 80IB(3)of the Act, it is more than apparent that by the impugned notice the respondent seeks to reopen the assessment on a mere change of opinion. The first question, therefore, stands answered accordingly. 12. Insofar as the second question is concerned, in this case the impugned notice has been issued on 28 th March 2018 seeking to reopen the assessment for assessment year 2011-2012, which is clearly beyond a period of four years from the end of the relevant assessment year. The first Page 10 of 13 C/SCA/17015/2018 JUDGMENT proviso to section 147 of the Act provides that where an assessment under sub-section (3) of section 143 or that section has been made for the relevant assessment year, no action shall be taken under that section after the expiry of four years from the end of the relevant assessment year, unless income chargeable to 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 response to a notice under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. In the present case, it is not the case of the respondent that the assessee had failed to make a return as contemplated under the proviso. According to the respondent, the petitioner, by not disallowing the sum of Rs.2,26,99,091/- had not truly and fully disclosed the taxable income. 13. On the plain reading of the reasons recorded, it is abundantly clear that the Assessing Officer has formed the belief that income chargeable to tax has escaped assessment on the basis of information and details available on record. Besides, from the record of the case as referred to hereinabove, it is evident that all the material necessary for assessment was duly produced before the Assessing Officer at the time Page 11 of 13 C/SCA/17015/2018 JUDGMENT of scrutiny assessment, and it is on the basis of such material that the Assessing Officer has considered the claim of the petitioner for deduction under section 80IB (3) of the Act. Under the circumstances, by no stretch of imagination can it be said that there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the year under consideration, so as to attract the first proviso to section 147 of the Act. Under the circumstances, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment, the Assessing Officer is not justified in reopening the assessment beyond a period of four years from the end of the relevant assessment year. 14. Therefore, on both counts the petition must succeed, namely that the reopening of assessment is based on a mere change of opinion; and the assumption of jurisdiction by the Assessing Officer under section 147 of the Act beyond a period of four years from the end of the relevant assessment year without there being any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment, is invalid. The impugned notice issued under section 148 of the Act, therefore, cannot be sustained. Page 12 of 13 C/SCA/17015/2018 JUDGMENT 15. For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated 28 th March 2018 issued by the respondent under section 148 of the Act for assessment year 2011-2012 as well as all proceedings taken pursuant thereto, are hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (SANGEETA K. VISHEN,J) RAVI P. PATEL Page 13 of 13 "