Gujarat High Court
M/S Maharashtra Border Check Post ... vs Deputy Commissioner Of Income Tax, ... on 8 April, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5788 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
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M/S MAHARASHTRA BORDER CHECK POST NETWORK LIMITED
Versus
DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1)
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Appearance:
MR DHINAL A SHAH(12077) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 08/04/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. Dhinal A. Shah for the petitioner and learned Senior Standing Counsel Mr. Varun K. Patel for Page 1 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined the respondent.
2. Rule returnable forthwith. Learned Senor Standing Counsel Mr. Varun K. Patel waives service of notice of rule on behalf of the respondent.
3. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the legality and validity of the notice dated 27.03.2021 issued under section 148 of the Income Tax Act, 1961 (For short "the Act") for Assessment Year 2015-2016.
4. Brief facts of the case are that the petitioner filed original return of income for Assessment Year 2015-2016 on 30.11.2015 declaring total loss at Rs. Page 2 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025
NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined 62,77,90,517/-.
5. The case of the petitioner was selected for scrutiny assessment and notices under sections 142(1) and 143(2) of the Act were issued by the respondent Assessing Officer calling upon various details from the petitioner.
6. The petitioner by reply dated 22.02.2017 provided the details called for along with the details of the finance cost incurred during the year under consideration which includes interest on the long term borrowings and short term borrowings.
7. The Respondent Assessing Officer considering the information and details Page 3 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined submitted by the petitioner passed the assessment order under section 143(3) of the Act on 28.11.2017 accepting and determining the total loss of the petitioner as per the return of income.
8. Respondent thereafter issued the impugned notice under section 148 of the Act to reopen the assessment of the petitioner recording the following reasons:
"2. Brief details of information collected/ received by the AO : On perusal of assessment records and other details filed during the course of assessment proceedings that as per the Note-32 of the "Notes on Accounts", which is a part of Annual Financial Statements of the assessee- company, it is stated that the assessee-company capitalize each check post from the date it receives provisional completion certificate from the engineer by Maharashtra State Road Development Corporation (Project Page 4 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined Implementation Agency.) Pending receipt of notification from the Government authorities to start collection of user service fee, the cost incurred (including interest costs) from the date of capitalization of check post till the notification to collect user service fee is expended to statement of profit and loss. The assessee-company has incurred Rs.212.14 million (previous year Rs.301.05 million) relating to interest costs (with corresponding no user service fee income) in the statement of P&L during the year ended March 31, 2015 pertains to such check posts.
In light of the above note, it can be seen that the assessee-company had not offered any income from the check posts on which notification form Government is pending for collection of user fee though these were capitalized (as per provisional certificate). Thus, considering the matching principal of accounting and since the check post is not operational for business of the assessee, expenditure, of Rs.214.14 million (including interest expenditure) incurred on such assets are not eligible for deduction as per the Section 36(1)(iii) of the Act. Only after notification from the Government, it can be treated as put to use and till date, no interest expenses can be deducted from income Page 5 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined computed under Section 28 of the IT Act."
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5. Finding of the AO: From the detailed discussion made in Para-2 & 3 above, it seen that the assessee has constructed check post(s) on BOAT basis, the cost of which is capitalized in the books of account. The collection fees in respect of this check post(s) were not commenced due to non-receipt of completion certification from engineers, MRDC. During the year, the assessee has incurred an amount of Rs. 214.14 million towards interest on capital borrowed for construction of this check post(s) and such expenditure is debited in the P&L A/c. The proviso to Section 36(1)(iii) of Act provides that any interest paid in respect of capital borrowed for acquisition of assets for any period beginning from the date on which the capital was borrowed for acquisition of assets till the date on which such assets was put to use shall not be allowed as deduction."
9. The petitioner filed objection on 26.05.2021 against the impugned notice raising objections on various grounds. Page 6 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025
NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined
10. Respondent however, vide order dated 26.02.2022 rejected the objections raised by the petitioner. Respondent also issued show cause notice dated 14.03.2022 under section 142(1) of the Act.
11. Being aggrieved by the impugned notice, the petitioner has preferred the present petition.
12. Learned advocate Mr. Dhinal A. Shah for the petitioner submitted that the impugned notice under section 148 of the Act was issued beyond four years and the petitioner has disclosed fully and truly all material facts relevant for the purpose of assessment.
13. It was further submitted that the respondent did not have any other Page 7 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined information except the audited balance sheet and the details filed by the petitioner during the course of regular assessment.
14. It was submitted that relying on the Note No.32 of the auditor's report, the respondent could not have assumed jurisdiction to reopen the assessment as the petitioner had made entire disclosure at the time of filing of the return and therefore, the jurisdiction assumed by the respondent Assessing Officer is based upon mere change of opinion.
15. It was therefore, submitted that the impugned notice is liable to be quashed and set aside.
16. On the other hand, learned Senior Page 8 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined Standing Counsel Mr. Varun K. Patel for the respondent submitted that the impugned notice is issued after taking into consideration the fact that the petitioner has already capitalised the construction of check posts from the date it received the provisional completion certificate from the Engineer by Maharashtra State Road Development Corporation and pending receipt of notification from the Government authorities to start collection of user service fee, the cost incurred including interest costs from the date of capitalization of check post till the notification to collect user service fee ought to have been capitalized by the petitioner instead of claiming the same as revenue expenditure and accordingly, there was Page 9 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined an escapement of income to the extent of Rs. 21.41 crores. It was therefore, submitted that the respondent Assessing Officer after taking into consideration the fact that the petitioner has claimed interest expense of Rs. 21.41 crores on capital borrowed for construction of check post for which the collection fee was not yet received by the petitioner, the same ought to have been considered as capital expenditure during the course of regular assessment. It was submitted that this fact is not taken into consideration by the Assessing Officer while passing the order under section 143(3) of the Act and therefore, the impugned notice is issued after Page 10 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined analyzing all the facts and information from the case record as per the reasons recorded.
17. In support of his submission, reliance was placed on the following decisions :
i) In case of Salem Provident Fund Society Ltd. v. Commissioner of Income-
tax reported in (1971) 82 ITR 367(SC).
ii) In case of Gruh Finance Ltd. v. Jt. CIT reported in (2000) 243 ITR 482 (Guj).
iii) In case of Bawabhai Singh v. DCIT reported in 253 ITR 83.
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iv) In case of Hemjay Construction Co. Pvt. Ltd. through Deenaben Yogeshbhai Shah v. ITO rendered in Special Civil Application No.19392 of 2018.
18. Reliance was also placed on decision of Hon'ble Apex Court in case of CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. reported in (2007) 161 Taxman 316 (SC) wherein it is held that reasons recorded or material available on record must have nexus to the subjective opinion formed by the Assessing Officer regarding escapement of income but when while recording the reasons for belief formed, the Assessing Officer is not required to finally ascertain the factum of Page 12 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined escapement of tax and it is sufficient that only for the purpose of assumption of jurisdiction, the Assessing Officer is required to know or suppose that income has escaped income. It was therefore, submitted that it is well settled that sufficiency and adequacy of the reasons which have led to the formation of belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the Court at this stage.
19. Having heard the learned advocates for the respective parties and having gone through the material placed on record and on perusal of the audited balance sheet and Profit and Loss Page 13 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined account of the petitioner filed along with return of income, it is discernable that the petitioner has disclosed fully and truly all material facts including Note No. 32 by the auditor to the effect that the petitioner has capitalized construction of check post but at the same time has claimed interest of Rs. 21.41 crores relating to interest cost without corresponding no user service in the statement of Profit and Loss account during the year under consideration.
20. Considering such Note only, the respondent Assessing Officer has issued the impugned notice for reopening. It is not in dispute that the case of the Page 14 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined petitioner was under scrutiny and after calling for information and considering the material available on record, the Assessing Officer passed the order under section 143(3) of the Act. It is also apparent from the facts of the record that the impugned notice is issued after four years and therefore, as per the proviso to section 147 of the Act, when the petitioner has disclosed fully and truly all material facts for the purpose of assessment and assessment order is passed after scrutiny under section 143(3) of the Act, no action could have been taken by the respondent Assessing Officer by assuming jurisdiction to reopen the assessment for the year under Page 15 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined consideration.
21. Moreover in facts of the case the consideration of issue as to whether interest cost claimed by the petitioner under section 37(1) is capital or revenue expenditure is nothing but mere change of opinion by the respondent Assessing Officer while assuming jurisdiction which is not permissible in view of decision of Hon'ble Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC) wherein in such circumstances, it has been held as under:
"2. A short question which arises for determination in this batch of civil appeals is, whether the concept of "change of opinion"
stands obliterated with effect from 1st April, 1989, i.e., after Page 16 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987? xxxx
6. ............prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider, However, one needs to give a schematic interpretation to the words "reason to believe"
failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-Page 17 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025
NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined assess. But re-assessment has to be based on fulfillment of certain pre- condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer....."
22. In view of the foregoing reasons and considering the facts of the case, the decision relied upon by the learned advocate for the respondent would not be applicable to the facts of the case and the petition therefore, succeeds in view of decision of Hon'ble Supreme Court in case of Kelvinator of India Ltd. (supra). The impugned notice dated 27.03.2021 issued under section 148 of the Act along with consequential proceedings are hereby quashed and set Page 18 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025 NEUTRAL CITATION C/SCA/5788/2022 JUDGMENT DATED: 08/04/2025 undefined aside. Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) (D.N.RAY,J) RAGHUNATH R NAIR Page 19 of 19 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Apr 16 2025 Downloaded on : Fri Apr 18 23:54:34 IST 2025