Bombay High Court
Chennai Container Terminal Pvt. Ltd vs Assistant Commissioner Of Income Tax ... on 15 January, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
2024:BHC-OS:940-DB
Digitally
signed by
SHAMBHAVI
SHAMBHAVI NILESH
NILESH SHIVGAN 1/12 422-OS-WP-2996-2022-J.doc
SHIVGAN Date:
2024.01.19
10:27:45
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 2996 OF 2022
1. Chennai Container Terminal Pvt. Ltd.,
being a company incorporated under the
Companies Act, 1956 and having its
registered office at Ahura Centre, A Wing,
5th Floor, Mahakali Caves Road,
Andheri (East)-Mumbai 400 093,
and corporate office at
Level 1, Darabshaw House,
Narottam Morarjee Road, Ballard Estate,
Mumbai 400 038 ...Petitioner
Versus
1. Assistant Commissioner of Income-tax,
Circle-2(1)(1), Mumbai, having his office at
Room No.561, 5th Floor, Aayakar Bhavan,
M.K.Road, Mumbai-400020.
2. Joint/Additional Commissioner of Income-
tax Range-2(1), Mumbai having his office,
Room No.551, 5th Floor, Aayakar Bhavan,
M.K.Road, Mumbai-400020.
3. Principal Commissioner of Income-tax-2,
Mumbai having his office at Room No.344
3rd Floor, Aayakar Bhavan, M.K.Road,
Mumbai 400 020
4. National Faceless Assessment Centre,
having its office at New Delhi
5. Union of India,
through the Secretary, Department of
Revenue, Ministry of Finance,
North Block, New Delhi 100 001 ...Respondents
Mr. Nitesh Joshi, with Mr. Aagam Doshi & Ms. Shraddha Jadhav
i/by Aagam Doshi & Co.,for Petitioner.
Mr. Suresh Kumar, for Respondents.
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CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
DATED : 15th January 2024.
JUDGMENT (Per Dr. Neela Gokhale, J.) :
1. Rule. Rule is made returnable forthwith. Heard parties by
consent.
2. Petitioner has assailed notice dated 23rd March 2021 under
Section 148 of the Income Tax Act, 1961 ("Act") issued by
Respondent No.1-Assistant Commissioner of Income-tax proposing to
reassess the income for Assessment Year ("AY") 2013-14; order dated
14th February 2022 rejecting the objections of Petitioner and show-
cause notice/draft assessment order dated 16th March 2022 issued
by Respondents.
3. Assessment order under consideration is of AY 2013-14.
Petitioner is a 100% subsidiary of P & O Ports (Chennai) Limited,
Mauritius which in turn is now held by D.P. World Limited, Dubai.
The business income of Petitioner comprises only of income from port
facility and thus, deduction is claimed and allowed in respect of the
entire business income.
4. A ship operated by one Mercantile Lines damaged a wharf of
Petitioner during the previous year, relevant to AY 2011-12. Petitioner
received compensation from Mercantile Lines during AY 2011-12 and
AY 2012-13 partly on capital account and the balance on revenue
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account. Petitioner claimed deduction under Section 80-IA of the Act.
Respondent rejected the said deduction for AY 2011-12 which order
was upheld by the Commissioner of Income-Tax (Appeals) [CIT (A)].
An appeal against the CIT(A)'s order is presently pending before the
Income-Tax Appellate Tribunal ("ITAT").
5. Petitioner filed its return of income for AY 2013-14 on 29th
November 2013 claiming a deduction of its entire business income of
Rs.34,09,31,179/- under Section 80-IA of the Act. Notice dated 4th
September 2014 initiating a scrutiny assessment under Section
143(2) of the Act was issued by Respondent. The Assessing Officer
("AO") specifically asked for statutory reports and also asked
Petitioner to provide information with respect to past assessments in
addition to a direction to submit Form 10CCB and information
relating to income qualifying for deduction. Petitioner has furnished
all the required information. Assessment order dated 17th March
2016 was passed upon consideration of all the relevant information
disclosed by Petitioner. Its claim for deduction under Section 80-IA of
the Act was also accepted.
6. Respondent issued notice dated 13th May 2021 under Section
148 of the Act for reopening assessment for AY 2013-14. The reasons
set out for reopening indicated that the financial statements of
Petitioner revealed that Petitioner had credited its Profit & Loss
Account by an amount of Rs.1.54 Crores being compensation
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received for loss of profit and damages to wharf.
7. By letter dated 28th June 2021, Petitioner submitted detailed
objections to the notice dated 13th May 2021. Respondent No.1, by
an order dated 14th February 2022, rejected the objections of
Petitioner. On 16th March 2022, draft assessment order was passed.
The notice under Section 148 of the Act together with the order
rejecting objections and the draft assessment that are assailed in the
present petition.
8. Mr. Nitesh Joshi, learned counsel for Petitioner, assails the
order on the following grounds:
i. As the notice has been issued under Section 148 after the
expiry of 4 years from the end of the relevant AY, assessment
can be reopened only if income chargeable to tax has escaped
assessment on account of failure of assessee to disclose fully
and truly all material facts necessary for its assessment for that
AY. The four years expired on 31st March 2018 in respect of AY
2013-14. Notice dated 23rd March 2021 is thus beyond
limitation.
ii. Petitioner's claim for deduction under Section 80-IA of the Act
is correctly allowed as compensation for loss of profit and
damages to the wharf qualifies as profits derived from business
of developing, maintaining and operating the port facility and
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thus there is no basis for the AO to deny Petitioner his
deduction claim under Section 80-IA of the Act.
iii. The re-opening is based on change of opinion. There was
adequate disclosure by Petitioner reflected in its financial
statements.
iv. There is no new tangible material.
v. The AO has not clarified the basis on which he concluded that
material facts were not disclosed by assessee.
vi. The AO has not obtained satisfaction from the sanctioning
authority as required by Section 151 of the Act.
vii. The reasons to believe are to be recorded by the AO prior to
issuing notice under Section 148 of the Act. The notice was
issued on 23rd March 2021 while the reasons provided to
Petitioner are dated 13th May 2021. Thus, jurisdictional
preconditions in Section 148 of the Act are not fulfilled.
9. Mr. Nitesh Joshi draws our attention to the documents and
information submitted by Petitioner including the financial
statements of Petitioner. The financial statements of the relevant year
under the head "3.15-Other Income" shows compensation income for
loss of profit and damages to wharf to be Rs.15.43 Millions (Rs.1.54
Crores). Furthermore, the AO, in the reasons to believe escapement of
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income, has specifically stated "On perusal of the assessment records
for the year under consideration, i.e., AY 2013-14, it is seen that the
assessee credited to P&L Rs.1.54 crore as compensation income for
loss of profit and damages to wharf under head "3.15-Other
Income"." Paragraph 2.2 of the reasons to believe also reads as under:
"2.2 As evident from the records of A.Y.2011-12, assessee's
wharf was damaged by one of the ships operated by M/s
Mercantile Lines. The assessee received compensation of
Rs.9,19,40,000/- in AY 2011-12. Out of the total
compensation of Rs.9,19,40,000/-, an amount of
Rs.2,88,45,636/- was apportioned towards damage to the
wharf (capital asset) and reduced from WDV amount.
Balance amount of Rs.6,30,94,364/- was apportioned
towards business loss and credited to P&L on which 80-IA
deduction was claimed. The 80-IA claim was disallowed by
the AO and the Ld.CIT(A) confirmed the disallowance."
Therefore, it is evident that Respondent has only relied upon the P&L
account and records filed by Petitioner. Therefore, there can be no
question of non-disclosure by Petitioner.
10. Mr. Joshi therefore is correct in submitting that reopening of
assessment is on the basis of verified facts on record and there is no
failure to disclose by Petitioner.
11. Moreover, the Apex Court in Gemini Leather Stores v. Income-
tax Officer1 held that once the AO has in his possession all the
primary facts, it is for him to make necessary inquiries and draw
proper inference. If the AO fails to do so, it is plainly a case of
oversight and cannot be said that income chargeable to tax for the
relevant AY has escaped assessment by reason of omission or failure
1 [1975] 100 ITR 1 (SC)
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on the part of assessee to disclose fully and truly all material facts.
The AO cannot then take recourse to Section 147A of the Act to
remedy the error resulting from his own oversight. This has been
followed by this Court in Ananta Landmark (P.) Ltd. v. Deputy
Commissioner of Income-tax, Central Circle 5(3), Mumbai2.
12. Mr. Suresh Kumar, learned counsel appearing for the Revenue,
submitted that it is the Revenue audit that raised an audit objection
for AY 2013-14 and the view taken by the Department regarding the
amount of compensation to be revenue in nature and taxable under
the head 'Income from other sources' is an irregular allowance of
deduction resulting in under assessment of Rs.1,54,30,000/- and
consequent short levy of tax of Rs.50,06,264/-. Mr. Suresh Kumar
contended that in the facts of the case and the view taken in earlier
years, as also on the basis of Revenue audit objections under Section
148 of the Act, the reassessment initiated by following due procedure
and after taking due approvals from the appropriate authorities is
justified. He further submits that the crux of the issue is in relation to
the inadmissible claim of deduction under Section 80-IA of the Act
which is flagged by the Revenue audit.
13. Mr. Joshi, however, rebuts the contention of Mr. Suresh Kumar
pertaining to audit objections by saying that they were never part of
the reasons to believe notice. Moreover, the decision to reopen the
2 [2021] 131 taxmann.com 52 (Bombay)
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assessment must be on the basis of the belief formed by the AO. It
may be open for the audit party to bring the relevant aspect to the
notice of the AO, but thereafter it must be the independent decision
of the AO to reopen the assessment upon formation of belief that
income chargeable to tax had escaped assessment. He relies upon the
decision of this Court in the matter of Voltas Limited v. Assistant
Commissioner of Income Tax Circle-8(3)(1), Mumbai and Ors.3
14. Having heard the parties and gone through the documents, we
did not go into the merits of the rival contentions of the parties
pertaining to the transactions and the financial statements as insisted
by Mr. Suresh Kumar. Mr. Suresh Kumar made an attempt to go into
the merits of the admissibility of the claim of deduction and
applicability of Section 80-IA of the Act. We limited our examination
to ascertain whether the jurisdictional conditions for reopening
assessment are satisfied in the present case. Admittedly, the financial
statements relating to the relevant AY mentions the amount received
by Petitioner as compensation towards damages to its wharf. The
reasons to believe escapement of income reveals that the reopening
of assessment is based on the examination of financial statements
furnished by Petitioner. There is nothing on record to indicate that
Petitioner has failed to discharge its duty of disclosure. In fact, the
reasons themselves are based on disclosure by Petitioner. In Ananta
3 Writ Petition No.1180 of 2022 decided on April 05,2022. (Unreported)
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Landmark (P.) Ltd. (Supra), this Court has held as follows:
"8. It is settled law that where the assessment is sought to
be reopened after the expiry of a period of four years from
the end of the relevant year, the proviso to section 147
stipulates a requirement that there must be a failure on the
part of the assessee to disclose fully and truly all material
facts necessary. Since in the case at hand, the assessment is
sought to be reopened after a period of four years, the
proviso to section 147 is applicable.
It is also settled law that the Assessing Officer has no power
to review an assessment which has been concluded. If a
period of four years has lapsed from the end of the relevant
year, the Assessing Officer has to mention what was the
tangible material to come to the conclusion that there is an
escapement of income from assessment and that there has
been a failure to fully and truly disclose material fact. After
a period of four years even if the Assessing Officer has some
tangible material to come to the conclusion that there is an
escapement of income from assessment, he cannot exercise
the power to reopen unless he discloses what was the
material fact which was not truly and fully disclosed by the
assessee...........In Indian & Eastern Newspaper Society v.
CIT [1979] 2 Taxman 197/119 ITR 996 (SC), also relied
upon by Mr. Pardiwalla, the Court held that in every case,
the Income Tax Officer must determine for himself what is
the effect and consequence of the law mentioned in the
audit note and whether in consequence of the law which
has come to his notice he can reasonably believe that
income had escaped assessment. The basis of his belief
must be the law of which he has now become aware. The
opinion rendered by the audit party in regard to the law
cannot, for the purpose of such belief, add to or colour the
significance of such law. Therefore, the true evaluation of
the law in its bearing on the assessment must be made
directly and solely by the Income tax Officer."
15. A Division Bench of this Court in the case of Sesa Goa Limited
v. Joint CIT 4 has held as follows:
"The power to reopen an assessment is not unbridled or
unrestricted. The power is subject to the proviso embodied
in the section itself. The proviso prescribes restrictions on
the power of reopening the assessment by limiting the time
period to four years from the end of the relevant
assessment year, unless any income chargeable to tax has
escaped assessment by reason of failure on the part of the
assessee..... to disclose fully and truly all material facts
necessary for the assessment of the income for that
4 [2008] 168 Taxman 281
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assessment year"........ section 147 of the Act is the source
of power of the Assessing Officer for reopening of the
assessment. Section 148 contains procedural restrictions
for issuance of a notice for exercise of the power of
reopening of an assessment conferred under section 147.
Section 149 prescribes the time limit for issuance of a
notice under section 148. In our opinion, the conditions
laid down under Section 147 of the Act for the purposes of
reopening the assessment must be satisfied before the
notice can be issued. The conditions laid down in section
147 are the jurisdictional facts necessary for the purpose of
exercise of the power under Section 147. The jurisdictional
facts prescribed under Section 147 must exist before a
notice under section 148 can be issued...... In other words,
if the basic jurisdictional facts required for reopening of an
assessment under section 147 of the Act do not exist it
would not be competent for the Assessing Officer to issue a
notice under section 148. Even where the jurisdictional
facts prescribed under Section 147 exist and all conditions
laid down under section 147 and the proviso thereto are
satisfied, the notice under section 148 can be issued only
after the Assessing Officer has recorded his reasons for
doing so under sub-section (2) of Section 148 and has
further obtained the necessary sanction for issuance of the
notice as required under Section 151 of the Act...... The
restriction..... of a period of four years, ......
In the present case, the reasons which have been recorded
by the Assessing Officer for reopening of the assessment do
not disclose that the assessee had failed to disclose fully
and truly all material facts necessary for the purpose of
assessment. No doubt in the last paragraph of the reasons,
the first respondent has stated:
I am satisfied that due to furnishing the false particulars
of the income by way of incorrect certificate which
means failure on the part of the assessee to disclose
fully and truly all material facts required for the
assessment, income of Rs. 6,10,10,272/- had escaped
assessment.
The said statement is clearly made only as an attempt
to take the case out of the restriction imposed by the
proviso to Section 147 of the Act."
16. This Court in Voltas Limited (Supra) referring to a number of
decisions of this Court and the Supreme Court, has, in paragraph 13
quoted as follows:
"..........It is well settled through series of judgments
that the decision to reopen the assessment must be on
the basis of the belief found by the Assessing Officer. It
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may be open for the audit party to bring the relevant
aspect to the notice of the Assessing Officer. However,
thereafter it must be the independent decision of the
Assessing Officer to reopen the assessment upon
formation of his belief that income chargeable to tax
had escaped assessment. Reference in this respect can
be made to a decision of this Court in case of
Commissioner of Income-Tax Vs. Ranjan N. Aswani
(2018) 91 taxmann.com 313/403 ITR 30."
17. Thus, considering the facts in the present matter, it is evident
that the AO had within his possession all the primary facts and it was
for him to make necessary inquiry and draw proper inferences. The
AO has not discharged his duty and in fact has relied upon financial
statements and other documents furnished by Petitioner itself for his
reason to believe escapement of income. It cannot be said that
income chargeable to tax for the AY under consideration has escaped
assessment by reason of the omission or failure on the part of
Petitioner to disclose fully and truly all material facts. Thus, it can
safely be held that the reopening of assessment of income is clearly
on the basis of change of opinion without availability of any tangible
new information.
18. Consequently, notice dated 23rd March 2021 under Section
148 of the Act, order dated 14th February 2022 rejecting the
objections of Petitioner to the reasons to believe notice and the draft
assessment order dated 16th March 2022 are quashed. Petition is
thus allowed in terms of prayer clause (A), which reads thus:
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"A. that this Hon'ble Court may be pleased to
issue a writ of Certiorari or a writ in the nature of
Certiorari or any other appropriate writ, order or
direction under Article 226 of the Constitution of
India calling for the records of the Petitioner's case
and, after examining the legality and validity of the
impugned notice dated 23.03.2021 issued under
section 148 of the Act, the impugned order dated
14.02.2022 and the impugned show cause notice
dated 16.03.2022 alongwith Draft assessment
order quash and set aside the same; "
19. Rule is made absolute accordingly. There will be no order as to
costs.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
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