Gujarat High Court
Nila Infrastructures Limited vs Assistant Commissioner Of Income ... on 2 January, 2023
Bench: Ashutosh J. Shastri
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16916 of 2018
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NILA INFRASTRUCTURES LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE (3)(1)
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Appearance:
MR SN SOPARKAR, SENIOR ADVOCATE WITH MR B S
MR MANISH BHATT, SENIOR ADVOCATE ASSISTED BY MUNJAAL
BHATT FOR MRS KALPANAK RAVAL(1046) for Respondent No. 1
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CORAM:HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND
KUMAR
and
HONOURABLE MR. JUSTICE ASHUTOSH J. SHASTRI
Date : 02/01/2023
CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR)
1. By way of this petition under Article 226 of the
Constitution of India, petitioner has challenged the
legality and validity of the impugned notice dated
29.03.2018 at Annexure-A and has sought for quashing of
the same.
2. The case of the petitioner is that it is a Company
registered under the provisions of the Companies Act and
most of the shareholders are citizens of India and
respondent being authority under Article 12 of the
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Constitution of India, it has invoked extraordinary
jurisdiction of this Court.
3. The case of the petitioner is that it has filed its
original return of income for the A.Y. 2011-12 on
27.09.2011 declaring total income at Rs.11,99,50,930/-
and the revised return of income was filed on 27.09.2012
declaring total income at Rs.12,02,45,130/-. The authority
has selected petitioner's case for scrutiny and passed an
assessment order in exercise of power under Section
143(3) of the Income Tax Act, 1961 (for short the "Act")
dated 29.03.2014 assessing the income at
Rs.13,64,40,534/-. Thereafter, the authority issued notice
to petitioner under Section 148 of the Income Tax Act on
30.03.2016 and an order came to be passed thereafter
under Section 143(3) read with Section 148 of the Act.
3.1. It is the case of the petitioner that later on,
respondent issued impugned notice under Section 148 of
the Tax Act on 29.03.2018 for re-opening the assessment
for the A.Y 2011-12 and also supplied the reasons for re-
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opening vide letter dated 04.07.2018. The petitioner -
assessee raised multiple contentions by way of objections
on merit as well and requested to drop the reassessment
proceedings vide its communication dated 17.10.2018.
Later on, an order came to be passed on 25.10.2018
rejecting the objections raised by petitioner and
according to petitioner, impugned notice issued under
Section 148 of the Act as well as order disposing of
objections, are bad in law, illegal and having no other
efficacious remedy, has invoked extraordinary jurisdiction
of this Court by way of present petition.
4. On the basis of unilateral submission of learned
Senior Advocate Mr. Saurabh N. Soparkar, who appeared
for the petitioner, the co-ordinate Bench of this Court
vide order dated 30.10.2018 was pleased to issue notice
and by way of ad-interim order, impugned notice came to
be stayed. It is in this background, petition has come up
for consideration before us and pursuant to the request
having been made, we took up the matter for final
disposal since the pleadings are complete.
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5. Mr.S.N.Soparkar, learned Senior Advocate
appearing for the petitioner has raised multiple
contentions and by referring to various documents
attached to the petition compilation, has submitted that
the authority while considering the objections has failed
to deal with the specific objections which have been
raised by petitioner and in a stereo type manner,
mechanically, without applying mind, disposed of same
and as such, it is under challenge contending it is
suffering from vice of non-application of mind and there
appears to be no subjective satisfaction by the authority
who is under an obligation to consider the same. It has
been contended that impugned action in any case is
beyond the period of four years and as such, according to
the provisions contained under the Act, re-opening of the
assessment is impermissible and as such, the authority
has acted without jurisdiction. Mr. Soparkar, learned
Senior Advocate has further submitted that reasons
which are assigned for issuance of notice under Section
148 of the Act of re-opening of assessment are not
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germane to law and rather same are factually incorrect.
By drawing our attention to specific detailed objections
raised by petitioner dated 17.10.2018, Mr. Soparkar,
learned Senior Advocate has submitted that specific
details have been provided along with necessary
documents, the authority in a copy-paste manner has just
narrated the reasons and without applying mind has
discarded the objections. For the purpose of canvassing
this submission, Mr. Soparkar, learned Senior Advocate
has drawn attention of this Court to Issue no. 1 which
contains in paragraph 2 on page 37 of the part of the
reasons for issuance of notice under Section 148 of the
Act and has submitted that though details at length have
been provided, the authority has chosen not to examine
the same. In fact, page nos. 58 to 175 of the present
petition compilation is consisting of documents which are
self explanatory and clear answer to reason which has
been given for re-opening, but surprisingly, the authority
has conveyed without examining the said documents that
there is nothing on record which may disallow the
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expenditure. In fact, though the documents were
produced in large numbers as stated above, yet authority
has said that there is nothing on record to indicate that
TDS was deducted by the petitioner. The authority has
not applied its mind by indicting to that extent, that
petitioner assessee has not produced any proof of
deduction of tax and deposits thereof, in the government
account. Mr. Soparkar, learned Senior Advocate has then
referred to few documents contained on record in Form
No. 16A, reflecting right from page 169 onwards and has
submitted that though there is a clear material provided,
the same has not been considered at all and as such, the
action initiated of re-opening on such reasons having not
been examined, deserves to be corrected by quashing and
setting aside the same.
5.1. Mr. Soparkar, learned Senior Advocate has further
submitted that same is the case with Issue No. 2 which is
reflecting from paragraph 3 of the reasons on page 37
and though there is a clear explanation given about such
query related to VAT, Sales Tax including Service Tax, by
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referring to paragraph 2.2 from the
explanation/objections against reasons recorded, the
entire issue raised by the authority has been clearly
explained and related to this query, project wise details of
Service Tax/VAT has been provided and proof of same is
also produced, still by just mentioning this in paragraph
that no explanation is offered, the detailed explanation
has been overlooked. It has been submitted that to
explain this, documents running from page 176 to 261
have also been produced and submitted that assessee is
paying VAT under the composition scheme and as per the
said scheme, it has to pay VAT/Service Tax on certain
percentage of turnover, but then, it was specifically
submitted that petitioner assessee has correctly followed
the system of accounting and rightly claimed the Service
Tax/ VAT being paid out of pocket and/or not eligible for
input credit. The relevant objections of respective claim
was also brought to the notice of the authority while
tendering such objections against reasons on that issue,
but then, by drawing attention to the order which has
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been passed on 18.10.2018, a contention is raised that
said detailed explanation has been washed of by merely
recording of reasons in verbatim and as such, paragraph
3.3 reflecting on page 276 is nothing but evasive
consideration which reflects non application of mind.
5.2. Mr. Soparkar, learned Senior Advocate has further
contended that yet another issue on which also, a clear
error is committed in not examining the relevant
objections namely third issue is relating to claim of MAT
credit of Rs.1,01,91,317/- of earlier years and thereby
reducing tax liability to that extent by adjusting from its
tax liability under the normal provision of the Act.
However, it has been alleged that in F.Y. 2010-11, there
was amalgamation of company named as 'Pearl Stock
Holding Pvt. Ltd. (PSPL) with the assessee company and
as per the assessee the PSPL has MAT credit of
Rs.42,12,285/- at the time of amalgamation and the
assessee company has MAT credit of Rs.59,79,032/- for
A.Y. 2010-11 and as such, MAT credit of Rs.42,12,285/-
does not pertain to assessee company, but to
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amalgamating company and as such, same was not
allowable under Section 115JAA(1A) of the Act. For this
reason, a specific explanation has been offered in the
form of objection reflecting on page 43, whereby, by
explaining and by referring to several decisions, it was
conveyed that there is no prohibition or restriction under
Section 115JAA with regard to carry forward and set off
of MAT credit belonging to amalgamating company by the
amalgamated company. For the purpose of explaining
sume, assessee had relied upon several decisions
including the decision delivered by the Karnataka High
Court and had requested the authority to consider the
same, but again as usual by brief paragraph contained in
paragraph 3.4 entire objection is not dealt with at all and
it has been mechanically submitted that even this opinion
is not independent and it is nothing but mere production
of reason, as can be apparently seen if compared with
paragraph 4 on page 37 to paragraph 3.4 on page 276 of
the impugned order and as such, apparently, this is
nothing but a clear example of non-application of mind,
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on which count alone, impugned order and further action
of respondent deserves to be quashed.
5.3. Mr. Soparkar, learned Senior Advocate has further
submitted that insofar as another issue contained in
paragraph 6 of the reasons for re-opening, surprisingly,
the authority has examined the merit and has gone to the
extent of recording a finding that M/s. Solvent Real
Estate Private Limited (SREPL) had no genuine business
transactions and it was only engaged in providing bogus
billing and as such, Mr. Soparkar, learned Senior
Advocate has submitted that authority while dealing with
such issue has overstepped its jurisdiction and as such,
impugned order deserves to be quashed. It has been
submitted that a new issue is raised by the authority
based upon a letter dated 16.03.2018, and to this
objection has been raised by the petitioner as can be seen
from paragraph 4 onwards reflecting from page 50. This
new issue has been tried to be explained and objected to
by raising contention that assessee company was
awarded a contract of Rs.5,98,73,300/- by 'Progressive
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Constructions Limited' for dismantling of concrete and
disposal of the same and clearing debris from the
Mumbai International Airport Limited Project Site. The
assessee company has assigned work to sub-contractor to
SREPL which is also reflecting from page 265 to 268 and
the SREPL has carried out the work as per the work
order issued to them and in turn it has raised bill on
02.12.2010 for an amount of Rs.5,68,80,000/-. The copy of
said bill had also been produced for perusal of the
authority and by referring to this document, it has been
submitted that assessee company received payment from
the 'Progressive Constructions Limited' on various dates
ranging from 30.12.2010 to 28.03.2011, after deduction
of tax at Rs.11,97,474/-. The assessee company in turn
made payment with respect to bill raised by SREPL on
various dates after deducting TDS at Rs.11,37,600/-. The
ledger account of the said period and the TDS certificate
in the form of Form 16A has also been placed on record
and as such, on account of aforesaid situation, the
assessee company has offered an income of
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Rs.5,98,73,700/- and claimed expenditure of
Rs.5,68,80,000/- in the Profit and Loss Account for the
year under consideration.
5.4. Mr. Soparkar, learned Senior Advocate has raised
serious grievance with regard to this new issue which has
been raised in the reasons for re-opening, by contending
that letter of assessing officer dated 16.03.2018 which is
made the base of this reason, a demand was raised to
supply information related to it, but though the authority
has relied upon certain material which had not been
supplied and it has adversely affected the right of making
or raising effective objection, which has clearly violated
the well recognized principles of natural justice. Non-
supplying of such relied upon documents, as per the say
of learned Senior Advocate, has given an impression that
there is no tangible material available to re-open the
assessment and as such, said issue is merely based upon
presumption, assumption and suspicion without any
concrete basis and hence, has reiterated that impugned
order which has been passed is in gross violation of
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principles of natural justice.
5.5. Mr. Soparkar, learned Senior Advocate has further
submitted that findings arrived at with regard to bogus
bills to various concerns is not supported by any concrete
material and no such material is provided at least to the
petitioner and as such he has submitted that re-opening
of assessment is not permissible. By referring to these
issues which are raised, a specific contention has been
reiterated that while passing the impugned order dated
18.10.2018, the authority has not examined even for
arriving at a prima facie opinion, such material which has
already been made available and as such, the order under
challenge per se reflects non-application of mind, suffers
from vice of perversity and that having been done, same
requires to be quashed in the interest of justice.
5.6. Yet another substantial contention which has been
raised by Mr. Soparkar, learned Senior Advocate is that
apart from aforesaid circumstance, in any case, issuance
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of notice and order under challenge is without jurisdiction
and same is beyond the period of four years and as such,
it is impermissible in view of the provisions contained
under the Act. It has been submitted that relevant period
if to be considered end of relevant A.Y. is 31.03.2012
whereas, initiation is after lapse of four years and four
years period was getting lapsed on 31.03.2016 and as
such, apparently the action is impermissible. For
canvassing this submission, learned Senior Advocate has
drawn our attention to provisions contained under
Section 147 and 148 of the Act and has submitted that
condition precedent is that unless and until income has
escaped from assessment, no re-opening of assessment is
permissible and therefore, the entire exercise undertaken
by the authority is a mechanical exercise of discretion,
without any cogent reasons and without any independent
application of mind and that being so, in view of catena of
decisions, the action under challenge deserves to be
quashed.
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5.7. Mr. Soparkar, learned Senior Advocate has also
submitted that against the reasons for re-opening, the
assessee is entitled to raise objections and raising of
objections and considering the same is not merely empty
formality. While considering the objections, the authority
is under an obligation not only to apply its mind, but also
required to consider the same in true sense the material
which has been supplied and relied upon. The reflection
of impugned order is mere reproduction of the reasons
and hence, on this count alone, the order impugned
deserves to be quashed . For this purpose, a reference is
made to a decision in the case of GKN Driveshafts
(India) Ltd., v. Income-Tax Officer & Ors., reported in
259 ITR 91 (SC) and has contended that order is illegal
in view of this proposition.
5.8. He would also contend that yet on another issue
also the order under challenge is liable to be quashed as
it is violative of principles of natural justice inasmuch as
the material which has been relied upon is not supplied
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though demanded and thereby it has affected the right of
making effective representation or raising appropriate
objections and for this purpose a reference is made to the
decision in the case of Divya Jyoti Diamonds Pvt. Ltd.,
v. Income-Tax Officer reported in [2021] 439 ITR 471
(Guj.) (paragraphs 6 and 12).
5.9. Mr. Soparkar, learned Senior Advocate has further
submitted that in such a situation, when the authority is
mechanically reproducing the reasons and disposing of
the objections, as if the authority has independently
applied its mind, writ jurisdiction can be exercised since
writ petition under Article 226 of the Constitution of India
is maintainable and for canvassing such submission, a
reference is made to a Constitutional Bench decision of
the Hon'ble Supreme Court in the case of Calcutta
Discount Co. Ltd. v. Income Tax Officer reported in
[1961] 41 ITR 191 (SC). A further reference has been
made to yet another decision in the case of Shanti
Enterprise v. Income Tax Officer, Ward 2(2) reported
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in [2016] 76 Taxmann.com 184 (Guj.) and as such
submitted that the reflection of exercising of jurisdiction
by the authority is hit by principle propounded in this
very decision.
5.10. For substantiating the contention about non
supply of material though relied upon has affected
petitioner's right, a reference is made to yet another
decision in the case of Kanak Fabrics v. Income Tax
Officer reported in 359 ITR 447 and it has been
submitted that authority has exercised the discretion
without observance of condition precedent contained in
relevant provisions. A further reference is made to a
decision in the case of Ganga Saran & Sons (P) Ltd., v.
Income-Tax Officer, reported in [1981] 6 Taxman 14
(SC) (paragraphs 5, 6, 8 and 10) and has submitted that
raising a mere inference without any cogent material is
not sufficient enough to sustain the impugned order.
References have also been made to the decisions (i) In
the case of P.G. & W. Sawoo (P) Ltd., v. Assistant
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Commissioner of Income Tax reported in 385 ITR 60
(SC), (paragraph 8) (ii) In the case of Devesh Metcast
Ltd., v. Joint Commissioner of Income Tax reported in
[2011] 12 Taxmann.com 458 (paragraph 6, 7, 17 and
18) and by referring to aforesaid decisions, Mr. Soparkar,
learned Senior Advocate has submitted that in a situation
like this, wirt Court can certainly exercise extraordinary
jurisdiction and this is a fit case in which exercise
undertaken by the authority requires to be corrected.
5.11. Mr. Soparkar, learned Senior Advocate has
further submitted that reasons which are reflecting are
not sufficient enough to re-open the assessment and for
that purpose, a reference is made to decisions (i) In the
case of Commissioner of Income Tax, Ahmedabad-IV
Taxmann.com 309 (Guj) (paragraph 7 and 8) ; (ii) In
the case of Jagat Jayantilal Parikh v. Deputy
Commissioner of Income-Tax reported in [2013] 32
Taxmann.com 161 (Guj) (paragraph 5.1 to 5.9.) and
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after referring to these decisions, Mr. Soparkar, learned
Senior Advocate has reiterated that this is a clear case in
which the exercise of authority requires to be corrected
by quashing and setting aside the impugned notice and
order.
6. As against this, Mr. M.R.Bhatt, learned Senior
Advocate appearing for the respondent has vehemently
opposed the stand of the petitioner and has contended
that while dealing with the objections, the authority has
applied its mind and has formulated an opinion. It has
been contended that while formulating the opinion about
re-opening the assessment, merit is not to be examined at
length and as such, whatever is submitted by the
petitioner which having been considered, it is not open
for the petitioner to contend that any irregularity has
been committed. In fact, while disposing of the objections
by order dated 18.10.2018, the material which has been
brought before the authority has been verified, examined
for the limited aspect to ascertain whether assessment
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done is to be reopened and prima facie opined about his
belief and said subjective satisfaction is normally not
subject matter of judicial review.
6.1. Mr. Bhatt, learned Senior Advocate has further
submitted that sufficiency or inadequacy of reasons
cannot be a ground to rush to this Court under Article
226 of the Constitution of India by the petitioner since
adequate remedial measure forum is very much available
with the petitioner. It has also been submitted that while
dealing with the objections, the Assessing Officer is not
expected to adjudicate in detail the objections and as
such, the reasons for formulating the opinion cannot be
held as ill-founded. The issue involved is a mixed
questions of law and fact, therefore, the opinion which
has been expressed on the basis of the available material
may not be substituted in exercise of extraordinary
jurisdiction.
6.2. To substantiate his contention, Mr. Bhatt, learned
Senior Advocate has made a reference to several
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decisions and has drawn the attention about principles
propounded therein. Following are the decisions referred
to for the purpose of substantiating the submission with
regard to sufficiency or inadequacy of reasons may not be
the sole ground for quashing the opinion which has been
formulated by the authority. For this purpose Mr. Bhatt,
learned Senior Advocate has produced a compilation of
decisions relied upon and few of the decisions are (i) In
the case of Calcutta Discount Co. Ltd., v. Income Tax
Officer, Companies District I, Calcutta & Anr.,
reported in [1946] 41 ITR 191 (SC); (ii) In the case of
Dishman Pharmaceuticals & Chemicals Limited v.
Deputy Commissioner of Income-Tax (OSD) (No.1)
reported in [2012] 346 ITR 228 (Guj.), (iii) in the case
of Phool Chand Bajrang Lal & Anr., v. Income-Tax
Officer & Anr., reported in [1993] 203 ITR 456; (iv) in
the case of Yogendrakumar Gupta v. Income-Tax
Officer, reported in [2014] 46 Taxman.com 56 (Guj.)
( paragraph 8) and by referring to these decision, Mr.
Bhatt, learned Senior Advocate has submitted that
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assessing authority has properly considered the
objections raised by the petitioner and as such, it is not
open for the petitioner to question the same at this stage
of the proceedings. A reference is also made to a decision
delivered in the case of Assistant CIT vs. Rajesh
Jhaveri Stock Brokers (P) Ltd. - (2007) 291 ITR 500
(SC).
6.3. Additionally, Mr. Bhatt, learned Senior Advocate
has submitted that out of four issues even if order could
be sustained on one of the issue, then impugned order
cannot be set-at-naught. Even finding on one issue is
justified in arriving at a conclusion of re-opening of
assessment impugned order can be sustained. A
reference is made to a decision delivered by this Court in
the case Inductotherm (India) (P.) Ltd., v. Deputy
Commissioner of Income-Tax reported in [2013] 36
Taxmann.com 401 (Guj) (Paragraph 18). Yet another
decision on this issue in the case of Olwin Tiles (India)
(P.) Ltd., reported in (2016) 66 Taxman.com 8 (Guj)
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(Paragraph 10) and by referring to these judgments a
contention is raised that reliance which has been placed
by the learned Senior Advocate appearing for the
petitioner on a decision reported in 359 ITR (supra)
which is to the contrary would not be of any assistance
and by referring to few observations contained therein, a
contention is raised that no case is made out by the
petitioner for quashing the impugned notice and order.
6.4. Mr. Bhatt, learned Senior Advocate has further
submitted by referring to a detailed affidavit-in-reply filed
by the authority attached to the petition compilation on
page 301 onwards, and by referring to paragraph 4.4 he
has submitted that objections relating to VAT/Service Tax
as well as Tax and set off of MAT credit of amalgamating
company, is factually incorrect. On the contrary, the
assessee company claimed MAT credit of Rs.42,12,285/-
which pertain to M/s. Pearl Stock Holding Private Ltd., an
amalgamated company and as such, a categorical opinion
was formulated that same is not allowable by virtue of
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provisions contained under Section 115JAA (1A) of the
Act and as such, he has submitted that relevant material
found to be justifiable, and at this stage of the
proceedings, the opinion which has been formulated for
reopening the assessment may not be set-at-naught. A
reference is made to a decision delivered by Hon'ble Apex
Court in the case of CIT v. Chhabil Dass Agrawal
reported in 357 ITR 357 (SC) (Paragraph 15- 20).
6.5. Yet another contention has been vehemently
canvassed by Mr. Bhatt learned Senior Advocate is that
there is equally efficacious alternative remedy available
to raise all these contentions before the appropriate
authority and as such, writ jurisdiction may not be
allowed to be invoked by the petitioner. In fact, the
explanation/objection which has been given by the
petitioner requires proper adjudication and same may
not be possible to be scrutinized in exercise of
extraordinary jurisdiction and in view of catena of
decisions, this Court may not intervene. Few more
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decisions are also referred to by way of a separate
compilation and has fairly submitted that gist of these
judgments are that satisfaction which has been arrived at
this stage of the proceedings may not be substituted
unless there is apparent illegality which is completely
missing in the case on hand. Mr. Bhatt, learned Senior
Advocate has further submitted there is a clear case of
non disclosure of primary facts and facts which have been
disclosed before the authority in the form of objections
would require proper adjudication and as such, prima
facie opinion and belief which has been formed and as
reflecting in the order passed by the authority may not be
interfered with. In addition to this, Mr. Bhatt, learned
Senior Advocate has further submitted that there exists
reasonable ground for formulating the opinion and that
being so, this Court may not exercise extraordinary
jurisdiction.
6.6. In addition to the aforesaid case laws relied upon,
Mr. Bhatt, learned Senior Advocate has also made a
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reference to Section 147 of the Act then existing to
contend same is applicable to the case on hand. By
referring to this provision, it has been contended that
assessing officer has formulated an opinion and belief
that the income has escaped from assessment and as
such, a specific order is passed. Mr. Bhatt, learned
Senior Advocate has further submitted that it is not
correct on the part of the learned Senior Advocate
appearing for the petitioner to submit that beyond four
years as if nothing can be done by the department though
there is enough material available on record about such
income having escaped from assessment and there being
non-disclosure of facts, by mere production of documents
it would not be sufficient to hold that petitioner - assessee
has disclosed before the authority these facts now
revealed. In fact in view of specific letter on the fourth
issue, it surfaced that assessment deserves to be re-
opened. That apart, a reference is made to Explanation-I
of Section 147 of the Act then prevailing and to contend
that mere production before the assessing officer of
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account books and other evidence from which the
material evidence could with due diligence have been
discovered by the Assessing Officer will not necessarily
amount to disclosure within the meaning of foregoing
provision and by making a reference to the said provision,
it has been contended that mere production of books of
accounts and relevant material is not sufficient enough to
indicate that due diligence material has been placed
about voluntary disclosure by the petitioner. Even if other
evidence from which material evidence would with due
diligence has been discovered by the Assessing Officer
will not necessarily mean or amount to disclosure within
the meaning of foregoing provision as indicated therein
and merely because petitioner has produced material in
bunch before the Assessing Officer, will not amount to
disclosure by virtue of this explanation itself and as such,
reasons assigned for re-opening is justified. To
substantiate his contention, Mr. Bhatt, learned Senior
Advocate has relied upon several decisions by way of
producing a separate bunch which citations are as under:
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"1. In the case of Inductotherm (India) (P) Ltd. v.
Gopalan DCIT reported in [2013] 356 ITS 481
(Gujarat).
2. In the case of Gujarat Power Corpn. Ltd.. v.
ACIT reported in [2013] 350 ITR 266 (Gujarat).
3. In the case of Krishna Developers& Company
v. DCIT reported in [2018] 400 ITR 260
(Gujarat).
4. In the case of Olwin Tiles (India) (P) Ltd., v.
DCIT reported in [2016] 382 ITR 291 (Gujarat).
5. In the case of Aaspas Multimedia Ltd., v. DCIT
reported in [2018] 405 ITR 512 (Gujarat).
6. In the case of Dishman Pharmaceuticals &
Chemicals Ltd., v. DCIT reported in [2012] 346
ITR 228 (Gujarat).
7. In the case of MSK Real Estates (P) Ltd., v.
DCIT reported in [2018] 96 taxmann.com 241
(Gujarat).
8. In the case of Kiran Ravjibhai Vasani v. ACIT
reported in [2018] 94 taxmann.com 354
(Gujarat).
9. In the case of Yogendrakumar Gupta v. ITO
reported in [2014] 366 ITR 39 (Gujarat).
10. In the case of Hemjay Construction Co. (P)
Ltd., v. ITO reported in (2019) 419 ITR 39
(Gujarat).
11. In the case of Mehrunnisa Mohammed Fazal
Maniar v. ITO reported in (2021) 127
taxmann.com 547 (Gujarat).
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
12. In the case of Kaushaliya Sampatlal Dudani v.
ITO reported in (2021) 129 taxmann.com 48
(Gujarat).
13. In the case of Backbone Projects v. ACIT
reported in (2021) 437 ITR (Gujarat).
14. In the case of DCIT v. M.R. Shah Logisticts
(P) Ltd., reported in (2022) 136 taxmann.com
373.
15. In the case of Katlary Kariyana Merchant
Sahkari Sarafi Mandali Ltd. v. ACIT rendered in
Special Civil Application No. 20585 of 2019.
16. In the case of Calcutta Discount v. ITO
reported in [1961] 41 ITR 191 (SC).
17. In the case of CIT v. Chhabil Dass Agrawal
reported in [2013] 357 ITR 357 (SC).
7. As against this stand, Mr. Soparkar, learned Senior
Advocate in rejoinder has in addition to reiterating his
submission already made has further relied upon few
decisions to contend that order in question is not just and
proper. He has submitted that whenever order for
reopening assessment is passed by the assessing officer,
it must reflect there has been application of mind and
must be supported by appropriate reasons since reasons
are part and parcel of decision making process, it must
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
reflect in the actual decision itself and same not being
visible from plain reading of the impugned order, it
requires to be quashed. Except quoting verbatim reasons
for re-opening, impugned order does not disclose
independent application of mind and in any case, same is
beyond the period of four years which is contrary to the
statutory mandate itself. Hence, he submits that relief
prayed for deserves to be granted. For this submission, a
reference is made to the decision reported in (2017) 390
ITR pg.10. Mr. Soparkar, learned Senior Advocate has
further submitted that it is quite evident from the record
that certain information obtained and relied upon has
been secured behind the back of the petitioner and
though copies of said documents were demanded same
has not been supplied, which clearly affects the right of
petitioner to raise appropriate objections. Hence, he
contends impugend order is violative of principles of
natural justice and to substantiate his submission, Mr.
Soparkar, learned Senior Advocate has relied upon the
decision delivered on 22.04.2014 in Special Civil
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
Application No. 1896 of 2014.
7.1. He has also submitted rather reiterated that unless
and until conditions precedent for reopening as stipulated
under the provisions are satisfied, such re-opening is
impermissible and as such the action of respondent is
without authority of law and it is always open for the
petitioner to invoke extraordinary jurisdiction of this
Court, petition is maintainable in view of the settled
position of law. It has been further submitted that
relevant audit objections is one of the prime reason for
reopening and respondent authority has conveniently
remained silent on this aspect in its affidavit-in-reply and
as such also, the action is not just and proper.
7.2. In any case, conjoint submission is leading to an
ultimate request to grant the relief as prayed for in the
petition. Mr. Soparkar has also relied upon the following
bunch of decisions which are reproduced hereunder:
"1. Calcutta Discount Co. Ltd., (1961) 41 ITR (191
(SC).
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
2. Vishwanath Engineers (2013) 352 ITR 549 (Guj).
3. Gujarat Power Corpn Ltd (2013) 350 ITR 266
(Guj).
4. Parixit Industries (P) Ltd (2013) 352 ITR 349
(Guj).
5. Sari a Rajkumar Varma (2014) 43 taxmann.com
6. Swati Saurin Shah (2016) 386 ITR 256 (Guj.).
7 . Cliantha Research ltd [2013] 35 taxmarin.com 61
(Guj).
8. Dhruv Dipakbhai Panchal (2018) 93 taxmann.com
286 (Guj).
9. Dhirendra Hansraj Singh [2018] 94 taxmann.com
372 (Guj).
10. Aayojan Developers [2011] 335 ITR 234
(Gujarat).
11. Hindustan Lever Ltd. [2004] 268 ITR 332
(Bombay).
12. Gujarat Narmada Valley Fertilizers [2009] 319
ITR 120 (Guj).
13. PKM Advisory Services [2011) 339 I.TR 585
(Guj).
14. ShiIp Gravures Ltd [20i3] 40 taxmann.com 309
(Guj).
15. Jagat Jayantilal Parikh [2013] 355 ITR 400 (Guj).
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
16. Sunrise Education Trust [2018]
92taxmann.com74 (Guj).
17. Giriraj Enterprise[2019] 102 taxmann.com 188
(Bom).
Second Compilation
1. Banaskantha Dist. Co. Op. Milk Producers Union
Ltd V. Assistant Commissioner of Income-tax 74
taxmann.com 42.
2 Judgment of Hon'ble Gujarat High Court in case of
Kisan 20-33 Proteins (P.) Ltd 74 taxmann.com 219.
3 Judgment of Hon'ble Bombay High Court m case of
-34-46 Shanti Enterprise 76 taxmann.com 184.
4 Judgment of Hon'ble Gujarat High Court m case of
47-62 Anupam Rasayan India Ltd. 397 ITR 406.
5 Judgment of Hon 'ble Gujarat High Court in case of
63-70 Gujarat State Board of School Textbooks 75
taxmann.com 281.
6 Judgment of Hon'ble Gujarat High Court in case of
71-78 Prudent Finance (P.) Ltd. 389 ITR 488.
7 Judgment of Hon'ble Gujarat High Court in case of
79 91 Meghmani Energy Ltd 389 ITR 281.
8. Judgment of Hon'ble Gujarat High Court in case
of Premium Finance (P.) Ltd 73 taxmann.com 369.
9. Judgment of Hon'ble Gujarat High Court in case
of Reckitt Benckiser Healthcare India (P.) L 392 ITR
336."
8. Having heard the learned advocates appearing for
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
the parties, we are of the considered view that following
point would arise for our consideration :
(i) Whether the notice dated 29.03.2018
issued under Section 148 of the Income Tax
Act, 1961, for the assessment year 2011-12 is
liable to be quashed or sustained?
REASONS, DISCUSSION AND FINDING OF ABOVE
POINT
9. Assessee is a company which had filed its returns of
income for the assessment year 2011-12 on 27.09.2011
declaring total income of Rs.11,99,50,930/- under normal
provision and Rs.17,13,95,125/- under Section 115JB of
the Act. Assessee filed revised return of income on
27.09.2012 declaring total income of Rs.12,02,45,130/-
under normal provision and Rs.17,13,95,125/- under
Section 115JB. Same came to be assessed under Section
143(3) and income was determined at Rs.13,64,40,540/-
under normal provision vide order dated 29.03.2014.
Subsequently, the impugned notice dated 29.03.2018
came to be issued and as such petitioner sought for
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
reasons for reopening which came to be furnished vide
communication dated 04.07.2018, upon which petitioner
submitted its objection which reads as under :
1. M/s Nila Infrastructure Ltd. is assessed
with the undersigned. The assessee company
had filed return of income for AY 2011-12 on
27.09.2011 declaring total income of
Rs.11,99,50,930/- under normal provision and
Rs.17,13,95,125 u/s 115JB of the Act. Assessee
filed revised return on 27.09.2012 declaring
income of Rs.12,02,45,130/- under normal
provision and Rs.17,13,95,125 u/s 115JB of the
Act. The same was assessed u/s 143(3) and
income was determined at Rs.13,64,40,540/-
under normal provision vide order dated
29.03.2014.
2. As per the Profit & Loss Account assessee
had debited Rs.4,98,56,594/- as interest and
financial charges. The assessee had paid
interest of Rs.60,27,397/- to Adani Enterprises,
Rs.1,05,22,915/- to Indiabulls Financial Services
Ltd. and Rs.92,75,843/- to Gruh Finance Ltd. It
was further noticed that assessee has
disallowed itself of Rs.48,65,972/- being interest
payment to Adani Enterprises. But the assessee
has not produced any proof of deduction of tax
on these payments and subsequent deposit in
government account. The assessee has not
furnished any copies of non-deduction
certificate u/s 197, if any. The provisions of
section 40(a)(ia) is squarely applicable and
disallowance of Rs.209,60,183/- is to be made.
Thus there is escapement of income to the tune
of Rs.209,60,183/-.
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
3. As per Form 3CD, the accountant in clause
21B(bll) has clearly mentioned that VAT, sales
tax and service tax do not pass through Profit
and Loss Account. This means that assessee is
not including such taxes in value of goods and
services as income and not debiting any amount
on account of payment of such taxes. It was
however noticed that assessee has debited VAT
(Rs.89,87,990/- & Service Tax (61,35,736) in P/L
under the head other project expenses. As
assessee has not accounted tax component in
sales, expenditure on such payment was not
includible as expenses. The method adopted by
assessee of not crediting the tax component in
sales but debiting such expenditure resulted in
under assessment of income by Rs.1,51,23,726
(89,87,990 +61,35,736).
4. The assessee had claimed MAT credit of
Rs.1,01,91,317/- of earlier years and reduced
the tax liability to that extent by adjusting from
its tax liability under normal provision of the
Act. However, in F.Y, 2010-11, there was
amalgamation of a company named Pearl
Stockholding Pvt Ltd (PSPL) with the assessee
company. Further, as per assessee, the PSPL
has MAT credit of Rs.42,12,285/- at the time of
amalgamation and assessee company has MAT
credit of Rs.59,79,032/- of AY 2010-11, As MAT
credit of Rs.42,12,285/- does not pertain to
assessee company but to amalgamating
company, the same was not allowable u/s
115JAA(IA) of the Act.
5. In view of the above, income to the tune of
Rs.3,60,83,909/- (209,60,183+151,23,726) has
escaped assessment within the meaning of
section 147 of the I.T. Act, 1961.
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
6. Further, vide letter dated 16.03.2018, ITO,
Ward 10(2), Kolkata has forwarded intimation in
case of M/s Nila Infrastructure Ltd. As per the
said letter it has been informed that during the
course of assessment u/s 143(3) r.w.s 263 in
case of M/s Solvent Real Estate Private Limited
(hereinafter referred as SREPL) for AY 2011-12.
addition of Rs.101,01,50,000/- was made u/s.
10(a)(ia) as SREPL had not deducted TDS on
subcontract payments. The order u/s 143(3)
r.w.s 263 was passed on 24.03.2014. Later
matter travelled to CIT (A)-4, Kolkata. Ld. CIT
(A)-4, Kolkata made independent factual
findings which established that SREPL had no
genuine business and it was engaged only in
providing bogus bills to various concerns for
commission. The order dated 15.03.2018 of CIT
(A)- 4, Kolkata has been perused by the
undersigned. The relevant findings of CIT(A)-4,
Kolkata are as under :
a. None of the 4 purchase parties of SREPL
were traceable at the given addresses.
b. None of the Contractors of SREPL could
furnish any evidence in support of work done
by SREPL.
c. No transport bill/delivery challan could be
submitted by SREPL regarding supply of
goods to client's sites.
d. SREPL was showing total 4 employees
with salary of Rs. 2.1 lacs for turnover of
more than 100 crores.
e. SREPL had debited labour charges of Rs.
18 lacs only for turnover of more than 100
crores which defies any logic.
f. 18 of the Entities shown in Investment
schedule of SREPL have been declared shell
companies by the Government Organizations.
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
g. As per investigation wing database,
Companies where SREPL has shown
investment are shell companies operated by
entry operator Subhash Kumar Agrawal.
7. The above findings clearly show that
SREPL was paper entity involved in providing
bogus bills. It has been indicated that M/s. Nila
Infrastructure Ltd. has booked bogus expense
of Rs.5,68,80,000/- during FY 2010-11 through
SREPL. After going through the relevant orders
and specific findings listed above, undersigned
being jurisdictional AO of M/s Nila
Infrastructure Ltd, is satisfied that income to
the tune of Rs. 5,68,80,000/has escaped
assessment.
8. In view of the above, total income to the tune
of Rs.9,29,63,909/- (Rs.5,68,80,000/- -
3,60,83,909/-) has escaped assessment within
the meaning of section 147 of the Income Tax
Act, 1961. Therefore, I have reason to believe
that income has escaped assessment for A.Y.
2011-12 to the tune of Rs.9.29,63,909/- and
accordingly assessment is required to be
reopened u/s 147 of the I.T. Act, 1961.
Therefore, notice u/s 148 is required to be
issued in case of M/s.Nila Infrastructure Ltd. for
AY 2011-12."
10. Thereafter, said objection came to be disposed of on
18.10.2018 (Annexure-E). Hence, petitioner is before this
Court.
11. As could be seen from the reasons recorded for
reopening and order dated 18.10.2018 disposing of the
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
objections raised by the assessee for reopening of
assessment are one and the same. As such, we have dealt
with the said issues and before embarking upon such
inquiry, it would be necessary to note that for reopening
the assessment, the assessing officer (for short "AO")
has to prima facie form an opinion of belief of
escapement of income to tax by the assessee. In this
background, when facts on hand are examined, it would
disclose that first reason assigned for reopening the
assessment concluded under Section 143(3) is that the
assessee has debited Rs.4,48,56,594/- as interest and
financial charges and assessee has paid interest of
Rs.60,27,397/- to Adani Enterprise, Rs.1,05,22,915/- to
India Bulls and Rs.92,75,843/- to Gruh Finance but has
not deducted and paid the TDS on the above amount and
hence, there is escapement of income of Rs.2,09,60,183/-.
The records on hand would indicate that assessee had
duly deducted and paid the TDS on the above payment
and copy of the account of the said parties had been
tendered at the time of assessment and along with the
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
objections for reopening at Annexure-1. In fact, in the
order disposing of the objections raised for reopening, it
has been observed by AO as under :
"It is verified that the company has not
deducted the TDS on these interest charges,
the Assessing Officer has not disallowed the
expenditure and there is nothing on record to
show that the TDS was deducted."
12. The aforesaid finding itself would indicate that
there was material available with the Assessing Officer
and the assessee had not suppressed or withheld any
information at the time of assessment proceedings and on
this score itself the present impugned notice under which
the re-assessment proceeding is to be undertaken or
commenced on the said issue cannot be sustained.
13. The second reason or second issue relates to
reopening of the assessment is that as per Form-3CD in
Clause 21(b)(bii), it was clearly mentioned that VAT, sales
tax and service tax do not pass through P & L Account,
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
which means the assessee is not including such taxes in
value and goods and service as income and is not
debiting any amount on account of payment of such
taxes. Though it was noticed that assessee has debited
VAT of Rs.89,87,990/- and service tax of Rs.61,35,736/-
under the head "Project Expenses", assessee having not
accounted tax component in sales, expenditure on such
payment was not includable as expenses. In other words,
the method adopted by the assessee of not crediting the
tax component in sales, the debiting such expenditure
resulted in under assessment of income of
Rs.1,51,23,726/- is the ground. At the time of assessment
itself, the assessee had disclosed that it was carrying on
two (2) types of project namely (i) contract project and
(ii) residential project. It has been explained by the
assessee in its objections against the reasons recorded
for reopening of assessment as under :
"2.2 In this regard we are submitting herewith
project wise details of service tax/VAT paid vide
Annexure-2. It has been alleged that the assessee
has debited the VAT/service tax expenses but tax
component in sale was not considered. We wish
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
to state that the assessee is doing two type of
project one is contract project and second is
residential project. With regard to contract
project of Surat the assessee has paid
Rs.38,25,124/-. The same shown separately as
expenses and the gross amount is shown as
income in the P&L Account. The copy of work
order entered into with RJD Integrated Textile
Park Ltd. is enclosed herewith vide Annexure-3
from which your good self will find that the said
order is inclusive of all taxes. For example if
Rs.100 is amount of work order which is
inclusive of service tax. Then assessee is
crediting Rs.100 in the income and debiting
Rs.10 as expenses as service tax. Further, in
residential project the assessee is paying service
tax under abetment scheme and as per the said
scheme the assessee is not eligible for any input
credit and hence it has debited the amount of
service tax charged for services received. For
example if it has received services bill of Rs.110/-
which is inclusive of Rs.10 as service tax then the
company is showing Rs.100 under expenses and
Rs.10 as service tax paid instead of showing
Rs.110 as expenses. On the similar line the
assessee is paying VAT under composition
scheme and as per the said scheme it has to pay
VAT/service tax at certain percentage of the
turnover. It means that the assessee has not
collected anything from the customer but it has
to pay VAT from its pocket. Further, also it is not
eligible for any input credit and hence any tax
charged on the material purchase is treated as
expenses. The relevant pages of the respective
scheme is attached herewith for your perusal
vide Annexure-4. The sample copy invoices are
attached herewith as Annexure-5. The copy of
account of service tax and VAT is also enclosed
herewith vide Annexure-6. In view of the above
the assessee has correctly followed the system of
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accounting and rightly claim the service tax and
VAT being paid out of pocket and or not eligible
for input credit."
14. Thus, there was no suppression or withholding of
information by the assessee at the time of framing of the
assessment or during the assessment proceedings. The
fact that assessee was paying VAT under the composition
scheme and said scheme envisages payment of
VAT/service tax on certain percentage of turnover cannot
be disputed. In other words, assessee has followed the
system of accounting rightly and claimed service tax/VAT.
This issue though raised in the objections has been
washed off or brushed aside without assigning any reason
whatsoever. The third issue on which the assessment was
sought to be reopened is that the assessee had claimed
MAT credit of Rs.1,01,91,317/- for earlier years and
reduced the tax liability to that extent by adjusting from
tax liability under normal provision of the Act. It is the
further case of the Revenue that in the financial year
2010-11, there was amalgamation of a company named
Pearl Stockholding Private Limited (PSPL) with the
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
assessee company and as per assessee, the PSPL had
MAT credit of Rs.42,14,285/- at the time of amalgamation
and assessee company had MAT credit of Rs.59,79,032/-
during assessment year 2010-11 and MAT credit of
Rs.42,12,285/- was pertaining to amalgamating company
and same was not allowable under Section 105JAA(1A) of
the Act. The objections to the reopening on this issue has
been objected to by the assessee by contending as
under :
"3.1. In this regard we submit that as per the
computation of total income the assessee is
eligible for the total MAT credit of Rs.
1,01,91,317/- however it has claimed set off of
Rs. 51,34,156/- only in the year under
consideration and not Rs.1,01,91,317/-.
3.2. It is further submitted that Amalgamation is
a process wherein one or more companies merge
into another company or two or more companies
merge together to form a new company. All the
property of the amalgamating company before
amalgamation becomes the property of the
amalgamated company by virtue of the
amalgamation. Similarly, all liabilities of the
amalgamating company before amalgamation
become the liabilities of the amalgamated
company by virtue of the amalgamation. The
definition of the term 'amalgamation' u/s.2(1B) of
the Act also envisages the above requirement. It
is a settled law that the term 'property' as
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
employed in S. 2(1B) is a term of the widest
import and, subject to any limitation which the
context may require, signifies every possible
interest which a person can clearly hold and
enjoy. MAT credit which can be carried forward
and set off has the potential of reducing the tax
liability during subsequent years and therefore it
possesses the characteristics of being considered
as a 'property'. Guidance note on accounting, of
MAT credit issued by ICAI also recognises that
MAT credit has expected future economic
benefits in the form of its adjustment against the
discharge of the normal tax liability in future
years and therefore is an 'asset'. The said
Guidance note also permits the accounting and
recognition of MAT credit as an 'asset' in the
financial statements. Thus, MAT credit of the
amalgamating company, which would be
considered as a property, becomes the property
of the amalgamated company by virtue of the
amalgamation.
AS-14 - Accounting for amalgamation in the
books of amalgamated company issued by ICAI
and notified by Central Government in the form
of Companies (Accounting Standard) Rules 2006
envisages two types of amalgamation viz .,
amalgamation in the nature of merger (pooling of
interest method) and amalgamation in the nature
of purchase (purchase method).]
If the amalgamation is that of type one i.e.,
amalgamation in the nature of merger, all the
assets and liabilities of amalgamating company
are recognised in the books of amalgamated
company at their book value. Under this method,
if MAT credit is recognised as an asset in the
balance sheet of the amalgamating company, the
amalgamated company is also required to
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
recognise the same in its balance sheet.
Under type two amalgamation i.e., the purchase
method, the amalgamated company accounts for
the amalgamation either by incorporating the
assets and liabilities at their existing carrying
amounts or by allocating the consideration to
individual identifiable assets and liabilities of the
amalgamating company on the basis of their fair
values at the date of amalgamation. The
identifiable assets and liabilities may include
assets and liabilities not recorded in the financial
statements of the amalgamating company. [para
12 of AS-14]
Under this method, if MAT credit of
amalgamating company (irrespective of whether
such credit is recognised as an asset in the
balance sheet of amalgamating company or not)
is taken over by the amalgamated company or if
the consideration in respect of amalgamation
includes consideration for taking over MAT
credit in the scheme of amalgamation, the latter
company recognises the same in its balance
sheet.
Thus, under both the types of amalgamation, the
MAT credit of amalgamating company could be
recognised as an asset in the balance sheet of the
amalgamated company. MAT credit is thus an
accounting derivative, It could be regarded as a
'capital asset' u's.2(14). On transfer of such
capital asset in a scheme of amalgamation, it
could be said that the amalgamated company
becomes the owner, enabling it to carry forward
and set off MAT credit: The principle underlying
some of the provisions wherein deduction is
attached to the undertaking and not to the owner
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
thereof could also be extended to MAT credit.
Therefore, it could be said that on amalgamation
the amalgamated company gets the right to carry
forward and set off the MAT credit.
3.3. Various amendments were made to the
Income-tax Act, 1961 by the Finance Act 1999
concerning tax implications of business
reorganisations by way of amalgamation and
demerger. The Finance Minister's speech in
Budget 1999 [236 ITR (St.) 1] stated that a
comprehensive set of amendments is being
proposed to make business re-organisations fully
tax neutral. In the speech the following was
stated "it is proposed that all fiscal concessions
will survive for the unexpired period in the case
of amalgamation and de-mergers." It may be
noted that MAT credit in respect of tax paid u/s.
115JA was already on the statute books when the
provisions of Finance Act 1999 were introduced:
The intention of the legislature appears to be
that the benefits/reliefs available to the
amalgamating company should vest in the
amalgamated company so that the latter
company can claim such benefits/reliefs for the
unexpired period, on a premise that the
amalgamation had not been effected.
3.4. There is no prohibition or restriction in S.
115JAA with regard to carry forward and set off
of MAT credit belonging to the amalgamating
company by the amalgamated company. The
memorandum explaining the provisions of
Finance Bill, 2005 [273 ITR (St.) 60] and Circular
no. 3 of 2006, dated 27-2-2006 [(2006) 281 ITR
(St.) 222] explaining the provisions of Finance
Act 2005 also do not state that carry forward and
set off of MAT credit is allowable only to the
company which has paid tax u's. 115JB. In an
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
amalgamation, one company is subsumed into
another. The amalgamated company becomes the
'alter ego' of the amalgamating company. Tax
provisions desire that the benefits available to
the amalgamating company survive and continue
to be effective in the amalgamated company. The
benefits are to remain unhindered despite the
assumption of new legal garb. As a result, the
amalgamated company may carry forward and
set off MAT credit belonging to the
amalgamating company.
3.5. In DCIT v. Beck India Ltd., (2008) 26 SOT
141 (Mum.) the High Court vide order dated 20-
9-2001 approved the merger of a company with
the respondent company with effect from the
appointed date of amalgamation being 1-1-2001.
The financial statements presented in the annual
general meeting did not consider the unabsorbed
losses of the amalgamating company since the
said meeting was conducted before the date of
the order of the High Court approving the
merger. For the same reason, the original return
filed by the respondent on 30-10-2001 did not
consider the unabsorbed losses of amalgamating
company in the process of computation of book
profits u/s. 115JB. After the approval of merger
by the High Court, the respondent assessee
revised its financial statements so as to consider
the effect of amalgamation. The respondent
assessee also filed a revised return wherein the
unabsorbed losses of amalgamating
company .remaining after setting off the same
with the surplus of the assessee company was
reduced in the process of computation of book
profits u/s. 115JB. The Tribunal held that the
assessee is eligible for set off based on the
revised accounts. Considering the above decision
wherein losses of amalgamating company were
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allowed to be set off by the amalgamated
company in computing book profits u/s.115JB,
one could contend that MAT credit of
amalgamating company. could also be carry
forward and set off by the amalgamated company
u/s. 115JAA.
3.6. In VST Tillers and Tractors Ltd. v. CIT, ITA
No. 588/Bang./2008, a decision of the Bangalore
ITAT, VST Precision Components Ltd. ('VPCL or
the amalgamating company'), a subsidiary of VST
Tillers & Tractors Ltd. ('the assessee')
amalgamated with the assessee under a scheme
of amalgamation sanctioned by the Karnataka
High Court. As per the sanctioned scheme,
pursuant to the amalgamation, all assets and
liabilities of VPCL would vest with the assessee.
The sanctioned scheme inter alia provided that
the unabsorbed losses and depreciation of VPCL
shall be deemed to be losses and depreciation of
the assessee as provided u/s.72 of the Act. The
assessee in computing the MAT liability
u/s.115JB reduced unabsorbed losses of VPCL
(which was less than the unabsorbed
depreciation of VPCL) from book profits: The CIT
passed order u/s.263 holding that unabsorbed
losses reduced were not as per books of account
of the assessee but were as per books of
accounts of VPCL and therefore the same cannot
be reduced from the book profits of the assessee.
On appeal, the Tribunal apart from relying on S.
72 also relied on S. 72A of the Act. It was
observed that the sanctioned scheme also
provided that the unabsorbed losses and
depreciation of VPCL shall be deemed to be
losses and depreciation of the assessee as
provided u/s.72 of the Act. It was therefore held
that the assessee has rightly reduced the
unabsorbed losses of VPCL from its book profits
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
in computing MAT liability u/s. 115JB.
3.7. In ITO v. Mahyco Vegetable Seeds Ltd .,
(2009) 314 ITR (AT) 37 ITAT (Mum.) it was held
that the resulting company is entitled to carry
forward unabsorbed scientific research
expenditure allocated to it in the process of
demerger by the demerged company. The
Tribunal held that the amount representing the
unabsorbed capital expenditure on scientific
research u/s.35(4) was not different from the
unabsorbed depreciation for the purposes of .S.
72A(7). The respondent company was therefore
allowed carry forward unabsorbed scientific
research expenditure of the company even
though there is no specific provision in S. 72A
amalgamated or resulting company to carry
forward and set unabsorbed scientific research
expenditure of amalgamating or demerged
company.
3.8. In SKOL Breweries Ltd. v. ACIT, 28 ITAT
India 998 (Mum.) ITA No. 313/Mum./07 A.Y.
2003-04 decision dated 15-5-2008 the Tribunal
allowed set off of MAT credit of amalgamating
company in the hands of the appellant assessee
being the amalgamated company. The Tribunal
observed :
"We have duly considered the rival
contentions and gone through the record
carefully. The Ld. CIT(A) while denying the
benefit of taxes paid by M/s .. Charminar
Breweries Ltd. (CBL) u/s.115JA has
observed that M/s .. CBL was amalgamated
with erstwhile SKOL and ceased to exist.
Once the company ceases to exist then any
benefit available to the company would not
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devolve upon the transferee company. For
the above view CIT(A) has relied upon the
decision of Hon'ble SC in the case of
Sarawati Industries Syndicate 186 ITR 278.
In our opinion Ld. first appellate authority
has referred to this decision without
context. The facts of that case are quite
different. In that case, an assessee 'A' has
paid certain amount to 'B' towards sales tax
liability. 'B' who collected the sales tax from
'A' disputed the liability before the Sales tax
Tribunal. During the pendency of the
litigation 'A' ceased to exist and its business
was taken over by 'C'. The Sales tax
Tribunal decided the issue in favour of 'B'
and held that no sales tax is payable.
Accordingly 'B' returned the money to 'C'.
This amount was sought to be taxed
u/s.41(1) of the Act according to the
provision as it existed in AY 1965 - 66. In the
context the Hon'ble Supreme court has held
that this amount is not taxable in the hands
of 'C'. The ingredients provided in the
definition of amalgamation is altogether
different from the condition provided in S.
41(1) in A.Y. 1965-66. The assets and
liabilities on the date of amalgamation of the
amalgamating company would become
assets and liabilities of the amalgamated
company. If M/s. Charminar Breweries has
paid tax u/s.115JA of the Act in earlier
assessment years and that benefit is
permissible u/s.115JA of the Act then that
cannot be denied to the assessee simply for
the reason that M/s. Charminar Breweries is
not in existence. The Ld. CIT(A) has erred in
placing his implicit reliance upon the
judgment of Hon'ble Supreme court. In
principle we allow this ground of appeal of
the assessee, set aside the issue to the file of
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A.O for verification of the taxes paid by M/s.
Charminar Breweries and how that benefit
would devolve upon the assessee. The AO
shall verify the details and then grant the
benefit to the assessee."
3.9. The rationale for allowing credit in respect
of taxes paid under MAT, as per the
memorandum explaining the provisions of
Finance Bill, 1997 [224 ITR (St.) 26] and as per
Para 45.4 of CBDT Circular No. 763, dated 18-
2-1998 [230 ITR (St.) 54] is that a company
should always pay a minimum tax even while
offsetting the MAT credit against regular tax.
The objective of the said provision is to allow
relief in respect of tax paid under MAT regime
It is a selling low fat provisions granting
exemptions and relief should be interpreted
liberally so as to advance the objective and not
to frustrate It. [Bajaj Tempo Ltd. v. CIT. [10]
106 ITR 188 (SC). Thus, MAT credit of X Ltd, on
amalgamation with Y Lid, should be available
for carry forward and set off in the hands of the
latter company It is also a settled law that when
there is any genuine doubt about the
interpretation of a fiscal statute or where two
opinions are capable of being formed then, that
rule of interpretation which is favourable to the
assessee is to be preferred. [CIT v. Vegetable
Products Ltd., [1973] 88 ITR 192 (SC)].
3.10 Going by the rationale of S. 115 JAA,
one could contend that the MAT credit of
amalgamating company can be set off by the
amalgamated company. One could contend that
in the process of amalgamation, one company
loses its identity and would be merged with the
other company. It could be contended that MAT
credit, if utilised by the amalgamated company,
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would not result in any excessive relief. Denial
of carry forward and set off of MAT credit of an
amalgamating company to an amalgamated
company would be against the legislative
intention and reasonable or purposive
interpretation of S. 115JB and S. 115JAA. There
would be no excessive relief or double
deduction if amalgamated company is allowed
to carry forward and set off MAT credit of
amalgamating company. As explained earlier,
MAT credit represents that portion of tax which
was not actually payable by the company but
has all the same been collected by the
Government. [CIT v. Jindal Exports Ltd ., [2009]
314 ITR 137 (Del.)] If amalgamated company is
denied the benefit of carry forward and set off
of MAT credit of amalgamating company, it
could be termed unauthorised collection of
taxes by the Government. Reliance may be
placed on the decision in Escorts Lid. v. DCIT,
(2007) 15 SOT 368 (Del.) wherein it was
observed that if no credit of TDS is to be given
to the payee/deductee, the Government would
have no authority to treat the same as tax and
Article 265 does not empower the Government
to make any levy or collection of tax not
authorised by law.
3.11. It is settled law that where strict literal
construction leads to injustice or a 5 result not
intended to be subserved by the object of the
legislation, then an equitable construction
should be preferred over the strict literal
construction. Where the plain literal
interpretation of a statutory provision produces
a manifestly unjust result which could never
have been intended by the legislature, the court
might modify the language used by the
legislature so as to achieve the intention of the
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legislature and produce a rational result.
3.12. Further, the reliance is also placed on the
decision of ACIT vs. M/s Caplin Laboratories
Ltd. in ITA No. 667/Mds/2013 dated
31.01.2014, the relevant extract from the said
decision is reproduced herein under:
"Upon a careful consideration of the issue
we find that, after amalgamation the
assessee company is entitled to all the
assets, claims etc. of the erstwhile company,
which is also supported by Hon'ble High
Court order in this regard. Further, when
the assessee company is now being assessed
in place of erstwhile company and TDS
credit pertaining to the erstwhile company
is being given credit to the assessee
company, there is no reason why a different
treatment should be given to the MAT credit
available pertaining to the erstwhile
company. We do not agree with the learned
commissioner of Income Tax (Appeals) that
there is need for specific mention in this
regard in section 115JAA as the carry
forward of MAT credit of erstwhile company
by amalgamated company is in-built in the
scheme of amalgamation as well as the
scheme of MAT credit. Hence, we set aside
the order of learned Commissioner of
Income Tax (Appeals)in this regard and
decide the issue in favour of the assessee."
In view of the above, the assessee company
is eligible for the MAT credit of the
amalgamating company."
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15. Even this objection has been brushed aside and
without even considering the foundational facts laid by
the assessee in the aforesaid objections. Though it was
specifically contended that there was no prohibition or
restriction under Section 115JAA with regard to carry
forward and setting off of MAT credit belonging to
amalgamating company by the amalgamated company,
yet this fact has been completely ignored. In other words,
there is no independent finding recorded for reopening
and it is trite law that based on borrowed opinion,
reopening of the assessment is impermissible.
16. One another reason which has persuaded the
respondent authority to issue notice for reopening the
assessment is traceable to the communication dated
16.03.2018 of the ITO, Ward 10(2), Kolkata, who has
stated that during the course of the assessment under
Section 143(3) read with Section 263 in the case of
Solvent Real Estate Private Limited (SREPL) for
assessment year 2011-12 addition of Rs.101,01,50,000/-
C/SCA/16916/2018 CAV JUDGMENT DATED: 02/01/2023
was made under Section 40(a)(ia) of the Act as the said
entity had not deducted tax at source on sub-contract
payments. The said assessment order which was
challenged before the CIT (Appeals) has resulted in a
finding being recorded by the appellate authority that
SREPL had no genuine business and was engaged only in
providing bogus bills to various concerns for commission.
Thus, it would clearly emerge from the above that the
Assessing Officer has borrowed the view expressed by
CIT (Appeals) for issuing the impugned notice. In fact,
assessee has specifically contended in its objections that
neither the order of CIT (Appeals) or the communication
dated 16.03.2018 of the ITO was furnished to the
petitioner. It is the opinion of the ITO, Kolkata and the
finding recorded by CIT (Appeals) which perforced the
AO to issue the impugned notice partakes the character
of borrowed satisfaction and/or without there being
independent finding recorded by AO for reopening of the
assessment. In fact, Assessing Officer seems to have
reopened the assessment to fish out evidence which is
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impermissible and the pre-requisite for reopening being
'satisfaction of income to tax having escaped', the
authority should have reason to believe that income of
the assessee has escaped assessment; and, secondly, he
must have reason to believe that such escapement is by
reason of omission or failure on the part of the assessee
to disclose fully and truly all material facts necessary for
the assessment. If these twin conditions are not being
fulfilled, notice issued by the authority would be one
without jurisdiction. The belief which the authority
entertains must not be arbitrary or irrational. It must be
reasonable or having nexus to the escapement of income
to tax. The adequacy of the reasons and its relevancy
would form the foundation for reopening of the
assessment. In the absence thereof, on borrowed opinion,
reassessment proceedings cannot be commenced.
17. The Hon'ble Apex Court in the case of Ganga
Saran and Sons Private Limited vs. Income Tax
Officer, 1981 (6) Taxman 14 (SC) : (1981) (130) ITR
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1 (SC) has held :
"6. It is well settled as a result of several
decisions of this Court that two distinct
conditions must be satisfied before the ITO can
assume jurisdiction to issue notice under section
147(a). First, he must have reason to believe that
the income of the assessee has escaped
assessment and secondly, he must have reason to
believe that such escapement is by reason of the
omission or failure on the part of the assessee to
disclose fully and truly all material facts
necessary for his assessment. If either of these
conditions is not fulfilled, the notice issued by the
ITO would be without jurisdiction. The important
words under section 147(a) are "has reason to
believe" and these words are stronger than the
words "is satisfied". The belief entertain ed by
the ITO must not be arbitrary or irrational. It
must be reasonable or in other words it must be
based on reasons which are relevant and
material. The Court, of course, cannot investigate
into the adequacy or sufficiency of the reasons
which have weighed with the ITO in coming to
the belief, but the Court can certainly examine
whether the reasons are relevant and have a
bearing on the matters in regard to which he is
required to entertain the belief before he can
issue notice under section 147(a ). If there is no
rational and intelligible nexus between the
reasons and the belief, so that, on such reasons,
no one properly instructed on facts and law could
reasonably entertain the belief, the conclusion
would be inescapable that the ITO could not have
reason to believe that any part of the income of
the assessee had escaped assessment and such
escapement was by reason of the omission or
failure on the part of the assessee to disclose
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fully and truly all material facts and the notice
issued by him would be liable to be struck down
as invalid."
18. Thus, it would emerge from the aforesaid
discussion that there is no whisper in the impugned order
as regards any failure on the part of petitioner to disclose
fully and truly all material facts and as such it is not
possible for this Court to infer any such failure on the
part of the assessee from the reasons recorded.
Petitioner had made adequate disclosures during
assessment proceedings which is now sought to be
reopened and particularly with reference to ground Nos.1
and 2 on which the respondent authority has proposed to
reopen the assessment.
19. The first three grounds on which the Assessing
Officer has proposed to reopen the assessment as could
be discerned from the assessment order, was part of the
scrutiny during the assessment and Assessing Officer
having consciously taken a particular decision, the
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change of opinion cannot form the basis for reopening
the assessment that too based on same set of facts. In
fact, it would be apt and appropriate to note at this
juncture that during the course of the assessment
proceedings, assessee has submitted three
communications dated 16.12.2013, 09.01.2014 and
03.02.2014 (Annexure-F) with reference to the first three
issues based on which the assessment is sought to be
reopened by highlighting the facts as more specifically
stated therein which has gone into the decision making
process at the time of passing assessment orders or in
other words, the Assessing Officer took note of these
facts and has formed an opinion, which opinion is now
sought to be substituted and made as a ground for
reopening of the assessment which is impermissible as
change of opinion cannot be the basis for reopening the
assessment.
20. For the cumulative reasons aforesaid, we are of
the considered view that prayer sought for in the petition
deserves to be granted by answering the point
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formulated hereinabove in favour of the assessee and
against the Revenue.
21. Hence, the following
ORDER
(i) Special Civil Application is allowed.
(ii) Notice dated 29.03.2018 (Annexure-A)
and order dated 25.10.2018
(Annexure-E) are hereby quashed as
also the consequential proceedings
pursuant thereto.
(ARAVIND KUMAR, CJ)
(ASHUTOSH J. SHASTRI, J)
GAURAV J THAKER/PH
