Gujarat High Court

M/S Maharashtra Border Check Post ... vs Deputy Commissioner Of Income Tax, ... on 8 April, 2025

Author: Bhargav D. Karia

Bench: Bhargav D. Karia

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                           C/SCA/5788/2022                                      JUDGMENT DATED: 08/04/2025

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                                   IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                                     R/SPECIAL CIVIL APPLICATION NO. 5788 of 2022


                      FOR APPROVAL AND SIGNATURE:


                      HONOURABLE MR. JUSTICE BHARGAV D. KARIA

                      and
                      HONOURABLE MR.JUSTICE D.N.RAY

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                                  Approved for Reporting                       Yes          No
                                                                                            ✓
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                            M/S MAHARASHTRA BORDER CHECK POST NETWORK LIMITED
                                                  Versus
                              DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1)
                      ==========================================================
                      Appearance:
                      MR DHINAL A SHAH(12077) for the Petitioner(s) No. 1
                      MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1
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                         CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                               and
                               HONOURABLE MR.JUSTICE D.N.RAY

                                                           Date : 08/04/2025

                                                           ORAL JUDGMENT

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned advocate Mr. Dhinal A.

Shah for the petitioner and learned Senior

Standing Counsel Mr. Varun K. Patel for

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the respondent.

2. Rule returnable forthwith. Learned

Senor Standing Counsel Mr. Varun K. Patel

waives service of notice of rule on behalf

of the respondent.

3. By this petition under Article 226 of

the Constitution of India, the petitioner

has challenged the legality and validity

of the notice dated 27.03.2021 issued

under section 148 of the Income Tax Act,

1961 (For short "the Act") for Assessment

Year 2015-2016.

4. Brief facts of the case are that the

petitioner filed original return of income

for Assessment Year 2015-2016 on

30.11.2015 declaring total loss at Rs.

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62,77,90,517/-.

5. The case of the petitioner was

selected for scrutiny assessment and

notices under sections 142(1) and 143(2)

of the Act were issued by the respondent

Assessing Officer calling upon various

details from the petitioner.

6. The petitioner by reply dated

22.02.2017 provided the details called for

along with the details of the finance cost

incurred during the year under

consideration which includes interest on

the long term borrowings and short term

borrowings.

7. The Respondent Assessing Officer

considering the information and details

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submitted by the petitioner passed the

assessment order under section 143(3) of

the Act on 28.11.2017 accepting and

determining the total loss of the

petitioner as per the return of income.

8. Respondent thereafter issued the

impugned notice under section 148 of the

Act to reopen the assessment of the

petitioner recording the following

reasons:

"2. Brief details of information collected/ received by the AO : On perusal of assessment records and other details filed during the course of assessment proceedings that as per the Note-32 of the "Notes on Accounts", which is a part of Annual Financial Statements of the assessee- company, it is stated that the assessee-company capitalize each check post from the date it receives provisional completion certificate from the engineer by Maharashtra State Road Development Corporation (Project

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Implementation Agency.) Pending receipt of notification from the Government authorities to start collection of user service fee, the cost incurred (including interest costs) from the date of capitalization of check post till the notification to collect user service fee is expended to statement of profit and loss. The assessee-company has incurred Rs.212.14 million (previous year Rs.301.05 million) relating to interest costs (with corresponding no user service fee income) in the statement of P&L during the year ended March 31, 2015 pertains to such check posts.

In light of the above note, it can be seen that the assessee-company had not offered any income from the check posts on which notification form Government is pending for collection of user fee though these were capitalized (as per provisional certificate). Thus, considering the matching principal of accounting and since the check post is not operational for business of the assessee, expenditure, of Rs.214.14 million (including interest expenditure) incurred on such assets are not eligible for deduction as per the Section 36(1)(iii) of the Act. Only after notification from the Government, it can be treated as put to use and till date, no interest expenses can be deducted from income

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computed under Section 28 of the IT Act."

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5. Finding of the AO: From the detailed discussion made in Para-2 & 3 above, it seen that the assessee has constructed check post(s) on BOAT basis, the cost of which is capitalized in the books of account. The collection fees in respect of this check post(s) were not commenced due to non-receipt of completion certification from engineers, MRDC. During the year, the assessee has incurred an amount of Rs. 214.14 million towards interest on capital borrowed for construction of this check post(s) and such expenditure is debited in the P&L A/c. The proviso to Section 36(1)(iii) of Act provides that any interest paid in respect of capital borrowed for acquisition of assets for any period beginning from the date on which the capital was borrowed for acquisition of assets till the date on which such assets was put to use shall not be allowed as deduction."

9. The petitioner filed objection on

26.05.2021 against the impugned notice

raising objections on various grounds.

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10. Respondent however, vide order dated

26.02.2022 rejected the objections raised

by the petitioner. Respondent also issued

show cause notice dated 14.03.2022 under

section 142(1) of the Act.

11. Being aggrieved by the impugned

notice, the petitioner has preferred the

present petition.

12. Learned advocate Mr. Dhinal A. Shah

for the petitioner submitted that the

impugned notice under section 148 of the

Act was issued beyond four years and the

petitioner has disclosed fully and truly

all material facts relevant for the

purpose of assessment.

13. It was further submitted that the

respondent did not have any other

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information except the audited balance

sheet and the details filed by the

petitioner during the course of regular

assessment.

14. It was submitted that relying on the

Note No.32 of the auditor's report, the

respondent could not have assumed

jurisdiction to reopen the assessment as

the petitioner had made entire disclosure

at the time of filing of the return and

therefore, the jurisdiction assumed by the

respondent Assessing Officer is based upon

mere change of opinion.

15. It was therefore, submitted that the

impugned notice is liable to be quashed

and set aside.

16. On the other hand, learned Senior

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Standing Counsel Mr. Varun K. Patel for

the respondent submitted that the impugned

notice is issued after taking into

consideration the fact that the petitioner

has already capitalised the construction

of check posts from the date it received

the provisional completion certificate

from the Engineer by Maharashtra State

Road Development Corporation and pending

receipt of notification from the

Government authorities to start

collection of user service fee, the

cost incurred including interest costs

from the date of capitalization of

check post till the notification to

collect user service fee ought to have

been capitalized by the petitioner

instead of claiming the same as revenue

expenditure and accordingly, there was

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an escapement of income to the extent

of Rs. 21.41 crores. It was therefore,

submitted that the respondent Assessing

Officer after taking into consideration

the fact that the petitioner has

claimed interest expense of Rs. 21.41

crores on capital borrowed for

construction of check post for which

the collection fee was not yet received

by the petitioner, the same ought to

have been considered as capital

expenditure during the course of

regular assessment. It was submitted

that this fact is not taken into

consideration by the Assessing Officer

while passing the order under section

143(3) of the Act and therefore, the

impugned notice is issued after

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analyzing all the facts and information

from the case record as per the reasons

recorded.

17. In support of his submission,

reliance was placed on the following

decisions :

i) In case of Salem Provident Fund

Society Ltd. v. Commissioner of Income-

tax reported in (1971) 82 ITR 367(SC).

ii) In case of Gruh Finance Ltd. v. Jt.

(Guj).

iii) In case of Bawabhai Singh v. DCIT

reported in 253 ITR 83.

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iv) In case of Hemjay Construction Co.

Pvt. Ltd. through Deenaben Yogeshbhai

Shah v. ITO rendered in Special Civil

Application No.19392 of 2018.

18. Reliance was also placed on

decision of Hon'ble Apex Court in case

of CIT v. Rajesh Jhaveri Stock Brokers

(P) Ltd. reported in (2007) 161 Taxman

316 (SC) wherein it is held that

reasons recorded or material available

on record must have nexus to the

subjective opinion formed by the

Assessing Officer regarding escapement

of income but when while recording the

reasons for belief formed, the

Assessing Officer is not required to

finally ascertain the factum of

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escapement of tax and it is sufficient

that only for the purpose of assumption

of jurisdiction, the Assessing Officer

is required to know or suppose that

income has escaped income. It was

therefore, submitted that it is well

settled that sufficiency and adequacy

of the reasons which have led to the

formation of belief by the Assessing

Officer that the income has escaped the

assessment cannot be examined by the

Court at this stage.

19. Having heard the learned advocates

for the respective parties and having

gone through the material placed on

record and on perusal of the audited

balance sheet and Profit and Loss

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account of the petitioner filed along

with return of income, it is

discernable that the petitioner has

disclosed fully and truly all material

facts including Note No. 32 by the

auditor to the effect that the

petitioner has capitalized construction

of check post but at the same time has

claimed interest of Rs. 21.41 crores

relating to interest cost without

corresponding no user service in the

statement of Profit and Loss account

during the year under consideration.

20. Considering such Note only, the

respondent Assessing Officer has issued

the impugned notice for reopening. It

is not in dispute that the case of the

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petitioner was under scrutiny and after

calling for information and considering

the material available on record, the

Assessing Officer passed the order

under section 143(3) of the Act. It is

also apparent from the facts of the

record that the impugned notice is

issued after four years and therefore,

as per the proviso to section 147 of

the Act, when the petitioner has

disclosed fully and truly all material

facts for the purpose of assessment and

assessment order is passed after

scrutiny under section 143(3) of the

Act, no action could have been taken by

the respondent Assessing Officer by

assuming jurisdiction to reopen the

assessment for the year under

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consideration.

21. Moreover in facts of the case the

consideration of issue as to whether

interest cost claimed by the petitioner

under section 37(1) is capital or

revenue expenditure is nothing but mere

change of opinion by the respondent

Assessing Officer while assuming

jurisdiction which is not permissible

in view of decision of Hon'ble Supreme

Court in case of Commissioner of Income

tax v. Kelvinator of India Ltd. reported in

(2010) 320 ITR 561(SC) wherein in such

circumstances, it has been held as under:

"2. A short question which arises for determination in this batch of civil appeals is, whether the concept of "change of opinion"

stands obliterated with effect from 1st April, 1989, i.e., after

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substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987?

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6. ............prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider, However, one needs to give a schematic interpretation to the words "reason to believe"

failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-

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assess. But re-assessment has to be based on fulfillment of certain pre- condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer....."

22. In view of the foregoing reasons

and considering the facts of the case,

the decision relied upon by the learned

advocate for the respondent would not

be applicable to the facts of the case

and the petition therefore, succeeds in

view of decision of Hon'ble Supreme

Court in case of Kelvinator of India Ltd.

(supra). The impugned notice dated

27.03.2021 issued under section 148 of

the Act along with consequential

proceedings are hereby quashed and set