Bombay HC Quashes CBDT Order Over Unsigned Hearing & Withheld Field Report

Tata Autocomp Gotion Green Energy Solutions Private Limited Vs Central Board of Direct Taxes & Ors. (Bombay High Court)

Bombay High Court Quashes CBDT Order on Tax Concession: The Bombay High Court has set aside an order issued by the Central Board of Direct Taxes (CBDT) on December 5, 2023, which denied Tata Autocomp Gotion Green Energy Solutions Private Limited certain tax benefits under Section 115BAB of the Income Tax Act, 1961. The court ruled that the decision was procedurally flawed as it was not signed by the Member who conducted the personal hearing and relied on undisclosed reports from the Field Authorities, thereby violating principles of natural justice.

Tata Autocomp Gotion Green Energy Solutions, a joint venture between Tata Autocomp Systems Ltd. and China-based Hefei Guoxuan High-Tech Power Energy Co. Ltd., had faced delays in its foreign investment due to changes in India’s Foreign Direct Investment (FDI) policy and the COVID-19 pandemic. The company sought a lower corporate tax rate of 15% under Section 115BAB but missed filing Form 10-ID due to procedural delays. Consequently, it applied for condonation of delay under Section 119(2)(b) of the Act. However, the CBDT rejected this request without providing the company access to the Field Authorities’ reports that formed the basis of the decision.

The High Court found two major procedural lapses in the CBDT’s decision-making process. Firstly, the order was not signed by the Member who had granted a personal hearing, which was a procedural irregularity. Secondly, the CBDT relied on a Field Authorities’ report without sharing it with the petitioner, thereby violating natural justice principles. Citing these deficiencies, the court annulled the impugned order and directed the CBDT to provide all relevant documents to the petitioner and allow further submissions before passing a fresh, reasoned order.

The court referenced judicial precedents that emphasize the necessity of procedural fairness, including the Supreme Court’s ruling in Kanak Exports v. DGFT, where retrospective changes to government policies were deemed invalid. The High Court ruled that any new decision in this case must be authored and signed by the same Member of the CBDT who conducted the personal hearing, ensuring accountability in the process.

With this ruling, the matter has been remanded for reconsideration, keeping all rights and contentions of the petitioner open. The case highlights the importance of transparency and adherence to procedural norms in tax administration, particularly when dealing with foreign investments and policy amendments.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Petitioner is impugning an order dated 5^th December 2023 passed under section 119(2)(b) of the Income Tax Act, 1961 (“the Act”) passed by Respondent No.1 Central Board of Direct Taxes (“CBDT”).

2. Petitioner was set up to be a joint venture between Tata Autocomp Systems Ltd. (“Tata Autocomp”) and Hefei Guoxuan High- Tech Power Energy Co. Ltd. (“GOTION CHINA”), a company incorporated in the Republic of Petitioner was to be owned 60% by Tata Autocomp and 40% by GOTION China.

3. Subsequent to the incorporation of Petitioner and prior to the contribution to the share capital by the joint venture partners, the Foreign Direct Investment (“FDI”) policy came to be amended. The amendment provided that any entity of a country, which shares the land border with India can invest only under the Government Rule. The FDI investments, therefore, from such entity would require prior approval of the Government of India.

4. Petitioner applied to the Government of India on 12^th November 2020 seeking approval for allowing GOTION China to invest in Petitioner to the extent of 40% of the share holdings. The approval was granted on 6^th December 2021 subject to the terms and conditions specified therein.

5. Petitioner states that the need to take approvals and the COVID-19 pandemic which lasted in China for a longer period, on or about April/May 2022 Petitioner received the share capital from GOTION China and around the same time, Petitioner also contributed to the share capital. Petitioner also received approval from the Ministry of Corporate Affairs for the declaration for commencement of Commercial production started at the fag end of Financial Year (“FY”) 2022-23 and the first bill for sale was raised on 31^st March 2023.

6. Though Petitioner had not entered into any transaction for FY 2019-20 pertaining to Assessment Year (“AY”) 2020-21, Petitioner filed its  return  of  income  (“ROI”)  on  10^th  February  Subsequently, Petitioner filed its ROI for AY 2021-22 on 15^th February 2022.

7. For AY 2020-21 and 2021-22, Petitioner had not exercised the option to be governed by Section 115BAB of the Act, which Petitioner thought of exercising for AY 2022-23. Therefore, Petitioner filed, by way of abundant caution, an application under Section 119(2)(b) of the Act for condoning delay, if any, in filing Form 10-ID to avail the beneficial rate of tax of 15% under Section 115BAB of the Act for reasons mentioned in the application.

8. Petitioner was given a personal hearing on or about 19^th October 2023 by Member (IT&R), CBDT. Thereafter, the order dated 5^th December 2023, that is impugned in this petition came to be No affidavit in reply has been filed though petition was served on or about 8^th February 2023.

9. Mr. Sharma states he has recently been instructed to take over the matter and undertakes to file vakalatnama within one week. He is seeking some time to file a reply. Mr. Agrawal, on instructions, states petition was served on Respondents on or about 8^th February 2024 and, therefore, Respondents had almost six weeks to file a reply. We agree with Mr. Agrawal. Mr. Sharma states, the brief was earlier handed by Mr. Manwani, who has with effect from 6^th March 2024 also resigned from the Panel.

10. We have considered the impugned order which has been challenged on various grounds, but two points, which stand out are that firstly, the order has not been passed or signed by the Member who gave a personal hearing and secondly, in the order reliance has been placed on the report of the Field Authorities, which Agrawal, on instructions, states, has not been provided. Mr. Agrawal stated that such a report was received by CBDT and considered itself came to light only when Petitioner received the impugned order. Mr. Agrawal states that Petitioner’s officers were called by the ‘Field Authorities’. Their explanations were sought after which nothing was received by the Assessee from the Field Authorities. In our view, principles of natural justice would require that Respondent No.1 should have made a copy of the report received by them from the Field Authorities to Petitioner and given an opportunity to Petitioner to explain or show cause. We understand from Mr. Agrawal that even during the personal hearing, it was not informed to Petitioner that there was such a report.

11. Moreover, the order says, “This issues with the approval of Member (IT&R), Central Board of Direct Taxes” and is signed by one Virender Singh, Additional Commissioner of Income Tax (ITA Cell), CBDT, New Delhi. If a personal hearing has been granted by the Member (IT&R), the order should have been passed by him. Sharma states there could be file notings. If that is so, that has not been made available to Petitioner.

12. In the circumstances, on these two grounds alone, we quash and set aside the impugned order dated 5^th December 2023 and remand the matter to The Member/Members shall within three weeks from the date this order is uploaded make available to Petitioner all Field Reports/documents/instructions received by the CBDT from the Field Authorities and within two weeks of receiving the same, Petitioner shall file, if advised, further submissions in support of their application for condonation of delay.

13. Thereafter, an order shall be written, passed and that order shall be authored and signed by the Member of CBDT, who has given a personal hearing and when we say this, it is not the Member holding the same designation. The same individual who gave a personal hearing, shall write and sign the order. All rights and contentions of Petitioner are kept open. Before passing any order which shall be a reasoned order dealing with all submissions of Petitioner, a personal hearing shall be given to Petitioner, notice whereof shall be communicated at least seven working days in advance.

13. Petition disposed.