Case Law Details
Vialle Alternative Fuel Systems Pvt. Ltd. Vs ITO (ITAT Delhi)
The bone of contention is the amendment to section 115JB of the Act by the Finance Act, 2009 w.r.e 01.04.2001 by which Explanation 1 to the section has been inserted. The book profit u/s 115JB of the Act had to be reworked out.
Court has held that beyond a period of 4 years, retrospective amendment u/s 115JB of the Act could not be a ground for reassessment. Such legal proposition requires no authority of law.
We are of the considered view that all the relevant facts were available on record and it could not be said that at the time when the assessee filed return, he had failed to disclose fully and truly all material facts necessary for assessment because the amendment which was introduced retrospectively was not there.
The law cannot contemplate the performance of an impossible act. For this proposition, we draw support from the decision of the Hon’ble Jurisdictional High Court in the case of SIL Investment Ltd 339 ITR 166.
In light of the above judicial decisions and facts on record, we have no hesitation to hold that there was no failure on the part of the assessee to fully and truly disclose all material facts to justify the reopening of the completed assessment. Therefore, we set aside the notice dated 04.12.2012 issued u/s 148 of the Act and quash the same resulting into the quashing of the assessment order dated 22.03.2013 framed u/s 143(3)/148 of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is preferred against the order of the CIT[A] – 09, New Delhi dated 09.03.2015 pertaining to Assessment Year 2005-06.
2. The assessee has raised the following substantive grounds of appeal:
“1. The ld. CIT(A) has erred in upholding the order u/s 143(3) / 148. The appellant contends that there is no tangible material brought on record for alleging income escaping assessment. Consequently, the reassessment order is wrong and bad in law, illegal, arbitrary and without jurisdiction and has to be quashed.
2. The appellant contends that there is no omission or failure on the part of the assessee in disclosing full and true particulars of income. Hence, the reassessment is wrong and bad in lawand has to be annulled.
3. The re-assessment proceedings arebased on mere change of opinion on an already completed assessment u/s 143(3) and therefore are without jurisdiction and should be cancelled.
4. The CIT(A) has erred in law and on facts in disallowing the claim of performance warranty. The appellant contends that it is an ascertained liability and should be allowed.
5. CIT(A) has erred in confirming the order of the AO with regard to re-computing the book profit u/s 115JB by adding performance warranty and provision for deferred tax liability which is wrong and bad in law. Such adjustments are not contemplated under section 115JB and therefore should be deleted.
6. The appellant prays that the order of CIT(A) was received on 25.4.2017 and appeal filed is within time. However, as the CIT(A) order is dated 9.3.2015, the delay due to non-receipt of order may kindly be condoned for which assessee is enclosing a separate affidavit.”
3. The representatives of both the sides were heard at length, the case records carefully perused and relevant documentary evidence brought on record duly considered.
4. Briefly stated, the facts of the case are that vide order dated 19.12.2007, assessment was framed u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as ‘The Act’]. Total income of the assessee was computed as under:
| Net Profit as per Profit and Loss Account Add: | – | Rs. 12405954.00 |
| Depreciation as per Companies Act : Provision | – | Rs. 7050616.00 |
| for Leave Encashment , | – | Rs. 143121.00 |
| : Filing fees as discussed above : Telephone | – | Rs. 54950.00 |
| Expenses as discussed above Total | – | Rs. 52561.00 |
| Less: Depreciation as per Income Tax Act Total Income Less: | – | Rs. 19707202.00 |
| Brought Forward Losses | Rs. 7431953.00 | Rs.5163656.00 |
| : Unabsorbed Depreciation | Rs. 7111593.00 | Rs. 14543546.00 |
| Taxable Income | – | Rs. 14543546.00 |
| Unabsorbed Depreciation to be Carried Forward | – | |
| Assessment Year | – | |
| 2003-04 | – | Rs. 3930820.00 |
| Computation u/s 115JB (MAT) | – | Rs. 12405954.00 |
| Book Profit as per Profit & Loss Account Less: | – | Rs. 5442191.00 |
| Provision for Deferred Tax : Book Profit as per | – | Rs. 6963763.00 |
| MAT | – | |
| Tax Payable @7.5% | – | Ra 522282.00 |
| Surcharge @2.5% | – | Rs. 13057.00 |
| Education Cess @2% | – | Rs. 10707.00 |
| Total Tax Payable | Rs. 546046.00 | |
| As the tax is more on MAT, the tax on MAT is charged; | – | – |
| Give credit of TDS / Advance Tax | – | – |
| Assessed: Issue necessary forms. | – | – |
5. By a notice dated 04.12.2012, the Assessing Officer sought to reopen the assessment of the assessee for the year under consideration. The reasons given for reopening the assessment read as under:
“(i) The assessee debited Rs. 825000/- as provision for Performance Warranty to his profit and loss account This amount was also not added back while computing the income under special provision of the Act. These amount should be added back to the income of the assessee.
(ii) While making computations under special provisions of the Act, an amount of Rs. 5442191/- on account of deferred tax was reduced from the book profit as negative adjustment as per clause (a) of explanation of sub sec.(2) of the Act. This deduction was not admissible under section 115JB.
In view of the above facts, i have therefore, reason to believe that by reason of omission or failure on the part of the assessee to disclose truly and fully all material fact, necessary for assessment and by claiming wrong deductions, income chargeable to tax has escaped assessment.”
6. A perusal of the aforementioned reasons shows that there is no reference to there being any failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. In the balance sheet for the year ending 31.03.2005, there is a specific mention of provision for tax – current Rs. 7,45,000/- and deferred – Rs. 56,39,991/-
7. Further, under Schedule XXV, under “Selling and Distribution Expenses”, warrantee expenses have been shown at Rs. 25,41,040.61 which has been further bifurcated in schedule forming part of the balance sheet and profit and loss account and under ‘Warrantee Expenses’ performance warrantee of Rs. 8,25,000/- has been mentioned.
8. All these facts were available before the Assessing Officer when he framed the assessment order u/s 143(3) of the Act. It can be seen from the computation of total income mentioned elsewhere, the Assessing Officer has computed book profit as per MAT u/s 115JB of the Act.
9. The Hon’ble High Court of Gujarat in the case of Vodafone West Ltd 354 ITR 562 has observed as under:
“To confer jurisdiction on the Assessing Officer to issue notice of reopening of assessment beyond a period of four years, two conditions are required to be simultaneously satisfied : (i) that the Assessing Officer must have reason to believe that income, profits or gains chargeable to tax have been under assessed ; and (ii) that he must also have reason to believe that such underassessment has occurred by reason of either omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond a period of four years. Such duty would not extend beyond true and full disclosure of material facts. Once such primary facts are before the Assessing Officer, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell the assessing authority what inferences, whether of facts or of law, should be drawn.”
10. The bone of contention is the amendment to section 115JB of the Act by the Finance Act, 2009 w.r.e 01.04.2001 by which Explanation 1 to the section has been inserted. The book profit u/s 115JB of the Act had to be reworked out.
11. In the aforementioned judgment of the Hon’ble Gujarat High Court [supra] the Hon’ble High Court has held that beyond a period of 4 years, retrospective amendment u/s 115JB of the Act could not be a ground for reassessment. Such legal proposition requires no authority of law.
12. The Hon’ble High Court of Gujarat in the case of Danish Industries Ltd 271 ITR 340 has held and observed as under:
“It is true that when there is a statutory amendment with retrospective effect, the statutory amendment has to operate as if the law as amended was there on the statute book. However, as per the settled legal position the fiction is to operate within the field for which it is meant. Hence, if the proceedings were pending on April 1, 1986, when the statutory amendment was made, whether assessment proceedings or proceedings by way of appeal or revision or reference, Explanation 8 would have certainly operated. However, on the question whether the assessee had failed to disclose fully and truly all material facts necessary for assessment, it is obvious that when the assessee had filed its return in 1983 it could not have assumed that such a legislative amendment was going to be made in the year 1986 with retrospective effect from the year 1974. In the facts of the present case, it could never be said by any stretch of imagination that in the year 1983 when the assessee filed return claiming investment allowance on the capitalisation of interest paid after the date on which the machinery was first installed and put to use, the assessee had failed to disclose all material facts. On the contrary, the assessee would have got the benefit of the entire interest amount for the post-installation period as revenue expenditure which would have been much higher than the amount of investment allowance and depreciation allowance taken together.”
13. In light of the aforementioned decisions, we are of the considered view that all the relevant facts were available on record and it could not be said that at the time when the assessee filed return, he had failed to disclose fully and truly all material facts necessary for assessment because the amendment which was introduced retrospectively was not there.
14. The law cannot contemplate the performance of an impossible act. For this proposition, we draw support from the decision of the Hon’ble Jurisdictional High Court in the case of SIL Investment Ltd 339 ITR 166.
15. The Hon’ble High Court of Bombay in the case of DIL ltd 343 ITR 296 has held as under:
“Held, allowing the petition, that the reasons for reopening contained no reference to there being any failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. The primary requirement set out in the proviso to section 147 of the Income-tax Act, 1961, had not been fulfilled. That apart, it is evident that in so far as the diminution in the value of investment of Rs. 1.28 crores was concerned, clause (i) was inserted in Explanation 1 to section 115JB by the Finance (No. 2) Act, 2009, with retrospective effect from April 1, 2001. Clause (i) of Explanation 1 was introduced to include in the book profits the amount or amounts set aside as provision for diminution in the value of any investment. In view of the retrospective amendment, the Assessing Officer might have reason to believe that income had escaped assessment. But that in itself was not sufficient for reopening an assessment beyond the period of four years. Beyond the period of four years when an assessment is sought to be reopened, there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. In fact, the retrospective amendment would negate the inference sought to be drawn of the failure to disclose material facts. In so far as the business development expenditure of Rs. 10.79 lakhs was concerned, it was also evident from the order of assessment that the claim of the assessee was disallowed by the Assessing Officer and the amount was added back to the income. Similarly, in regard to the gratuity and superannuation as well, there was ex facie no failure on the part of the assessee to disclose the material facts. The reasons disclosed to the assessee on July 11,2011, in fact, merely indicated a reason to believe that income had escaped assessment. There was no reference whatsoever to the formation of an opinion that there was a failure on the part of the assessee to fully and truly disclose all material facts. Therefore, the basis on which the reopening was sought to be effected was contrary to law.”
16. In light of the above judicial decisions and facts on record, we have no hesitation to hold that there was no failure on the part of the assessee to fully and truly disclose all material facts to justify the reopening of the completed assessment. Therefore, we set aside the notice dated 04.12.2012 issued u/s 148 of the Act and quash the same resulting into the quashing of the assessment order dated 22.03.2013 framed u/s 143(3)/148 of the Act.
17. Before parting, the first appellate authority has referred to various judicial decisions in his order while upholding the assessment order. We find that all the decisions cited by the ld. CIT(A) are misplaced and not on the facts of the case in hand.
18. Since we have quashed the assessment order, we do not find it necessary to dwell into the merits of the case. Ground Nos. 1, 2 and 3 are allowed and the other grounds become otiose.
19. In the result, the appeal of the assessee in ITA No. 4134/DEL/2017 is allowed.
The order is pronounced in the open court on 20.01.2022.
