Case Law Details
Facets Gems Polishing Works Private Limited Vs DCIT (Gujarat High Court)
Conclusion: Re-opening of assessment on mere change of opinion without there being any live link or nexus with the material relied upon as during the regular assessment proceedings was not valid as AO had examined the claim under section 80IA(4)(iv) in detail by raising various queries which were duly answered by assessee.
Held: Assessee was engaged in diamond manufacturing, trading, and windmill power generation, had claimed deductions under sections 35DD and 80IA(4)(iv) during scrutiny assessment. Despite furnishing all details, AO issued a notice for reassessment, alleging income escapement related to the deduction under section 80IA. It was held that the reasons recorded for reopening would amount to mere change of opinion of AO without there being any live link or nexus with the material relied upon as during the regular assessment proceedings. AO had examined the claim under section 80IA(4)(iv) in detail by raising various queries which were duly answered by assessee. It was true that the specific query with regard to the issue pertaining to claim under section 80IA on account of amalgamation might not have been under consideration of AO however, the entire claim made by assessee for deduction under section 80IA was before AO which was processed while passing the assessment order under section 143(1)(3). Therefore, the notice for reopening issued beyond the period of four years could not be sustained.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
Heard learned Senior Advocate Mr. Tushar Hemani with learned advocate Ms. Vaibhavi Parikh for the petitioner and learned Senior Standing Counsel Mr. Karan Sanghani for learned advocate Mrs. Kalpana K. Raval for the respondent.
2. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Sanghani waives service of notice of rule on behalf of the respondent.
3. Having regard to the controversy involved which in a narrow compass with the consent of the learned advocates for the respective parties, the matter is taken up for hearing.
4. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 19.03.2020 issued under section 148 of the Income Tax Act,1961 [for short ‘the Act’] for A.Y. 2014-15.
5. The petitioner is engaged in the business of manufacturing and cut of polished diamond on job work basis and trading of diamonds and power generation through windmill.
5.1 During the Financial Year 2013-14 relevant to A.Y. 2014-15, the tax audit report of the petitioner contained various disclosures relating to deduction under section 35DD of the Act [i.e. amortization of expenditure in case of amalgamation or demerger], and deduction of Rs. 76,27,934/- under section 80IA(4)(iv) of the Act.
5.2 The petitioner filed return of income for A.Y.2014-15 on 25.09.2014 declaring total income at Rs. 2,76,59,430/- after claiming amalgamation expenses and deduction under section 80IA(4)(iv) of the Act.
5.3 Case of the petitioner was selected for scrutiny assessment. The Assessing Officer called for various details which were duly furnished by the petitioner. The Assessing Officer issued notice dated 19.04.2016 under section 142(1) of the Act calling upon the petitioner to provide copy of balance-sheet, Profit and Loss Account, Tax Audit Report etc. which were supplied by the petitioner vide letter dated 03.05.2016.
Thereafter, notice dated 19.07.2016 was issued under section 142(1) of the Act calling for explanation along with evidence in respect of deduction claimed under Chapter-VIA of the Act.
5.4 The petitioner by letter dated 08.10.2016 submitted the details of deduction claimed under Chapter-VIA. Thereafter, notice dated 15.11.2016 was issued under section 142(1) of the Act requiring the petitioner to furnish details pertaining to claim of deduction under section 80IA(4) and various other details. The petitioner, by letter dated 22.11.2016 furnished the details sought for by the Assessing Officer.
5.5 The Assessing Officer passed an assessment order under section 143(3) on 30.11.2016 making disallowance of Rs. 2,28,898/- in 20% of total expenses of Rs. 11,44,492/- comprising of factory expenses, Office and General expenses.
5.6 The respondent thereafter issued the impugned notice dated 19.03.2020 under section 148 of the Act to reopen the assessment of the petitioner for the year under consideration.
5.7 The petitioner in response to the said notice filed return of income on 05.05.2020 and further requested the respondent to supply copy of reasons recorded for reopening.
5.8 The respondent supplied copy of reasons for reopening along with notice dated 04.06.2020 issued under section 143(2) of the Act which reads as under:
“During the A.Y. 2017-18, the assessee company has claimed deduction u/s. 80IA for generation of the electricity through windmill. On verification of the details furnished by the assessee company, it has under gone the reconstruction and reorganization of the business under the scheem of amalgamation. It is evident from the order dated 23.03.2012, of the Hon’ble High Court of Gujarat M/s. FACETS POLISHING WORKS PRIVATE LIMITED amalgamated with the M/s. TIRUPATI ORAGANISERS PRIVATE LIMITED (now known as M/s FACETS GEMS POLISHING WORKS PRIVATE LIMITED). In the instant case, on perusal of the copy of the agreement, the above electricity generating unit was originally an enterprise or undertaking of M/s. FACET POLISHING WORKS PRIVATE LIMITED (the amalgamating company) and the same is transferred under the scheme of amalgamation or demerger with the assessee company viz. M/S. TIRUPATI ORGANISER PRIVATE LIMITED (now known as M/s. FACETS GEMS POLISHING WORKS PRIVATE LIMITED) w.e.f. 23.03.2012, to the assessee M/s. FACETS GEMS POLISHING WORKS PRIVATE LIMITED (amalgamated company). Under this situation, the provision of sub section 12 and 12A of Section 80IA of the Act has been triggered for the reason stated hereinabove.
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On perusal of the above circular issued by the CBDT as well as the provisions of the Income Tax Act, 1961 there is no doubt that the assessee company M/s. FACETS GEMS POLISHING WORKS PRIVATE LIMITED(Amalgamated) is formed vide Hon’ble High Court order dated 23.03.2012 and the has made a wrong claim under Chapter VIA of the Income Tax Act,1961 in the return of income filed for the A.Y. 2014-15.
The return of income filed for A.Y. 2014-15 and financial statements for the period have been perused. On perusal of the same it is noticed that the assessee company has claimed Rs. 76,27,934/- as deduction under Chapter VI-A. In view of the above facts/ material available on records and after analyzing the same, I have reason to believe that income of the assessee to the extent of Rs. 76,27,934/- has escaped assessment for A.Y. 2014-15 within the meaning of section 147 of the Income Tax Act,1961 as assessee has not made true and full disclosure of material facts.”
5.9 The petitioner, on receipt of the above reasons, raised objections vide letter dated 16.09.2020 wherein various factual as well as legal submissions were made with a request to drop the reassessment proceedings.
5.10 The respondent, by order dated 23.02.2021, disposed of such objections.
5.11 Vide order dated 23.03.2012 passed by this Court, M/s. Facets Polishing Works Pvt. Ltd. was amalgamated with M/s. Tirupati Organizers Private Limited which is now known as Facets Gems Polishing Works Pvt. Ltd i.e. the petitioner herein.
Being aggrieved, the petitioner has preferred this petition.
6. This Court [Coram: Hon’ble The Chief Justice Mr. Vikram Nath and Hon’ble Mr. Justice Bhargav D. Karia], by order dated 31.03.2021, have taken into consideration the submissions made by learned advocate for the petitioner that the impugned notice is issued beyond the period of four years and the reason for reopening pertaining to the deduction claimed under section 80IA(4)(iv) was already considered while passing regular assessment order.
7. Learned Senior Advocate Mr. Tushar Hemani for the petitioner submitted that the impugned notice for reopening is beyond the period of four years and there is no failure on the part of the petitioner to fully and truly disclose all the material facts necessary for the assessment of income.
7.1 It was submitted that during the course of regular assessment, claim of deduction of Rs. 76,27,934/- under section 80IA(4)(iv) of the Act is fully supported by the disclosure in the tax audit report and audited annual accounts, Form 10CCB and the return of income which were scrutinized by the Assessing Officer in detail before passing the order under section 143(3) of the Act. Learned Senior Advocate Mr. Hemani referred to various notices issued by the Assessing Officer and reply filed by the petitioner during the regular assessment proceedings to demonstrate that the issue of claim of deduction under section 80IA(4) was duly considered.
7.2 It was therefore submitted that the notice for reopening can be issued only if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and the words ‘reason to believe’ suggest that firstly the belief must be that of the Assessing Officer and secondly, it must be that of an honest and reasonable person based upon reasonable ground and not a mere change of opinion, suspicion, gossip or rumor and thirdly, there must be a live link or close nexus between the material before Assessing Officer and the belief he has formed regarding escapement of income. It was submitted that only such belief must lead to a conclusion that income has escaped assessment. However, in the facts of the case, the Assessing Officer has threadbare examined the issue of claim of deduction under section 80IA at the original assessment stage and hence, the respondent has no jurisdiction to issue the notice under section 148 of the Act.
7.3 It was submitted that no new information has come in possession of the respondent after the assessment order under section 143(3) of the Act was passed. It was submitted that the factum of amalgamation is disclosed from various documents such as Tax Audit Report, Audited Annual Accounts as well as computation of income and the order under section 143(3) is also passed in the name of the petitioner which is an amalgamated company.
7.4 Learned Senior Advocate Mr. Tushar Hemani submitted that there is no escapement of income chargeable to tax and even on merits, sub-section (12) and (12A) of section 80IA of the Act would not be applicable as the case is covered by sub-clause (b) of sub-section 12 of section 80IA of the Act,1961.
7.5 It was submitted that the deduction is already being availed in respect of an eligible undertaking under section 80IA of the Act and such eligible undertaking is transferred in the scheme of amalgamation or demerger will transferee company would not be eligible for claiming deduction for the remaining period i.e. unexpired period w.e.f. 01.04.2007. It was pointed out that in the facts of the case, deduction under section 80IA(4)(iv) of the Act was never claimed by the amalgamating company prior to amalgamation but the petitioner, which is an amalgamated company, has started claiming deduction from the Assessment Year 2013-14 i.e. after amalgamation. It was therefore submitted that provision of sub-sections (12) and (12A) would not be applicable since the eligible undertaking was not transferred during the period when the deduction was already being claimed by the amalgamated company. In support of his submissions, reliance was placed on the decision of this Court in case of Jivraj Tea Ltd vs. Assistant Commissioner of Income Tax reported in 2013 34 taxmann.com 199 Guj.
8. On the other hand, learned Senior Standing Counsel Mr. Sanghani for the respondent submitted that the petitioner has claimed the deduction under section 80IA(4)(iv) contrary to the provisions of the Act as such deduction was not available to the petitioner because it was noticed by the Assessing Officer during the assessment proceedings for A.Y. 2017-18 that one Windmill Enterprise i.e. power generating unit of the petitioner which was claimed as eligible unit for deduction under section 80IA(4)(iv) was not originally owned by the petitioner-company but the same was undertaking of the amalgamated company M/s. Facet Polishing Works Pvt Limited which is transferred under the scheme of amalgamation with the company earlier named as M/s. Tirupati Organizers Private Limited now known by the name of the M/s. Facets Gems Polishing Works Private Limited- the petitioner. It was pointed out that as per the Circular No. 3/2008 issued by the CBDT, the benefit of section 80IA(4)(iv) of the Act is not available if the eligible enterprise is transferred in the scheme of amalgamation or demerger on or after 01.04.2007.
8.1 It was therefore pointed out that the petitioner has claimed deduction under section 80IA by not making full and true disclosure of the material facts resulting into escapement of income to the tune of Rs. 76,27,934/-. It was therefore, submitted that the respondent has rightly exercised the jurisdiction to reopen the assessment beyond the period of four years.
8.2 Learned Senior Standing Counsel Mr. Sanghani submitted that during the regular assessment proceedings, the Assessing Officer has not formed any opinion on the issue under consideration for reopening and therefore, the same would not amount to change of opinion. It was submitted that mere furnishing of financials and details called for does not necessarily amount to disclosure within the meaning of proviso to section 147 of the Act.
8.3 Reliance was placed on the decision of the Hon’ble Bombay High Court in case of Dr. Amin’s Pathology Laboratory vs P. N. Parasad, Joint Commissioner of Income Tax and ors. reported in (2001) 252 ITR 673.
8.4 With regard to the contention of the petitioner that escapement of income chargeable to tax since even on merits and sub-section (12) and (12A) of Section 80IA of the Act would not be applicable in the present case. It was submitted by learned advocate for the respondent that tax benefit under section 80IA is not available to undertaking/enterprise of Indian companies undergoing amalgamation/demerger after 31.03.2007. It was therefore, submitted that the petitioner having undergone amalgamation after 31.03.2007, would not have availed the deduction under section 80IA of the Act.
8.5 It was submitted that sub-section (12) of section 80IA of the Act provides that any undertaking of an Indian company which is entitled to deduction under the said section is transferred before the expiry of period specified therein to another Indian company in a scheme of amalgamation/demerger, the provisions of section 80IA shall apply to the amalgamated or the resulting company as they would have applied to the amalgamating or demerged company if the amalgamation or demerger had not taken place. It was submitted that main intention in providing benefit under section 80IA was to provide incentive to those who had taken initial investment and entrepreneur risk and considering such intention, there was no justification for passing on the benefit to a company who had not taken such risk and had only acquired the eligible undertaking later on when the risk had reduced. It was further submitted that sub-section (12A) of section 80IA of the Act had inserted w.e.f. 01.04.2008 so as to provide that provision of sub-section (12) shall not apply to any undertaking or enterprise which is transferred in the scheme of amalgamation or demerger after 31.03.2007.
8.6 It was therefore submitted that in the return of income filed for the Assessment Year 2014-15, the petitioner has failed to make full and true disclosure by wrongly availing the claim of Rs. 76,27,934/- as deduction under section 80IA of the Act.
9. Having heard learned advocates for the respective parties and having considered the facts of the case, it appears that the observation of the Assessing Officer in the reasons recorded are based on the assessment records comprising Profit and Loss account, Balance-sheet, Tax audit report, Form 10CCB provided by the petitioner.
10. There is no case of the respondent that the petitioner did not submit full details pertaining to the claim for deduction under section 80IA. On the contrary, the petitioner along with the return, filed on statutory declaration in Form 10CCB, audited accounts and as such there is no failure on the part of the petitioner to fully and truly disclose all material facts relevant for the assessment.
11. In view of such undisputed facts, the reasons recorded for reopening would amount to mere change of opinion of the respondent without there being any live link or nexus with the material relied upon as during the regular assessment proceedings.
12. The Assessing Officer had examined the claim under section 80IA(4)(iv) in detail by raising various queries which were duly answered by the petitioner-assessee. It is true that the specific query with regard to the issue pertaining to claim under section 80IA on account of amalgamation may not have been under consideration of the Assessing Officer, however, the entire claim made by the petitioner for deduction under section 80IA of the Act was before the Assessing Officer which was processed while passing the assessment order under section 143(1)(3) of the Act.
13. In view of the above facts, we are of the opinion that notice for reopening issued beyond the period of four years cannot be sustained. In that view of the matter, it is not necessary to examine the rival contention with respect to validity or otherwise of the claim for deduction under section 80IA(4)(iv) of the Act.
14. In the result, the petition succeeds and is accordingly allowed. Impugned notice dated 19.03.2020 under section 148 of the Act is quashed and set aside and consequential order rejecting the objections is also set aside. Rule is made absolute to the aforesaid extent. No order as to costs.
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