Reopening Invalid as Based on Issue Already Decided in Earlier Year: Gujarat HC

Venus Infrastructure And Developers Private Limited Vs DCIT (Gujarat High Court)

The case concerns a writ petition challenging the validity of a notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for Assessment Year 2016–17. The petitioner, a company engaged in construction and real estate development, had originally filed its return of income claiming deduction under Section 80IB(10) for a housing project named “Venus Parkland.” The return was processed under Section 143(1), and no scrutiny assessment was conducted.

Read SC Judgment in this case: SC Upholds Quashing of Reopening as Based on Overturned Earlier Disallowance

For an earlier Assessment Year 2012–13, the Assessing Officer had disallowed the same deduction on the ground that the project was not completed within the prescribed time limit. However, this disallowance was overturned by the Commissioner (Appeals) in 2019, who allowed the deduction in favour of the petitioner. The Revenue’s appeal against this decision was dismissed by the Tribunal in 2021.

Despite this, the Assessing Officer issued a notice under Section 148 dated March 31, 2021 to reopen the assessment for AY 2016–17. The reasons recorded for reopening relied on findings from the earlier assessment year, alleging that the project was not completed within the required timeline and that certain eligibility conditions under Section 80IB(10), including allotment restrictions and maintenance of separate books of account, were violated.

The High Court examined the reasons for reopening and noted that the Assessing Officer had based the action entirely on the earlier disallowance made for AY 2012–13. It observed that this disallowance had already been set aside by the Commissioner (Appeals) and affirmed by the Tribunal. Therefore, the very foundation for reopening the assessment did not survive.

The Court held that once the issue of eligibility for deduction under Section 80IB(10) had been decided in favour of the petitioner for the earlier year, the Assessing Officer could not rely on the same grounds to reopen assessment for a subsequent year. It found that the jurisdiction to reopen the assessment was improperly assumed, as the reasons recorded were no longer valid in light of appellate findings.

Accordingly, the High Court allowed the petition and quashed the notice issued under Section 148, setting aside the reopening proceedings for AY 2016–17. The rule was made absolute and the petition was disposed of.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. Heard learned advocate Ms. Vaibhavi Parikh for the petitioner and learned Senior Standing Counsel Mr. Varun Patel for the respondent.

2. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Varun Patel waives service of notice of rule for the respondent.

3. Having regard to the controversy involved which is in narrow compass, with the consent of the learned advocates for the 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 legality and validity of the notice dated 31.03.2021 issued under section 148 of the Income Tax Act, 1961 [for short ‘the Act’] for the Assessment Year 2016-17.

5. The petitioner-Company was engaged in the business of construction and development of real estate. It is the case of the petitioner that for the Assessment Year 2012-13, after scrutiny assessment, Assessment Order dated 27.05.2014 was passed under section 143(3) of the Act. One of the disallowance made therein was in respect of deduction claimed u/s. 80IB(10) of the Act for the project named “Venus Parkland” on the ground that the said project was not completed as on 31.03.2012 which was the prescribed time limit.

6. The petitioner challenged the Assessment Order for A.Y. 2012-13 before the Commissioner (Appeals) who, by order dated 31.07.2019, decided the issue of disallowance under section 80IB(10) of the Act in favour of the petitioner and allowed the deduction.

7. The respondent-Revenue preferred an appeal before the Income Tax Appellate Tribunal [for short ‘the Tribunal’] being ITA/1568/AHD/2019. The Tribunal, after verifying the facts on record, by order order dated 17.09.2021, upheld the order passed by the CIT(A) by recording the findings that the project was not completed within the prescribed time limit and dismissed the appeal filed by the Revenue.

8. For the Assessment Year 2016-17, the petitioner filed return of income u/s. 139(1) of the Act on 05.09.2016 after claiming deduction of Rs. 6,49,57,401/-under section 80-IB(10) of the Act.

9. It is the case of the petitioner that the petitioner also paid tax u/s. 115JB on book profit of Rs. 12,33,43,477/-. The case was assessed u/s. 143(1) of the Act determining total income of Rs. 5,49,78,570/- vide order dated 25.08.2017. The case was not selected for scrutiny. No assessment order u/s. 143(3) or 147 of the Act was passed.

10. Thereafter, the respondent issued impugned notice u/s. 148 of the Act for Assessment Year 2016-17 dated 31.03.2021 seeking to reopen the case of the petitioner after recording reasons for disallowance under section 80IB(10) is not allowable in view of the findings of the Assessing Officer for A.Y. 2012-13.

11. The reasons recorded for reopening are as under:

“ANNEXURE

1. Brief Details of the Assessee: The assessee company had filed its return of income u/s 139(1) of the Act for A.Y. 2016-17 on 05/09/2016 after claiming deduction u/s 80-IB(10) of the Act amounting to Rs. 6,49,57,401/-, The assessee company had also paid tax u/s. 115JB on book profit of Rs. 12,33,43,477/-. The case was assessed u/s. 143(1) of the Act determining total income of Rs. 5,49,78,570/- vide order dated 25/08/2017, The case was not selected for scrutiny and no assessment order u/s. 143(3) or 147 of the Act was passed.

2. Brief details of the information collected/received by the A.0.: As per the ITR filed by the assessee for the AY 2016-17 and on the verification of assessment proceedings u/s, 143(3) for the AY. 2012-13, the asseessee had claimed deduction u/s. 80-IB of the Act of Rs. 6,49,57,401/-in the year under question in relation to. its residential project namely, “Venus Parkland”. The residential project “Venus Parkland” was approved by local authority ie. AUDA on 30.03.2007. The residential project was approved by AUDA for the construction of total 860 units of various types such as A,B,C,D.

As per the Act, the said project (i.e.) the total of 860 units of this project should have been completed within 5 years from the end of financial year in which it was approved by AUDA i.e. on or before 31.03.2012. However on verification of the submissions made by the assessee with respect to assessment proceedings u/s. 143(3) of the Act for A.Y. 2012­13, it was found that the project “Venus Parkland” was not completed within the timelines as prescribed by the Act for claiming the deduction under section 80IB (10). The assesses had B.U. permission of only 480 units of type C & D in the project “Venus Parkland’, as on 31.03.2012. The assessee neither received B.U. permission for remaining 380 units/flats in the said project of total 860 units nor has filed any application to obtain the B.U. permission for remaining 380 units before AUDA. Furthermore, AUDA has stated in its letter dated 21.01.2014 that B.U. permission was not granted for the 380 units as remaining blocks were incomplete with respect to GDCR. Therefore, it can be seen that the residential project Venus Parkland was not completed as on 31.3.2012 as prescribed by the Act. It is pertinent to mention here that adhering to the timelines for completion of the project is one of the primary conditions for being eligible to claim deduction under section 80IB(10) of the Act.

3. Analysis of the information collected/received:

3.1 Furthermore, on verification of various submissions of the assessee submitted during the assessment proceedings u/s. 143(3) of the Act for A.Y. 2012-13, it is noticed that Shri Narsingh T Kanchandani, the principal key person of ATTCO International LLC, Dubai approached the assessee for “Venus Parkland” scheme and made block booking of 5 flats, depositing Rs. 1 Crore with the assessee in F.Y 2007­08. As per the eligibility conditions laid down in the I.T. Act for claiming deduction under section 80IB(10), one of the conditions is that not more than one residential unit in the housing project is allotted to any person not being an individual, and in a case where residential unit in the housing project is allotted to a person not being an individual, no other residential unit in such housing project is allotted to any of the following persons namely:-

i. the individual or the spouse or the minor children of such individual;

ii. the Hindu undivided family in which such individual is the karta;

iii. any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.

Therefore the provisions of the Act are very clear that not more than unit of the residential project can be allotted to any person. The assessee has violated even this eligibility condition to claim deduction under section 80IB(10) of the I.T.Act.

3.3 Also it is pertinent to mention at this juncture that as per the provisions of section 80IA(5) of the I.T. Act, it is mandatory to maintain separate books of account for eligible income, as if such business was the only source of income to claim deduction u/s. 80IB(10) of the Act.”

12. On perusal of the above reasons, it is clear that before the Assessing Officer have assumed the jurisdiction to reopen the assessment proceedings only on the ground that disallowance was made by the Assessing Officer in the Year 2012-13, the CIT(A), by order dated 31.07.2019, had already allowed such deductions and therefore, the respondent-Assessing Officer could not have assumed the jurisdiction to disallow deduction claimed by the petitioner under section 80IB(10) of the Act for the Assessment Year 2016-17 on the ground that the project was not completed as on 31.03.2012.

13. On the above factual scenario, the petition is allowed. The impugned notice dated 31.03.2021 for reopening is hereby quashed and set aside. The petition is disposed of. Rule is made absolute.