Adani Exports v. Income Tax Officer & 1

C/SCA/2120/2015 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 2120 of 2015 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAH Sd/- and HONOURABLE MR.JUSTICE S.H.VORA Sd/- ============================================= ============================================= ADANI EXPORTS....Petitioner(s) Versus INCOME TAX OFFICER & 1....Respondent(s) ============================================= Appearance: MR SN SOPARKAR, SR. ADVOCATE with MR B S SOPARKAR, ADVOCATE for PetitionerMRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 - 2============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH andHONOURABLE MR.JUSTICE S.H.VORA Date : 29/04/2015 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] By way of this petition under Article 226 of the Constitution of India, the petitioner has challenged the impugned notice dated 29.03.2014 (Annexure-A to the petition) issued by the Assessing Officer under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “Act”) to reopen the assessment for AY 2007-08 (Annexure-A1 to the petition) as well as the impugned notice dated 26.11.2014 (Annexure-A2 to the petition) issued by the proposed Commissioner of Income Tax, Ahmedabad05 – Revisional Authority by which in exercise of powers under Section 263 of the Act, the petitioner has called upon to show-cause why the assessment made under section 143(3) read with section 147 of the Act dated 25.06.2014 may not be treated as erroneous and prejudicial to the interest of the Revenue and by which the petitioner assessee has been called upon and/or required to show cause why the assessment may not be re-framed by making additions as suggested in the said show-cause notice. [1.1] At the outset it is required to be noted that Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner does not press the prayer challenging the impugned show-cause notice at Annexure-A2 dated 26.11.2014 issued by the Principal Commissioner of Income Tax, Ahmedabad-5 issued under Section 263 of the Act with a liberty to make appropriate submissions before the appropriate Authority who has issued the notice under Section 263 of the Act, if required. He has stated at the Bar that therefore, the present petition be restricted to challenging the notice dated 29.03.2014 issued under Section 148 of the Act by the Assessing Officer to reopen the assessment for AY 2007-08 only. [2.0] The facts leading to the present Special Civil Application and which are necessary for deciding the present Special Civil Application in nut-shell are as under: [2.1] That the petitioner assessee who according to the petitioner is a partnership firm and derives income from business of manufacturing and export of gold jewellery, which activities are carried out from the Special Economic Zone (SEZ), Surat filed the return of income for the AY 2007-08 on 24.10.2007 declaring income at Rs.309. The said return was [2.0] The facts leading to the present Special Civil Application and which are necessary for deciding the present Special Civil Application in nut-shell are as under: [2.1] That the petitioner assessee who according to the petitioner is a partnership firm and derives income from business of manufacturing and export of gold jewellery, which activities are carried out from the Special Economic Zone (SEZ), Surat filed the return of income for the AY 2007-08 on 24.10.2007 declaring income at Rs.309. The said return was processed under section 143(1) of the Act. It appears that subsequently the Assessing Officer noticed that the income chargeable to tax has escaped assessment on account of the failure on the part of the assessee to disclose full and true facts and therefore, the notice under section 148 of the Act dated 29.03.2014 was issued and served upon the assessee (notice dated 29.03.2014 is the subject matter of present Special Civil Application). That thereafter the petitioner participated in the reassessment proceedings and the Assessing Officer completed the assessment under section 143(3) of the Act read with section 147 of the Act and passed the reassessment order on 25.05.2014 dropping the proceedings which were initiated. That thereafter the Revisional Authority – Principal Commissioner of Income Tax, Ahmedabad-5 had issued the show-cause notice dated 26.11.2014 under section 263 of the Act having opined and satisfied that the reassessment order dated 25.05.2014 dropping the reassessment proceeding is erroneous and prejudicial to the interest of the Revenue. That after having been served with the show-cause notice under section 263 of the Act dated 26.11.2014 by which the petitioner has been called upon to show cause why the order dated 25.06.2014 dropping the reassessment proceedings be not considered as erroneous and prejudicial to the interest of the Revenue and by which the petitioner assessee has been called upon to show-cause as to why the assessment be not re-framed by making the additions as suggested in the said show-cause notice issued under section 263 of the Act, the petitioner has preferred the present Special Civil Application in the month of January 2015 initially challenging both the notices i.e. notice issued under section 148 of the Act dated 29.03.2014 and the subsequent show-cause notice issued under section 263 of the Act, however as recorded hereinabove, Shri Soparkar, learned Senior Advocate does not press the present petition to challenge the subsequent show-cause notice dated 26.11.2014 issued under section 263 of the Act and therefore, the challenge in the present Special Civil Application would be with respect to the notice dated 29.03.2014 issued under section 148 of the Act only. [3.0] Shri Soparkar, learned Counsel appearing on behalf of the petitioner has vehemently submitted that the notice under section 148 of the Act is absolutely bad and invalid inasmuch as it was at the instance of the audit party. It is submitted that as the initiation of the reassessment proceedings itself is / was bad in law and invalid, the subsequent reassessment order also cannot be sustained and the same deserves to be quashed and set aside. Application would be with respect to the notice dated 29.03.2014 issued under section 148 of the Act only. [3.0] Shri Soparkar, learned Counsel appearing on behalf of the petitioner has vehemently submitted that the notice under section 148 of the Act is absolutely bad and invalid inasmuch as it was at the instance of the audit party. It is submitted that as the initiation of the reassessment proceedings itself is / was bad in law and invalid, the subsequent reassessment order also cannot be sustained and the same deserves to be quashed and set aside. [3.1] Shri Soparkar, learned Counsel appearing on behalf of the petitioner has further submitted that at the time when the reassessment proceedings were initiated by issuing the notice under section 148 of the Act, there was no tangible fresh material except the incorrect audit objection regarding which even the Assessing Officer was not convinced and the objection was not accepted and was ultimately dropped. It is submitted that in these circumstances the initiation of reassessment proceedings under section 147 of the Act would be bad in law. It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the petitioner that even otherwise during all the subsequent years completed after thorough scrutiny, exemption under section 10AA of the Act was consistently allowed in similar facts and circumstances. It is submitted that therefore consistency of approach has to be adopted for the present assessment year also. In support of his above submissions, he has heavily relied upon the following decisions of the Hon’ble Supreme as well as different High Courts. 1. Radhasoami Satsang v. CIT[1992]193 ITR 321[1992]193 ITR 321 2. Taraben Ramanbhai Patel v. ITO [1995]215 ITR 323 (Guj.) 3. CIT v. N.P. Mathew (Decd.)[2006]280 ITR 44 (Kerala)[2006]280 ITR 44 (Kerala) 4. Director of Income Tax (Exemptions) v. Escorts Cardiac Diseases Hospital Society [2008]300 ITR 75Hospital Society [2008]300 ITR 75 [3.2] Shri Soparkar, learned Counsel appearing on behalf of the petitioner has relied upon the following decisions in support of his submission that as the initiation of reassessment proceedings is absolutely on the audit objection and/or on change of opinion without there being any tangible material and therefore, the same is impermissible and/or invalid. 1. Calcutta Discount Co. Ltd. v. Income-Tax Officer [1961]41 ITR 191 (Guj.)[1961]41 ITR 191 (Guj.) 2. Jagan Nath Singhal v. Deputy Commissioner of Income-Tax & Anr. [2000]242 ITR 554 (P&H)[2000]242 ITR 554 (P&H) 3. Commissioner of Income Tax v. Kelvinator of India Ltd.[2010]320 ITR 561 (SC)[2010]320 ITR 561 (SC) 4. Parixit Industries Ltd. v. Assistant Commissioner of Income-Tax [2013]352 ITR 349 (Guj.)[2013]352 ITR 349 (Guj.) 5. Synbiotics Ltd. v. Assistant Commissioner of Income-Tax[2015]370 ITR 119 (Guj.)[2015]370 ITR 119 (Guj.) [3.3] Shri Soparkar, learned Counsel appearing on behalf of the petitioner has further submitted that even at this stage i.e. after the concluded reassessment proceedings and after the reassessment order, petitioner can still challenge the reopening of the assessment. He has submitted that if the notice under section 148 is bad, it is bad for all times to come and therefore, it is bad for all times and all purposes and even despite the fact that the reassessment order is in his favour, the assessee can still challenge the initiation of the reassessment proceedings and/or reopening of the assessment. No other submissions have been made. Making above submissions and relying upon above decisions it is requested to allow the present Special Civil Application and grant the relief as prayed for. [4.0] Present petition is opposed by Mrs. Bhatt, learned Counsel appearing on behalf of the Revenue. made. Making above submissions and relying upon above decisions it is requested to allow the present Special Civil Application and grant the relief as prayed for. [4.0] Present petition is opposed by Mrs. Bhatt, learned Counsel appearing on behalf of the Revenue. Mrs. Bhatt, learned Counsel appearing on behalf of the Revenue has vehemently submitted that in the facts and circumstances of the case, now it is not open for the petitioner to challenge the notice under Section 148 of the Act and it is not open for the petitioner now to challenge the initiation of the reassessment proceedings. [4.1] It is submitted that as such after the notice under section 148 of the Act, the petitioner participated in the reassessment proceedings without raising any objection whatsoever with respect to the initiation of the reassessment proceedings. It is submitted that not only that, thereafter even the reassessment order has been passed. It is submitted that even at that stage also, the petitioner did not thought it fit to challenge the initiation of the reassessment proceedings. It is submitted that only thereafter when in exercise of powers under section 263 of the Act, the order of reassessment is taken under revision as it is found that the reassessment order is absolutely without application of mind and prejudicial to the interest of Revenue and only thereafter and having been served with the notice under Section 263 of the Act, now the petitioner has challenged the notice under Section 148 of the Act which in the facts and circumstances of the case is not permissible now. [4.2] It is further submitted by Mrs. Bhatt, learned Counsel appearing on behalf of the Revenue that to challenge the initiation of the reassessment proceedings is nothing but an afterthought and having realized and found and/or apprehending that in the proceedings now under section 263 of the Act, the reassessment order cannot be sustained. [4.3] It is further submitted by Mrs. Bhatt, learned Counsel appearing on behalf of the Revenue that even the exemption under Section 10AA of the Act was granted to the petitioner in the first year i.e. AY 2007-08 (year under consideration) without any scrutiny and the intimation under section 143(1) of the Act was given and in the subsequent years the same has been mechanically followed. It is submitted that therefore when the original assessment for AY 2007-08 was reopened, as such the AO was required to consider the issue/grant of exemption under Section 10AA of the Act in detail, however and instead the Assessing Officer in the reassessment proceedings also dropped the reassessment proceedings without considering the issue in detail. It is submitted that therefore when as such the reassessment order is in favour of the petitioner and which is now taken under revision by the Commissioner in exercise of powers under Section 263 of the Act, it is requested not to entertain the present petition challenging the notice under Section 148 of the Act. It is submitted that therefore none of the decisions which have been relied upon by the learned Counsel appearing on behalf of the petitioner in support of challenge to the notice under Section 148 of the Act would be applicable to the facts of the case on hand and/or shall be of any assistance to the petitioner. [5.0] Heard learned Counsel appearing on behalf of respective parties at length. At the outset it is required to be noted that now the only challenge in the present petition is the notice under Section 148 of the Act to reopen C/SCA/2120/2015 JUDGMENT [5.0] Heard learned Counsel appearing on behalf of respective parties at length. At the outset it is required to be noted that now the only challenge in the present petition is the notice under Section 148 of the Act to reopen C/SCA/2120/2015 JUDGMENT the assessment for AY 2007-08 i.e. the notice dated 29.03.2014. However, it is required to be noted that the petitioner filed the return of income on 25.10.2007 for AY 2007-08 claiming the exemption under Section 10AA of the Act of Rs.72 Crores. It is required to be noted that for claiming the exemption under Section 10AA of the Act the AY 2007-08 was the first year. No scrutiny notice was issued and the AO accepted the return filed by the petitioner - assessee by sending the intimation under Section 143(1) of the Act and without any further inquiry in detail and/or even any discussion on the issue with respect to the exemption claimed under section 10AA of the Act, and accepted the return and allowed the exemption under Section 10AA of the Act claimed by the assessee. That by notice dated 29.03.2014, the assessment for AY 2007-08 was reopened. That the petitioner assessee participated in the reassessment proceedings, initiated pursuant to the aforesaid notice dated 29.03.2014. At this stage it is required to be noted that the petitioner at that stage did not challenge the initiation of the reassessment proceedings and/or even the notice under Section 148 of the Act and he participated in the reassessment proceedings without raising any objection whatsoever. That the Assessing Officer by order dated 25.06.2014 dropped the assessment proceedings for AY 2007-08, pursuant to the notice under Section 148 of the Act on 29.03.2014, by a one line order which reads as under: “-Order dropping reassessment proceedings In this case, the re-assessment proceedings initiated by way of issue of notice u/s.148 of the I.T. Act on 29.03.2014 is hereby dropped.” [5.1] It is required to be noted at this stage that even at that stage also the petitioner did not challenge the notice under Section 148 of the Act dated 29.03.2014, obviously because the reassessment proceedings were dropped. That thereafter the Commissioner has issued the show-cause notice under Section 263 of the Act on 26.11.2014 and has taken the order of reassessment dated 25.06.2014 under suo moto revision. It appears that having realized and/or apprehending that the one line order of reassessment dated 25.06.2014 cannot be sustained and/or has no legs to stand, as an afterthought now the petitioner has challenged the notice under Section 148 of the Act. At this stage it is required to be noted that initially the petitioner challenged the notice under Section 148 of the Act dated 29.03.2014 as well as the show-cause notice under Section 263 of the Act dated 26.11.2014, however for the reasons best known, the petitioner has restricted the present petition with respect to challenge to the notice under Section 148 of the Act dated 29.03.2014 only. [5.2] Considering the aforesaid facts and circumstances of the case and in the facts and circumstances of the case narrated hereinabove, the petitioner now cannot be permitted to challenge the notice under Section 148 of the Act and initiation of the reopening of the assessment for AY 2007-08. Having participated in the reassessment proceedings without challenging the reassessment proceedings and/or reopening of the assessment for AY 2007-08 and thereafter the reassessment order in favour of the petitioner and thereafter the show-cause notice under Section 263 of the Act dated 26.11.2014 by which the reassessment order dated 25.06.2014 is taken under revision, thereafter now it is not open for the petitioner to challenge the notice under Section 148 of the Act and/or reopening of the assessment for AY 2007-08, as the same is malafide and nothing but an afterthought. It is required to be noted that if the reassessment order dated 25.06.2014 was not taken under revision by the Commissioner under Section 263 of the Act, naturally the petitioner would not have challenged the notice under Section 148 of C/SCA/2120/2015 JUDGMENT the Act. At the cost of repetition it is required to be noted that the reassessment order dated 25.06.2014 is a one line order reproduced hereinabove and there is no application of mind by the Assessing Officer with respect to the issue / claim under Section 10AA of the Act claimed by the assessee and which was accepted by the Assessing Officer earlier. [5.3] At this stage it is also required to be noted that AY 2007-08 was the first year with respect to claim under Section 10AA of the Act and the Assessing Officer without any further discussion and/or considering the exemption claimed under Section 10AA of the Act in detail accepted the return filed by the assessee and sent the intimation under Section 143(1) of the Act. There was no scrutiny assessment under Section 143(3) of the Act at the time of original assessment. That is how the assessment for AY 2007-08 was reopened for which the notice under Section 148 of the Act dated 29.03.2014 was issued. However, again without any application of mind by the Assessing Officer and without any further discussion with respect to the exemption under Section 10AA of the Act claimed by the assessee and/or any further discussion on the aforesaid issue, by passing one line order the Assessing Officer has dropped the reassessment proceedings, which has given rise to the show-cause notice by the Commissioner under Section 263 of the Act. Under the circumstances, none of the decisions relied upon by the learned Counsel appearing on behalf of the petitioners in support of his submission challenging the notice under Section 148 of the Act are required to be considered and/or none of them shall be applicable to the facts of the case on hand. As observed hereinabove, once having participated in the reassessment proceedings without challenging the notice under Section 148 of the Act and thereafter reassessment proceedings are dropped and thereafter a show-cause notice has been issued by the Commissioner taking the reassessment order [which is a one line order] under revision, in such facts and circumstances of the case, it is not open for the petitioner now to challenge the notice under Section 148 of the Act. As observed hereinabove, it is nothing but a malafide and an afterthought. Therefore, in the facts and circumstances of the case, petitioner now cannot be permitted to challenge the notice under Section 148 of the Act. one line order] under revision, in such facts and circumstances of the case, it is not open for the petitioner now to challenge the notice under Section 148 of the Act. As observed hereinabove, it is nothing but a malafide and an afterthought. Therefore, in the facts and circumstances of the case, petitioner now cannot be permitted to challenge the notice under Section 148 of the Act. [5.4] Now, so far as the submission of Shri Soparkar, learned Counsel appearing on behalf of the petitioner that in subsequent years the benefit/exemption under Section 10AA of the Act has been allowed by the Assessing Officer and therefore, on the principle of Rule of Consistency, it is not permissible to open the issue with respect to exemption under Section 10AA of the Act with respect to the first year is concerned, the aforesaid has no substance. As observed hereinabove, in the first year i.e. AY 2007-08, the Assessing Officer accepted the return accepting the exemption under Section 10AA of the Act claimed by the assessee and sent the intimation under Section 143(1) of the Act, without any discussion on the issue / exemption under Section 10AA of the Act claimed by the assessee. As the same was allowed in the first year which was without any discussion at all and it was an intimation under Section 143(3) of the Act, in the subsequent years the Assessing Officers have mechanically allowed the exemption under Section 10AA of the Act claimed by the assessee. That does not mean that the exemption under Section 10AA of the Act allowed by the Assessing Officers in the first year, which was allowed without any further discussion and/or without applying any mind, cannot be reopened. The same can always be permitted to be reopened, however subject to the conditions being fulfilled under Section 147 of the Act. Under the circumstances, on the aforesaid ground, the notice under Section 148 of the Act cannot be quashed and set aside. However, as observed hereinabove, as such it is not open for the petitioner now to challenge the notice under Section 148 of the Act in the facts and circumstances of the case narrated hereinabove. [6.0] In view of the above and for the reasons stated above, present Special Civil Application fails and the same deserves to be dismissed and is, accordingly, dismissed. Rule is discharged. Ad-interim relief, if any, stands vacated forthwith. Sd/- (M.R. SHAH, J.) Sd/- (S.H. VORA, J.) Ajay