Sca/18343/2018 Of En Vision Enviro Engineers Pvt Ltd v. Income Tax Officer, Ward - 1(1)(2)

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/SPECIAL CIVIL APPLICATION NO. 18343 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ==========================================================1Whether Reporters of Local Papers may be allowedto see the judgment ?2To be referred to the Reporter or not ?3Whether their Lordships wish to see the fair copyof the judgment ?4Whether this case involves a substantial questionof law as to the interpretation of the Constitutionof India or any order made thereunder ?==========================================================EN VISION ENVIRO ENGINEERS PVT LTD VersusINCOME TAX OFFICER, WARD - 1(1)(2) ==========================================================Appearance:MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1MR NIKUNT RAVAL WITH MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAandHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 25/07/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned Senior Advocate Mr. TusharHemani assisted by learned advocate Ms. Vaibhavi Parikh for the petitioner and learned advocate Mr. Nikunt Raval with learned advocate Mrs. Kalpana K. Raval forthe respondents. 2.Having regard to the controversy involved inthis petition, with the consent of thelearned advocates for the respective parties,the petition is taken up for final hearing. 3.Rule returnable forthwith. Learned advocateMr. Nikunt Raval waives service of notice ofrule for the respondents. 4.The petitioner has preferred this petitionunder Article 226 of the Constitution ofIndia challenging the impugned notice dated 31.03.2018 issued under section 148 of theIncome Tax Act, 1961 (For short “the Act”)proposing to reopen the assessment for theAssessment Year 2011-2012. 5.Brief facts of the case are that the petitioner is a company incorporated underthe Companies Act, 1956 and is engaged in theactivityofpollutioncontrolandenvironmental engineering and consulting. Thepetitioner,duringtheyearunderconsideration i.e. Assessment Year 2011-2012,was also running and maintaining Bio-MedicalWaste treatment plant at Surat, Udaipur andRanchi. It is the case of the petitioner thatseparate books of accounts were maintainedfor the activities related to Bio-MedicalWaste treatment plant projects and incomearising from such projects was claimed asdeduction under section 80-IA of the Act. 5.1) The petitioner filed the originalreturn of income for the year under consideration on 29.09.2011. The petitionerlater on filed revised return of income on16.09.2012 declaring total income atRs.3,54,830/- after claiming of deduction ofRs. 1,39,88,951/- under section 80-IA of theAct. It is the case of the petitioner thatthe claim of deduction under section 80-IA ofthe Act appeared in the Tax Audit Report andwas also supported by Form No.10CCB but sincebook-profit of the petitioner as per theprovisions of section 115JB of the Act workedout to Rs.1,55,29,800/- and the MAT liability@ 18% on such book-profit was higher than thetax on total income under the normalprovisions, the petitioner's tax liabilitywas ultimately determined based on MATprovisions. 5.2) The case of the petitioner wasselected for scrutiny assessment and variousdetails and information were called for bythe Assessing Officer. Such details were dulyfurnished by the petitioner from time to timeand it is the case of the petitioner thatafterconsideringsuchdetailsanddocumentary evidence placed on record, thethen Assessing Officer consciously chose not 5.2) The case of the petitioner wasselected for scrutiny assessment and variousdetails and information were called for bythe Assessing Officer. Such details were dulyfurnished by the petitioner from time to timeand it is the case of the petitioner thatafterconsideringsuchdetailsanddocumentary evidence placed on record, thethen Assessing Officer consciously chose not to disturb the claim of deduction undersection 80-1A of the Act while framingassessment under section 143(3) of the Actvide order dated 28.02.2014. 5.3) The respondent thereafter issued theimpugned notice dated 31.03.18 under section148 of the Act, seeking to reopen the case ofthe petitioner for the year underconsideration. 5.4) The petitioner therefore, filed return of income on 26.05.2018 in response tothe notice issued under section 148 of theAct. The petitioner, also vide letter dated28.05.18, furnished a copy of such return ofincome and requested the respondent to supplycopy of reasons recorded for reopening theassessment. 5.5) The respondent, vide letter dated09.07.18, supplied the copy of reasonsrecorded for reopening the case of the petitioner. The reasons recorded by the Assessing Officer for reopening theassessment under section 147 of the Act readas under : “Please refer to the notice u/s 148 ofthe I.T. Act issued for A.Y.2011-12 andyour letter dated 28.05.2018 furnishingcopy of acknowledgement of Income Taxreturn for 2011-12 filed on 26.05.2018in response to notice u/s 148 of the Actand also requesting for copy of reasons recorded. 2. Further, Your request is consideredand the reasons recorded u/s 147 of theI.T. Act for reopening the case for A.Y.2011-12, is reproduced as under- "The assesses company filed its returnof Income for A.Y. 2011-12 on 29.09.2011and revised on 16.09.2011 declaringtotal income of Rs.3,54,830/- afterclaiming deduction of Rs.1,39,88.951- u/s. 80IA of the Act and shown Book Profitof Rs.1.55.29.800/- u/s.115JB of theAct. The case was selected for scrutinyand order u/s.143(3) of the Act wascompleted on 28.02.2014 by determiningtotal Income at Rs.5.39.000/&acceptingBook Profit u/s 115JB of the Act atRs.1.55.29,800/- The assessee companyhad paid tax u/.11518 of the Act. Duringthe year, the assessee was engaged inbusiness of Pollution Control &Environmental Engineers & Consultantsbusiness. 2. The case records of the assessee havebeen perused. On perusal of scrutiny ofP&L account, Balance Sheet, Computationof income, it is revealed that assesseehadclaimedthedeductionofRr.1.39,88.951/ u/s.801A (100% exemptionfrom tax) of the Act on profit earnedfrom Bio-Medical Waste (BMW) Projects.Further. It is noticed that whilecalculating the profit BMW project, someof the common expenses were notbifurcated between the main unit and BMWprojects. As there is no provision inthe Income Tax Act for apportionment ofcommon and indirect expenses between exempt (BMW) and non-exempted unit (mainunit), the common expenses were requiredto be apportioned on the basis ofturnover/sales being logical basis forapportioning of this expenses. Thedetails of turnover/sales of both theunits and major common expenses whichwere required to be apportioned toexempt unit is tabulated as below: It can be seen from the above that afterapportioning the common expenses betweenexempt unit and non exempt unit thetotal profit arrived by the BMW unit wasof Rs.78.58,902. As against this, theassessee had claimed Rs.1.39.88.591/- inreturn of income, resulting into moreprofits and consequent exempt income totheextentofRs.61.30.049/-(1.39.88,951-78.58,902) in the hands ofexempted unit and also escaped theassessment. exempt (BMW) and non-exempted unit (mainunit), the common expenses were requiredto be apportioned on the basis ofturnover/sales being logical basis forapportioning of this expenses. Thedetails of turnover/sales of both theunits and major common expenses whichwere required to be apportioned toexempt unit is tabulated as below: It can be seen from the above that afterapportioning the common expenses betweenexempt unit and non exempt unit thetotal profit arrived by the BMW unit wasof Rs.78.58,902. As against this, theassessee had claimed Rs.1.39.88.591/- inreturn of income, resulting into moreprofits and consequent exempt income totheextentofRs.61.30.049/-(1.39.88,951-78.58,902) in the hands ofexempted unit and also escaped theassessment. In view of above facts/materialavailable on records and after analyzingthe same, I have reason to believe thatincome of the assessee to the extent ofRs.61,30,049/- has escaped assessmentfor A.Y.2011-12 within the meaning ofsection 147 of the I.T. Act. 4. In this case a return of income wasfiled for the year under considerationand regular assessment w/s.143(3) wasmade on 27.02.2014. Since, 4 years fromthe end of the relevant year has expiredin this case, the requirement toinitiate proceedings u/s. 147 are reasonto believe that Income for the yearunderconsiderationhasescapedassessment because of failure on thepart of the assessee to disclose fullyand truly all material facts necessaryfor his assessment for the assessmentyear under consideration. It ispertinent to mention here that reasonsto belleve that income has escapedassessmentfortheyearunderconsideration have been recorded above(refer paragraphs 2 to 3 above). In this case more than four years havelapsed from the end of assessment yearunder consideration. Hence necessarysanction to issue notice u/s 148 hasbeen obtained separately from PrincipalCommissioner of Income Tax as per theprovisions of section 151 of the Act." 5.6) The petitioner, vide letter dated28.09.2018,raisedobjectionsagainst reopening of the assessment. 5.7) The respondent, however vide order dated 06.11.2018 disposed of the objections raised by the petitioner holding that thereopening is valid. 5.8) Being aggrieved by the impugnedorder, the petitioner has preferred thepresent petition. 6.Learned Senior Advocate Mr. Tushar Hemani forthe petitioner submitted that the impugnednotice issued by the respondent is patently bad, illegal, contrary to law and in grossviolation of the fundamental rights guaranteed to the petitioner under Article 14of the Constitution of India. 6.1) It was submitted that the assessment for the year under consideration was framed under section 143(3) of the Act and the sameis sought to be reopened beyond the period of four years from the end of relevant assessment year. It was submitted that anassessment framed under section 143(3) of theAct can be reopened beyond the prescribedperiod of four years from the end of therelevant assessment year if and only anincome chargeable to tax has escapedassessment by reason of failure on the partof the petitioner to make a return undersection 139 or in response to the noticeissued under sub-section 142(1) or section148 or to disclose fully and truly allmaterial facts necessary for his assessmentfor that Assessment Year. 6.2) It was submitted that there is no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. The claim of four years from the end of relevant assessment year. It was submitted that anassessment framed under section 143(3) of theAct can be reopened beyond the prescribedperiod of four years from the end of therelevant assessment year if and only anincome chargeable to tax has escapedassessment by reason of failure on the partof the petitioner to make a return undersection 139 or in response to the noticeissued under sub-section 142(1) or section148 or to disclose fully and truly allmaterial facts necessary for his assessmentfor that Assessment Year. 6.2) It was submitted that there is no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. The claim of deduction under section 80-IA of the Act wasduly disclosed by the petitioner in thereturn of income, Tax Audit Report and inForm No.10CCB. Therefore, there was nofailure on the part of the petitionerdisclose fully and truly all the materialsnecessary for assessment. Under suchcircumstances, the impugned notice issued bythe respondent under section 148 of the Actbeyond the period of four years from the endof the relevant assessment year deserves tobe quashed and set-aside. 6.3) It was submitted that the conditionprecedent for the purpose of resorting toreopening proceedings is that there must beescapement of any income chargeable to tax.In the absence of escapement of any incomechargeable to tax, it is not open for theDepartment to reopen the case. It wassubmitted that the petitioner’s total income was Rs.3,54,830/- whereas the book-profit interms of provisions of section 115JB of theAct was Rs. 1,55,29,800/- and the applicable rate of MAT on such book-profit was 18%during the year under consideration.Accordingly, MAT liability of the petitionerwas higher than tax liability under thenormal provisions and hence, the petitionerwas governed by the provisions of section115JB of the Act. It was submitted that evenif the entire addition proposed by therespondent (i.e. Rs.61,30,049/-) is made tothe total income of the petitioner, then alsothe tax liability on the same would still be less than the MAT liability i.e. thepetitioner would still be governed by theprovisions of section 115JB of the Act. Itwas submitted that since the petitioner hasalready paid much higher tax under theprovisions of section 115JB of the Act, therewould be no addition to the tax liability of the petitioner even if the addition proposedby the respondent is made. Thus, there is noescapement of income chargeable to tax. Itwas submitted that since the conditionprecedent for resorting to reassessment undersection 147 of the Act is not satisfied inthe case of the petitioner, reopening isunjustified. 6.4) Learned Senior Advocate Mr. Hemanisubmitted that no new tangible material hascome to the knowledge of the respondent afterframing of the assessment which could haveenabled him to have reason to believe thatincome chargeable to tax has escapedassessment in the hands of the petitioner.It was submitted that since no new tangiblematerial has come to the respondent afterframing of the assessment, it transpires thatthe case of the petitioner has been reopenedon the basis of audit objection raised by the audit party and it is a settled law that anassessment cannot be reopening based on auditobjection. 7.On the other hand, learned advocate Mr.Nikunt Raval for the respondent submittedthat no decision had been taken by AssessingOfficer on the issue raised in the reopeningassessment, as no discussion is made in theassessment order and had the decision beenmade by the Assessing Officer, the same wouldhave been mentioned in the order. Therefore,without any such discussion such claim of thepetitioner is meritless. audit party and it is a settled law that anassessment cannot be reopening based on auditobjection. 7.On the other hand, learned advocate Mr.Nikunt Raval for the respondent submittedthat no decision had been taken by AssessingOfficer on the issue raised in the reopeningassessment, as no discussion is made in theassessment order and had the decision beenmade by the Assessing Officer, the same wouldhave been mentioned in the order. Therefore,without any such discussion such claim of thepetitioner is meritless. 7.1) It was submitted that details givenby petitioner were shrouded in such a waythat true picture could not be ascertained.Therefore, the allegation of the petitionerthat reopening is beyond a period of fouryears and there is no failure on the part of the petitioner to disclose truly and fullyall material facts cannot be accepted. 7.2) It was submitted that in the presentcase notice under section 148 of the IncomeTax Act has been issued within six years,which is within the time limit given in Act.Moreover, as per section 148, the re-openingcan be done, with prior permission of the Pr.Commissioner of Income Tax if there is notrue disclosure. In the present case, the dueprocedure was undertaken as prior permissionof the Principal Commissioner of Income Tax,Surat-1 has been taken vide letter dated30.03.2018. It was submitted that theassessee had not fully disclosed facts asrequired during proceedings under section143(3) and therefore, reopening of theassessment was justified. 7.3) It was submitted that making of addition in income would result in re-calculation of available credit and thus ithas cascading effect on other years as alsocausing deduction in the year in question ofavailable audit. It was submitted that thepetitioner has not disclosed full and truefacts and has not factored the MAT credit re-calculation and therefore, the contention ofthe petitioner that there would be no effecton the taxability is devoid of facts andmisreporting of facts by the petitioner. Itwas therefore, submitted that reopening theassessment was justified. 8.Considering the submissions made by learnedadvocates for both the sides, it is not indispute that the assessment for the yearunder consideration i.e., Assessment Year2011-2012 which is sought to be reopened bythe impugned notice dated 31.03.2018 isclearly beyond a period of four years from the end of relevant assessment year. Onperusal of the reasons recorded for reopeningthe assessment, it nowhere reveals that theassessee has failed to disclose truly andfully all material facts relevant for theassessment. 9.The petitioner assessee availed the deductionunder section 80IA of the Act. On the basisof the audit report in Form 10CCB, thereasons assigned by the Assessing Officer toreopen the assessment questioning theapportionment of common expenses betweenexempted unit and non-exempted unit on thebasis of the total turnover of the petitionercompany was already considered during thecourse of the regular assessment undersection 143(3) of the Act. 10. Moreover, the petitioner assessee hasrelied upon the appellate order for the Assessment Year 2009-2010 dated 30.12.2013 topoint out that the books of accounts wereseparately maintained by the petitionerassessee consistently and the claim ofdeduction under section 80IA on similarmethod was accepted by the department inearlier years as well as in the immediatelypreceding Assessment Year 2010-2011 and aftertaking into consideration such facts, theAssessing Officer accepted the claim of the 10. Moreover, the petitioner assessee hasrelied upon the appellate order for the Assessment Year 2009-2010 dated 30.12.2013 topoint out that the books of accounts wereseparately maintained by the petitionerassessee consistently and the claim ofdeduction under section 80IA on similarmethod was accepted by the department inearlier years as well as in the immediatelypreceding Assessment Year 2010-2011 and aftertaking into consideration such facts, theAssessing Officer accepted the claim of the assessee in the regular assessment undersection 143(3) of the Act in the assessmentorder dated 28.02.2014 for the AssessmentYear 2011-2012. Thus, reopening theassessment is nothing but a mere change ofopinion on the part of Assessing Officer withregard to apportionment of common expensesbetween the exempted unit and non-exemptedunit vis-a-vis the quantum of deduction under section 80IA of the Act which was consistently accepted by the department and further, there was no change in the method ofclaiming the deduction and the petitioner hasworked out profit attributable to BMW projecton the basis of separate books of accountsmaintained in respect of different BMWtreatment plant and calculation and workingof eligible profit was truly and fullydisclosed in audit report in Form 10CCB alongwith Schedule which was duly filed along withthe return. 11.The Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC)has held as under: “2. A short question which arisesfor determination in this batch ofcivil appeals is, whether theconcept of "change of opinion"stands obliterated with effect from1st April, 1989, i.e., aftersubstitution of Section 147 of theIncome Tax Act, 1961 by Direct TaxLaws (Amendment) Act, 1987? xxxx6. …………prior to Direct Tax Laws (Amendment) Act, 1987, re-openingcould be done under above twoconditions and fulfillment of thesaid conditions alone conferredjurisdiction on the AssessingOfficer to make a back assessment,but in section 147 of the Act [witheffect from 1st April, 1989], theyare given a go-by and only onecondition has remained, viz., thatwhere the Assessing Officer hasreason to believe that income hasescapedassessment,confersjurisdiction to re- open theassessment.Therefore,post-1stApril, 1989, power to re-open ismuch wider, However, one needs togive a schematic interpretation tothe words "reason to believe"failing which, we are afraid,Section 147 would give arbitrarypowers to the Assessing Officer tore-open assessments on the basis of"mere change of opinion", whichcannot be per se reason to re-open.We must also keep in mind theconceptual difference between powerto review and power to re-assess.The Assessing Officer has no powerto review; he has the power to re-assess. But re-assessment has to bebased on fulfillment of certain pre-condition and if the concept of"change of opinion" is removed, ascontended on behalf of theDepartment, then, in the garb of re-opening the assessment, review wouldtake place. One must treat theconcept of "change of opinion" as anin-built test to check abuse ofpower by the Assessing Officer…..” 12.The Assessing Officer issued noticeunder section 148 of the Act only to make a roving inquiry into the facts which werealready considered by the Assessing Officerat the time of framing the originalassessment under section 143(3) of the Act.It appears that the Assessing Officer nowwants to re-verify the facts which is notpermissible to be an acceptable ground forexercising powers to reopen the assessment. 13.For the foregoing reasons, the impugnednotice dated 31.03.2018 issued under section148 of the Act by the respondent exercisingthe powers to reopen the assessment for theAssessment Year 2011-2012 is illegal andhereby quashed and set aside. As a 12.The Assessing Officer issued noticeunder section 148 of the Act only to make a roving inquiry into the facts which werealready considered by the Assessing Officerat the time of framing the originalassessment under section 143(3) of the Act.It appears that the Assessing Officer nowwants to re-verify the facts which is notpermissible to be an acceptable ground forexercising powers to reopen the assessment. 13.For the foregoing reasons, the impugnednotice dated 31.03.2018 issued under section148 of the Act by the respondent exercisingthe powers to reopen the assessment for theAssessment Year 2011-2012 is illegal andhereby quashed and set aside. As a consequence, order dated 06.11.2018 of theAssessing Officer disposing of the objectionsof the petitioner against the impugned notice is also quashed and set aside. 14.The petition succeeds and is allowed.Rule is made absolute to the aforesaidextent. No order as to costs. (N.V.ANJARIA, J) RAGHUNATH R NAIR (BHARGAV D. KARIA, J)