Wp/1400/2022 Of Diamond And Gem Development Corporation Ltd v. The Assistant Commissioner Of Income Tax Circle-3(1)(1) And 3 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYDigitallysigned byPURTIPURTIPRASAD ORDINARY ORIGINAL CIVIL JURISDICTIONPRASADPARABPARABDate:2023.08.2414:37:25+0530WRIT PETITION NO. 1400 OF 2022 Diamond And Gem Development Corporation Ltd.….Petitioner V/s.The Assistant Commissioner ofIncome Tax Central Circle 3(1)(1) and Ors.…Respondents ---- Mr. Mandar Vaidya a/w Mr. Dhaval Shah for Petitioner.Mr. Akhileshwar Sharma a/w Ms. Shilpa Goel for Respondents-Revenue. ---- CORAM : K.R. SHRIRAM & FIRDOSH P. POONIWALLA, JJ. DATED : 18[th] AUGUST 2023 P.C. : 1.Petitioner filed return of income for Assessment Year 2013-14on 26[th] September 2013 disclosing total income of Rs.2,52,58,880/- undernormal provisions and under Section 115 JB of the Income Tax Act, 1961(the Act) at Rs.6,77,49,226/-. The assessment was completed under Section143(3) of the Act on 28[th] March 2016 declaring total taxable income as perthe returns filed by petitioner. 2.Petitioner received a notice dated 31[st] March 2021 underSection 148 of the Act stating that there were reasons to believe thatpetitioner’s income chargeable to tax for the Assessment Year 2013-14 hasescaped assessment within the meaning of Section 147 of the Act. Petitioner was provided with the reasons to believe in which it is recorded as under : ii. On perusal of record it is found that, the assessee company hadestablished a Diamond Industrial Park in Sachin District, Surat.This park in the year 1994 was made into Export Processing Zone.Government of India, Ministry of Commerce & Industry VideNotification dated 01.11.2000 granted approval to convert theSurat Export Zone into Surat Special Economic Zone (SURSEZ),which is the first private – owned SEZ in India. Further, on perusalof 10 CCB it is found that, the assessee had stated to havecommenced its operation from date of GOI’s notification dated 1[st]November 2000 and stated to claim deduction u/s 80IA from A.Y.2005-06 onwards. Thus, as per the Form 10CCB the assessee hadclaimed to have commenced its business in November 2000 muchbefore the date of recognition to 80IA(4)(iii) since commencementof operating and maintain SEZ was Nov. 2000 (as per Form 10CCB),not after the effective date 1[st] April 2001 as per the provisions ofsection 80IA(4)(iii) r.w.r. 18C of IT Rules. It is evident from theabove, though the assessee had set up and established the DiamondIndustrial Park in Sachin District, Surat in the year 1994, it startedclaimed deduction from 2005-06 which is much beyond the 15years from the commencement of the business. For the year underconsideration assessee claimed the deduction 80IA(4)(iii) atRs.4,42,65,519/- which was allowed based on the Form 10CCBsubmitted which resulted in under assessment of taxable income tothis extent. The Statutory Tax Audit report filed in Form No.10CCBsubmitted by assessee provides incorrect dates of establishment ofIndustrial Park. Therefore, the reason for under assessment oftaxable income is attributable to assessee and such underassessment occurred by the reason of omission on part of theassessee to disclose true and correct facts of the case. iii. Therefore, I have reason to believe that taxable income byvirtue of incorrect claim of ineligible deduction from income u/s.80IA(4)(iii) of the Act of an amount as stated in para ii above hasescaped assessment by the reason of omission on part of theassessee within the meaning of section 147 of the IT Act, 1961.Further this case is squarely covered under the provisions ofExplanation 1 to section 147 of the Act. Therefore, I am satisfiedthat this is a fit case to issue notice u/s. 148(1) r.w.s. 147 of the ITAct, 1961. 3.Petitioner filed its objections by a letter dated 8[th] July 2021.The objections were rejected by an order dated 4[th] February 2022. It is thisnotice and the order rejecting objections which are impugned in this petition. 4.Since pleadings are completed, with the consent of the counsel 3.Petitioner filed its objections by a letter dated 8[th] July 2021.The objections were rejected by an order dated 4[th] February 2022. It is thisnotice and the order rejecting objections which are impugned in this petition. 4.Since pleadings are completed, with the consent of the counsel we decided to dispose this petition at this stage itself. 5.The notice dated 31[st] March 2021 issued under Section 148 ofthe Act being for the Assessment Year 2013-14, more than four years haveexpired since the end of the relevant Assessment Year. Therefore, theprovisio to Section 147(1) of the Act would apply. As per the proviso nosuch reopening of assessment is permissible after expiry of four years fromthe end of the relevant assessment year unless there has been failure on thepart of assessee to truly and fully disclose all material facts required for theassessment. Having considered the reasons to reopen in our view there isno failure on the part of petitioner to truly and fully disclose any materialfacts. We say this because during the course of the original assessmentproceedings the Assessing Officer (A.O.) by a communication dated 16[th]February 2016 had specifically raised nine queries and the first three ofthem are related to the provisions of Section 80 IA of the Act and Form 10CCB. The queries read as under : 1. On perusal of the form 10CCB, it has been noticed that date ofcommencement of operation/activity is 01.11.2000. Please explain,how you are eligible for deduction u/s 80IA as per the provision ofI.T. Act with all supporting documents. 2. In respect of Deduction claimed u/s 80 IA of the Act. Pleasesubmit the details notes on your industrial activity, which come u/s80 IA. 3. Please submit the details working of deduction u/s 80 IA. 6.Assessee responded vide its letter dated 25[th] February 2016 andalso annexed to the said letter the approvals that it had received fromMinistry of Commerce and Industry. The A.O. considered these explanationsand proceeded to pass the Assessment Order. It is true that there is nodiscussion on this in the Assessment Order. The Division Bench of thiscourt in Aroni Commercials Ltd. vs. Deputy Commissioner of Income Tax2(1)[1] held that once a query is raised during the assessment proceedingsand assessee has replied to it, it follows that the query raised was a subjectof consideration of the A.O. while completing the assessment. It is notnecessary that the assessment order should contain reference and/ordiscussion to disclose its satisfaction in respect of the query raised. 7.We should also note that a notice to reopen had been issuedeven for Assessment Year 2006-07 and the reasons recorded therein areidentical to the reasons recorded for reopening for the year at hand, i.e., forAssessment Year 2013-14. In those reasons for Assessment Year 2006-07 itis stated that assessee was not eligible for deduction under Section 80IA asthe company had set up the EPZ notified by notification dated 31[st] May1994. As a background we must note that assessee had established businessand had received approval to set up EPZ, i.e., Export Processing Zone videnotification dated 31[st] May 1994. The Government of India, Ministry ofCommerce and Industry vide its letter dated 3[rd] March 2004 had informed 1 (2014) 44 taxmann.com 304 (Bombay) 7.We should also note that a notice to reopen had been issuedeven for Assessment Year 2006-07 and the reasons recorded therein areidentical to the reasons recorded for reopening for the year at hand, i.e., forAssessment Year 2013-14. In those reasons for Assessment Year 2006-07 itis stated that assessee was not eligible for deduction under Section 80IA asthe company had set up the EPZ notified by notification dated 31[st] May1994. As a background we must note that assessee had established businessand had received approval to set up EPZ, i.e., Export Processing Zone videnotification dated 31[st] May 1994. The Government of India, Ministry ofCommerce and Industry vide its letter dated 3[rd] March 2004 had informed 1 (2014) 44 taxmann.com 304 (Bombay) assessee that the EPZ was converted into a Special Economic Zone (SEZ)vide resolution dated 1[st] November 2000 but all the terms and conditionsmentioned in the Notification dated 31[st] May 1994 remained unchanged.Assessee under Section 80IA was entitled to claim deduction for any tenconsecutiveassessment out of the period of 15 years commencing from thedate the Notification dated 1[st] November 2000 was issued and assessee hasbeen claiming such deduction. In Assessment Year 2006-07 when thereasons to reopen was issued the A.O. had formed an opinion that assesseewas entitled to claim for 15 years only from 31[st] May 1994 and not from 1[st]November 2000. Assessee had filed the petition challenging the reopeningfor Assessment Year 2006-07 being Writ Petition No. 1915 of 2011. Duringpendency of this Writ Petition assessee received an order dated 13[th]December 2011 stating that the proceedings that were initiated underSection 147 of the Act for Assessment Year 2006-07 were dropped. In viewthereof assessee withdrew Writ Petition No. 1915 of 2011. Mr. Vaidyatherefore is justified in submitting that there can never be a case ofincorrect dates being stated in Form 10CCB by assessee as regardsestablishment of Industrial Park. 8.We agree with Mr. Vaidya that this is nothing but a case ofchange of opinion by the A.O. from that held earlier during the course ofassessment proceedings and this change of opinion does not constitutejustification and/or reasons to believe that income chargeable to tax hasescaped assessment. 9.We should also note that in the affidavit in reply filed throughone Ms. Jyothi Sharma affirmed on 24[th] April 2023 it is stated that thereassessment proceedings have been initiated in view of the objections/observations raised by the revenue audit. The law on that is quite settled.In every case the Income Tax Officer must determine for himself what is theeffect and consequences of the law mentioned in the audit note andwhether in consequence of the law which has come to his notice that he canreasonably believe that income has escaped assessment. The basis of hisbelief must be the law on which he has now become aware and the opinionrendered by the audit party in regard to the law cannot, for the purpose ofsuch belief, colour the significance of such law. The true evaluation of thelaw in its bearing on the assessment must be made directly and solely by theIncome Tax Officer. We have to note that the Income Tax Officer who hasissued the notice to reopen and who has recorded the reasons to believebased on which we would assume he has obtained approval under Section151 of the Act has chosen to suppress the fact that there were auditobjections raised. In the reasons to believe there is not even a whisper thatthere was any audit objection. He was duty bound to disclose that therewere audit objections and that he has now become aware of the law basedon which he can reasonably believe that income had escaped assessment. 10.In the circumstance, in our view the notice dated 31[st] March2021 and the order on objections dated 8[th] July 2021 are to be quashed andset aside which we hereby do. 11.Petition disposed. (FIRDOSH P. POONIWALLA, J.) (K.R. SHRIRAM, J.)