Wp/3011/2022 Of Maharashtra State Power Generation Company Limited v. Assistant Commissioner Of Income Tax, Circle-14(1)(1), Mumbai And 3 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 3011 of 2022. 1/10 … Mr. Niraj Sheth a/w. Mr. Gujan Kakkad i/by Mr. Atul K.Jasani for the petitioner. Mr. Suresh Kumar for the respondents. … CORAM : DHIRAJ SINGH THAKUR AND KAMAL KHATA, JJ. PRONOUNCED ON : 27TH JUNE, 2023. J U D G M E N T [PER: KAMAL KHATA, J.] 1.The challenge in this proceedings is to a notice undersection 148 of the Income-tax Act, 1961 (‘Act’) dated 26[th]March 2021 issued by Respondent No. 1 for reopening theassessment for the Assessment Year (AY) 2013-14 and theorder dated 21[st] March 2022, rejecting the objections raisedby Petitioner to the aforesaid notice. 2.Petitioner is a company engaged in the business ofgeneration of electricity for the State of Maharashtra. ThePetition relates to A.Y. 2013-14. 3.Petitioner filed its original return of income for A.Y.2013-14 on 20[th] November 2013 and the revised return ofincome on 20[th] March 2014. The Petitioner’s case wasselected for scrutiny. During the course of proceedingsvarious details that were sought were produced, including theStatement of Accounts with annexures and schedules. In noteno. 20 annexed to the accounts, details of “other expenses” inthe sum of 290,92,13,655/- was debited as ‘contribution₹towards assets not owned by company / CSR expenditure’and therefore been considered as ‘Revenue expenditure’ andcharged to ‘profit and loss’. It also contained Net Prior Period(gain) / loss of 163,08,92,252/- claimed as ‘normal business₹expenditure’ in computation of total income. On 30[th]December 2016 the Respondent No.1 passed an assessmentorder u/s 143 (3) of the Act for A.Y. 2013-14 whereindisallowance was made in respect of the claim of Prior PeriodExpenditure. Thereafter the audit department objected to theallowability of the expenditure of ₹.290,92,13,655/- andcomputed .87,27,64,095/- as potential loss of revenue as₹tax. 4.Respondent No.1 issued a notice under section u/s 148of the Act to reopen the assessment. Petitioner filed return ofincome in response to the said notice on 23[rd] April 2021 forA.Y. 2013-14 under protest vide email dated 26[th] April 2021.At the request of the Petitioner, almost after 8 months,reasons for reopening was supplied on 11[th] December 2021.Notices dated 3[rd] January 2022 and 22[nd] February 2022 wereissued u/s 142 (1) seeking various details to continueassessment proceedings. On 28[th] February 2022 thePetitioner objected to the proposed action by pointing out thatall material facts were fully and truly disclosed in the originalassessment and it was based on a change of opinion. Further,the reopening beyond four years was not based on anytangible material nor there was any escapement of income. 5.On 21[st] March 2022 the Respondent No. 2 passed anorder, rejecting objections raised by Petitioner and issued ashow cause notice along with draft assessment order seekingreply for completion of assessment. 6.Petitioner requested the Respondent no. 2 to keep theproceedings in abeyance and filed the present Petition,challenging impugned notice dated 26[th] March 2021 andimpugned order 21[st] March 2022. 7.Respondent No. 1 in its reply stated that the Petitionerhas an alternate efficacious remedy available. That theNational Faceless Assessment Centre (NFAC) had rejectedthe objections and passed order. It is stated that it wasevident from the records that the issue under considerationwas not examined by the AO during the course of regularassessment proceedings and the Petitioner had failed to fullyand truly disclose material facts in the original assessment. 6.Petitioner requested the Respondent no. 2 to keep theproceedings in abeyance and filed the present Petition,challenging impugned notice dated 26[th] March 2021 andimpugned order 21[st] March 2022. 7.Respondent No. 1 in its reply stated that the Petitionerhas an alternate efficacious remedy available. That theNational Faceless Assessment Centre (NFAC) had rejectedthe objections and passed order. It is stated that it wasevident from the records that the issue under considerationwas not examined by the AO during the course of regularassessment proceedings and the Petitioner had failed to fullyand truly disclose material facts in the original assessment. 8.By a further affidavit the Petitioner has brought to thenotice of this court that although ad-interim stay was grantedby this Court, on 30[th] March 2022 and communicated to theRespondent on the same day, the Respondent No.2 passed anassessment order u/s 147 r.w. s. 144B of the Act on 30[th]March 2022 thereby raising a demand of 234,55,83,250/-₹u/s 156 of the Act. The Respondent No. 2 also issued a notice dated 30[th] March 2022 u/s 274 r.w. section 271 (1) (c) of theAct for A.Y. 2013-14. Upon being noticed by this Court, at theinstance of the Petitioner, by an Order dated 4[th] April 2022the assessment order dated 30[th] March 2022 as well as theconsequent notices u/s 274 r.w. s. 271 (1) (c) were quashedand set aside. 9.Section 147 of the Act permits Respondent No.1 toreopen an assessment, provided he has reasons to believethat income has escaped assessment. However, the exerciseof such power is circumscribed by the first proviso. It is nowwell settled, with reference to the judgement of this Court inAcron Developers (P) Ltd. vs DCIT[1] that unless any incomehas escaped assessment by reason of failure on the part of theassessee to disclose fully and truly all material factsnecessary for assessment, the AO has no jurisdiction forreassessment. We find no failure to disclose fully and truly inthe present case. The reasons evince reliance on facts andfigures available in audited accounts. 1 135 taxmann.com 191 (Bom) 10.The criteria for reopening of assessment after a periodof four years are no longer res integra in view of thejudgement of this Court in the case of Ananta Landmark P.Ltd v Dy. CIT wherein this Court held that where assessmentwas not sought to be reopened on the reasonable belief thatincome had escaped assessment on account of failure ofassessee to disclose truly and fully all material facts thatwere necessary for computation of income but was a casewherein assessment was sought to be reopened on account ofchange of opinion of AO the reopening was not justified. It alsoheld that where primary facts necessary for assessment arefully and truly disclosed the AO is not entitled to reopen theassessment on a change of opinion. It was held that whileconsidering the material on record, when one view isconclusively taken by AO, it would not be open for the AO toreopen the assessment based on the very same material andtake another view. The judgment also holds that thedisclosure envisaged by the proviso is a disclosure of primaryfacts and where primary facts are fully and truly disclosed,the AO is not entitled to reopen the assessment on a change ofopinion. 11.Perusal of the reasons recorded by Respondent No. 1indicates that the Respondent No. 1 has relied upon facts andfigures available from the audited account. We find that NoteNo. 20 disclosed all material particulars, pursuant to whichan assessment order u/s 143 (3) was passed on 30[th]December 2016. Furthermore, the AO proceeded on thefooting that the entire expenditure of ₹ 290,92,13,655 wasCSR expenditure and disallowed it placing reliance onExplanation 2 to section 37(1) of the Act. This was insertedwith effect from 1[st] April 2015 for A.Y. 2015-16 and thereforenot in the statute during the year under consideration.Consequently, as held in the case of SGS India (P) Ltd. vsACIT[2] reopening based on provisions inserted subsequentlycannot be sustained. Various Courts have taken a view thatCSR expenditure is allowable u/s 37 (1) of the Act andinsertion of Explanation 2 to section 37 (1) operatesprospectively. Reliance is placed on Honda Motor Cycle andScooter India (P) Ltd. vs DCIT[3], Garden Reach Ship Builders& Engineers Ltd. vs PCIT[4], DCIT vs Great Eastern Energy 2 292 ITR 93 (Bom) 3 124 taxmann.com 81 (Del) 4 121 taxmann.com 386 (Kol) 8/10 Security Printing & Minting Corporation of India Ltd. vs ACIT[6]. 12.In our view, Explanation 1 will not be applicable as CSRexpenditure was incurred as required by section 135 of theCompanies Act, 2013 and its proposed disallowance wouldnot constitute an offense. 13.It appears that there was no tangible material availableon record to conclude that income had escaped assessment.The Apex Court in case of M.M. Aqua Technologies Ltd. vsCIT[7] has held that a provision in the Act, which is “forremoval of doubts” cannot be presumed to be retrospectiveeven where such language is used, if it alters the law as itearlier stood; and even if it is assumed that the saidamendment is retrospective, it cannot give rise to a failure onthe part of the Petitioner to disclose fully and truly materialfacts as held by this Court in the case of Voltas Ltd. vs ACIT[8.] 5 112 taxmann.com 412 (Del) 6 137 taxmann.com 72 (Del)7 [2021] 129 taxmann.com 145 (SC)7 [2021] 129 taxmann.com 145 (SC) 8 349 ITR 656 (Bom) 14.For the aforesaid reasons the AO has acted in excess ofthe limit of his jurisdiction to reopen the assessment in theexercise of powers under section 147 read with section 148 ofthe Act. Accordingly the Petitioner would be entitled tosucceed in this proceeding. 15.We, therefore pass the following order- i.The impugned notice dated 26[th] March 2021, theorder dated 21[st] March 2021, issued by RespondentNo.1 for A.Y. 2013-14 are quashed and set aside and theRespondents are prohibited from taking any furthersteps in respect thereto; ii.Rule made absolute in above terms. (KAMAL KHATA, J.) (DHIRAJ SINGH THAKUR, J.)