2025 (4) TMI 51 - HC - Income Tax

Notification revoking Section 80IA deduction approval upheld as valid despite petitioners' ultra vires challenge

The Bombay HC rejected petitioners' challenge to a 26 March 2014 notification that revoked their earlier approval dated 17 November 2006 for deductions ... Deductions u/s 80IA - Validity of notification dated 26 March 2014, which revoked the earlier approval notification dated 17 November 2006 - claim denied on account of rescinding the approval dated 17 November 2006 by the impugned notification dated 26 March 2014 - ITAT had prima facie observed that the rescinding of the earlier notification does not stand once the Central Government, through the Empowered Committee, had clarified that the assessee still holds approval for all the 14 units and their corresponding areas in the Industrial Park. Petitioners’ challenge to the impugned notification dated 26 March 2014 withdrawing or cancelling the earlier approval/notification dated 17 November 2006 proceeds on the premise that the impugned notification dated 26 March 2014 has been issued by the CBDT when the power for issuing such notification was never vested in the CBDT but was vested in the Central Government - HELD THAT:- Nothing to support the Petitioners’ contention about the impugned notification dated 26 March 2014 being ultra vires or otherwise incompetent. The issue involved in Ackruti City Ltd [2013 (4) TMI 488 - BOMBAY HIGH COURT]was entirely different, and based upon the observations in paragraphs 3 and 4, no case is made out to interfere with the impugned notification dated 26 March 2014. No other point was urged regarding the invalidity of the impugned notification dated 26 March 2014. The challenge to the letter / communication dated 03 February 2014, which was one of the grounds for issuing impugned notification dated 26 March 2014, is already abandoned or not pressed by the Petitioners. Accordingly, no grounds warranting interference with the impugned notification dated 26 March 2014. ITAT, however, recorded a finding of fact that even though the assessee had leased out five/four floors to a particular tenant, but the tenants are carrying on their operations as independent units and their activities are functionally different. Therefore, the Tribunal, applying the functional test, recorded a specific finding of fact that each unit occupying a different floor was an independent unit with independent facilities, instrumentation, power connection, door number and had other facilities to function independently. Therefore, Primal Projects (P) Ltd. [2020 (11) TMI 778 - KARNATAKA HIGH COURT] was a case where the ITAT had recorded specific findings of fact about the assessee successfully satisfying the functional test of having at least five independent units. It is in these circumstances that the Division Bench of Karnataka High Court refused to interfere with the ITAT’s order by observing that “whether or not the assessee has complied with the conditions laid down in the Scheme in order to enable it to claim deduction under S. 80-IA (4) (iii) of the Act is a pure question of fact.” The Division Bench of the Karnataka High Court also noted that the findings of fact recorded by ITAT had not been assailed by the revenue on the ground, and the same were perverse. Further the Division Bench noted that the revenue was even otherwise unable to demonstrate perversity in the record of the findings of fact. Accordingly, the Revenue’s Appeal against the ITAT’s order was dismissed. Again, nothing in the above decision would assist the Petitioners in sustaining the challenges raised in the present Petition. At this stage, a challenge to the notices seeking to reopen the assessment could be sustained only if the Petitioners make out a case of non-compliance with jurisdictional parameters. No such case was made out or even attempted to be made out. It is not for this Court to address merits or de-merits of assessment or re-assessment. At this stage, it is not for this Court to go into disputed questions of fact about whether the Petitioners complied with the conditions laid down in the Scheme or the approval granted to the Petitioners under the Scheme. Petitioners can raise all such factual aspects in the assessment/re-assessment proceedings. If the same are raised, there is no reason to presume that the same will not be considered following law. Mr Suresh Kumar contested Mr. Kacheria’s contention. Even the Revenue’s contentions are kept open because this is not the stage or the forum to decide such disputed and contentious issues involving adjudication into facts and legal issues dependent upon such facts. For all the above reasons, we are satisfied that no case is made out to interfere with the impugned notification dated 26 March 2014 or the impugned notices seeking to reopen the assessment. This Petition is therefore disposed of by rejecting the challenges raised by the Petitioners while directing Respondents 1 to 4 to consider the Petitioners’ representations, with due regard to the minutes of the Empowered Committee meeting dated 11 November 2014 and without being influenced by the rejection of the Petitioner’s challenges in this Petition. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the notification dated 26 March 2014, which revoked the earlier approval notification dated 17 November 2006, was validly issued by the Central Board of Direct Taxes (CBDT) or the Central Government.Whether the Petitioners complied with the conditions of approval for their Industrial Park under the Industrial Park Scheme, 2002, specifically the requirement to maintain a minimum of 14 units.Whether the notices for reopening assessments for the years 2007-08 to 2011-12 were legally valid.Whether the Petitioners were entitled to challenge the rejection of their amendment application dated 15 December 2011, and the subsequent communication dated 3 February 2014.Whether the Petitioners' representations against the impugned notification and notices should be considered by the Respondents.ISSUE-WISE DETAILED ANALYSIS1. Validity of the Notification dated 26 March 2014The legal framework involves Section 80IA (4) (iii) of the Income Tax Act, 1961, and Section 21 of the General Clauses Act, 1897. The Court interpreted that the notification was issued by the Central Government, not merely by the CBDT. The notification stated that the Central Government, through the Ministry of Finance, exercised its powers to rescind the approval granted to the Petitioners. The Court found that the notification was consistent with the powers conferred under the relevant statutes, and thus, the challenge to its validity was rejected.2. Compliance with Approval ConditionsThe Petitioners argued that they complied with the conditions of the approval, specifically maintaining the required number of units. However, they also sought an amendment to reduce the number of units from 14 to 6 due to mergers and amalgamations beyond their control. The Court noted contradictions in the Petitioners' stance and found that the factual determination of compliance was not suitable for resolution in this proceeding. The Court deferred to the ongoing ITAT proceedings for a factual determination.3. Legality of Reopening Assessment NoticesThe reopening of assessments was challenged on the basis that the impugned notification was invalid. The Court found that the jurisdictional parameters for reopening were met and that the Petitioners would have the opportunity to contest the merits during reassessment proceedings. The Court did not find grounds to interfere with the notices at this stage.4. Challenge to Rejection of Amendment ApplicationThe Petitioners abandoned their challenge to the communication dated 3 February 2014, which rejected their amendment application. As a result, the Court proceeded on the premise that this communication remained in effect, and the Petitioners' challenge to the notification based on this communication was unsustainable.5. Consideration of Petitioners' RepresentationsThe Court directed the Respondents to consider the Petitioners' representations against the impugned notification and notices, in light of the Empowered Committee meeting minutes, which suggested that the withdrawal of approval might be too harsh. The Court emphasized the need for a reasoned decision and an opportunity for the Petitioners to be heard.SIGNIFICANT HOLDINGSThe Court held that:The notification dated 26 March 2014 was validly issued by the Central Government, and the challenge to its validity was rejected.The determination of compliance with the approval conditions, specifically the number of units, involved disputed facts unsuitable for resolution in this proceeding. The ITAT was the appropriate forum for such determinations.The reopening notices met jurisdictional requirements, and the Petitioners could contest the merits during reassessment proceedings.The Petitioners' challenge to the rejection of their amendment application was abandoned, and the related challenge to the notification was unsustainable.The Respondents were directed to dispose of the Petitioners' representations within three months, considering the Empowered Committee's minutes and providing a reasoned decision.The Court concluded by disposing of the Petition, rejecting the challenges raised by the Petitioners, and directing the Respondents to consider the Petitioners' representations. The interim orders were vacated, and no costs were ordered.