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 under Section 80IA. The court held that the notification was validly issued and not ultra vires, finding no grounds for interference. The petitioners' contention that CBDT lacked power to issue the notification was unsupported. The court distinguished the case from Ackruti City Ltd, noting different factual circumstances. While ITAT had observed that rescinding the earlier notification was questionable given the Empowered Committee's clarification, the HC determined that factual disputes regarding compliance with scheme conditions should be addressed in assessment proceedings rather than through this petition.

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ISSUES PRESENTED and CONSIDERED

The 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 ANALYSIS

1. Validity of the Notification dated 26 March 2014

The 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 Conditions

The 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 Notices

The 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 Application

The 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' Representations

The 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 HOLDINGS

The 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.

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