TaxTMI 
TaxTMI 
2023 (1) TMI 181
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.... extraordinary jurisdiction of this Court. 3. The case of the petitioner is that it has filed its original return of income for the A.Y. 2011-12 on 27.09.2011 declaring total income at Rs.11,99,50,930/and the revised return of income was filed on 27.09.2012 declaring total income at Rs.12,02,45,130/-. The authority has selected petitioner's case for scrutiny and passed an assessment order in exercise of power under Section 143(3) of the Income Tax Act, 1961 (for short the "Act") dated 29.03.2014 assessing the income at Rs.13,64,40,534/-. Thereafter, the authority issued notice to petitioner under Section 148 of the Income Tax Act on 30.03.2016 and an order came to be passed thereafter under Section 143(3) read with Section 148 of the Act. 3.1. It is the case of the petitioner that later on, respondent issued impugned notice under Section 148 of the Tax Act on 29.03.2018 for re-opening the assessment for the A.Y 2011-12 and also supplied the reasons for reopening vide letter dated 04.07.2018. The petitioner assessee raised multiple contentions by way of objections on merit as well and requested to drop the reassessment proceedings vide its communication dated 17.10.2018. Later....
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....cate has drawn attention of this Court to Issue no. 1 which contains in paragraph 2 on page 37 of the part of the reasons for issuance of notice under Section 148 of the Act and has submitted that though details at length have been provided, the authority has chosen not to examine the same. In fact, page nos. 58 to 175 of the present petition compilation is consisting of documents which are self explanatory and clear answer to reason which has been given for re-opening, but surprisingly, the authority has conveyed without examining the said documents that there is nothing on record which may disallow the expenditure. In fact, though the documents were produced in large numbers as stated above, yet authority has said that there is nothing on record to indicate that TDS was deducted by the petitioner. The authority has not applied its mind by indicting to that extent, that petitioner assessee has not produced any proof of deduction of tax and deposits thereof, in the government account. Mr. Soparkar, learned Senior Advocate has then referred to few documents contained on record in Form No. 16A, reflecting right from page 169 onwards and has submitted that though there is a clear mate....
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....pany and as per the assessee the PSPL has MAT credit of Rs.42,12,285/- at the time of amalgamation and the assessee company has MAT credit of Rs.59,79,032/- for A.Y. 2010-11 and as such, MAT credit of Rs.42,12,285/does not pertain to assessee company, but to amalgamating company and as such, same was not allowable under Section 115JAA(1A) of the Act. For this reason, a specific explanation has been offered in the form of objection reflecting on page 43, whereby, by explaining and by referring to several decisions, it was conveyed that there is no prohibition or restriction under Section 115JAA with regard to carry forward and set off of MAT credit belonging to amalgamating company by the amalgamated company. For the purpose of explaining sume, assessee had relied upon several decisions including the decision delivered by the Karnataka High Court and had requested the authority to consider the same, but again as usual by brief paragraph contained in paragraph 3.4 entire objection is not dealt with at all and it has been mechanically submitted that even this opinion is not independent and it is nothing but mere production of reason, as can be apparently seen if compared with paragrap....
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....count for the year under consideration. 5.4. Mr. Soparkar, learned Senior Advocate has raised serious grievance with regard to this new issue which has been raised in the reasons for re-opening, by contending that letter of assessing officer dated 16.03.2018 which is made the base of this reason, a demand was raised to supply information related to it, but though the authority has relied upon certain material which had not been supplied and it has adversely affected the right of making or raising effective objection, which has clearly violated the well recognized principles of natural justice. Nonsupplying of such relied upon documents, as per the say of learned Senior Advocate, has given an impression that there is no tangible material available to re-open the assessment and as such, said issue is merely based upon presumption, assumption and suspicion without any concrete basis and hence, has reiterated that impugned order which has been passed is in gross violation of principles of natural justice. 5.5. Mr. Soparkar, learned Senior Advocate has further submitted that findings arrived at with regard to bogus bills to various concerns is not supported by any concrete materia....
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....nce is made to a decision in the case of GKN Driveshafts (India) Ltd., v. Income-Tax Officer & Ors., reported in 259 ITR 91 (SC) and has contended that order is illegal in view of this proposition. 5.8. He would also contend that yet on another issue also the order under challenge is liable to be quashed as it is violative of principles of natural justice inasmuch as the material which has been relied upon is not supplied though demanded and thereby it has affected the right of making effective representation or raising appropriate objections and for this purpose a reference is made to the decision in the case of Divya Jyoti Diamonds Pvt. Ltd., v. Income-Tax Officer reported in [2021] 439 ITR 471 (Guj.) (paragraphs 6 and 12). 5.9. Mr. Soparkar, learned Senior Advocate has further submitted that in such a situation, when the authority is mechanically reproducing the reasons and disposing of the objections, as if the authority has independently applied its mind, writ jurisdiction can be exercised since writ petition under Article 226 of the Constitution of India is maintainable and for canvassing such submission, a reference is made to a Constitutional Bench decision of the Hon....
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.... corrected by quashing and setting aside the impugned notice and order. 6. As against this, Mr. M.R.Bhatt, learned Senior Advocate appearing for the respondent has vehemently opposed the stand of the petitioner and has contended that while dealing with the objections, the authority has applied its mind and has formulated an opinion. It has been contended that while formulating the opinion about re-opening the assessment, merit is not to be examined at length and as such, whatever is submitted by the petitioner which having been considered, it is not open for the petitioner to contend that any irregularity has been committed. In fact, while disposing of the objections by order dated 18.10.2018, the material which has been brought before the authority has been verified, examined for the limited aspect to ascertain whether assessment done is to be reopened and prima facie opined about his belief and said subjective satisfaction is normally not subject matter of judicial review. 6.1. Mr. Bhatt, learned Senior Advocate has further submitted that sufficiency or inadequacy of reasons cannot be a ground to rush to this Court under Article 226 of the Constitution of India by the petit....
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....nce is made to a decision delivered by this Court in the case Inductotherm (India) (P.) Ltd., v. Deputy Commissioner of Income-Tax reported in [2013] 36 Taxmann.com 401 (Guj) (Paragraph 18). Yet another decision on this issue in the case of Olwin Tiles (India) (P.) Ltd., reported in (2016) 66 Taxman.com 8 (Guj) (Paragraph 10) and by referring to these judgments a contention is raised that reliance which has been placed by the learned Senior Advocate appearing for the petitioner on a decision reported in 359 ITR (supra) which is to the contrary would not be of any assistance and by referring to few observations contained therein, a contention is raised that no case is made out by the petitioner for quashing the impugned notice and order. 6.4. Mr. Bhatt, learned Senior Advocate has further submitted by referring to a detailed affidavit-in-reply filed by the authority attached to the petition compilation on page 301 onwards, and by referring to paragraph 4.4 he has submitted that objections relating to VAT/Service Tax as well as Tax and set off of MAT credit of amalgamating company, is factually incorrect. On the contrary, the assessee company claimed MAT credit of Rs.42,12,285/whi....
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.... the income has escaped from assessment and as such, a specific order is passed. Mr. Bhatt, learned Senior Advocate has further submitted that it is not correct on the part of the learned Senior Advocate appearing for the petitioner to submit that beyond four years as if nothing can be done by the department though there is enough material available on record about such income having escaped from assessment and there being non-disclosure of facts, by mere production of documents it would not be sufficient to hold that petitioner - assessee has disclosed before the authority these facts now revealed. In fact in view of specific letter on the fourth issue, it surfaced that assessment deserves to be reopened. That apart, a reference is made to Explanation-I of Section 147 of the Act then prevailing and to contend that mere production before the assessing officer of account books and other evidence from which the material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of foregoing provision and by making a reference to the said provision, it has been contended that mere production of books of ....
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....pplication No. 20585 of 2019. 16. In the case of Calcutta Discount v. ITO reported in [1961] 41 ITR 191 (SC). 17. In the case of CIT v. Chhabil Dass Agrawal reported in [2013] 357 ITR 357 (SC). 7. As against this stand, Mr. Soparkar, learned Senior Advocate in rejoinder has in addition to reiterating his submission already made has further relied upon few decisions to contend that order in question is not just and proper. He has submitted that whenever order for reopening assessment is passed by the assessing officer, it must reflect there has been application of mind and must be supported by appropriate reasons since reasons are part and parcel of decision making process, it must reflect in the actual decision itself and same not being visible from plain reading of the impugned order, it requires to be quashed. Except quoting verbatim reasons for re-opening, impugned order does not disclose independent application of mind and in any case, same is beyond the period of four years which is contrary to the statutory mandate itself. Hence, he submits that relief prayed for deserves to be granted. For this submission, a reference is made to the decision reported in ....
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....taxmann.com 309 (Guj). 15. Jagat Jayantilal Parikh [2013] 355 ITR 400 (Guj). 16. Sunrise Education Trust [2018] 92taxmann.com74 (Guj). 17. Giriraj Enterprise[2019] 102 taxmann.com 188 (Bom). Second Compilation 1. Banaskantha Dist. Co. Op. Milk Producers Union Ltd V. Assistant Commissioner of Income-tax 74 taxmann.com 42. 2 Judgment of Hon'ble Gujarat High Court in case of Kisan 20-33 Proteins (P.) Ltd 74 taxmann.com 219. 3 Judgment of Hon'ble Bombay High Court m case of-34-46 Shanti Enterprise 76 taxmann.com 184. 4 Judgment of Hon'ble Gujarat High Court m case of47-62 Anupam Rasayan India Ltd. 397 ITR 406. 5 Judgment of Hon 'ble Gujarat High Court in case of63-70 Gujarat State Board of School Textbooks 75 taxmann.com 281. 6 Judgment of Hon'ble Gujarat High Court in case of71-78 Prudent Finance (P.) Ltd. 389 ITR 488. 7 Judgment of Hon'ble Gujarat High Court in case of79 91 Meghmani Energy Ltd 389 ITR 281. 8. Judgment of Hon'ble Gujarat High Court in case of Premium Finance (P.) Ltd 73 taxmann.com 369. 9. Judgment of Hon'ble Gujarat High....
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..... The provisions of section 40(a)(ia) is squarely applicable and disallowance of Rs.209,60,183/- is to be made. Thus there is escapement of income to the tune of Rs.209,60,183/-. 3. As per Form 3CD, the accountant in clause 21B(bll) has clearly mentioned that VAT, sales tax and service tax do not pass through Profit and Loss Account. This means that assessee is not including such taxes in value of goods and services as income and not debiting any amount on account of payment of such taxes. It was however noticed that assessee has debited VAT (Rs.89,87,990/- & Service Tax (61,35,736) in P/L under the head other project expenses. As assessee has not accounted tax component in sales, expenditure on such payment was not includible as expenses. The method adopted by assessee of not crediting the tax component in sales but debiting such expenditure resulted in under assessment of income by Rs.1,51,23,726 (89,87,990 +61,35,736). 4. The assessee had claimed MAT credit ofRs.1,01,91,317/- of earlier years and reduced the tax liability to that extent by adjusting from its tax liability under normal provision of the Act. However, in F.Y, 2010-11, there was amalgamation of a c....
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....d in providing bogus bills. It has been indicated that M/s. Nila Infrastructure Ltd. has booked bogus expense of Rs.5,68,80,000/- during FY 2010-11 through SREPL. After going through the relevant orders and specific findings listed above, undersigned being jurisdictional AO of M/s Nila Infrastructure Ltd, is satisfied that income to the tune of Rs. 5,68,80,000/has escaped assessment. 8. In view of the above, total income to the tune of Rs.9,29,63,909/- (Rs.5,68,80,000/- 3,60,83,909/-) has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Therefore, I have reason to believe that income has escaped assessment for A.Y. 2011-12 to the tune of Rs.9.29,63,909/- and accordingly assessment is required to be reopened u/s 147 of the I.T. Act, 1961. Therefore, notice u/s 148 is required to be issued in case of M/s. Nila Infrastructure Ltd. for AY 2011-12." 10. Thereafter, said objection came to be disposed of on18.10.2018 (Annexure-E). Hence, petitioner is before this Court. 11. As could be seen from the reasons recorded for reopening and order dated 18.10.2018 disposing of the objections raised by the assessee for reopening of assessment are one....
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....the method adopted by the assessee of not crediting the tax component in sales, the debiting such expenditure resulted in under assessment of income of Rs.1,51,23,726/- is the ground. At the time of assessment itself, the assessee had disclosed that it was carrying on two (2) types of project namely (i) contract project and (ii) residential project. It has been explained by the assessee in its objections against the reasons recorded for reopening of assessment as under : "2.2 In this regard we are submitting herewith project wise details of service tax/VAT paid vide Annexure-2. It has been alleged that the assessee has debited the VAT/service tax expenses but tax component in sale was not considered. We wish to state that the assessee is doing two type of project one is contract project and second is residential project. With regard to contract project of Surat the assessee has paid Rs.38,25,124/-. The same shown separately as expenses and the gross amount is shown as income in the P&L Account. The copy of work order entered into with RJD Integrated Textile Park Ltd. is enclosed herewith vide Annexure-3 from which your good self will find that the said order is inclusive o....
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....malgamation of a company named Pearl Stockholding Private Limited (PSPL) with the assessee company and as per assessee, the PSPL had MAT credit of Rs.42,14,285/- at the time of amalgamation and assessee company had MAT credit of Rs.59,79,032/during assessment year 2010-11 and MAT credit of Rs.42,12,285/- was pertaining to amalgamating company and same was not allowable under Section 105JAA(1A) of the Act. The objections to the reopening on this issue has been objected to by the assessee by contending as under : "3.1. In this regard we submit that as per the computation of total income the assessee is eligible for the total MAT credit of Rs. 1,01,91,317/- however it has claimed set off of Rs. 51,34,156/- only in the year under consideration and not Rs.1,01,91,317/-. 3.2. It is further submitted that Amalgamation is a process wherein one or more companies merge into another company or two or more companies merge together to form a new company. All the property of the amalgamating company before amalgamation becomes the property of the amalgamated company by virtue of the amalgamation. Similarly, all liabilities of the amalgamating company before amalgamation become ....
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....may include assets and liabilities not recorded in the financial statements of the amalgamating company. [para 12 of AS-14] Under this method, if MAT credit of amalgamating company (irrespective of whether such credit is recognised as an asset in the balance sheet of amalgamating company or not) is taken over by the amalgamated company or if the consideration in respect of amalgamation includes consideration for taking over MAT credit in the scheme of amalgamation, the latter company recognises the same in its balance sheet. Thus, under both the types of amalgamation, the MAT credit of amalgamating company could be recognised as an asset in the balance sheet of the amalgamated company. MAT credit is thus an accounting derivative, It could be regarded as a 'capital asset' u's.2(14). On transfer of such capital asset in a scheme of amalgamation, it could be said that the amalgamated company becomes the owner, enabling it to carry forward and set off MAT credit: The principle underlying some of the provisions wherein deduction is attached to the undertaking and not to the owner thereof could also be extended to MAT credit. Therefore, it could be said that....
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....nsider the unabsorbed losses of the amalgamating company since the said meeting was conducted before the date of the order of the High Court approving the merger. For the same reason, the original return filed by the respondent on 30-10-2001 did not consider the unabsorbed losses of amalgamating company in the process of computation of book profits u/s. 115JB. After the approval of merger by the High Court, the respondent assessee revised its financial statements so as to consider the effect of amalgamation. The respondent assessee also filed a revised return wherein the unabsorbed losses of amalgamating company .remaining after setting off the same with the surplus of the assessee company was reduced in the process of computation of book profits u/s. 115JB. The Tribunal held that the assessee is eligible for set off based on the revised accounts. Considering the above decision wherein losses of amalgamating company were allowed to be set off by the amalgamated company in computing book profits u/s.115JB, one could contend that MAT credit of amalgamating company. could also be carry forward and set off by the amalgamated company u/s. 115JAA. 3.6. In VST Tillers and Tractor....
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....t off of MAT credit of amalgamating company in the hands of the appellant assessee being the amalgamated company. The Tribunal observed : "We have duly considered the rival contentions and gone through the record carefully. The Ld. CIT(A) while denying the benefit of taxes paid by M/s .. Charminar Breweries Ltd. (CBL) u/s.115JA has observed that M/s .. CBL was amalgamated with erstwhile SKOL and ceased to exist. Once the company ceases to exist then any benefit available to the company would not devolve upon the transferee company. For the above view CIT(A) has relied upon the decision of Hon'ble SC in the case of Sarawati Industries Syndicate 186 ITR 278. In our opinion Ld. first appellate authority has referred to this decision without context. The facts of that case are quite different. In that case, an assessee 'A' has paid certain amount to 'B' towards sales tax liability. 'B' who collected the sales tax from 'A' disputed the liability before the Sales tax Tribunal. During the pendency of the litigation 'A' ceased to exist and its business was taken over by 'C'. The Sales tax Tribunal decided the issue in favour of &....
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....10 Going by the rationale of S. 115 JAA, one could contend that the MAT credit of amalgamating company can be set off by the amalgamated company. One could contend that in the process of amalgamation, one company loses its identity and would be merged with the other company. It could be contended that MAT credit, if utilised by the amalgamated company, would not result in any excessive relief. Denial of carry forward and set off of MAT credit of an amalgamating company to an amalgamated company would be against the legislative intention and reasonable or purposive interpretation of S. 115JB and S. 115JAA. There would be no excessive relief or double deduction if amalgamated company is allowed to carry forward and set off MAT credit of amalgamating company. As explained earlier, MAT credit represents that portion of tax which was not actually payable by the company but has all the same been collected by the Government. [CIT v. Jindal Exports Ltd ., [2009] 314 ITR 137 (Del.)] If amalgamated company is denied the benefit of carry forward and set off of MAT credit of amalgamating company, it could be termed unauthorised collection of taxes by the Government. Reliance may be placed on t....
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....d that there was no prohibition or restriction under Section 115JAA with regard to carry forward and setting off of MAT credit belonging to amalgamating company by the amalgamated company, yet this fact has been completely ignored. In other words, there is no independent finding recorded for reopening and it is trite law that based on borrowed opinion, reopening of the assessment is impermissible. 16. One another reason which has persuaded the respondent authority to issue notice for reopening the assessment is traceable to the communication dated 16.03.2018 of the ITO, Ward 10(2), Kolkata, who has stated that during the course of the assessment under Section 143(3) read with Section 263 in the case of Solvent Real Estate Private Limited (SREPL) for assessment year 2011-12 addition of Rs.101,01,50,000/was made under Section 40(a)(ia) of the Act as the said entity had not deducted tax at source on sub-contract payments. The said assessment order which was challenged before the CIT (Appeals) has resulted in a finding being recorded by the appellate authority that SREPL had no genuine business and was engaged only in providing bogus bills to various concerns for commission. Thus, i....
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....e "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertain ed by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid." 18. Thus, it would emerge fro....