9911796707
TMI Blog2023 (1) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 on, an order came to be passed on 25.10.2018 rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 material provided, the same has not been considered at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.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 paragraph 4 on page 37 to paragraph 3.4 on page 276 of the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 material and no such material is provided at least to the petitioner a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., 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'ble Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 petitioner since adequate remedial measure forum is very much available with the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner 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/which pertain to M/s. Pearl Stock Holding Private Ltd., an amalgamated company and as such, a categorical opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 accounts and relevant material is not sufficient enough to indicate that due diligence material has been placed ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand, 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 (2017) 390 ITR pg.10. Mr. Soparkar, learned Senior Advocate has further submitted that it is quite evident from the record that certain information obtained and relied upon has been secured behind the back of the petitioner and though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court in case of Reckitt Benckiser Healthcare India (P.) L 392 ITR 336." 8. Having heard the learned advocates appearing for the parties, we are of the considered view that following point would arise for our consideration : (i) Whether the notice dated 29.03.2018 issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2011-12 is liable to be quashed or sustained? REASONS, DISCUSSION AND FINDING OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company named Pearl Stockholding Pvt Ltd (PSPL) with the assessee company. Further, as per assessee, the PSPL has MAT credit of Rs.42,12,285/- at the time of amalgamation and assessee company has MAT credit of Rs.59,79,032/- of AY 2010-11, As MAT credit of Rs.42,12,285/- does not pertain to assessee company but to amalgamating company, the same was not allowable u/s 115JAA(IA) of the Act. 5. In view of the above, income to the tune of Rs.3,60,83,909/- (209,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and the same. As such, we have dealt with the said issues and before embarking upon such inquiry, it would be necessary to note that for reopening the assessment, the assessing officer (for short "AO") has to prima facie form an opinion of belief of escapement of income to tax by the assessee. In this background, when facts on hand are examined, it would disclose that first reason assigned for reopening the assessment concluded under Section 143(3) is that the assessee has debited Rs.4,48,56,594/- as interest and financial charges and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice 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 of all taxes. For example if Rs.100 is amount of work order which is inclusive of service tax. Then assessee is crediting Rs.100 in the income and debiting Rs.10 as expenses as service tax. Further, in residential project the assessee is paying service tax under abetment scheme and as per the said scheme the assessee is not eligible for any input credit and hence it has debited the amount of service tax charged for services received. For example if it has received services bill of Rs.110/which is inclusive of Rs.10 as service tax then the company is sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 the liabilities of the amalgamated company by virtue of the amalgamation. The definition of the term 'amalgamation' u/s.2(1B) of the Act also envisages the above requirement. It is a settled law that the term 'property' as employed in S. 2(1B) is a term of the widest import and, subject to any limitation which the context may require, signifies every possible interest which a person can clearly hold and enjoy. MAT credit which can be carried forward and set off has the potential of reducing the tax liability during subsequent years and therefore it po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on amalgamation the amalgamated company gets the right to carry forward and set off the MAT credit. 3.3. Various amendments were made to the Income-tax Act, 1961 by the Finance Act 1999 concerning tax implications of business reorganisations by way of amalgamation and demerger. The Finance Minister's speech in Budget 1999 [236 ITR (St.) 1] stated that a comprehensive set of amendments is being proposed to make business re-organisations fully tax neutral. In the speech the following was stated "it is proposed that all fiscal concessions will survive for the unexpired period in the case of amalga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 Tractors Ltd. v. CIT, ITA No. 588/Bang./2008, a decision of the Bangalore ITAT, VST Precision Components Ltd. ('VPCL or the amalgamating company'), a subsidiary of VST Tillers & Tractors Ltd. ('the assessee') amalgamated with the assessee under a scheme of amalgamation sanctioned by the Karnataka High Court. As per the sanctioned scheme, pursuant to the amalgamation, all assets and liabilities of VPCL would vest with the assessee. The sanctioned scheme inter alia provided that the unabsorbed losses and depreciation of VPCL shall be deemed to be losses and depreciation of the assessee as provided u/s.72 of the Act. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicate 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 'B' and held that no sales tax is payable. Accordingly 'B' returned the money to 'C'. This amount was sought to be taxed u/s.41(1) of the Act according to the provision as it existed in AY 1965 - 66. In the context the Hon'ble Supreme court has held that this amount is not taxable in the hands of 'C'. The ingredients provided in the definition of amalgamation is altogether different from the condition provided in S. 41(1) in A.Y. 1965-66. The assets and liabilities on the date of amalgamation of the amalgamating company would become assets and liabilities of the amalgamated company. If M/s. Charminar Breweries has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the decision in Escorts Lid. v. DCIT, (2007) 15 SOT 368 (Del.) wherein it was observed that if no credit of TDS is to be given to the payee/deductee, the Government would have no authority to treat the same as tax and Article 265 does not empower the Government to make any levy or collection of tax not authorised by law. 3.11. It is settled law that where strict literal construction leads to injustice or a 5 result not intended to be subserved by the object of the legislation, then an equitable construction should be preferred over the strict literal construction. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, it would clearly emerge from the above that the Assessing Officer has borrowed the view expressed by CIT (Appeals) for issuing the impugned notice. In fact, assessee has specifically contended in its objections that neither the order of CIT (Appeals) or the communication dated 16.03.2018 of the ITO was furnished to the petitioner. It is the opinion of the ITO, Kolkata and the finding recorded by CIT (Appeals) which perforced the AO to issue the impugned notice partakes the character of borrowed satisfaction and/or without there being independent finding recorded by AO for reopening of the assessment. In fact, Assessing Officer seems to have reopened the assessment to fish out evidence which is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 from the aforesaid discussion that there is no whisper in the impugned order as regards any failure on the part of petitioner to disclose fully and truly all material facts and as such it is not possible for this Court to infer any such failure on the part of the assessee from the reasons recorded. Petitioner had made adequate disclosures during assessment proceedings which is now sought to be reopened and particularly with reference to ground Nos.1 and 2 on which the respondent authority has proposed to reopen the assessment. 19. The first three grounds on which the Assessing Officer has proposed to reopen the assessment as could be discerned from the assessment order, was part of the scrutiny during the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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