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TMI Blog2023 (9) TMI 1624X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule absolute, thereby granting the petition in favor of the petitioner. - HONOURABLE MR. JUSTICE BIREN VAISHNAV AND HONOURABLE MR. JUSTICE BHARGAV D. KARIA MR B S SOPARKAR (6851) FOR THE PETITIONER MR NIKUNT RAVAL, ADVOCATE FOR MRS KALPANA K RAVAL (1046) FOR THE RESPONDENT ORAL ORDER (PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV) 1. By way of this petition, under Article 226 of the Constitution of India, the petitioner has challenged the legality and validity of the impugned notice dated 26.03.2019 issued under Section 148 of the Income Tax Act, 1961 (for short the Act ). 2. The case of the petitioner is that it is a company registered under the provisions of the Companies Act and most of the shareholders are citizens of India. The petitioner had filed its original return for assessment year 2012-13 on 20.09.2012 declaring total income of Rs. 17,41,26,150/-. The case of the petitioner company was selected for scrutiny and the assessment under Section 143(3) was finalized on 10.02.2015 determining total income at Rs. 17,45,89,780/-. Thereafter, the case was reopened pursuant to the provisions of Section 147 of the Act and the assessment under section 147 read with section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer and therefore reopening was not justified. 4. Mr. Nikunt Raval, learned Senior Standing Counsel appearing for the revenue would justify the notice and the reasons for reopening of the assessment. Reliance was placed on the affidavit-in-reply filed to submit that the opinion of the Assessing Officer on the basis of correct facts/law is a good basis for formation of belief of escapement of income. Since a new fact had been unearthed as a result of search regarding certain entities from whom the assessee company had benefited it cannot be said that the exercise of jurisdiction was bad. 5. We have considered the submissions made by learned counsel for the respective parties and perused the CAV judgement dated 02.01.2023 in the assessee s own case rendered by this court in Special Civil Application No. 16916 of 2018 for the assessment year 2011-12. The reopening of the assessment in the present case is for the assessment year 2012-13. The reasons to believe reproduced as Sr. No. 3 6 in Special Civil Application No. 16916 of 2018 when compared to the reasons to believe namely reasons no. 1 2 of the present case, except for the figures, the company being SECL in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e method adopted by assessee of not crediting the tax component in sales but debiting such expenditure result in concealment of income of Rs. 90,02,829/-. 5.1 The Division Bench of this court by the order of 02.01.2023, on examination of the reasons, held as under: FOR REASON 2 IN THE PRESENT PETITION, THE RELEVANT PARAGRAPHS OF REASONINGS IN SCA NO. 16916 OF 2018 ARE AS UNDER: 13. The second reason or second issue relates to reopening of the assessment is that as per Form 3CD in Clause 21(b)(bii), it was clearly mentioned that VAT, sales tax and service tax do not pass through P L Account, which means the assessee is not including such taxes in value and goods and service as income and is not debiting any amount on account of payment of such taxes. Though it was noticed that assessee has debited VAT of Rs. 89,87,990/- and service tax of Rs. 61,35,736/under the head Project Expenses , assessee having not accounted tax component in sales, expenditure on such payment was not includable as expenses. In other words, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem of accounting and rightly claim the service tax and VAT being paid out of pocket and or not eligible for input credit. 14. Thus, there was no suppression or withholding of information by the assessee at the time of framing of the assessment or during the assessment proceedings. The fact that assessee was paying VAT under the composition scheme and said scheme envisages payment of VAT/service tax on certain percentage of turnover cannot be disputed. In other words, assessee has followed the system of accounting rightly and claimed service tax/VAT. This issue though raised in the objections has been washed off or brushed aside without assigning any reason whatsoever. The third issue on which the assessment was sought to be reopened is that the assessee had claimed MAT credit of Rs. 1,01,91,317/- for earlier years and reduced the tax liability to that extent by adjusting from tax liability under normal provision of the Act. It is the further case of the Revenue that in the financial year 2010-11, there was amalgamation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvisages two types of amalgamation viz., amalgamation in the nature of merger (pooling of interest method) and amalgamation in the nature of purchase (purchase method).] If the amalgamation is that of type one i.e., amalgamation in the nature of merger, all the assets and liabilities of amalgamating company are recognised in the books of amalgamated company at their book value. Under this method, if MAT credit is recognised as an asset in the balance sheet of the amalgamating company, the amalgamated company is also required to recognise the same in its balance sheet. Under type two amalgamation i.e., the purchase method, the amalgamated company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the amalgamating company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities 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 cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act 2005 also do not state that carry forward and set off of MAT credit is allowable only to the company which has paid tax u's. 115JB. In an amalgamation, one company is subsumed into another. The amalgamated company becomes the 'alter ego' of the amalgamating company. Tax provisions desire that the benefits available to the amalgamating company survive and continue to be effective in the amalgamated company. The benefits are to remain unhindered despite the assumption of new legal garb. As a result, the amalgamated company may carry forward and set off MAT credit belonging to the amalgamating company. 3.5. In DCIT v. Beck India Ltd., (2008) 26 SOT 141 (Mum.) the High Court vide order dated 20- 9-2001 approved the merger of a company with the respondent company with effect from the appointed date of amalgamation being 11-2001. The financial statements presented in the annual general meeting did not consider 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.7. In ITO v. Mahyco Vegetable Seeds Ltd., (2009) 314 ITR (AT) 37 ITAT (Mum.) it was held that the resulting company is entitled to carry forward unabsorbed scientific research expenditure allocated to it in the process of demerger by the demerged company. The Tribunal held that the amount representing the unabsorbed capital expenditure on scientific research u/s. 35(4) was not different from the unabsorbed depreciation for the purposes of S. 72A(7). The respondent company was therefore allowed carry forward unabsorbed scientific research expenditure of the company even though there is no specific provision in S. 72A amalgamated or resulting company to carry forward and set unabsorbed scientific research expenditure of amalgamating or demerged company. 3.8. In SKOL Breweries Ltd. v. ACIT, 28 ITAT India 998 (Mum.) ITA No. 313/Mum./07 A.Y. 2003-04 decision dated 15-5-2008 the Tribunal allowed set 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 .. Char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 18- 2-1998 [230 ITR (St.) 54] is that a company should always pay a minimum tax even while offsetting the MAT credit against regular tax. The objective of the said provision is to allow relief in respect of tax paid under MAT regime It is a selling low fat provisions granting exemptions and relief should be interpreted liberally so as to advance the objective and not to frustrate It. [Bajaj Tempo Ltd. v. CIT. [10] 106 ITR 188 (SC). Thus, MAT credit of X Ltd, on amalgamation with Y Lid, should be available for carry forward and set off in the hands of the latter company It is also a settled law that when there is any genuine doubt about the interpretation of a fiscal statute or where two opinions are capable of being formed then, that rule of interpretation which is favourable to the assessee is to be preferred. [CIT v. Vegetable Products Ltd., [1973] 88 ITR 192 (SC)]. 3.10 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason why a different treatment should be given to the MAT credit available pertaining to the erstwhile company. We do not agree with the learned commissioner of Income Tax (Appeals) that there is need for specific mention in this regard in section 115JAA as the carry forward of MAT credit of erstwhile company by amalgamated company is in-built in the scheme of amalgamation as well as the scheme of MAT credit. Hence, we set aside the order of learned Commissioner of Income Tax (Appeals)in this regard and decide the issue in favour of the assessee. In view of the above, the assessee company is eligible for the MAT credit of the amalgamating company. 15. Even this objection has been brushed aside and without even considering the foundational facts laid by the assessee in the aforesaid objections. Though it was specifically contended 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, reo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation for reopening of the assessment. In the absence thereof, on borrowed opinion, reassessment proceedings cannot be commenced. 5.2 Based on the aforesaid reasons, the Division Bench subsequently in paragraph nos. 17 18 and 20 held as under: 17. The Hon ble Apex Court in the case of Ganga Saran and Sons Private Limited vs. Income Tax Officer, 1981 (6) Taxman 14 (SC) : (1981) (130) ITR 1 (SC) has held : 6. It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction. The important words under section 147(a) are 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing assessment orders or in other words, the Assessing Officer took note of these facts and has formed an opinion, which opinion is now sought to be substituted and made as a ground for reopening of the assessment which is impermissible as change of opinion cannot be the basis for reopening the assessment. 20. For the cumulative reasons aforesaid, we are of the considered view that prayer sought for in the petition deserves to be granted by answering the point formulated hereinabove in favour of the assessee and against the Revenue. 5.3 Even in the case of Patel Engineering Ltd. (supra), the Division Bench had held as under: 5. We are actually having difficulty to make out any sense in the reasons recorded. The entire basis, as we have understood, is certain companies were accepting contracts and were subcontracting those contracts to other entities and respondents came to know about this based on a survey under section 133A of the Act of one Singla Engineers and Contractors Private Limited ( SECPL ) on 31st October, 2014. First of all, this survey has been conducted before the assessment order dated 31st March, 2015 for Assessment Year 2012-2013 was passed in the case of petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjections dated 16th October, 2017 and impugned in the petition has been passed. 8. In our view, having heard the Counsels and considered the petition along with documents annexed thereto, the JAO has not verified the facts with the data available with him and simply on the basis of information received from DDIT, has issued the notice to petitioner. Therefore the condition precedent for taking action under section 147 of the Act that mandates, it is exclusively the satisfaction of the assessing authority based on some direct, correct and relevant material has not been met. This Court in Pr. CIT v. Shodiman Investments (P.) Ltd. [2018] 93 taxmann.com 153/[2020] 422 ITR 337 has held that reopening notice has to be issued by the Assessing Officer on his own satisfaction and not on borrowed satisfaction. 9. The Delhi High Court in Sabh Infrastructure Ltd. v. Asstt. CIT [2018] 99 taxmann.com 409/[2017] 398 ITR 198 had laid down certain guidelines in matters of reopening of assessment and one of the guideline, which the revenue was directed to adhere to was, where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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