PCIT Vs IOT Anwesha Engineering And Projects Ltd. (Gujarat High Court)

Gujarat High Court held that in the absence of new material facts brought on record by the Revenue reopening of assessment beyond the period of 4 years is found to be not sustainable in the eye of law. Thus, appeal of revenue dismissed.

Facts- The assessee e-filed its Return of Income declaring total income Rs. 2,67,91,420/-, which was initially assessed u/s 143(3) of the Act dated 29.11.2011. The assessment was finalized determining the total income at Rs. 2,69,50,080/- and subsequently revised at Rs. 2,67,91,420/- on 03.10.2013 by virtue of appellate order passed by CIT(A)-1, Baroda on 02.08.2013. Subsequently, the assessment proceeding u/s 147 of the Act was initiated by issuing notice u/s 148 of the Act, dated 27.02.2015. The assessee claimed expenses to the extent of Rs. 1,27,92,992/- on account of duties and taxes out of which a sum of Rs. 62,92,692/- pertained to claim of expenses on account of VAT payment. In fact, the assessee paid VAT of Rs. 5,31,615/- by 31.03.2008. The balance amount remained unpaid and was shown as outstanding liability as on 31.03.2008 and the said amount of Rs. 57,61,077/ was also not paid before the due date of filing of return.

AO, did not accept the contention of the assessee as according to AO, the deduction u/s 43B could only be allowed on actual payment. Since the assessee debited VAT amounting to Rs. 62,92,692/- but paid only Rs. 5,31,615/-, the AO added the balance unpaid VAT amounting to Rs. 57,61,077/-u/s 143(3) r.w.s. 144C(3) of the Act. As per provision of Section 43B of the Act, the claim of unpaid expenses of VAT/Sales Tax of the impugned amount was found to be not allowable and accordingly, an addition was made to the total income of the assessee.

CIT(A) allowed the appeal of the assessee. Tribunal too dismissed the appeal of the revenue. Being aggrieved, revenue has preferred the present appeal.

Conclusion- Jurisdictional High Court in the case of ALPS Technologies (P) Ltd. has held that when the material facts were truly and fully discussed at the time of original assessment, initiation of proceedings to reopen on the same set of facts held to be invalid. Further, Jurisdictional High Court in the case of Micro Inks (P.) Ltd. vs. ACIT has held that expenditure incurred towards interest and finance charges on loan was treated as business expenditure after scrutiny, and, since there was no failure on part of the assessee in disclosing true and correct facts, reopening assessment beyond period of four years was held to be unjustified.

Held that in the absence of new material facts brought on record by the Revenue reopening of assessment beyond the period of 4 years from the end of the assessment year in the present facts and circumstances of the case is found to be not sustainable in the eye of law.

Held that the appeal is devoid of merits and that no questions of law much less any substantial questions of law arise from the impugned order of the Tribunal. The appeal is accordingly dismissed.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. Heard learned Senior Standing Counsel Mr. Nikunt Raval for the appellant and learned advocate Mr. M.J.Shah for the respondent.

2. The present Tax Appeal is filed under section 260A of the Income Tax Act, 1961, by the Appellant arising from the judgment and order dated 29.08.2023 passed by the Income Tax Appellate Tribunal (for short “the ITAT”), Ahmedabad in ITA No.386/AHD/2020 for the Assessment Year 2008-2009 proposing the following substantial questions of law:

“(i) Whether the Ld. Appellate Tribunal was justified in quashing the notice u/s 148 for reopening of assessment, by erroneously holding that no new material facts were bought by the AO and no failure on the part of the assessee in furnishing material facts fully and truly for the assessment without considering the fact that the assessee has not disclosed true and correct facts regarding the payment of VAT of Rs. 57,61,077/- during the assessment proceedings and, therefore, the reason recorded for reopening the assessment u/s 147 of the I.T. Act and notice issued u/s 148 of the I.T. Act was based on new material facts that the assessee did not show the balance outstanding amount of Rs. 57,61,077/- as liability in the Balance-sheet at the year end?

(ii) Whether the Ld. Appellate Tribunal was justified in quashing the notice u/s 148 for reopening of assessment, by erroneously holding that reopening of assessment under section 147 is only the change of opinion without appreciating that the issue-in-hand was neither examined by the assessing officer during original assessment proceedings nor the assessing officer formed any opinion on the issue ?

3. The brief facts of the case are as under:-

3.1 The assessee e-filed its Return of Income declaring total income Rs. 2,67,91,420/-, which was initially assessed u/s 143(3) of the Act dated 29.11.2011. The assessment was finalized determining the total income at Rs. 2,69,50,080/- and subsequently revised at Rs. 2,67,91,420/- on 03.10.2013 by virtue of appellate order passed by the Ld. CIT(A)-1, Baroda on 02.08.2013. Subsequently, the assessment proceeding u/s 147 of the Act was initiated by issuing notice u/s 148 of the Act, dated 27.02.2015. The assessee claimed expenses to the extent of Rs. 1,27,92,992/- on account of duties and taxes out of which a sum of Rs. 62,92,692/- pertained to claim of expenses on account of VAT payment. In fact, the assessee paid VAT of Rs. 5,31,615/- by 31.03.2008. The balance amount remained unpaid and was shown as outstanding liability as on 31.03.2008 and the said amount of Rs. 57,61,077/ was also not paid before the due date of filing of return.

3.2 The assessee contended that it has debited VAT Tax expenses account by Rs.62,92,692/ out of which Rs. 5,31,615/- was paid during the year. The remaining amount has been debited in VAT expense account as this was on account of VAT tax paid on various inputs purchases shown as current asset instead of debiting expense at that time. The amount was shown as input credit receivable on the bona-fide belief that the said input on VAT on purchases would be available for set-off against future liability. Since, the said amount was shown as current asset, subsequently on discussion with the Sales-tax consultant, the assessee came to know that the said input VAT credit would not be admissible and therefore the company transferred the said amount to expenses. The said amounts have already been paid at the time of booking purchases. In the present case, the amount debited to Sales-tax expenses have been arrived after the above explained treatment of Sales-tax expense, Sales-tax payable and input credit receivable. There is no anomaly in the present case of the assessee company and the treatment of VAT/Sales tax and expenses claimed are in consonance with the prescribed accounting treatment and the ICAI Guidance notes and Income-tax provisions in this regard. The company has not deviated from the acceptable accounting methods.

3.3 The AO however, did not accept the contention of the assessee as according to the Assessing Officer, the deduction u/s 43B could only be allowed on actual payment. Since the assessee debited VAT amounting to Rs. 62,92,692/- but paid only Rs. 5,31,615/-, the AO added the balance unpaid VAT amounting to Rs. 57,61,077/-u/s 143(3) r.w.s. 144C(3) of the Act. As per provision of Section 43B of the Act, the claim of unpaid expenses of VAT/Sales Tax of the impugned amount was found to be not allowable and accordingly, an addition was made to the total income of the assessee.

3.4 Aggrieved, the assessee filed an appeal before the Ld. CIT(A) challenging both the grounds of reopening of assessment and the above addition made by the AO.

3.5 The assessee preferred appeal mainly on the issue of disallowance of VAT expenses to the tune of Rs. 57,61,077/- u/s 43B of the Act. During appellate proceedings, the assessee raised additional grounds challenging the reopening of its case without satisfying conditions mentioned in the proviso to section 147, especially when there were regular assessment framed u/s 143(3) read with Section 144C of the Act on 02.08.2013. The assessee contended that notice u/s 148 of the Act was issued beyond the period of 4 years from the end of the relevant assessment year was error in fact and law and also there was change of opinion since papers relied upon were already filed with the return of income and were available at the time of original assessment.

3.6 The CIT(A) adjudicated and allowed the appeal of the assessee and held the reopening of the case to be invalid. The CIT(A) relied upon the decisions of the Hon’ble Supreme Court in the case of L & T Ltd [113 taxmann.com 48), the High Court of Gujarat in the case of Alps Technologies (P) Ltd [81 taxmann.com) and Manan Exports (P) Ltd [78 taxmann.com 225), wherein it was held that reassessment on account of change of opinion is bad in law.

3.7 Aggrieved by the order of the Ld. CIT(A), the Department filed appeal before the Appellate Tribunal. The ITAT has rejected the appeal of the Revenue by confirming the order of the CIT (A).

3.8 The Appellate Tribunal in its impugned judgment and order has held that the precondition for initiation of proceeding u/s 147 of the Act by recording reasons of income, escaping assessment is not reflecting from the said order of reopening due to the failure on the part of the assessee. Therefore, the same is not found to be sustainable and hence liable to be set aside. Neither any allegation has been levelled against the assessee by the AO while reopening assessment under section 148 of the Act in failing to disclose fully or truly all material facts necessary for assessment which admittedly goes against such reopening of assessment by the department. The Appellate Tribunal relied on the judgment of the Hon’ble Apex Court in the case of L&T Limited, reported in 113 taxmann.com 48, wherein SLP filed by the Revenue was dismissed as there was no failure on the part of the assessee to disclose material facts fully and truly was found. The re- assessment was, thus, at the best made on change of opinion. Further, the Appellate Tribunal relied upon the judgments passed by the Jurisdictional High Court in the case of ALPS Technologies (P) Ltd., reported in 81 taxmann. Com and Micro Inks (P) Ltd. Vs. ACIT, reported in [2017] 79 taxmann.com 153 (Guj).

3.9 Further, the Appellate Tribunal held that there was no recording of reasons of failure on the part of assessee in submitting material facts for the purpose of making assessment truly and fully at the time of original assessment is reflecting for initiation of such re­assessment proceeding. Once, after considering the documents, the claim of the assessee decided and accepted by not making any addition during the course of regular assessment issuing noting u/s. 148 of the Act on the same issue by successor AO amongst to assumption of revisionary power which is not valid as per law. Thus, in the absence of new material facts brought on record by Revenue reopening of assessment beyond the period of 4 years from the end of the assessment year in the present facts and circumstances of the case is found to be not sustainable in the eye of law and order of quashing the same by the Ld. CIT(A) with the same observation is found to be just and proper so as to warrant interference. Accordingly, the Appellate Tribunal dismissed the appeal of Revenue as devoid of any merit.

4. Learned Senior Standing Counsel Mr. Nikunt Raval on behalf of the Department has submitted that the Tribunal has erred in dismissing the appeal of the Revenue on technical grounds.

4.1 Learned Senior Standing Counsel Mr. Raval further submitted that in the instant case, the assessee has not disclosed true and correct facts regarding the payment of VAT of Rs. 57,61,077/-during the assessment proceedings and, therefore, the reason recorded for reopening the assessment u/s 147 of the I.T. Act and notice issued u/s 148 of the I.T. Act was based on new material facts that the assessee did not show the balance outstanding amount of Rs. 57,61,077/- as liability in the Balance-sheet at the year end. The assessee did not pay the balance outstanding amount before the due date of filing of return u/s 139(1) of the Act. As per provisions of section 43B of the Act, claim of unpaid expenses of VAT/Sales-tax of Rs.57,61,077/- is not allowable. This fact brought out by the Assessing Officer which was not considered at the time of original assessment proceedings u/s 143(3) of the I.T. Act and hence this case is covered by the first proviso to Section 147 of the I.T. Act and also Explanation-1 to Section 147 of the I.T.Act. However, while allowing the appeal of the assessee on technical ground, the Appellate Tribunal has not considered the above facts.

5. Learned Counsel Mr. Manish Shah for the respondent-Assessee has submitted that as the assessee had already filed return of income under Section 139(1) of the Act, it is to be seen as to whether the assessee failed to disclose truly and fully all material facts necessary for the purpose of making the assessment. No such recording of satisfaction is available that escapement of income has arisen due to failure on the part of the Assessee and in the absence of fulfillment of proviso to Section 147 of the Act, reopening after 4 years from the end of the relevant assessment year is bad in law and liable to be quashed.

In view of the above submissions, Mr. Shah, learned advocate submitted that no case was made out for admission of the instant appeal.

6. DISCUSSION & FINDINGS

6.1 We find that the learned Tribunal has meticulously considered the facts and the applicable law in the impugned judgment and order as under:-

14. Upon perusal of the relevant materials available before us, we find that as the precondition for initiation of proceeding under Section 147 of the Act by recording reasons of income, escaping assessment is not reflecting from the said order of reopening due to the failure on the part of the assessee, the same is not found to be sustainable and hence liable to set aside. Neither any allegation has been levelled against the assessee by the Ld. AO while reopening assessment under Section 148 of the Act in failing to disclose fully or truly all material facts necessary for assessment which admittedly goes against such reopening of assessment by the department. On this aspect, we have further considered the judgment passed by Hon’ble Apex Court in the case of L&T Ltd., reported in 113 taxmann.com 48, wherein SLP filed by the Revenue was dismissed as there was no failure on the part of the appellant to disclose material facts fully and truly was found. The re­assessment was, thus, at the best made on change of opinion.

15. We have further considered the judgment passed by the Jurisdictional High Court in the case of ALPS Technologies (P) Ltd., reported in 81 com holding that when the material facts were truly and fully discussed at the time of original assessment, initiation of proceedings to reopen on the same set of facts held to be invalid. We further find from the records that during original assessment the Ld. AO asked for the details of duties and taxes and again initiated re-assessment proceeding on the very same issue without bringing any new material facts on records. On this aspect, we further considered the order passed by the Jurisdictional High Court in the case of Micro Inks (P.) Ltd. vs. ACIT, reported in [2017] 79 taxmann.com 153 (Guj) as relied upon by the Ld. AR wherein expenditure incurred towards interest and finance charges on loan was treated as business expenditure after scrutiny, and, since there was no failure on part of the assessee in disclosing true and correct facts, reopening assessment beyond period of four years was held to be unjustified.

16. We have carefully considered all the relevant materials available on record before us including the notice dated 27.02.2015 issued by the Ld. CIT(A), Baroda, wherein no recording of reasons of the fact of failure on the part of the appellant in submitting material facts for the purpose of making assessment truly and fully at the time of original assessment is reflecting for initiation of such re- assessment proceeding. Once, upon considering the documents, the claim of the assessee decided and accepted by not making any addition during the course of regular assessment issuing notice under Section 148 of the Act on the same issue by successor AO amongst to assumption of revisionary power which is not valid as per law. When the Assessing Officer attempts to reopen an assessment on the count the opinion formed earlier by him was an incorrect opinion, the reopening is not warranted. Further that, though the statutory power has been given in the hands of the ITO to reopen the final decision made against the Revenue in respect of the question that directly arose from the decisions in earlier proceeding, the same is required to be exercised sparingly upon due application of mind, otherwise it would result in placing an unrestricted and unguided power of review in the hands of the assessing authorities depending on their changing moods. Thus, with the above observation, we find that in the absence of new material facts brought on record by the Revenue reopening of assessment beyond the period of 4 years from the end of the assessment year in the present facts and circumstances of the case is found to be not sustainable in the eye of law and order of quashing the same by the Ld. CIT(A) with the same observation is found to be just and proper so as to warrant interference. Thus, Revenue’s appeal is found to be devoid of any merit and hence, dismissed.

7. We are in full agreement with the aforesaid findings of the learned ITAT which has correctly appreciated the contextual facts and applied the provisions of law to the same. We are of the considered opinion that the instant reopening and consequent addition sought to be made by the Assessing Officer is nothing other than a mere change of opinion. The Hon’ble Apex Court in the case of Commissioner of Income tax vs. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC) has held as under:-

“6. …prior to Direct Tax Laws (Amendment) Act, 1987, re­opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re­open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider, However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”.

8. We are therefore of the opinion that the appeal is devoid of merits and that no questions of law much less any substantial questions of law arise from the impugned order of the Tribunal. The appeal is accordingly dismissed.