Gujarat High Court
The Principal Commissioner Of Income … vs M/S Iot Anwesha Engineering And … on 17 January, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/717/2024 ORDER DATED: 17/01/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 717 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX - 1 VADODARAss
Versus
M/S IOT ANWESHA ENGINEERING AND PROJECTS LTD
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Appearance:
MR NIKUNT K RAVAL(5558) for the Appellant(s) No. 1
MR MANISH J SHAH(1320) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 17/01/2025
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
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
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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
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NEUTRAL CITATION
C/TAXAP/717/2024 ORDER DATED: 17/01/2025
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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
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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
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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.
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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
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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 re-
assessment proceeding. Once, after considering the documents, the
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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
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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
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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 underPage 10 of 13
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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 re-
assessment 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 taxmann.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
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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.
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reported in (2010) 320 ITR 561(SC) has held as under:-
“6. …prior to Direct Tax Laws (Amendment) Act, 1987, re-
opening 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 re-
open 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.
(BHARGAV D. KARIA, J)
(D.N.RAY,J)
BINA SHAH
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