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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: ABY T VAKERY & SHRI AMARJIT SINGH
Appellant by : Shri J.D. Mistri & Madhur Agrawal, AR, Respondent by : Shri Sushil K. Poddar, CIT-DR Date of Hearing 09.08.2023 Date of Pronouncement 26.09.2023 आदेश / O R D E R PER AMARJIT SINGH :-
1. 1. The present appeal filed by the assessee is directed against the order passed u/s 250 of the Income Tax Act, 1961 ([hereinafter “the Act”] by the Learned Commissioner of Income Tax M/s. Larsent Toubro Ltd (Appeals)/National Faceless Appeal Centre [hereinafter „the CIT(A)‟/NFAC] dated 25.03.2022 for A.Y. 2003-04.
2. The assessee has raised the following grounds of appeal :-
1. Reopening of Assessment under section 148 of the Act a. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in invoking the provisions of Section 147 of the Act. b. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in resorting to reassessment proceedings on account of a mere change in opinion on the same set of facts, which tantamounts to the Assessing Officer reviewing the action of his predecessor. Having regards to the facts and circumstances of the case and in law, this action is not permissible, and the reassessment proceedings require to be quashed. c. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in invoking the provisions of Section 147 of the Act in view of the fact that the proceedings were initiated after four years from the end of the Assessment Year under consideration, and there was no failure on the part of the Appellant to disclose truly and fully all material facts necessary for the assessment. d. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in invoking the provisions of Section 147 of the Act, as he could never have had "reason to believe" that income chargeable to tax had escaped assessment. e. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in invoking the provisions of Section 147 of the Act, as there was no new tangible ITA No. 1009/M/2022 M/s. Larsent Toubro Ltd material on the basis of which the Assessing Officer could have reason to believe that income has escaped assessment.
Without prejudice to ground number 1 above, that the reopening of assessment is bad in law and requires to be quashed we submit the following grounds of appeal:-
2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming. the disallowance of deduction of Rs. 13,11,64,952/- claimed by the appellant under section 80IA(4) of the Act in respect of its profits derived from the development of infrastructure facility. In doing so, the learned CIT(A) erred in concluding that the activity of the appellant was akin to works contract.
3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the disallowance of deduction under section 801A of the Act in respect of Captive Power Plants at Awarpur Cement Works and Gujarat Cement works without appreciating the fact that the Appellant Company had satisfied all the conditions specified in section 80(IA)(8) of the Act and hence was eligible for deduction in respect of profits derived from Captive Power Plant.
4. The learned CIT(A) erred in upholding the action of the Assessing Officer and treating the advance money of Rs.9,80,00,000 forfeited as revenue receipt.
5. The CIT(A) erred in confirming the action of the Assessing Officer of levying interest under section 234B of the Act, without reducing the foreign tax relief to compute the assessed tax, which formed the basis for computing interest under section 234B claimed by the Appellant as part of taxes paid. M/s. Larsent Toubro Ltd
On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the Assessing Officer and in holding that the Appellant was not entitled to claim the short- term capital loss/ long term capital loss on the sale of assets used for Research and Development and on which deduction under section 35 of the Act was claimed.
The Appellant craves leave to add to, alter or amend, the above Grounds of Appeal as and when advised.
3. Fact in brief that in this case the original assessment was completed u/s 143(3) of the Act on 23.01.2006 determining the total income at Rs. 3,38,43,16,541/-. Subsequently, the case of the assessee was re- opened by the issuing of notice u/s 148 of the Act on 08.05.2007 for the reason that assessee was not entitled for deduction u/s 80IA, The AO has also mentioned in the reason for reopening that forfeiture of advance money on account of termination of agreement relating to development of Alumina Project should be regarded as Revenue Income. In response to notice issued u/s 148 of the Act, the assessee submitted that complete details relating to the issues, namely taxability of forfeiture of advance money and claim u/s 80IA relating to Captive Power Plant were furnished and available in the assessment records and there were no new facts which had come into the possession of the assessing officer. The assessing officer had not 4 M/s. Larsent Toubro Ltd accepted the contention of the assessee stating that notice u/s 148 of the Act was issued within four years as per the provisions of section 147 of the Act. The re-assessment u/s 147 r.w.s. 143(3) of the Act was finalized on 30.12.2008 and total income was assessed at Rs. 4280087937/-. The AO disallowed the claim of deduction u/s 80IA, forfeiture of advance money and also disallowed claim of long term capital loss on sale of R & D assets.
4. The assessee has filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dismiss the appeal of the assessee.
5. In respect of re-opening of assessment the Ld. CIT(A) held that in the original assessment proceedings the assessing officer had not called for any information with respect to forfeiture of advance money and in respect of the deduction u/s 80IA of the Act, the assessing officer had not examined and also not formed any opinion in respect of taxability of forfeiture of advance money and deduction u/s 80IA of the Act. Therefore, the Ld. CIT(A) held that re-opening of the assessee was valid as per law.
6. On merit in respect of disallowance of deduction u/s 80IA of the Act in respect of captive power plant, the AO had disallowed the deduction M/s. Larsent Toubro Ltd u/s 80IA in respect of Captive Power Plant for the reason that assessee had transferred the Power Generated from one unit to another units and the electrically has not been sold in the open market. Therefore, there was no sale of electricity and hence not profit was derived from the captive power generation. The Ld. CIT(A) after following order of CIT(A) for the assessment year 1999-2000 and 2000-01 disallowed the deduction u/s 80IA in respect of Captive Power Plant.
7. The Ld. CIT(A) also stated that the assessee has claimed deduction u/s 80IA(4) in respect of development activity carried out pursuant to agreement with the central government/state government/local authority/other statutory body. In respect of claim of deduction u/s 80IA(4), the Ld. CIT(A) had sustained the disallowance made by the AO on the reasoning that assessee had carried out construction work on contract basis for which investment was made by the Government or other agencies. The Ld. CIT(A) has sustained the disallowance after the following the decision of Ld. CIT(A) for assessment year 2004-05.
In respect of addition of forfeiture of advance money, the assessee explained that it had received advance in respect of new business of Alumina production and assessee had carried out research or studies M/s. Larsent Toubro Ltd and analyses for development of such product but due to non- clearance of mining rights by the Government of Orissa, the agreement with M/s Pechiney was terminated and advance was forfeited by the assessee. Therefore, it was claimed as capital receipt. However, assessing officer has treated the same has revenue receipt. The Ld. CIT(A) has sustained the addition made by the assessee holding that the amount forfeited by the assessee company would be an income as revenue receipt of the assessee and not capital receipt because it was received for the purpose of carrying out its business. The Ld. CIT(A) has also sustained the disallowance of long term capital loss of Rs. 2735793/- and short term capital loss of Rs. 49447 on sale of R & D assets on the grounds of not making specific submission.
During the course of appellant proceedings before us at the outset the Ld. Counsel contented that against the reason of re-opening of assessment made by the assessing officer the assessee had filed objection vide letter dated 22.05.2007 filed on before the assessing officer. The Ld. Counsel submitted that the assessing officer had not disposed off the objection filed by the assessee against the reason recorded for re-opening of the assessment by the assessing officer. The M/s. Larsent Toubro Ltd Ld. Counsel contended that assessing officer had not disposed-off the objection as prescribed by the Hon‟ble High Court in the case of GKN Driveshafts (India) Ltd. Vs Income Tax Officer (2002) 125 taxmann.com 259 ITR 19 (SC). The Ld. Counsel has also placed reliance upon the decision of the jurisdictional High Court in the case of KSS Petron Pvt Ltd Vs ACIT vide ITA No. 224 of 2014 and decision of the ITAT Mumbai in the case of General Electric Company Vs. Asst. Director of Income Tax vide ITA No. 82/M/2011. Therefore, the Ld. Counsel contented that the re-opening of the assessment without disposing-off of objection filed by the assessee is not valid. The Ld. Counsel further submitted that objections filed by the assessee has been reproduced by the assessing officer at para 3 of the assessment order however, the assessing officer had simply rejected the contention of the assessee without disposing off the objection filed by the assessee in accordance with the procedures laid down by the Hon‟ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs Income Tax Officer (2002) 125 taxmann.com 259 ITR 19 (SC). On the other hand the Ld. Department representative has referred the observation of the assessing officer that AO can issue notice within four years from the end of the relevant assessment year even if there ITA No. 1009/M/2022 M/s. Larsent Toubro Ltd is no failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year.
Heard both the side and perused the material on record. In this case original assessment u/s 143(3) of the Act was made on 23.01.2006. Subsequently, the case of the assessee was re-opened by issuing of notice u/s 148 of the Act on 08.05.2007 and reassessment u/s 143(3) r.w.s. 147 of the Act was finalized on 30.12.2008 after making certain addition/disallowance as discuss above in this order.
During the course of appellant proceedings before us, the Ld. Counsel has discussed before us only the issue of re-opening of assessment without disposing-off the objection filed by the assessee against the reason for re-opening recorded by the assessing officer in accordance with the procedure of prescribed by the Hon‟ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs Income Tax Officer (2002) 125 taxmann.com 259 ITR 19 (SC) on 08.05.2007. The relevant extract of the reason recorded on 08.05.2007 is reproduced as under:- 1. In view of Supreme Court decision in the case of CIT vs. B.M. Kharwar (1969) 72 ITR 603 and the Andhra Pradesh High Court M/s. Larsent Toubro Ltd decision in the case of CIT vs. Merchant Navs Club (1974) 96 ITR 261, the assessee is not entitled for deduction u/s. 80IA.
2. The forfeiture of advance money on account of termination of agreement relating to development of Alumina Project should be regarded as Revenue Income, particularly when the assessee is into the business of construction.
3. For the purpose of calculating interest u/s. 234B, the DIT relief should have been reduced from the tax liability.
4. In view of the above, I have reason to believe that proportionate income has escaped assessment for A.Y. 2003-04. Therefore, the case is being reopened as per the provisions of section 147 by issuing notice u/s. 148.
The assessee raised objection against the re-opening of the assessment vide letter dated 21.05.2007 the relevant extract of the same is reproduced as under:-…….. We refer to the notice No. DCIT/Cir.2(2)/L&T Ltd.03-04/2007-08 dated 8.5.2007 issued by your Office u/s 148 of the Income-tax Act for the assessment year 2003-04. Vide said Notice have proposed to reassess the income of the assessment year under reference you on the ground that you have reason to believe that the income has escaped assessment within the meaning of Section 147 of the Act. You have also required us to furnish the Return of Income within 30 days from the date of service of the notice.
We further refer to the statement issued by you giving therein the reasons in your possession to believe that the income has escaped assessment for the assessment year under reference. In this connection, we wish to submit as follows: 10 M/s. Larsent Toubro Ltd
1. We have furnished the Return of Income and the revised return of income for the relevant assessment year within the prescribed time limits disclosing full and true particulars of income.
2. Our income for the year under consideration has been duly assessed and the assessment order passed under the provisions of Section 143(3) after placing on record various details/documents required during the course of assessment proceedings
3. We wish to submit that there is no omission on our part to disclose all the necessary material and facts necessary for the assessment of the company's income and accordingly no income can be said to have escaped assessment. The proceedings under section 147 are therefore not warranted.
In as far as the reasons indicated by your office for reopening of the assessment, we wish to state that a notice u/s 154 had been already issued by your goodself on 29th May, 2006, requiring our submissions on all the issues which have been now considered for the purpose of reassessment. In this connection, we refer to our letter dated 6th June, 2006 responding to the notice issued by your Office u/s 154 and explaining in detail as to why rectification of the Order w/s 154 was not warranted. The copy of our said letter is enclosed marked as Annexure 1. Since the order of rectification on the issues raised has not been passed, it is presumed that our submissions on the subject have been accepted by the Assessing Officer, and there may be no need for rectification of various claims admitted in the Assessment Order. In any case, the issues initially considered by the assessing authority as mistakes apparent from M/s. Larsent Toubro Ltd records cannot subsequently become the subject matter of reassessment u/s 147.
Notwithstanding the aforesaid, it is submitted that the complete details relating to the issues, namely taxability of forfeiture of advance money and claim under section 80-IA relating to Captive Power Plant were furnished and available in the assessment records and there are no new facts which have come into possession of your Office. With due respect any change of opinion/ legal stance on allowability/taxability of various claims cannot become a subject matter under any circumstances for reassessment. We further object to recalculation of interest u/s 234B which has also been made a subject matter for reopening of the assessment in terms of provisions of section 147 of the Act.
Having regard to our aforesaid submissions and the facts that there is full and complete disclosure of all material facts relating to the three issues as aforesaid, no reassessment proceedings can be initiated u/s 147. We wish to place reliance on the following judicial pronouncements to support our submissions.
CIT v Bhanji Lavji [79 ITR 582] [SC]: When the primary facts necessary for assessment are fully and truly disclosed, the ITO will not be entitled on change of opinion to commence proceeding for reassessment. Similarly, if he has raised a wrong legal inference from the facts disclosed, he will not, on that account, be competent to commence reassessment proceedings.
Century Enka Ltd v ITO [143 ITR 629] [Kolkata] Where the relevant materials or facts were admitted already available in the concerned original assessment proceedings and there were no new facts which came to M/s. Larsent Toubro Ltd the possession of the assessing authority, the said officer could not be heard to say that the legal position was not known to him even though the relevant facts and materials were available, the ignorance of law would be no ground or any excuse for the ITO concerned to reopen the assessment.
Lokendrasingh v ITO [128 ITR 450] [MP]: When at the time of original assessment primary facts were already before the ITO and after some routine enquiry the ITO could have assessed the income on the basis of such information, it is not open to him to invoke the provisions of section 147 and reopen the assessment even though he may have omitted to notice the facts mentioned in the return by oversight.
Jindal Photo Films Ltd v DCIT (234 ITR 170) (Delhi): Where the Income-tax Officer attempts to reopen an assessment because the opinion formed earlier by him was in his opinion incorrect, the reopening could not be done. The power to reopen an assessment was conferred by the Legislature not with the intention to enable the Income-tax Officer to reopen the final decision made against the Revenue in respect of questions that directly arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods
Garden Silk Mills (P.) Ltd. V DCIT (151 CTR 533) (Guj) M/s. Larsent Toubro Ltd Assessee has sought adjustment in the valuation of stock- in-trade as disclosed in the audited books of account on the ground of applicability s. 43B as the assessee is maintaining his books of account on mercantile system. It is on that premise the enquiry was made and claim was investigated and allowed Camouflaging language of framing reasons AO cannot confer upon himself jurisdiction which does not exist. The consistent view is that even after amendment of s. 147 mere change of opinion does not confer jurisdiction on the ITO to initiate proceedings for reassessment merely by resorting to Expl. 1 on the basis of change of opinion.
In view of the above, we reiterate our contention that the proceedings u/s 147 are not justified in our case and request you to kindly drop the said proceedings for the assessment year under reference.
Without prejudice to the above, we submit that the return and the revised return filed by us for the assessment year 2003-04 may be treated as a valid return in compliance of the requirements of the provisions of section 148 of the Income-tax Act. The copy of the revised return of income alongwith Income and tax computation is enclosed for your reference and records (marked as Annexure 2). The other documents filed earlier with the return of income and the written submissions made during the assessment proceedings are not enclosed again with this letter. The same may be considered as part of this letter submitted in response to the notice issued by your office u/s 148 of the Act.
The Hon‟ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs Income Tax Officer (2002) 125 Taxmann.com 963 (SC)/(2003) M/s. Larsent Toubro Ltd 259 ITR 19 (SC) held that assessing officer is bound to furnish reasons within a reasonable time, on receipt of reasons the assessee is entitled to file objections and the assessing officer is bound to dispose of the same by a speaking order. The Ld. Counsel submitted that without disposal of the objection as prescribed by the Hon‟ble Supreme Court in the case of GKN Driveshafts (India) Ltd the assessing officer has passed re-assessment order u/s 143(3) r.w.s. 147 of the Act. The relevant extract of the decision of the Hon‟ble Supreme Court as referred above is reproduced as under:-…… “We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years”.
We have also perused the decision of Hon‟ble jurisdictional Bombay High Court in the Case of KSS Petron Pvt Ltd Vs ACIT vide No. 1009/M/2022 M/s. Larsent Toubro Ltd 224 of 2014 and relevant extract of the decision is reproduced as under:-- 8. We note that once the impugned order finds the Assessment Order is without jurisdiction as the law laid down by the Apex Court in GKN Driveshafts (supra) has not been followed, then there is no reason to restore the issue to the Assessing Officer to pass a further/fresh order. If this is permitted, it would give a license to the Assessing Officer to pass orders on re-opening notice, without jurisdiction (without compliance of the law in accordance with the procedure), yet the only consequence, would be that in appeal, it would be restored to the Assessing Officer for fresh adjudication after following the due procedure. This would lead to unnecessary harassment of the Assessee by reviving stale/ old matters.
We have also perused the decision of ITAT Mumbai in the case of General Electric Company Vs. Asst. Director of Income Tax vide dated 23.12.2022 wherein after following the decision of the Jurisdictional High Court in the case of KSS Petron Pvt Ltd, the re-opening of assessment was quashed as the assessing officer has failed to follow the procedure laid down by the Hon‟ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs Income Tax Officer.
In the light of above facts and findings it is demonstrated from the copy of letter dated 21.05.2007 placed at pages 57 to 64 of the paper book that assessee has filed objection against the reason for re- 16 M/s. Larsent Toubro Ltd opening of the assessment by the assessing officer. However, before passing with the assessment the assessing officer has not passed any speaking order to disposed-off the objection filed by the assessing officer in accordance to the procedure prescribed by the Hon‟ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Therefore following the decision of the of the Hon‟ble Supreme Court in the case of GKN Driveshafts (India) Ltd and decision of the jurisdictional High Court in the case of KSS Petron Pvt Ltd and the Hon‟ble ITAT as referred supra in this order we set aside the assessment order passed u/s 143(3) r.w.s. 147 of the Act as same was passed without disposing-off the objection filed by the assessee as discussed supra in this order. The notice issue u/s 148 of the Act is also set aside. Since the re-opening is quashed, the other ground raised by the assessee not discussed are left open.
In the result, appeal of the assessee is allowed.