GODAVARI BIOREFINERIES LIMITED,MUMBAI vs. ACIT 2 (1) (2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “G” BENCH, MUMBAI Before Shri Amit Shukla, Judicial Member and Shri Prashant Maharishi, Accountant Member ITA No. 5824/Mum/2019 (Assessment Year: 2009-10) M/s. Godavari Biorefineries Ltd. A C I T - 2(1)(2) 3rd Floor, Somaiya Bhavan Room No. 561, Aayakar Bhavan Vs. 45/47 M.G. Road, Fort M.K. Road, Mumbai 400020 Mumbai 400001 PAN – AABCG2543C Appellant Respondent Appellant by: Shri Vipul Doshi & Ms. Dinkle Haria Respondent by: Shri Ram K. Kedia, Sr. DR Date of Hearing: 05.04.2023 Date of Pronouncement: 21.06.2023

O R D E R Per: Prashant Maharishi AM 01. This appeal is filed by M/s. Godavari Biorefineries Ltd. for Assessment Year (AY) 2009-10 against the appellate order dated 10.06.2019 by the Commissioner of Income Tax (Appeals) [CIT(A)] raising the following ground of appeal: - “1) The Learned CIT(Appeals) has erred in law, facts and circumstances of the case by confirming the disallowance of weighted deduction u/s 35(2AB) of Rs. 1,95,73,000/-. 2) The Learned CIT(Appeals) has erred in law, facts and circumstances of the case by confirming the disallowance of weighted deduction u/s 35(2AB) of Rs. 1,95,73,000/- and ignoring the decision of Hon'ble Delhi High court in Sandan Vikas (India) Ltd. 335 ITR 117 and Gujarat High Court in Claris Lifesciences Ltd. 326 ITR 251.

2 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. 3) The Learned CIT(Appeals) has erred in law, facts and circumstances of the case by confirming the disallowance of weighted deduction u/s 35(2AB) of Rs. 1,95,73,000/- and not following rule of consistency and also ignoring the decision of Hon'ble Supreme Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC). 4) Your Appellant craves leave to add to, alter, amend, delete and/or modify the above grounds of appeal on or before the final date of hearing.” 02. On 13.05.2022 the assessee has filed additional ground of appeal challenging the reassessment proceedings. The ground says that the reassessment proceedings are not valid as the necessary pre- conditions laid down under section 147 of the Income Tax Act, 1961 (the Act) are not fulfilled. It further states that even otherwise the reassessment order is bad in law as the same is passed without disposing of the objections raised by the assessee against initiation of reassessment proceedings. 03. Assessee submits that the issues raised in the additional ground are purely legal and goes to the very root of the jurisdiction of the reassessment proceedings and further all the relevant facts are available on record. It does not require any investigation into any fresh facts. It is also stated that not raising the same in the original grounds of appeal is purely unintentional. Therefore same should be admitted. The learned A.R. of the assessee reiterated the same grounds seeking for admission. 04. The learned D.R. vehemently objected and submitted that in the original memorandum of appeal those grounds were not raised. 05. On careful consideration we find that the assessee raised ground No. 1 challenging the reopening of the assessment before the learned CIT (A). However he dismissed the same stating that the assessee did not press the same. We find that the ground raised by the assessee is purely jurisdictional which can be raised at any time

3 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. during the year. Naturally no fresh facts are required to be investigated. Hence we admit the same. 06. As the additional ground admitted goes to the root of the matter and jurisdictional in nature, we record the facts relating to reopening of the assessment. 07. The fact is that the assessee is a company engaged in the business of manufacturing of sugar, chemical distillery and generation of electricity. It filed its original return of income on 30.09.2009 at Nil. Subsequently assessment under section 143(3) of the Act was passed on 27.12.2011 at an assessed income of Nil and Rs.32,62,05,299/- as per book profit under section 115JB of the Act. Subsequently notice under section 148 of the Act was issued on 22.03.2016. On 22.04.2016 the assessee reiterated the original return filed to be treated as return filed in response to section 148 of the Act. The assessee also requested for a copy of reasons recorded for reopening, which was provided to the assessee on 28.09.2016. As per letter dated 24.11.2016 the assessee objected to the reopening proceedings. The learned AO commenced the reopening proceedings noting that during the course of scrutiny for AY 2012-13 in response to notice under section 133(6) of the Act issued to the Secretary, Department of Scientific and Industrial Research [DSIR] to provide approval status of the research facilities under section 35(2AB) of the Act and Form No. 3CL and 3CM issued to the assessee. The LD AO received the reply stating that the assessee was not eligible for deduction under section 35(2AB) of the Act for AY 2012-13 and earlier assessment years. He also noted that the assessee has claimed deduction for AY 2009- 10 of Rs.1,95,73,000/- which the assessee was not eligible for. For AY 2012-13 one more notice under section 133(6) of the Act was

4 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. issued to the same organisation for which reply was received on 12.02.2016. Based on this the learned AO issued show cause notice that why the claim of deduction should not be disallowed. Assessee objected stating that the assessee company was recognised by the Department of Scientific and Industrial Research for in-house R & D activities. The assessee has also supported the claim by certificate of statutory auditors. It also filed formal application for approval on 19.11.2012 and Form No. 3 CM is issued on 14.01.2013. Accordingly the assessee is eligible for deduction under that section. Ld AO considered the reply of the assessee. On perusal of section 35(2AB) of the Act and Rule 6 the AO noticed that the prescribed authority has not issued any Form No. 3CM to the assessee for the year under consideration. This fact has been confirmed in reply to notice under section 133(6) of the Act. Therefore, for financial year 2008-09 the assessee was not entitled to deduction. He noted that according to Form No. 3CM and 3CK issued for in-house R&D facility are approved under section 35(2AB) of the Act for the period 1st April, 2012 to 31st March, 2016 and therefore the assessee is not eligible for the above deduction for the impugned assessment year and hence it was denied. The alternative plea of the assessee is that these expenditures are also allowable under section 35(1)(1) of the Act. This was accepted. As the assessee has expended Rs.3,91,46,000/- the same was allowed as deduction and weighted excess claim of deduction under section 35(2AB) of the Act of Rs.1,95,73,000/- was disallowed. As the assessee has unabsorbed carried forward depreciation, assessment order under section 143(3) of the Act r.w.s. 147 of the Act was passed on 29.12.2016 disallowing the above excess deduction under section 35(2AB) of the Act.

5 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. 08. Aggrieved, assessee preferred appeal before the learned CIT (A). The learned CIT(A) noted that in assessee’s own case for AY 2012- 13 the Coordinate Bench in ITA No. 3493/Mum/2017 has decided the issue wherein it has been held that the assessee is not eligible for weighted deduction under section 35(2AB) of the Act in respect of R&D expenditure. Accordingly the disallowance was confirmed. The assessee also challenged the reopening of the assessment which was not pressed before him as stated in appellate order and therefore he dismissed the ground against reopening of assessment also. Accordingly, as per the order dated 10.06.2019 the appeal of the assessee was dismissed. 09. The learned A.R. challenged the reopening of the assessment. He submitted a paper book containing 172 pages and relied upon several judicial precedents. His first objection is that the assessee has raised an objection against reopening of the assessment on 24.11.2016 and without disposing of the objection against reopening, the reassessment order was passed. He submitted that notice under section 148 of the Act was issued on 22.03.2016 against which the assessee on 22.04.2016 submitted that original return of income filed by the assessee on 30.09.2009 may be treated as return filed in response to that notice. Further the assessee requested for the reasons of reopening. On 25.05.2016 the assessee was given the reasons for reopening of the assessment which are placed on page 70 of the paper book. As per the letter dated 24.11.2016 the assessee objected to the reopening of the assessment stating that the above claim is allowed in original assessment under section 143(3) of the Act after verifying all the details and further claim is supported by certificate of the Auditor. It was stated that reopening has been done merely to

6 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. review an earlier decision that was already arrived at by the AO in the original assessment and therefore review or change of opinion is not permitted under the garb of reassessment. The assessee relied upon the decision of the Hon’ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561. Thus, assessee submitted that the reassessment is bad in law. By the same letter the assessee also object on the merits of the disallowance. The second contention of the learned AR is that reopening of the assessment is made for AY 2009-10 by issue of notice under section 148 of the Act on 28.09.2016, i.e. after 4 years. Whenever the reopening is made after 4 years, there has to be failure to be pointed out by the AO in the reasons for reopening itself that escapement of income is on part of failure of assessee to disclose fully and truly the material facts. He submitted that there is no averment of failure on part of the assessee in the reasons recorded and therefore the reopening of the assessment is bad in law. Therefore, according to him on these two counts the reopening of the assessment is bad in law. He submitted that non disposal of the objection is fatal. For this proposition he relied on the decision of the Hon’ble High Court in ITA No. 224/2014 dated 3rd October, 2016. He further relied upon the decision of KSSA Petron Pvt. Ltd. vs. ACIT dated 30th August, 2019 and several other judicial precedents of the Coordinate Benches. 10. The learned DR vehemently opposed the arguments of the assessee that non disposal of objections would not make an order void or non est and it is merely a procedural irregularity which can be cured by remitting the matter to the authority. He relied upon the decision of the Hon’ble Madras High Court in the case of Home Finders Housing Ltd. vs. ITO 93 taxmann.com 371. He further

7 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. submitted that the SLP against that decision preferred by the assessee is also dismissed by the Hon’ble Supreme Court in 94 taxmann.com 84. He further submitted that non mentioning failure on the part of Assessee in reason recorded is not fatal when the reason are disclosing the fact clearly that assessee was not a valid R & D facility for this year. Regarding change of opinion , it was submitted that new facts are available because of inquiry by ld AO in subsequent year which shows that new facts are there of non recognition of R & D facility of the assessee for this year. Therefore all the arguments of the assessee against reopening of assessment are not correct. Further the assessee did not press the same before CIT (A). 11. In response to that the assessee submitted that the Coordinate Bench in the case of Maharashtra State Power Generation Co. Ltd. vs. ACIT in ITA No. 2403/Mum/2011 dated 31.07.2019 after considering the above decision of the Hon’ble Madras High Court and dismissal of SLP has quashed the reopening of assessment. He further relied upon several other judicial precedents. Further not pressing ground before CIT (A) is not fatal as assessee has raised an additional ground of appeal. On the issue that no reassessment can be initiated beyond 4 years unless there is an omission or failure on the part of the assessee to disclose all material facts truly and fully spelt out in the reasons recorded, it is fatal and same deserved to the set aside. For this proposition he relied on the decision of the Hon’ble Bombay High Court in the case of Ipca Laboratories Ltd. vs. DCIT 251 ITR 416, Hindustan Lever Ltd. vs. ACIT 268 ITR 339 and German Remedies Ltd. vs. DCIT 287 ITR 494. He also referred to several other judicial precedents on that issue.

8 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. 12. On merits it was submitted that as per letter dated 09.06.2006 the renewal of recognition to the in-house R&D Unit of the assessee at Ahmednagar is allowed up to 31.03.2009 and to another in-house R&D Unit at Karnataka has also been given up to 31.03.2009. It was further stated that even otherwise on merits of the case the issue is covered in favour of the assessee by the decision of the Hon’ble Gujarat High Court in the case of CIT vs. CIT VS. Claris Life sciences 326 ITR 251. 13. We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that the original assessment under section 143(3) of the Act was passed on 27.12.2011 wherein the contribution to scientific research institution and deduction under section 35(2AB) of the Act was granted to the assessee at Rs.1,95,73,000/- in the computation of total income. Subsequently the learned AO recorded the following reasons at page 70 of the paper book which is as under: - “1. The assessee had filed return of income on 30.9.2009 declaring total income under normal provisions as Nil ( after set-off of brought forward losses amounting to Rs 29,99,47,889) and book profit u/s 115 JB of the Income-tax Act, 1961(hereinafter "the Act") as Rs 32,61,56,892/-. 2. Assessment u/s 143(3) of the Act was completed on 27.12.2011 at an income of Nil under normal provisions (after set-off of brought forward losses of Rs 30,36,95,292/-) and book profit u/s 115 JB of the Act amounting to Rs 32,62,05,299/-. 3. During the course of assessment proceedings for AY 2012- 13 it was noticed that the assessee had claimed deduction u/s 35(2AB). On further enquiry, in response to 133(6) notice, specific reply was received from the prescribed authority, i.e. Secretary, Department of Scientific and Industrial research (DSIR), that the assessee was not approved under section 35(2AB) of the Act for AY 2012-13 and earlier years. Therefore the claim of deduction u/s 35(2AB) was denied to the assessee for AY 2012-13 in the order u/s 143(3). For AY

9 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. 2009-10, also the, assesee has claimed the deduction u/s 35(2AB) amounting to Rs 1,95,73,000 even though it was not approved u/s 35(2AB) by the prescribed authority for AY 2009-10 which is clear from the information provided by the DSIR. Therefore, I have reason to believe that income chargeable to tax has escaped assessment for A.Y. 2009-10. Notice u/s 148 of the Act is accordingly issued. 22.3.2016” 14. If the assessment for AY 2009-10 is required to be reopened by issue of notice under section 148 of the Act on 22.03.2016 it is mandatory that the non disclosure of material facts is because of the failure on the part of the assessee to disclose fully and truly the material facts. We did not find any finding given in the reasons recorded by the learned AO.16. In view of the above facts we find that failure on the part of the learned AO to specifically record such failure in the reasons is fatal. 15. Honourable Bombay high court in HINDUSTAN LEVER LTD. V. R.B WADKAR AND OTHERS 2004 TAXMAN BOM 137 479, 2004 TAXMAN BOMBAY 137 479 , 2004 ITR BOMBAY 268 332, 2004 CTR BOMBAY 190 166, 2004 SCC ONLINE BOM 154, 2004 MAH LJ 3 517, 2004 BOM CR 4 691, 2004 ITR 268 332, 2004 CTR 190 166 on the issue Whether even if the words " failure to disclose fully and truly all material facts relevant for assessment for assessment year" are absent in the reasons recorded, still such reasons can be inferred on the text of the reasons recorded, Honourable court held that :-

“20. The reasons recorded by the assessing officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be

10 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. read as they were recorded by the assessing officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the assessing officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the assessing officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the assessing officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the assessing officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The assessing officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the assessing officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. 21. Having recorded our finding that the impugned notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of proviso to section 147 of the Act, the assessing officer had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act.

11 ITA No. 5824/Mum/2019 M/s. Godavari Biorefineries Ltd. On this short count alone the impugned notice is liable to be quashed and set aside.” [Underline supplied by us]

In the result, the appeal filed by the assessee is allowed. Pronounced in the open Court on 21st June, 2023.

Sd/- Sd/- (Amit Shukla) (Prashant Maharishi) Judicial Member Accountant Member Mumbai, Dated: 21st June, 2023

Copy to: 1. The Appellant 2. The Respondent 3. The CIT - concerned 4. The DR, “G” Bench, ITAT, Mumbai 5. Guard File By Order //True Copy// Assistant Registrar ITAT, Mumbai n.p.