GUJARAT ENERGY TRANSMISSION CORPN.LTD.,,BARODA vs. THE DY.CIT, CIRCLE-1(1),, BARODA

The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-1, Vadodara (CIT(A)’ in short), dated 22.09.2015 arising in the assessment order dated 22.01.2013 passed by the Assessing Officer (AO) under s.

The assessee has challenged the disallowance of prior period expenses of Rs.8,36,34,000/- in the captioned appeal arising from re- assessment order framed under s.147 of the Act.

The assessee has also moved an application for admission of additional ground of appeal vide its application dated 29.07.2019 whereby it seeks to challenge the order of the Revenue authorities on a purported legal ground towards validity of reopening notice issued under s.148(2) of the Act as well as re-assessment proceedings carried out under s.147 of the Act in the absence of any escapement of income. We find that the additional ground raised by the assessee goes to the root of the matter as it seeks to question the validity of the proceedings itself for which relevant facts are also found on the record itself. Thus, the leave of the Tribunal to admit the additional ground for adjudication in terms of Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 deserves to be granted. The additional ground thus stands admitted.

At the beginning of the hearing, the learned counsel for the assessee pointed out that efficacy of order passed under s.147 of the Act is in [Gujarat Energy Transmission Corpn. Ltd.] A.Y. 2008-09 - 3 - question in the instant case. The learned AR referred to the assessment order originally passed under s.143(3) of the Act dated 30.12.2010 pointed out that total income assessed under normal provisions stands at Rs.Nil whereas deemed income computed under the shelter of said provisions of Section 115JB of the Act stands at Rs.113.10 Crores. It was submitted that after passing the aforesaid assessment order under s.143(3) of the Act, a notice under s.148(2) of the Act was issued on 27.03.2012 for AY 2008-09 in question. As a consequence of the aforesaid re-assessment notice, a re- assessment order under s.143(3) r.w.s. 147 of the Act dated 22.01.2013 was passed. Adverting to the issue, the learned AR adverted to the computational part of the re-assessment order and pointed out that despite disallowance of prior period expenses of Rs.8.36 Crore, the assessed total income continue to stand at Rs.Nil whereas deemed income under s.115JB of the Act stands at Rs.113.09 Crores. It was submitted that in the background of these facts, where the tax liability under s.115JB of the Act overrides the liability under normal provisions, no escapement can be envisaged. It was thus contended that re-assessment notice is without authority of law and re-assessment order is bad in law in view of the decision of the Hon’ble Gujarat High Court in the case of India Gelatine and Chemicals Ltd. vs. ACIT (2014) 364 ITR 649 (Guj) which principles have been followed in Motto Tiles (P.) Ltd. vs. ACIT (2016) 386 ITR 280 (Guj). It was pointed out in conclusion that even if entire amount of disallowances made by the AO on account of prior period expenses is sustained, there would be no addition to the tax liability of the assessee and the assessee would still be governed by the provisions of Section 115JB of the Act and assessed on the same book profit. It was thus submitted that in the absence of any additional tax liability, it cannot be said that there was sufficient material before the AO to form the belief that income chargeable to tax has escaped assessment. The learned counsel thus submitted that the re-assessment notice is thus without sanction of law and deserves to be quashed. The re-assessment order has a consequence of such notice was also urged to be declared null and void. [Gujarat Energy Transmission Corpn. Ltd.] A.Y. 2008-09 - 4 -

The learned DR, on the other hand, relied upon the actions taken by the AO under s.147/148 of the Act. In furtherance, the learned DR for the Revenue referred to the scheme provided under s.147 of the Act and submitted that in view of Explanation 2(c) below Section 147 of the Act, a completed assessment can be reopened even where excessive loss or excessive allowance has been claimed or where income chargeable to tax has been under-assessed de hors the ultimate assessed income. It was submitted that as per categorical legislative intent, reopening of assessment is not dependent upon the ultimate tax liability but is dependent upon escapement of chargeable income from taxation. The learned DR submitted that the assessee has claimed prior period expenses which is not eligible under s.37(1) of the Act or other provisions of the Act. The assessee has thus claimed extra expenditure and consequently, understated the assessed income. In this scenario, the case of the assessee clearly falls within the sweep of Explanation 2 below Section 147 of the Act which envisages escapement of income in the circumstances specified therein. The learned DR for the Revenue thus contended that the express provisions of statute requires to be accorded primacy and no other interpretation in deviation thereof is called for.

We have carefully considered the rival submissions. The limited controversy raised by way of additional ground whereby the Tribunal has been called upon to adjudicate as to whether re-opening under s.147/148 of the Act in maintainable where tax liability as per book profits computed under s.115JB of the Act is not disturbed and also exceeds the total income determined as per normal provisions. We find that the issue is no longer res integra in view of the judgment rendered by Jurisdictional High Court. The Hon’ble Gujarat High Court in India Gelatine and Chemicals Ltd. (supra) has observed that in the absence of any addition to the tax liability of the assessee computed under s.115JB of the Act (which exceeds the tax liability under normal provisions), the jurisdiction of the AO is ousted even if the proposed disallowance of expenditure by the AO under normal provisions is sustained. The view expressed in India Gelatine and [Gujarat Energy Transmission Corpn. Ltd.] A.Y. 2008-09 - 5 - Chemicals Ltd. (supra) was adopted by the Hon’ble Gujarat High Court Motto Tiles (P.) Ltd. vs. ACIT (2016) 386 ITR 280 (Guj).

The relevant operative para in later decision of Hon’ble Gujarat in Motto Tiles (P.) Ltd. (supra) is reproduced hereunder:

In view of the unequivocal and clinching observations made by the Jurisdictional High Court, we are not in a position to take any indulgence at the plea of the Department for maintainability of re-assessment notice and re-assessment order having regard to legislative fiat by way of Explanation 2 to Section 147 of the Act referred to and relied upon. [Gujarat Energy Transmission Corpn. Ltd.] A.Y. 2008-09 - 6 - Needless to say, Article 141 of the Constitution embodies the rule of precedent. All the subordinate courts are bound by judgment of the High Courts. Thus, governed by the decision of the Hon’ble Gujarat High Court as noted above, we find merit in the plea raised by the assessee by way of its additional grounds of appeal. The re-assessment notice is accordingly quashed and re-assessment order is declared null and void.

In the result, the appeal filed by the assessee allowed.