GUJARAT PAGUTHAN ENERGY CORPORATION PVT LTD vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 4,

Further   it   is   seen   that   from   the   records   of   the assessee   company   that   the   assessee   company   has received an interest of Rs.21761.41 lakhs from GEB for late  payment  of its sale price  i.e.  interest  from  trade debtors. Thus, the deduction of Rs.21761.41 lakhs on interest   from   trade   debtors   is   not   qualified   for   the deduction u/s 80IA.

In view of the above, I have reason to believe that income   to   the   extent   of   Rs.469,73,55,657/­(including Rs.21761.41 lakhs) has escaped assessment by way of under assessment to that extent within the meaning of section 147 of the Income­tax Act, 196661.” 2. 6. The objections were raised vide communication dated 13.7.2009 inter­alia contending that the assessee had duly   submitted   the   separate   reports   for   all   the undertakings   claiming   deduction   under   section   80IA during   the   course   of   proceedings,   as   the   main contention and allegation on part of the Revenue is that the separate report as required to be submitted by each undertaking  and  enterprise   of  the  petitioner   claiming deduction has not been furnished. 2. 7. With regard to the second allegation, it pertains to interest received from GEB for late payment of its sale price which according to the Revenue would not qualify for deduction under section 80IA.it was contended that Gujarat High Court in case of Nirma Industries Ltd. v. Deputy   Commissioner   of   Income­tax  reported   in (2006)   283   ITR   402(Guj),   had   rejected   the   plea   of department   that   income   received   from   trade   debtors towards late payment of sales consideration is required to   be   excluded   from   the   profits   of   the   industrial undertaking as the same cannot be stated to have been derived from the business of the industrial undertaking and   therefore,   after   taking   into   consideration,   the objections   raised   against   the   reasons   recorded,   the Deputy   Commissioner     of   Income   tax   vide   its   order dated 9.12.2009 rejected such objections and directed the petitioner to furnish submissions on merits of the case. In the said order, it was held inter­alia that it was necessary   for   the   petitioner   to   furnish   copy   of   audit report in the prescribed form  No.10CCB along with the return   of   income   and   as   the   audit   reports   were   not attached with the return of income,  deduction claimed under  section  80IA  from the profit  and gains derived from an undertaking would not be admissible. It was further   held   in   the   said   order   that   deduction   under section 80IA is available only in respect of such profit and gain which have a direct or proximate nexus with the   activity   of   manufacture   of   production   and   same must have  accrued to the assessee in the course of or arising   from   the   manufacture   or   production   of   the industrial undertaking. Interest though had its origin in sale,   same   was   not   on   account   of   sale   of   goods   of industrial  undertaking  and, therefore, interest on late payment of sale proceedings would not be eligible for deduction under section 80IA. 3.The petitioner  therefore,  challenged  the said notice.  The Court   issued   notice   on   29.12.2009     however,   the   re­ assessment order was passed by the Assessing Officer the very next day and therefore, the amendment was sought in the   petition   challenging   such   order   dated   30.12.2009 passed under section 143(3) read with section 147 of the Act.   This   Court   permitted   such   amendment   and   also granted the ad interim relief staying implementation and operation of such re­assessment order.

The affidavit in reply has been filed by the respondent wherein it is contended inter­alia that statutory alternative remedies  are available  to the petitioner  and as order  of reassessment   has   been   passed,   the   Commissioner   of Income­tax (Appeals) could be approached and thereafter, the   Tribunal.   It   is   also   contended   that   issuance   of impugned   noticed   for   assessment   year   2004­2005   was within   period   of   four   years   from   the   end   of   relevant assessment year and, therefore, also the Court ought not to have interfered. 4. 1. It is also contended that the petitioner’s contention of reopening being invalid on the ground that same was at the instance of Revenue audit wing also has no basis inasmuch as the Assessing Officer on being convinced that income taxable has escaped assessment has given a proposal for initiating action under section 147 and thus he himself had the reason to believe that income had   escaped   the   assessment   and   such   reopening proceedings   were   not   solely   at   the   behest   of   audit parties. 5.We have heard ld. senior counsel Shri S.N. Soparkar for the  petitioner  who  has  extensively  urged  before  us that notice   for   reopening   of   the   assessment   issued   under section  148  requires  interference  inasmuch  as  both  the reasons   recorded   for   reopening   the   assessment   are   not sustainable. He urged that the first ground raised concerns the separate report to be furnished for each undertaking. Such issue has already been concluded by this Court as also   later   on   by   the   Apex     Court   by   confirming   the judgement of Delhi High Court. 5. 1. He sought to rely upon the following judgements: I) Income­tax Officer  v.  VXL  India Ltd.  reported   in (2009) 312 ITR 187 (Guj). II) Commissioner   of   Income­tax   v.   Contimeters Electricity P. ltd. reported in (2009) 317 ITR 249 (Delhi). III) Commissioner   of   Income­tax   v.   Web   Commerce (India) P. ltd. reported in (2009) 318 ITR 135(Delhi). IV) The   decision   of   the   Apex   Court     in   case   of Commissioner of Income­tax v. Web Commerce (India) P. ltd., where department’s Special Leave Petition against the judgement of the Delhi High Court has been dismissed. 5. 2. On the second reason, he urged the  Court that the judgement  rendered  by this  Court  in case of   Nirma Industries Ltd. v. Deputy Commissioner of Income­ tax(supra) clinches the issue. The issue according to the learned   counsel   has   been   decided   in   favour   of   the assessee and the SLP preferred by the department also has been dismissed by the Apex Court and thus on both the counts, notice is not sustainable and therefore, the Assessing Officer had no juri iction either to issue the notice or to frame re­assessment. 6.Learned senior counsel Shri Manish Bhatt appearing for the   Revenue   has   urged   that   when   the   reasons   were recorded by the Assessing Officer, he had the reason to believe and the law that was prevalent at the relevant point of time permitted him to hold such a reason and therefore, any   subsequent   change   by   way   of   pronouncement   of judgement   would   not   invalidate   the   reasons   nor   the process of reopening and the Court need not interefere. 6. 1. On the contention raised of issuance of the notice of reopening  exclusively  at the behest  of communication received   from   the   audit   wing,   he   urged   that   the Assessing Officer had applied his own mind as the only objection   raised  by  the  audit  wing  was  in  respect  of interest   from   the   trade   debtors   as   not   having   been qualified for deduction under section 80IA and directed re­verification of the papers. He further contended that the   communication   from   the   audit   wing   was   also received with respect to non filing of separate reports for each undertakings. However, on both the counts,  the Assessing   Officer   himself   had   formed   his   belief independently as well and therefore, on that count alone no interference is desirable. 7.Having thus heard both the sides and having considered the material on record at the outset, it needs to be noted that challenge to the notice impugned and subsequently to the order of reassessment, passed consequent upon such issuance of the notice is essentially on two grounds. 8.First ground raised is in respect of requirement of filing separate reports to be submitted by each undertaking of the  petitioner.  It  is   to   be  noted   that   the   fact   is  not   in dispute that the report was in three parts for each of the undertakings   of   the   petitioner.   However,   at   the   time   of assessment proceedings for each undertaking, a separate report had already been furnished. 9.This Court in case of Income­tax Officer v. VXL India Ltd. (supra),     held   and   observed   that   provision   of   section 80HHC of the IT Act requires that the report of a chartered accountant   in   the   prescribed   form   should   be   attached along   with   the   return   of   income,   certifying   that   the deduction has been correctly claimed in accordance with the provisions of this section, but, that would not mean that such report if is not attached along with the return of income   and   if   is   produced   before   the   Assessing   Officer during   the   course   of   assessment   proceedings,   the entitlement   of   the  assessee  for  deduction   under   section 80HHC would go away. It further held that to obtain the report of the chartered accountant is a condition precedent and it is mandatory in nature. However, non furnishing of such report at the time of filing the return of income but at a subsequent stage before the assessment proceedings get completed, would not result in denial of such benefit.

We   notice   that   decision   of   this     Court   in   case   of Income­tax Officer v. VXL India Ltd.(supra) was followed by   the   Delhi   High   Court   in   case   of  Commissioner   of Income­tax v. Contimeters Electricity P. ltd.(supra) and later on in case of  Commissioner of Income­tax v. Web Commerce (India) P. ltd.

It is to be mentioned at this juncture that the SLP preferred   against   judgement   of   the   Delhi   High   Court rendered in case of  Commissioner of Income­tax v. Web Commerce   (India)   P.   ltd(supra)   was   dismissed   by   the Apex   Court   holding   that   once   the   audit   report   is   filed before the framing of assessment, the provisions of section 80­IA(7)   would   be   complied   with   as   furnishing   of   such report at the time of filing of return is directory in nature and not mandatory.

Reverting  back to the facts of the instant  case,  in light   of   aforementioned   decisions,   the   assessee   had submitted   a   separate   report   for   all   the   undertakings claiming deduction under section 80­IA, during the course of assessment proceedings. Therefore, the first ground of reopening, wherein it is alleged that interest from the trade debtors would be qualified for deduction under section 80­ IA only on the furnishing of separate reports, cannot be upheld.

With regard to second ground, it is alleged that the assessee company had received an interest of  Rs.21761.41 lakhs   from   GEB   for   late   payment   of   its   sale   price.   We notice that in case of   Nirma Industries Ltd. v. Deputy Commissioner   of   Income­tax(supra)   the   plea   of   the department has been rejected holding that interest received from trade debtors towards the late payment of sale price, is   required   to   be   excluded   from   the   profit   of   industrial undertaking as same cannot  be said to be derived from industrial undertaking. This issue also stands concluded at  the  stage  of   Apex  Court  and  therefore,   such  ground raised   in   the   reasons   recorded   also   in   our   opinion   if allowed to be proceeded with, cannot be sustained.

At this stage, reference is needed of the fact that the petitioner has raised the ground that the notice impugned has been initiated at the behest of audit objections and

It   is   a   settled   position   that   once   the   notice   for reopening  is issued and is allowed to be proceeded, the Assessing Officer can also open other issues, other than those   for   which   the   reasons   have   been   recorded   and,

In the case on hand thus, as both the grounds in respect of which  the notice has been issued fall and both these reasons recorded in the reopening of the assessment when are held to be unsustainable, for the reasons detailed hereinbefore, we hold that the Assessing Officer would not be   in   a   position   to   make   any   additions   on   some   other grounds which never formed part of the reasons recorded by him and therefore, as the very foundation of reopening is gone, also the notice impugned and consequently passed order of re­assessment must be interfered with.

We need to briefly touch the submission of learned counsel Mr Bhatt that while the Assessing Officer recorded his   reasons,   his   belief   was   sustainable   and   because   of subsequent pronouncement of law changed the scenario, that   may   not   be   the   ground   for   interference   in   a   writ juri iction. As discussed, a valid reopening of previously closed   assessment   is   a   must   for   assuming   juri iction under section 147 of the Act. When the very foundation of such reassessment are both the reasons recorded  and by virtue   of   binding   decisions,   neither   of   the   grounds   is sustainable, permitting such notice to be pursued would be an exercise in futility and this Court cannot disregard such vital aspects while addressing the challenge to the notice of reopening.

Petition   deserves   to   be   allowed   quashing   the impugned notice for reopening dated 27.3.2009 so also the order of re­assessment dated 30.12.2009 and any further consequential proceedings taken thereunder.

Petition stands disposed of accordingly with no order as to costs. Rule is made absolute to the extent above. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu