AIA ENGINEERING LIMITED vs. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1)

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SCA/13101/2021HC GujaratGJHC24048074202105 April 2022Bench: HONOURABLE MR. JUSTICE J.B.PARDIWALA,HONOURABLE MS. JUSTICE NISHA M. THAKORE6 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that all aspects relied upon for reopening were already before the Assessing Officer during the scrutiny assessment under Section 143(3). The revenue conceded this point. The Court found no omission or failure on the part of the writ applicant to fully and truly disclose all relevant aspects. No new tangible material had come to the knowledge of the respondent after the assessment was framed. Therefore, the case was considered one of a mere change of opinion. Consequently, the writ application was allowed, and the impugned notice was quashed. The court did not decide on the merits of the proposed additions, as the primary issue was the validity of the reopening itself.

What were the facts?

The writ applicant, AIA Engineering Limited, challenged a notice dated March 20, 2021, issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for Assessment Year 2014-15 under Section 147. The Assessing Officer (AO) proposed reopening based on four grounds: impermissible adjustment of business loss and unabsorbed depreciation, addition of capital receipt as income, proportionate disallowance under Section 40(a)(i) read with Section 195, and non-allowability of depreciation on goodwill created on amalgamation. The assessee objected to the reopening, which the AO disposed of by stating the reopening was justified. The assessee then filed a writ petition before the Gujarat High Court.

What were the issues?

1. Whether the reopening of assessment beyond a period of four years is valid, given there was no failure on the part of the assessee to make a full and true disclosure? (Question of law and fact, concerning Section 147/148 of the Income Tax Act, 1961). 2. Whether the reopening is based on a mere change of opinion by the Assessing Officer? (Question of law, concerning Section 147/148 of the Income Tax Act, 1961). 3. Whether the additions proposed on merits are warranted? (Question of law and fact, concerning various provisions of the Income Tax Act, 1961). 4. Whether there has been an escapement of income chargeable to tax? (Question of law and fact, concerning Section 147/148 of the Income Tax Act, 1961). 5. Whether the reopening is based on audit objections? (Question of law, concerning Section 147/148 of the Income Tax Act, 1961). Assessee's contentions: Reopening is beyond four years without failure to disclose; it's based on a change of opinion; additions are not warranted on merits; there is no escapement of income; reopening is based on audit objections. Revenue's contentions: The notice under Section 148 is legal and within jurisdiction, issued after cogent reasons; objections were exhaustively dealt with; reopening is justified as returned losses and capital receipt utilized for fixed assets resulted in escapement of income; additional grounds for reopening include failure to deduct TDS on interest payment and incorrect depreciation claim on goodwill.

Which sections of the Income-tax Act were involved?

Section 148,Section 147,Section 40(a)(i),Section 195,Section 143(3)

AI-generated summary — verify with the full judgment below

C/SCA/13101/2021 ORDER DATED: 05/04/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 13101 of 2021 ========================================================== AIA ENGINEERING LIMITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1) ========================================================== Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 M R BHATT & CO.(5953) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE

Date : 05/04/2022

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs; “(a) quash and set aside the impugned notice at Annexure-”A” to this petition; (b) pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the notice at Annexure-’A’ to this petition and stay the further proceedings for the Assessment Year 2014-15 (c ) any other and further relief deemed just and proper be granted in the interest of justice; (d) to provide for the cost of this petition” 2. The subject matter of challenge in the present writ Page 1 of 6

C/SCA/13101/2021 ORDER DATED: 05/04/2022 application is the legality and validity of the notice issued by the respondent dated 20th March, 2021 under Section 148 of the Income Tax Act, 1961 (for short “the Act, 1961”), seeking to reopen the assessment for the A.Y.2014-15 under Section 147 of the Act, 1961. Broadly, the Assessing Officer seeks to reopen the assessment for the relevant year on the following grounds; “i) Adjustment

“business

loss”

of Rs.3,79,53,351/- and “unabsorbed depreciation” of Rs.6,76,08,604/- aggregating to Rs.10,55,61,955/- (i.e. Rs.3,79,53,351 + Rs.6,76,08,604) is not permissible. ii) Capital receipt of Rs.9,63,41,028/- shown as SHIS is to be added as income; iii) Proportionate disallowance of Rs.2,31,65,026/- is warranted under section 40(a)(i) r.w.s. 195 of the Act; iv) Depreciation of Rs.1,91,95,171/- on goodwill created on amalgamation is not allowable.” 3. The writ applicant raised objections against reopening vide letter dated 01.05.2021. The objections came to be disposed of by the respondent vide order dated 11.08.2021. The respondent disposed of the objections stating that the action of reopening for the year under consideration is justified. 4. In such circumstances, referred to above, the writ applicant is here before this Court with the present writ Page 2 of 6

C/SCA/13101/2021 ORDER DATED: 05/04/2022 application. 5. Mr. Tushar Hemani, the learned senior counsel assisted by Ms. Vaibhavi Parikh, the learned advocate appearing for the writ applicant broadly made the following submissions; I) Reopening is beyond a period of four years and there is no failure on the part of the writ applicant as to full and true disclosure. II) Reopening is based on mere change of opinion. III) Even on merits, the addition is not warranted. IV) There is no escapement of income chargeable to tax. V) Reopening is based on audit objections. 6. In such circumstances, referred to above, Mr. Hemani prays that there being merit in his writ application, the same be allowed and the impugned notice be quashed and set aside. 7. Per contra, Mr. M.R. Bhatt, the learned senior counsel appearing for the revenue would submit that the impugned notice issued under Section 148 cannot be said to be illegal or without jurisdiction in any manner. The Page 3 of 6

C/SCA/13101/2021 ORDER DATED: 05/04/2022 same has been issued after recording cogent reasons. The objections raised by the writ applicant have been exhaustively dealt with. Mr. Bhatt would submit that the case has been reopened on the ground that the writ applicant had claimed business loss of Rs.3,79,53,351/- and absorbed depreciation of Rs.6,76,08,604/- thereby aggregating to Rs.10,55,61,955/- and the same was justified against the current year business income. According to Mr. Bhatt, the said losses were returned losses and not assessed losses and, in such circumstances, the amount of Rs.10,55,61,955/- could be said to have escaped assessment. Mr. Bhatt further pointed out that the writ applicant had also shown capital receipt of Rs.9,46,44,744/- from the SHIS which was utilized in the purchase of fixed assets. However, the same was not added back and the same has resulted in escapement of income of Rs.9,63,41,028/-. 8. Mr. Bhatt invited the attention of this Court to the reply filed on behalf of the revenue wherein two more grounds have been highlighted for the purpose of reopening. We quote Paras-6 and 7 of the reply as under; “6. The Assessing Officer also reopened the case on the ground that the petitioner had deducted TDS of US$ 24,960 on payment of US $ 592012 to City Corp. Singapore towards interest on external commercial borrowing. The petitioner failed to deduct the TDS @ 10% on the gross amount which comes to US $ 65,779 in view of the DTAA Singapore. Such failure on the part of the petitioner requires proportionate Page 4 of 6

C/SCA/13101/2021 ORDER DATED: 05/04/2022 disallowance under Section 40(a)(i) of the Act. Such failure has resulted into escapement of Rs.2,31,65,026/-. 7. The Assessing Officer also reopened the case on the ground that the DCPL Founders Limited was amalgamated with the petitioner Company with the appointed date being 1.4.2013. The petitioner claimed depreciation of Rs.1,91,95,171/- at the rate of 25% on account of goodwill. As a result of amalgamation, the assets of the amalgamated Company were brought in the books of the petitioner Company and applicable depreciation was also claimed. No intangible assets in the form of goodwill were in existence at the time of amalgamation either in the books of the amalgamated Company or in the books of the petitioner Company. The claim of depreciation

the

successor/amalgamated Company in the year of amalgamation would be on the written down value of the assets in the books of the amalgamating company and not on the cost as recorded in the books of the amalgamated company. Failure to do the above has resulted into escapement of income of Rs.1,91,95,171/-.” 9. In such circumstances, referred to above, Mr. Bhatt would submit that reopening should be permitted and this Court may not disturb the same. 10. Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are of the view that all the aspects of the matter sought to be relied upon for the purpose of reopening were very much before the Assessing Officer at the time when the scrutiny assessment under Section 143(3) was carried out. To this extent, Mr. Bhatt with his usual Page 5 of 6

C/SCA/13101/2021 ORDER DATED: 05/04/2022 fairness conceded. We are of the view that the case is not one of any omission or failure on the part of the writ applicant in fully and truly disclosing all the relevant aspects of the matter. No new tangible material could be said to have come to the knowledge of the respondent after the framing of the assessment. The case could be said to be one of mere change of opinion. 11. In view of the aforesaid, this writ application succeeds and is hereby allowed. The impugned notice is hereby quashed. (J. B. PARDIWALA, J) (NISHA M. THAKORE,J) Vahid Page 6 of 6

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