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Facts
The Revenue filed an appeal against the CIT(A)'s order which quashed the reassessment proceedings initiated under Section 147 for AY 2010-11. The original assessment was completed under Section 143(3) on 22.02.2013, and the reassessment notice under Section 148 was issued on 25.03.2017, which is beyond four years from the end of the assessment year.
Held
The Tribunal held that the reopening of assessment was bad in law as it was initiated beyond four years and the Assessing Officer failed to discharge the onus to prove that the assessee had not disclosed all information truly and fully, as required by the proviso to Section 147. The CIT(A)'s order quashing the reassessment was upheld.
Key Issues
Whether the reassessment proceedings initiated beyond four years are valid, and if the Assessing Officer discharged the onus to prove non-disclosure by the assessee.
Sections Cited
147, 143(3), 148, 80IA, 10CCB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Smt. Annapurna Gupta & Shri T.R. Senthil Kumar
Date of hearing : 07-01-2025 Date of pronouncement : 07-03-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Revenue as against the appellate order dated 20.01.2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the reassessment order passed under section 147 r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2010-11. Page No 2 ACIT Vs. Gujarat Fluorochemicals Ltd.
Brief facts of the case is that the assessee is a company engaged in manufacturing of Chemicals & Refrigerant Gases. For the Asst. Year 2010-11, assessee filed its Return of Income on 30-09-2010 declaring total income of Rs.1,38,49,07,600/- after claiming deduction under chapter VI of Rs.39,95,65,655/-. The assessee filed a revised return on 31-03-2012 declaring total income of Rs.1,38,40,35,980/- and Book profit of Rs. 4.07 crores. The return was selected for scrutiny and assessment order u/s. 143(3) was passed on 22-02-2013 determining the total income at Rs. 1,58,58,29,700/- and Book profit at Rs. 4.25 crores. The assessment was reopened on the ground that irregular deduction under section 80IA was allowed to the assessee thereby excess MAT credit was allowed to be carry forward. Therefore 148 notice dated 25-03-2017 was served on the assessee. The assessee requested to treat the original return in response to the 148 notice and sought for reasons for reopening of assessment.
2.1. The Ld. A.O. furnished reasons recorded for reopening as follows: “Scrutiny records and submission produced during assessment pertaining to A.Υ. 2010-11 revealed that assessee had seven wind mill/power plant (eligible undertaking for 80-1A deduction) for power generation and claimed of 396990655 u/s 801A (4) towards profit of the business from operation of the generation of power as under: Sr. Units/ Date of Initial Profit / Deduction Deduction No. undertaking commencement of assessment Loss of u/s. 80IA u/s. 801A undertaking (AY) year for claim undertakin claimed actually of 80IA g allowed 1 Wind Power 27/09/2009 Not claimed (-) Nil Nil Unit Osiya-II (AY 2010-11) 581945212 2 Wind Power 26/09/2009 Not claimed (-) Nil Nil Unit Osiya-I (AY 2010-11) 1318902683 Page No 3 ACIT Vs. Gujarat Fluorochemicals Ltd. 3 Wind Power 01/04/2008 2010-11 206565017 206565017 206565017 Unit-Sadiya (AY 2009-10) 4 Wind Power 13/02/2007 2010-11 164579509 164579509 164579509 Unit-Gude (AY 2007-08) Panchgani 5 Captive 01/07/2006 2009-10 (-)8601021 Nil Nil Power Plant, (AY 2007-08) Dahej 6 Coal Based 25/06/2009 2010-11 (-) Not Nil Power Plant- (AY 2010-11) 101136491 claimed Dahej 7 Captive 28/05/2005 2007-08 25846129 25846129 Nil Power Plant (AY 2006-07) AY Loss of Wind power unit Loss of Wind power unit Gude sadiya Panchgani 2007-08 Nil 808599343 2008-09 Nil 56654370 2009-10 690387824 316928121 Total 690387824 1632181834 In view of the section 80-IA(5) of the IT Act, assessee had to adjust the notional brought forward losses from A.Y. 2007-08 to A.Y. 2009-10 before claiming deduction in A.Y. 2010-11. After set off of notional brought forward loss against the profit of A.Y. 2010-11, there will be no profit remained for claiming deduction u/s 80-IA of the IT Act, 1961.” 2.2. The assessee replied that the reopening is based on audit objection referred by the Department Audit Party and without application of mind by the Assessing Officer. Hence the reopening itself is bad in law. Further during the course of regular assessment, assessee made a claim of Rs.37,11,44,526/- and the Assessing Officer disallowed Rs.2,58,46,129/- in respect of Ranjitnagar Captive Plant. Further the assessee along with the Audit Report in Form 10CCB made the claim of deduction u/s. 80IA(4) of the Act. Thus there is no omission on the part of the assessee in declaring the income before the authority and the reassessment having been initiated after 4 years of period, there is Page No 4 ACIT Vs. Gujarat Fluorochemicals Ltd. no failure on the part of the assessee. Therefore the reopening itself is bad in law. Since the deduction for u/s. 80IA was claimed for the first time during A.Y. 2010-11, the brought forward losses are not required to be set off relying on the Tribunal decision in the case of Mohan Breweries And Distilleries Limited vs. ACIT reported in 116 ITD 241 and also Madras High Court Judgment in the case of Velayudhaswamy Spinning Mills (P.) Ltd. vs. ACIT reported in 38 DTR 57 2.3. However the above objection was considered but not found acceptable as the calculation of loss incurred in different assessment years and the A.O. observed as follows:
AY Loss of Wind power unit Loss of Wind power unit Gude sadiya Panchgani 2007-08 Nil 808599343 2008-09 Nil 56654370 2009-10 690387824 316928121 It is clear from table (supra) that after setting off of notional brought forward loss against the profit of A.Y. 2010-11, there is no profit remained for claiming deduction u/s 80-IA of the IT Act, 1961. In view of the section 80-1A(5) of the IT Act, assessee had to adjust the notional brought forward losses from A.Y. 2007-08 to A.Υ. 2009-10 before claiming deduction in A.Y. 2010-11. Therefore, the assessee is not eligible to claim deduction u/s 801A. Hence the same is disallowed.
Aggrieved against the re-assessment order, assessee filed an appeal before Ld. CIT(A) who quashed the reassessment as bad in law without going into merits of the case by observing as follows:
5.1.5 Admittedly, in impugned case, an assessment u/s.143(3) of I.T. Act was completed on 22.02.2013. The present appeal relates to AY 2010-11, hence any action u/s.147 of I.T. Act can be taken upto 31.03.2017 i.e. upto Page No 5 ACIT Vs. Gujarat Fluorochemicals Ltd. six years from the end of the relevant assessment year, however, if an action u/s.147 is taken after 31.03.2015, then proviso to section 147 of I.T. Act will apply, if an assessment u/s.143(3) of I.T. Act has been completed prior to re-assessment. The onus to prove that the assessee has not disclosed income truly and fully will be on the part of AO. In impugned case, since the assessment was already completed and notice u/s.148 of I.T. Act was issued after 31.03.2015, the proviso is apparently applicable. While going through the reasons recorded for reopening of the assessment, it is seen that the AO has not incorporated the fact in reason whether the intent of the proviso is applied or not as there is no mention of proviso in the reasons recorded for reopening the assessment. After taking into consideration the language of the reasons recorded for reopening of the assessment, it is apparent that the AO has not discharged his onus to prove that the assessee had not disclosed all information truly and fully as necessary for the assessment in terms of proviso to section 147 of I.T. Act. Hence, in this background, the notice issued u/s. 148 of I.T. Act is held to be illegal and bad in law, accordingly deserve to be quashed. As a result, ground no.1 is allowed.
Aggrieved against the appellate order, Revenue is in appeal before us raising the following Grounds of Appeal:
1. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is justified in holding that re-assessment proceeding were illegal and bad in law and deserve to be quashed?"
2. Whether on the facts and circumstances of the case and in law, Ld.CIT(A) is justified in not appreciating that reopening of the case after expiry of four years as per provisions of section 148 of the Act was valid and reasons recorded by Assessing Officer expresses that "there is failure on the part of assessee "and proviso to section 147 of the income-tax Act is applicable?" 3. Whether on the facts and circumstances Ld. CIT(A) failed to appreciate that explanation 1 to section 148 is applicable in this case as production before the assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso?"
Page No 6 ACIT Vs. Gujarat Fluorochemicals Ltd.
4. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not adjudicating the appeal on merits and not upholding the order of the A.O. on the issue of disallowance u/s. 80IA(4) of Rs. 37,11,44,526/-?"
The appellant craves leaves to add, modify, amend or alter any grounds of appeal
at the time of, or before, the hearing of appeal
5. We have heard rival submissions and perused the materials available on record. It is undisputed fact that the reopening is being done beyond four years period. The assessee along with the Audit Report in Form 10CCB made the claim of deduction u/s. 80IA(4) of the Act of Rs.37,11,44,526/- and in the original assessment order passed on 22-02-2013, the Assessing Officer disallowed the claim of Rs.2,58,46,129/- in respect of Ranjitnagar Captive Plant. Thus the Assessing Officer has gone through the claim made by the assessee while passing the original assessment order, there is no failure on the part of the assessee in disclosing income truly and fully. Hence the question of Explanation 1 to Section 148 does not arise in the above case. Thus the reopening of assessment is not well within the provisions of the Act by the Assessing Officer, therefore the entire reassessment is liable to be quashed. Thus the findings arrived by Ld. CIT(A) does not require any interference.
5.1. Even on merits of the case, the Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. (cited supra) held as follows:
“Under section 80-IA(1), deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised and if it is not exercised, the assessee will not Page No 7 ACIT Vs. Gujarat Fluorochemicals Ltd. be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc. Sub- section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that "initial assessment year employed in sub-section (5) is different from the words "beginning from the year referred to in sub-section (2). When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and not the losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. Thus, loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business, as no such mandate is provided in section 80-IA(5).
Thus on merits of the case also, the Revenue has not made out any case of escapement of income. Thus the Grounds raised by the Revenue are devoid of merits and the same is liable to dismissed.
In the result, the appeal filed by the Revenue is hereby dismissed.