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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM, & HON’BLE SHRI MANOMOHAN DAS
आयकर अपील सं./ (िनधा?रण वष? / Assessment Year: 2006-07) M/s. VA Tech Wabag Limited ACIT बनाम/ Wabag House, No.17, 200 Feet Radial Road Central Circle-3(2), S.Kolathur (Near Kamakshi Hospital) Chennai. Vs. Chennai-600 117. �थायी लेखा सं./जीआइ आर सं./PAN/GIR No. AABCV-0225-G (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ� की ओरसे/ Appellant by : Shri R. Vijayaraghavan (Advocate)-Ld. AR ��थ� की ओरसे/Respondent by : Shri P. Sajit Kumar (JCIT) – Ld. Sr. DR सुनवाई की तारीख/Date of Hearing : 29-02-2024 घोषणा की तारीख /Date of Pronouncement : 13-03-2024 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2006-07 arises out of an order passed by learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] on 16-02-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 147 of the Act on 11-03-2014. The registry has noted delay of 3 days in the appeal. Considering the period of delay, the delay is condoned and the appeal is admitted for adjudication.
The grounds raised by the assessee read as under: -
The order of the Learned Commissioner of income tax (Appeals) is contrary to the law and facts involved and not based on facts and circumstance of the case.
2. Reopening is bad in law: 2.1 The Learned Commissioner of Income tax (Appeals) erred in confirming the validity of reopening. 2.2 The Commissioner of Income tax (Appeals) ought to have appreciated that after assessment u/s 143(3) was passed on 26.10.2008 the notice under sec 147 was issued on 8.3.2013 beyond 4 years from the end of the Assessment year without mentioning what were the particulars omitted to be furnished by the Appellant which had resulted in escapement of income and hence the reopening is without jurisdiction. 2.3 The Commissioner of Income tax (Appeals) ought to have appreciated that the Appellant had produced the entire working of the computation of relief under sec 80IA and the present reworking of deduction u/s 80IA in the reassessment is nothing but mere change of opinion of the Assessing Authority on the same set of facts and hence the reopening is without jurisdiction. 2.4 The Commissioner of Income tax (Appeals) ought to have appreciated that there were no new tangible facts which came to the notice of the Assessing officer justifying reopening of assessment and hence the reassessment is without jurisdiction 2.5 The Commissioner of Income tax (Appeals) ought to have appreciated that deduction under sec 80IA, which was disallowed in the original assessment was subject matter of appeal up-to the High Court and hence the issue of allowance of relief under sec 80IA merged with the Appellate orders and cannot be reassessed u/s 147. 3. Items of business income wrongly considered as 'Other Income' for S.80IA: 3.1 The Commissioner of lncome tax (Appeals) erred in confirming the disallowance u/s. 80lA claim of the appellant amounting to Rs.3,06,39,429/- treating the same as other income. 3.2 The Commissioner of lncome tax (Appeals) erred in not appreciating the fact that items such as liquidated damages reversed, provision for warranty reversed, amounts written-back, sale of scrap etc. are purely business income and under no stretch of imagination can be treated as other income and not eligible for section 80lA deduction. 3.3 The Commissioner of Income tax (Appeals) ought to have appreciated that these incomes are reversal of expenses and the same was allowed as a deduction against profits eligible for deduction u/s 80IA and therefore the reversal of the same would-be business profits derived from the eligible undertaking. 3.4 The Commissioner of Income tax (Appeals) ought to have appreciated that these expenses when claimed as deduction was considered as related in the first degree to the business profits of the undertaking, cannot be considered, when they are reversed as no longer required, not relating to the business of the undertaking. 3.5 The Commissioner of Income tax (Appeals) ought to have appreciated that whenever there is remission of liability allowed as a deduction against business profits in the earlier year becomes taxable as deemed business profits under sec.41(1). This deemed profits arise from the activity of the eligible business, it cannot be considered as a separate source of business profits but has to be included in profits of the eligible undertaking in computing relief under sec 80/A. 3.6 The Commissioner of lncome tax (Appeals) failed to appreciate Gujarat High court decision in the case of CIT vs. Nirma Ltd. 2015 229 Taxmann 535 wherein it is held that sale of scraps is to be included for the purpose of calculation of deduction u/s.80lA and section 80HH of the Act.
3.7 The Commissioner of Income tax (Appeals) failed to appreciate that the Delhi Tribunal Decision in the case of ACIT vs. THDC India Ltd.215 39 /TR 206 wherein it is held that excess provision Written bank is business income and eligible for 80lA deduction, As is evident, the assessee has challenged the validity of re- assessment proceedings. The assessee has also challenged the quantum addition on merits.
The Ld. AR advanced arguments and submitted that there was no failure on the part of the assessee to disclose the required particulars of income. Further, no tangible material came into possession of Ld. AO to form an opinion of escapement of income. Therefore, the reopening was bad-in-law. The Ld. AR also advanced arguments on merits. The Ld. Sr. DR controverted the arguments of Ld. AR and supported the impugned order. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.
The chronology of events leading to present appeal, as tabulated by Ld. AR, is as under: - SEQUENCE OF Assessment Proceedings & Outcome Order Date Income Tax Remarks Reference Assessed Assessed Disallowances 80IA - 14,28,54,065 Other Disallowances: Payment to Allegro -50,80,150 By ACIT 26/12/2008 17,17,02,474 6,80,13,325 Forex loss - Rs.45,00,613 Travelling expenses - Rs.40,025 Audit fee - Rs.2,656 Total: Rs.15,24,77,509 Partly allowed for 80IA Rs.14,11,72,786/- (Disallowed for CIT(A) 24/02/2012 Alandur Project - Executed for First STP Co Ltd - Rs.16,81,278/-) Allowed forex loss - Rs.45,00,613/- AO ignored the point regarding Rectification- liability Giving effect 26/03/2012 2,60,29,075 87,61,385 as per MAT calculation would be by ACIT higher by 38.97 lakhs
TDS credit only Rs.2,68,30,588/- (Short credit Rs.6,44,997/-) Refund due Rs.1,80,69,203/- Department went for appeal against CIT(A) order on our first appeal ITAT which was rejected and allowed the 25/01/2017 claim of deduction u/s 80lA and the forex loss claimed High Court 07.03.2019 Dismissed department appeal TCA Nos.196 to 201 of 2019 ACIT (after 11/03/2014 5,93,54,375 1,99,78,684 Disallowance of excess claim for 80- reopening) IA of Rs.3,33,25,300/- (being other income included in P & L) CIT(A) for 2nd 29/02/2016 Upheld order of ACIT after appeal reopening 24/05/2016 Final Disallowances Rectification 5,66,678,504 1,90,74,617 Under Section 80-IA Rs.3,23,20,707 Order / Payment to Allegro - Rs.50,80, 150/- Giving effect Travelling expenses - Rs.40,025/- order by Audit fee -- Rs.2,656 Total - Rs.3,74,43,538 ACIT Due to disallowance of "Other Income as per P & L" as not eligible profit for 801A deduction As per P & L Rs.3,38,04,429 Less: Interest income Rs. 4,78,929 Forex gain Rs. 26,85,871 Net disallowance Rs.3,06,39,429 Alandur Project Rs. 16,81,278 Total profit not eligible u/s 80IA Rs.3,23,20,907 That the reopening is bad in law and Our cross appeal not within the powers of ACIT ITAT 02/12/2021 Remitted back the files to CIT(A) and asked to re-consider the matter of reopening CIT(A) 16/02/2023 Our submission on the ground that the reopening is bad in law is rejected and so the addition to income done is correct. Position reverts back to status as on 24/05/2016.
It could be seen that in the original assessment order dated 26-12- 2008, Ld. AO denied deduction as claimed by the assessee u/s 80IA for Rs.14.28 Crores. Upon further appeal, Ld. CIT(A), vide order dated 24-02-2012, partly allowed 80IA claim and denied this deduction for - 5 - Alandur Project. The Ld. AO gave effect to appellate order on 26-03- 2012 and revised tax computations against the assessee. The revenue filed further appeal before Tribunal in & ors. which got dismissed vide order dated 25-01-2017. The revenue’s further appeal before Hon’ble High Court of Madras got dismissed in TCA No.196 to 201 of 2019 dated 07-03-2019 wherein Hon’ble Court held that no substantial question of law arises in the appeal. In the meanwhile, the case was reopened and notice u/s 148 was issued on 08-03-2013. The same was for the reason that the assessee claimed excess deduction u/s 80IA by including income which would not qualify for such deduction. Further, in giving effect order, income taxable u/s 115JB was omitted to be considered resulting into short levy of tax for Rs.38.96 Lacs. An order was passed u/s 143(3) r.w.s. 147 on 11-03-2014 adding back excess deduction claimed u/s 80IA. The tax payable by the assessee was re-computed. Since the tax under normal provisions was more than tax on income u/s 115JB, tax under normal provisions was adopted. The Ld. CIT(A), vide order dated 29-02-2016, upheld the order of Ld. AO. The Ld. AO passed giving effect order on 24-05-2016. The assessee as well as revenue preferred further appeal before Tribunal in ITA No.1377 & 1517/Chny/2016 which was disposed-off vide order dated 02-12-2021. The assessee filed Petition under Rule 11 and assailed assumption of reassessment jurisdiction on the ground that proceedings were bad-in- law. Considering the same, the appeal was restored back to the file of Ld. CIT(A). The Ld. CIT(A) passed fresh order on 16-02-2023 dismissing assessee’s appeal which is in further challenge before us. Appellate Proceedings
On legal issues, the assessee submitted that the case was reopened beyond 4 years. The Ld. CIT(A) passed speaking order on 24-02-2012 clearly verifying all projects and allowed deduction u/s 80IA except for Alandur Project. The Ld. AO passed order on 26-03-2012 and allowed deduction of Rs.14.11 Crores as allowed by Ld. CIT(A). Even if there was some mistake in calculation either on the part of the assessee or on the part of AO, that would not mean that the assessee had not disclosed fully and truly the material facts regarding his income. In case of calculation mistake, the same could have been rectified u/s 154 and no notice u/s 148 could be issued. Another submission was than when appeal on original assessment order was pending, reassessment could not be done since original order is merged with the order of higher authorities. Lastly, there was no fresh evidence coming into the possession of authorities which would indicate that the assessee understated income or claimed excessive deductions etc. All the details qua deduction u/s 80IA were submitted and verified by lower authorities.
The Ld. CIT(A) noted that though reopening was beyond 4 years, however, there was audit objection on the first assessment made by Ld. AO. The reasons recorded by Ld. AO were as under: - (1) The assessee is engaged in the business of turnkey execution of water/waste water treatment plants projects. It is ascertained from the records that deduction u/s 80IA for Rs.14,11,72,786 was allowed. However the above income includes Rs.3,38,04,229 being interest & other miscellaneous income which would not qualify for deduction u/s 801A. Prima facie, objection appears to be reasonable and need to be rectified by rectification/ re-opening of the assessment. (2) While giving effect to CIT(A)'s order dated 24.02.2012, the total income was determined as Rs.2,60,29,075/- and the tax payable thereon was determined as Rs.87,61,385/- and the refund due to the assessee was arrived at Rs.6,24,83,329/-. It was noticed that the income taxable u/s 115JB as admitted by the assessee Rs.15,04,22,260/- was omitted - 7 - to be considered. This resulted in short levy of tax by Rs.38,96,648/-. Prima Facie, objection appears to be reasonable and need to be rectified by rectification/ re-opening of the assessment. Therefore, in order to assess such income assessee's return for AY 06- 07 needs to be reopened." The Ld. CIT(A) relied on the decision of Hon’ble Supreme Court in P.V.S. Beedies P. Ltd 237 ITR 13(SC) holding that audit note is an information for the purpose of Section 147. From the reasons recorded by the AO, it could be seen that he had examined the records and facts with reference to the audit objection and had come to prima facie reason to believe that the income had escaped assessment. Therefore, the reopening was valid. On the legal plea of merger of assessment order, Ld. CIT(A) held that Hon’ble High Court had not gone into particular items of receipt whether it was eligible for deduction u/s 80IA or not. The issue of misc. income or the issue of computations u/s 115JB was not decided specifically in the appeal. Therefore, this plea was also rejected. On the issue of true and full disclosure, Ld. CIT(A) admitted that individual parts of misc. income were submitted by the assessee on 08-11-2013. However, the assessee did not furnish the basis or exact nature of receipt nor any explanation to the receipt. The said particulars were furnished by the assessee subsequent to the assessment and therefore, it could not be said that the assessee had discharged the onus by furnishing all the material facts necessary for the assessment fully and truly. Accordingly, reopening was held to be valid in law. The claim on merit was also rejected, inter-alia, in terms of decision in Liberty India Ltd vs CIT (317 ITR 218). Aggrieved, the assessee is in further appeal before us.
- 8 - Our findings and Adjudication 7. The basic facts as well as relevant dates as enumerated in preceding paragraphs are not in dispute. It emerges that in original assessment order dated 26-12-2008, Ld. AO denied impugned deduction as claimed by the assessee u/s 80IA for Rs.14.28 Crores. However, Ld. CIT(A) partly allowed the claim and the assessee was allowed deduction of Rs.14.11 Crores by Ld. AO vide order dated 26- 03-2012. It is crystal clear that the order of Ld. CIT(A) was confirmed by Tribunal and revenue’s appeal was not admitted by Hon’ble High Court. This issue, thus, has attained finality. The first appellate order got merged with the orders of high authorities. By revisiting this issue in reassessment proceeding, in our opinion, would tantamount to disturbing the already concluded issue which could not be permitted. Therefore, the reassessment proceedings could not be upheld for this reason alone.
Even otherwise also, the perusal of recorded reasons would show that no new tangible material has come into the possession of Ld. AO which would indicated any escapement of income. There is no allegation in the reasons by Ld. AO that the assessee failed to disclose material facts which were necessary for assessment of income. This condition is mandatory condition since the reopening is beyond 4 years. It could also be seen that the reopening is merely at the behest of revenue audit objection. The prime requirement to reopen the case is that Ld. AO has reasons to believe that certain income had escaped assessment. The formation of belief should be based on tangible material. This condition, in the present case, has not been fulfilled. In the case of CIT vs. Shwing Stetter India P. Ltd. (378 ITR 380), - 9 - Hon’ble High Court of Madras held that for the purpose of assumption of jurisdiction u/s 147, the AO must have reason based on materials that there has been an income escaping assessment, which warranted assumption of jurisdiction under section 147. In the absence of any such material indicating escapement of income, the proceedings would be invalid. Further, Ld. AO did not record any reason that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. When the AO had failed to record anywhere in his satisfaction or belief that the income chargeable to tax had escaped assessment on account of the failure of the assessee to disclose truly and fully all material facts necessary for assessment, the notice issued u/s 147 beyond the period of four years was wholly without jurisdiction and could not be sustained. This case law clearly supports the case of the assessee.
So far as the computation u/s 115JB is concerned, mere omission on the part of Ld. AO to consider the same could not trigger reassessment proceedings unless there was any failure on the part of the assessee to make full disclosure thereof. The complete details, in this regard, was made available by the assessee in the computation of income. Therefore, no allegation of disclosure of true facts could be made against the assessee.
Finally, considering the facts and circumstances of the case, we would hold that the reassessment proceedings were bad-in-law. The assessment order is accordingly quashed. We order so. This being so, delving into the merits of the case has been rendered mere academic in nature.
- 10 - 11. The appeal stand allowed in terms of our above order.