No reassessment if assessee disclosed material facts in ITR :HC

ORDER

J.B. Pardiwala, J. – Rule returnable forthwith. Ms. Kalpanak Raval, the learned standing counsel waives service of notice of rule for and on behalf of the Revenue.

2. By this writ application under article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:

3. Thus, it appears that the writ applicant seeks to challenge the impugned notice of reopening dated 26th March 2018 issued under section 148 of the Income-tax Act, 1961 [for short, ‘the Act, 1961’] for the assessment year 2011-12 beyond the four years.

4. The writ applicant filed his return of income for A.Y. 2011-12 declaring gross total income at Rs.11,89,58,848/-.

5. The case was selected for scrutiny. The assessee replied to the specific queries raised by the Assessing Officer. The scrutiny assessment was completed under-section 143(3) vide order dated 30th March 2014 assessing the income at Rs,15,07,12,217/- after making disallowance of Rs.5,77,70,489/- on different counts.

6. It appears that the writ applicant being dissatisfied with the aforesaid addition preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) deleted the disallowance made by the Assessing Officer. The Revenue preferred appeal against the CIT(A)’s order before the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal preferred by the Revenue.

7. Later, the impugned notice under section 148 of the Act, 1961 came to be issued for reassessing the income. The reasons assigned for reopening are as under:

“In the present case, assessment u/s. 143(3) of the Act was completed on 30.03.2014 for A.Y.2011-12 by determining total income of Rs.15,07,12,212/-. On perusal of records, following facts of concealment of income are observed.

It was notice that the assessee company had engaged in two lines of business i.e. trading in tea and generations of electricity which generate from windmill division. Tea business is subjected to normal taxation and power generation business is eligible for deduction. It was also seen that the assessee has also distributed the relevant manufacturing expenses such as machine insurance charge, machinery operating, maintenance & repair charges, and the transmission, wheeling and operating charges, between the respective line of business. As per law, the expenses which have direct nexus with any line of business should be debited to such respective business, where the indirect expenditure needs to be split between the different line of business.

However regarding the administrative expenses it was found after analysis that the assessee had debited the sum of Rs.3,57,75,237/-on this account of which only 4,71,843/- (only 1.3%) has been debited to wind mills division claiming deduction u/s. 80IA. This expense of Rs.4,71,843/- also includes a amount of Rs.4,29,273/- on account of legal & professional charges relating to Jodha wind mill division which was sold off. Hence, the balance amount of administrative expenses shown for all four windmill division is only abut Rs.40,000/-. It was also seen that the assessee company has not debited a single rupee spent on Directors Remuneration the establishment expenses of the head office like electricity, vehicles, rates and taxes, rent Telephone, stationery etc and staff expenses. No expenses had been debited to the windmill divisions at Jodha and Chitradurvga.

The assessee company debited only direct expenses to wind mill division, where all the common expenses had been debited to the tea division, thereby artificially pumping its income eligible for deduction u/s 80IA, leading lower returned income and consequently lower taxes.

Hence, the common expenses, in nature of administrative expenses need to be allocated between both the line of business in order to arrive at true picture. Since one line of business is a trading concern (tea division) and other is manufacturing concern (general of electricity), the ratio of turnover cannot be a correct ratio owning in the difference in their basic character. Turnover of a trading concern can be high, without requirement of higher capital and efforts, but the profit percentage is low, as compare to manufacturing concern. Hence the allocation of common cost, owning to difference is character of both lines of business, the average of profit of ratio and the gross assets ratio.

C. Average of A and B above: (74.52 + 28.58)/2 = 51.58%

Hence 51.55% of the administrative expenses, amounting to Rs. 1,84,42,135/- should be debited to the Windmill division, thereby reducing their total income and the income eligible for deduction u/s. 80IA by an equivalent amount the tax effect of which amounts to Rs.61,26,016/-.

In view of the above, I, as an assessing officer have reason to believe that the income to the

B. Calculation of profit ratio:

Figure taken from computation of income enclosed as Exhibit -III

extent of Rs. 1,84,42,135/- during the year has escaped assessment within the meaning of Sec. 147 of the I.T. Act 1961. Hence it is a fit case for issuing notice u/s. 148. Necessary sanction to issue notice u/s 148 has been obtained separately from Pr. Commissioner of Income Tax Act, 1961 as per the provisions of Section 151 of the Income Ta Act.”

8. The writ applicant tendered his objections to the reopening in writing dated 15th October 2018. Apart from many objections raised by the writ applicant, the writ applicant pointed out that for the very same grounds for the assessment year 2008-09, notice for reopening was issued and the same was questioned by the writ applicant by filing the Jivraj Tea Ltd. v. Asstt. CIT [2016] 386 ITR 298 (Guj.) in this Court. The writ applicant further pointed out that the said writ application came to be allowed vide judgement and on the very same grounds, the notice under section 148 of the Act, 1961 for reopening, later, could not have been issued. The objections raised by the writ applicant to the notice of reopening came to be rejected by the Assistant Commissioner of Income Tax vide order dated 24th December 2018. The manner in which the objections have been dealt with by the Assistant Commissioner of Income Tax is quit disturbing. We are saying so because we find that in para 4 of the order passed by the Assistant Commissioner of Income Tax, the judgment of this Court rendered in Jivraj Tea Ltd. (supra) has been referred to and discussed. It is always open for the Assistant Commissioner to distinguish the judgement of this Court on facts, but, while doing so, it cannot comment on the same as regards the manner in which the petition came to be disposed of. It is too much on the part of the Assistant Commissioner to say that the High Court, without discussing merits of the case, allowed the petition on technical grounds.

9. At this stage, we may refer to the decision of this Court rendered in the Jivraj Tea Ltd. (supra). The same reads thus:

10. The Coordinate Bench, while allowing the writ application, has observed in clear terms that full separate accounts of both the divisions were maintained and also presented before the Assessing Officer during the course of assessment. This Court recorded a clear finding that there was no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. In such circumstances, the Coordinate Bench, ultimately, held that the notice for reopening which was issued beyond a period four years should fail.

11. The writ applicant pointed out while raising his objections that there was no failure on his part to disclose truly and fully any material fact. He pointed out that his assessments were being examined by the Assessing Officer for the original assessment. The reopening on the basis of re-analysis of the existing material was nothing, but a change of opinion and the same is not permissible. He pointed out that no specific information has been received by the Assessing Officer to firmly believe that the income chargeable is escaped the assessment and as noted above, at the cost of repetition, he pointed out that reassessment was sought for in the assessee’s own case for A.Y. 2008-09 which came to be questioned by this Court in the Jivraj Tea Ltd. (supra).

12. Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are of the view that the case on hand is one of change of opinion. There is hardly anything on record to indicate that there was failure on the part of the assessee to disclose truly and fully all material facts. There was no tangible material available for the purpose of issuing the notice for reopening beyond the period of four years.

13. In the overall view of the matter, we hold that the impugned notice under Section 148 of the Act, 1961 is not sustainable in law. We take notice of the order passed by this Court dated 27th December 2018. The order reads thus:

14. As we are allowing this writ application, the impugned notice will have to be quashed.

15. In the result, this writ application succeeds and is hereby allowed. The impugned notice for reopening of assessment under section 148 of the Act, 1961 is hereby quashed. All consequential proceedings pursuant thereto stand terminated. Rule is made absolute.

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