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2016 DIGILAW 1617 (GUJ)

M. Sheth & Co. v. Income Tax Officer Ward 9(2)

2016-08-03

G.R.UDHWANI, K.S.JHAVERI

body2016
JUDGMENT : K.S. Jhaveri, J. 1. By way of the above writ petitions, different petitioners have challenged the Notice issued to them under Section 147 of the Income Tax Act, 1961 (hereinafter referred to in short as 'the Act'). 2. Learned Counsel for the petitioners Mr. S.N. Divatia in all the Special Civil Applications has submitted that all the matters pertain to the Assessment Year : 2003-2004 for different assessees and there is a common question as to whether re-opening is permissible after claiming deduction u/s. 80IB of the Act? 3. The facts of the cases are that the petitioners have filed their returns for the Assessment Year : 2003-2004 and assessment orders came to be passed on different dates. For the sake of convenience, we are reproducing the relevant part of the Assessment Order dated 22.03.2006 passed in Special Civil Application No. 15956/2010 wherein it was observed as under:- "ASSESSMENT ORDER In this case, the return of income was filed on 24/11/2003 declaring total income at Rs. 54,470/- after claiming deduction u/s. 80IB of the Act of Rs. 48,69,659/-. The case was selected for scrutiny assessment by issuing notice u/s. 143(2) of the Act on 30/10/2004. Thereafter, a notice u/s. 142 alongwith a letter dated 20/12/2005 was issued requesting the assessee to file details and information. In response to the notice Shri Dhiru Shah, Chartered Accountant, attended in the company of Shri Priyavadan P. Shah the assessee and filed the details called for. The books of accounts have also been produced which has been verified on test check basis with bill vouchers etc., for expenses. The hearing took place on various dates. The assessee derives income from business, salary and other sources. During the period under consideration the major part of the income disclosed by the assessee is from development and construction of housing cum commercial project named as Bhagwati Nagar. The assessee has entered into a development agreement for development and constructions of Bhagwati Nagar vide agreement dated 20/09/2000." 4. A notice came to be issued to the assessee by the Income Tax Officer on 08.03.2010 where reasons were assigned for reopening of the assessment which reads as follows:- "The assessee has filed the return of income for A.Y. 2003-04 on 24.11.2003 showing total income of Rs. 54,470/- after claiming deduction of Rs. 48,69,659/- u/s. 80IB(10) of the Income-tax act. A notice came to be issued to the assessee by the Income Tax Officer on 08.03.2010 where reasons were assigned for reopening of the assessment which reads as follows:- "The assessee has filed the return of income for A.Y. 2003-04 on 24.11.2003 showing total income of Rs. 54,470/- after claiming deduction of Rs. 48,69,659/- u/s. 80IB(10) of the Income-tax act. In this case, assessment u/s. 143(3) of the I.T. Act was passed on 22.03.2006. However, on verification of the details, it is noticed that the assessee is merely a work contractor and not undertaken any developing and building of housing project approved by the Local Authority and hence, the claim of the assessee for deduction u/s.80IB(10) of the I.T. Act, is not in accordance with law. Finance Act 2009 has amended the section 80IB(10) by way of inserting the Explanation with retrospective effect from 01.04.2001. After the introduction of the Explanation to remove the doubts with regard to the allowability of deduction under the section, there is a change in the legal matrix, and the deduction u/s. 80IB(10) is not available to an enterprise which executes the housing project for another entity as a works contractor. In view of the above, I have every reason to believe that due to illegitimate claim of deduction of Rs. 48,69,659/- made by the assessee u/s. 80IB(10) of the I.T. Act, the income chargeable to tax has escaped assessment within the meaning of section 147 of the I.T. Act." 5. Learned Counsel for the petitioners has placed reliance on the following decisions of this Court:- • "Sadbhav Engineering Ltd. v. Deputy Commissioner of Income Tax & anr. reported in (2010) 45 DTR (Guj) 103; • Priyavadan V. Shah v. R. D. Meena in Special Civil Application No. 17688/2011 dated 28.12.2011 and • Vodafone West Ltd. v. Assistant Commissioner of Income Tax reported in (2013) 354 ITR 0562 (Guj) and; • The decision of the Hon'ble Apex Court in the case of Kultar Exports v. Commissioner of Income-tax reported in [2015] 63 taxmann.com 328 (SC)." Learned Counsel for the petitioners Mr. S.N. Divatia has taken this Court to paragraph 8 of the decision of this Court in Special Civil Application No. 17688/2011 which is reproduced as under:- "8. S.N. Divatia has taken this Court to paragraph 8 of the decision of this Court in Special Civil Application No. 17688/2011 which is reproduced as under:- "8. This Bench in SCA 17687 of 2011 addressed identical issues where petitioner -assessee was issued the Notice u/s. 148 of the Income Tax Act only beyond four years of the relevant assessment year undertaking that the income chargeable to tax escaped assessment as the assessee did not disclose fully and truly all the materials facts. While quashing and setting aside the impugned Notice of re-opening, this bench held thus: "6. At the outset, it is required to be mentioned that the notice u/s. 148 is issued beyond four years of assessment from the end of relevant assessment year. In such circumstances, fulfillment of two requirements is necessitated for such re-opening beyond four years namely (1) non-filing of return u/s. 139 of the Act and (2) non-disclosure of material facts fully and truly necessary for the purpose of assessment of income of assessee. In absence of these requirements, notice beyond four years would be barred by the proviso to Section 147 of the Act. 7. It would be apt to reproduce, amendment in explanation to Section 80IB(10) at this stage. This explanation does not permit works contractor to get benefit of deduction u/s. 80IB(10) of the Act. Amendment which has propelled the issuance of notice has came into being w.e.f 1.4.2001, although, this was brought in by Finance Act, 2009 and the same reads as follows: "Explanation - For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a work contract awarded by any person (including the Central or State Government)" 8. The decision of this Court rendered in case of Denish Industries Ltd. v. Income Tax Officer reported in 271 ITR 340, requires a specific mention at this stage where the notice u/s. 148was issued only on account of statutory amendment and the Assessing Officer was of the belief that the assessee was not entitled to capitalize the interest paid after the date of installation of machinery and first put to use and therefore, assessee had failed to disclose fully and truly all material facts and in this factual background, Court held thus "It is true that when there is a statutory amendment with retrospective effect, the statutory amendment has to operate as if the law as amended was there on the statute book. However, as per the settled legal position the fiction is to operate within the field for which it is meant. Hence, if the proceedings were pending on April, 1, 1986, when the statutory amendment was made, whether assessment proceedings or proceedings by way of appeal or revision or reference, Explanation 8 would have certainly operated. However, on the question whether the assessee had failed to disclose fully and truly all material facts necessary for assessment, it is obvious that when the assessee had filed its return in 1983 it could not have assumed that such a legislative amendment was going to be made in the year 1986 with retrospective effect from the year 1974. In the facts of the present case, it would never be said by any stretch of imagination that in the year 1983 when the assessee filed the return claiming investment allowance on the capitalisation of interest paid after the date on which the machinery was first installed and put to use, the assessee had failed to disclose all material facts. On the contrary, the assessee would have got the benefit of the entire interest amount for the post-installation period as revenue expenditure which would have been much higher than the amount of investment allowance and depreciation allowance taken together." 6. Taking into consideration the above decisions, it is contended that the notices which were issued are contrary to law declared by this Court and the Hon'ble Apex Court. 7. Learned Counsel for the respondents Mr. Taking into consideration the above decisions, it is contended that the notices which were issued are contrary to law declared by this Court and the Hon'ble Apex Court. 7. Learned Counsel for the respondents Mr. Nitin K. Mehta has supported the order of the Assessing Officer and has further submitted that it is a well settled law that reopening of the proceedings can be done within a period of four years. 8. We have heard learned Advocates appearing for the respective parties and perused the records of the case. The Assessing Officer has discussed in detail the activities of the assessees and given detailed reasons to arrive at the conclusion. However, in our view, even otherwise for the Assessment Year of 2003-2004, the notices ought to be issued before 31.03.2009 whereas in the present cases, they were admittedly issued in the year 2010. 9. In view of the above and also considering the various decisions cited, we are of the view that above petitions deserve to be allowed and the same are allowed. The following Notices are quashed and set aside:- "(a) In SCA No. 15606/2010 : Notice No. ITO/Wd.9(2)/148/MS&C/2009-2010 dated 12.03.2010 of the Income-tax Officer, Ward-9(2), Ahmedabad, (b) In SCA No. 15956/2010 : Notice No. ITO/Wd.9(1)/148/PPS/2009-2010 dated 16.03.2010 of the Income-tax Officer, Ward-9(1), Ahmedabad. (c) In SCA No. 16235/2010 : Notice No. ITO/Wd.9(2)/148/AD/2009-2010 dated 12.03.2010 of the Income-tax Officer, Ward-9(2), Ahmedabad and, (d) In SCA No. 16236/2010 : Notice No. ITO/Wd.9(2)/148/MD/2009-2010 dated 12.03.2010 of the Income-tax Officer, Ward-9(2), Ahmedabad." Rule made absolute to the aforesaid extent.