M/s. Arun Excello Foundations Private Ltd. v. The Deputy Commissioner of Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 27-04-2012CORAMTHE HON'BLE MR.JUSTICE M.JAICHANDREN W.P.No.23899 of 2011 andM.P.No.1 of 2011M/s.Arun Excello Foundations Private Ltd.A Private Limited CompanyIncorporated under the Provisions of theIndian Companies Act, 1956,Represented by its Managing DirectorMr.SureshBhattad Towers, No.18, West Cott Road,Royapettah, Chennai-600 014... Petitioner.VersusThe Deputy Commissioner of Income Tax,Company Circle 1(1)121, Mahatma Gandhi Road,Nungambakkam,Chennai-600 034... Respondent.Prayer: Petition filed under Article 226 of the Constitution ofIndia praying for the issuance of a Writ of Certiorari to call forand quash the impugned notice issued under Section 148 of the Actin Pan NO.AABCA8168K dated 25.3.2011 and consequently quash theproceedings in AABCA8168K/AX-6091/168, dated 28.9.2011.For petitioner: Mr.Jehangir D.J.Mistri Senior Advocate for Mr.R.SivaramanFor respondent : Mr.J.NarayanasamyO R D E RHeard the learned counsel appearing for the petitioner andthe learned counsel appearing for the respondent.2. This writ petition has been filed praying that this Courtmay be pleased to issue a Writ of Certiorari to call for and quashthe impugned notice, dated 25.3.2011, issued under Section 148 ofthe Income Tax Act, 1961, (hereinafter referred to as `the Act')and the consequential proceedings, dated 28.9.2011, issued by therespondent, rejecting the objections raised by the petitioner, https://hcservices.ecourts.gov.in/hcservices/ against the re-opening of the assessment, in respect of theassessment year 2004-2005, under Section 147 of the Act.3. It has been stated that the petitioner is a domesticprivate limited company, engaged in the business of engineeringworks, building and developing of residential properties. Thepetitioner company had filed its return of income for theassessment year 2004-2005, admitting a total income ofRs.38,16,748/-. The return of income, filed by the petitionercompany, had been processed, under Section 143(1) of the Act, on18.5.2005. The revised return had been filed, on 29.4.2005,admitting a total income of Rs.46,13,030/-. The said return wasprocessed, under Section 143(1) of the Act, on 25.11.2005. Thecase of the petitioner company was selected for scrutiny and anotice, under Section 143(2) of the Act had been issued, on7.6.2005. 4. It had been further stated that the respondent, afterscrutinizing the entire records, including the agreement, hadcompleted the assessment, by an order, dated 27.3.2006, issuedunder Section 143(3) of the Act, disallowing the entire exemptionrelating to the deduction, under Section 80IB(10) of the Act.Aggrieved by the said order, the petitioner company had filed afirst appeal, before the Commissioner of Income Tax (Appeals), whohad confirmed the order of the respondent. Thereafter, thepetitioner company had filed a further appeal, before the IncomeTax Appellate Tribunal. The Income Tax Appellate Tribunal hadpassed an order, dated 16.2.2007, in ITA No.2091/Mds/2006, partlyallowing the appeal. The Commissioner of Income Tax had filed anappeal against the said order, under Section 260A of the Act,before this Court, in T.C.No.1349 of 2007, and the said case isstill pending on the file of this Court. As such, the question asto whether the petitioner company is entitled to claim deduction,under Section 80IB(10) of the Act, is to be decided by a DivisionBench of this Court. While so, the respondent had issued a notice,under Section 148 of the Act, to the petitioner company, inrespect of the assessment year 2004-2005. The said notice, dated25.3.2011, had been received by the petitioner company, on5.4.2011. 5. It has been further stated that, in response to thenotice, dated 25.3.2011, issued by the respondent, under Section148 of the Act, the petitioner company had filed a letter, dated7.4.2011, requesting the respondent to treat the revised returnfiled by it, on 29.4.2005, as the return filed in response to thenotice, dated 25.3.2011. By the same letter, the petitionercompany had requested the respondent to furnish the reasons tobelieve that the income of the petitioner liable to tax, hadescaped assessment, within the meaning of Section 147 of the Act. 6. It has been further stated that the respondent, by aletter, dated 21.4.2011, had furnished the reasons for the re-opening of the assessment, in respect of the assessment year 2004-2005. From the reasons given by the respondent it is clear thatthere is no fresh tangible material that had come into the https://hcservices.ecourts.gov.in/hcservices/ possession of the respondent, warranting the re-opening of theconcluded assessment. Thereafter, the petitioner company hadsubmitted a detailed reply, dated 23.5.2011, requesting therespondent to drop the proceedings, as there was no reason tobelieve that the income liable to tax had escaped assessment. 7. The petitioner company had requested the respondent todecide the preliminary issue relating to the aspect ofjurisdiction of the respondent to re-open the concludedassessment, under Section 148 of the Act. However, the respondent,without dealing with the issue relating to the jurisdiction, hadpassed the impugned order, dated 28.9.2011, holding that theproceedings, under Section 147 of the Act, had been initiatedcorrectly and properly, and had issued a notice, under Section 143(2) of the Act, dated 27.9.2011, fixing the date of hearing as7.10.2011. In such circumstances, the petitioner has preferred thepresent writ petition, before this Court, under Article 226 of theConstitution of India. 8. The learned Senior Counsel appearing on behalf of thepetitioner had submitted that the notice, dated 25.3.2011, issuedby the respondent, under Section 148 of the Act, and theconsequential order, dated 28.9.2011, rejecting the objectionsmade by the petitioner company, is arbitrary, illegal and void. Hehad further submitted that the assessment, for the assessment year2004-2005, had been completed, by an order, dated 27.3.2006, underSection 143(3) of the Act, after considering all the issuesrelevant to such assessment. Therefore, the re-opening of theassessment, by the respondent, under Section 147 of the Act, is acase of `change of opinion’, on a concluded scrutiny assessment,on the same set of facts, contrary to the decision of the SupremeCourt, in Commissioner of Income Tax, Delhi Vs. Kelvinator ofIndia Ltd. [2010] 320 ITR 561 (SC).9. It had been further submitted that, for the purpose ofinvoking Section 147 of the Act, after the expiry of four years,from the end of the relevant assessment year, the incomechargeable to tax should have escaped assessment, by a reason ofthe failure on the part of the assessee to disclose, fully andtruly, all the material facts necessary for the assessment, inrespect of the relevant assessment year. From the reasons recordedit is apparent that the reassessment is sought to be re-openedonly on the ground of the explanation to Section 80IB(10), whichhas been substituted by the Finance (No.2) Act, 2009, withretrospective effect, from 1.4.2001.10. In the communication dated 21.4.2011, issued by therespondent it had been stated, in response to the letter submittedby the petitioner, dated 7.4.2011, that the case had been re-opened for the reason that the assessee had sold undivided shareof land through a regular sale deed and the building component hadbeen transferred by a construction agreement. 11. It had been further stated that from the contents of theagreement it was gathered that the assessee operates only as a https://hcservices.ecourts.gov.in/hcservices/ contractor and not as a builder. Therefore, in the light of theexplanation introduced to sub-Section 10 of Section 80IB of theIncome Tax Act, 1961, by the Finance Act, 2009, with retrospectiveeffect, from 1.4.2001, the assessee is not eligible to claimdeduction under Section 80IB(10) of the Act. 12. It had also been submitted that in the absence of anyfailure on the part of the petitioner to disclose, fully andtruly, all material facts necessary for the assessment, the noticeissued under Section 148 of the Act, after the expiry of a periodof four years from the end of the relevant assessment year, cannotbe held to be valid in the eye of law. 13. The learned counsel had further submitted that therespondent would have jurisdiction to re-open the concludedassessment, only on obtaining tangible materials. If all the factshad been stated in the original assessment proceedings, aconcluded assessment cannot be re-opened, without fresh factshaving been brought to the knowledge of the assessing authority. 14. Further, the power to re-open an assessment isconditional on the formation of a reason to believe that incomechargeable to tax had escaped assessment. In the present case, thepetitioner had submitted all the relevant materials to therespondent, at the time of scrutiny of assessment, under Section143(3) of the Act. It had also been submitted that the respondent,without deciding the issue relating to jurisdiction, as apreliminary issue, had rejected the objections raised by thepetitioner, without adducing proper reasons for such rejection.15. The learned counsel appearing on behalf of the petitionerhad relied on the decision of the High Court of Gujarat in AayojanDevelopers Vs. Income Tax Officer 2011 (335) ITR 234. It has beenstated that the facts and circumstances of the said case is verysimilar to the present case before this Court. In the said case,the High Court of Gujarat had held as follows:"39. Examining the facts of the present case in thelight of the above principles enunciated by the SupremeCourt, a bare perusal of the reasons recorded indicatesthat there is not even a whisper as regards any failureon the part of the petitioner to disclose fully andtruly all material facts, nor is it possible to inferany such failure from the reasons recorded. Merelybecause of the fact that the assessee had asserted thatit is a developer in the returns filed by him, it cannotbe said that there is any failure on the part of thepetitioner to disclose fully and truly all materialfacts. At best, the petitioner has made a claim alongwith supporting documents, namely, developmentagreements for construction of housing projects, etc.and based upon the said documents, the Assessing Officerhad formed an opinion and granted deduction undersection 80-IB(10) of the Act. As to whether in a givenset of facts, the assessee is a developer or a works https://hcservices.ecourts.gov.in/hcservices/ contractor is a matter of inference. Hence, theassertion that the petitioner is a developer, withoutanything more cannot be said to be an incorrectdisclosure of facts, as is sought to be contended onbehalf of the revenue. In the circumstances, in theabsence of any failure on the part of the petitioner todisclose fully and truly all material facts necessaryfor its assessment for the assessment year underconsideration, the assumption of jurisdiction undersection 147 of the Act after the expiry of four yearsfrom the end of the relevant assessment year is illegaland invalid. The proceedings under section 147 of theAct which have been initiated by issuance of theimpugned notice under section 148 of the Act, therefore,cannot be sustained."16. The learned counsel had also relied on the decision ofthis Court, in Fenner (India) Ltd. Vs. Deputy Commissioner ofIncome Tax (2000) 241 ITR (Mad.) 672, wherein it had been heldthat, in the case of a notice being issued for reassessment, afterthe expiry of four years, the mere escapement of income is notsufficient to justify the initiation of action. The escapementmust be by reason of the failure on the part of the assessee,either to file a return, or to disclose fully and truly, thematerial facts necessary for the assessment. 17. He had also relied on the decision of a Division Bench ofthis Court, in Commissioner of Income Tax Vs. Elgi Finance Ltd.(2006) 286 ITR (Mad.) 674). The Division Bench of this Court hadheld that, in addition to the time limits provided for, underSection 149 of the Act, the law has provided another limitation offour years, under the proviso to Section 147 of the Act. As far asproviso to Section 147 of the Act is concerned, the law prescribesa period of four years to initiate reassessment proceedings,unless the income alleged to have escaped assessment was made outas a result of the failure on the part of the assessee todisclose, fully and truly, all material facts necessary for theassessment. Thus, the Division Bench of this Court had approvedthe decision of this Court, in Fenner (India) Ltd. Vs. DeputyCommissioner of Income Tax (2000) 241 ITR (Mad.) 672.18. The learned counsel appearing on behalf of the petitionerhad further submitted that there is nothing stated in the noticeissued by the respondent, for the re-opening of the assessment,under Section 147 of the Act, in respect of the assesment year2004-2005 to show that there was a failure on the part of thepetitioner to disclose all material facts, fully and truly, forthe passing of an assessment order. 19. A mere change of opinion, by the assessing authority, onthe finding of a new fact, by such authority, cannot be a reasonfor the re-opening of the concluded assessment. As such, in thepresent case, no such reason exists for the re-opening of theconcluded assessment, in respect of the assessment year 2004-2005.Therefore, the impugned notice, dated 25.3.2011, issued under https://hcservices.ecourts.gov.in/hcservices/ Section 148 of the Act, and the consequential proceedings, dated28.9.2011, issued by the respondent, are illegal and void. 20. In the counter affidavit filed on behalf of therespondent, it has been stated that the assessment, in respect ofthe assessment year 2004-2005, under Section 143(3) of the IncomeTax Act, 1961, had been completed, vide assessment order, dated27.3.2006. In the said assessment order the deduction wasdisallowed on the ground that the petitioner had violated thecondition that the flats should be below 1500 square feet, andthat the flats were not part of an exclusive residential project.The reason for disallowance was that the provision governing theclaim of deduction, under Section 80IB of the Act, does not permitcommercial areas, especially, when such areas exceed 2000 sq.ft,in extent. 21. It had been further stated that the reassessmentproceedings were initiated, vide notice, dated 25.3.2011, and thepetitioner had filed a letter, dated 7.4.2011, seeking reasons forthe re-opening. The reasons for the re-opening had been providedby the respondent, vide letter, dated 21.4.2011, and they are asfollows"that the assessee has sold undivided share of landthrough a regular sale deed, by which the buildingcomponent is transferred through a constructionagreement. From the contents of the agreement it isgathered that the assessee operates only as a contractorand not as a builder. In the light of the explanation toSection 80IB(10) of the Act introduced to sub-section 10of Section 80IB by the Finance Act, 2009, withretrospective effect from 1.4.2001 which reads asfollows:"For the removal of doubts it is hereby declaredthat nothing contained in this sub section shall applyto any undertaking which executes the housing project asa works contract awarded by any person (including theCentral or State Government)". Therefore, it is clearthat the basis for re-opening of assessment underSection 147 is as per the provisions of the Act." 22. As such, it is clear that the basis for the re-opening ofthe assessment, under Section 147 of the Act, is as per theprovisions of the said Act. The petitioner had filed itsobjections, on 28.9.2011. The objections filed by the petitionerhad been rejected by way of a speaking order, dated 28.9.2011. Thepetitioner had challenged the said order. As the procedures laiddown by the Supreme Court, in GKN Driveshafts (India) Ltd. Vs.Income-Tax Officer (2003) 259 ITR 19 had been meticulouslyfollowed, it would not be proper for the petitioner to state thatthe said decision had been violated by the respondent. 23. It has been further stated that the petitioner had notfully and truly disclosed the relevant facts, at the time of theoriginal assessment proceedings and therefore, reassessmentproceedings had been initiated, as per the proviso to Section 147 https://hcservices.ecourts.gov.in/hcservices/ of the Act. As such, the contention of the petitioner that theproceedings initiated by the respondent is barred by limitation isliable to be rejected. 24. In fact, the time limit prescribed for the re-opening ofthe assessment, which is six years from the end of the relevantassessment year, had not lapsed. The re-opening of the assessmenthad been done only on the basis of the fresh facts gathered afterthe original assessment. Therefore, the contention of thepetitioner that the re-opening of the original assessment is as aresult of the change of opinion, cannot be accepted for the reasonthat no opinion was formed on the issue of eligibility of thededuction, under Section 80IB of the Act, in view of theretrospective effect of the amendment made in the said Section,with effect from the year, 2001. Thereafter, the deduction was notallowable in respect of an undertaking for the execution ofhousing projects, on works contract. The explanation to Section80IB(10) of the Act, introduced in sub-Section 10 of Section 80IB,by the Finance Act, 2009, with retrospective effect, from1.4.2001, reads as follows:"For the removal of doubts it is hereby declaredthat nothing contained in this sub section shall applyto any undertaking which executes the housing project asa works contract awarded by any person (including theCentral or State Government".Thus, it is evident from a reading of the regular assessmentorder, passed under Section 143(3) of the Act, that the said issuehad not been considered. 25. It had been further stated that since, the relevantrecords, required to establish that the petitioner is only acontractor and not a developer, had not been produced at the timeof the original assessment the petitioner cannot challenge thesame. It has been further stated that the original assessment hadnot taken into consideration the role played by the petitioner inexecuting the project. Based on the details submitted by thepetitioner, after the completion of the assessment proceedings, itwas learnt that the petitioner had undertaken and constructed theprojects, as a contractor and not as a developer. The rejection ofthe deduction, under Section 80IB(10) of the Act, to a contractor,is not, primarily, on account of the introduction of theexplanation to Section 80IB(10) of the Act, by the Finance Act,2009, which came into force with retrospective effect from1.4.2001. In fact, even before its introduction, the Mumbai Benchof the Tribunal had held, in Patel Engineering Vs. DCIT (2005) 94ITD 411 (Mum), that incentive deduction is available only to adeveloper of a project, and not to the contractor. The explanationto Section 80IB(10) of the Act was therefore, clarificatory innature. Therefore, the petitioner cannot be excluded from thereassessment proceedings, by stating that the reason for re-opening of the assessment is consequent to the introduction of theexplanation in the statute. https://hcservices.ecourts.gov.in/hcservices/

26. The reliance, by the petitioner, on an order of theTribunal, in ITA 1058 of 2009, dated 13.8.2009, to state that thereassessment proceedings is not valid, cannot be accepted. TheTribunal had no occasion to consider the issue of eligibility ofthe deduction, under Section 80IB of the Act, from the point ofview of the retrospective amendment made to the section, in theyear, 2009, with effect from the year, 2001. 27. Further, the issue pending before a Division Bench ofthis Court, in a Tax Case Appeal, is different from the issue, inrespect of which the assessment had been re-opened. In fact, thereason for the re-opening of the assessment is the amendment toSection 80IB(10) of the Act, which says that the benefit of thededuction shall not be allowed, in respect of an undertaking whichexecutes housing projects, as a works contract.28. It had been further stated that the petitioner is wrongin stating that fresh facts had not come to light for the re-opening of the assessment. The Supreme Court, in Phool ChandBajrang Lal vs Income-Tax Officer And Another, (1993) 203 ITR 456SC, had held, in similar facts and circumstances, that when theassessing officer gets fresh information, which were not availableat the time of the original assessment, which enables him to forma reasonable belief that certain income had escaped assessment,because of the omission or failure of the petitioner to disclosefull and true facts, re-assessment proceedings could be validlyinitiated. 29. It had been further submitted that, as per theexplanation to Section 147 of the Act, mere submission ofparticulars does not amount to furnishing of full and truedisclosure. In Consolidated Photo and Finvest Vs. Asst.Commissioner of Income Tax (2006) 281 ITR (Del.) 394, it had beenheld that a matter in issue can be validly determined only uponapplication of mind, by the authority determining the same. Suchapplication of mind can be seen by the reasons given by theauthority concerned. The legal position that a mere change ofopinion cannot be a basis for the re-opening of a concludedassessment would be applicable only to situations where theassessing officer had applied his mind and had taken a consciousdecision on a particular matter in issue. It would have noapplication in cases where the order of assessment does notaddress itself to the aspect which is the basis for the re-openingof the assessment. 30. It had also been submitted that the assessment order,passed by the assessing authority, on appreciation of theavailable facts, cannot be reappreciated in a writ petition, filedunder Article 226 of the Constitution of India. By an order, dated17.9.2010, this Court had held, in the writ petitions, inW.P.Nos.28457 of 2008 and 19260 of 2009, by following the decisionof the Supreme Court, that the proceedings initiated for thereassessment cannot be quashed at the threshold. It would be open https://hcservices.ecourts.gov.in/hcservices/ to the petitioner to produce the necessary records to satisfy theauthority that there is no necessity for reassessment and there isno suppression or non-disclosure of full accounts by the assessee,while submitting the returns relating to the original assessment.If a final order is passed by the assessing authority based on therelevant records furnished by the assessee it would be open tosuch assessee to file an appeal before the appellate authority andthereafter, before the Income Tax Appellate Tribunal, beforeapproaching this Court. When such efficacious alternative remediesare available it would not be open to the petitioner to approachthis Court, by way of a Writ petition filed, under Article 226 ofthe Constitution of India, as held by the Supreme Court, in RajKumar Shivhare Vs. Directorate of Enforcement (2010) 4 SCC 772. Assuch, the writ petition is devoid of merits and therefore, it isliable to be dismissed.31. The learned counsel appearing on behalf of the respondenthad submitted that the question as to whether the petitioner is adeveloper or a contractor, undertaking works contracts, was notrelevant at the time of the passing of the original assessmentorder. Only thereafter, after the amendment had been introduced,in Section 80IB of the Act, in the year 2009, with effect from1.4.2001, the respondent had proposed to reassess the income ofthe petitioner, by issuing a notice, under Section 147 of the Act.Therefore, it would not be open to the petitioner to contend thatthe respondent had issued the notice, for the passing of areassessment order, based on a mere change of opinion. Therespondent is empowered to pass a reassessment order based on newgrounds, which were not available at the time of the passing ofthe original assessment order. 32. In reply, the learned counsel appearing on behalf of thepetitioner had submitted that the case of the respondent shouldstand or fall based on the reasons stated in the notice issued bythe respondent for the re-opening of the assessment, under Section147 of the Act. When it had been stated that it had been gathered,from the contents of the construction agreement, that the assesseewas operating only as a contractor and not as a builder, in thelight of the explanation to Section 80IB(10) of the Income TaxAct, 1961, introduced by the Finance Act, 2009, with retrospectiveeffect, from 1.4.2001, it would not be open to the respondent tore-open the assessment on the ground that the assessee had notdisclosed the relevant facts, fully and truly, at the time of thepassing of the original assessment order. No such reason has beenshown in the notice issued by the respondent, for the re-openingof the assessment. As such, the decision of the High Court ofGujarat, in Aayojan Developers Vs. Income Tax Officer 2011 (335)ITR 234, is squarely applicable to the present case, in allfours. 33. In view of the contentions raised on behalf of thepetitioner, as well as the respondent, and in view of the recordsavailable, and on considering the decisions cited supra, it couldbe seen that the respondent had issued a notice, dated 25.3.2011, https://hcservices.ecourts.gov.in/hcservices/ for the re-opening of the assessment, under Section 147 of theIncome Tax Act, 1961. However, in the said notice, issued by therespondent, it has not been stated that the petitioner had failedto fully and truly disclose the material facts, relevant for thepassing of the original assessment order. As such, it would not beopen to the respondent to re-open the assessment, in respect ofthe assessment year, 2004-2005. 34. It is not in dispute that the petitioner had placed allthe relevant records, including the construction agreement, beforethe passing of the original assessment order. Further, it is notthe case of the respondent that the petitioner had suppressedcertain material facts, due to which the original assessmentorder, passed by the respondent, is liable to be re-assessed. Insuch circumstances, in the absence of the failure on the part ofthe petitioner to disclose fully and truly all material factsnecessary for the assessment year under consideration, theassumption of jurisdiction, by the respondent, under Section 147of the Income Tax Act, 1961, after the expiry of four years, fromthe end of the relevant assessment year, is illegal and invalid.Accordingly, the proceedings, under Section 147 of the Act, whichhad been initiated by the issuance of the impugned notice, underSection 148 of the Act, cannot be sustained. As such, this Courtfinds it appropriate to allow the writ petition. Accordingly, thewrit petition stands allowed. Consequently, connectedmiscellaneous petition is closed.cshSd/-Deputy Registrar(J)//True Copy//Sub Asst. RegistrarToThe Deputy Commissioner of Income Tax,Company Circle 1(1)121, Mahatma Gandhi Road,Nungambakkam,Chennai-600 034.+ 1 cc to Mr. R. Sivaraman, Advocate SR No.29000+ 1 cc to Mr. J. Narayanasamy, Advocate SR No.29321BKY(CO)SR/21.5.2012. Order inW.P.No.23899 of 2011