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TMI Blog2023 (9) TMI 1624X X X X Extracts X X X X X X X X Extracts X X X X ..... lized on 10.02.2015 determining total income at Rs. 17,45,89,780/-. Thereafter, the case was reopened pursuant to the provisions of Section 147 of the Act and the assessment under section 147 read with section 143(3) of the Act was finalized on 22.11.2018 determining a total income of Rs. 17,45,89,780/- under the normal provisions and Rs. 17,90,79,200/- under section 115JB of the Act. 2.1 It is the case of the petitioner that after the impugned notice dated 26.03.2019, reasons recorded for reopening the assessment for the assessment year 201213 were supplied on 12.03.2019. The petitioner raised several objections to the reopening. The objections were filed on 22.11.2019 and the objections were disposed of on 02.12.2019. This is under challenge before this court. 3. Mr. B.S. Soparkar, learned counsel for the petitioner has raised several contentions to challenge the notice namely that the reopening was beyond a period of four years and that there was no failure on the part of the assessee to fully and truly disclose its income. That the notice was bad because specific questions were raised and answers were given at the time of scrutiny. It was therefore a change of opinion. He wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eve reproduced as Sr. No. 3 & 6 in Special Civil Application No. 16916 of 2018 when compared to the reasons to believe namely reasons no. 1 & 2 of the present case, except for the figures, the company being SECL in the present case and the intimation letter only being one of a different date i.e. 13.03.2018, the reasons to believe in the present petition are completely identical to the reasons no. 3 & 6 in the aforesaid petition. The court therefore had extensively considered these very reasons. For the sake of brevity, the reasons to believe in the present case read as under: "2. The DDIT (Inv.)-1, Faridabad, on 13.03.2018 has passed on certain information regarding M/ s Nila Infrastructure Ltd, which is assessed with the undersigned. As per the said letter it has been informed that a survey u/s 133A of Income Tax Act, 1961 was conducted, on 31.10.2014 at the business premises of M/s Richa Industries Ltd. on 31.10.2014. During the survey proceedings, certain documents of significance related to SECL Industries Pvt. Ltd. (formerly known as Singla Engg. & Contractors Pvt. Ltd., (PAN: AAACN5059K) were also impounded. During the investigation process it was found that there is an or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure on such payment was not includable as expenses. In other words, the method adopted by the assessee of not crediting the tax component in sales, the debiting such expenditure resulted in under assessment of income of Rs. 1,51,23,726/- is the ground. At the time of assessment itself, the assessee had disclosed that it was carrying on two (2) types of project namely (i) contract project and (ii) residential project. It has been explained by the assessee in its objections against the reasons recorded for reopening of assessment as under : "2.2 In this regard we are submitting herewith project wise details of service tax/VAT paid vide Annexure-2. It has been alleged that the assessee has debited the VAT/service tax expenses but tax component in sale was not considered. We wish to state that the assessee is doing two type of project one is contract project and second is residential project. With regard to contract project of Surat the assessee has paid Rs. 38,25,124/-. The same shown separately as expenses and the gross amount is shown as income in the P&L Account. The copy of work order entered into with RJD Integrated Textile Park Ltd. is enclosed herewith vide Annexure 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the further case of the Revenue that in the financial year 2010-11, there was amalgamation of a company named Pearl Stockholding Private Limited (PSPL) with the assessee company and as per assessee, the PSPL had MAT credit of Rs. 42,14,285/- at the time of amalgamation and assessee company had MAT credit of Rs. 59,79,032/- during assessment year 2010-11 and MAT credit of Rs. 42,12,285/- was pertaining to amalgamating company and same was not allowable under Section 105JAA(1A) of the Act. The objections to the reopening on this issue has been objected to by the assessee by contending as under: "3.1. In this regard we submit that as per the computation of total income the assessee is eligible for the total MAT credit of Rs. 1,01,91,317/- however it has claimed set off of Rs. 51,34,156/- only in the year under consideration and not Rs. 1,01,91,317/-. 3.2. It is further submitted that Amalgamation is a process wherein one or more companies merge into another company or two or more companies merge together to form a new company. All the property of the amalgamating company before amalgamation becomes the property of the amalgamated company by virtue of the amalgamation. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the amalgamating company. [para 12 of AS-14] Under this method, if MAT credit of amalgamating company (irrespective of whether such credit is recognised as an asset in the balance sheet of amalgamating company or not) is taken over by the amalgamated company or if the consideration in respect of amalgamation includes consideration for taking over MAT credit in the scheme of amalgamation, the latter company recognises the same in its balance sheet. Thus, under both the types of amalgamation, the MAT credit of amalgamating company could be recognised as an asset in the balance sheet of the amalgamated company. MAT credit is thus an accounting derivative, It could be regarded as a 'capital asset' u's. 2(14). On transfer of such capital asset in a scheme of amalgamation, it could be said that the amalgamated company becomes the owner, enabling it to carry forward and set off MAT credit: The principle underlying some of the provisions wherein deduction is attached to the undertaking and not to the owner thereof could also be extended to MAT cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting did not consider the unabsorbed losses of the amalgamating company since the said meeting was conducted before the date of the order of the High Court approving the merger. For the same reason, the original return filed by the respondent on 30-10-2001 did not consider the unabsorbed losses of amalgamating company in the process of computation of book profits u/s. 115JB. After the approval of merger by the High Court, the respondent assessee revised its financial statements so as to consider the effect of amalgamation. The respondent assessee also filed a revised return wherein the unabsorbed losses of amalgamating company .remaining after setting off the same with the surplus of the assessee company was reduced in the process of computation of book profits u/s. 115JB. The Tribunal held that the assessee is eligible for set off based on the revised accounts. Considering the above decision wherein losses of amalgamating company were allowed to be set off by the amalgamated company in computing book profits u/s. 115JB, one could contend that MAT credit of amalgamating company. could also be carry forward and set off by the amalgamated company u/s. 115JAA. 3.6. In VST Tillers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off of MAT credit of amalgamating company in the hands of the appellant assessee being the amalgamated company. The Tribunal observed : "We have duly considered the rival contentions and gone through the record carefully. The Ld. CIT(A) while denying the benefit of taxes paid by M/s .. Charminar Breweries Ltd. (CBL) u/s. 115JA has observed that M/s .. CBL was amalgamated with erstwhile SKOL and ceased to exist. Once the company ceases to exist then any benefit available to the company would not devolve upon the transferee company. For the above view CIT(A) has relied upon the decision of Hon'ble SC in the case of Sarawati Industries Syndicate 186 ITR 278. In our opinion Ld. first appellate authority has referred to this decision without context. The facts of that case are quite different. In that case, an assessee 'A' has paid certain amount to 'B' towards sales tax liability. 'B' who collected the sales tax from 'A' disputed the liability before the Sales tax Tribunal. During the pendency of the litigation 'A' ceased to exist and its business was taken over by 'C'. The Sales tax Tribunal decided the issue in favour of 'B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rationale of S. 115 JAA, one could contend that the MAT credit of amalgamating company can be set off by the amalgamated company. One could contend that in the process of amalgamation, one company loses its identity and would be merged with the other company. It could be contended that MAT credit, if utilised by the amalgamated company, would not result in any excessive relief. Denial of carry forward and set off of MAT credit of an amalgamating company to an amalgamated company would be against the legislative intention and reasonable or purposive interpretation of S. 115JB and S. 115JAA. There would be no excessive relief or double deduction if amalgamated company is allowed to carry forward and set off MAT credit of amalgamating company. As explained earlier, MAT credit represents that portion of tax which was not actually payable by the company but has all the same been collected by the Government. [CIT v. Jindal Exports Ltd., [2009] 314 ITR 137 (Del.)] If amalgamated company is denied the benefit of carry forward and set off of MAT credit of amalgamating company, it could be termed unauthorised collection of taxes by the Government. Reliance may be placed on the decision in Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 115JAA with regard to carry forward and setting off of MAT credit belonging to amalgamating company by the amalgamated company, yet this fact has been completely ignored. In other words, there is no independent finding recorded for reopening and it is trite law that based on borrowed opinion, reopening of the assessment is impermissible." FOR REASON 1 IN THE PRESENT PETITION, THE RELEVANT PARAGRAPHS OF REASONINGS IN SCA NO. 16916 OF 2018 ARE AS UNDER: "16. One another reason which has persuaded the respondent authority to issue notice for reopening the assessment is traceable to the communication dated 16.03.2018 of the ITO, Ward 10(2), Kolkata, who has stated that during the course of the assessment under Section 143(3) read with Section 263 in the case of Solvent Real Estate Private Limited (SREPL) for assessment year 2011-12 addition of Rs. 101,01,50,000/- was made under Section 40(a)(ia) of the Act as the said entity had not deducted tax at source on sub-contract payments. The said assessment order which was challenged before the CIT (Appeals) has resulted in a finding being recorded by the appellate authority that SREPL had no genuine business and was engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction. The important words under section 147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertain ed by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and respondents came to know about this based on a survey under section 133A of the Act of one Singla Engineers and Contractors Private Limited ("SECPL") on 31st October, 2014. First of all, this survey has been conducted before the assessment order dated 31st March, 2015 for Assessment Year 2012-2013 was passed in the case of petitioner and, therefore, the Assessing Officer should have been aware of any such information but still chose not to raise it during the assessment process. Moreover, according to the Jurisdictional Assessing Officer ("JAO"), who has recorded the reasons, a contract was received by petitioner from one SECPL during the relevant assessment year for Rs. 24,22,57,252/-. That can not be a reason to reopen because JAO does not even state, whether petitioner executed the contract and received any income. 6. Moreover, petitioner has stated in the petition and it has not been denied by respondent, that petitioner did receive a contract from SECPL but the contract was for Rs. 14,92,47,452/-and not for Rs. 24,22,57,252/- as mentioned in the reasons for reopening. Petitioner had sub-contracted the contract to one Bramhaputra Infrastructure Limited for a conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rastructure Ltd. v. Asstt. CIT [2018] 99 taxmann.com 409/[2017] 398 ITR 198 had laid down certain guidelines in matters of reopening of assessment and one of the guideline, which the revenue was directed to adhere to was, where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed along with the reasons. We find that to the reasons recorded, revenue has not annexed the DDIT information received by them. To that extent, the revenue, therefore, is in breach of the orders of the Delhi High Court in Sabh Infrastructure Ltd.'s case (supra). 10. We also notice in the order disposing petitioner's objections, Assessing Officer has relied upon various judgments of which copies have not been provided or were brought to the notice of assessee before the order on objection was passed so that assessee could have suitably dealt with those judgments/orders. Therefore, we would add that there is also breach of principles of natural justice on the part of the Assessing Officer, who as a quasi judicial authority had an obligation to adhere strictly to the principles of natural justice. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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