THE issue before the Bench is - Whether deduction u/s 80IA
would apply in relation to a business referred to in the nature of works
contract. And the answer goes in favour of the assessee.
Facts of the
case
The assessee,
an engineering company, is a civil contrcator for the government. For the AY
2005-06, the return of income was filed which was taken under scrutiny
assessment u/s 143(1) and the same was framed u/s 143(3). One of the
disallowances was a part of deduction u/s 80IA(4). On appeal, CIT(A) had partly
allowed such appeal. Both the sides challenged the same before the Tribunal and
the Tribunal had already adjudicated upon the issue in a recent past. By way of
these petitions, the challenge was made to the notice issued u/s 148 read with
section 147. On the basis of retrospective amendment, the explanation given
under sub-section (13) of section 80IA was substituted by the Finance (No.2)
Act, 2009. Assessee objected to reassessment proceedings contending that this
was nothing but a change of opinion. The AO on due scrutiny on the basis of the
material available before it, allowed deduction u/s 80IA. The reopening was only
on account of amendment to the explanation u/s 80IA(13), which was substituted
by the Finance (No.2) Act, 2009 with effect from April 01, 2000, on the ground
of retrospective effect from April 01, 2000. The assessee would not be eligible
for deduction u/s 80IA for the assessee. When the notice had been issued, such
notice was impermissible. Relying on various decisions, a request was made to
drop the proceedings. The objections was disposed of by AO, reiterating the fact
that the amendment introduced by way of Finance Act, 2009 would permit such
reassessment proceedings. In the interregnum, the assessee also challenged the
vires of section 80IA(4) by way of Special Civil Application and such petition
was decided in a group of petitions.
On
due service, the revenue's official appeared and filed affidavit-in-reply
contending that the assessment for the year 2004-05 was framed on June 29, 2007.
On having realised that the income chargeable to tax had escaped assessment,
after recording the reasons, a notice u/s 148 was issued within a period of four
years from the end of relevant AY as all requirement of law were fully complied
with. The assumption of jurisdiction on the part of AO would not require any
indulgence. It was further contended that there was no conscious consideration
with regard to allowability of the deduction, taking into consideration the
amendment to section 80IA(4) at the time of scrutiny assessment, and, therefore,
this was not a case of change of opinion on the part of the AO. It was also the
averment of the revenue that the assessee was a Civil Contractor working for the
Government and was not a Developer and, therefore, the deduction u/s 80IA(4)
would not be admissible to him in view of the explanation given below
sub-section (13) of section 80IA, which has been substituted by the Finance
(No.2) Act, 2009 with retrospective effect from April 01, 2000. Since in the
explanation, it was clarified that the deduction u/s 80IA would not be
admissible to an assessee who carries on a business which was in the nature of
works contract, such deduction was not admissible to the assessee and,
therefore, the income chargeable to tax escaped the assessment.
Before HC, the assessee's counsel
had submitted that AO cannot assume the jurisdiction merely because the
amendment had been brought making it effective from April 01, 2000, even if it
was held to be clarificatory in nature. It was further held that HC in the case
of Parikshit Industries v. ACIT, reported in 352 ITR 349, had decided the issue
in favour of the assessee. This had been challenged before SC by way of SLP and
the said decision had been upheld. It was further submitted that the Court in
Karita Construction Ltd. v. UOI and others, reported in 352 ITR 513 (Guj.) had
held that introduction of the explanation in question did not amount to
introduction of a new provision of law with retrospective operation. The Court
also held that the explanation to sub-section (13) of section 80IA with
retrospective effect from April 01, 2000 was introduced by the legislature for
clarifying certain doubts for removing confusions and such explanation was to
fill in the gap left in the statute to suppress the mischief. The Court had also
had referred to the decision in the case of Parikshit Industries Pvt. Ltd. On
the other hand, the Revenue's counsel had urged that at the time of issuance of
notice for reassessment, there was no change of opinion on the part of AO,
however, counsel could not controvert the decision rendered in the case of
Parikshit Industries Pvt. Ltd.
Held that,
++ on
thus hearing both the sides and considering the material on record, we notice
that in the reasons recorded by the Assessing Officer, the sole ground while
initiating reassessment is the explanation to section 80IA of the Act with
effect from April 01, 2000. As per explanation given below sub-section (13) of
section 80IA of the Act substituted by the Finance (No.2) Act, 2009, it has
explained that the deduction under section 80IA of the Act would not apply in
relation to a business referred to in sub-section (4) which is in the nature of
works contract. This Court in the case of Katira Construction Ltd. where
challenge was made to the provision of sub-section (4) of section 80IA of the
Act, has held that post 1.4.2002 also, the involvement of the enterprise in
developing infrastructure facility when the claim was covered under such
expression was essential. In the same context, we must understand the expression
"developing or operating and maintaining or developing, operating and
maintaining". Keeping in mind the new areas where such private participation
would be required and therefore had to be encouraged and keeping in mind that
such areas, such as, surface transport, water supply, water treatment system,
irrigation project, etc. would necessarily be highly investment intensive, the
Legislature provided for a tax break of 10 consecutive years out of a total of
20 years period and also proposed to do away with the requirement of such
infrastructure facility being transferred to the Central or the State Government
or the local authority;
++
while deciding the issue of vires, the judgment rendered in the case of
Parikshit Industries Pvt. Ltd. was taken note of. In Parikshit Industries Pvt.
Ltd., the challenge was made to the issue of reopening. The Court having noted
that the claim made for deduction under section 80IA of the Act, which was
allowed by the Assessing Officer in scrutiny assessment. However, later on the
reassessment proceedings were initiated only on account of the addition of
explanation. The Court held that it is a settled law that if the explanation is
added to a statute for the removal of doubts, the implication is that the law
was same from the beginning and the same is further explained by way of addition
of the Explanation. Therefore, it is not a case of introduction of new provision
of law by retrospective operation, but when all the materials regarding
activities of the assessee if are available on record and the benefit of the
provision is already made available to such assessee, reassessment proceedings
cannot be initiated only on account of addition of such Explanation. This was
challenged before the Apex Court. The Apex Court dismissed the Special Leave
Petition, which is reported in 25 taxmann.com 301;
++ in
the case of Agrawal J.V, in respect of the reassessment proceedings initiated on
account of introduction of explanation, the Court held the same in favour of the
assessee by holding that all necessary facts and material relating to the claim
for deduction under section 80IA(4) were already available in the return of
income and the same was considered duly by the Assessing Officer. There was
nothing to demonstrate or reveal that there was any reason for the reopening
assessment on the identical material only on account of any introduction of such
provision. In the present case, as could be noted from the material on record,
the Assessing Officer on a detailed scrutiny had explained the claim made by the
Assessing Officer under section 80IA(4). This was also challenged further before
the CIT(A) and the Tribunal. The sole question, therefore, is whether the
reassessment proceedings can be initiated only on the basis of insertion of
Explanation which had been substituted by the Finance (No.2) Act, 2009 with
retrospective effect from April 01, 2000. Such Explanation clarified that the
deduction under section 80IA of the Act would not be admissible in the case of
an assessee carrying on business in the nature of works contract. Such
explanation having held to be clarificatory in nature, the ratio laid down in
the case of Parikshit Industries Pvt. Ltd. would apply. The Assessing Officer
initiated such proceedings of reopening solely on such ground of insertion of
explanation and, therefore, it needs to be held as mere change of opinion.
Hence, the assumption of jurisdiction on the Assessing Officer shall need to be
interfered by way of writ jurisdiction. Resultantly, all the three petitions
deserve to be allowed quashing the impugned notice issued under section 148 of
the Act and all consequential proceedings emanating therefrom. Rule is made
absolute. There shall be, however, no order as to costs.
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