The Bombay High Court has clarified that for the purposes of Section 80-IA(4)(i)(a) of the Income-tax Act, the “enterprise” is the eligible undertaking or infrastructure project carrying on the specified business, and not necessarily the assessee company itself; where that undertaking is owned by an assessee company registered in India, the condition in Section 80-IA(4)(i)(a) is satisfied. Accordingly, the Revenue cannot deny the deduction by treating the assessee company as the “enterprise” and then tracing its shareholding to a foreign parent.
The Court further laid down that where reopening under Section 147 is sought after the expiry of four years from the end of the relevant assessment year, the Revenue must establish failure by the assessee to disclose fully and truly all material facts necessary for assessment, as required by the first proviso to Section 147. Where the very facts relied upon for reopening are already disclosed in the annual report, audit reports and return of income, and no specific undisclosed material fact is identified, reopening is impermissible and amounts in substance to a mere change of opinion. On that basis, the Court quashed the notice under Section 148, the order rejecting objections, and the consequential show cause notice with the draft assessment order.
The Division Bench comprising Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla observed that Section 80-IA(4)(i)(a) requires that the “enterprise” carrying on the eligible business be owned by a company registered in India, and held that the Revenue had erred in equating the petitioner company itself with the “enterprise.” The Bench stated that the enterprise in the present case was the Chennai Port Bharathi Dock undertaking of the petitioner, and that this undertaking was owned by the petitioner, which was a company registered in India. The Bench therefore held that the first reason for reopening was incorrect.
On the second reason, the Bench observed that the Revenue had relied on Note 2.6 to the financial statements showing that certain assets were taken on lease from Chennai Port Trust, but had overlooked the fact that the petitioner had set up 7 Quay Gantry Cranes and 22 Rubber Tyred Gantry Cranes at the dock and had incurred substantial expenditure of about Rs.35,210 lakhs. The Bench also noted that in earlier assessment orders and in the assessment for the current year, the petitioner’s business had consistently been referred to as including development of the container terminal at Bharathi Dock. The Bench therefore held that the second reason for reopening was also incorrect.
The Bench further observed that, even assuming the reasons for reopening were correct, the reassessment was barred by the first proviso to Section 147 because the notice under Section 148 was issued on 26 March 2021, beyond four years from the end of A.Y. 2014-15, and there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. The Bench noted that the petitioner’s annual report, tax audit report, Form 3CEB and return of income had already disclosed its business, its Indian incorporation, and its shareholding structure through Mauritius and Dubai entities. The Bench also held that the Revenue’s assertion of failure to disclose was merely bald, since it did not identify any material fact that had not been disclosed.
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Briefly, the petitioner operated the Chennai Container Terminal at Bharathi Dock, and filed its return claiming deduction of its entire business income under Section 80-IA. The return, annual report, tax audit report, audit report under Section 80-IA(7) read with Rule 18BBB, and Form 3CEB disclosed that the petitioner was a wholly owned subsidiary of P & O Ports (Chennai) Ltd., Mauritius, and that it had entered into international transactions with associate enterprises. The return was scrutinised and information was called for including on royalty payments under the licence agreement. By assessment order, the Assessing Officer accepted the petitioner’s business as managing, developing and maintaining the container terminal and allowed the deduction under Section 80-IA.
Thereafter, after expiry of four years from the end of the relevant assessment year, the Revenue issued notice under Section 148 alleging escapement of income. The recorded reasons stated, first, that the petitioner as an “enterprise” was owned by P & O Ports (Chennai) Ltd., Mauritius, which was not a company registered in India, thereby breaching Section 80-IA(4)(i)(a), and secondly, that the petitioner was merely maintaining, managing and operating an existing container terminal handed over by Chennai Port Trust and had not brought into existence a new infrastructure facility. The petitioner objected on the grounds that there was no failure to disclose fully and truly all material facts, that the reopening was based on change of opinion, and that the sanction had been mechanically granted.
