Gujarat High Court Quashes Reassessment Against Adani Exports For AY 2010-11
The Gujarat High Court has quashed reassessment proceedings against Adani Exports for AY 2010-11.
It found that the Assessing Officer had relied on an unamended partnership deed while reopening the assessment, despite the assessee having specifically informed him that the deed had been amended to remove the obligation to pay interest on partners' capital.
A Division Bench comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati held that the amended partnership deed expressly provided that no interest would be payable on the partners' capital.
The court therefore found that non-payment of such interest was in accordance with the amended deed. It also held that Section 80-IA(10) could not have been invoked on that basis while determining the profits eligible for deduction under Section 10AA.
The assessee, a partnership firm engaged in manufacturing and exporting gold jewellery from the SEZ at Sachin, Surat, had claimed a ₹149 crore deduction under Section 10AA for AY 2010-11. Its assessment was completed under Section 143(3) on December 23, 2011.
The Department later issued a notice under Section 148 on March 27, 2015, seeking to reopen the assessment. The reopening was based on two grounds. First, the assessee had allegedly not provided for interest on partners' capital, thereby inflating its profits. Second, it had allegedly purchased gold from its sister concern, Adani Enterprises Ltd., at prices lower than the prevailing market rate.
The Revenue alleged that these factors resulted in inflated profits and a higher deduction under Section 10AA.
The assessee challenged the reopening. It argued that the relevant issues had already been examined during the original scrutiny assessment. It therefore contended that the reopening amounted to a change of opinion.
The assessee also contended that the reopening was founded on a Revenue Audit objection. It pointed out that the Assessing Officer had sought its clarification on the two issues and that detailed replies had been furnished.
The Court noted that a Coordinate Bench had earlier quashed reopening proceedings involving the assessee for AYs 2008-09 and 2009-10 on substantially identical issues.
However, it also noted an important distinction. The earlier proceedings had been initiated after four years from the end of the relevant assessment years, whereas the reopening in the present case was initiated within four years.
The present Bench nevertheless agreed with the Coordinate Bench's observations concerning the audit objections and the alleged discrepancy in the pricing of gold purchased from Adani Enterprises. It noted that the relevant details, including transactions with the sister concern, were already available to the Assessing Officer during the original scrutiny assessment.
On the interest issue, the Court noted that the original partnership deed dated May 8, 2006 provided for interest on the partners' capital. The deed was subsequently amended on January 6, 2007 with effect from November 1, 2006. The amended deed provided that no interest would be payable on the partners' capital.
The assessee specifically brought this amendment to the Assessing Officer's notice in its reply dated August 23, 2013. It also pointed out that Clause 6 of the original partnership deed had become inoperative.
Despite this, the Assessing Officer neither called for nor examined the amended deed. Instead, the reopening was based entirely on the unamended partnership deed dated May 8, 2006.
The court held, “Consequently, there was no obligation whatsoever upon the assessee - firm to pay interest on the partners' capital, and the non-payment of such interest was fully in accordance with the terms of the amended partnership deed. Therefore, the provision of Section 80-IA(10) of the Act could not have been invoked while determining the profits eligible for deduction under Section 10AA of the Act.”
The court further noted that the reopening concerning the interest issue was founded on the covenant in the original partnership deed. That deed provided for interest on the balances standing to the credit of the partners' capital or current accounts.
On the gold purchases, the assessee had pointed out that the Revenue compared gold of 0.999 fineness with its purchases of 0.995 fineness. It also contended that the comparison was based on a Troy ounce rather than a normal ounce.
The Coordinate Bench had earlier considered the same issue. It noted that the assessee had furnished details of its gold purchases, including sample copies of comparable purchase and sale invoices.
The present Bench agreed with the Coordinate Bench's observations on the alleged discrepancy in gold pricing. It noted that the issue had been specifically pointed out by the assessee in its objections but was not considered while passing the order rejecting those objections.
The High Court ultimately held that the notice dated March 27, 2015, issued under Section 148, along with the consequential order rejecting the assessee's objections and initiating the reopening proceedings, deserved to be quashed and set aside.
The writ petition was accordingly allowed. The court quashed and set aside the Section 148 notice and the consequential order and made the rule absolute.
For Petitioner: Advocate B.S. Soparkar,
For Revenue: Maithili D. Mehta, Senior Standing Counsel