The Bombay High Court has quashed reassessment proceedings initiated against an Indian port infrastructure company, holding that the Income Tax Department wrongly denied the benefit of deduction under Section 80-IA of the Income-tax Act by treating the company’s foreign shareholding as a disqualification.
The bench of Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla ruled that the eligible “enterprise” under Section 80-IA refers to the infrastructure undertaking owned by an Indian company and not to the nationality of its parent shareholder.
The dispute related to Assessment Year (AY) 2014-15. The company had been operating and developing the Chennai Container Terminal under a licence agreement with the Chennai Port Trust. It claimed deduction under Section 80-IA, which grants tax incentives to enterprises engaged in developing, operating and maintaining infrastructure facilities.
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The deduction had been consistently allowed by the Income Tax Department in earlier scrutiny assessments. However, in March 2021—more than four years after the end of the relevant assessment year—the Assessing Officer reopened the completed assessment by issuing a notice under Section 148, alleging that the deduction had been wrongly allowed.
The reassessment was based on two principal grounds.
First, the Department contended that the enterprise claiming deduction was ultimately owned by a Mauritius-based company and therefore failed to satisfy the condition under Section 80-IA(4) requiring the enterprise to be owned by a company registered in India.
Second, it further alleged that the company merely operated an existing container terminal handed over by the Chennai Port Trust and had not developed a “new infrastructure facility,” making it ineligible for deduction under Section 80-IA.
The company argued that it was itself an Indian company registered under the Companies Act and therefore satisfied the statutory ownership condition. The eligible “enterprise” was the Bharathi Dock infrastructure undertaking owned by the petitioner and not its foreign parent company. All facts relating to its shareholding pattern, licence agreement, infrastructure development, and deduction claim had already been fully disclosed in the income tax return, annual report, tax audit report and Form 3CEB during the original scrutiny assessment. Since the reassessment notice had been issued beyond four years, reopening was legally impermissible in the absence of any failure to disclose material facts.
The Division Bench accepted the company’s contentions and held that the reassessment proceedings were unsustainable.
The Court observed that the Revenue had committed a fundamental error by equating the petitioner company with the “enterprise” referred to in Section 80-IA.
According to the Court, the eligible enterprise was the Chennai Port Bharathi Dock undertaking owned by the petitioner company, which was admittedly incorporated and registered in India. Merely because its parent company was incorporated in Mauritius did not violate the statutory requirement.
Rejecting the Revenue’s second objection, the Court noted that the Department overlooked substantial investments made by the company after obtaining the licence.
The judgment records that the company had deployed seven Quay Gantry Cranes and twenty-two Rubber Tyred Gantry Cranes and incurred expenditure of approximately ₹352.10 crore on infrastructure development. Earlier assessment orders had also consistently recognised that the company was engaged in developing, operating and maintaining the container terminal.
The High Court emphasised that the reassessment notice dated March 26, 2021 had been issued well beyond four years from the end of AY 2014-15.
Under the first proviso to Section 147, reassessment after four years can be initiated only where income has escaped assessment because of the assessee’s failure to fully and truly disclose all material facts.
The Court found that every material fact relied upon by the Revenue—including the company’s foreign parentage, licence agreement, business activities and infrastructure operations—had already been disclosed in the annual report, income tax return, tax audit report and transfer pricing documentation during the original assessment proceedings.
The Bench also observed that the Department failed to identify any material fact allegedly suppressed by the assessee.
Instead, the reopening was based entirely on material that was already available during the original scrutiny assessment, making it nothing more than a change of opinion, which cannot justify reopening a completed assessment after the statutory limitation period.
Allowing the writ petition, the Bombay High Court quashed the notice issued under Section 148 dated March 26, 2021; the order rejecting the assessee’s objections dated February 14, 2022; and the consequential show cause notice and draft assessment order dated March 15, 2022.
The Court made the rule absolute and granted relief to the petitioner without any order as to costs.
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