SEASPEED SHIPPING AGENCIES LTD ( SINCE MERGED WITH FORBS CAMPBELL FINANCE LTD), MUMBAI V. ASST CIT 1(3, MUMBAI

CO 173/MUM/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9432 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 30-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 06-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Depreciation; Business expenditure; Earning of tax free income
• Section: 143(3); 14A; 147; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , , BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER . / ITA NO. 1467 /MUM./ 2011 ( / ASSESSMENT YEAR : 20 0 5 06 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 1 ( 3 ), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APP ELLANT V/S SEASPEED SHIPPING AGEN CY LD. FORBES BUILDING CHARNJEET RAI MARG FORT, MUMBAI 400 001 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AABCS1333C . / C.O. NO. 173/MUM./2013 ( . 1467 /MUM./2011 ) ( ARISING OUT OF ITA NO. 1467/MUM./2011 ( / ASSESSMENT YEAR : 2005 06 ) SEASPEED SHIPPING AGENCY LD. FORBES BUILDING CHARNJEET RAI MARG FORT, MUMBAI 400 001 .. / CROSS OBJECTOR V/S DY. COMMISSIONER OF INCOME TAX CI RCLE 1 (3), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AABCS1333C / ASSESSEE BY : MR. MILIN THAKARE A/W MR. VALLABH GOKHALE / RE VENUE BY : MR. PITAMBER DAS SEASPEED SHIPPING AGENCY LD. 2 / DATE OF HEARING 1 9 .0 3 .201 4 / DATE OF ORDE R 28.03.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE AFORESAID APPEAL HA S BE EN PREFERRED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER DATED 23 RD DECEMBER 2010 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) II , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) R/W SECTION 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT ' THE ACT' ) FOR THE ASSESSMENT YEAR 20 05 06 , ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE REOPENING OF ASSESSMENT IS NOT CORRECT. 1.1 THE LEARNED CIT(A) HA S FURTHER ERRED IN OVERLOOKING THE FACT THAT THE DISALLOWANCE U/S HAS BEEN UPHELD BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE. THEREFORE, THE REOPENING OF THE ASSESSMENT U/S 147 WAS ON VALID GROUND. 1.2 THE LEARNED CIT(A) HAS FURTHER OVERLOOKED THE FACT THAT THE RESTRICTION FOR REOPENING OF ASSESSMENT PERTAINS TO ASSESSMENT YEAR BEGINNING ON OR BEFORE APRIL 2001 WHEREAS THE ASSESSMENT YEAR INVOLVED IS 2005 06. 2 . BRIEF FACTS, QUA THE ISSUE RAISED ON THE VALIDITY OF RE OPENING UNDER SECTION 148 OF THE ACT, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHIPPING AGENCY. IT HAS FILED ITS RETURN OF INCOME ON 10 TH OCTOBER 2005, DECLARING LOSS OF ` 20,46,962. THE SAID RETURN OF INCOME WAS DULY PROCESSED UNDER SECTION 143(1) AND REFUND WAS DETERMINE D. SEASPEED SHIPPING AGENCY LD. 3 LATER ON, THE ASSESSEES CASE WAS REOPENED BY ISSUANCE OF NOTICE DATED 18 TH AUGUST 2008, UNDER SECTION 148, AFTER RECORDING THE FOLLOWING REASONS : THE RETURN OF INCOME WAS FILED ON 10/10/2005 DECLARING TOTAL LOSS OF ` 20,46,962. THE SAME WAS PROCES SED U/S 143(1) ON 22/2/2007 AT A TOTAL LOSS OF ` 20,46,962 RESULTING IN REFUND OF ` 10,75,420. 2. AS PER PROFIT & LOSS ACCOUNT THE NP IS SHOWN AT ` 39,32,184 WHICH INCLUDES DIVIDEND OF ` 60 LAKHS. THIS AMOUNT IS CLAIMED AS DEDUCTION BEING EXEMPT U/S 10(34 ) OF THE I.T.ACT. PROPORTIONATE AMOUNT OF EXPENSES RELATING TO EARNING OF DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TAXABLE INCOME WAS INCURRED TO BE DISALLOWED U/S 14A OF THE I.T. ACT. THE PROPORTIONATE EXPENSES OF ` 36,21,500 WORKS OUT AS FOLLOWS: TOTAL RECEIPTS ` 1,06,21,124 DIVIDEND INCOME ` 60,00,000 EXPENSES (EXCLUDING DEPRECIATION) ` 64,10,735 PROPORTIONATE EXPENSES ` 64,10,735 X 60,00,000 ` 1,06,21,124 = ` 36,21,500 ACT, 1961 WITHIN THE TIME LIMIT OF FOUR Y EAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR. HENCE, THE ASSESSMENT FOR A.Y. 2005 06 IS HEREBY RE OPENED. 5. ISSUE NOTICE U/S 148 OF THE I.T. ACT, 1961. SD/ (PREMANAND J . ) ACIT 1(3), MUMBAI 3 . THUS, THE CASE WAS RE OPENED FOR DISALLOWING THE EXPENDITURE UNDER SECTION 14A, WHICH WAS ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME. THEREAFTER THE ASSESSING OFFICER COMPLETED THE ASSESSMENT AFTER TREATING THE RECEIPTS SHOWN IN THE PROFIT & LOSS ACCOUNT AS INCOME FROM OTHER SOURCES AND DISALLOWED THE ENTIRE EXPE NDITURE CLAIMED BY THE ASSESSEE. SINCE THE ENTIRE EXPENSES WERE DISALLOWED, THEREFORE, NO SEASPEED SHIPPING AGENCY LD. 4 FURTHER DISALLOWANCE UNDER SECTION 14A WAS MADE BY THE ASSESSING OFFICER THOUGH HE MADE SEPARATE DISALLOWANCE OF SECTION 14A. 4 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED THAT THE ONLY GROUND FOR RE OPENING OF ASSESSMENT IS DISALLOWANCE UNDER SECTION 14A , WHICH COULD NOT HAVE BEEN DONE IN VIEW OF THE PROVISIONS OF SECTION 14A , INSERTED BY THE FINANCE ACT, 2002, WITH RETRO SPECTIVE EFFECT FROM 11 TH MAY 2001. THE LEARNED COMMISSIONER (APPEALS) , AGREEING WITH THE SAID CONTENTION, HELD THAT RE OPENING OF ASSESSMENT ON SUCH REASONS RECORDED ARE NOT CORRECT AND ACCORDINGLY, THE ASSESSMENT ORDER IS INVALID. THE RELEVANT OBSERVAT IONS OF THE LEARNED COMMISSIONER (APPEALS) ARE AS UNDER: 4. IT HAS BEEN CONTENDED THAT ONLY ON THE GROUND OF DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, ASSESSMENT COULD NOT HAVE BEEN REOPENED U/S 147 SINCE SUCH AN ACTION IS PROHIBITED BY THE PROVISO TO SECTION 14A OF THE INCOME TAX ACT. 5. I HAVE PERUSED THE FACTS OF THE CASE AND I FIND THE CONTENTION TO BE CORRECT. THE STATUTE CATEGORICALLY SPECIFIES THAT MERELY ON THE GROUND OF DISALLOWANCE U/S 14A, AN ASSESSMENT CANNOT BE REOPENED. IN THE PRESENT F ACTS OF THE CASE THE ONLY ISSUE FOR REOPENING OF ASSESSMENT IS THE DISALLOWANCE U/S 14A WHICH IS APPARENT FROM THE PLAIN READING OF THE REASONS RECORDED IN THE ASSESSMENT ORDER ITSELF. IT IS THEREFORE HELD THAT REOPENING OF THE ASSESSMENT IS NOT VALID IN T HE EYES OF LAW. THE FIRST GROUND OF APPEAL IS THEREFORE ALLOWED. 6. THE REMAINING GROUNDS OF APPEAL ON MERITS OF THE ADDITIONS MADE TO INCOME ARE NOT ADJUDICATED SINCE THE ORDER ITSELF HAS BEEN HELD TO BE NOT VALID IN THE EYES OF LAW. 5 . BEFORE US, THE LEA RNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS LEGALLY INCORRECT AS THE PROVISO TO SECTION 14A IS APPLICABLE ONLY FOR RE OPENING TH E COMPLETED ASSESSMENTS PERTAINING TO ASSESSMENT YEAR BEGINNING SEASPEED SHIPPING AGENCY LD. 5 ON/OR BEF ORE 1 ST APRIL 2001, AND NOT IN THE ASSESSMENT YEAR THEREAFTER I.E., AFTER 1 ST APRIL 2001. IN THE PRESENT CASE, THE ASSESSMENT YEAR IS A.Y. 2005 06 AND, HENCE, THE PROVISO WILL NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. EVEN OTHERWISE ALSO, THE REV ENUES CASE IS COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN HONDA SIEL POWER PRODUCTS LTD. V/S DCIT, [2012] 20 TAXMAN.COM 5 (SC), WHEREIN THE HON'BLE SUPREME COURT HAS UPHELD THE DECISION OF THE DELHI HIGH COURT IN HONDA SIEL POWER PRODUCTS LTD. V/S CIT, [2012] 340 ITR 53 (DEL.), WHEREIN , EVEN FOR THE ASSESSMENT YEAR 2000 01, IT WAS HELD THAT RE OPENING OF ASSESSMENT UNDER SECTION 147 FOR THE PURPOSE OF DISALLOWANCE FOR EXPENDITURE UNDER SECTION 14A IS JUSTIFIED. 6 . THE LEARNED COUNSEL, ON THE OTHE R HAND, SUBMITTED THAT, FIRST OF ALL, RE OPENING CAN BE DONE IN ASSESSEES CAS E ONLY WHEN THERE IS REASON TO B ELIEVE BASED ON SOME COGENT MATERIAL AND IN THIS CASE, THERE IS NO NEW MATERIAL WHICH HAS COME INTO THE POSSESSION OF THE ASSESSING OFFICER. ON THE SAME SET OF EXISTING FACTS, RE OPENING CANNOT BE DONE. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE FOLLOWING DECISION S OF THE TRIBUNAL ; (A) DELTA AIRLINES INC., ITA NO.3476/MUM./ 2008, ORDER DATED 30 TH NOVEMBER 2012 ; (B) H.V. TRANSMISSION LTD., I TA NO.2230/MUM./2010, AND THE FOLLOWING DECISION OF THE GUJARAT HIGH COURT IN INDUCTO THERM INDIA PVT. LTD. V/S CIT, IN SPECIAL CIVIL APPLICATION NO.858 OF 2006, ORDER DATED 6 TH AUGUST 2012, AND THE DECISION OF DELHI HIGH COURT IN CIT V/S ORIENT CRAFT LTD. , [2013] 354 ITR 536 (DEL.). HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER , THOUGH HAS RE OPENED THE CASE FOR MAKING THE DISALLOWANCE UNDER SECTION 14A, BUT ULTIMATELY HE HAS NOT MADE ANY SUCH DISALLOWANCE ON THE GROUND THAT HE HAS ALREADY DISALLOWED THE ENTIRE BUSINESS EXPENDITURE BY TREATING THE RECEIPTS OF THE ASSESSEE TO BE TAXED UNDER THE HEAD SEASPEED SHIPPING AGENCY LD. 6 INCOME FROM OTHER SOURCES AND, THEREFORE, THE RE OPENING CANNOT BE UPHELD , BECAUSE THE GROUND ON WHICH THE REASONS HAVE BEEN RECORDED HAS NOT BEEN THE SUBJ ECT MATTER OF THE ADDITION MADE BY THE ASSESSING OFFICER. THUS, SUCH AN ASSESSMENT CANNOT BE SUSTAINED IN VIEW OF THE DECISION OF THE BOMBAY HIGH COURT IN CIT V/S JET AIRWAYS, [2010] 195 TAXMAN.COM 117 (BOM.) AND DELHI HIGH COURT DECISION IN RANBAXY LABORA TORIES LTD. V/S CIT, [2011] 12 TAXMAN.COM 74 (DEL.). LASTLY, HE SUBMITTED THAT THE ASSESSEE, AFTER SEEKING THE REASONS RECORDED FROM THE ASSESSING OFFICER HAD FILED NEITHER OBJECTION S WHICH HAVE NEITHER BEEN DEALT WITH NOR BEING DISPOSED OFF BY THE ASSE SSING OFFICER . THEREFORE, THE ORDER OF THE ASSESSING OFFICER SHOULD BE QUASHED ON THIS GROUND ALSO. 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE LEARNED COMMISSIONER (APPEALS )S ORDER, IT IS SEEN THAT HE HAS QUASHED THE ASSESSMENT ORDER AS INVALID ON THE GROUND THAT PROVISO TO SECTION 14A PROHIBITS RE OPENING OF THE ASSESSMENT UNDER SECTION 147 , FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE UNDER SECTION 14A. SUCH A CONCLUSIO N OF THE LEARNED COMMISSIONER (APPEALS) , ON THE VERY FACE OF IT , IS UNSUSTAINABLE , BECAUSE THE PROVISO IS APPLICABLE ONLY FOR THE ASSESSMENT YEAR BEGINNING ON/OR BEFORE 1 ST APRIL 2001. THIS, INTER ALIA, MEANS THAT THE PROVISO WILL NOT BE APPLICABLE FOR THE ASSESSMENT YEARS BEGINNING FROM 1 ST APRIL 2002. THE RELEVANT PROVISO TO SECTION 14A, IS REPRODUCED HEREIN BELOW: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER E NHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE U /S 14 FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1 ST DAY OF APRIL 2001. SEASPEED SHIPPING AGENCY LD. 7 8 . THUS, THE AFORESAID PROVISO CLEARLY PROVIDES THAT THE RESTRICT ION OR THE BAR TO RE OPEN THE CASE UNDER SECTION 147, IS ONLY FOR THOSE ASSESSMENT YEAR S WHICH ARE BEGINNING ON/OR BEFORE 1 ST APRIL 2001 AND NOT FOR THE SUBSEQUENT ASSESSMENT YEAR S . IN THE PRESENT CASE, THE ASSESSMENT YEAR INVOLVED IS A.Y. 2005 06 AND HENC E, THE PROVISO WILL NOT BAR THE RE OPENING U/S 147 AND WILL NOT BE APPLICABLE. AS REGARDS THE LEARNED COUNSELS OTHER CONTENTION ON LEGAL ISSUES ARE CONCERNED, IT IS SEEN THAT THESE CONTENTIONS AND OBJECTIONS HAVE NEITHER BEEN RAISED BEFORE THE LEARNED COM MISSIONER (APPEALS) N OR BEFORE THE ASSESSING OFFICER. SINCE THE LEARNED COMMISSIONER (APPEALS) HAS DECIDED THE ISSUE ON A WRONG LEGAL FOOTING, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ENTIRE ISSUE OF DECIDING THE VALIDITY OF RE OPENING AND ON M ERITS, IS REQUIRED TO BE RESTORED BACK TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS). CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO HIS FILE FOR NOT ONLY TO DECIDE VARIOUS OTHER OBJECTIONS OF THE ASSESSEE ON THE VALIDITY OF THE PROCEEDINGS UNDER SECTION 148 , BUT ALSO TO DEAL AND DECIDE THE ISSUE ON MERITS OF THE ADDITION AS WAS RAISED BEFORE HIM , AGAINST THE ASSESSMENT ORDER. THE LEARNED COMMISSIONER (APPEALS) WILL ALSO PROVIDE D UE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 9 . 9. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. WE NOW TAKE UP ASSESSEES CROSS OBJECTION NO.173/MUM./2013, FOR THE ASSESSMENT YEAR 2005 06. SEASPEED SHIPPING AGENCY LD. 8 10 . IN THE SAID CROSS OBJECTION, THE ASSESSEE HAS RAISED THE GROUNDS ON MERITS OF VARIOUS ADDITIONS WHICH HAVE BEEN MADE BY THE ASSESSING OFFICER. THE LEARNED COMMISSIONER (APPEALS) HAS DECIDED THE ISSUE OF RE OPENING UNDER SECTION 148 AND NOT DECIDED THE APPEAL ON MERITS. SIN CE IN THE REVENUES APPEAL, WE HAVE ALREADY RESTORED THE ISSUE BACK TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS) TO DECIDE THE ISSUE OF VALIDITY OF RE OPENING UNDER SECTION 147 ON OTHER OBJECTIONS OF THE ASSESSEE AND ALSO TO DEAL AND DECIDE THE ISSUE ON MERITS, THEREFORE, THE GROUNDS RAISED IN THE CROSS OBJECTION ARE ALSO RESTORED TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS) TO DECIDE THESE GROUNDS ON MERITS. CONSEQUENTLY, THE GROUNDS RAISED IN THE CROSS OBJECTION BY THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES. 11 . 11. IN THE RESULT, ASSESSEES CROSS OBJECTION IS ALLOWED FOR STATISTICAL PURPOSES. 12 . , 12. TO SUM UP, REVENUES APPEAL AND ASSESSEES CROSS OBJECTION ARE ALLOWED FOR STATISTICAL PURPOSES. 28 TH MARCH 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 28 TH MARCH 2014 SD/ - R AJENDRA ACCOUNTANT MEMBER SD/ - + AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 28 TH MARCH 2014 SEASPEED SHIPPING AGENCY LD. 9 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J . CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI