EAGLE FIBERS PVT. LTD, SURAT V. DICT, CIRCLE-1(1)(1), SURAT

CO 18/SRT/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2481 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-02-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-02-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 18-10-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SITA RAM MEENA
• Keywords: Audit objection; Difference of opinion; Tax effect; Change of opinion
• Section: 68; 148; 263; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 111/SRT/2020 & C.O. No.18/SRT/2020 (a/o ITA No.111/SRT/2020) (AY 2011-12) (Hearing in Virtual Court) Deputy Commissioner of Income Tax, Circle-1(1)(1), Room No. 108, 1 st Floor, Aaykar Bhavan, Majura Gate, Surat-395001 Vs Eagle Fibres Pvt. Ltd., 201,Orleaans Building, Sosyo Circle, Udhna Magdalla Road, Surat- 395007 PAN : AAACE 5085 C Appellant / Revenue Respondent / co-objector Assessee by Shri Ramesh Malpani, C.A. Revenue by Shri Sita Ram Meena, Sr-DR Date of hearing 11.02.2022 Date of pronouncement 11.02.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals)-4, Surat [‘CIT(A)’ for short] dated 09.01.2020 for assessment year (AY) 2011-12.The assessee on service of notice of appeal has filed its Cross Objection (CO), which in turn the assessment order under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 28.10.2016. The Revenue in its appeal has raised the following grounds of appeal:- “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A)is justified in deleting the interest paid on bogus unsecured loan borrowed by the assessee from bogus lenders without appreciating that the department has not accepted the Ld. CIT(A)’s decision in respect of deletion of quantum addition made on account of unsecured loan u/s 68 of the Act and the Revenue has preferred appeal before the Hon'ble Tribunal against quantum addition deleted, which is still pending to decide?. ITA No.111/SRT/2020 & C.O. 18/SRT/2020 (A.Y.11-12) Eagle Fibres Pvt. Ltd. 2 2. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.” The assessee in its C.O. has raised the following grounds:- “1. That on the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in upholding the validity of re-opening of the case of appellant u/s 147/148 of the Income Tax Act, 1961 (the Act) whereas the re- opening of the case of appellant is patently wrong, bad in law and contrary to the settled law.” 2. Brief facts of the case are extracted from the orders of lower authorities are that initially the assessment in this case for AY 2011-12 was completed under section143(3) r.w.s.147 on 31.03.2014 assessing loss of Rs.77.49 lakhs against the loss declared by assessee at Rs.84.04 crores. The Assessing Officer made addition on account of unsecured loan under section 68 of the Act of Rs.2.85 crores. Thereafter the case was reopened under section 147 on recording the reasons that the assessee paid interest of Rs.23,29,482/- on the unsecured loan availed by assessee from different parties which was treated as bogus addition. The Assessing Officer after recording the reasons of reopening served notice under section 148 dated 30.03.2016. In response to notice under section 148, the assessee filed its return of income on 23.04.2016 declaring nil income and the same loss which was declared initially. The Assessing Officer after serving statutory notice proceeded for assessment. The assessing officer issued show cause notice as to why the interest paid on such unsecured loan which should not be disallowed. In reply, the assessee stated that the addition was made itself wrong so there should not be any disallowance of interest expenses paid to those parties as the assessee has substantiated to genuineness of its loan. The Assessing ITA No.111/SRT/2020 & C.O. 18/SRT/2020 (A.Y.11-12) Eagle Fibres Pvt. Ltd. 3 Officer after considering the reply of assessee made addition of interest of Rs.23,29,482/- paid to on the alleged unexplained unsecured loan. 3. Aggrieved by the addition and re-opening the assessee filed appeal before Ld. CIT(A). Before Ld. CIT(A), the assessee challenged the validity of re- opening as well as addition on account of disallowance of interest. On the validity of re-assessment, the assessee contended that re-assessment is solely based on change of opinion and issue was already considered in the original assessment proceedings. Re-assessment proceedings are not based on any new material, but based on material already availed on record. The Assessing Officer initiated re-assessment proceedings on the same material without any new or fresh material and it is established law that re- assessment cannot be initiated on the basis of change of opinion. On the addition of disallowance of interest expenses, the assessee submitted that its appeal against the addition under section 68 of the Act has been allowed by Ld. CIT(A)-I, Surat, wherein the addition of unsecured loan of Rs.2.85 crores has already been deleted (copy of order Ld. CIT(A)-1, Surat dated 28.06.2017) was furnished. 4. The Ld. CIT(A) after considering the submission of assessee upheld the validity of re-opening by taking view that if the Assessing Officer discovered of fund or satisfaction himself the taxable income has escaped assessment which would amount to say that he has reasoned to believe that such income has escaped assessment. Such justification of his belief is not to be judged from standard of prove requiring him for giving a final conclusion as mere belief is sufficient for initially of proceedings under section 147 of the Act. However, on merit assessee was allowed by Ld. CIT(A) by holding that in quantum assessment, the Ld. CIT(A)-1, Surat in order No.CAS/1/121/2014-15 dated 28.06.2017 has already deleted the addition of ITA No.111/SRT/2020 & C.O. 18/SRT/2020 (A.Y.11-12) Eagle Fibres Pvt. Ltd. 4 unsecured loan Rs.2.85 crores holding that assessee has been able to explain all three limbs of section 68 of the Act i.e. identity and creditworthiness of the lenders and genuineness of such transactions. Once the addition has been deleted, the question of disallowance of interest thereon does not arise. Aggrieved by the order of Ld. CIT(A), the Revenue has filed present appeal before the Tribunal. The assessee on service of notice of Revenue’s appeal filed its C.O. challenging the validity of re-opening. 5. We have heard the submissions of Ld. Senior Departmental Representative (Sr-DR) of the Revenue and Ld. Authorized Representative (AR) of assessee and have gone through the orders of authorities below. The Ld. Sr-DR of the Revenue submits in this case the Audit Party has raised objection that the Assessing Officer has not accepted the unsecured loan. Therefore, corresponding interest paid on such unsecured loan was required to be disallowed, which was not disallowed at the time of finalizing the assessment order. Accordingly, a remedial action under section 147 to protect the interest of Revenue was initiated. In the re-assessment order, the interest of unsecured loan was disallowed. 6. The Ld. Sr.DR of the Revenue submits that though the tax effect involved in the present appeal is only Rs.7,19,810/- which is below the monetary limit of tax effect of Rs.50 lakh as prescribed by Central Board of Direct Tax (CBDT in short) in its recent Circular No.17 of 2019 dated 08.08.2019. However, the case falls under the exceptional clause of 10(c) of the Circular No. 03 of 2018 dated 11.07.2018 issued by CBDT and clarification letter in F. No.279/misc/142/2007-ITJ dated 20.08.2018 and CBDT’s latest Circular No.17/2019 dated 08.08.2019. 7. On the other hand, Ld. AR of the assessee strongly objected against the submission of Ld. Sr.DR of the Revenue. Ld. AR of the assessee submits that ITA No.111/SRT/2020 & C.O. 18/SRT/2020 (A.Y.11-12) Eagle Fibres Pvt. Ltd. 5 neither in the reasons recorded or while deciding the objection filed by the assessee against the re-opening, nowhere disclosed that there was any Audit Objection or that the assessment was re-opened on the basis of Audit Objection. The Revenue / Assessing Officer for the first time before the Tribunal has disclosed that there was any Audit Objection on the basis of which the re-opening the case of assessee was re-opened. Ld. AR of the assessee submits that re-opening is not valid on the basis of Audit Objection. The appeal of Revenue is not maintainable and is not liable to be admitted in view of latest CBDT’s Circular No.17 of 2019 dated 08.08.2019 as the tax effect involved in the present appeal is below monetary limit of Rs.50 lakh. 8. On merit, the Ld. AR of the assessee submits that the addition on account of unsecured loan was made in the original assessment passed u/s 143(3) of the Act dated 31.03.2014. Against the addition the assessee filed appeal before Ld. CIT(A) and the addition was deleted by Ld. CIT(A)-1, Surat in his order dated 28.06.2017. Aggrieved the Revenue has filed this appeal before this Tribunal and the same was dismissed vide order dated 02.09.2021 in ITA No.118/SRT/2017. Accordingly, the Ld. AR of the assessee submits that once the addition of unsecured loan has been deleted by Ld. CIT(A)-1,Surat, therefore no addition in consequential interest is liable to be sustainable. The Ld. CIT(A) appreciated the fact and deleted the addition on merit. 9. On assessee’s C.O. the Ld. AR of the assessee submits that the re-opening if as claimed before the Tribunal was, based on Audit Objection is not sustainable in view of the decision of Hon'ble jurisdictional High Court in the case of Cedilla Healthcare Ltd. VS ACIT (2014) 44 taxman.com 353 (Guj). And in other alternative submission, Ld. AR of the assessee submits that re- opening was merely on change of opinion and the same was badly in law. To ITA No.111/SRT/2020 & C.O. 18/SRT/2020 (A.Y.11-12) Eagle Fibres Pvt. Ltd. 6 support his submission, Ld. AR of the assessee relied on the decision of CIT Vs Kelvinator of India (320 ITR 56 SC). 10. We have considered the rival submissions of both the parties and have gone through the order of authorities below. Before adverting to the technical issue, let us consider the merit of the present case. We find that in the re- assessment order passed under section 263 r.w.s. 147 dated 28.10.2016, the Assessing Officer made addition on account of alleged interest payment paid of Rs.23,29,482/- on unsecured loan. We further find that the addition of unsecured loan was made in the assessment order dated 31.03.2014 passed under section 143(3). It is admitted fact that addition on account of unsecured loan were deleted by Ld. CIT(A)-1 Surat in his order dated 28.04.2017. Against the order of Ld. CIT(A)-1, Surat dated 28.04.2017 the Revenue filed appeal before Tribunal, wherein the order of Ld. CIT(A)-1 Surat was upheld by Tribunal passed in ITA 118/Surat/2017 dated 20.09.2021. Considering the fact that once the addition of unsecured loan for which the disallowance of interest was made has been deleted, the order for disallowance of interest would not survive. Accordingly, we affirm the order of Ld. CIT(A). Considering the fact that as we have affirm the order of Ld. CIT(A) on merit, therefore adjudication of other various submission raised either by Ld. Sr.DR for the Revenue and Ld. AR of the assessee would be academic. In the result, appeal of Revenue is dismissed. 11. Considering the fact that as we have already dismissed the appeal of Revenue on merit, therefore considering the submission of assessee on validity of re- opening have become academic in nature and the C.O raised by assessee have become infructuous and dismissed. 12. In combine result, the appeal of the Revenue is dismissed and assessee’s C.O. have become infructuous and dismissed. ITA No.111/SRT/2020 & C.O. 18/SRT/2020 (A.Y.11-12) Eagle Fibres Pvt. Ltd. 7 Order pronounced in the court at the close of Virtual court hearing on Friday, 11 th February, 2022. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 11/02/2022 Dkp. Out Sourcing P.S Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)-Surat-4 4. CIT 5. DR 6. Guard File True copy/ By order // True Copy // Assistant Registrar, ITAT, Surat True copy/