M/s. Indo Rama Synthetics Ltd., Gurgaon V. DCIT, New Delhi

CO 235/DEL/2015

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3444 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 17-08-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Keywords: Depreciation; Principle of natural justice; Retrospective amendment; Question of law; Bad and doubtful debts; Reason to believe; Unabsorbed depreciation; Reassessment proceedings
• Section: 115JB; 147; 148; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DLEHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K. NARSIMHA CHARY, JUDICIAL MEMBER I.T.A. NO. 3914/DEL/2011 ASSESSMENT YEAR: 2004-05 DY. COMMISSIONER OF INCOME-TAX VS M/S INDO RAMA SYNTHETICS (I) LTD. CIRCLE 11(1), NEW DELHI. 903, MOHANDEV BUILDING, 13 TOLSTOY MARG, NEW DELHI. (PAN: AAACI1530L) I.T.A. NO.6078/DEL/2013 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME-TAX VS M/S INDO RAMA SYNTHETICS (I) LTD. CIRCLE 11(1), NEW DELHI. 903, MOHANDEV BUILDING, 13 TOLSTOY MARG, NEW DELHI. (PAN: AAACI1530L) CROSS OBJECTION NO.235/DEL/2015 (IN I.T.A. NO.6078/DEL/2013) ASSESSMENT YEAR: 2007-08 M/S INDO RAMA SYNTHETICS (I) LTD. VS DY. COMMISSIO NER OF INCOME-TAX 903, MOHANDEV BUILDING, CIRCLE 11(1), NEW DELHI 13 TOLSTOY MARG, NEW DELHI. ASSESSEE BY: MS DEEPASHREE RAO, CA DEPARTMENT BY: MS SHEFALI SWAROOP, CIT DR DATE OF HEARING: 09/11/2017 DATE OF PRONOUNCEMENT: 31/01/2018 2 ORDER PER K. NARSIMHA CHARY, JM ITA NO.3914/DEL/2011 RELATES TO THE ASSESSMENT YEAR 2004-05 AND ITA NO.6078/DEL/2013 AND CROSS OBJECTION NO.235/DEL/201 5 RELATE TO ASSESSMENT YEAR 2007-08. ASSESSEE IS INDO RAMA SYNTHETICS (I) LTD. IN ALL THESE THREE MATTERS. SINCE THE ASSESSEE IS SAME AND THE QUESTION OF LAW IS ALSO THE SAME IN ALL THESE THREE MATTERS, WE FIND IT JUST AND CONVENIENT TO DI SPOSE OF THEM BY WAY OF A COMMON ORDER. 2. FACTS STATED, IN BRIEF, ARE THAT THE ASSESSEE, A PUBLIC LIMITED COMPANY, IS ENGAGED IN THE BUSINESS OF MANUFACTURING TEXTILES R ELATED YARNS. FOR THE ASSTT. YEARS 2004-05 AND 2007-08, THEY HAVE FILED THE RETUR NS OF INCOME - SHOWING NIL INCOME FOR THE ASSTT. YEAR 2004-05 AFTER SETTING O FF BROUGHT FORWARD UNABSORBED DEPRECIATION; AND DECLARING A LOSS OF RS.186,07,08, 869/- UNDER THE NORMAL PROVISIONS OF THE ACT FOR THE ASSTT. YEAR 2007-08. ASSESSMENT WAS COMPLETE IN RESPECT OF BOTH THE YEARS. SUBSEQUENTLY, BY ISSUANCE OF A NOTICE U/S 148 OF THE ACT, LEARNED AO INITIATED RE-ASSESSMENT PROCEEDINGS . IN RESPECT OF ASSTT. YEAR 2004-05, THERE WAS AN ADDITION OF RS.76,47,61,000/- TOWARDS THE PROVISION FOR DEFERRED TAX DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PART OF BOOK PROFITS FOR THE PURPOSES OF SECTION 115JB OF THE ACT. IN RESPECT O F THE ASSTT. YEAR 2007-08, THERE WAS AN ADDITION ON ACCOUNT OF SALES-TAX SUBSIDY, ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS AND ADVANCES AND PROVISIONS FOR DIMI NUTION IN VALUE OF INVESTMENTS. ASSESSEE CHALLENGED THESE ADDITIONS B EFORE THE LEARNED CIT(A) AND THE LEARNED CIT(A) BY WAY OF AN ORDER DATED 30.6.201 1 IN APPEAL NO.425/09-10 IN RESPECT OF ASSTT. YEAR 2004-05 AND ORDER DATED 30.8 .2013 IN APPEAL NO.191/12- 3 13/CIT(A)-XV, ACCEPTED THE CONTENTION OF THE ASSESS EE THAT THE RE-ASSESSMENT PROCEEDINGS ARE BAD. LEARNED CIT(A) DELETED THE AD DITIONS IN RESPECT OF BOTH THESE YEARS. HENCE, THE REVENUE IS BEFORE US IN THE SE APPEALS WHEREAS IN RESPECT OF ASSTT. YEAR 2007-08, ASSESSEE FILED CROSS OBJECT ION CHALLENGING THE FINDING OF THE LEARNED CIT(A) UPHOLDING THE PROCEEDINGS U/S 14 7 OF THE ACT IN RESPECT OF ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS AND AD VANCES AND PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS FOR COMPUTING BO OK PROFITS, ON THE BASIS OF RETROSPECTIVE AMENDMENT MADE TO THE PROVISIONS OF S ECTION 115JB OF THE ACT. 3. IN SO FAR AS THE ADDITION OF RS.76,47,60,924/- O N ACCOUNT OF PROVISION FOR DEFERRED TAX LIABILITY, THE LEARNED AO RECORDED THA T IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE DEDUCTION OF RS.76,47,61,000/- PER TAINING TO PROVISION FOR DEFERRED TAX LIABILITY WAS WRONGLY ALLOWED TO THE AS SESSEE BECAUSE FINANCE BILL 2008 THROUGH WHICH PROVISIONS OF SECTION 115JB ARE AMENDED. LEARNED CIT(A) ON THIS ASPECT PLACED RELIANCE ON THE DECISION REPORTE D IN M.J. PHARMACEUTICALS LTD. VS DCIT, 297 ITR 119(BOM); AND RALLIS INDIA LTD. V S ASCIT, 323 ITR 54 (BOM) TO HOLD THAT THE RETROSPECTIVE AMENDMENT TO SECTION 11 5JB OF THE ACT HAD NOT BEEN EFFECTED WHEN THE IMPUGNED NOTICE WAS SERVED UPON T HE ASSESSEE AND THEREFORE, THE SAME COULD NOT HAVE FORMED BASIS FOR INITIATING THE REASSESSMENT PROCEEDINGS. IN M.J. PHARMACEUTICALS LTD. (SUPRA) THE HONBLE H IGH COURT HELD THAT,- 11. MOREOVER, WHEN THE ASSESSEE OBJECTED TO THE RE OPENING OF THE ASSESSMENT BY RELYING ON A DECISION OF THE INCOME-T AX APPELLATE TRIBUNAL, KOLKATA BENCH BALARAMPUR CHINI MILLS LTD. [2008] 29 7 ITR (AT) 15 THE ASSESSING OFFICER COULD NOT HAVE BRUSHED ASIDE THE SAID OBJECTION AND PROCEEDED TO FINALIZE THE ASSESSMENT. THE INCOME-TA X APPELLATE TRIBUNAL, KOLKATA BENCH IN THE ABOVE CASE HAS CONSIDERED THE VERY SAME ISSUE AND 4 HELD THAT THE BOOK PROFIT DETERMINED BY THE ASSESSE E CANNOT BE INCREASED BY THE AMOUNT OF THE PROVISION FOR DEFERRED TAXATION W HILE DETERMINING 'TOTAL INCOME' UNDER SECTION 115JB OF THE ACT. IN THE ABSENCE OF ANY DECISION TO THE CONTRARY, THE ASSESSING OFFICER WAS BOUND BY TH E SAID DECISION. THEREFORE, THE ASSESSING OFFICER COULD NOT IGNORE T HE DECISION OF THE KOLKATA BENCH IN THE CASE OF BALARAMPUR CHINI MILLS LTD. [2 008] 297 ITR (AT) 15 AND CONTINUE WITH THE REASSESSMENT PROCEEDINGS. 12. NO DOUBT, EXPLANATION 2(C) TO SECTION 147 OF THE ACT EMPOWERS THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT IF HE HAS REASON TO BELIEVE THAT EXCESSIVE RELIEF HAS BEEN GRANTED TO THE ASSESSEE U NDER THE ACT. THE BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT ON ACCOUNT OF EXCESSIVE RELIEF MUST BE BASED ON DEFINITE BASIS. A S STATED EARLIER, THERE IS NO BASIS FOR TREATING THE PROVISION FOR DEFERRED TAXAT ION AMOUNTS TO UNASCERTAINED LIABILITY COVERED UNDER CLAUSE (C) OF EXPLANATION TO SECTION 115JB OF THE ACT. IN FACT, DURING THE COURSE OF REGULAR ASSESSMENT, THE VERY SAME QUESTION WAS RAISED BY THE ASSESSING OFFICER A ND THE EXPLANATION GIVEN BY THE ASSESSEE THAT THE PROVISION FOR DEFERRED TAX ATION CANNOT BE TREATED AS AN UNASCERTAINED LIABILITY WAS ACCEPTED BY THE ASSE SSING OFFICER. APART FROM THAT THE KOLKATA BENCH IN THE CASE OF BALARAMPUR CH INI MILLS LTD. HAS TAKEN SIMILAR VIEW. NEITHER THE REASONS RECORDED WHILE RE OPENING THE ASSESSMENT NOR THE REASONS RECORDED WHILE REJECTING THE OBJECT IONS RAISED BY THE ASSESSEE INDICATE ANY REASON AS TO WHY THE REGULAR ASSESSMENT IS WRONG OR THE DECISION OF THE KOLKATA BENCH IN THE CASE OF BA LARAMPUR CHINI MILLS LTD. IS NOT ACCEPTABLE. 13. IN THESE CIRCUMSTANCES, IN OUR OPINION, IN THE PRESENT CASE, SINCE THE JURISDICTIONAL REQUIREMENTS FOR REOPENING OF THE AS SESSMENT ARE NOT FULFILLED, THE IMPUGNED NOTICE ISSUED UNDER SECTION 148 OF THE ACT CANNOT BE SUSTAINED. 4. ADMITTEDLY, IN THIS MATTER, THE NOTICE WAS ISSUED ON 10.4.2008 WHEREAS THE AMENDMENT TO SECTION 115JB VIDE FINANCE ACT, 2008 W AS NOTIFIED ON 10.05.2008. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E JUDGMENT OF HONBLE BOMBAY HIGH COURT IS APPLICABLE TO THE FACTS OF THE CASE AND THE LEARNED CIT(A) RIGHTLY APPLIED THE SAME TO HOLD THAT THE ASSUMPTION OF JURISDICTION U/S 147 OF THE 5 ACT IS BAD IN LAW. WE, THEREFORE, DO NOT FIND ANY R EASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY, WE ALLOW I TA NO.3914 OF 2011. 5. NOW COMING TO ITA NO.6078/DEL/2013, LEARNED CIT( A) VIDE PARAGRAPH 6.5 OF HIS ORDER OBSERVED THAT THE RECORD REVEALED TO HIM THAT THE ASSESSEE FILED CROSS OBJECTIONS TO THE PROPOSED REASSESSMENT ON 5.11.201 2 BUT THE AO HAS NOT CONSIDERED THE SAME. LEARNED CIT(A) OBSERVED THAT THE LEARNED AO HAS NOT PASSED ANY ORDER WHETHER SPEAKING OR NON SPEAKING DI SPOSING OF THE OBJECTIONS AS IS EVIDENT FROM THE RECORD AND THEREBY VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN TERMS OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF GKN DRIVESHAFTS INDIA P. LTD. VS ITO, 259 ITR 19. THIS IS A MATTER OF RECORD. 6. FURTHER, THE HONBLE JURISDICTIONAL HIGH COURT IN PCIT VS. JAGAT TALKIES DISTRIBUTORS [2017] 398 ITR 13, HELD THAT: 23. THE REVENUE DOES NOT DISPUTE THAT THERE WAS A FAILURE TO FURNISH THE R EASONS FOR REOPENING OF THE ASSESSMENT. THEREFORE, THERE WAS A CLEAR VIOLATION OF THE PROCEDURE LAID DOWN BY THE SUPREME COURT IN GKN DRIVESHAFT (INDIA) LIMITED V. ITO ( SUPRA). THE DECISION OF THIS COURT IN HARYANA ACRYLIC MANUFACTURING COMPANY V. THE COMMI SSIONER OF INCOME TAX (SUPRA) REITERATES THAT THE IT IS MANDATORY FOR THE A O TO SUPPLY REASONS FOR REOPENING THE ASSESSMENT AND THIS HAS TO BE DONE WITHIN A REASONABLE TIME. IT WAS FURTHER OBSERVED BY THIS COURT AS UNDER: '.... A NOTICE UNDER SECTION 148 WITHOUT THE COMMUNICATION OF THE REASONS THEREFORE IS MEANINGLESS INASMUCH AS THE ASSESSING OFFICER IS BOUND TO FURNISH THE REASONS WITHIN A REASONABLE TIME. IN A CASE, WHERE THE NOTICE HAS BEEN IS SUED WITHIN THE SAID PERIOD OF SIX YEARS, BUT THE REASONS HAVE NOT FURNISHED WIT HIN THAT PERIOD, IN OUR VIEW, ANY PROCEEDINGS PURSUANT THERETO WOULD BE HIT BY THE BAR OF LIMITATION INASMUCH AS THE ISSUANCE OF THE NOTICE AND THE COMMUNICATION AND FURNISHING OF REASONS GO HAND-IN-HAND. THE EXPRESSION WITHIN A REASONABLE PERIOD OF TIME AS USED BY THE SUPREME COURT IN GKN DRIVESHAFT (INDIA) LIMITED (SUPRA) CANNOT BE STRETCHED TO SUCH AN EXTENT THAT IT EXTENDS EVEN BEYON D THE SIX YEARS STIPULATED IN SECTION 149.' XXX XXX XXX XXX XXX XXX 6 27. THE DECISIONS OF BOMBAY HIGH COURT IN CIT V. TREND ELECTRONICS (SUPRA) AND CIT V. VIDESH SANCHAR NIGAM LIMITED MANU/MH/1805/2011 SUPPORT THE CASE OF THE ASSESSEE. IN THE LAST MENTIONED DECISION, THE BOMBAY HIGH COURT HELD AS UNDER: 'IT IS AXIOMATIC THAT POWER TO REOPEN A COMPLETED ASSESSMENT UNDER THE ACT IS AN EXCEPTIONAL POWER AND WHENEVER REVENUE SEEKS TO EXERCIS E SUCH POWER, THEY MUST STRICTLY COMPLY WITH THE PREREQUISITE CONDITIONS VI Z., REOPENING OF REASONS TO INDICATE THAT THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WHICH WOULD WARRANT THE REOPENING OF AN ASSESSMENT. THESE RECORDED REASONS AS LAID DOWN BY THE APEX COURT MUST BE FURNISHED TO THE ASSESSEE WHEN SOUGHT FOR SO AS TO ENABLE THE ASSESSEE TO OBJECT TO THE SAME BEFORE T HE ASSESSING OFFICER. THUS, IN THE ABSENCE OF REASONS BEING FURNISHED, WHEN SOUGHT FOR WOULD MAKE AN ORDER PASSED ON REASSESSMENT BAD IN LAW. THE RECORDING OF REASONS (WHICH HAS BEEN DONE IN THIS CASE) AND FURNISHING OF THE SAME HAS TO BE STRICTLY COMPLIED WITH AS IT IS A JURISDICTIONAL ISSUE. THIS REQUIREMENT IS VERY SALUTARY AS IT NOT ANY ENSURES REOPENING NOTICE S ARE NOT LIGHTLY ISSUED. BESIDES IN CASE THE SAME HAVE BEEN ISSUED ON SOME MISUNDERSTANDING/MISCONCEPTION, THE ASSESSEE IS GIVEN AN OPPORTUNITY TO POINT OUT THAT THE REASONS TO BELIEVE AS RECORDED IN THE REASONS DO NOT WARRANT REOPENING BEFORE THE REASSESSMENT PROCEEDINGS ARE COMMENCED. THE ASSESSING OFFICER DISPOSES OF THESE OBJECTIONS AND IF SATISFIED WITH THE OBJECTIONS, THEN THE IMPUGNED REOPENING NOTICE UNDER SECTION 148 OF THE ACT IS DROPPED/WITHDRAWN OTHERWISE IT IS PROCEEDED WITH FURTHER. IN IS SUES SUCH AS THIS, I.E., WHERE JURISDICTIONAL ISSUE IS INVOLVED THE SAME MUS T BE STRICTLY COMPLIED WITH BY THE AUTHORITY CONCERNED AND NO QUESTION OF KNOWLEDGE BEING ATTRIBUTED ON THE BASIS OF IMPLICATION CAN ARISE. WE ALSO DO NOT APPRECIATE THE STAND OF THE REVENUE, THAT THE RESPONDENT-ASSESSEE HAD ASKED FOR REASONS RECORDED ONLY ONCE AND THEREFORE, SEEKING TO JUSTIFY NON-FURNISHING OF REASONS. WE EXPECT THE STATE TO ACT MORE RESPONSIBLY.' 7. IN VIEW OF THIS ESTABLISHED LEGAL POSITION, WE D O NOT FIND ANY REASON TO REACH A DIFFERENT CONCLUSION AND FOR VIOLATION OF THE PRI NCIPLES OF NATURAL JUSTICE IN TERMS OF THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF GKN DRIVESHAFTS INDIA P. LTD. VS ITO (SUPRA), THE IMPUGNED REOPENING PROCEED INGS ARE BAD IN LAW AND NOT SUSTAINABLE. WHEN ONCE THE ENTIRE REOPENING PROCEE DINGS ARE QUASHED, NOTHING SURVIVES FOR OUR CONSIDERATION IN THE CROSS OBJECTI ONS. WE, THEREFORE, FIND THAT BOTH THE APPEAL OF THE REVENUE AND THE CROSS OBJECT ION OF THE ASSESSEE ARE LIABLE TO BE DISMISSED. 7 8. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE AN D THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (PRASHANT MAHARISHI) (K. NARSIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 31 ST JANUARY, 2018 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR