DCIT CEN CIR 7(3), MUMBAI V. LODHA CONSTRUCITON ( DOMBIVALI ), MUMBAI

ITA 109/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8781 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Keywords: Reopening of assessment; Business income; Depreciation; Audit objection; Retrospective amendment; Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion
• Section: 143(3); 40(a)(ia); 80IB; 148; 263; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 109/MUM/2017 ASSESSMENT YEAR: 2008 - 09 DCIT CC - 7(3), ROOM NO. 655 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S LODHA CONSTRUCTION (DOMBIVALI) 216, SHAH AND NAHAR INDUSTRIAL ROAD, OFF. DR. E. MOSES ROAD, WORLI MUMBAI - 400018. PAN NO. AABFL3409M APPELLANT RESPONDENT REVENUE BY : MR. SATISHCHANDRA RAJORE, DR ASSESSEE BY : MS. AARTI SATHE, AR DATE OF HEARING : 15/11/2018 DATE OF PRONOUNCEMENT : 27/12/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE R EVENUE. THE RELEVANT ASSESSMENT YEAR IS 2008 - 09. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS - 49) , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 , (THE ACT). M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 2 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE NOTICE U/S 148 DATED 18.02.2014 IS WITHOUT JURISDICTION AND FURTHER IN QUASHING THE NOTICE U/S 1 48 & THE ORDER U/S 143(3) READ WITH SECTION 147 DATED 31.03.2015. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN THE LD. CIT(A) FAILED TO APPRECIATE THAT T HE ISSUE AS TO WHETHER THE ASSESSES IS ENTITLED TO DEDUCTION U/S 80 - IB(10) ON THE EXPENSES WHICH HAVE BEEN DISALLOWED DUE TO NON - COMPLIANCE OF CERTAIN PROVISIONS OF THE INCOME TAX ACT, 1961 WAS NEVER EXAMINED BY THE ASSESSING OFFICER IN THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE AO CANNOT BE SAID TO HAVE FORMED AN OPINION ON THE POINTS NOT DECIDED WHILE PASSING THE ORIGINAL ASSESSMENT ORDER AND, HENCE, THE ASSESSMENT CANNOT HE SAID TO HAVE BEEN REOPENED ON A CHANGE OF OPINION . 3. B RIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2008 - 09 ON 19.07.2009 DECLARING TOTAL INCOME AT RS. NIL. THE ASSESSMENT ORDER U/S 143(3) WAS COMPLETED ON 30.12.2010 DETERMINING THE T OTAL INCOME AT RS. NIL. THE ASSESSING OFFICER (AO) RE - OPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 DATED 18.02.2014. THE REASONS FOR RE - OPENING THE ASSESSMENT AS RECORDED BY THE AO ARE AS UNDER : IN THIS CASE THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 ON 30TH DECEMBER 2010 AT A TOTAL INCOME OF RS. NIL. ASSESSEE HAS FILED RETURN OF INCOME ON 19.07.20 09 DECLARING TOTAL INCOME AT NIL . PERUSAL OF THE RECORDS REVEAL THAT FOR THE PERIOD UNDER CONSIDERATION THE ASSESSEE HAS M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 3 SHOWN TOTAL SALES OF RS.36,27,05,202/ - AND NET PROFIT OF RS.12,82,74,968/ - AS PER P/L ACCOUNT WAS SHOWN. AS PER THE COMPUTATION OF INCOME, NET PROFIT FROM BUSINESS ACTIVITY OF RS.12,82,74,968/ - WAS INCREASED TO RS.13,30,04,335/ - BY WAY OF RS.2,96,047/ - ON A/C OF DISAL LOWANCE U/S 40(A), OF RS.47,05,526/ - ON A/C OF DISALLOWANCE U/S 40(A)(IA) AND RS.52,724/ - ON A/C DONATION. THE DEDUCTION U/S 80IB HAS BEEN CLAIMED ON GROSS TOTAL INCOME OF RS.13,30,04,335/ - IT IS SEEN THAT THE PROFIT AS PER P&L A/C OF RS.12.82 CRORES IS IN CLUSIVE OF INCOME ACCOUNTED FOR AS OTHER INCOME OF RS.36,07,190/ - . SECTION 80IB CLEARLY STIPULATES THAT AN UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECTS APPROVED BEFORE 31.3.01 BY THE LOCAL AUTHORITY SHALL BE ENTITLED TO AVAIL 100% DEDUCTION OF THE PROFITS DERIVED FROM SUCH HOUSING PROJECTS. THE NET PROFIT OF 2008 - 09 IS INCLUSIVE OF OTHER INCOME OF RS.36,07,190/ - VIZ. INCOME NOT RELATED TO THE BUILDING OF HOUSING PROJECTS. THIS INCOME IS NOT ELIGIBLE FOR ANY SUCH DEDUCTION U/S 80IB AND SHOULD BE TAXE D IN THE HANDS OF THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE I.T ACT, 1961. FAILURE TO DO SO HAS RESULTED IN ESCAPEMENT OF INCOME TO THAT EXTENT. FURTHER, IT IS OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB TO THE EXTENT OF RS.13,30,04,335 / - . NET PROFIT FROM BUSINESS ACTIVITY IS ONLY RS.12,82,74,698/ - AND THE SAME HAS BEEN INCREASED TO A GROSS TOTAL INCOME OF RS.13,30,04,335 BY WAY OF DISALLOWANCE U/S 40(A) OF RS.2,96,047/ - , DISALLOWANCE U/S 40(A)(IA) OF RS.47,05,526/ - AND DISALLOWANCE OF D ONATION OF RS.52,724/ - . THESE DISALLOWANCES DO NOT FALL IN THE CATEGORY OF ELIGIBLE PROFITS DERIVED FROM THE BUSINESS ACTIVITY OF CONSTRUCTION OF BUILDINGS, HENCE, THESE DO NOT QUALIFY FOR DEDUCTION U/S 80IB OF THE IT ACT, 1961. THE DEDUCTION U/S 80IB IS A 'PROFIT LINKED INCENTIVE' ADMISSIBLE TO ONLY THE ELIGIBLE BUSINESS OF THE ASSESSEE. HERE THE ASSESSEE IS DOING A BUSINESS OF BUILDING AND CONSTRUCTION AND THE PROFIT RESULTING FROM THE SAID ACTIVITY CAN M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 4 ONLY BE CLAIMED AS DEDUCTION, WHICH IN THE INSTANT C ASE IS RS.12,82,74,968/ - . THE AMOUNT OF RS.47,05,526/ - , RS.2,96,047/ - AND RS.52,724/ - WHICH HAS BEEN CLAIMED ADDITIONALLY, IS BECAUSE OF VIOLATION OF PROVISIONS OF SECTION 40(A)(IA) AND SECTION 40(A) OF THE IT ACT, 1961 AND ON A/C OF DONATION RESPECTIVELY, WHICH IS NOT A PROFIT DERIVED FROM ACTIVITY OF THE ELIGIBLE UNDERTAKING AND HENCE IS NOT ATTRIBUTABLE TO THE PROFIT OF THE ELIGIBLE UNDERTAKING. THE ASSESSEE HAS INCLUDED U/S 40(A)(IA) DISALLOWANCE OF RS.47,05,526/ - DISALLOWANCE U/S 40(A) OF RS.2,96,047/ - AND DISALLOWANCE ON A/C OF DONATION OF RS.52,724/ - IN GROSS TOTAL INCOME AND SUBSEQUENTLY CLAIMED THE SAME ALSO AS DEDUCTION U/S 80IB. THE DISALLOWANCES U/S 40(A) AND 40(A)(IA) CANNOT BE CONSTRUED TO HAVE BEEN DERIVED AS OR INCLUDABLE IN THE PROFIT OF THE ELIGIBLE UNDERTAKING AND DO NOT ENHANCE THE REAL INCOME OF THE ASSESSEE. FURTHER, DISALLOWANCE OF THESE EXPENSES IS DUE TO NON - COMPLIANCE OF CERTAIN PROVISIONS OF THE ACT, WHICH DOES NOT ENHANCE THE ACTUAL INCOME OF THE ASSESSEE. THEREFORE, THE CLAIM OF TH E ASSESSEE FOR 80IB DEDUCTION ON DISALLOWANCE U/S 40(A), 40(A)(IA) AND DONATION IS NOT A VALID CLAIM AND INCOME TO THAT EXTENT HAS ESCAPED ASSESSMENT. HENCE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A.Y 2008 - 09 IN T HE CASE OF THE ASSESSEE WITHIN THE MEANING OF SECTION 147 OF THE INCOME - TAX ACT, 1961. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). IN THE 1 ST GROUND OF APPEAL, THE ASSESSEE CHALLENGED THE ASSUMPTION OF JURISDIC TION U/S 147 BY THE AO AND IN THE 2 ND GROUND , IT CHALLENGED THE VALIDITY OF ISSUE OF NOTICE U/S 148 BY THE AO. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT THE ISSUES BROUGHT FORTH IN THE REASONS RECORDED WERE ALREADY BEFORE THE AO DURING THE ORIGINAL ASSESSMENT PROCEEDINGS AND THE REASONS RECORDED M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 5 CLEARLY INDICATE THAT IT IS A MERE CHANGE OF OPINION. IT IS FURTHER SUBMITTED THAT THE COMMISSIONER OF INCOME TAX HAD ISSUED A SHOW CAUSE NOTICE U/S 263 ON THIS VERY ISSUE ON 01.03.2013 FOR THE IMPUGNED ASSE SSMENT YEAR AND THE ASSESSEE HAD RESPONDE D TO THE NOTICE DURING THE SAID PROCEEDINGS VIDE LETTER DATED 07.03.2013 AND 14.03.2013. IT IS STATED THAT THE COMMISSIONER, AFTER PERUSING THE SUBMISSIONS DROPPED THE PROCEEDINGS U/S 263 OF THE ACT. IT WAS ALSO SUBMITTED BEFORE THE LD. CIT(A) THAT THE AO HAS RE - OPENED THE COMPLETED ASSESSMENT U/S 143(3), AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF T HE RELEVANT ASSESSMENT YEAR, THUS IGNORING THE FACT THAT IT HAD FILED ALL THE DETAILS PERTAINING TO THE DISALLOWA NCES MADE IN THE COMPUTATION OF TOTAL INCOME, OTHER INCOME. THE LD. CIT(A), HAVING GONE THROUGH THE SUBMISSIONS OF THE ASSESSEE, OBSERVED AT PARA 14.1 OF HIS ORDER DATED 07.10.2016 THE FOLLOWING: 14.1 IN THIS REGARD, I FIND THAT, IN THE REASONS RECORD ED BY THE AO ON 17.02.2014, IT HAS BEEN OBSERVED THAT PERUSAL OF THE RECORDS REVEAL THAT FOR THE PERIOD UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN ..... IT IS SEEN THAT THE PROFIT AS PEER PROFIT & LOSS ACCOUNT OF RS.12.82 CRORES IS INCLUSIVE OF INCOME A CCOUNTED FOR AS OTHER INCOME ...... FROM THE ABOVE, IT IS PRIMA - FACIE APPARENT THAT THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT IS BASED ON THE SAME MATERIAL WHICH WAS AVAILABLE ON THE RECORD AT THE TIME OF THE ASSESSMENT MADE U/S 143(3) OF THE A CT SINCE IT IS BASED ON THE PERUSAL OF RECORDS AND THE DETAILS FURNISHED IN THE PROFIT AND LOSS ACCOUNT. THE REASONS RECORDED, FOR REOPENING THE ASSESSMENT AND REPRODUCED IN THE ASSESSMENT ORDER AND THE ASSESSMENT RECORD FOR AY 2008 - 09 DOES NOT REVEAL ANY NEW M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 6 TANGIBLE MATERIAL OR NEW INFORMATION COMING TO THE POSSESSION OF THE AO ON THE BASIS OF WHICH THE CASE WAS REOPENED. PERUSAL OF RECORD FOR AY 2008 - 09, REVEAL THAT THERE IS NO EVEN ANY AUDIT OBJECTION, AS IN AY 2007 - 08 WHICH COULD BE CONSIDERED AS NEW I NFORMATION OR TANGIBLE MATERIAL TO REOPEN THE CASE. THE LD. CIT(A), HAVING GONE THROUGH THE SUBMISSIONS MADE BY THE ASSESSEE QUASHED THE NOTICE U/S 148 DATED 18.02.2014 ISSUED BY THE AO HOLDING THE SAME AS WITHOUT JURISDICTION. 5. BEFORE US, THE LD. DR REFERS TO THE REASONS RECORDED BY THE AO FOR REOPENING THE ASSESSMENT AND SUBMITS THAT THE SAME BE HELD VALID. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE REITERATES THE ARGUMENTS SUBMITTED BEFORE THE LD. CIT(A) AND THUS SUPPORTS THE ORDER DATED 0 7.10.2016 PASSED BY HIM. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. IN THE REASSESSMENT, THE AO HAS COMPUTED DISALLOWANCE OF DEDUCTION U/S 80IB(10) OF RS.1,42,87,971 / - WHICH COMPRISE THE FOLLOWING : (I) INTEREST INCOME - RS.56,26,484/ - , (II) DISALLOWANCE U/S 40(A)(IA), 40A(II) AND DONATIONS - RS.50,54,297/ - , (III) OTHER INCOME, EXCLUDING INTEREST INCOME - RS.36,07,190/ - . M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 7 A PERUSAL OF THE REASONS RECORDED BY THE AO , WHICH HAS BEEN MENTIONED EARLIER CLEARLY INDICATES THAT IT IS A MERE CHANGE OF OPINION AND THERE WAS NO TANGIBLE MATERIAL OR NEW INFORMATION AVAILABLE WITH HIM . IN THE INSTANT CASE, WE FIND THAT THE COMMISSIONER OF INCOME TAX, CENTRAL - IV, MUMBAI HAD ISS UED A SHOW CAUSE NOTICE DATED 01.03.2013 TO THE ASSESSEE INITIATING PROCEEDINGS U/S 263 ON EXCESS DEDUCTION OF RS.50,54,297/ - CLAIMED BY THE ASSESSEE U/S 80IB OF THE ACT FOR AY 2008 - 09. IN RESPONSE TO IT, THE ASSESSEE FILED A REPLY BEFORE HIM VIDE LETTER D ATED 07.03.2013. 6.1 AS PER PROVISO TO SECTION 147, WHERE AN ASSESSMENT U/S 143(3) OR 147 HAS ALREADY BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION U/S 147 IS POSSIBLE AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNL ESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO: (A) MAKE A RETURN U/S 139 OR IN RESPONSE TO A NOTICE U/S 142(1)/148; OR (B) DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASS ESSMENT FOR THAT ASSESSMENT YEAR. 6.2 IN THE CASE OF DIL LTD. V. ACIT (2012) 343 ITR 296 (BOM), IT HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT THAT NOTWITHSTANDING THE RETROSPECTIVE AMENDMENT OF LAW, WHERE THERE WAS NO FAILURE ON THE PART M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 8 OF THE ASSESS EE TO FULLY AND TRULY DISCLOSE ALL FACTS NECESSARY FOR ASSESSMENT, NOTICE CANNOT BE ISSUED AFTER FOUR YEARS. ONCE THE CASE IS EARLIER SCRUTINIZED AND ASSESSED U/S 143(3) AND FOUR YEARS HAVE PASSED SINCE THE END OF THE RELEVANT ASSESSMENT YEAR, THE CASE WI LL BE COVERED BY THE CONDITION STIPULATED IN THE PROVISO TO SECTION 147 AND THE AO HAS TO ADDITIONALLY RECORD THE FINDING NOT ONLY THE REASON TO BELIEVE ABOUT THE ESCAPEMENT OF CHARGEABLE INCOME BUT ALSO THE FACT THAT SUCH ESCAPEMENT IS ON ACCOUNT OF OMI SSION OR COMMISSIONS ATTRIBUTABLE TO THE ASSESSEE CONCERNED. ALSO IN I.C.I.C.I. BANK LTD. V. K.J. RAO (2004) 268 ITR 203 (BOM), IT IS HELD THAT HAVING FURNISHED ALL MATERIAL FACTS, EVEN IF AN ASSESSEE ERRONEOUSLY CLAIMS HIGHER DEPRECIATION AND THE SAME WAS ALLOWED BY THE ASSESSING OFFICER, IT WILL NOT BE A CASE OF FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. HENCE, ASSESSMENT CANNOT BE REOPENED BEYOND FOUR YEARS. FURTHER, IN HINDUSTAN PETROLEUM CORPORATION LTD. V. DEPUTY CIT (2011) 238 CTR 28 (B OM), IT IS HELD THAT THE ASSESSEE HAVING CLAIMED DEDUCTION U/S 80IA, IN RESPECT OF THE PROFITS MADE BY ITS CAPTIVE POWER PLANT DISCLOSING COMPUTATION OF PROFITS AND EXPLAINING THE BREAK UP THEREOF AND DISCLOSED THE BASIS ON WHICH IT WAS CLAIMED DEDUCTION U /S 80IB, IN RESPECT OF THE REFINERY EXPANSION PROJECT AND LUBE UNIT, IT CANNOT BE SAID THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT AND THEREFORE, M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 9 REOPENING OF ASSESSMENT BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT YEAR WAS NOT JUSTIFIED. IN CIT V. INDIAN FARMERS FERTILIZER CO - OP LTD . (2008) 171 TAXMAN 379 (DEL), IT IS HELD THAT WHERE THE REASONS RECORDED FOR REOPENING OF ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, DO NOT CONTAIN AN ALLEGATION THAT THE ASSESSEE HAD FAILED TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, THE NOTICE U/S 148 IS NOT VALID. EXAMINED ON THE TOUCHSTONE OF THE RATIO LAID DOWN IN T HE CASES DELINEATED HEREINBEFORE, WE FIND THAT IN THE INSTANT CASE, THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL FACTS NECESSARY FOR ASSESSMENT. AS IN THE INSTANT CASE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR, NO ACTION CAN BE TAKEN BY THE AO U/S 147 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. THEREFORE, WE HOLD THE REASSESSMENT TO BE INVALID. 7. IN THE RESULT, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 27/12/2018 . SD/ - SD/ - ( JOGINDER SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 27/12/2018 M/S LODHA CONSTRUCTION ITA NO. 109/MUM/2017 10 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI