DCIT 2(1), MUMBAI V. ARONI COMMERCIALS LTD ( FORMERLY KNOWN AS M.S, ARONI CHEMICAL INDUSTRIES LTD), MUMBAI

ITA 1120/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75674 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 16-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation; Tangible material; Difference of opinion; Change of opinion
• Section: 143(3); 14A; 147; 148

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI SANJAY GARG, JM ./I.T.A. NO.288/M/2012 ( / ASSESSMENT YEAR: 2005 - 2006 ) ARONI COMMERCIALS LTD., 209 - 210, ARCADIA BLDG, 195, NARIMAN POINT, MUMBAI 400 021. / VS. DCIT - RANGE 2(1), AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AAACA 8974 A ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO.1120/M/2012 ( / ASSESSMENT YEAR: 2005 - 2006 ) DCIT - RANGE 2(1), AAYAKAR BHAVAN, MUMBAI 400 020. / VS. ARONI COMMERCIALS LTD., 209 - 210, ARCADIA BLDG, 195, NARIMAN POINT, MUMBAI - 21. ./ PAN : AAACA 8974 A ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI VIJAY MEHTA / REVENUE BY : SHRI M.L. PERUMAL, DR / DATE OF HEARING : 14.2 .2014 / DATE OF PRONOUNCEMENT : 21 .2.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS. ITA NO. 288/M/2012 IS FILED BY THE ASSESSEE AND APPEAL ITA NO. 1120/M/2012 IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT (A) - 4, MUMBAI DATED 18/11/2011 FOR THE ASSESSMENT YEAR 2005 - 2006. SINCE, THE ISSUES INVOLVED IN THESE TWO APPEALS ARE INTERCONNECTED, THEREFORE, FOR THE SAKE CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND BEING DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 2 2. FIRSTLY, WE SHALL TAKE UP ASSESSEES APPEAL ITA NO.288/M/2012 , WHICH IS FILED ON 12.1.2012 AGAINST THE SAID ORDER OF THE CI T (A) - 4. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING EFFECTIVE GROUND WHICH READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT (A) ERRED IN CONFIRMING THE STAND OF THE AO IN REOPENING OF THE ASSESSMENT U/S 147 OF THE INCOME TAX ACT, 1961. THE APPELLANT PRAYS THAT THE REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT MAY BE DECLARED AS BAD IN LAW AND REASSESSMENT ORDER MAY PLEASE BE CANCELLED. 3. ON FACTS, THIS IS THE CASE THE ASSESSEE FILED THE RETURN OF INCOME DECL ARING THE TOTAL INCOME OF RS. 6.06 CRS (ROUNDED OF) AND BOOK PROFITS AT RS. 15.56 CRS. AO COMPLETED THE ASSESSMENT ORIGINALLY U/S 143(3) OF THE ACT ON 29.12.2007 AFTER MAKING CERTAIN ADDITIONS ON ACCOUNT OF FOREIGN TRAVEL, DISALLOWANCE U/S 14A AND SUN DRY BALANCES WRITTEN OFF. SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S 148 OF GIVING THE FOLLOWING REASONS WHICH READ AS UNDER: THE COMPENSATION TREATED BY THE ASSESSEE AS LONG TERM CAPITAL GAIN IS NOT CORRCT AS THE SAME IS NOT COVERED BY THE SECTION 45(1) OF THE ACT. THERE WAS NO TRANSFER OF CAPITAL ASSET NOR ANY EXTINGUISHMENT OF RIGHTS IN ANY CAPITAL ASSET. THE COMPENSATION RECEIVED BY THE ASSESSEE SHOULD HAVE BEEN COMPUTED AS BUSINESS INCOME U/S 28(II) AND (VA)(A) OF THE ACT. OMI SSION TO DO SO HAS RESULTED IN UNDERASSESSMENT OF THE BUSINESS BY RS. 4,59,72,000/ - . 4. IN RESPONSE TO THE ABOVE, ASSESSEE FILED THE RETURN OF INCOME ON 23.7.2009 DECLARING THE TOTAL INCOME OF RS. 6,18,87,105/ - . THE INCREASED AMOUNT HAS NOTHING TO DO WITH THE REASONS FOR WHICH ASSESSMENT WAS REOPENED. THE AOS PROPOSAL TO TAX THE SUM OF RS. 4,59,72,000/ - AS BUSINESS INCOME IS THE CORE AREA IN THE REASONS MENTIONED AND AS PER THE ASSESSEE THE SAID AMOUNT CONSTITUTES A COMPENSATION WHICH WAS OFFERED AS LON G TERM CAPITAL GAINS IN THE RETURN OF INCOME. ASSESSEE OPPOSED THE REOPENING STATING THAT THE SAME CONSTITUTES A CHANGE OF OPINION AND RELIED ON VARIOUS DECISIONS DISCUSSED IN PARA 8 AND 9 OF THE ASSESSMENT ORDER. IT WAS CONTESTED THAT THE ISSUE UNDER CONSIDERATION WAS THE SUBJECT MATTER OF HUGE CORRESPONDENCE BETWEEN THE REVENUE OFFICERS AND THE ASSESSEE. THEREFORE, IT IS A CLEAR CASE OF CHANGE OF OPINION AND PARA 10.1 OF THE ASSESSMENT ORDER IS RELEVANT IN THIS REGARD. MATTER TRAVELLED TO THE FIRST A PPELLATE AUTHORITY. 5. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, THE ISSUE OF REOPENING WAS THE SUBJECT MATTER OF DISCUSSION AND THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND RELIED ON VARIOUS DECISIONS BY HOLDING THAT T HE 3 SAME CONSTITUTES CHANGE OF OPINION. FINALLY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) UPHELD THE VALIDITY OF THE PROCEEDINGS U/S 147 / 148 OF THE ACT. PARA 4 OF THE IMPUGNED ORDER IS RELEVANT IN THIS REGARD AND THE SAME READS AS UNDE R: 4. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE. IT IS AY 2005 - 2006 AND ORIGINAL ASSESSMENT U/S 143(3) WAS COMPLETED ON 29/12/2007 WHEREAS, THE NOTICE HAS BEEN ISSUED U/S 148 ON 23/6/2009 WHICH IS VERY MUCH WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. THE ASSESSEE HAD RECEIVED CERTAIN COMPENSATION FOR EXTINGUISHMENT OF CERTAIN RIGHTS UNDER A SETTLEMENT AGREEMENT, THE NATURE OF WHICH WAS NOT CLEAR BECAUSE IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES WHETHER SUCH COMPENSATION IS TAXABLE AS LONG TERM CAPITAL GAIN OR BUSINESS INCOME . THEREFORE, THE AO REOPENED THE CASE U/S 147. THE SUFFICIENCY OR CORRECTNESS OF REASON CANNOT BE A MATTER OF CHALLENGE AS HAS BEEN HELD BY HONBLE SUPREME COURT IN THE CASE OF RAYMOND W OOLEN MILLS VS. ITO 236 ITR 34 (SC). SIMILARLY, THE ULTIMATE RESULT OF INQUIRY IS ALSO NOT MATERIAL FOR DECIDING THE JURISDICTION OF THE AO TO REOPEN ASSESSMENT EVEN IF IT IS FOUND ULTIMATELY THAT THERE HAS BEEN NO ESCAPEMENT OF INCOME. THE SAME HAS BEEN HELD BY THE HONBLE PATNA HIGH COURT IN THE CASE OF MAHASUKHRAM MADANLAL VS. CIT 28 ITR 299 . THEREFORE, IN THE CASE UNDER CONSIDERATION ALSO WHATEVER MAY BE THE RESULT OF INQUIRY, THE VALIDITY OF REOPENING OF ASSESSMENT IS NOT AFFECTED. WHEREAS, PRIMA F ACIE THERE WAS A VALID REASON FOR REOPENING THE ASSESSMENT FOR DECIDING THE TAXABILITY OF COMPENSATION RECEIVED BY THE ASSESSEE. THEREFORE, THE ACTION U/S 147 / 148 TAKEN BY THE AO IS UPHELD AND THE GROUND OF APPEAL IS REJECTED . 6. AGGRIEVED WITH THE ABOV E DECISIONS OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE US BY RAISING THE ABOVE MENTIONED GROUNDS. 7. DURING THE PROCEEDINGS BEFORE US, SHRI VIJAY MEHTA, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE PAPER BOOK (PB) CONTAINING 20 PAGES AND TRIE D TO TRACE THE WAY THE ISSUE WAS DEALT WITH BY THE LOWER AUTHORITIES BY RELYING ON THE VARIOUS CORRESPONDENCES BETWEEN THE REVENUE OFFICER AND THE ASSESS EE. TO START WITH, LD COUNSEL BROUGHT OUR ATTENTION TO PAGE 2 AND 3 (SCHEDULE J); PAGE 4 (ITEM NO.4) O F PB, LD COUNSEL MENTIONED THAT THE RELEVANT PARTICULARS ARE DISCLOSED IN THE RETURN OF INCOME. RELYING ON PAGE 5 OF PB, IT WAS MENTIONED THAT THE SAID RECEIPT OF RS. 4,59,70,000/ - , THE COMPENSATION RECEIVED FOR EXTINGUISHMENT OF THE RIGHTS AND INVESTED I N THE INVESTMENT SPECIFIED U/S 54EC OF THE ACT. FURTHER, BRINGING OUR ATTENTION TO PAGE 8 AND 12 OF PB, COPY OF QUESTIONNAIRE DATED 14.8.2007, ITEM NO.40, LD COUNSEL MENTIONED THAT THE DETAILS RELATING TO THE SAID RECEIPT OF RS. 4.59 CRS WAS DEALT WITH IN THAT ITEM . FURTHER, B RINGING OUR ATTENTION TO PAGE 14, LD COUNSEL READ OUT ITEM NO.3, WHICH IS THE REPLY TO THE SAID QUESTION . IN THIS REGARD, 4 LD COUNSEL ALSO DISCUSSED THE TAXABILITY OF THE SAID COMPENSATION UNDER THE HEAD LONG TERM CAPITAL GAINS. F ILING OF SETTLEMENT AGREEMENT DATED 20.5.2004 WAS ALSO APPEARING ON PAGE 15 OF THE PB. BRINGING OUR ATTENTION TO PAGE 17 OF THE PB I.E., ASSESSEE S LETTER DATED 28.12.2007, LD COUNSEL MENTIONED THAT THE SAID CORRESPONDENCE WAS ENTIRELY DEDICATED TO THE IM PUGNED ISSUE I.E., COMPENSATION FOR EXTINGUISHMENT OF RIGHTS AS LONG TERM CAPITAL GAINS . VARIOUS DECISIONS THAT WERE RELIED ON BY THE ASSESSEE WERE ALSO MENTIONED IN THE SAID REPLY. FURTHER, RELYING ON VARIOUS DECISIONS OF THE TRIBUNAL I.E, (I) ROYAL C ONSTRUCTION CO. VS. ACIT V IDE ITA NO.4717/M/2012 (AY 2004 - 2005) DATED 4.9.2013; (II) ASIAN PAINTS LTD VS. DCIT (308 ITR 105); (III) BLUE STAR LTD V. JCIT [2007] 108 TTJ (MUMBAI) 336 AND ORDER OF THE ITAT, MUMBAI IN THE CASE OF ITO VS. FRANKLIN TEMPLETON IN TERNATIONAL SERVICES VIDE ITA NO. 4959/M/2013 DATED 25.9.2013, LD COUNSEL MENTIONED THE ISSUE CONSTITUTES CHANGE OF OPINION THEREFORE, THE REOPENING OF ASSESSMENT IS INVALID. 8. ON THE OTHER HAND, I N REPLY TO THE ABOVE SUBMISSIONS OF THE LD AR ON THE LEGAL ISSUES, LD DR BROUGHT OUR ATTENTION TO THE SAID QUESTION NO.40 AND MENTIONED THAT IT DOES NOT BEAR THE DETAILS OF HEAD OF INCOME RELATED INQUIRIES. HE, HOWEVER, MENTIONED THE FACT THAT THE AO RESTRICTED HIMSELF TO THE TAXABILITY OF THE SAME AS LONG TERM CAPITAL GAINS (PAGES 14 - 17 OF THE PB ARE RELEVANT IN THIS REGARD). HE ALSO FILED WRITTEN SUBMISSIONS ON 28.1.2014 GIVING ELABORATE SUBMISSIONS MOSTLY ON THE MERITS OF ASSESSMENT OF COMPENSATION AS BUSINESS INCOME AND A FEW CASE LAWS SUCH AS THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. KALYANJI MAVJI & CO VS. CIT (SC) 102 ITR 287; JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. RINKU CHAKRABORTHY (KAR) 56 DTR 227; DECISION OF THE ITAT, MUMBAI IN THE CAS E OF ACIT VS. KANGA & CO REPORTED IN 2010 TIOL - 464 - ITAT - MUM AND MENTIONED THAT THE AO IS JUSTIFIED IN ISSUING THE NOTICE U/S 148 OF THE ACT. FURTHER, HE MENTIONED THAT THE ASSESSEE FURNISHED THE MISLEADING INFORMATION BY DESCRIBING THE COMPENSATION AS TER MINATION , THEREFORE, THE AO STILL VALIDLY HOLDS THE JURISDICTI ON. FURTHER, LD DR ARGUED THAT THE AOS FAILURE TO APPLY HIS MIND CONSTITUTES THE VALID REASON FOR ISSUE OF NOTICE U/S 148 OF THE ACT. DURING THE REBUTTAL TIME, LD COUNSEL FILED A COPY OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH 5 COURT IN ASSESSEES OWN CASE FOR THE AY 2008 - 2009 AND MENTIONED THAT IN THE ABSENCE OF ANY TANGIBLE MATERIAL , THE NOTICE U/S 148 CANNOT BE ISSUED AND THE REASSESSMENT SHOULD BE QUASHED. FAIRLY MENTIONING THAT THE FAC TS ARE DIFFERENT IN THAT CASE DECIDED BY THE HIGH COURT BUT THE CIRCUMSTANCES AND THE CONSEQUENCES BECOMES RELEVANT TO THE PRESENT CASE AND THEREFORE, THE FINDING OF THE CIT (A) ON THE LEGALITY OF THE NOTICE U/S 148 REQUIRES TO BE REVERSED. 9. WE HAVE HEAR D BOTH THE PARTIES ON THIS LEGAL ISSUE AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE WRITTEN SUBMISSIONS AND THE PAPER BOOK FILED BEFORE US. THE SAID QUESTION NO.40 IS PERUSED AND FIND THE SAME IS AS UNDER: 40. PLEASE FILE COMPLETE DET AILS OF COMPENSATION FOR EXTINGUISHMENT OF RS. 4.59 CRS. WHAT WERE THE RIGHTS SO EXTINGUISHED? FURTHER, IT IS SEEN THAT AS PER PARA 4 OF NOTES ON ACCOUNTS A SUM OF RS. 1320 LAKHS WAS EARNED AS CAPITAL GAIN ON THIS EXTINGUISHMENT. HOWEVER, IN THE COMPUTAT ION ONLY RS. 459 LAKHS HAS BEEN OFFERED FOR TAX AND RS. 875 LAKHS HAS BEEN CLAIMED EXEMPT U/S 54EC. PLEASE EXPLAIN AND RECONCILE THIS DIFFERENCE. 9.1 EXPLANATION OF THE ASSESSEE APPEARING IN PAGE 14 TO THE SAID QUESTION NO.40 READS AS UNDER: 3) EXPLANATION FOR TREATING COMPENSATION FOR EXTINGUISHMENT OF RIGHTS AS LONG TERM CAPITAL GAIN: 9.2. RELEVANT CONTENTS OF PAGE 17 READ AS UNDER: AS REQUIRED BY YOUR GOODSELVES, THE EXPLANATION FOR TREATING COMPENSATION FOR EXTINGUISHMENT OF RIGHTS AS LONG TERM CAPITAL GAIN IS AS UNDER 9.3. RELEVANT CONTENTS OF PAGE 18 READ AS UNDER: THE CONDITIONS AT (C) HAS BEEN CLEARLY SATISFIED, AS WE HAVE RECEIVED RS. 4.60 CRS AS CONSIDERATION FOR TERMINATION OF OUR RIGHTS. 10. FURTHER, WE HAVE ALSO PERUSED THE REASONS RECORDED BY THE AO AS APPEARING IN PARA 2 OF THE ASSESSMENT ORDER. ON PERUSAL OF THE ABOVE EXTRACTIONS, WE INFER THAT THE ISSUE UNDER CONSIDERATION IS THE TAXABILITY OF THE SUM OF RS. 4.59 CRS . AO EXAMINED THE IS SUE ABOUT THE TAXABILITY OF THE RECEIPT UNDER THE HEAD CAPITAL GAINS AND ALLOWED THE CLAIM OF THE ASSESSEE IN THE REGULAR ASSESSMENT. IT IS AN ADMITTED FACT THAT THERE IS NO ANY TANGIBLE MATERIAL BEFORE THE AO FOR ASSUMING THE JURISDICTION U/S 147. IT IS A SETTLED LEGAL PROPOSITION THAT UNLESS THE TANGIBLE MATERIAL EXISTS IN THE POSSESSION OF THE AO, THE ISSUANCE OF NOTICE U/S 148 BECOMES 6 INVLAID . WE HOLD THE SAME IN VARIOUS DECISIONS FURNISHED BEFORE US. IN THE RECENT DECISION DELIVERED BY THE ITAT I N THE CASE OF FRNAKLIN TEMPLETON (SUPRA) , WHEREIN ONE OF US (AM) IS THE PARTY AND THE SAID OF EXISTENCE OF TANGIBLE MTERIAL ISSUE WAS DISCUSSED IN PARA 7 TO 9 OF THE ORDER DATED 25.9.2013, AND THE SAID PARAS READ AS UNDER: 7. THE ABOVE CONTENTS SUFFICIEN TLY PROVE THE ISSUE THE AO WANTED TO EXAMINE UNDER SECTION 148 OF THE ACT, WAS ALREADY EXAMINED DURING THE REGULAR ASSESSMENT PROCEEDINGS AND HAD ALREADY FORMED AN OPINION ON THE IMPUGNED ISSUE RELATING TO THE APPLICABLE RATE OF DEPRECIATION ON THE COMPUTER SOFTWARE, BEFORE CONCLUDING THE ASSESSMENT ACCEPTING THE CLAIM OF THE ASSESSEE. THEREFORE, THE QUESTION IS WHY DID HE ACCEPT SUCH CLAIM AND IS REOPENING THE CONCLUDED AS SESSMENT U/S 147 OF THE ACT IS THE SUSTAINABLE ROUTE FOR CORRECTING SUCH MISTAKE? NOW THE AO WANTS TO REOPEN THE CONCLUDED ASSESSMENT FOR DENYING THE CLAIM OF THE ASSESSEE. IN OUR OPINION, THESE ATTEMPTS OF THE ASSESSING OFFICER SHOULD CONSTITUTE CHANGE O F OPINION AS HELD BY THE CIT (A) IN THE IMPUGNED ORDER. FURTHER, WE HAVE ALSO PERUSED THE ORDER OF THE CIT (A). PARA 3 OF THE CIT (A)S ORDER IS RELEVANT HERE AND THE SAME READS AS UNDER: 3. I HAVE GONE THOUGHT THE ORDER OF THE AO AND SUBMISSION OF THE APPELLANT. THE APPELLANT APPEAL IS ALLOWABLE ON ACCOUNT OF FOLLOWING: - (I) THE APPELLANT HAS DISCLOSED ALL MATERIAL FACTS PERTAINING TO CLAIM OF DEPRECIATION ON COMPUTER SOFTWARE LICENSE IN ITS RETURN OF INCOME AND THE AO HAS CONSIDERED ALL THOSE DOCUMENTS IN THE ASSESSMENT ORDER U/S 143(3) DATED 8.12.2006 AND ALLOWED DEPRECIATION @ 60% AND AS THE 4 YEARS FROM THE END OF ASSESSMENT YEAR WAS COMPLETED ON 31 ST MARCH, 2009, THEREFORE, IN VIEW OF THE FIRST PROVISO OF SECTION 147 OF THE INCOME TAX ACT, THE REOPE NING OF ASSESSMENT IS FOUND TO BE BAD IN LAW. 8. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT (A) HELD THAT THE REOPENING IS BAD IN LAW BY OBSERVING THAT ASSESSEE HAD DISCLOSED ALL MATERIAL FACTS DURING THE ORIGINAL ASSESSMENT. IN OUR OPINION, IT IS THE CA SE OF REUSE BY AO OF THE ALREADY FURNISHED INFORMATION FOR OPINING DIFFERENTLY, WHICH AMOUNTS TO ABUSE OF THE PROVISIONS OF SECTION 147 OF THE ACT. NO CASE IS MADE BY THE AO THAT THE ASSESSEE HAS NOT DISCLOSED RELEVANT BASIC FACTS NECESSARY FOR MAKING OF T HE ASSESSMENT. AO MUST DEMONSTRATE THE DEFAULT OF DISCLOSURE AS PER THE PROVISIONS OF THE PROVISO TO SECTION 147 OF THE ACT TO VALIDATE THE NOTICE ISSUED UN ER THIS SECTION. IN OUR OPINION, THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CAL L FOR ANY INTERFERENCE. ACCORDINGLY, THE LEGAL GROUND RAISED IS ALLOWED IN FAVOUR OF THE ASSESSEE. 9. REGARDING THE OTHER GROUNDS ON MERITS, CONSIDERING THE DECISION AGAINST THE REVENUE ON THE LEGAL ISSUE, THE LABOUR OF ADJUDICATION OF THE OTHER GROUNDS ON MERITS WILL ONLY REMAIN AN ACADEMIC EXERCISE. THEREFORE, THE LEGAL GROUND RAISED VIDE GROUND NO.1 BY THE REVENUE IS DISMISSED AND THE OTHER GROUNDS 2 TO 4 ARE ALSO DISMISSED AS ACADEMIC. GROUND NO.5 IS GENERAL IN NATURE AND THEREFORE, THE SAME IS DISMISSED . 11. FURTHER, THE SAME VIEW TAKEN BY THE TRIBUNAL IN THE CASE OF THE ROYAL CONSTRUCTION CO (SUPRA) AND PARAS 6 & 7 OF THE SAID ORDER ARE RELEVANT IN THIS REGARD, WHICH READ AS UNDER: 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. IT IS AN UNDISPUTED FACT THAT THERE IS NO TANGIBLE MATERIAL WITH THE AO 7 WHILE REOPENING THE REGULAR ASSESSMENT WHICH WAS COMPLETED U/S 143(3) OF THE ACT. THIS IS A CASE OF R E - OPENING OF THE ASSESSMENT ONLY AFTER REVISITING THE PAPERS ALREADY AVAILABLE ON RECORD. CIT (A) REJECTED THE ASSESSEES EXPLANATION IN THIS REGARD AND ON OBSERVING THAT, IN THE LIST OF QUERIES RAISED IN THE QUESTIONERS, NO QUERY WAS RELATED TO THE DIS - A LLOWABILITY OF INTEREST U/S 36(1)(III) OF THE ACT AND THEREFORE, NO OPINION IS FORMED DURING THE REGULAR ASSESSMENT. CIT (A) DISMISSED THE ASSESSEES ARGUMENT AND CONFIRMED THE INVOKING OF THE PROVISIONS OF SECTION 148 OF THE ACT REJECTING THE ASSESSEES ARGUMENT THAT THE REOPENING PROCEEDINGS ARE BASED ON THE PRINCIPLE OF CHANGE OF OPINION. BUT THE FACT IS THAT IN THE ABSENCE OF TANGIBLE MATERIAL WHICH IS MANDATORY FOR RE - OPENING OF THE ASSESSMENT WHICH IS DISTINCTLY THE FACT OF THIS CASE, THE ISSUE O F NOTICE U/S 148 IS INVALID. IT IS THE REQUIREMENT OF THE LAW THAT THE EXISTENCE OF TANGIBLE MATERIAL REFLECTING THE FACT OF CONCEALMENT OF INCOME OR FURNISHING OF THE INACCURATE PARTICULARS IS THE REQUIREMENT. NOW IT IS THE TRITE LAW THAT THE AO MUST PO SSESS TANGIBLE MATERIAL FOR ASSUMING JURISDICTION UNDER THE SAID PROVISIONS. THESE VIEWS ARE CONFIRMED BY THE LIST OF DECISIONS FILED BEFORE US. 1. ASIAN PAINTS LTD. VS. DCIT (308 ITR 105) (BOM) 2. CIT VS. ORIENT CRAFT LTD. (354 ITR 536) (DEL.) 3. TELCO DADAJEE DH ACKJEE LTD VS. DCIT IN ITA NO.4613/M/2005 4. MANU M. PARPIA VS. DCIT IN ITA NO. 8507/M/2010 5. HINDUSTAN HARDY SPICER LTD. VS. ITO IN ITA NO.2629/M/2013 6. PAYASH SECURITIES P. LTD. VS. DCIT IN ITA NO.650/M/2013 7. DCIT VS. BINANI INDUSTRIES LTD IN ITA NO.650/M/2013 7. ON PERUSAL OF THE SAME, CONSIDERING THE ABSENCE OF TANGIBLE MATERIAL, WE FIND THAT THE CIT (A) ORDER IS REQUIRED TO BE REVERSED. AS SUCH, AO REOPENED THE ASSESSMENT RELYING ONLY ON THE PAPERS AVAILABLE ON RECORDS. THEREFORE, WE AGREE WITH THE ARGUMEN TS OF THE LD AR FOR THE ASSESSEE. ON MERITS ALSO, IT IS THE CASE OF THE ASSESSEE THAT THERE IS SUFFICIENT INTEREST FREE FUNDS TO COVER THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE AND THEREFORE, THE PRESUMPTION WOULD BE THAT SUCH ADVANCES WERE GIVEN F ROM INTEREST FREE FUNDS AND NOT FROM THE INTEREST BEARING FUNDS AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD [2009] 313 ITR 340. WITHOUT GOING INTO THE MERIT, IN OUR VIEW, THE ASSESSEE SHOULD SUCCEED ON THE LEGAL ISSUE ITSELF. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. GROUND NO.2, CONSIDERING ITS ACADEMIC NATURE, IS DISMISSED AS ACADEMIC. 12. CONSIDERING THE ABOVE SETTLED POSITION OF THE ISSUE, WE ARE OF THE OPINION THE REOPENING IS BAD IN LAW. AO MUST SUBSTANTIATE THE DEFAULT OF DISCLOSURE AS PER THE PROVISIONS OF PROVISO TO SECTION 147 OF THE ACT TO VALIDATE THE NOTICE ISSUED UNDER THIS SECTION. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO FOLLOWING THE PRINCIP LE OF CONSISTENCY, WE ARE OF THE OPINION THAT THE FINDING OF THE CIT (A) ON THE LEGALITY OF THE NOTICE U/S 148 REQUIRES TO BE REVERSED. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED . 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 8 ITA NO.1120/M/2012 (AY 2005 - 2006) (BY REVENUE) 14. THIS APPEAL FILED BY THE REVENUE ON 16.2.2012 IS AGAINST THE ORDER OF THE CIT (A) - 4, MUMBAI DATED 18.11.2011 FOR THE ASSESSMENT YEAR 2005 - 2006. 15. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FACTS OF THE CASE. A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT THE ASSESSEE TRANSFERRED CAPITAL RIGHTS WHEN IT ENTERED INTO THE AGREEMENT DATE D 20.5.2004 TO SETTLE THE DISPUTE, IN THE BACKDROP OF THIS SUBSCRIPTIONS AND SHAREHOLDERS AGREEMENT ENTERED EARLIER ON 17.3.1999, WHICH DID NOT GIVE HIM SUCH RIGHTS. B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING T HAT SETTLEMENT AGREEMENT DATED 20.5.2004 LED TO EXTINGUISHMENT OF RIGHTS LEADING TO ACCRUAL OF CAPITAL GAINS U/S 45(1). C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT THE TRANSACTION WAS NOT COVERED BY SPECIFIC PROVISIONS OF SECTION 28(II)(A). D) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 54EC AGAINST THE BALANCE INVESTMENT IN SPECIFIED SECURITIES TO THE EXTENT OF RS. 80,906, 832/ - . 2. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT (A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 16. CONSIDERING OUR DECISION GIVEN ON THE LEGAL ISSUE RAISED IN THE ASSESSEES APPEAL ITA NO . 288/M/20 12 (AY 2005 - 2006), WHICH IS ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER, WHEREIN THE ISSUE WAS DECIDED IN THE FAVOUR OF THE ASSESSEE, THE ADJUDICATION OF THE GROUNDS RAISED BY THE REVENUE IN THE INSTANT APPEAL BECOMES MERE ACADEMIC EXERCISE. CONSIDERING THE SAME, THE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL ARE DISMISSED AS ACADEMIC . 17. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONO UNCED IN THE OPEN COURT ON 2 1 S T FEBRUARY, 2014. S D / - S D / - (SANJAY GARG ) (D. KARUNAKARA RAO ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 2 1 .2.2014 . . ./ OKK , SR. PS 9 / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI