ALKYL AMINES CHEMICALS LTD, NAVI MUMBAI V. ACIT 10(3), MUMBAI

ITA 1134/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3496 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-12-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C P PATHAK
• Assessee Lawyers: DIVESH J SHAH
• Keywords: Reopening of assessment; Search and seizure; Retrospective amendment; Tangible material; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 80HHC; 115JB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 1134/MUM/2010 (ASSESSMENT YEARS: 2003-04) ALKYL AMINES CHEMICALS LTD, 401-407, NIRMAL VYPAR KENDRA, PLOT NO.10,SECTOR 17, VASHI NAVI MUMBAI-400703 PAN:AAACA6783F .. APPELLANT VS ACIT RANGE 10(3), MUMBAI-400020 RESPONDENT APPELLANT BY : SHRI DIVESH J SHAH RESPONDENT BY : SHRI C P PATHAK O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17.12.2009 OF CIT(A)-XXII FOR THE ASSES SMENT YEAR 2003-04. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL : 1. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ACIT IN REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT ON THE ALLEGED GROUND THAT THE ITA NO. 1134/MUM/2010 (ASSESSMENT YEARS: 2003-04) 2 ORIGINAL ASSESSMENT ORDER U/S 143(3) WAS PASSED WITHOUT DISCUSSION ON THE ISSUE RELATING TO MAKING ADJUSTMENT OF PROVISIONS FOR DOUBTFUL DEBS U/S 115J B OF THE ACT; 1.1 THE CIT(A) ALSO ERRED IN NOT APPRECIATING THE FACT THAT THE REOPENING OF ASSESSMENT WAS BASED ON MERE CHANGE OF OPINION AND SUCH WAS VALID AND BAD- IN-LAW; 1.2 THE APPELLANT PRAYS THAT IT BE HELD THAT THE REOPENING OF ASSESSMENT WAS ABINITIO OR OTHERWISE VOID AND BAD-IN-LAW; 2. THE CIT(A) ALSO ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF PROVISION FOR DOUBT FUL DEBTS WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT; 3. THE CIT(A) ALSO ERRED IN NOT APPRECIATING THE FACT THAT TO ARRIVE AT TRUE REALIZABLE PROFITS AS ALSO FROM LEGAL PROVISIONS RELATING TO DIVIDENDS, IT IS IMPERATIVE FOR THE ASSESSEE TO PROVIDE FOR DOUBTFUL DEBTS AND AS SUCH THE PROVISIONS FOR DOUBTFUL DEBT S WOULD NOT BE ADDED WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT 3. GROUNDS OF APPEAL NO.1 AND 1.2 REGARDING VALIDIT Y OF REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT. TH E ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION ON 28.11.2003 DECLARING NIL INC OME UNDER THE NORMAL PROVISIONS OF ACT AND BOOK PROFIT OF RS..5,67,39,462/- U/S 115JB OF THE ACT. THE ORIG INAL ASSESSMENT WAS COMPLETED ON 31.1.2006 U/S 143(3) AFTER REJECTING THE CLAIM U/S 80HHC AND ALLOWING THE SET OFF BROUGHT ITA NO. 1134/MUM/2010 (ASSESSMENT YEARS: 2003-04) 3 LOSSES AT RS.NIL U/S NORMAL PROVISIONS OF ACT. H OWEVER, THE INCOME DECLARED U/S 115JB WAS ACCEPTED. SUBSEQUEN TLY, THE NOTICE U/S 148 WAS ISSUED ON 28.3.2008 ON THE GROU ND THAT : ON VERIFICATION OF RECORD, IT IS SEEN THAT THE ASS ESSEE COMPANY HAS MADE THE PROVISIONS FOR THE DOUBT DEBT S OF RS.40,26,229/- AND PROVISION FOR GRATUITY OF RS.1,03,833/-. THESE ARE NOT ASCERTAINED LIABILITI ES AND ARE NOT ALLOWABLE EXPENSES. THESE EXPENSES SHOULD HAVE BEEN ADDED BACK TO THE BOOK PROFIT. OMISSIONS TO ADD BACK THESE EXPENSES IN THE BOOKS PROFIT RESULTING IN UNDER ESTIMATION OF BOOK PROFIT U/S 115JB BY THE AMOUNT OF RS.41,30,000 4. CONSEQUENTLY, THE AO COMPLETED THE RE-ASSESSMEN T ON 31.10.2008 BY DISALLOWING THE PROVISIONS OF DOUBTFU L DEBTS AND GRATUITY OF RS.41,30,000/- AND COMPUTED THE TOTAL INCOME U/S 115JB. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDE R BEFORE THE CIT(A) AGAINST THE DISALLOWANCES OF PROVISIONS OF BAD DEBTS AS WELL AS REOPENING OF THE ASSESSMENT THE C IT(A) REJECTED THE GROUNDS OF APPEAL AGAINST THE REOPENIN G OF THE ASSESSMENT. AS FAR AS THE DISALLOWANCE OF PROVISIO NS FOR DOUBTFUL DEBTS ARE CONCERNED, THE CIT(A) HAS CONFI RMED THE DISALLOWANCE MADE BY THE AO. HOWEVER, MAKING ADJUST MENT FOR PROVISIONS OF GRATUITY U/S 115JB WAS DELETED. 5. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEAR NED DR AND CONSIDERED THE RELEVANT RECORD. AT THE OUTSET, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE OF VALIDITY ITA NO. 1134/MUM/2010 (ASSESSMENT YEARS: 2003-04) 4 OF REASSESSMENT IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF THE HON. JURISDICTIONAL HIGH COURT IN THE CASE OF RALLIS INDIA LTD V/S ASSISTANT COMMISSIONER OF INC OME TAX AND ANOTHER REPORTED IN (2010) 323 ITR 54(B0M) . HE HAS POINTED OUT THAT THE FACTS IN THE CASE OF THE ASSE SSEE AND IN THE CASE RELIED UPON ARE IDENTICAL, THEREFORE, IN VIEW OF THE DECISION OF THE HON. JURISDICTIONAL HIGH COURT (SUP RA), RE- ASSESSMENT IS BAD IN LAW.. 6. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UPO N THE ORDERS OF THE AUTHORITIES BELOW. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS AND RELE VANT RECORD, WE NOTE THAT THE NOTICE U/S 148 WAS ISSUED ON 28.3.2008 AND THE AMENDMENT TO THE SECTION 115JB BY THE FINANCE ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1.4 .2001 WAS BROUGHT INTO FORCE ON 19.08.2009. THUS, THE RELEVAN T AMENDMENT CAME INTO FORCE AFTER THE DATE OF ISSUE O F NOTICE U/S 148 ON 28.3.2008. THEREFORE, THE FACTS ARE ID ENTICAL IN BOTH THE CASES. THE HON. JURISDICTIONAL HIGH COURT HAS DECIDED THIS ISSUE IN PARAGRAPHS 13,14 AND 22 OF TH E REPORT WHICH READ AS UNDER : 13. WE ARE CONSCIOUS OF THE CIRCUMSTANCE THAT IN THE PRESENT CASE THE OPENING OF ASSESSMENT IS SOUGH T TO BE EFFECTED WITHIN A PERIOD OF FOUR YEARS OF THE EXPIRY OF THE RELEVANT ASSESSMENT YEAR. HOWEVER, IT IS NOW A WELL SETTLED POSITION OF AW THAT A MERE CHANG E ITA NO. 1134/MUM/2010 (ASSESSMENT YEARS: 2003-04) 5 OF OPINION WOULD NOT JUSTIFY THE ASSESSING OFFICER IN SEEKING RECOURSE TO THE POWERS UNDER SECTION 147 AND 148 AND THERE MUST BE TANGIBLE MATERIAL BEFORE THE ASSESSING OFFICER TO PROVE THAT INCOME CHARGEAB LE TO TAX HAS ESCAPED ASSESSMENT. THE PRINCIPLE THAT THERE MUST BE TANGIBLE MATERIAL ON THE BASIS OF WHI CH AN ASSESSMENT IS SOUGHT TO BE REOPENED EVEN WITHIN A PERIOD OF FOUR YEARS IS NOW ESTABLISHED IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN COMMISSIONER OF INCOME TAX V/S. M/S.KELVINATOR OF INDIA LIMITED5 . THE SUPREME COURT HAS HELD THUS : .........THEREFORE, POST 1ST APRIL, 1989, POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS REASON TO BELIEVE FAILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONCE MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN INBUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1ST APRIL, 1989, ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. 14. IN THE PRESENT CASE, THERE WAS AN ABSENCE OF TANGIBLE MATERIAL ON THE BASIS OF WHICH THE ASSESSMENT COULD HAVE BEEN REOPENED. THE REASON WHICH WEIGHED WITH THE ASSESSING OFFICER IS EXTRANEOUS TO THE BASIS ON WHICH THE DEDUCTION CAN LEGITIMATELY BE CLAIMED UNDER SECTION 36(1)(VII). T HIS IS A CASE OF A 5 320 ITR 561 (S.C.)13 MERE CHANGE O F OPINION WITHOUT ANY TANGIBLE MATERIAL. THE REOPENIN G OF THE ASSESSMENT ON THIS GROUND IS HENCE UNSUSTAINABLE. ITA NO. 1134/MUM/2010 (ASSESSMENT YEARS: 2003-04) 6 22. IN THE PRESENT CASE, THE PRINCIPLE OF LAW WHICH HAS BEEN LAID DOWN BY THE SUPREME COURT IN MAX INDIA (SUPRA) WOULD BE ATTRACTED. ON THE DATE ON WHICH THE ASSESSING OFFICER PURPORTED TO EXERCISE H IS POWER TO REOPEN THE ASSESSMENT UNDER SECTION 147, THE LEGISLATIVE AMENDMENT BY THE INSERTION OF CLAUS E (I) TO EXPLANATION (1) TO SECTION 115JB HAD NOT BEE N BROUGHT INTO FORCE ON THE STATUTE BOOK. OBVIOUSLY, THEREFORE, THE SUBSEQUENT AMENDMENT COULD NOT HAVE BEEN AND IS NOT A GROUND WHICH HAS BEEN TAKEN BY TH E ASSESSING OFFICER, WHILE REOPENING THE ASSESSMENT. THE VALIDITY OF THE NOTICE ISSUED BY THE ASSESSING OFFICER IN SEEKING TO REOPEN THE ASSESSMENT MUST BE DETERMINED WITH REFERENCE TO THE REASONS WHICH ARE FOUND IN SUPPORT OF THE REOPENING OF THE ASSESSMENT . THESE REASONS CANNOT BE ALLOWED TO BE SUPPLEMENTED ON A BASIS WHICH WAS NOT PRESENT TO THE MIND OF THE OFFICER AND COULD NOT HAVE BEEN SO PRESENT ON THE DATE ON WHICH THE POWER TO REOPEN THE ASSESSMENT WAS EXERCISED. WE, THEREFORE, HOLD THAT THE PRINCIP LE LAID DOWN BY THE SUPREME COURT IN MAX INDIA (SUPRA) WOULD BE ATTRACTED TO THE PRESENT CASE. CONSEQUENTL Y, IT IS EVIDENT THAT THE ORDER OF THE ASSESSING OFFIC ER WITH REFERENCE TO THE COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB WAS AT THE LEAST A PROBABLE VIE W AND AS A MATTER OF FACT THE CORRECT VIEW TO TAKE IN VIEW OF THE 19 DECISION OF THE SUPREME COURT IN HCL (SUPRA). IT IS WELL SETTLED THAT THE LAW LAID DOWN BY THE SUPREME COURT IS DECLARATORY OF THE POSITION AS IT ALWAYS STOOD. IN ANY EVENT, AS WE HAVE NOTED, THE VIEW OF THE ASSESSING OFFICER WAS SUPPORTED BY THE INTERPRETATION PLACED EVEN CONTEMPORANEOUSLY IN THE JUDGMENT OF THIS COURT IN ECHJAY (SUPRA) AND IN THE JUDGMENTS OF THE DELHI HIGH COURT IN EICHER AND HCL (SUPRA). IN THE CIRCUMSTANCES, THERE WAS NO WARRANT FOR REOPENING THE ASSESSMENT IN EXERCISE OF THE POW ER CONFERRED UNDER SECTION 147. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF RALIES INDIA LTD (SUPRA) WE HOLD THAT THE REOPENING OF THE ASSESSMENT IN THE CASE IN HAND IS NOT SUSTAINABLE AND THE REASSESSMENT IS SET ASIDE. ITA NO. 1134/MUM/2010 (ASSESSMENT YEARS: 2003-04) 7 9. GROUND NO.1 AND 1.2. ARE ALLOWED. 10. GROUNDS NO.2, SINCE RE-ASSESSMENT HAS BEEN SET ASIDE AS INVALID, WE DO NOT PROPOSE TO ADJUDICATE THIS I SSUE ON MERITS. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 31.12.2010 SD SD (J.SUDHAKAR REDDY) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, ON THIS 31ST DAY OF DEC 2010 SRL:231210 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI