N.H SECURITIES LTD, MUMBAI V. ASST CIT CEN CIR 40, MUMBAI

ITA 1149/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8408 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Keywords: Proportionate interest
• Section: 143(3); 147; 148; 144

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . .. . . . . . , , ,, , ! ! ! ! BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 1149/MUM./2012 ( # $ %$ / ASSESSMENT YEAR : 200304 ) N.H. SECURITIES LIMITED BHUPEN CHAMBERS, GROUND FLOOR 9, DALAL STREET, FORT, MUMBAI 400 023 .. &' / APPELLANT # V/S ASSTT. COMMISSIONER OF INCOME T AX CENTRAL CIRCLE40, MUMBAI .... ()&' / RESPONDENT & . / PERMANENT ACCOUNT NUMBER AAACS7140Q # $+ , - / ASSESSEE BY : SHRI RAJIV KHANDELWAL A/W SHRI NEELKANT KHANDELWAL . , - / REVENUE BY : DR. P. DANIEL # , / / DATE OF HEARING 10.10.2014 01% , / / DATE OF ORDER 21.11.2014 / ORDER , ,, , 2 2 2 2 / PER AMIT SHUKLA, J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSE E CHALLENGING THE IMPUGNED ORDER DATED 30 TH NOVEMBER 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXXVI, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 144 R/W SECTION 14 7, OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 200304. N.H. SECURITIES LIMITED 2 2. THE ASSESSEE HAS RAISED THREE GROUNDS VIZ. (I) CHAL LENGING THE VALIDITY OF REOPENING UNDER SECTION 147 BY ISSUANC E OF NOTICE UNDER SECTION 148; (II) PASSING OF EXPARTE ASSESSMENT ORDE R UNDER SECTION 144; AND (III) DISALLOWANCE OF INTEREST OF RS. 3,42,70,018 ON THE GROUND THAT THE ASSESSEE HAD DIVERTED INTEREST BEARING FUNDS FO R NONBUSINESS PURPOSE. 3. BEFORE US, THE LEARNED COUNSEL, SHRI RAJIV KHANDELWA L, SUBMITTED THAT THE LEGAL ISSUE AS RAISED IN THE FIRST GROUND OF APPEAL GOES TO THE VERY ROOT OF THE MATTER, AS HEREIN IN THIS CASE THE RE OPENING HAS BEEN DONE BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR WHEN THE ASSESSMENT WAS ORIGINALLY C OMPLETED UNDER SECTION 143(3). 4. BRIEF FACTS, QUA THE LEGAL ISSUE OF REOPENING UNDER SECTION 147 ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TR ADING IN SHARES AND SECURITIES. IT HAS FILED ITS RETURN OF INCOME U NDER SECTION 139(1) ON 1 ST DECEMBER 2003, DECLARING TOTAL LOSS OF RS. 17,32,11,420. THE SAID RETURN OF INCOME WAS DULY ACCOMPANIED BY AUDITED STA TEMENT OF ACCOUNTS AND TAX AUDIT REPORT UNDER SECTION 44AB. THE S AID RETURN OF INCOME WAS SUBJECT MATTER OF SCRUTINY BY THE ASSESSI NG OFFICER AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3), VIDE ORDER DATED 7 TH FEBRUARY 2006, AT A LOSS OF RS. 11,58,76,974. BESIDES THAT, INCOME FROM OTHER SOURCES WAS ALSO COMPUTED. IN THE SAID AS SESSMENT ORDER, N.H. SECURITIES LIMITED 3 THE ASSESSING OFFICER HAS NOTED THAT A SHOW CAUSE NOT ICE WAS ISSUED TO THE ASSESSEE WITH REGARD TO THE CLAIM OF INTEREST MA DE BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE , IN RESPONSE, HAD SUBMITTED A REPLY BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 20 TH FEBRUARY 2005. HOWEVER, THE ASSESSING OFFICER PROCEE DED TO DISALLOW PROPORTIONATE INTEREST OF RS. 4,80,00,000, BESIDES OTHER ADDITION. AFTER COMPLETING THE ASSESSMENT IN THE AFORESAID MANNER, THE C ASE HAD BEEN REOPENED UNDER SECTION 148, AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR ON THE FOLLOWING REASONS RECORDED : M /S . N .H . SECURITIES LTD,. A . Y. 2003-04 RETURN OF INCOME WAS FILED ON 01 . 12.2003 DECLARING TOTAL LOSS OF RS. 16,96,17,627/ -. THE RETURN WAS PROCESSED U/S.143(L) ON 03.03 . 2004 ACCEPTING RETURNED LO S S . TH E CA S E WAS SELE C TED FOR SCRUTINY BEIN G COMPULSOR Y SCRUTINY ASSESSED IN CENTRAL CHA R GE. A S SESSMENT ULS 143(3) COMPLETED ON 17.02.2006 DETERMINING TOTAL IN COME AT RS . 35,93 , 800/ - . SUBSEQUENTLY THE FOLLOWING ISSUE WAS NOTICED WHICH FALLS UNDER THE DESCRIPTION OF INCOME ESCAPING ASSE S SMENT ULS 147 . THE ASSE S SEE COMPANY IS ENGAGED IN BUSINESS OF TRADING IN SH ARES AND S ECURITIES. A S S EE N FR OM THE BALANCE SHEET, ASSESSEE HAD TOTAL FUNDS OF R S . 142,58,87,2311- OUT OF W HICH RS. 132,50,81,844/- WERE INTEREST BEARING SECURED LOANS AND OTHERS RS . 10 , 0 8 ,05 , 3 87/ - WERE INTEREST FREE UNSECURED LOANS, CAP I TAL AND RESERVE FUND . THE ASSESSEE H A D DE LE TE D I NT ER EST OF RS .1 5,65,26,102/ TO PROFIT AND LOSS ACCOUNT ON THE SECU R ED LOANS. F U R TH ER IT WAS SEEN FROM THE SCHEDULE G TO BALANCE SHEET TH AT THE ASSESSEE HAD GI V E N LOA NS A ND ADVANCES OF RS.79 , 72,67,581/- TO THE GROUP CONCERNS AND OTHERS ON WH I C H NO I NT E REST WAS CHARG ED. A F T ER REDUCING INTER E S T FRE E FUNDS, AV A ILABLE WI T H AS SE S S EE OF R S. 1 0 ,08 ,0 5, 387/- FRO M T HE ABO V E THE BALANCE OF RS . 69 , 64,62,164/ - WAS DIVERSION, FROM THE IN T ER E ST B E ARING F UND S FOR NON-BUSINESS PURPOSE. N.H. SECURITIES LIMITED 4 HE N CE PROPO R TIONATE INTEREST OF RS. 8,22 , 70,108 / - RELAT I NG TO THIS DIVERSION AND DEB IT ED T O PRO F IT AND LOSS ACCOUNT WAS REQU I RED T O BE DIS A LLO W ED . HO W EVER IN THE A S SES SM EN T ORD E R INTEREST OF RS . 4,80,00,000/- ON T HIS ACCOUNT WAS ONLY DISALLOWED. THIS IS A F AI LUR E ' ON THE PART . OF THE ASSESSEE TO D I S C LOSE FTILLY AND TRULY ALL MATER I AL FACTS NE C ESSARY FOR ITS ASSESSMENTS FOR THAT A . Y. THIS HAD RESULTED IN UNDERASSESSMENT T O THE EX T ENT OF RS . 3,42,7 0 ,018 / - AND CONSEQUENT SHORT LEVY OF TAX OF RS . 1 , 25,94,232/-. IN T H E V IEW OF ABOVE I BELIEVE THAT THERE IS AN UNDER A S SESSMENT OF I NCOME TO THE TUNE O F R S . 3 ,4 2,70,018 / - WITHIN THE MEAN I NG OF SECTION 147. 5. FROM THE IMPUGNED ASSESSMENT ORDER PASSED UNDER SEC TION 147, IT IS SEEN THAT NOBODY ATTENDED ON BEHALF OF THE ASSESSEE AND, ACCORDINGLY, THE ASSESSMENT WAS COMPLETED EXPARTE UNDER SECTION 144 AND FURTHER DISALLOWANCE OF INTEREST OF RS. 3,42,70,018 WAS MADE, AS PER REASONS RECORDED. 6. BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSE SSEE CHALLENGED THE VALIDITY OF THE REOPENING UNDER SECTION 148 ON THE GROUND THAT SUCH A REOPENING IS BARRED BY LIMITATION IN VIEW OF THE P ROVISO TO SECTION 147, AS THE REOPENING HAS BEEN DONE BEYOND THE PERIOD OF F OUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE LEARNED COMMIS SIONER (APPEALS) NEITHER REJECTED THE ASSESSEES CONTENTION NOR HAS DECIDED THE ISSUE OF VALIDITY OF REOPENING UNDER SECTION 147. 7. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT IN TH E REASONS RECORDED , THE ASSESSING OFFICER HAS TAKEN THE FIGURES FROM THE AUDITED BALANCE SHEET AND THE PROFIT & LOSS ACCOUNT WHICH W AS ALREADY THERE BEFORE N.H. SECURITIES LIMITED 5 THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. NO NEW MATERIAL HAS BEEN BROUGHT ON RECORD WHICH CA N SUGGEST THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT ON ACCOUNT OF ASSESSEES FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. THU S, SUCH A REOPENING IS NOT ONLY BADINLAW BUT ALSO BARRED BY LIMITATION IN VI EW OF PROVISO TO SECTION 147. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUBMITTED THAT THE VALIDITY OF REOPENING HAVE NOT BEEN CHALLENGED BEFORE THE ASSESSING OFFICER AND, THEREFORE, THE ASSESSEE IS PRECLUDED FROM RAISING SUCH OBJECTION. IN ANY CASE, THE LEARNED COMMISSION ER (APPEALS) HAS NOT DECIDED THIS ISSUE AND, THEREFORE, THE MATTER SHOUL D BE RESTORED BACK TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS) TO DECID E THE ISSUE OF VALIDITY OF REOPENING. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS STATED EARLIER, THE ASSESSE E HAD FILED ITS RETURN OF INCOME UNDER SECTION 139(1), ALONG WITH AUDITED S TATEMENT OF ACCOUNTS, TAX AUDIT REPORT, ETC. SUCH A RETURN OF INCOME WAS SUBJ ECT MATTER OF SCRUTINY AND ASSESSMENT ORDER UNDER SECTION 143(3), WAS PASSED V IDE ORDER DATED 7 TH FEBRUARY 2006. DURING THE COURSE OF SUCH ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER VIDE SHOW CAUSE NOTICE DATED 14 TH OCTOBER 2005, HAD SPECIFICALLY REQUIRED THE ASSESSEE AS TO WHY THE IN TEREST CLAIMED IN THE PROFIT & LOSS ACCOUNT SHOULD NOT BE DISALLOWED. AFTER CONS IDERING THE ASSESSEES REPLY, HE HAS MADE A DISALLOWANCE OF RS. 4.80 CRORES. SUCH AN ASSESSMENT N.H. SECURITIES LIMITED 6 HAS BEEN SOUGHT TO BE REOPENED BY ISSUANCE OF NOTIC E UNDER SECTION 148 DATED 29 TH JANUARY 2010. FROM THE PERUSAL OF THE REASONS RECORDED , IT IS SEEN THAT THE ASSESSING OFFICER HAS TAKEN THE FIGUR ES FROM THE BALANCE SHEET AND THE SCHEDULES ANNEXED THEREIN. THERE IS NOT A W HISPER IN THE REASONS RECORDED ABOUT ANY NEW MATERIAL COMING ON RECORD HA VING LIVE LINK NEXUS WITH THE INCOME CHARGEABLE TO TAX HAVING ESCAPED AS SESSMENT. THE ALLEGATION OF THE ASSESSING OFFICER IS MAINLY THAT THE DISALLOWANCE OF INTEREST MADE EARLIER IS NOT CORRECT AS THE PROPORTIONATE DI SALLOWANCE OF RS. 8,22,70,108 SHOULD HAVE BEEN MADE INSTEAD OF RS. 4.80 CRORES. WITHOUT ASCRIBING ANY COGENT REASON AS TO WHAT WAS THE FAIL URE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR ASSESSMENT, HE HAS SIMPLY MADE AN ALLEGATION ABOUT THE FAILURE ON THE PART OF THE ASSESSEE. MERELY MENTIONING OF THE WORD THAT THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS, THE ASSESSING OFFICER IS NOT ABSOLVED FROM HIS DUTY. HE HAS TO SPECIFICALLY BRING OR RATHER DEMONSTRATE IN THE REASONS RECORDED , AS TO WHAT WAS THE THE SPECIFIC FAILURE ON PART OF THE ASSESSEE. THE REAS ONS PERSE DO NOT SUGGEST THAT THERE IS ANY FAILURE ON THE PART OF THE ASSESS EE RATHER IT SUGGESTS THAT THE EARLIER ASSESSING OFFICER COULD NOT MAKE PROPER DISALLOWANCE BASED ON THE RECORDS WHICH WERE THERE BEFORE HIM. THE FAILUR E OF THE EARLIER ASSESSING OFFICER HAS BEEN HIGHLIGHTED TO REOPEN THE CASE RAT HER THAT THE ASSESSEES FAILURE. IF THE ASSESSEE HAS MADE FULL AND TRUE DIS CLOSURE OF ALL THE MATERIAL FACTS BEFORE THE ASSESSING OFFICER, THEN IT IS THE ASSESSING OFFICER ALONE WHO HAS TO DRAW PROPER LEGAL INFERENCE AND IT IS NOT TH E DUTY OF THE ASSESSEE TO N.H. SECURITIES LIMITED 7 TELL THE ASSESSING OFFICER AS TO HOW TO FRAME THE A SSESSMENT. THUS, THE REASONS, AS RECORDED BY THE ASSESSING OFFICER, DO NOT CLOTHE THE ASSESSING OFFICER WITH THE JURISDICTION TO REOPEN THE CASE O F THE ASSESSEE BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT A SSESSMENT YEAR WITHIN THE AMBIT OF PROVISO TO SECTION 147. 10. NOW COMING TO THE CONTENTION OF THE LEARNED DEPARTM ENTAL REPRESENTATIVE THAT THE ASSESSEE HAD NOT RAISED ANY OBJECTION BEFORE THE ASSESSING OFFICER AND, THEREFORE, VALIDITY OF REOP ENING CANNOT BE CHALLENGED. IN OUR OPINION, THE QUESTION OF VALIDITY OF REOPEN ING UNDER SECTION 147, IS ALWAYS A QUESTION OF JURISDICTION A VITAL THING WHI CH CAN ALWAYS BE EXAMINED, IF IT IS CHALLENGED BEFORE THE COURT IF ALL THE NEC ESSARY AND ATTENDANT FACTS ARE THERE ON RECORD. UNDER THE PROVISO TO SECTION 147, THERE IS ALWAYS A QUESTION OF LIMITATION WHICH GOES TO THE ROOT OF THE INITIAT ION OF PROCEEDINGS OR CAN ALWAYS BE ENTERTAINED OR EXAMINED AT ANY STAGE. HER E IN THIS CASE, THE VERY REASONS RECORDED , ITSELF DO NOT CLOTHE THE ASSESSING OFFICER TO ACQ UIRE JURISDICTION UNDER THE AMBIT OF PROVISO TO SECTION 147. THUS, WITHOUT REMANDING THE MATTER BACK TO THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS), WE FEEL THAT THE PRIMAFACI E RECORDS ITSELF IS SUFFICIENT TO DECIDE THE VALIDITY OF REOPENING UNDE R SECTION 147 AT THIS STAGE. THUS, IN VIEW OF OUR FINDING THE PROCEEDINGS INITIA TED VIDE NOTICE DATED 29 TH JANUARY 2010, UNDER SECTION 148 FOR REOPENING THE CASE UNDER SECTION 147M IS VOID AB INITIO AND CONSEQUENT PROCEEDINGS A RE HEREBY QUASHED. ACCORDINGLY, THERE IS NO NEED TO ADJUDICATE THE APP EAL ON MERITS. N.H. SECURITIES LIMITED 8 11. + 3 # $+ , 4 , . 56 7 11. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. , 8 9#3 21 ST NOVEMBER, 2014 , : 7 ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2014 SD/- SD/- JUIJ D/ - D/ - . .. . . . . . $ $ $ $ R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, 9# 9# 9# 9# DATED: 21.11.2014 , (; <;% / COPY OF THE ORDER FORWARDED TO : (1) # $+ / THE ASSESSEE; (2) . / THE REVENUE; (3) =() / THE CIT(A); (4) = / THE CIT, MUMBAI CITY CONCERNED; (5) ;@: (# , , / THE DR, ITAT, MUMBAI; (6) :A$ B / GUARD FILE. ); ( / TRUE COPY # / BY ORDER SRIVASTAVA* C / 5 . / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI / +. / 4 / D, CEF 4 / D, CEF 4 , . 56 7