DCIT, CHENNAI V. M/s. Dhanyalakshmi Investments Ltd., CHENNAI

ITA 1156/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5263 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-04-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 15-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest; Tangible material; Reassessment proceedings
• Section: 143(3); 14A; 143(1); 147; 148; 154

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH, CHENNAI. BEFORE SHRI.U.B.S. BEDI J.M. & SHRI. ABRAHAM P. GEORGE A.M. I.T.A. NO. 1156/MDS/2010 ASSESSMENT YEAR: 1998-99 THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI 600 101. VS. M/S. DHANYALAKSHMI INVESTMENTS LTD. (NOW MERGED WITH E.I.D. PARRY (INDIA) LTD.), DARE HOUSE, 234, NSC BOSE ROAD, CHENNAI 600001. [PAN:AAACF0702F] CO NO. 75/MDS/2010 [IN I.T.A. NO. 1156/MDS/2010] ASSESSMENT YEAR: 1998-99 M/S. DHANYALAKSHMI INVESTMENTS LTD. (NOW MERGED WITH E.I.D. PARRY (INDIA) LTD.), DARE HOUSE, 234, NSC BOSE ROAD, CHENNAI 600 001. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI 600 101. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB ASSESSEE BY : SHRI PHILIP GEORGE ORDER PER BENCH THIS APPEAL OF THE DEPAR TMENT AND THE CO OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) III, CHENNAI DATED 07.04.2010 RELEVANT TO THE ASSESSMENT YEAR 1998-99, WHEREBY T HE DEPARTMENT HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN HOLDING THAT REOPENING OF THE ASSESSMENT IN THIS CASE IS INVALID AND FURTHER HIS FAILURE TO NOTE THAT THE ASSESSING OFFICER DID NOT MAKE THE DISALLOWANCE UNDER SECTION 14A FOR THE FIRST TIME IN ORDER DATED 10.10.2005 [PASS ED SUBSEQUENT TO THE REOPENING OF THE ASSESSMENT ON 31.03.2005] BUT HAD ONLY CORRECTED THE AMOUNT TO BE DISALLOWED UNDER SECTION 14A HAS ALSO BEEN CHALLENGED, WHEREAS IN THE CO, THE ASSESSEE, I.T.A. NO.1156/MDS/10 & CO NO. 75/MDS/10 2 WHILE SUPPORTING THE ORDER OF THE LD. CIT(A), HAS TAKEN THE GROUND THAT IN ANY EVENT THE LD. CIT(A) OUGHT TO HAVE CONSID ERED THE GROUNDS ON MERITS RATHER THAN DISMISSING THE GROUND FOR STATISTICAL PURPOSE. 2. FACTS INDICATE THAT THE ASSESSEE CO MPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL ON 27.11.1998 ADMITTING LOSS OF ` .3,80,01,416/-. THE RETURN WAS PROC ESSED UNDER SECTION 143(1) ON 31.08.99 DETERMINING A REFUND OF ` .21,21,568/-. THE ASSESSM ENT WAS REOPENED UNDER SECTION 147 BY ISSUE OF NOTICE UNDER SECTION 148 ON 11. 01.2001 ON THE GROUND THAT EXPENSES RELATING TO INVESTMENT OF THE COMPANY SHOULD BE DISALLOWED UNDER SECTION 14A. ORDER UNDER SECTIO N 143(3) R.W.S. 147 WAS PASSED ON 23.03.2002 DETERMINING THE LOSS AT ` .12,92,186/-. THE SAME ASSESSMENT WAS AGAIN REOPENED BY ISSUE OF NOTICE UNDER SECTION 148 ON 31.03.2005 TO CONSIDER THE DISALLOWANCE OF ENTIRE INTEREST PAID WHICH HAD NOT BEEN DONE IN THE EARLIER REASSESSMENT ORDER. IN THE SECOND RE ASSESSMENT ORDER, THE INCOME WAS DETERMINED AT ` .16,86,596/-. THE ASSESSEE FIL ED APPEAL AGAINST THE SECOND ORDER DATED 10.10.2005 PASSED UNDER SECTION 143(3) R.W. S. 147 OF THE ACT AND CHALLENGED REOPENING AS WELL AS ISSUE ON MERITS. 3. THE LD. CIT(A), WHILE CONSIDERING AND ACCEPTING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO ACCEPT THE PLEA OF THE ASSESSEE ON REOPENING OF REASSESSMENT BEING NOT IN ORDER, WHEREAS ON MERITS, HE HOWEVER, DISMISSED THE APPEAL BY OBSERVING THAT HE HAS DECIDED T HE ISSUE OF JURISDICTION IN FAVOUR OF THE ASSESSEE, SO THIS HAS BECOME AC ADEMIC IN NATURE AND HENCE WAS NOT DECIDED WHILE DISMISSING THIS GROUND FOR ST ATISTICAL PURPOSE AS PER PARA 4.2 TO 5.1 AS UNDER: I.T.A. NO.1156/MDS/10 & CO NO. 75/MDS/10 3 4.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. THE A SSESSMENT YEAR INVOLVED IS 1998-99. THE PROVISO OF SECTION 14A READS AS UNDER: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOWER THE ASSESSING OFFICER EITHER TO REA SSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGI NNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001. 4.3 IN VIEW OF THE CLEAR PROVISION OF THE ACT AS ENUMERATED ABOVE, I AGREE WITH THE CONTENTION OF THE ID. AR THAT THE ASSESSING OFFICER COULD NOT HAVE REOPENED THE ASSESSMENT YEAR 1 998-99. IN THE INSTANT CASE IT IS NOT REASSESSMENT BUT REA SSESSMENT FOR THE SECOND TIME. SINCE THE SUBJECT MATTER OF REASSESSMENT IS S IT ALSO AMOUNTS TO CHANGE TO OPINION. THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDI A V. CIT 561 ITR HAS HELD THAT THE CONCEPT OF CHANG E OF OPINION MUST BE TREATED AS AN IN-BUILT TEST TO CHECK THE ABUSE OF PO WER. HENCE AFTER APRIL 1, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT, PR OVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CO NCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF. 4.4. THE DECISION OF THE HONBL E SUPREME COURT IS ALSO CLEARLY APPLICABLE TO THE FACTS OF THIS CASE. THE ASSESSING OFFICER INITIALLY DISALLOWED THE PROPORTIONATE INTEREST PAID U/S. 14A AND BROUGHT DOWN THE LOSS TO ` .12,92,186/- FROM THE ORIGINAL LOSS OF ` .3,80,01,416/-. IN THE SUBSEQUENT REASSESSMENT ORDER HE HAS DETERMINED THE INCOME AT ` .16,86,596/- BY DISALLOWING THE ENTIRE INTEREST EXPENDITURE. THE DISALLOWANCE HAS BEEN MADE ON TH E SAME ISSUE BUT THE QUANTUM OF DISALLOWANCE HAS BEEN ENHANCED. IT IS CLEARLY IS A CASE WHETHER THE ASSESSING OFFICER HAS TAKEN A DIFFERENT OPINION ON THE SAME ISSUE TO DISALLOW THE ENTIRE AMOUNT OF INTEREST . IN VIEW OF THE ABOVE FACTUAL POSITION AND PRECEDENT ON THE ISSUE, TH E REOPENING MADE BY THE ASSESSING OFFICER IS NOT IN ORDER. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 5. THE NEXT ISSUE RELATES TO DISA LLOWANCE OF INTEREST EXPENSES OF ` .3,96,88,012/- U/S. 14A. IN THIS REGAR D, THE ID. AR SUBMITTED AS UNDER: THE ASSESSING OFFICER HAS DISA LLOWED INTEREST EXPENSES OF ` .3,96,88,012/-APPLYING THE PR OVISION OF SEC. 14A. AS PER THE PROVISION OF SEC. 14A, NOTHING CONTAINED IN THIS SECTION SHALL EMPOWER THE ASSESSING OFFICER EI THER TO REASSESS U/S. 147 OR I.T.A. NO.1156/MDS/10 & CO NO. 75/MDS/10 4 PASS AN ORDER ENHANCING THE A SSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREA SING THE LIABILITY OF THE ASSESSEE U/S. 154 FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE 01.04.2001. IT IS QUITE UNAMBIGUOUS THAT NO RE-ASSESSMENT ORDER CAN BE PASSED U/S. 147 FOR ASSESSMENT YEAR 98-99 A PPLYING PROVISIONS OF SEC. 14A. THE WORD PASS ON ORDER CLEARL Y PLACES A RESTRICTION ON THE ASSESSING AUTHORITY PASSING A ORDER FOR THE ASSESSMENT YEARS PRIOR TO 01.04.2001, EVEN WHERE THE ASSESSMENT/RE-ASSESSMENT PROCEEDING WAS STARTED AND ORDER WAS NOT PASSED. HENCE, THE APPELLANT SUBMITS THAT THE INTEREST DISALLOWANCE OF ` .3,96,88,012/- BE DELETED. 5.1 I HAVE CAREFULLY CONSIDERED TH E FACTS OF THE CA SE AND THE RIVAL SUBMISSIONS. SINCE I HAD DECIDED THE I SSUE OF JURISDICTION IN FAVOUR OF THE APPELLANT THIS IS BECOME ACADEMIC IN NATURE AND HENCE NOT DECIDED. THIS GROUND IS DISMISSED FOR THE STATISTICAL PURPOSE. 4. AGGRIEVED BY THIS, THE DEPARTMENT HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN HOLDING THAT R EOPENING OF THE ASSESSMENT MADE IN THIS CASE IS BEING NOT IN ORDER BESIDES CONTENDING THAT THE LD. CIT(A) AFTER HAVING CHOSEN TO DISMISS THE ACTION OF THE ASSESSEE RELATI NG TO PROVISIONS TO SECTION 14A, HE OUGHT TO HAVE UPHELD THE ACTION OF T HE ASSESSING OFFICER IN REOPENING THE ASSESSMENT AS WELL AS IN MAKING THE CORRECT AMOUNT OF DISALLOWANCE UNDER SECTION 14A. 5. THE LD. COUNSEL FOR THE ASSESSEE, AT THE VERY OUTSET SUBMITTED THAT IN THIS CASE RETURN ADMITTING LOSS OF ` .3,80,01,416/- WAS FILED ON 27.11.1998, WHICH WAS PROCESSED UNDER SECTION 143(1) ON 31.08.1999. THE ASSESSMENT WAS REOPENED UNDER SECTIO N 147 BY ISSUING NOTICE UNDER SECTION 148 ON 11.01.2001 ON THE GROUND THAT EXPENSES RELATING TO TH E INVESTMENT OF THE COMPANY SHOULD BE DISALLOWED UNDER SECTION 14A. ORDER UNDER SECTION 143(3) R.W.S. 147 WAS I.T.A. NO.1156/MDS/10 & CO NO. 75/MDS/10 5 PASSED ON 23.03.2002 DETE RMINING THE LOSS AT ` .12,92,186/-. THE SAME ASSESSMENT WAS AGAIN REOPENED BY ISSU E OF NOTICE UNDER SECTION 148 ON 31.03.2005 TO CONSIDER THE DISALLOWANCE OF ENTIRE INTEREST PAID, WHICH HAD NOT BEEN DONE IN THE EARLIER REA SSESSMENT ORDER. IN THE 2 ND REASSESSMENT ORDER, THE INCOME WAS DETERMINED AT ` .16,86,596/- AND SUCH S UBSEQUENT REASSESSMENT ORDER DATED 10.10.2005 CAME TO BE CHAL LENGED WITH REGARD TO VALIDITY OF REOPENING OF THE REASSESSMENT AS WELL AS ADDITION MADE ON MERITS BEFORE FIRST APPELLATE AUTHORITY AND THE LD. CIT(A) HAS , WHILE DISCUSSING THE FACTUAL POSITION AND PRECEDENTS ON THE ISSUE HAS HELD TH AT REOPENING MADE BY THE ASSESSING OFFICER IS NOT IN ORDER WHILE ALLOWING T HE GROUNDS OF APPEAL OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE FURTHER PLEADED THAT SINCE SECOND REASSESSMENT HAS BEEN INITIATED BEYOND 4 YEARS FROM THE END OF THE ASSESSMENT YEAR AND THERE IS NO FAILURE ON ASSESSEES PART AS ENVISAGED IN PROVIS O TO SECTION 147, THEREFORE, IN VIEW OF THE SPECIFIC PROV ISIONS IN THIS REGAR D INITIATION OF THE REASSESSMENT PROCEEDINGS COULD NOT BE HELD TO BE VALID AND PROPER, WHICH HAS ACTUALLY BEEN DONE BY THE LD . CIT(A) IN THIS CASE. THEREFORE, THE CONCLUSION OF THE LD. CIT(A) SHOULD BE UP HELD, ON THIS GROUND ALONE EV EN IF OTHER REASONING GIVEN BY THE LD. CIT(A) IS NOT TO BE CONSIDERED. IT WAS, THUS, PLEADED FOR UPHOLDING THE CONCLUSION AS DR AWN BY THE LD. CIT(A). 6. THE LD. DR VERY FAIRLY SUBMITT ED THAT THOUGH REASSE SSMENT PROCEEDINGS FOR THE 2 ND TIME, NO DOUBT WERE INITIATED BEYOND 4 YEARS, YET CORRECT INCOME HAS TO BE DETERMINED AND ASSESSED, THEREFOR E, REASSESSMENT COULD BE FRAMED. 7. WE, AFTER HAVING HEARD BOTH THE SI DES AND CONSIDERING THE MATERIAL ON RECORD AND PRECEDENTS RELIED UPON BY THE LD. CIT(A), FIND THAT THE ASSESSMENT YEAR INVOLVED IS 1998-99, WHEREAS NOTICE UNDER SECT ION 148 FOR THE REOPENING OF I.T.A. NO.1156/MDS/10 & CO NO. 75/MDS/10 6 THE REASSESSMENT WAS ISSUED ON 31.03. 2005, WHICH PERIOD IS BEYOND 4 YEARS FROM THE END OF THE ASSESSMENT YEAR WHEN THERE IS NO FAILURE AS ENVISAGED IN FIRST PROVISO TO SECTION 147. THEREFORE, T HE CONCLUSION AS DRAWN BY THE LD. CIT(A) THAT INITIATION OF THE REASSE SSMENT PROCEEDINGS IS NOT IN ORDER IS JUSTIFIED AND WHILE AGREEING WITH THE CONCLUSION AS DR AWN BY THE LD. CIT( A), WE UPHOLD HIS ORDER AND DISMISS THE APPEAL OF THE RE VENUE ON THE POINT OF REOPENING. 7.1 SINCE REOPENING OF T HE REASSESSMENT HAS BEEN HELD TO BE NOT IN ORDER, THEREFORE, THE ISSUE ON MERI TS HAS BECOME INFRUCTUOUS. 8. AS A RESULT, THE APPEAL OF THE D EPARTMENT GETS DISMI SSED, WHEREAS THE CO OF THE ASSESSEE HAVING BECOME IN FRUCTUOUS IS ALSO DISMISSED. ORDER PRONOUNCED SOON AFTER THE C ONCLUSION OF HEARING ON 18.04.2011. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI, DATED, THE. 18.04.2011 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.