M/s Trident Infotech Corporation Ltd., Ludhiana V. ACIT, Ludhiana

ITA 1188/CHANDI/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8389 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2003-2004
• Appeal Filed On: 05-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Difference of opinion; Commercial expediency; Reason to believe; Change of opinion
• Section: 143(3); 147; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1188/CHD/2010 ASSESSMENT YEAR: 2003-04 M/S TRIDENT INFOTECH CORPORATION LTD., VS. THE ACIT , CIRCLE VII, LUDHIANA LUDHIANA PAN NO. AANCT8966C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY: SHRI N.K.SAINI ORDER THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-II, LUDHIANA DATED 25.8.2010 RELATING TO ASSESSMENT YEA R 2003-04 AGAINST THE ORDER PASSED UNDER SECTION 148 / 143(3) OF THE I.T. ACT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL:- THAT ORDER U/S 250(6) OF THE INCOME TAX ACT, 1961 PASSED BY THE LD. CIT(A)-II LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH HE WAS NOT JUSTIFIED T O ARBITRARILY UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN I NITIATING THE PROCEEDINGS U/S 147 OF THE INCOME TAX ACT, 1961 . THAT HE WAS FURTHER NOT JUSTIFIED TO ARBITRARILY UP HELD THE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 48,64 ,717/- BY RESORT TO PROVISIONS OF SECTION 36(1)(III). 2 3. THE LD. AR FOR THE ASSESSEE AT THE OUTSET POINTE D OUT THAT THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE V ESTING OF JURISDICTION U/S 147 OF THE INCOME TAX ACT IN THE ASSESSING OFFICER, WHICH IS BEING AGITATED IN THE PRESENT APPEAL. THE LD. AR FAIRLY CONCEDED THAT THE ISSUE ON MERITS IS TO BE DECIDED AGAINST THE ASSESSEE FOL LOWING THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES [286 ITR 1 (P&H)]. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FURNISHED THE RETURN OF INCOME SHOWING LOSS OF RS. 4,05,116/- FOR THE YEAR UNDER CONSIDERATION. THE SAID RETURN OF INCOME WAS PROCES SED U/S 143(1) (A) OF THE ACT. THE ASSESSING OFFICER THEREAFTER NOTICED THE ASSESSEE TO HAVE MADE INTEREST FREE ADVANCES TO THE SISTER CONCERN A ND OTHERS WITHOUT ANY COMMERCIAL EXPEDIENCY. THE ASSESSEE HAD SHOWN A SU M OF RS. 10.73 CRORES AS ADVANCES RECOVERABLE IN CASH OR KIND AS PER SCHEDULE 10 OF THE BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME . ON THE OTHER HAND, THE ASSESSEE HAD PAID INTEREST ON BORROWED FUNDS TO TALING RS. 66.76 LACS. THE ASSESSING OFFICER WAS OF THE VIEW THAT DISALLOW ANCE U/S 36 (I)(III) OF THE ACT WAS CALLED FOR IN THE CASE. A NOTICE U/S 14 8 OF THE ACT DATED 23.2.2007 WAS ISSUED AND SERVED UPON THE ASSESSEE O N 28.2.2007. THEREAFTER, THE ASSESSEE FURNISHED RETURN OF INCOME ON 27.3.2007. THE ASSESSING OFFICER ISSUED THE NOTICE U/S 143(2) OF T HE ACT DATED 27.3.2007, PURSUANT TO WHICH THE ASSESSMENT PROCEEDINGS WERE C ARRIED ON. THE REASONS RECORDED FOR REOPENING THE CASE U/S 148 OF THE INCOME TAX ACT ARE REPRODUCED AT PAGES 2 & 3 OF THE ASSESSMENT ORD ER. THE COPY OF REASONS RECORDED BY THE ASSESSING OFFICER WERE FURN ISHED TO THE COUNSEL OF THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 3.5.20 07. THE ASSESSING OFFICER WAS OF THE VIEW THAT FOLLOWING THE RATIO LA ID DOWN BY THE 3 JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AB HISHEK INDUSTRIES LTD (SUPRA), THE INITIATION OF RE-ASSESSMENT PROCEEDING S IS WARRANTED AS THE INCOME HAD ESCAPED ASSESSMENT BECAUSE OF EXCESS AL LOWANCE OF INTEREST U/S 36(I)(III) OF THE ACT AS THE ASSESSEE HAD ADVAN CED INTEREST FREE LOANS TO SISTER CONCERN FOR NON BUSINESS PURPOSES. THE ASSE SSING OFFICER THEREAFTER COMPUTED THE DISALLOWANCE @ 6.5% OF INTE REST FREE ADVANCES OF RS. 7.48 CRORES AND DISALLOWED RS. 48,64,717/-. BE FORE THE CIT(A), THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT I N THE ABSENCE OF ANY FRESH FACTS BROUGHT ON RECORD, THE ACTION OF THE AS SESSING OFFICER FOR INITIATING PROCEEDINGS U/S 147 OF THE ACT WAS JUST ON ACCOUNT TO CHANGE OF OPINION. THE CIT(A) WAS IN AGREEMENT WITH THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT WAS A SETTLED POSITION OF LAW THAT RE-ASSESSMENT PROCEEDINGS COULD NOT BE TAKEN ON THE BASIS OF CERT AIN CHANGE OF OPINION. THE CIT(A) OBSERVED THAT QUESTION OF CHANGE IN OPIN ION WOULD ARISE ONLY IF ON A PARTICULAR ISSUE THERE COULD BE MORE THAN O NE OPINION ON THE SAME. THE CIT(A) FURTHER HELD THAT THE ADDITION MADE BY T HE ASSESSING OFFICER COULD NOT BE SAID TO BE ON THE BASIS OF CHANGE OF O PINION BUT THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT THE AM OUNT OF RS. 48,64,717/- WAS ASSESSABLE IN THE ASSESSMENT YEAR 2 003-04. THE ASSESSEE IN IS APPEAL AGAINST THE SAID UPHOLDING OF RE-ASSES SMENT PROCEEDINGS U/S 147 / 148 OF THE INCOME TAX ACT. 5. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT IT WAS A CASE OF ISSUE OF MIXED FUNDS AND PRIOR TO THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V ABHISHEK INDUSTRIES LTD (SUPRA), THERE WERE JUDGMENTS OF VARIOUS COURTS THAT FOR MERITING ANY D ISALLOWANCE OUT OF INTEREST EXPENDITURE, NEXUS MUST BE PROVED. THE LD . AR FURTHER POINTED OUT THAT THE SLP IS PENDING BEFORE THE HON'BLE SUPR EME COURT OF INDIA 4 AGAINST THE RATIO LAID DOWN IN CIT V ABHISHEK INDUS TRIES LTD (SUPRA). THE LD. AR STRESSED THAT THE ACTION OF THE ASSESSING OF FICER INITIATING THE RE- ASSESSMENT TANTAMOUNTS TO CHANGE IN OPINION. THE L D. AR FAIRLY AGREED THAT THE RETURN OF INCOME WAS INITIALLY PROCESSED U /S 143(1) OF THE ACT AND THE REOPENING OF THE ASSESSMENT WAS COMPLETED WITHI N THE STIPULATED PERIOD OF 4 YEARS. THE LD. DR FOR THE REVENUE RELYI NG ON THE OBSERVATIONS OF THE ASSESSING OFFICER STATED THAT T HERE WAS NO CHANGE OF OPINION BY THE ASSESSING OFFICER AS THE RE-ASSESSME NT PROCEEDINGS WERE RE-OPENED ON THE BASIS OF JUDGMENT OF THE HON'BLE P UNJAB & HARYANA HIGH COURT IN CIT V ABHISHEK INDUSTRIES LTD (SUPRA) . 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE HAD FILED RETURN OF INCOME WHICH WAS PROCE SSED U/S 143(1)(A) OF THE ACT. THEREAFTER, REASONS WERE RECORDED BY ASSE SSING OFFICER FOR REOPENING THE ASSESSMENT U/S 147 / 148 OF THE ACT. THE SAID REOPENING OF THE RE-ASSESSMENT WAS INITIATED WITHIN THE STIPULAT ED PERIOD OF FOUR YEARS. 7. THEIR LORDSHIPS OF HON'BLE SUPREME COURT IN ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD. [2007] 291 ITR 500 (SC) HAVE HELD THAT IN ORDER TO INVOKE THE PROVISIONS OF SECTION 147 OF TH E ACT, IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME HAS ESC APED ASSESSMENT, THEN JURISDICTION IS CONFERRED ON THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT. IT HAS BEEN HELD AS UNDER: - SECTION 147 AUTHORISES AND PERMITS THE ASSESSI NG OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WO RD REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATI ON. IF THE ASSESSING OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEV E THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSESSING OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL E VIDENCE OR CONCLUSION. THE 5 FUNCTION OF THE ASSESSING OFFICER IS TO ADMINISTER THE STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNE SS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANGANESE ORE CO. LTD. VS. ITO [1991] 191 ITR 662, FOR INITIATION OF ACTION UNDER SECTION 147 (A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFILLMENT O F THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STATE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUIRED IS REASON TO BELIEVE, BUT NOT THE ESTABLISHED FACT OF ESCAPEMEN T OF INCOME. AT THE STATE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUI SITE BELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT I S NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE ASSESSING OFFICER IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION (SEE IT O V. SELECTED DALURBAND COAL CO. P. LTD. [1996] 217 ITR 597 (SC) ; RAYMOND WOOLE N MILLS LTD. VS. ITO [1999] 236 ITR 34 (SC). THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM APRIL 1, 1989, AS ALSO SECTIONS 148 T0 152 ARE SUBSTANTIALLY DIFFE RENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION. UNDER THE O LD PROVISIONS OF SECTION 147, SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIRCUMST ANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS C OULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION UNDER SECTION 1 47 (A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED : FIRSTLY THE ASSESSING O FFICER MUST HAVE REASON TO BELIEVE THAT INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON T O BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER OMISSIO N OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIA L FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WER E CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE ASSESSING OFFICER COULD HAVE J URISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 147 (A). BUT U NDER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE T HAT INCOME HAS ESCAPED ASSESSMENT IF CONFERS JURISDICTION TO REOPEN THE AS SESSMENT. IT IS, HOWEVER, TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITHIN THE AMBIT OF THE PROVISO TO SECTION 147. (UNDERLINE PROVIDED BY US) . 8. IN VIEW OF THE RATIO LAID DOWN BY HON'BLE SUPREM E COURT IN ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT. LTD [(2007) 2 91 ITR 500 (SC) ] AND IN THE FACTS OF THE CASE, WHERE THE RETURN OF I NCOME WAS PROCESSED U/S 143(1) (A) OF THE ACT, THE CONDITION OF THERE BEING A REASON TO BELIEVE OF ESCAPEMENT OF INCOME AND RECORDING OF REASONS TO RE OPEN HAVING BEEN FULFILLED, WE HOLD THAT THE JURISDICTION IS CONFERR ED ON ASSESSING OFFICER TO REOPEN THE ASSESSMENT U/S 147 /148 OF THE ACT. THE OBJECTION OF THE LD. AR FOR THE ASSESSEE THAT SUCH REOPENING AMOUNTS TO CHANGE IN OPINION HAS NO MERIT, AS BY PROCESSING THE RETURN OF INCOME U/S 143(1)(A) OF THE ACT, THE ASSESSING OFFICER HAS NOT EXPRESSED ANY O PINION AND THERE IS NO 6 QUESTION OF CHANGE IN OPINION. WE UPHOLD THE ORDE R OF CIT(A) AND DISMISS THE GROUND NO.1 RAISED BY ASSESSEE. 9. THE LD. AR FAIRLY CONCEDED THAT THE ISSUE ON MER ITS OF THE ADDITION IS TO BE DECIDED AGAINST THE ASSESSEE. THUS GROUND NO.2 RAISED BY THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOVEMBER, 2010. SD/- (SUSHMA CHOWLA) JUDICIAL MEMBER DATED : 30 TH NOVEMBER, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR