M/s. Gujarat Narmada Valley Fertilizers Co.Ltd., Bharuch V. The Dy.CIT.,Bharuch Circle, Bharuch

ITA 1415/AHD/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1430 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-06-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 03-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation; Tangible material; Difference of opinion; Corroborative evidences; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 234B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD, P.O. NARMADANAGAR - 392015 DIST: BHARUCH PAN: AAACG8372Q (APPELLANT /RESPONDENT ) VS DCIT, BHARUCH RANGE, BHARUCH (RESPONDENT /APPEL LANT ) REVENUE BY : S H RI SANJAY AGRAWA L, CIT - D . R. ASSESSEE BY: S H RI SANJAY R. SHAH , A.R. DATE OF HEARING : 01 - 06 - 2 016 DATE OF PRONOUNCEMENT : 10 - 06 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THE ASSESSEE AND THE REVENUE HAVE FILED THESE CROSS APPEALS FOR ASSESSMENT YEARS 2003 - 04 AGAINST ORDER OF THE CIT(A) - VI, BARODA DATED 15 - 03 - 2010 IN APPEA L N O. CAB/VI - 486/08 - 09 , IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX AC T, 1961; IN SHORT THE ACT . I T A NO . 1415 & 2027 / A HD/20 10 A SSESSMENT YEAR 200 3 - 04 I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 2 2. THE ASSESSEE S SUBSTANTIVE GROUND PLEADED IN APPEAL ITA 1415/AHD/2010 READS AS FOLLOWS: - 1. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS AND REQUIRES TO BE MODIFIED. IT IS SUBMITTED THAT IT BE SO DONE NOW. 2. THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT THE AO WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 147 OF THE INCOME TAX ACT, 1961. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE ADDITIONS OF R S.5,67,76,733/ - IN RESPECT OF INTEREST RECEIVABLE FROM GSIL ON THE SAME REASONING IS GIVEN IN THE APPELLATE ORDER OF A.Y. 2006 - 07, IN WHICH DISALLOWANCE WAS CONFIRMED ON THE ASSUMPTION THAT RIGHT TO RECEIVE INTEREST FROM GSIL TO WHOM THE APPELLANT HAD ADVA NCED A LOAN DURING THE A.Y. 1994 - 95 HAD ACCRUED TO APPELLANT. IT IS SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE THE CIT(A) OUGHT TO HAVE DELETED THE SAME. IT IS SUBMITTED IT BE SO HELD NOW. 3.1 WITHOUT PREJUDICE TO ABOVE, THE LE ARNED CIT(A) ERRED IN NOT ADJUDICATING THE GROUND NO. 6.1 OF THE APPELLANT THAT ASSESSING OFFICER ERRED IN HOLDING THAT THE AMOUNTS GIVEN TO GSIL WERE OUT OF BORROWED FUNDS AND ACCORDINGLY ALSO THE INTEREST AMOUNT OF RS. 5,67,76,733/ - WAS DISALLOWABLE UNDER SECTION 36(1 )(III) OF THE ACT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THAT AMOUNT GIVEN TO GSIL IS OUT OF OWN FUNDS AND THIS FACT HAD BEEN UPHELD BY THE ITAT AND HENCE NO DISA LLOWANCE IS CALLED FOR U/S. 36(1 )(III) OF THE ACT. IT IS SUB MITTED THAT IT BE HELD SO NOW. 3.2 WITHOUT PREJUDICE TO ABOVE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE ADDITIONS OF INTEREST OF RS.5,67,76,733 CALCULATED @ 17% WHEN ARBITRATOR HAS AWARDED INTEREST @ 11.5%. THE REVENUE RAISES FOLLOWING SUBSTANTIVE GROUNDS IN ITS APPEAL ITA 2027/AHD/2010 I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 3 1(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ADDITIONAL DEPRECIATION OF RS. 4,57,62,711/ - U/S. 32(1)(IIA) OF THE ACT ON ACCOUNT OF NEW MACHINERY ACQUIRED AND INSTALLED. 1(II). THE CIT(A) FAILED TO APPRECIATE THAT ON PERUSAL OF ANNEXURE - B FORMING PART OF FORM BAA OF THE AUDIT REPORT FILED WITH THE RETURN OF INCOME, IT WAS FOUND THAT CERTAIN EXPENDITURE IN REGARD TO PURCHASE OF PLANT AND MACHINERY WAS INCURRED PRIOR TO 01.04.2002. FURTHER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM WITH SUPPORTING EVIDENCE THAT THE EXPENSES WERE INDEED FOR THE MACHINERY PURCHASED IN THE A.Y. 2003 - 04. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED, IN DELETING THE DISALLOWANCE OF INVENTORY WRITE OFF AMOUNTING TO RS. 2,47,85,301/ - , WITHOUT APPRECIATING THAT THE NATURE OF LOSS OCCURRED TO THE ASSES SEE COMPANY IS A CAPITAL LOSS AND WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. BOTH THE LEARNED REPRESENTATIVES ARE AD - IDEM IN THE COURSE OF HEARING THAT ASSESSEE S FIRST SUBSTANTIVE GROUND CHALLENGING VALIDITY OF REOPENING GOES TO ROOT OF THE MATT ER. WE ACCORDINGLY PROCEED TO ADJUDICATE THIS LEGAL ISSUE FIRST IN SUCCEEDING PARAGRAPHS. 3. THIS ASSESSEE - COMPANY MANUFACTURES FERTILIZERS/VARIOUS CHEMICALS. IT IS ALSO ENGAGED IN INFORMATION TECHNOLOGY BUSINESS. THE ASSESSEE FILED ITS RETURN ON 28 - 1 1 - 2003 ADMITTING INCOME OF RS. 113,37,54,361/ - . THE SAME WAS PROCESSED BY THE ASSESSING OFFICER . T HEREAFTER , HE FRAMED A REGULAR ASSESSMENT ON 31 - 03 - 2006 COMPUTING TOTAL INCOME AS RS. 1,54,88,13,980/ - AFTER MAKING VARIOUS DISALLOWANCES /ADDITIONS. THE CIT (A) GRANTED PART RELIEF TO THE ASSESSEE THEREBY REDUCING ITS TAXABLE INCOME TO RS. 146,02,81,580/ - . THE MATTER TRAVELLED TO TRIBUNAL. THE ASSESSING OFFICER TOOK INTO I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 4 ACCOUNT TRIBUNAL S ORDER AS WELL IN PRECEDING ASSESSMENT YEAR TO RECALCULATE ASSESSEE S INCOME AS RS. 145,95,63,371/ - IN HIS ORDER DATED 07 - 01 - 2008. HE THEREAFTER FORMED REA SONS TO BELIEVE THAT THE ASSESS EE S TAXABLE INCOME HAD ESCAPED ASSESSMENT FOR THE FOLLOWING: - DURING THE YEAR, THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.12,54,94,512/ - UNDER SECTION 32(IIA) OF THE I.T. ACT, 1961, IN THE CASE OF ANY NEW MACHINERY OF PLANT (OTHER THAN SHIPS AND AIR CRAFTS) WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2002, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PROD UCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO FIFTEEN PERCENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCT ION UNDER CLAUSE (II). 2. DURING THE YEAR THE ASSESSEE COMPANY CLAIMED TOTAL ADDITION DEPRECIATION OF RS. 1 2,54,94,512/ - ON NEW MACHINERY ACQUIRED AND INSTALLED. THE DETAILED SCRUTINY OF THE COST OF MACHINERY, DATE OF ACQUISITION, AND DATE OF PUT TO USE FURNISHED IN ANNEXURE B OF FORM NO 3AA DISCLOSED THAT CERTAIN EXPENDITURE WAS INCURRED PRIOR TO 1.4.2002 AND SOME ARE AS OLD AS OF 9.8.99. DETAILS OF THESE EXPENSES OF EARLIER PERIOD ARE GIVEN IN THE STATEMENT ENCLOSED. SO THESE EXPENSES CAN NOT BE TREATED AS EXPENSES RELATING TO THE EXPENSES COST PAID AGAINST THOSE PLANT AND MACHINERY PURCHASED AFTER 1.4.02. SO, THE ADDITIONAL EXPENDITURE ALLOWED AT 15% ON TOTAL AMOUNT OF RS.61,01,69,488/ - TO BE DISALLOWED. THE ASSESSEE HAS CLAIMED DEPRECIATION AT 50% OF 15% I.E. 7.5% WHICH COMES TO RS.4,57,62,711/ - REQUIRES TO BE DISALLOWED AS IT IS ESCAPED INCOME. 3. IT WAS REV EALED FROM THE AUDITED ACCOUNTS AND NOTES OF THE AUDITORS FORMING PART OF THE RETURN OF INCOME THAT DURING THE YEAR RELEVANT OF A.Y. 2003 - 2004, THE ASSESSEE COMPANY HAD WRITTEN OFF INVENTORY OF COSTING RS.2,47,85,301/ - TREATING THEM AS NON MOVING AND ABSOL UTE IN NATURE. (REFER 17.0.06 NOTE). AS PER INCOME TAX ACT, THE LOSS OF INVENTORY BY WAY OF THEFT, FIRE ETC. IS ALLOWED AS EXPENSES/REVENUE LOSS. BUT, WHEN THE ASSESSEE RECEIVES THE INSURANCE CLAIM AGAINST SUCH LOSS WILL BE OFFERED AS INCOME OF THE YEAR IN WHICH IT IS RECEIVED. HERE THE ASSESSEE THEMSELVES TREATED CERTAIN INVENTORY AS ABSOLUTE AND COST OF IT HAS BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT. THIS LOSS IS DUE TO THE MISTAKE ON THE PART OF I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 5 THE ASSESSEE OF PLAN OUT PROPERLY THE REQUIREMENT OF IN VENTORY AND ITS TIMELY USE TO PRODUCTION. 4. SO, THE ACTION OF THE ASSESSEE TO WRITE OFF THE INVENTORY TREATING IT AS ABSOLUTE IS NOT JUSTIFIED. OMISSION TO DISALLOW THE CLAIM RESULTED INTO ESCAPED INCOME OF RS.2,47,85,301/ - WITH CONSEQUENT SHORT LEV Y OF TAX OF RS.1,25,01,551/ - INCL UDING INTEREST LEVIABLE (AT 37.25%) U/S. 234B OF THE ACT. 5. AS PER ITEM NO.9(I) IN THE ANNEXURE TO THE AUDITOR'S REPORT (PAGE - 31) AS MENTIONED IN THE ANNUAL REPORT FOR F.Y.2002 - 03, THE ASSESSEE HAD GIVEN LOANS TO GUJARAT STATE INVESTMENT LIMITED (GSIL) WITH THE STIPULATION OF INTEREST BUT THE INTEREST ACCRUED AS PER STIPULATION WAS NOT ACCOUNTED FOR AS INCOME ON ACCOUNT OF DISPUTE ABOUT THE RATE. THE AMOUNT OF THIS LOAN IS NOT MENTIONED IN THIS ANNEXURE AND THIS TRANSACTION DOES NOT APPEAR IN THE NOTES ON ACCOUNTS. HENCE, IT NEEDED ASCERTAINMENT OF AMOUNT AND VERIFICATION OF FACTS. INTEREST IS A TIME COST AND ACCRUES DAY - TO - DAY. IT ACCRUES SUI GENERIS AS SETTLED IN THE CASE OF VIJAY LAKSHMI SUGAR MILLS LTD. V/S. CIT 191 ITR 64 (S C). THE DISPUTE WAS ONLY IN REGARD TO RATE. THE ASSESSEE WAS BOUND TO DECLARE INCOME ON THE BASIS OF THE RATE CLAIMED BY AS IT COULD CLAIM BAD DEBT, IF ANY, ON SETTLEMENT OF RATE. THE PRINCIPLE OF DISPUTED CONTRACTUAL LIABILITY DOES NOT EXTEND TO DISPUTED INCOME UNDER MERCANTILE SYSTEM WHICH IS DILUTED O.NLY BY THE THEORY OF REAL INCOME. THE ASSESSEE COULD NOT WAIVE THIS INTEREST IPSE DIXIT AS SETTLED IN THE CASE OF STATE BANK OF TRAVANCORE V/S. CIT 158 ITR 102, 154 (SC), WESTERN INDIA OIL DISTRIBUTING CO. V/S. CIT 206 ITR 359 (BOM) AND NAVIN R. KAMANI V/S. ITO 185 ITR 408 (BOM). 6. IN VIEW OF THE ABOVE FACTS, I HAVE TO REASON TO BELIEVE THAT THE INCOME HAS ESCAPED AND HENCE PROCEEDINGS FOR REOPENING OF THE ASSESSMENT BY ISSUE OF NOTICE U/S. 148 OF THE ACT HAVE BEEN INITIATED. 4. THE ASSESSING OFFICER ACCORDINGLY ISSUED SECTION 148 NOTICE ON 24 - 03 - 2008. THE ASSESSEE FILED RETURN ON 23 - 04 - 2008 ADMITTING INCOME OF RS. 113,27,36,152/ - WITH BOOK PROFITS OF RS. 10,74,01,354/ - COMPUTED IN EARLIER REGULAR ASSESS MENTS. IT ALSO SOUGHT COPY OF I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 6 REOPENING REASONS. THE SAME STOOD FURNISHED. THE ASSESSEE FILED IT S PETITION DATED 19 - 05 - 2005 OBJECTING TO VALIDITY OF REOPENING BY TERMING IT AS MERE CHANGE OF OPINION . THE ASSESSING OFFICER REJECTED THIS PETITION IN HIS O RDER DATED 22 - 05 - 2008. THIS FOLLOWED THE IMPUGNED REASSESSMENT BEING FRAMED 29 - 12 - 2008 INVOLVING DISALLOWANCES /ADDITIONS OF ADDITIONAL DEPRECIATION, INVENTORY WRITTEN OFF AND INTEREST INCOME ON GSIL LOAN OF RS. 4,57,62,711/ - , RS. 2,47,85,301/ - AND RS. 5,6 7,76,733/ - ; RESPECTIVELY. 5. THE ASSESSEE PR EFERRED APPEAL. ITS FIRST SUBSTAN T I VE ARGUMENT CHALLENGED VALIDITY OF REOPENING FOLLOWED BY CORRESPONDING GROUNDS CHALLENGING ABOVE ADDITIONS ON MERITS. WE REPEAT THAT OUR INSTANT ADJUDICATION IS CONFINED TO REOPENING ISSUE ONLY. THE CIT(A) UPHOLDS THE SAME AS FOLLOWS: - 5.3 IN APPEAL IT WAS ARGUED THAT THE APPELLANT HAD CONTENDED BEFORE THE ASSESSING OFFICER THAT IT HAD DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS IN THE RETURN OF INCOME AND ATTACHMENT THER ETO INCLUDING AUDITED ANNUAL ACCOUNTS AND DETAILS WERE FURNISHED DURING ASSESSMENT PROCEEDINGS WHICH WERE NECESSARY FOR ASSESSMENT. THERE IS NOTHING ON RECORD TO SHOW WHAT FRESH FACTS HAVE COME TO THE NOTICE OF ASSESSING OFFICER, WHICH WERE NOT DISCLOSED B Y THE APPELLANT IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER DURING COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS HAD CALLED FOR DETAILS AND JUSTIFICATION FOR CLAIM OF ADDITIONAL DEPRECIATION AND INVENTORY WRITTEN OFF. APPELLANT HAD FILED DETA ILED JUSTIFICATION VIDE SUBMISSION DATED 23 - 09 - 2005 FOR ITS CLAIM FOR ADDITIONAL DEPRECIATION AND INVENTORY WRITTEN OFF. IT WAS ALSO CONTENDED THAT ASSESSING OFFICER ON THE BASIS OF DETAILED SCRUTINY OF ANNEXURE - B OF FORM NO.3AA HAD CALLED FOR FURTHER INFO RMATION VIDE SR. NO 7 HIS LETTER DATED 20 - 07 - 2005 RELATING TO APPELLANT'S CLAIM OF ADDITIONAL DEPRECIATION, AND AFTER DETAILED SCRUTINY OF SUBMISSION MADE VIDE LETTER DATED 23 - 09 - 2005 HAD ALLOWED CLAIM IN REGULAR ASSESSMENT. THUS ASSESSING OFFICER WAS CONV INCED ABOUT GENUINENESS OF CLAIM I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 7 MADE AS PER RELEVANT PROVISIONS OF THE INCOME TAX ACT AND ALLOWED ADDITIONAL DEPRECIATION WHILE PASSING ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT. SIMILARLY ASSESSING OFFICER HAD ASKED JUSTIFICATION FOR INVENTORY LI KE STORES ITEMS AND SPARES WRITTEN OFF AMOUNTING TO RS 2.48 CRORES VIDE SR. NO. 17 OF THE ANNEXURE TO NOTICE ISSUED U/S 142(1) OF THE INCOME TAX ACT DATED 20 - 07 - 2005. THE APPELLANT HAD FILED DETAILED JUSTIFICATIONS IN SUPPORT OF ITS CLAIM FOR THE AFORESAID WRITE OFF ALONG WITH RELEVANT JUDICIAL DECISIONS. THE CLAIM WAS THEREAFTER ACCEPTED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS. AS REGARDS NON - CHARGING OF INTEREST ON LOAN GIVEN TO GSIL, APPELLANT BROUGHT TO MY ATTENTION, NOTE NO. 12( D) OF SCHEDULE 20 - NOTES ON ACCOUNT TO THE BALANCE SHEET OF THE COMPANY FOR THE YEAR ENDED 31 MARCH 2005 WHERE DISCLOSURE WAS MADE IN THIS RESPECT, THEREFORE, IT WAS SUBMITTED THAT THE AO SOUGHT TO CHANGE THE OPINION ON SAME SET OF FACTS WHICH WERE AVAILA BLE TO HIM IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND THAT NO INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND THAT THE REASSESSMENT PROPOSAL BASED ON THE CHANGE OF OPINION ON SAME SET OF FACTS AVAILABLE AT THE TIME OF PASSING THE ORDER UNDER SECTION 14 3(3) IS NOT WARRANTED. RELIANCE WAS PLACED BY APPELLANT ON DECISION OF RECENT SUPREME COURT DECISION IN CASE OF KELVINATOR INDIA LTD., GARDEN SILK MILLS LTD. 222 ITR 68 (GUJ) AND BIRLA VXL LTD/217 ITR L(GUJ). 5. 3 I HAVE GONE THROUGH THE CONTENTIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. IN THIS CASE RETURN WAS FILED ON 28 - 11 - 2003. NOTICE U/S. 148 WAS ISSUED ON 24 - 03 - 2008 I.E. WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR IN WHICH RETURN FILED. IT IS ALSO SEEN FROM THE ASSESSMENT ORDER THAT ASSE SSING OFFICER HAS ALSO PROVIDED THE REASONS FOR REOPENING. FURTHER SUFFICIENT OPPORTUNITIES WERE GIVEN TO ASSESSEE TO REPRESENT ITS CASE AND IN FACT ASSESSEE DID COOPERATE AND ATTENDED REASSESSMENT PROCEEDINGS AND FILED WRITTEN SUBMISSIONS. THE PROVISO TO SECTION 147 IS ATTRACTED WHERE THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) AND THE PROCEEDINGS U/S. 147 ARE INITIATED AFTER 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. THIS CASE THEREFORE IS NOT COVERED UNDER PROVISO TO SECTION 147 AND IT IS NOT NE CESSARY FOR THE ASSESSING OFFICER TO SHOW THAT THE INCOME HAD ESCAPED ASSESSMENT FOR REASONS OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. IN THE CASE OF PRAFUL CHUNILAL PATEL VS. MJ.MAKWANA , ASSISTANT (COMMISSIONER OF INCOME TAX (1999) 236 ITR 832 (GUJ), HON'BLE GUJARAT COURT HAS HELD AS UNDER: - I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 8 ..SINCE THE ASSESSING OFFICER AT THE FIRST ASSESSMENT IN THE YEAR AND THAT THE AMOUNTS CREDITED TO THE ACCOUNTS OF THE PARTNERS WHO HAD CONTRIBUTED THE LANDS TO THE FIRM, WERE MEANT TO BE THE PRICE OF THE LAND IN QUESTION TO THE FIRM AND THAT THE AMOUNTS CREDITED TO THE ACCOUNTS OF THE PARTNERS WHO HAD CONTRIBUTED THE LANDS TO THE FIRM, WERE MEANT TO BE THE PRICE OF THE LAND WHICH WAS TO BE ACTUALLY PAID FROM THE COLLECTIONS RECEIVED BY THE FIRM FROM MEMBERSHIP FEES AS SOON AS RECEIVED, AS WAS ENVISAGED ADMITTEDLY IN PARAGRAPH 11 OF THE PARTNERSHIP DEED, THERE WAS NO QUESTION IF ANY CHANGE OF OPINION WHEN ON THE RELEVANT FACTS BEING FOUND THE ASSESSIN G OFFICER WHILE PROTECTIVELY ASSESSING THE PETITIONER ASSESSEE FOR THE YEAR 1993 - 94, NOTED THAT THIS WAS A CASE FOR ISSUANCE OF A NOTICE UNDER SECTION 148, WHICH CAME TO BE ISSUED THEREAFTER. WHEN THE AMOUNT OF TAXABLE INCOME AND OF THE TAX PAYABLE THEREON WERE NOT ASCERTAINED AT ALL BY THE ASSESSING OFFICER IN RESPECT OF THE TRANSFER MADE BY THE ASSESSEE IN FAVOUR OF THE FIRM ON SEPTEMBER 19, 1990, THERE OBVIOUSLY WAS NO OPINION FORMED IN THAT REGARD AND, CONSEQUENTLY, THERE WOULD NOT ARISE ANY QUESTION OF A MERE CHANGE OF OPINION. IN CASES WHERE THE ASSESSING OFFICER HAD OVERLOOKED SOMETHING AT THE FIRST ASSESSMENT, THERE CAN, IN OUR OPINION, BE NO QUESTION OF ANY CHANGE OF OPINION WHEN THE INCOME WHICH WAS CHARGEABLE TO TAX IS ACTUALLY TAXED AS IT OUGHT T O HAVE BEEN UNDER THE LAW BUT WAS NOT, DUE TO AN ERROR COMMITTED AT THE FIRST ASSESSMENT.' (EMPHASIS SUPPLIED) 5.7.2 SIMILAR VIEW HAS BEEN TAKEN BY HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF RENU SAGAR POWER COMPANY VS. ITO 117 ITR 719(ALLA) WHEREIN IT W AS OBSERVED 'QUESTION OF CHANGE OF OPINION WOULD ARISE ONLY WHEN THE SAME HAS ALREADY BEEN EXPRESSED ON THE MATERIALS ON RECORD. IF THE MATERIALS WERE NOT BEFORE THE ASSESSING OFFICER THE QUESTION OF CHANGE OF OPINION DOES NOT ARISE. ' 5.7.3 SIMILAR WAS T HE OBSERVATION IN THE CASE OF ITO VS. MAHADEO LAL TULSYAN 111 ITR 25(CAL). 'THE FORMATION OF OPINION IS A POSITIVE ACT ON THE PART OF ASSESSING OFFICER AND THE OPINION IS SAID TO BE FORMED WHERE THERE IS APPLICATION OF MIND WITH REFERENCE TO MATERIAL ON' RECORD AND THE PROVISIONS OF THE STATUTE AND IN CASE IN EARLIER PROCEEDINGS NO SUCH OPINION IS FORMED IT CANNOT BE CONTENDED THAT THE REASSESSMENT PROCEEDINGS WERE INITIATED ON MERE CHANGE OF OPINION. MERE I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 9 ASSESSMENT IN ROUTINE MANNER DID NOT LEAD TO INFE RENCE THAT THE OPINION WAS FORMED IN RESPECT OF ISSUES INVOLVED IN THE ASSESSMENT.' HENCE IN VIEW OF ABOVE THE ASSESSING OFFICER IS JUSTIFIED IN INVOKING THE PROVISION S OF SECTION 147 AND GROUND NO. 1 & 2 THEREFORE STAND DISMISSED. THIS LEAVES THE ASSE SSEE AGGRIEVED. 6 . LEARNED AUTHORIZED R EPRESENTATIVE STATES IN THE COURSE OF HEARING THAT THE ASSESSING OFFICER HAD REOPENED THE ABOVE STATED REGULAR ASSESSMENT ON THREE COUNTS(SUPRA). HE TAKES TO SECTION 142 NOTICE DATED 20.07.2005 ISSUED IN THE COUR SE OF SCRUTINY INTER ALIA RAISING SPECIFIC QUERIES ON THE ISSUES OF DEPRECIATION/ADDITIONAL DEPRECIATION, INVENTORY JUSTIFICATION INCLUDING STORE ITEMS AND SPARE PARTS WRITTEN OFF AS WELL AS DETAILS OF INTEREST FREE ADVANCES TO SUBSIDIARY AND ASSOCIATE CON CERNS. IT IS PLEADED THAT THE ASSESSEE FILED REPLY THERETO ON 25 - 0 8 - 2005 AND 23 - 09 - 2005 EXPLAINING EACH AND EVERY QUERY AT LENGTH. LEANRED AUTHORIZED R EPRESENTATIVE DRAWS OUR ATTENTION TO ASSE SSMENT ORDER DATED 31 - 03 - 2006 TH AT THE ASSESSING OFFICER DID N OT MAKE ANY DISALLOWANCE ON EITHER OF THE THREE ISSUES. HE ACCORDINGLY ARGUES THAT THE IMPUGNED REASSESSMENT IS NOT BASED ON ANY FR ESH TANGIBLE MATERIAL AND THE S A ME IS ONLY A CHANGE OF OPINION NOT SUSTAINABLE IN THE EYES OF LAW AS HELD IN CIT VS. KELVINAT OR OF INDIA LTD. (2010) 320 ITR 561 (SC) AS WELL AS HON BLE DELHI HIGH COURT IN CIT VS. ORIENT CARFT LTD. (2013) 35 4 ITR 536 (DEL). HE PRAYS FOR QUASHING OF THE IMPUGNED REASSESSMENT EVEN IF THE SAME IS TAKEN RECOURSE TO WITHIN FOUR YEARS FROM THE ENDS OF THE IMPUGNED ASSESSMENT YEAR. I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 10 7 . NEXT COME REVENUE S ARGUMENTS. SHRI SANJAY AGRAWAL (CIT - DEPARTMENTAL REPRESENTATIVE) VEHEMENTLY CONTENDS THAT THE ASSESSING OFFICER S QUERIES ON THE INTEREST ISSUE FORMING THIRD REASON IN THE IMPUGNED REOPENING WAS ONL Y ON SECTION 36(1)(III) ISSUE AND NOT QUA THIS INTEREST INCOME TO BE ADDED BY FOLLOWING ACCRUAL PRINCIPLE. HE INVITES OUR ATTENTION TO PAGE 256 CONTAINING SECTION 142 NOTICE AS REFERRED HEREINABOVE IN THIS REGARD. IT IS STATED THAT A CO - ORDIN AT E BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE ITA 4007/AHD/2007 DECIDED ON 30 - 12 - 2011 HAS UPHELD SIMILAR ISSUES IN REVENUE S FAVOUR QUA VALIDITY OF REOPENING. CASE LAW OF HON BLE JURISDICTIONAL HIGH COURT IN SPECIAL CIVIL APPLICATION NO . 29792/2007 DECIDED ON 30 - 0 7 - 2012 M/S GUJARAT POWER CORPORATION VS. ACIT IS QUOTED TO SUBMIT THAT THE ASSESSING OFFICER GOT THE RELEVANT INTEREST INCOME INFORMATION SUBSEQUENT TO FRAMING OF REGULAR ASSESSMENT AND IT IS FOR THE ASSESSEE TO D ISCHARGE CONSEQUENTIAL ONUS. WE PUT A SPEC IFIC QUERY AS TO WHETHER THE ASSESSING OFFICER HAD RAISED ISSUES RELEVANT TO FIRST TWO REASONS OF REOPENING IN SECTION 142 NOTICE OR NOT. SHRI AGRAWAL FAIRLY AGREES THAT THE SAME HAD BEEN DULY RAISED. HE HOWEVER STICKS TO HIS ORIGINAL ARGUMENT TO PRAY F OR UPHOLDING THE RE - ASSESSMENT IN VIEW OF THE LOWER AUTHORITIES FINDINGS ON THIS LEGAL ISSUE. 8 . WE AFFORDED REBUTTAL OPPORTUNITY TO ASSESSEE. LEARNED AUTHORIZED R EPRESENTATIVE TAKES US ITS AUDIT REPORT CLAUSE 9(I) CLARIFYING ON THIS INTEREST ISSUE THA T NEITHER THERE WAS ANY INTEREST I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 11 STIPULATION IN LOAN AGREEMENT WITH GSIL NOR HAD THE ASSESSEE MADE ANY CORRESPONDING INCOME INTEREST INCOME PROVISION IN ITS BOOKS. ITS CASE IS THAT NO INTEREST WOULD HAVE BEEN BOOKED IN THESE CIRCUMSTANCES SO AS TO GIVE R ISE TO ANY CONCLUSION OF ESCAPEMENT OF ANY S U CH INCOME FROM BEING ASSES SED. HIS FURTHER CASE IS THAT A REOPENI NG IN ANY CASE CANNOT BE A MERE CHANGE OF OPINION IN ABSENCE OF ANY FRESH TANGIBLE MATERIAL AND THE REVENUE S CASE LAW (SUPRA) ITSELF REITERATE T HE VERY LEGAL PRINCIPLE . HE COMES TO TRIBUNAL S ORDER THEREAFTER TO SUBMIT THAT REOPENING REASONS IN THESE TWO ASSESSMENT YEARS ARE NOT SIMILAR. 9 . HEARD BOTH SIDES. CASE FILE PERUSED. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSING OFFICER IS SUED SECTION 142 NOTICE TO THE ASSESSEE RAISING SPECIFIC QUERIES ON 20 - 07 - 2005. THERE IS NO ISSUE BETWEEN THE PARTIES THAT CLAUSE 7 AND 17 THEREIN FORMING PAGES 255 AND 256 OF THE PAPER BOOK ASKED THE ASSESSEE TO PRODUCE ALL NECESSARY DETAILS PERTAINING T O DEPRECIATION/ADDITIONAL DEPRECIATION AND INVENTORY WRITTEN OFF AMOUNTING RS. 2.48 CRORES RESPECTIVELY. THIS FOLLOWED ASSESSEE S EXPLANATION TENDERED ON 25 - 08 - 2005 AND 23 - 09 - 2005 ON THE VERY ISSUES. THE ASSESSING OFFICER THEREAFTER FRAMED REGULAR ASSES SMENT ON 31 - 03 - 2006 NOT REJECTING THE SAME. WE ARE OF THE OPINION IN THIS FACTUAL BACKDROP THAT IT CAN BE S A FELY INFERRED THAT THE ASSESSING OFFICER DULY AGREED WITH THE ASSESSEE S EXPLANATION. THE REVENUE S CONTENTION IS THAT HE HAD NOT MENTIONED ANYTHI NG IN THE ASSESSMENT ORDER ON THESE ISSUES. THIS FAILS TO IMPRESS US. WE ARE OF THE OPINION THAT IT WAS BEYOND AS S ES SEE S I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 12 CONTROL AS TO WHETHER OR NOT ITS RELEVANT EXPLANATION FORMED PART OF DISCUSSION IN ASSESSMENT ORDER. SUFFICE TO SAY, THE ASSESSING OFFICER DID NOT SPECIFIC REJECT THE CORRESPONDING EXPLANATION IN THE SCRUTINY ASSESSMENT. WE OBSERVE IN THIS FACTUAL BACKDROP THAT HE FORMED AN OPINION IN ASSESSEE S FAVOUR AND REOPENED THE SAID ASSESSMENT SUBSEQUENTLY WITHOUT ANY FRESH TANGIBLE MATERIAL. WE ARE OF THE VIEW THAT THE SAME AMOUNTS TO MERE CHANGE OF OPINION NOT PERMISSIBLE AS HELD BY HON BLE APEX IN KELVINATOR S CASE AS WELL AS HON BLE JURISDICTIONAL HIGH COURT IN GUJAR A T POWER CORPORATION CASE (SUPRA). 10 . TH E REVENUE S NEXT ARGUMENT IS THAT THE ASSESSING OFFICER IN THE COURSE OF SCRUTINY ASSESSMENT HAD EXAMINED THE ISSUE OF SECTION 36(1)(III) INTEREST DISALLOWANCE AND NOT THAT OF INTEREST INCOME ARISING FROM GSIL LOAN(SUPRA). IT IS , THE REFORE, CONTENDED THAT THE IMPU G N ED REOP ENING IS VE RY MUCH IN ORDER. WE PROCEED FURTHER TO NOTICE THE ASSESSEE S EXPLANATION RIGHT FROM THE BEGINNING IS THAT ITS LOAN AGREEMENT DOES NOT MENTION ANY INTEREST STIPULATION. THE REVENUE FAILS TO REBUT THIS FACTUAL POSITION . WE QUOTE HON BLE APEX COURT DECISI ON IN CHAINRUP SAMPATRAM S CASE (1953) 24 ITR 481 (SC), A CONSTITUTIONAL BENCH VERDICT HOLDING THAT WHILE AN ANTICIPATED LOSS CAN BE TAKEN INTO ACCOUNT BUT THE SAME IS NOT THE POSITION WITH ANTICIPATED PROFITS WHICH CANNOT BE BOOKED BEFORE ACTUAL REALIZATI ON. THIS IS NOT THE REVENUE S CA S E THAT THE ASSESSEE HAS BEEN ABLE TO REALIZE ITS INTEREST INCOME IN QUESTION FROM M/S. GSIL WHICH COULD BE SAID TO HAVE ESCAPED ASSESSMENT. IT IS EVIDENT THAT THE ASSESSEE REFERRED THIS INTEREST ISSUE FOR ARBITRATION PROC EED INGS. THE ARBITRATOR I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 13 ANNOUNCED HIS AWARD ON 13 - 09 - 2006 AWARDING INTEREST @ 11.5% PER ANNUM I.E. POST FACTO THE IMPUGNED ASSESSMENT YEAR 2003 - 04. WE ARE OF THE VIEW THAT THE ASSESSEE COULD NOT HAVE ANTICIPATED THE IMPUGNED INTEREST INCOME ON ACCRUAL BAS IS. OUR OPINION IS THAT NEITHER THERE IS ANY INTEREST STIPULATION IN GSIL LOAN AGREEMENT NOR REALIZATION THEREOF, THE ASSESSEE HAD RIGHTLY NOT BOOKED ITS INTEREST INCOME. WE ACCORDINGLY APPLY CAUSE/EFF ECT PRINCIPLE TO OBSERVE THAT THERE IS A DI STINCTIO N ON REOPENING FACTORS. THE FIRST CATEGORY INDICATES AN INCOME TO HAVE ESCAPED ASSESSMENT AND IF THE SAME IS ESTABLISHED TO BE CORRECT, IT WOULD BE HAVING A CAUSE AND EFFECT RELATIONSHIP WITH THE CORRESPONDING REOPENING REASONS . THE LATTER CATEGORY IN CA S ES OF REOPENING POINTS OUT TO A LEGITIMATE SUSPICION OF AN INCOME HAVING ESCAPED ASSESSMENT. THIS LATTER FACTOR CONSISTS OF FAC E TS, WHICH IF ESTABLISHED, COULD LEGI TI MATELY LEAD TO FURTHER INQUIRIES. A CO - ORDI N ATE BENCH OF THIS TRIBUNAL IN ITA NO.232/AHD /2016 JAGDISHCHANDRA C. SHAD (HUF) VS. ITO DECIDED ON 31 ST MAY, 2016 TAKES INTO ACCOUNT HON BLE APEX COURT DECISION IN CASE OF ITO VS. LAKHMANI MEWALDAS (1976) 103 ITR 437 TO HOLD THAT THERE HAS TO BE A RATIONAL CONNECTION OR A DIRECT NEXUS OR A LIVE LINK BETWEEN THE MATERIAL COMING TO AN ASSESSING OFFICER 'S NOTICE AND FORMATION OF HIS BELIEF OF TAXABLE INCOME HAVING ESCAPED ASSESSMENT. WE REFER TO OUR ABOVE NARRATION OF FACTS TO CONCLUDE THAT ONCE THE ASSESSEE COULD NOT HAVE BOOKED THE INCOME IN ABSENCE O F ANY INTEREST STIPULATION IN LOAN AGREEMENT EVEN BY FOLLOWING ACCRUAL PRINCIPLE , ASSESSING OFFICER S CORRESPONDING REASON OF REOPENIN G DOES NOT SATISFY THE CAUSE - EFFECT RELATIONSHIP REITERATED HEREINABOVE. WE CONCLUDE THAT I.T.A NO S . 1415 & 2027 /AHD /2010 A.Y. 2003 - 04 PAGE NO GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCIT 14 THE ISSUE AS TO WHETHER OR NOT THE ASSESSING OFFICER HAD EXAMINED THIS ISSUE IN SCRUTINY HAS BEEN RENDERED ACADEMIC. THE REVENUE S FURTHER CONTENTION THAT THE TRIBUNAL HAD ALREADY EXAMINED THE VERY ISSUE (SUPRA) IS NOT BORNE OUT FROM THE RECORDS COMPRISING OF REOPENING REASONS. WE AC CEPT ASSESSEE S ARGUMENTS AND QUASH THE IMPUGNED REOPENING. THIS RENDERS OTHER GROUNDS ON MERITS IN BOTH THE CROSS APPEAL S TO HAVE BEEN RENDERED INFRUCTUOUS. 11. ASSESSEE S APPEAL 1415/AHD/2010 IS ALLOWED AND THAT OF THE REVENUE ITA 2027/AHD/2010 IS DISM ISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 10 - 06 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 10 /06 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,