M/s TN Nagi Reddy&Co., Chittoor V. ITO, Madanapalle

ITA 1450/HYD/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5903 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 10-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-09-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: E NAGENDRA PRASAD
• Assessee Lawyers: S RAMA RAO
• Keywords: Reopening of assessment; Depreciation; Reassessment proceedings
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER (SMC) ITA NO.1450/HYD/2008 ASST. YEAR 2004-05 MS/ T.N. NAGI REDDY & CO. MADANAPALLE (AABFT 2213 T) VS. ITO, WARD 1, MADANAPALLE (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S. RAMA RAO RESPONDENT BY: SHRI E. NAGENDRA PRASAD O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R PASSED BY THE CIT(A), TIRUPATHI DATED 15.7.2008 AND P ERTAINS TO ASSESSMENT YEAR 2004-05.. 2. THE ASSESSEE RAISED GROUNDS IN THIS APPEAL IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST PAYMEN T TO PARTNERS SMT. T.N AMARAVATHI AT RS.1,94,975/- AND SHRI T.N. ABHIRAM REDDY AT RS.1,40,020/- AND ALSO RESTRICTED THE DEPRECIATION AT 50 % ON THE PRESCRIBED RATE ON TRUCK THOUGH IT WAS ACQUIRED ON 23.8. 2008. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION DERIVED THE INCOME AS A DEALER OF PETROLEUM PRODUCTS FROM IOC LTD. THE ASSESSEE ADMITTED A LOSS OF RS.48,355/- IN THE RETURN OF INCOME. ON VERIFICATION WITH IOC, TADA, THE ASSESSING OFFICER NOTICED THAT THE HIRE CONTRACT RECEIP TS FOR AN AMOUNT OF RS.2,32,391/- ON ACCRUAL BASIS EVEN THOUGH THE ASSESSEE 2 2 FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AS PER NO.3 C D REPORT. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE CLAIMED DEP RECIATION FOR FULL YEAR ON TRUCK EVEN THOUGH IT IS PUT TO USE LESS THAN 180 DAYS IN THE YEAR. THE ASSESSING OFFICER THEREFORE ISSUED NOTICE U/S 148 AND AFTER CALLING OBJECTIONS FROM THE ASSESSEE ON THE PROPOSED ADDITION, ADDED BACK THE RS.1,65,807/- ON ACCOUNT OF DEPRECIATION AND AT RS.2,32,391/- ON ACCOUNT OF CONTRACT RECEIPT IN THE COURSE OF PROCEEDINGS. IN THE COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED THE INTEREST PAYMENT TO THE PARTNERS AT SMT. T .N. AMARAVATHI AT RS. 1,94,975/- AND SHRI ABHIRAM REDDY AT RS. 1,40,02 9 /-. THE ASSESSING OFFICER NOT ALLOWED THE CLAIM OF THIS INTEREST. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE OF DEPRECIATION AS WE LL AS DISALLOWANCE OF ABOVE INTEREST. 4. THE CIT(A) GIVEN THE FINDINGS THAT THE DISALLOWA NCE OF DEPRECIATION WAS JUSTIFIED SINCE THE ASSESSEE HAS ALREADY A DMITTED BEFORE THE ASSESSING OFFICER THE DISALLOWANCE OF DEPRECIATI ON. FURTHER, HE CONFIRMED THE NON ALLOWABILITY OF INTEREST ON THE REA SON THAT ASSESSMENT WAS REOPENED TO CONSIDER THE ISSUE RELATING TO NO N OFFERING OF HIRE CHARGES RECEIPT ON ACCRUAL BASIS AND THE REOPENIN G IS NOT FOR THE BENEFIT OF THE ASSESSEE. HENCE, THE ASSESSEE IS IN APPEAL B EFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE MAIN CONTENTION OF THE ASSESSEE COUNSEL IS THAT SINCE THE ASSESSING OFFICER BROUGHT THE HIRE RECEIPTS TO TAX BY MODI FYING THE SYSTEM OF ACCOUNTING, ON THE SAME PRINCIPLES, THE CLAIM OF THE PAYMENT OF INTEREST TO THE PARTNERS TO BE ALLOWED. OTHERWISE I T AMOUNTS TO MISCARRIAGE OF JUSTICE. THE AUTHORIZED REPRESENTATIVE SU BMITTED THAT WHEN THE ASSESSING OFFICER DISTURBED THE ACCOUNTING SYSTEM O F ASSESSEE AND DETERMINED THE INCOME ON THE BASIS OF THE MERCANTI LE SYSTEM OF ACCOUNTING, THE ASSESSING OFFICER ON THE SAME BASIS SHALL ALL OW THE 3 3 PAYMENT OF INTEREST TO THE PARTNERS, OTHERWISE IT REF LECT THE DISTORT PICTURE OF THE ASSESSEE BUSINESS RESULTS. FURTHER HE SUBMIT TED THAT THE JUDGEMENT IN THE CASE OF CIT VS. SUN ENGINEERING WORKS P. LTD. (198 ITR 297) (SC) CANNOT BE APPLIED TO THE PRESENT FACTS OF THE CASE WHEREIN IT WAS HELD THAT UNCONNECTED ISSUES WITH ESCAPEMENT OF INCOM E CANNOT BE ENTERTAINED IN THE REASSESSMENT PROCEEDINGS. HE SUBMI TTED THAT IN THE PRESENT CASE, THE REOPENING OF ASSESSMENT IS RELATING T O THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. ACCORDING TO THE A SSESSEE COUNSEL, ALLOWABILITY OF INTEREST TO PARTNERS ON ACCRUAL BASIS IS ALSO RELATING TO THE ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE HENCE THIS IS TO BE CONSIDERED BY THE ASSESSING OFFICER. 6. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTAT IVE STRONGLY OPPOSED THE CLAIM OF THE ASSESSEE AND HE RELIED O N THE FOLLOWING JUDGMENTS: 1. CIT VS. SUN ENGINEERING WORKS P. LTD. (198 ITR 29 7) (SC) WHEREIN IT WAS HELD THAT : REVERSING THE DECISION OF THE HIGH COURT, THAT IN REASSESSMENT PROCEEDINGS, IT WAS NOT OPEN TO THE ASSESSEE TO SEE K A REVIEW OF CONCLUDED ITEMS UNCONNECTED WITH THE ESCAPEMENT OF INCOME FOR THE PURPOSE OF COMPUTATION OF THE INCOME ESCAPING ASSES SMENT, AND, THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT T HE RESPONDENT WAS NOT ENTITLED TO REAGITATE THE QUESTION OF THE SET O FF OF LOSSES IN THE REASSESSMENT PROCEEDINGS. 2. CHETTINAD CORPORATION (P) LTD. VS. CIT (SC) ( 200 ITR 320) WHEREIN IT WAS HELD THAT: REOPENING AN ASSESSMENT COULD ONLY BE FOR THE BENE FIT OF THE REVENUE AND ALL ITEMS OF DISALLOWANCE OR RELIEF CLAIMED BY THE ASSESSEE WHICH ARE NOT RELEVANT TO THE ITEMS WHICH ARE THE SUBJECT MATTER OF ENQUIRY DURING REASSESSMENT CANNOT BE CONSIDERED AT THE STA GE OF REASSESSMENT. 3. SHRI K. SUDHAKAR S. SHANBHAG VS. ITO (241 ITR 865) ( BOM. HC) WHEREIN IT WAS HELD THAT: 4 4 DISMISSING THE PETITION, THAT THE PETITIONER COULD NOT CLAIM THAT THE ITO SHOULD COMPLETE PROCEEDINGS FOR REASSESSMENT OF ESC APED INCOME AND REDUCE INCOME TAX LIABILITY OF THE PETITIONER BELOW THE AMOUNT OF THE ADVANCE TAX PAID BY HIM WHICH HAD ATTAINED THE CHAR ACTER OF TAX PAID BY HIM ON THE INCOME OF THOSE YEARS. THE PETITIONE R WAS NOT ENTITLED TO ANY RELIEF 6. WE HAVE CAREFULLY GONE THROUGH THE CASE LAWS CITED BY THE DEPARTMENTAL REPRESENTATIVES. THE PROCEEDINGS U/S 147 A RE FOR THE BENEFIT OF THE REVENUE AND NOT FOR AN ASSESSEE AND ARE AIMED AT ASSESSING ESCAPED INCOME OF AN ASSESSEE THE SAME CANNOT BE ALL OWED TO BE CONVERTED AS REVISION' OR REVIEW PROCEEDINGS AT THE INSTANCE OF THE ASSESSEE, THEREBY MAKING THE MACHINERY UNWORKABLE. IN PROCEEDINGS U/S 147, THE ASSESSING OFFICER MAY BRING TO TA X ITEMS OF INCOME WHICH ARE ESCAPED ASSESSMENT OTHER THAN OR IN ADDIT ION TO THAT ITEM/S WHICH HAVE LEAD TO THE ISSUANCE OF NOTICE U/S 148 OF THE IT ACT AND WHERE REASSESSMENT IS MADE U/S 148 IN RESPECT OF INCOM E WHICH HAS ESCAPED TAX, THE ASSESSING OFFICERS JURISDICTION IS CONFI NED TO ONLY SUCH INCOME WHICH HAS ESCAPED TAX OR HAS BEEN UNDER ASSESSED AN D DOES NOT EXTEND TO REVISING, REOPENING OR RECONSIDERING THE WHOLE ASSESSMENT OR PERMITTING THE ASSESSEE TO AGITATE QUESTIONS WH ICH HAD BEEN DECIDED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. IT I S ONLY THE UNDER ASSESSMENT WHICH IS SET ASIDE AND NOT THE ENTIRE ASSESSM ENT WHEN THE REASSESSMENT PROCEEDINGS ARE INITIATED. THE ASSE SSING OFFICER CANNOT MAKE ORDER OF REASSESSMENT INCONSISTENT WITH THE ORI GINAL ORDER OF ASSESSMENT IN RESPECT OF MATTER WHICH IS NOT SUBJECT MATTE R OF PROCEEDINGS U/S 147. AN ASSESSEE CANNOT RESIST VALIDLY ON TH E INITIATED REASSESSMENT PROCEEDINGS UNDER THIS SECTION MERELY BY SHOW ING THAT OTHER EXPENDITURE ALSO NOT CLAIMED BY THE ASSESSEE. THE WORDS SUCH INCOME IN SECTION 147 CLEARLY REFERRED TO INCOME WHICH IS CHARGEABLE TO TAX BUT AS ESCAPED ASSESSMENT AND THE ASSESSING OFFICERS JURI SDICTION UNDER THE SECTIONS CONFINED TO ONLY SUCH INCOME WHICH HAS ESCA PED 5 5 ASSESSMENT. IT DOES NOT EXTENT TO RECONSIDER GENERALLY TH E CONCLUDED ASSESSMENT. CLAIMS WHICH HAVE BEEN NOT MADE IN THE ORIG INAL ASSESSMENT CANNOT BE PERMITTED TO BE AGITATED ON THE REA SSESSMENT BECAUSE THE ISSUE OF REASSESSMENT IS CONFINED TO MATTERS WHICH ARE RELEVANT ONLY IN RESPECT OF THE INCOME WHICH HAD NOT BE EN BROUGHT TO TAX DURING THE COURSE OF THE ORIGINAL ASSESSMENT. A MAT TER NOT AGITATED IN THE CONCLUDED ORIGINAL ASSESSMENT OR ORIGINAL RETURN CA NNOT BE PERMITTED TO BE AGITATED IN THE REASSESSMENT PROCEEDINGS UNLESS RELATABLE TO THE ITEM SOUGHT TO BE TAXED AS ESCAPED IN COME. IN THE REASSESSMENT PROCEEDINGS FOR BRINGING TO TAX ITEM WHICH HA D ESCAPED ASSESSMENT IT WOULD BE OPEN TO AN ASSESSEE TO PUT FORWARD CL AIM FOR ANY EXPENDITURE IN RESPECT OF THAT INCOME OR THE NON TAXAB ILITY OF THE ITEM AT ALL KEEPING IN VIEW OF THE OBJECT AND PURPOSE OF THE PROCEEDINGS U/S 147 WHICH ARE FOR THE BENEFIT OF THE REVENUE AND NOT FOR AN ASSESSEE. AN ASSESSEE CANNOT BE PERMITTED TO CONVERT REASSESSMENT PROCEEDIN GS AS HIS APPEAL OR REVISION, IN DISGUISE AND SEEK RELIEF IN R ESPECT OF THE ITEMS EARLIER REJECTED OR NOT CLAIMED IN THE ORIGINAL PROCEE DINGS UNLESS RELATABLE TO ESCAPED INCOME AND RE AGITATED THE CONCLU DED MATTERS. THE INCOME FOR PURPOSE OF REASSESSMENT CANNOT BE REDUCED BEYOND THE INCOME ORIGINALLY ASSESSED. ALL THE JUDGMENTS RELIED BY THE DR SUPPORTS OUR VIEW , ACCORDINGLY, WE ARE OF THE OPINION THAT T HE ASSESSEE NOT ENTITLED TO CLAIM THE IMPUGNED INTEREST IN THE REASSESSM ENT PROCEEDINGS. HOWEVER, WE MAKE IT CLEAR THAT THE HIRE RE CEIPTS WHICH IS CONSIDERED IN THIS ASSESSMENT YEAR ON ACCRUAL BASIS CANNOT B E CHARGED TO TAX ONCE AGAIN IN ANY ASSESSMENT YEAR ON ACTUAL RECEIP T BASIS. 7. REGARDING ALLOWABILITY OF DEPRECIATION, THE ASSESSEE ALREADY ADMITTED DISALLOWANCE OF DEPRECIATION BEFORE THE ASSESSING OFFICER IN HIS LETTER DATED 13.3.2008. NOW, ONCE AGAIN CANNOT RAISE THIS GROUND SINCE THERE IS NO GRIEVANCE TO THE ASSESSEE AND IT IS A ADMITTE D ADDITION. THIS GROUND IS DISMISSED. 6 6 8. FURTHER, THE ASSESSEES GRIEVANCE IS THAT IN THE NEXT ASSESSMENT YEAR THE ASSESSING OFFICER SHALL CONSIDER CLOSING WRI TTEN DOWN VALUE OF THE TRUCK IN THIS ASSESSMENT YEAR I.E., W RITTEN DOWN VALUE AFTER CONSIDERING THE DEPRECIATION AS PER THE ASSESSI NG OFFICE, AS OPENING WRITTEN DOWN VALUE IN THE NEXT ASSESSMENT YEAR . ON THE OTHER HAND, THE ASSESSING OFFICER HAS CONSIDERED THE WRITTEN DOWN VALUE AS PER BOOKS OF THE ASSESSEE WHICH WAS AFTER CLAIMING FULL DEPRE CIATION THOUGH FULL DEPRECIATION WAS NOT GRANTED TO THE ASSESSEE. WE FI ND MERIT IN THIS ARGUMENT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER T O CONSIDER THE CLOSING WRITTEN DOWN VALUE OF THIS ASSESSMENT YEAR AFTER DEDUCTING THE ACTUALLY GRANTED DEPRECIATION AS PER ASSESSING OFFICER AND THE SAME TO BE CONSIDERED AS OPENING WRITTEN DOWN VALUE OF THE TRU CK IN THE NEXT ASSESSMENT YEAR. ONCE THE ASSESSING OFFICER NOT GRANTED TH E DEPRECIATION ON THE TRUCK AS PER THE CLAIM OF THE ASSESSEE AND SUBSTITUTED DEPRECIATION AS PER HIS VIEW, THE SAME TO BE CONSIDERED FOR ALL PURPOSES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 19.3.2010 SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER(SMC) DATED THE 19 TH MARCH, 2010 7 7 COPY FORWARDED TO: 1. M/S K.G.M. GUPTA & CO., CAS, 10/67, GANDHI ROAD, C HITTOOR 2. ITO, WARD NO.1 MADANAPALLE 3. CIT(A)- TIRUPATHI. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP