Borneo Realship Ltd, Kolkata V. ITO, Wd-9(2), kolkata, Kolkata

ITA 1719/KOL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7888 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 22-11-2012
• Court: TRIBUNAL
• Department Lawyers: DI
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation; Tangible material; Difference of opinion; Assessment record; Change of opinion; Reassessment proceedings
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [BEFORE HONBLE SRI MAHAVIR SINGH, JM& HONBLE S RI SHAMIM YAHYA, AM ] ITA NO.1719/KOL/2012 ASSESSMENT YEAR : 2006-07 ( APPELLANT ) (RESPONDENT) BORNEO REALSHIP LTD., .-VS- I.T.O., WARD-9(2), KOLKATA KOLKATA (PAN: AABCB 0911 F) FOR THE APPELLANT SHRI SUBASH AGARWAL, ADVOCATE FOR THE RESPONDENT SHRI DIPANKAR MUKHOPADHYAY, JCIT, SR.DR DATE OF HEARING : 31.10.2014 DATE OF PRONOUNCEMENT : 05. 11.2014. ORDER PER SHRI SHAMIM YAHYA, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. C.I.T.(A)- VIII, KOLKATA DT. 27.09.2012 AND PERTAINS TO ASSESSMENT Y EAR 2006-07. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER :- 1. FOR THAT THE REOPENING OF ASSESSMENT U/S 147 OF THE ACT IS BAD IN LAW AND THE ASSESSMENT FRAMED VIDE ORDER DATED 8.9.2011 IS BAD IN THE EYE OF LAW AND IS LIABLE TO BE QUASHED. 2. FOR THAT THE RE-ASSESSMENT ORDER DATED 08.09.201 1 FRAMED U/S 147/143(3) IS VOID AND NULLITY IN THE EYE OF LAW AS THE RECORDED REASONS A RE INVALID AND IMPROPER. 3. FOR THAT THE RE-OPENING OF ASSESSMENT FOR A.Y.20 06-2007 IS BAD IN LAW AND IS BEYOND JURISDICTION IN AS MUCH THE ASSESSMENT HAS BEEN REO PENED ON MERE CHANGE OF OPINION ON THE SAME SET OF FACTS. 4. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF EXPENDI TURE UPTO 50% OUT OF THE TOTAL DISALLOWANCE OF RS.12,72,359/- MADE BY THE A.O. ON ACCOUNT OF ADMINISTRATIVE EXPENSES. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. ITA.NO.1719/K/2012 BORN EO REALSHIP LTD. A.YR.2006-07 2 3. IN THIS CASE THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT ON 06.05.2008. SUBSEQUENTLY THE CASE WAS REOPENED ON T HE BASIS OF THE FOLLOWING REASONS RECORDED :- IN THE INSTANT CASE, ASSESSMENT FOR THE A.Y.2006-0 7 WAS COMPLETED U/S 143(3) OF THE ACT ON 06.05.2008 COMPUTING TOTAL INCOME AT RS.12,7 2,358/-. SUBSEQUENTLY ON GOING THROUGH THE ASSESSMENT RECORD OF THE ASSESSEE, IT W AS NOTICED THAT DURING THE PREVIOUS YEAR THE ASSESSEE HAD NO BUSINESS ACTIVITY LIKE PUR CHASE OR SALE OF STOCK. THE ASSESSEE HAD ONLY INCOME FROM CAPITAL GAIN ARISEN ON SALE OF PROPERTIES AND RECEIPT OF INTEREST. EXPENDITURE LIKE BROKERAGE ETC INCIDENTAL TO SALE O F CAPITAL ASSETS HAD BEEN ALLOWED AS DEDUCTION WHILE COMPUTING CAPITAL GAIN. THUS COMPUT ATION OF LOSS FROM BUSINESS BY ALLOWING DEDUCTIONS OF ADMINISTRATIVE EXPENSES WAS IRREGULAR AS THERE HAD BEEN NO BUSINESS ACTIVITY DURING THE PREVIOUS YEAR. THEREFO RE ALLOWANCE OF BUSINESS LOSS IN THE COMPUTATION OF TOTAL INCOME RESULTED IN THE UNDERAS SESSMENT OF INCOME OF RS.12,72,359/- AND UNDERCHARGE OF TAX OF RS.4,28,27 6/-. THUS IT IS CLEAR THAT THE ASSESSEE HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THAT ASSESSMENT YEAR. THEREFORE I HAVE REASONS TO B ELIEVE THAT THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE A. Y.2006-07 WITHIN THE MEANING OF SECTION 147 OF THE ACT. 3.1. IN THE REASSESSMENT PROCEEDINGS THE ASSESSEE I N THIS REGARD HAS SUBMITTED AS UNDER BEFORE THE AO :- 1) IT IS ALLEGED THAT AS THERE WAS NO BUSINESS ACT IVITY, ADMINISTRATIVE EXPENSES TO THE EXTENT OF RS.1272359 IS NOT ALLOWABLE & HENCE SETTI NG OF THE SAID LOSS AGAINST INCOME FROM CAPITAL GAIN WAS ILLEGAL. IN THE REGARD IT IS SUBMITTED THAT IT IS A MATTER ON RECORD THAT THERE WAS INCOME FROM OPERATION TO THE TUNE OF RS.18000/- WHICH IS APPARENT FROM THE BALANCE SHEET. THEREFORE IT IS INCORRECT TO HOL D THAT THERE WAS NO BUSINESS ACTIVITY. FURTHER THE DETAILS OF ADMINISTRATIVE EXPENSES WHIC H CONSTITUTE THE TOTAL EXPENDITURE OF RS.1311261. WHICH AGAIN AFTER ADJUSTMENT OF INCOME OF RS.38902 (INCOME FROM OPERATION RS.18000 + MISC. INCOME OF RS.20902) COME S TO RS.1272359 IS DETAILED BELOW : AMOUNT (RS.) A) AUDIT FEES 4500 B) BANK CHARGES 12469 C) BOOKS & PERIODICALS 521 D) BROKERAGE & COMMISSION 11340 E) CONSULTANCY CHARGES 4408 F) CAR RUNNING EXP. 122301 G) CONVEYANCE EXPENSES 633 H) COURIER CHARGES 1750 I) DIRECTORS REMUNERATION 240000 J) SUBSCRIPTION 10667 K) ELECTRICITY CHARGES 45895 L) GENERAL EXPENSES 50470 M) INSURANCE CHARGES 57347 N) LEGAL EXP. 6083 O) LOSS ON EXCHANGE 400 P) POSTAGE & TELEGRAM 1175 ITA.NO.1719/K/2012 BORN EO REALSHIP LTD. A.YR.2006-07 3 Q) PRINTING & STATIONERY 3413 R) REPAIR & MAINTENANCE 329342 S) PROVIDENT FUND 17579 T) TRAVELING EXP. 57807 U) TELEPHONE EXP. 125220 V) REGISTRATION FEES 30277 W) DEPRECIATION 177663 (CLAIM IN BALANCE SHEET 830631 & ALLOWABLE AS PER I .TAX ACT 652968 HENCE THE DIFFERENCE CLAIM AS EXP) 2) FROM THE ABOVE YOU WILL KINDLY NOTICE ALL THE EX PENDITURE WERE ABSOLUTELY NECESSARY AND INCIDENTAL TO THE BUSINESS. IN THIS CONNECTION IT IS EMPHASIZED THAT EXPENDITURE LIKE AUDIT FEES, BANK CHARGES, DIRECTOR REMUNERATION, EL ECTRICITY CHARGES, GENERAL CHARGES, INSURANCE, LEGAL CHARGES, TELEPHONE, DEPRE CIATION & REPAIR & MAINTENANCE ETC. ARE REQUIRED TO BE INCURRED IRRESPECTIVE OF TH E SIZE OF THE BUSINESS. THERE IS NO OCCASION TO RAISE ANY DOUBT ABOUT REASONABLENESS TO INCUR SUCH EXPENDITURE. 3) YOUR KIND ATTENTION IS FURTHER DRAWN TO THE FACT THAT BROKERAGE & COMMISSION TO THE EXTENT OF RS.12544000 COMING UNDER THE HEAD ADMINIS TRATIVE EXPENDITURE DOES NOT FIND PLACE IN THE ABOVE DETAILS & THUS IT IS A MATTER ON RECORD THAT SUCH EXPENDITURE HAS NOT BEEN CLAIMED TWICE ONCE AGAINST BUSINESS INCOME & S ECONDLY AGAINST INCOME FROM CAPITAL GAIN. IT HAS BEEN ONLY CLAIMED FROM INCOME FROM CAPITAL GAIN. FURTHER I WOULD LIKE TO STATE THAT IN TAX COMPUTATION OF ASST.YEAR 2006-07 BROKERAGE & COMMISSION EXPENSES WAS ALSO ADDED BACK IN INCOME FROM BUSINES S & PROFESSION. THE DETAIL EXPLANATIONS OF ADMINISTRATIVE EXPENSES IS ATTACHED AS PER ANNEXURE-I. 4) FROM THE TOTALITY OF THE DISCUSSION MADE ABOVE. IT IS CLEAR THAT ADMINISTRATIVE EXPENDITURE TO THE TUNE OF RS.1311261 CLAIMED AGAIN ST BUSINESS INCOME IS ALLOWABLE EXPENDITURE WHICH AGAIN AFTER ADJUSTMENT OF INCOME OF RS.38902/- (INCOME FROM OPERATION & MISC INCOME) COMES TO RS.1272359 HAS BE EN LEGALLY ADJUSTED AGAINST INCOME FROM CAPITAL GAIN. THERE HAS, THEREFORE, BEE N NO UNDER ASSESSMENT OF INCOME LEADING TO UNDERCHARGE OF TAX. 3.2. HOWEVER, AO WAS NOT SATISFIED. HE PROCEEDED TO CONCLUDE AS UNDER :- THE SUBMISSION OF THE ASSESSEE HAS BEEN PERUSED WI TH REFERENCE TO MATERIAL FACTS OF THE CASE. THE EXPLANATION OF THE ASSESSEE IS NOT FOUND TO BE CONVINCING ON THE GROUND THAT DURING THE YEAR THE ASSESSEE HAD INCOME FROM LONG T ERM AND SHORT TERM CAPITAL GAINS OUT OF SALE OF PROPERTY AND EXPENSES RELATED TO EARNING SUCH INCOME LIKE BROKERAGE CHARGES HAS ALREADY BEEN ALLOWED AS DEDUCTION. APART FROM T HIS, NO OTHER ADMINISTRATIVE EXPENSES ARE ALLOWABLE, BEING NOT INCIDENTAL TO BUS INESS EXPENDITURE. THEREFORE, ADMINISTRATIVE EXPENSES TO THE EXTENT OF RS.12,72,3 59/- AS DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE IS NOT CONSIDERED AS BUSINE SS EXPENDITURE AND HENCE THE SAME IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. 3. AGAINST THE ABOVE ORDER ASSESSEE APPEALED BEFORE LD. CIT(A). IN THE APPEAL THE ASSESSEE CHALLENGED INITIATION OF THE PROCEEDINGS U /S 147 OF THE ACT AS WELL AS MERITS OF THE CASE. UPON ASSESSEES APPEAL LD.CIT(A) HELD THAT THE ISSUE OF REOPENING WAS JUSTIFIED AND THERE WAS NO CHANGE OF OPINION. ON ME RITS THE LD. CIT(A) ACCEPTED THE ASSESSEES SUBMISSION THAT THE TOTAL EXPENDITURE WA S NOT TO BE DISALLOWED. THE LD. ITA.NO.1719/K/2012 BORN EO REALSHIP LTD. A.YR.2006-07 4 CIT(A) PROCEEDED TO HOLD THAT THE DISALLOWANCE OF T HE EXPENDITURE SHOULD BE RESTRICTED TO 50% OF THE CLAIM OF THE ASSESSEE. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL B EFORE US. 4. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. AT THE OUTSET THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE REOPENIN G IN THIS CASE IS BAD IN AS MUCH AS THERE IS CHANGE OF OPINION BY THE AO WHICH IS NOT P ERMITTED. THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THERE IS NO LIVE LI NK IN THE REASON RECORDED FOR REOPENING AND ANY TANGIBLE MATERIAL FOUND. THE LD. COUNSEL FURTHER SUBMITTED THAT ON MERITS ALSO THE ISSUE IS IN FAVOUR OF THE ASSESSEE IN VIEW OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS GANGA PROPERTIES LTD. 1 99 ITR 94 (CAL.). THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORI TIES BELOW. 4.1. UPON CAREFUL CONSIDERATION IN THIS CASE WE NOT E THAT REOPENING WAS DONE IN THIS CASE ON THE GROUND THAT FROM THE ASSESSMENT RECORDS IT TRANSPIRED THAT COMPUTATION OF LOSS FROM BUSINESS BY ALLOWING DEDUCTION TOWARDS AD MINISTRATIVE EXPENDITURE WAS IRREGULAR AS THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR. NOW WE NOTE THAT IT IS THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT THE COMPUTATION OF LOSS FROM BUSINESS BY ALLOWING DEDUCTION OF ADMINISTRATIVE EX PENDITURE WAS EXAMINED BY THE AO. IT IS APPARENT FROM THE FACT THAT IN THE P&L A/ C SUBMITTED BY THE ASSESSEE THERE WAS MENTION OF INCOME FROM OPERATION AMOUNTING TO R S.18,000/-. FURTHERMORE ADMINISTRATIVE EXPENSES WERE DULY MENTIONED IN SCHE DULE 11 OF THE P&L A/C. IN THE ASSESSMENT ORDER U/S 143(3) OF THE ACT AO HAD DISCU SSED DISALLOWANCE OF LOSS OF WIND UP OF RS.2,00,000/- WHICH WAS INCLUDED IN THE LIST OF MISCELLANEOUS EXPENSES. AO HAS HELD THAT THE ASSESSEE HAS ADJUSTED THE SAID LOSS WITH LONG TERM CAPITAL GAIN FROM SALE OF LAND AND HELD THAT IT WAS NOT ALLOWABL E. IT WAS CLEARLY EVIDENT THAT AO WAS CONSCIOUS OF THE ADMINISTRATIVE EXPENSES CLAIME D BY THE ASSESSEE. AO HAS CHOSEN TO DISALLOW ONLY RS.2,00,000/- OF THE SAME. IT ALSO CANNOT BE SAID THAT ASSESSEES CLAIM OF ADMINISTRATIVE EXPENSES WAS TO BE DISALLOWED AT THE VERY FIRST GLANCE AS THE ASSESSEE HAS ALSO SHOWN INCOME FROM OPERATION. IN THIS VIEW OF THE MATTER THE ENTIRE ITA.NO.1719/K/2012 BORN EO REALSHIP LTD. A.YR.2006-07 5 EXPENDITURE CLAIMED IN ADMINISTRATIVE EXPENSES WAS NOT TO BE DISALLOWED APPARENTLY. THE HONBLE CALCUTTA HIGH COURT DECISION IN THE CAS E OF CIT VS GANGA PROPERTIES LTD. 199 ITR 94 ALSO SUPPORTS THE CASE OF THE ASSESSEE. THE ALLOWANCE OF 50% OF THE ADMINISTRATIVE EXPENDITURE BY THE LD. CIT(A) ON MER ITS IS ALSO A POINT THAT THE EXPENDITURE WAS NOT APPARENTLY DISALLOWABLE. HENCE AFTER DUE EXAMINATION AO HAS FORMED AN OPINION THAT NO FURTHER DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES IS REQUIRED. IN THESE CIRCUMSTANCES WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT THERE WAS CHANGE OF OPINION AND I N THIS VIEW OF THE MATTER REOPENING IS NOT SUSTAINABLE. IN THIS REGARD WE MAY REFER TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE CIT VS KELVINATOR OF INDIA LTD. 3 20 ITR 561 (SC) AND THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS M /S.EICHER LTD. 294 ITR 310 (DEL). THE HONBLE APEX COURT HAS HELD AS UNDER : IN CIT VS KELVINATOR OF INDIA LTD. 256 ITR 1 THE F ULL BENCH OF THE DELHI HIGH COURT WAS CONSIDERING A CASE OF REOPENING U/S 147 WITHIN 4 YEARS FROM THE END OF THE ASSESSMENT YEAR. THE COURT HELD THAT WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TERMS OF SECTION 143(3) OF THE ACT A PRESUMPTION CA N BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION OF MIND. IT WAS HELD THA T IF IT BE HELD THAT AN ORDER WHICH HAS BEEN PASSED PURPORTEDLY WITHOUT APPLICATION OF MIND WOULD ITSELF CONFER JURISDICTION UPON THE ASSESSING OFFICER TO REOPEN THE PROCEEDING WITHOUT ANYTHING FURTHER, THE SAME WOULD AMOUNT TO GIVING PREMIUM TO AN AUTHORITY EXER CISING QUASI-JUDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. IT WAS HELD THAT SEC TION 147 OF THE ACT DOES NOT POSTULATE CONFERMENT OF POWER UPON THE ASSESSING OFFICER TO I NITIATE REASSESSMENT PROCEEDINGS UPON A MERE CHANGE OF OPINION. ON APPEAL BY THE DEPARTMENT TO THE SUPREME COURT, H ELD DISMISSING THE APPEAL: THOUGH THE POWER TO REOPEN THE AMENDED S.147 IS MUC H WIDER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS REASON TO BE LIEVE FAILING WHICH S.147 WOULD GIVE ARBITRARY POWERS TO THE AO TO RE-OPEN ASSESSME NTS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE REASON TO RE-OPEN. THUS ON THE BASIS OF THE ABOVE DISCUSSION AND PRECE DENT WE ARE OF THE VIEW THAT THERE WAS CHANGE OF OPINION AND ACCORDINGLY THE REOPENING IS NOT VALID. 5. ON MERITS WE FIND THAT SINCE WE HAVE DECIDED IN FAVOUR OF THE ASSESSEE BY QUASHING THE REASSESSMENT THE ADJUDICATION OF THE I SSUE ON MERITS IS OF ACADEMIC INTEREST. HENCE WE ARE NOT ENTERING INTO THE SAME. ITA.NO.1719/K/2012 BORN EO REALSHIP LTD. A.YR.2006-07 6 6. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 05.11.2014. SD/- SD/- [ MAHAVIR SINGH ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 05.11.2014. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. BORNEO REALSHIP LTD., 27AB, ROYD STREET, KOLKATA-70 0016. 2 I.T.O., WARD-9(2), KOLKATA. 3 . CIT(A)-VIII, KOLKATA. 4. CIT KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES