Dy. Commissioner of Income Tax, Circle-16(2), Hyderabad V. M/s Microcare Computers Private Limited, Hyderabad

ITA 1768/HYD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6675 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 04-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2013
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: A V RAGHURAM
• Keywords: Depreciation; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1 768 /H YD /201 3 ASSESSMENT YEAR: 20 0 7 - 08 ASST. COMMISSIONER OF INCOME TAX, CIRCL E - 16( 2), HYDERABAD VS M/S. MICROCARE COMPUTERS PVT. LTD., HYDERABAD [PAN: AA CCM4586C ] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI M. SITARAM , D R FOR ASSESSEE : SHRI A.V. RAGHU RAM , AR DATE OF HEARING : 0 4 - 0 4 - 201 6 DATE OF PRONOUNCEMENT : 13 - 0 4 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M. : TH I S IS AN APPEAL BY REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX ( APPEALS ) - V , HYDERABAD DATED 1 6 - 0 9 - 201 3 . 2. ASSESSEE IS A PRIVATE LIMITED COMPANY IN THE BUSINESS OF TRADING, LEASING AND SERVICES CONTRACTS IN COMPUTER S AND PERIPHERALS , FOR THE AY. 2007 - 08 FILED ITS RETURN OF INCOME ON I.T.A. NO. 1 768 / HYD / 20 1 3 M/S . MICROCARE COMPUTERS PVT. LTD., : - 2 - : 31 - 10 - 2007 ADMITTING INCOME OF RS. 1,36,10,940/ - . SUBSEQUENT L Y, CASE WAS SELECTED FOR SCRUTINY AND IN THE SCR UTINY ASSESSMENT , FOLLOWING THE STAND TAKEN BY THE ASSESSING OFFICER (AO) IN AY. 2005 - 06, THE TOTAL INCOME WAS DETERMINED AT RS. 74,90,853/ - . HOWEVER, THE SUCCESSOR AO ON NOTICING THAT THE TOTAL INCOME WAS DETERMINED LESSER THAN THE RETURNED INCOME, INITI ATED PROCEEDINGS U/S. 147 OF THE INCOME TAX ACT [ACT]. ASSESSEE FILED IT S RETURN OF INCOME ADMITTING THE TAXABLE INCOME AS DETERMINED BY THE ORDER U/S. 143(3). HOWEVER, AO WITHOUT ANY DISCUSSION ON THE ISSUE STARTED THE COMPUTATION FROM THE RETURNED INCO ME AND FURTHER DISALLOWED THE INTEREST PAYMENTS DISALLOWED U/S. 40(A)(IA) AT RS. 16,45,102/ - AND DEPRECIATION AT RS. 39,35,902/, ORIGINALLY DISALLOWED BY THE AO IN THE ORDER U/S. 143(3), THEREBY DETERMINED THE TOTAL INCOME AT RS. 1,91,91,941/ - . ASSESSEE C ONTESTED THE SAME BEFORE THE LD. CIT(A) . 2.1. GROUND NO.1 RAISED BEFORE LD.CIT(A) WAS WITH REFERENCE TO THE ADOPTION OF THE INCOME AT THE RETURNED FIGURE AS AGAINST THE INCOME RETURNED ON THE BASIS OF THE ASSESSMENT COMPLETED U/S. 143 DT. 29 - 12 - 2009. F OLLOWING ORDERS OF THE ITAT ON SIMILAR FACTS IN AY. 2006 - 07, LD. CIT(A) DIRECTED TO ADOPT INC OME AS RETUNED BY ASSESSEE, BUT HE WRONGLY MENTIONED THE AMOUNT AT RS. 58,45,750/ - INSTEAD OF RS. 74,90,853/ - ORIGINALLY ASSESSED. HE FU RTHER ADJUDICATED THE ISSU ES ON THE DISALLOWANCE U/S. 40(A)(IA) AND DEPRECIATION WHICH ARE ORIGINALLY COMPLETED U/S. 143(3) ON WHICH THERE IS NO CHALLENGE AND HAS BECOME FINAL. THE REVENUE HAS RAISED THE FOLLOWING GROUND S: 2. THE CIT(A) OUGHT TO HAVE OBSERVED THAT WHEN ISSUE OF NOTICE U/S. 148 IS NOT SUSTAINABLE IN THE EYES OF THE LAW, HOW CAN INCOME RETURNED IN RESPONSE TO NOTICE U/S. 148 HAS VALIDITY AND WITHOUT PROPER WORKING. I.T.A. NO. 1 768 / HYD / 20 1 3 M/S . MICROCARE COMPUTERS PVT. LTD., : - 3 - : 3. THE CIT(A) OUGHT TO HAVE OBSERVED THAT DEPRECIATION ON LEASED ASSETS WAS CLAIMED BY BHEL AND THE A SSESSEE - COMPANY. THIS LED TO DOUBLE CLAIM OF DEPRECIATION ON THE ASSET IN THE YEAR UNDER CONSIDERATION. 4. THE CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANCE MADE U/S. 40(A)(IA) SINCE THE CIT(A) IN THE ORDER PASSED FOR THE ASSESSMENT YEAR 2005 - 06 THE TRANS ACTION IN QUESTION AS FINANCIAL LEASE. 3. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSING THE RECORD, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) AS SUCH CANNOT BE FULLY CONFIRMED. TO TH E EXTENT OF INITIATION OF PROCEEDINGS U/S. 147 IS CONCERNE D, HE HAS FOLLOWED THE ITATS ORDER GIVEN IN AY. 2006 - 07 ON SIMILAR FACT S. TO THAT EXTENT, WE CONFIRME THE ORDER OF THE CIT(A) TO HOLD THAT THE PROCEEDINGS U/S. 147 ARE BAD IN LAW. FOR THE SAKE OF RECORD, THE RELEVANT PORTION IN THE ORDER OF ITAT FOR AY. 2006 - 07 IS REPRODUCED AS UNDER: 5. IN GROUND NO.1 TO 6, THE APPELLANT QUESTIONED THE VALIDITY OF REOPENING THE CASE ON THE GROUND THAT BY RECOMPUTING THE INCOME, I.E., ESTIMATING FINANCE CHARGE INCOME AT (29,87,268/ - AND REDUCTION OF LEASE RENTALS ADM ITTED AT FL,46,88,356/ - FROM THE TOTAL INCOME, HAS RESULTED IN UNDER ASSESSMENT OF INCOME. THIS METHOD WAS ADOPTED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT U/S 143(3), READ WITH SECTION 144A, DATED 29.12.2008. HOWEVER, AS THE INCOME ESTIMATED [B EFORE DISALLOWING DEPRECIATION AND 40(A)(IA)] WAS WELL BELOW THE INCOME ALREADY A DMITTED BY THE APPELLANT, THE PRESENT ASSESSING OFFICER OPINED THAT THERE IS ESCAPEMENT OF INCOME. IT IS ALSO WHEN THE APPELLANT ADMITTED THE INCOME ADOPTING THE SAME METHOD A S FOLLOWED BY THE ASSESSING OFFI CER IN THE 143(3) ORDER, THE ASSESSING OFFICER REJECTED THE SAM E AND ADOPTED THE INCOME OR I G IN ALLY ADM ITTED BY THE APPELLANT IN ITS RETURN OF INCOME AND COMPLETED THE REASSESSMENT. 5.1 IT IS THE ASSESSING OFFICER WHO CHAN G ED THE METHOD OF RECOGNITION OF INCOME ADOPTED BY THE ASSESSEE A ND PASSES AN ORDER U/S 143(3) READ WITH SECTION 144A, DATED 29.12.2008. THE METHOD OF RECOGNITION OF INCOME ADOPTED BY THE ASSESSING OFFICER WAS CONFIRMED BY THE FIRST APPELLATE AUTHORITY. IG NORING THE FACT THAT THIS METHOD WAS CONFIRMED BY THE FIRST APPELLATE AUTHORITY, THE ASSESSING OFFICER CHANGES HIS MIND ON THE GROUND THAT THIS RESULTED IN UNDERASSESSMENT OF INCOME, REOPENED THE ASSESSMENT. THIS CHANGE OF MIND BY THE ASSESSING OFFICER I.T.A. NO. 1 768 / HYD / 20 1 3 M/S . MICROCARE COMPUTERS PVT. LTD., : - 4 - : IS NOTHING BUT SEEKING THE APPELLANT FOR RECOMPUTATION OF INCOME AND REDOING OF THE ASSESSMENT WHICH HE FAILED TO MAKE AT THE TIME OF THE REGULAR ASSESSMENT, ESPECIALLY WHEN THE ASSESSMENT OF THE ASSESSEE HAD BECOME FINAL. 5.2 IN THE CASE OF SUN ENGINEERS REPORTED IN 198 ITR 297, IT WAS HELD THAT CLAIMS WHICH HAVE BEEN DISALLOWED (A PARTICULAR METHOD OF RECOGNITION OF INCOME ADOPTED BY THE ASSESSING OFFICER) IN ORIGINAL ASSESSMENT PROCEEDING CANNOT BE PERMITTED TO BE REAGITATED ON ASSESSMENT BEING REOPENED FOR BRINGING TO TAX CERTAIN INCOME WHICH HAD ESCAPED ASSESSMENT. IT WAS FURTHER HELD THAT A MATTER NOT AGITATED IN CONCLUDED ORIGINAL ASSESSMENT PROCEEDINGS ALSO CANNOT BE PERMITTED TO BE AGITATED IN REASSESSMENT PROCEEDINGS UNLESS RELATABLE TO ITEM SOUGHT TO BE TAXED AS 'ESCAPED INCOME'. IN THE CASE ON HAND, THE INCOME ADOPTED BY THE ASSESSING OFFICER BY FOLLOWING A PARTICULAR METHOD IN THE ASSESSMENT YEAR 2005 - 06 IS COMING BELOW THE INCOME ADMITTED BY THE APPELLANT FOR THE SUBJECT ASSESSMENT YEAR 2006 - 07 FOLLOWING THE SAME METHOD (WITHOUT ADDITIONS). HOWEVER, HERE THE ASSESSING OFFICER HAD LOST SIGHT OF THE EFFECT OF THE METHOD ADOPTED ON THE OTHER CLAIMS. IF THE RECEIPTS OF THE ASSESSEE ARE TREATED AS FINANCE RECEIPTS, THE APPELLANT WOULD NOT BE ELIGIBLE TO CLAIM DEPRECIATION AND THIS IN ANY WAY LEADS TO HIGHER INCOME THAN WHAT THE APPELLANT HAD ADMITTED IN THE ORIGINAL RETURN. AS SUCH, THERE IS NO ESCAPEMENT OF INCOME IN THE ORDER PASSED U/S 143(3), READ WITH SECTION 144A. IN THIS CONTEXT, RELEVANT PORTIO N OF THE DECISION OF THE APEX COURT REFERRED TO SUPRA IS REPRODUCED HEREUNDER: A S A RESULT OF THE AFORESAID DISCUSSION WE FIND THAT IN PROCEEDINGS UNDER SECTION 147 THE ITO MAY BRING TO CHARGE ITEMS OF INCOME WHICH HAD ESCAPED ASSESSMENT OTHER THAN OR IN ADDITION TO THAT ITEM OR ITEMS WHICH HAVE LED TO THE ISSUANCE OF NOTICE UNDER SECTION 148 AND WHERE REASSESSMENT IS MADE UNDER SECTION 147 IN RESPECT OF INCOME WHICH HAS ESCAPED TAX, THE ITO'S JURISDICTION IS CONFINED TO ONLY SUCH INCOME WHICH HAS ESCAP ED TAX OR HAS BEEN UNDER - ASSESSED AND DOES NOT EXTEND TO REVISING, REOPENING OR RECONSIDERING THE WHOLE ASSESSMENT'. 5.3 HOWEVER, IN THE CASE ON HAND, THE ASSESSING OFFICER DEPARTED FROM HIS EARLIER ASSESSMENT ORDER INASMUCH AS BY ADOPTING THE INCOME AD MITTED BY THE APPELLANT IN ITS RETURN OF IN ITS RETURN OF INCOME ORIGINALLY AND REVERSING THE METHOD OF INCOME ADOPTED BY HIM (TREATING THE T RANSACTIONS OF THE APPELLANT AS FINANCE TRANSACTI ONS) IN THE ORIGINAL 143(3) ORDER. THE ASSESSING OFFICER CANNOT MA KE AN ORDER OF REASSESSMENT INCONSISTENT WITH THE ORIGINAL ORDE R OF ASSESSMENT . 5.4 ALL THE ACTIONS OF THE ASSESSING OFFICER APPEAR TO HAVE EMANATED FROM THE FACT THAT FOR THE ASSESSMENT YEAR 2005 - 06 THE ASSESSING OFFICER TREATED THE BUSINESS TRANSACTIONS OF THE APPELLANT AS I.T.A. NO. 1 768 / HYD / 20 1 3 M/S . MICROCARE COMPUTERS PVT. LTD., : - 5 - : 'FINANCE TRANSACTIONS' AGAINST THE CLAIM OF 'LEASE TRANSACTIONS' AND THIS TREATMENT HAD THE EFFECT OF DISALLOWING DEPRECATION CLAIM OF THE APPELLANT. FOLLOWING THE SAME METHOD FOR THE SUBJECT ASSESSMENT YEAR ALSO, INITIALLY ORDER U/S 1 43(3) RWS 144A WAS PASSED. HOWEVER, THE ASSESSING OFFICER THANKING THAT THIS METHOD HAS THE EFFECT OF BRING DOWN THE INCOME BELOW THE ADMITTED INCOME FOR THE SUBJECT ASSESSMENT YEAR, REOPENED THE CASE AND REVERSED THE TREATMENT GIVEN IN THE ORIGINAL ORDER. THIS CHANGE OF OPINION BY THE ASSESSING OFFICER, WITHOUT VALIDLY DEMONSTRATING HOW THE INCOME HAS BEEN UNDER - ASSESSED IN THE ORIGINAL ORDER, CANNOT REDO THE ASSESSMENT. 5.5 ACCORDINGLY, THE REASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTION 147 IS NOT SUSTAINABLE IN THE EYES OF LAW AND THE ASSESSING OFFICER IS DIRECTED TO RESTORE THE INCOME DETERMINED CONSEQUENT TO GIVING EFFECT TO THE ORDER OF MY PREDECESSOR DATED 09.04.2010 AGAINST THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143(3) RWS 144A. 4. TH US, AS CAN BE SEEN FROM THE ABOVE, SIMILAR FACTS EXIST IN THIS YEAR ALSO AS THE ASSESSMENT WAS COMPLETED CONSEQUENT TO THE ACTI ON TAKEN IN AY. 2005 - 06, DISTURBING ASSESSEES BUSINESS TRANSACTIONS OF LEASE AS THAT OF FINANCE TRANSACTIONS. IN THE RESUL T, THERE WILL BE RE - STATEMENT OF INCOMES IN ASSESSMENT, WHICH THE SUCCESSOR AO CANNOT MODIFY THE SAME IN THE GUISE OF RE - ASSESSMENT BY TAKING A DIFFERENT VIEW. NOT ONLY THAT, AS SEEN FROM THE ASSESSMENT ORDER PASSED BY THE AO, THERE IS NO DISCUSSION AT A LL WHY HE IS ADOPTING THE INCOME RETURNED? IF IN CASE THE ORIGINAL FINANCE TRANSACTIONS ADOPTED BY THE AO IN AY. 2005 - 06 ARE NOT CORRECT, AND THEN AO IS EMPOWERED TO MODIFY THE SAME. BUT AS SEEN FROM THE ORDERS OF THE ITAT, THE ITAT FOLLOWING THE DECISI ON OF THE SPECIAL BENCH IN THE CASE OF INDUSIND BANK LTD., VS. ADDL. CIT [135 ITD 165] (SB) (MUMBAI) HAS CONFIRMED THE TRANSACTIONS ON FINANCIAL LEASE ONLY. CONSEQUENTLY, THE ACTION OF THE AO IN TREATING THE LEASE TRANSACTION S AND RE - WORKING THE LEASE / FI NANCE INCOMES HAS BECOME FINAL. CONSEQUENTLY, EFFECT IN THE LATER YEAR OF 2006 - 07 WAS ALSO UPHELD. I.T.A. NO. 1 768 / HYD / 20 1 3 M/S . MICROCARE COMPUTERS PVT. LTD., : - 6 - : ASSESSEE IN THIS YEAR HAS NOT CHALLENGED THE AOS ORDER U/S. 143 AS IT IS IN TUNE WITH THE STAND TAKEN BY AO IN AY. 2005 - 06 AND NO PREJUDICE WAS CAUSED TO ASSESSEE . EVEN OTHERWISE, AO IS NOT ENTITLED TO REVIEW HIS OWN ORDER TO COME TO A DIFFERENT CONCLUSION ON THE SAME SET OF FACTS. IN VIEW OF THIS, THE PROCEEDINGS INITIATED U/S. 147 ARE BAD IN LAW. MOREOVER, AS RIGHTLY POINTED OUT BY THE ITAT IN EARLIER YEAR, THOSE ISSUES WERE ALSO CONFIRMED BY CIT(A) AND ITAT IN EARLIER YEARS. THEREFORE, AO CANNOT D I F F ER FROM THOSE FINDINGS. IN VIEW OF THIS, TO THE EXTENT OF REOPENING OF THE ASSESSMENT, WE ARE AGREEING WITH THE LD. CIT(A) AND HOLD THAT THE REOPENING OF AS SESSMENT IS BAD IN LAW. C ONSEQUENTLY, THE ORDER U/S. 143 (3) GETS RESTORED. 5. WE ALSO NOTICE THAT LD. CIT(A) ADJUDICATED THE ISSUES WHICH DOES NOT ARISE IN THE ORDER U/S. 147 AND AROSE ORIGINALLY IN AN ORDER U/S. 143. CONSEQUENTLY, HIS DIRECTIONS ON GROUND NOS. 3 & 4 IN THE APPELLATE ORDER ON THE TWO DISALLOWANCE MADE BY AO IN 143 ORDER CANNOT BE UPHELD. THEREFORE, THE DIRECTIONS OF CIT(A) ON THE ISSUES CONTESTED IN GROUND NOS. 3 & 4 ARE ACCORDINGLY ALLOWED. 6. HOWEVER, AO IS DIRECTED TO EXAMINE THE ORDER U/S. 143 (3) , WHETHER THE SAME IS IN TUNE WITH THE DIRECTIONS/FINDINGS GIVEN IN AY. 2005 - 06 AND AY. 2006 - 07 . W ITH REFERENCE TO QUANTIFICATION OF FINANCIAL LEASES AFTER ADJUSTING THE SO CALLED CLAIM OF DEPRECIATION, IN CASE THE ORDER U/S. 143 (3) IS ON SIMILAR LINES, NO ACTION IS REQUIRED. OTHERWISE, AO IS DIRECTED TO PASS NECESSARY MODIFICATION ORDERS U/S. 154/155 IN THIS YEAR ALSO SO THAT THERE IS NO DOUBLE TAXATION OR DOUBLE ALLOWANCE OF CLAIMS/AMOUNTS I.T.A. NO. 1 768 / HYD / 20 1 3 M/S . MICROCARE COMPUTERS PVT. LTD., : - 7 - : INVOLVED. WITH THESE OBSERVATIONS, REVENUES APPEAL IS CONSIDERED PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH APRIL, 2016 SD/ - SD/ - (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 13 TH APRIL , 2016 TNMM COPY TO : 1. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 16 (2), 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, H YDERABAD. 2 . M/S. MICROCARE COMPUTERS PVT. LTD., 105, RATNA COMPLEX, NAGARJUNA NAGAR COLONY, AMEERPET, HYDERABAD. 3 . CIT(APPE ALS) - V , HYDERABAD. 4. CIT - I V , HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6 . GUARD FILE.