ACIT 4(3)(1), MUMBAI V. KANTILAL CHHAGANLAL, MUMBAI

ITA 179/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0896 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 09-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: APURVA R SHAH
• Keywords: Reopening of assessment; Depreciation; Audit objection; Retrospective amendment; Cost of acquisition; Fair market value; Difference of opinion; Tax effect; Reason to believe; Change of opinion
• Section: 143(3); 234B; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6996/MUM/2016 ASSESSMENT YEAR: 2007 - 08 M/S KANTILAL CHHAGANLAL VIL CO CENTRE, A WING, 4 TH FLOOR. BEHIND GARWARE HOUSE, 8, SUBHASH ROAD, VILE PARLE (EAST), MUMBAI - 400057. VS. DY. COMMISSIONER OF INCOME - TAX, 4(3)(1), ROOM NO. 649, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 PAN NO. AABFK1047L APPELLANT RESPONDENT ITA NO. 179/MUM/2017 ASSESSMENT YEAR: 2007 - 08 ACIT - 4(3)(1), ROOM NO. 649, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI - 400020 VS. M/S KANTILAL CHHAGANLAL VIL CO CENTRE, A WING, 4 TH FLOOR. BEHIND GARWARE HOUSE, 8, SUBHASH ROAD, VILE PARLE (EAST), MUMBAI - 400057. PAN NO. AABFK1047L APPELLANT RESPONDENT ASSESSEE BY : MR. APURVA R. SHAH, AR REVENUE BY : MR. MANOJ KUMAR SINGH , DR DATE OF HEARING : 28 /0 8 /2018 DATE OF PRONOUNCEMENT: 19/11/2018 M/S KANTILAL CHHAGANLAL ITA NO. 6996/MUM/2016 & 179/MUM/2017 2 ORDER PER N.K. PRADHAN, AM THE CAPTIONED CROSS APPEALS - ONE BY THE ASSESSEE AND ONE BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 9 , MUMBAI [ IN SHORT CIT(A)] AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 6996/MUM/2016 ASSESSMENT YEAR: 2007 - 08 2. THE GROUNDS OF APPEAL FILED BY THE ASS ESSEE READ AS UNDER : 1. THE CIT(A) ERRED I N UPHOLDING A REOPENING OF A COMPLETE D ASSESSMENT BEYOND 4 YEARS AND ON AN ISSUE WHICH HAD BEEN DEALT WITH IN THE ORIGINAL ASSESSMENT U/S 143(3) AS WELL AS SUBSEQUENT 154 PROCEEDING AND WHICH WAS APPARENTLY MERELY BASED ON AUDIT OBJECTION AND NOT ON ANY NEW INFORMATION WHICH WAS NOT AVAILABLE EARLIER. 2. THE CIT(A) ERRED I N UPHOLDING THE TAXING OF THE APPELLANT ON SALE OF SHARES NOT AT THE STATED SALE CONSIDERATION BUT BASED ON FAIR MARKET VALUE OF T HE SHARES WITHOUT ASCRIBING ANY PROVISIONS IN THE INCOME TAX ACT WHICH WOULD AUTHORIZE THE SAID ACTION. 3. THE CIT(A) ERRED I N RECOGNISING THAT FOR A RUNNING CONCERN, VALUE IS TO BE DETERMINED ON YIELD BASIS AND NOTWITHSTANDING THAT, ADJUDICATING A CAPITAL G AINS CALCULATION BASED ON THE ASSET VALUE OF THE SHARES SOLD. 4. THE CIT(A) ERRED I N UPHOLDING TAXATION BASED ON THE NET ASSET VALUE OF THE SHARES SOLD AND WITHOUT ALLOWING ANY DEDUCTION FOR ILLIQUIDITY DISCOUNT SINCE THE SHARES SOLD WERE UNLISTED SHARES. M/S KANTILAL CHHAGANLAL ITA NO. 6996/MUM/2016 & 179/MUM/2017 3 3 . WE BEGIN WITH THE 1 ST GROUND OF APPEAL. THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2007 - 08 ON 31.10.2007 DECLARING TOTAL INCOME AT RS.1,60,96,170/ - . THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT U/S 143(3) ON 24.12 .2009 ASSESSING THE TOTAL INCOME AT RS.1,65,32,223/ - . THEREAFTER, THE AO PASSED AN ORDER U/S 154 ON 03.06.2011, REVISING THE TOTAL INCOME TO RS.1,76,89,020/ - . AGAIN THEREAFTER, THE AO ISSUED A NOTICE U/S 148 TO THE ASSESSEE ON 28.03.2014 WHICH WAS SERVED O N 31.03.2014. THE REASONS RECORDED BY THE AO WHILE REOPENING THE ASSESSMENT ARE REPRODUCED BELOW: THE ASSESSEE FIRM WAS HAVING 1500000 UNQUOTED EQUITY SHARES OF RS.10 EACH OF KANTILAL CHAGGANLAL SECURITIES P. LTD. (KCSPL) WHICH WAS SOLD TO ONE OF THE DIRECTOR MR. JAYESH K. SHETH OF KCSPL FOR RS.1,50,00,000/ - (AT COST PRICE). THE SALE PRICE OF RS.10/ - TAKEN BY THE ASSESSEE IS NOT CORRECT AS PER NET WORTH OF PER EQUITY SHARE OF KCSPL. THE ASSESSEE FIRM HAS TAKEN VALUE AS PER EPS WHICH IS NOT RELEVANT. TH ESE SHARES ARE UNQUOTED THEREFORE VALUE AS PER NET WORTH OF RS.65.57 SHOULD HAVE BEEN TAKEN FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. NET WORTH RESERVE AND SURPLUS AS ON 31.03.2006 9,75,51,258 NET CURRENT ASSETS 10,24,70,448 TOTAL 20,00,21,706 DIVIDEND BY NUMBER OF SHARES I.E. 3050700 E P S AS ON 31.03.2006 VALUE PER SHARE RS.65.57 M/S KANTILAL CHHAGANLAL ITA NO. 6996/MUM/2016 & 179/MUM/2017 4 HOWEVER, DEPARTMENT HAS TAKEN VALUE OF RS.9.22 PER E P S WHICH IS NOT CORRECT. OMISSION TO DO SO HAS RESULTED SHORT IN LEVY OF TAX OF RS.2,48,77,466/ - AS DETAILED BELOW: UNQUOTED E P S OF KCSPL 15,00,000 E P S @ 65.57 9,83,55,000 LESS: COST OF ACQUISITION 1,50,00,000 8,33,55,000 SHORT LEVY OF TAX @ 22.44% 1,87,04,862 INT. U/S 234B (4/07 TO 12/09) 61,72,605 TOTAL TAX EFFECT.. 2,48,77,467 IN VIEW OF THE ABOVE, I HAVE REASONS TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT TO THE TUNE OF RS.8,21,85,000/ - . FURTHER, THIS INCOME HAS ESCAPED ASSESSMENT BECAUSE OF FAILURE ON THE PART OF ASSESSEE TO TRULY AND FULLY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. IN ORDER TO BRING TO TAX ABOVE MENTIONED INCOME AS WELL AS AND ANY OTHER INCOME WHICH MIGHT HAVE ESCAPED ASSESSMENT, FOUND DURING THE COURSE OF PROCEEDINGS, NOTICE U/S 148 IS ISSUED. 4. IN APPEAL, THE LD. CIT(A) OBSERVED THAT THE NOTICE U/S 148 WAS ISSUED BY THE AO AFTER RECORDING REASONS IN THE ASSESSMENT ORDER AS ALSO REFLECTED IN THE ASSESSMENT ORDER. THE AO HAS ALSO CONSIDERED THE VARIOUS OBJECTIONS OF THE ASSESSEE AND PASSED A SPEAKING ORDER AGAI NST THE OBJECTION OF THE ASSESSEE. DURING THE APPELLATE PROCEEDINGS, NO ADDITIONAL REASONING HAS BEEN GIVEN BY THE APPELLANT FOR QUASHING 148 NOTICE. ON THE BASIS OF THE ABOVE REASONS, THE LD. CIT(A) HELD THAT NO INTERFERENCE IS CALLED FOR IN INVOKING SEC TION 147 OF THE ACT BY THE AO. M/S KANTILAL CHHAGANLAL ITA NO. 6996/MUM/2016 & 179/MUM/2017 5 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE AO HAS REOPENED THE ASSESSMENT AFTER FOUR YEARS AND ON AN ISSUE WHICH HAD BEEN DEALT WITH IN THE ORIGINAL ASSESSMENT U/S 143(3) DATED 24.12.2009 AS WELL AS IN SU BSEQUENT ORDER PASSED BY THE AO U/S 154 ON 03.06.2011. IT IS STATED THAT THE REASONS DO NOT SEEM TO INDICATE HOW THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ANY MATERIAL INFORMATION. THEREFORE, IT IS SUBMITTED BY HIM THAT THE SAID PROCEEDING IS MERELY A CHANGE OF OPINION BASED ON REVIEW OF THE SAME FACTS AND THAT WOULD NOT BE PERMITTED WHEN A PERIOD OF FOUR YEARS HAS ELAPSED SINCE THE END OF THE ASSESSMENT YEAR. RELIANCE IS PLACED BY HIM ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN K ELVINATOR OF INDIA REPORTED IN 320 ITR 561. 6. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. A PERUSAL OF THE REASONS RECORDED BY THE AO CLEARLY INDICATE THAT THE ASSESSEE - FIRM WAS HAVING 1500000 UNQUOTED EQUITY SHARES OF RS.10 EACH OF KCSPL WHICH WAS SOLD TO ONE OF THE DIRECTOR MR. JAYESH K. SHETH OF KCSPL FOR RS.1,50,00,000/ - (AT COST PRICE). THE AO IS OF THE OPINION THAT THE SALE PRICE OF RS.10/ - TAKEN BY THE ASSESSEE IS NOT CORRECT AS PER NET WORTH OF PER EQUITY SHARE OF KCSPL. FURTHER, THE AO IS ALSO OF THE OPINI ON THAT THESE SHARES, BEING UNQUOTED, THE VALUE AS PER NET WORTH OF RS.65.57 SHOULD HAVE BEEN TAKEN FOR THE COMPUTATION OF CAPITAL GAIN. THE AO HAS MENTIONED IN THE REASON THAT HOWEVER, THE DEPARTMENT HAS TAKEN VALUE OF RS.9.22 PER EPS WHICH IS NOT CORRE CT AND M/S KANTILAL CHHAGANLAL ITA NO. 6996/MUM/2016 & 179/MUM/2017 6 OMISSION TO DO SO HAS RESULTED IN SHORT LEVY OF TAX OF RS.2,48,77,466/ - . THUS THE AO HAS CONCLUDED THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT TO THE TUNE OF RS.8,21,85,000/ - . IN THE INSTANT APPEAL, AS MENTIONED EARLIER, THE AO COMPLET ED THE ASSESSMENT U/S 143(3) VIDE ORDER DATED 24.12.2009 ASSESSING THE TOTAL INCOME AT RS.1,65,32,223/ - . AN ADDITION WAS MADE FOR A SUM OF RS.13,200/ - IN RELATION TO SALE OF SHARES OF KCSPL DURING THE YEAR. THEN THE AO SERVED A NOTICE DATED 26.05.2011 TO T HE ASSESSEE SEEKING TO RECTIFY THE ABOVE COMPLETED ASSESSMENT AND THE SAME WAS DONE U/S 154 VIDE AN ORDER DATED 03.06.2011 RECOMPUTING THE CAPITAL GAIN ON SALE OF SHARES OF KCSPL. THE COMPLETED ASSESSMENT WAS SUBSEQUENTLY REOPENED VIDE A NOTICE DATED 28.03 .2014 - BEYOND THE PERIOD OF FOUR YEARS. AT THIS JUNCTURE, LET US DISCUSS BELOW THE POSITION OF LAW AND THE RELEVANT JUDICIAL PRONOUNCEMENT ON THE ABOVE ACTION TAKEN BY THE AO. 7.1 AS PER PROVISO TO SECTION 147, WHERE AN ASSESSMENT U/S 143(3) OR 147 HAS AL READY BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION U/S 147 IS POSSIBLE AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE P ART OF T HE ASSESSEE TO : (A) MAKE A RETURN U/S 139 OR IN RESPONSE TO A NOTICE U/S 142(1)/148; OR (B) DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. M/S KANTILAL CHHAGANLAL ITA NO. 6996/MUM/2016 & 179/MUM/2017 7 7.2 IN THE CASE OF DIL LTD. V. ACIT (2012) 343 ITR 296 (BOM), IT HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT THAT NOTWITHSTANDING THE RETROSPECTIVE AMENDMENT OF LAW, WHERE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL FACTS NECESSARY FOR ASSESSMENT, NOTICE CANNOT BE ISSUED AFTER FOUR YEARS. ONCE THE CASE IS EARLIER SCRUTINIZED AND ASSESSED U/S 143(3) AND FOUR YEARS HAVE PASSED SINCE THE END OF THE RELEVANT ASSESSMENT YEAR, THE CASE WILL BE COVERED BY THE CONDITION STIPULATED IN THE PROVISO TO SECTION 147 AND THE AO HAS TO A DDITIO NALLY RECORD THE FINDING NOT ONLY THE REASON TO BELIEVE ABOUT THE ESCAPEMENT OF CHARGEABLE INCOME BUT ALSO THE FACT THAT SUCH ESCAPEMENT IS ON ACCOUNT OF OMISSION OR COMMISSIONS ATTRIBUTABLE TO THE ASSESSEE CONCERNED. ALSO IN I.C.I.C.I. BANK LTD. V. K.J. RAO (2004) 268 ITR 203 (BOM), IT IS HELD THAT HAVING FURNISHED ALL MATERIAL FACTS, EVEN IF AN ASSESSEE ERRONEOUSLY CLAIMS HIGHER DEPRECIATION AND THE SAME WAS ALLOWED BY THE ASSESSING OFFICER, IT WILL NOT BE A CASE OF FAILURE TO DISCLOSE FULLY AND TRULY A LL MATERIAL FACTS. HENCE, ASSESSMENT CANNOT BE REOPENED BEYOND FOUR YEARS. FURTHER, IN HINDUSTAN PETROLEUM CORPORATION LTD. V. DEPUTY CIT (2011) 238 CTR 28 (BOM), IT IS HELD THAT THE ASSESSEE HAVING CLAIMED DEDUCTION U/S 80IA, IN RESPECT OF THE PROFITS MA DE BY ITS CAPTIVE POWER PLANT DISCLOSING COMPUTATION OF PROFITS AND EXPLAINING THE BREAK UP THEREOF AND DISCLOSED THE BASIS ON WHICH IT WAS CLAIMED DEDUCTION U/S 80IB, IN RESPECT OF THE REFINERY EXPANSION PROJECT AND LUBE UNIT, IT CANNOT BE SAID THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE M/S KANTILAL CHHAGANLAL ITA NO. 6996/MUM/2016 & 179/MUM/2017 8 FULLY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT AND THEREFORE, REOPENING OF ASSESSMENT BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT YEAR WAS NOT JUSTIFIED. IN CIT V. INDIAN FARMER S FERTILIZER CO - OP LTD . (2008) 171 TAXMAN 379 (DEL), IT IS HELD THAT WHERE THE REASONS RECORDED FOR REOPENING OF ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, DO NOT CONTAIN AN ALLEGATION THAT THE ASSESSEE HAD FAILED T O DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, THE NOTICE U/S 148 IS NOT VALID. EXAMINED ON THE TOUCHSTONE OF THE RATIO LAID DOWN IN THE CASES DELINEATED HEREINBEFORE, WE FIND THAT IN THE INSTANT CASE, THERE WAS NO FAILURE ON THE P ART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL FACTS NECESSARY FOR ASSESSMENT. IN FACT, THE AO HAS CATEGORICALLY MENTIONED IN THE REASONS RECORDED FOR REOPENING THE ASSESSMENT THAT HOWEVER, DEPARTMENT HAS TAKEN VALUE OF RS.9.22 PER EPS WHICH IS NOT C ORRECT. THUS THE MISTAKE IS NOT ON THE PART OF THE ASSESSEE . AS IN THE INSTANT CASE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR, NO ACTION CA N BE TAKEN BY THE AO U/S 147 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. THEREFORE, WE HOLD THE REASSESSMENT TO BE INVALID. AS THE REASSESSMENT IS HELD BY US TO BE INVALID, THERE IS NO NEED OF ADJUDICATING ON MERIT THE OTHER GROUND S OF APPEAL FILED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. M/S KANTILAL CHHAGANLAL ITA NO. 6996/MUM/2016 & 179/MUM/2017 9 ITA NO. 179/MUM/2017 ASSESSMENT YEAR: 2007 - 08 9. THE APPEAL FILED BY THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO RECOMPUTE THE LTCG FROM SALE OF UNQUOTED SHARES AFTER ADOPTING SALE VALUE OF SHARES AT RS.23.15 PER SHARE AS AGAINST RS.65.43 PER SHARE COMPUTED BY TH E AO. 10. AS WE HAVE HELD THE REASSESSMENT MADE BY THE AO TO BE INVALID, THERE IS NO MERIT IN THE ABOVE APPEAL FILED BY THE REVENUE. ACCORDINGLY, IT IS DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED, WHEREAS THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/11/2018. SD/ - SD/ - ( SANDEEP GASAIN ) (N.K. PRADHAN) J UDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 19/11/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI