SHRI JAYESH P. CHOKSI, V. THE ACIT CIR 21(1),

ITA 1839/MUM/2005

• Counselvise Citation: 183919914 RSA 2005
• Duration Of Justice: 6 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 07-06-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 10-03-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHAHI
• Assessee Lawyers: R V SHAH
• Keywords: Reopening of assessment; Reassessment proceedings
• Section: 143(3); 14A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.1839/MUM/2005(A.Y. 1998-99) SHRI JAYESH P. CHOKSI, GUFIC HOUSE, SUBHASH ROAD A, VILE PARLE (E), MUMBAI 57. PAN:AACPC 001D (APPELLANT) VS. THE ACIT CIR. 21(1), C-.10, B.K.C, BANDRA (E), MUMBAI 51. (RESPONDENT) ITA NO.1769/MUM/2005(A.Y. 1998-99) THE ACIT CIR. 21(1), C-.10, B.K.C, BANDRA (E), MUMBAI 51. (APPELLANT) VS. SHRI JAYESH P. CHOKSI, GUFIC HOUSE, SUBHASH ROAD A, VILE PARLE (E), MUMBAI 57. PAN:AACPC 001D (RESPONDENT) APPELLANTS BY : SHRI R.V.SHAH RESPONDENT BY : SHRI V.V.SHAHI ORDER PER BENCH, ITA NO.1839/M/05 IS AN APPEAL BY THE ASSESSEE WHI LE ITA NO.1769/M/05 IS APPEAL BY THE REVENUE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 31/12/2004 OF CIT(A) XXI, M UMBAI RELATING TO ASSESSMENT YEAR 1998-99. GROUND NO.1.1 AND 1.2 RAI SED BY THE ASSESSEE RELATING TO VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS CAN BE CONSIDERED FIRST. THESE GROUNDS READ AS FOLLOWS: ITA NO.1839 & 1769/MUM/2005(A.Y. 1998-99) 2 1.1 APPELLANT SUBMITS THAT REASSESSMENT ORDER UN DER SECTION 147 OF I.T. ACT BY INVOCATION OF SEC. 14A IS BAD IN LAW A ND THE ASSESSMENT MADE BE QUASHED AND THE DISALLOWANCE OF INTEREST BE SET ASIDE. 1.2 APPELLANT SUBMITS THAT REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE I.T. ACT IS WITHOUT JURISDICTION, NON-EST AN D BAD IN LAW. APPELLANT THEREFORE, PRAYS THAT ENTIRE ORDER PASSED BE STRUCK DOWN. 2. THE ASSESSEE IS AN INDIVIDUAL. THE ASSESSEE DER IVES INCOME FROM BUSINESS CARRIED ON UNDER THE NAME JPC MACHINERY AN D EQUIPMENTS. THE ASSESSEE FILED RETURN OF INCOME FOR A.Y 1998-99 ON 1/4/1999 DECLARING TOTAL INCOME OF RS.33,87,396/-. THE SAME WAS PROCESSED U NDER SECTION 143(1)(A) OF THE INCOME TAX ACT,1961(THE ACT) ON 3/7/2001. THE ASSESSING OFFICER ISSUED A NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 (THE ACT). THE REASONS RECORDED BY THE ASSESSING OFFICER FOR ISSUI NG NOTICE UNDER SECTION 148 OF THE ACT WERE AS FOLLOWS: THE ASSESSEE HAS FILED A RETURN OF INCOME FOR THE A.Y 98-99 VIDE RECEIPT NO. 000001 ON 1.4.99 DECLARING THE TOTAL IN COME AT RS. 33,87,396/-. IN THE SAID RETURN OF INCOME THE ASSE SSEE HAS NOT SHOWN ANY PROFIT FROM M/S. RUSHABH COMPLEX (OSHIWARA) PRO JECT. THE ASSESSEE HAS SHOWN RECEIPT OF ADVANCES OF RS. 7,96, 200/- DURING THE YEAR AND HAD ALSO SHOWN CONSTRUCTION COST AT RS. 90 ,28,559/-. AS IS DISCUSSED IN THE ASSESSMENT ORDER FOR A.Y 1997-98, THE PROJECT IS MORE THAN 85% COMPLETE. BUT SO FAR THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM THE SAID PROJECT. THUS, IT IS CLEAR THAT INCOME CHARGEABLE TO INCOME TAX HAS ESCAPED ASSESSMENT SINCE ASSESSEE HAS NOT SHOWN ANY PROFIT ON SALES MADE WHICH ARE SHOWN AS ADVANCES. 3. IN RESPONSE TO THE NOTICE U/S.148 OF THE ACT, T HE ASSESSEE REQUESTED THAT THE RETURN FILED ORIGINALLY MAY BE TREATED AS RETUR N FILED IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT. THEREAFTER TH E ASSESSING OFFICER PASSED AN ORDER DATED 28/3/2002 UNDER SECTION 143(3) R.W.S . 147 OF THE ACT IN WHICH HE SOUGHT TO MAKE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.44,33,567/- AND ADDED THE SAME TO THE TOTAL INCO ME OF THE ASSESSEE. IT ITA NO.1839 & 1769/MUM/2005(A.Y. 1998-99) 3 WAS THE CASE OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE HAD BORROWED LOANS AND HAD PAID INTEREST ON SUCH LOANS AND CLAIM ED THE SAME AS DEDUCTION WHILE COMPUTING ITS TAXABLE INCOME. ACCO RDING TO THE ASSESSING OFFICER THE BORROWED FUNDS ON WHICH INTEREST WAS PA ID WERE GIVEN AS INTEREST FREE LOANS TO THIRD PARTIES, MAKING INVESTMENT IN S HARES AND MAKING INVESTMENT IN LANDS, SHOPS, GARAGES AND FLATS. THE ASSESSING OFFICER MADE IMPUGNED DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14 A OF THE ACT. 3. BEFORE CIT(A) THE ASSESSEE CHALLENGED THE VALIDI TY OF INITIATION OF REASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT U NDER THE PROVISO TO SECTION 14A OF THE ACT THERE WAS A BAR TO INITIATE PROCEEDINGS UNDER SECTION 147 FOR REASSESSMENT TO MAKE DISALLOWANCE OF EXPENS ES U/S.14-A OF THE ACT, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE 1/4/ 2001. ON THE ABOVE SUBMISSION BY THE ASSESSEE BEFORE CIT(A) THE ASSESS ING OFFICER FURNISHED A COPY OF THE REASONS RECORDED AND SUBMITTED THAT THE ASSESSMENT PROCEEDINGS WERE SOUGHT TO BE REOPENED NOT WITH A VIEW TO MAKE DISALLOWANCE UNDER SECTION 14A OF THE ACT BUT FOR SOME OTHER REASON. ON CONSIDERING THE ABOVE SUBMISSIONS THE CIT(A) HELD THAT THERE WAS REASON T O BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND , THER EFORE, PROCEEDINGS UNDER SECTION 147 WERE VALIDLY INITITATED. IN THI S REGARD THE CIT(A) ALSO HELD THAT THE RETURN FILED BY THE ASSESSEE WAS ACCEPTED IN PROCEEDINGS UNDER SECTION 143(1)(A) OF THE ACT AND, THEREFORE, THERE WAS NO APPLICATION OF MIND. FURTHER THE CIT(A) ALSO HELD THAT PROVISO TO SECTIO N 14A WILL APPLY ONLY WHERE THERE IS ALREADY AN ASSESSMENT. SINCE THE ASSESSEE S RETURN OF INCOME WAS ORIGINALLY ACCEPTED UNDER SECTION 143(1)(A) OF THE ACT, HE HELD THAT THERE WAS NO PREVIOUS ASSESSMENT AND THAT THE PROCEEDINGS UND ER SECTION 147 WOULD BE THE FIRST ASSESSMENT. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E HAS RAISED GROUND NO.1.1 AND 1.2 BEFORE THE TRIBUNAL. ITA NO.1839 & 1769/MUM/2005(A.Y. 1998-99) 4 5. WE HAVE HEARD THE RIVAL SUBMISSION. AS CAN BE S EEN FROM THE NARRATION OF FACTS ABOVE THE ASSESSMENT WAS REOPENE D FOR THE REASON THAT THE ASSESSEE HAD NOT SHOWN ANY PROFIT FROM RUSHEBH COMP LEX (OSHIWARA) PROJECT. ADMITTEDLY IN THE REASSESSMENT PROCEEDING S NO ADDITION WAS MADE IN THIS REGARD. IT IS THE PLEA OF THE ASSESSEE BE FORE US THAT WHEN AN ASSESSMENT IS REOPENED FOR ONE REASON BUT NO ADDITI ON IS MADE IN THE REASSMENT PROCEEDINGS IN RESPECT OF THAT REASON, TH EN, NO FURTHER ADDITION CAN BE MADE IN THE REASSESSMENT PROCEEDINGS. IN T HIS REGARD LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JET AIRWAYS INDIA LTD. , 331 ITR 326 (BOM), WHEREIN THE HONBLE BOMBAY HIGH COURT HELD THAT IF AO DOES NOT ASSESS INCOME FOR WHICH REASONS WERE RECORDED U/S 147 OF T HE ACT, HE CANNOT ASSESS OTHER INCOME U/S 147 OF THE ACT. THE HONBL E COURT OBSERVED THAT (I) S. 147 PROVIDES THAT THE AO MAY ASSESS THE INCOME W HICH HAS ESCAPED ASSESSMENT AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAP ED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION. EXPLANATION 3 TO S . 147 INSERTED BY F (NO. 2) ACT, 2009 W.R.E.F 1.4.1989 PROVIDES THAT THE AO MA Y ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE NOTWITHSTANDING TH E REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED (II) THE WORDS AND ALSO INDICATE THAT REASSESSMENT MUST BE WITH RESPECT T O THE INCOME FOR WHICH THE AO HAS FORMED AN OPINION A ND ALSO IN RESPECT OF ANY OTHER INCOME WHICH COMES TO HIS NOTICE SUBSEQUE NTLY. HOWEVER, IF THE AO ACCEPTS THE OBJECTION OF THE ASSESSEE AND DOES N OT ASSESS THE INCOME WHICH WAS THE BASIS OF THE NOTICE, IT IS NOT OPEN T O HIM TO ASSESSEE INCOME UNDER SOME OTHER ISSUE INDEPENDENTLY; (III) EXPLANATION 3 TO S. 147 WAS INSERTED TO SUPE RSEDE THE JUDGEMENTS IN VIPIN KHANNA 255 ITR 220 (P&H) & TRAVANCORE CEMENTS 305 ITR 170 (KER) WHERE IT WAS HELD THAT THE AO COULD NOT ASSESS INCO ME IN RESPECT OF ISSUES UNCONNECTED WITH THE ISSUE FOR WHICH THE NOTICE WAS ISSUED. HOWEVER, EXPLANATION 3 DOES NOT AFFECT THE JUDGEMENTS IN SHRI. RAM SINGH 306 ITR 343 (RAJ) & ATLAS CYCLE INDUSTRIES 180 ITR 319 (P&H) WHERE IT WAS HELD THAT IF THE AO ACCEPTED THAT THE REASONS FOR WHICH THE NOTICE WAS ISSUED ITA NO.1839 & 1769/MUM/2005(A.Y. 1998-99) 5 WERE NOT CORRECT, HE WOULD CEASE TO HAVE JURISDICTI ON TO PROCEED WITH THE REASSESSMENT; (IV) EXPLANATION 3 LIFTS THE EMBARGO INSERTED BY J UDICIAL INTERPRETATION ON THE MAKING OF A S. 147 ASSESSMENT IN RESPECT OF ITEMS N OT REFERRED TO IN THE RECORDED REASONS. HOWEVER, IT DOES NOT AND CANNOT O VERRIDE THE SUBSTANTIVE PART OF S. 147 THAT THE INCOME FOR WHICH THE NOTICE WAS ISSUED MUST BE ASSESSABLE . 6. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE IN THE LIGHT OF THE JUDGMENT OF THE HONBL E BOMBAY IN THE CASE OF JET AIRWAYS (I) LTD. (SUPRA). WE ARE OF THE VIEW F IND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PRESENT CASE THE RATIO LAI D DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF JET AIRWAYS INDIA LTD. (SUPRA) ARE SQUARELY APPLICABLE. AS WE HAVE ALREADY SEEN THAT THE ASSES SMENT WAS REOPENED FOR THE REASON THAT THE PROFITS OF THE RUSHABH COMPLEX (OSHIWARA PROJECT) WAS NOT SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME. ADMITTEDLY NO ADDITION WHATSOEVER WAS MADE IN RESPECT OF THE SAID INCOME. THE ASSESSING OFFICER HOWEVER, PROCEEDED TO MAKE AN ADDITION UNDER SECTIO N 14A OF THE ACT. THIS WAS CLEARLY BEYOND THE SCOPE OF THE PROCEEDINGS UND ER SECTION 148 OF THE ACT. THE ASSESSING OFFICER, THEREFORE, COULD NOT H AVE PROCEEDED TO MAKE THE IMPUGNED DISALLOWANCE UNDER SECTION 14A OF THE ACT. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CA SE OF RANBAXY LABORATORIES VS. CIT, ITA 148 OF 2008 DATED 3/6/20 11. THE HONBLE DELHI HIGH COURT FOLLOWED THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF JET AIRWAYS (SUPRA). IN THAT VIEW OF THE M ATTER WE HOLD THAT THE IMPUNGED DISALLOWANCE WAS BEYOND THE SCOPE OF THE P ROCEEDINGS UNDER SECTION 147 OF THE ACT. WE, THEREFORE, QUASH THE O RDER OF REASSESSMENT UNDER SECTION147 OF THE ACT. IN VIEW OF THE ABOVE, THE MERITS OF THE IMPUGNED ADDITION AS RAISED BY THE ASSESSEE AND THE REVENUE IN THEIR APPEALS ARE NOT TAKEN UP FOR CONSIDERATION. ITA NO.1839 & 1769/MUM/2005(A.Y. 1998-99) 6 7. IN THE RESULT, ITA NO.1839/M/05 IS ALLOWED WHILE ITA NO.1769/M/05 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15 TH DAY OF JUNE, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 15 TH JUNE.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.1839 & 1769/MUM/2005(A.Y. 1998-99) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 7/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 8/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER