Pearl Retails Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 184/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6723 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 19-05-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 09-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRIT LAL SRDR
• Keywords: Business income; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 154

Judgement Text

ITA NO. 184/DEL/2014 1 1 BEFORE IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.D. AGRAWAL. VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEM BER ITA NO. 184/DEL/2014 ASSESSMENT YEAR: 2004 -05 PEARL RETAILS PVT. LTD VS. DY. CIT A-3, NARAINA INDUSTRIAL AREA CIRCLE -14(1) PHASE II, NEW DELHI NEW DELHI PAN AAACP 1255 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRADEEP DINODIA, FCA SHRI R.K.KAPOOR, FCA DEPARTMENT BY : SHRI AMRIT LAL, SR-DR DATE OF HEARING : 19.05.2016 DATE OF PRONOUNCEMENT : 29.07.2016 O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)- XVII, DELHI DATED 21.10.20 13 IN FIRST APPEAL NO. 355/11-12 PERTAINING TO A.Y 2004-05. ITA NO. 184/DEL/2014 2 2 2. THE ASSESSEE HAS RAISED AS MANY AS 6 GROUNDS OF APPEAL WHICH READS AS UNDER: 1. THAT THE LEARNED CIT (A) HAS ON FACTS AND IN LA W ERRED IN CONFIRMING THE ORDER U/S 147/ 143(3) OF THE INCOME TAX ACT, 1961 PASSED BY DCIT, CIRCLE 14 (1), NEW DELHI VIDE ORDER DATED 16/02/2011. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN NOT CONSIDERIN G THE WAIVER OF LOAN WRITTEN OFF AS BUSINESS INCOME UNDER 41(1) OF INCOMES TAX ACT 1961 AND THUS DENIED THE BENEFITS OF SET OFF OF BROUGHT FORWARDED LOSSES OF EARLIER YEAR AGAINST THIS INCOM E BY HOLDING ' INCOME FROM OTHER SOURCES ' 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED CIT (A) IS ERRED IN HOLDING THA T LOANS WRITTEN OFF BY CREDITORS COMPANY SHOULD BE ASSESSED AS 'INC OME FROM OTHER SOURCES' INSTEAD OF A BUSINESS INCOME. 4. THAT THE LEARNED CIT (A) HAS NOT PROPERLY APPREC IATED THE SUBMISSION MADE BEFORE HER IN ON LETTER DATED 06/09 /2013 AND 19/09/2013 AND UNJUSTIFIABLE CONFIRMED THE ORDER U/ S 147 / 143(3) OF THE INCOME TAX ACT, 1961 PASSED BY THE AS SESSING OFFICER. 5. THAT THE APPELLANT PRAYS THAT THE AMOUNT OF RS.5 0, 00,000/- ORDERED TO BE TREATED AS 'INCOME FROM OTHE R SOURCES' MAY BE ALLOWED TO TREAT AS 'INCOME FROM BUSINESS AN D PROFESSION' THUS ALLOWED THE BENEFITS OF SET OFF AG AINST INCOME FROM BROUGHT FORWARDED BUSINESS LOSSES. ITA NO. 184/DEL/2014 3 3 6. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITION , DELETION, AMENDMENT, MODIFICATION, RECTIFICATION AND/ OR WITH DRAW ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE THE DISPOSAL OF THE SAME TO PROTECT THE SUBSTANTIAL RIGHTS OF THE APPELLANT ASSESSEE. GROUND NO. 1 3. APROPOS GROUND NO. 1, WE HAVE HEARD THE RIVAL CO NTENTIONS AND HAVE PERUSED THE RELEVANT MATERIAL ON RECORD. BESID ES SEVERAL ALLEGATIONS MENTIONED IN THE WRITTEN SYNOPSIS DATED 12.5.2016 OF THE ASSESSEE, THE MAIN CONTENTION OF THE LD. AR IS THAT NO ACTION U/S 147 OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S 'THE ACT' FOR SHORT] CAN BE TAKEN AFTER EXPIRY OF FOUR YEARS FROM THE EN D OF THE RELEVANT A.Y UNLESS THERE IS A FAILURE ON THE PART OF THE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS RELEVANT FOR ASSESSMENT. THE LD. AR FURTHER CONTENDED THAT SOME NEW MATERIAL FACTS HAVE TO COME TO THE NOTICE OF THE A.O THAT INCOME CHARGEABLE TO TAX HAS ESCAPED A SSESSMENT IN THE ORDER BUT INITIATED REASSESSMENT PROCEEDINGS U/S 14 7 OF THE ACT AND FOR ISSUING NOTICE U/S 148 OF THE ACT. THE LD. AR CONT ENDED THAT NO NOTICE CAN BE ISSUED U/S 148 OF THE ACT IF ALL THE FACTS W ERE ALREADY AVAILABLE ON RECORD AND HAD ALSO BEEN EXAMINED AT THE STAGE O F ORIGINAL ASSESSMENT FRAMED U/S 143(3) OF THE ACT THAT WOULD TANTAMOUNT TO MERE CHANGE OF OPINION WHICH IS NOT PERMISSIBLE IN LAW. THE LD. AR ITA NO. 184/DEL/2014 4 4 NARRATING THE FACTS OF THE CASE SUBMITTED THAT THE ASSESSEE FILED ORIGINAL RETURN OF INCOME DATED 13.10.2004 DECLARIN G AN INCOME OF RS. 1,45,56,809/- WHICH INCOME HAD BEEN ADJUSTED AGAINS T BROUGHT FORWARD ASSESSED LOSS AND THE A.O PASSED ASSESSMENT ORDER U/S 143(3) OF THE ACT DATED 8.12.2006 AFTER DETAILED ENQUIRIES AND INVESTIGATIONS ON VARIOUS ISSUES AND RETURNED INCOME WAS ACCEPTED AT NIL THEREIN. THE LD. AR PLACING RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS CRAY RESEARCH INDIA LTD REPORTED AT TS-509- SUPREME COURT-2015 SUBMITTED THAT THE ASSESSEE IS R EQUIRED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS ONLY. IT IS NOT DUE TO THE ASSESSEE TO EXPLAIN OR INTERPRET THE LAW AND LEGAL INFERENCE FR OM THE SAID MATERIAL FACTS HAS TO BE DRAWN BY THE ASSESSEE FROM THE FACT S DISCLOSED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THE LD . AR LASTLY CONTENDED THAT FROM THE REASONS RECORDED, IT IS CLE AR THAT THE A.O MENTIONED THAT THE AMOUNT OF RS. 50 LAKHS NEEDS TO BE DISALLOWED WHICH THE ASSESSEE HAD RETURNED BACK DURING THE YEA R AND TREATED THE SAME AS BUSINESS INCOME OF THE ASSESSEE. THE LD. A R FURTHER POINTED OUT THAT THE AMOUNT OF RS. 50 LAKHS HAD BEEN INCLUD ED IN THE TAXABLE INCOME OF THE ASSESSEE AS HAS BEEN TAXED IN THE ORD ER PASSED U/S 143(3) OF THE ACT. THEREFORE, ASSESSMENT OF JURISD ICTION U/S 147 OF THE ACT WAS PASSED ON ERRONEOUS UNDERSTANDING OF FACTS WHICH IS BAD IN LAW ITA NO. 184/DEL/2014 5 5 AND CANNOT BE HELD AS SUSTAINABLE. THE LD. AR PLAC ED RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF ORIENTAL INSURANCE CO. LTD. VS. CIT REPORTED AT 378 ITR 421 [DEL] AND CONTENDED THAT REOPENING, BASED ON ERRONEOUS FACTS, IS ILLEGAL AND BAD IN LAW. 4. PER CONTRA, THE LD. CIT-DR STRONGLY SUPPORTED TH E ACTION OF THE A.O AND VEHEMENTLY CONTENDED THAT FROM THE ASSESSME NT RECORD, IT WAS REVEALED THAT INCOME DURING THE RELEVANT PREVIO US YEARS COMPRISED OF LOANS WRITTEN OFF OF PEARL GLOBAL LTD OF RS. 50 LAKHS WHICH IS COVERED UNDER INCOME FROM OTHER SOURCES, THEREFORE, THE A.O HAD REASON TO BELIEVE THAT INCOME TO THE TUNE OF RS. 50 LAKHS HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. THER EFORE, THE A.O WAS QUITE CORRECT AND JUSTIFIED IN INITIATING REASSESSM ENT PROCEEDINGS AND ISSUING NOTICE U/S 147/148 OF THE ACT. 5. ON CAREFUL CONSIDERATION OF THE ABOVE RIVAL SUBM ISSIONS, FIRST OF ALL, WE MAY POINT OUT THAT THE UNDISPUTEDLY AND ADM ITTEDLY, ORIGINAL RETURN WAS FILED ON 30.10.2004 FOR A.Y 2004-05 AND THE IMPUGNED REASONS AND NOTICE FOR INITIATION OF REASSESSMENT P ROCEEDINGS WAS RECORDED AND ISSUED ON 25.3.2011 I.E. BEYOND FOUR Y EARS OF THE TIME. ITA NO. 184/DEL/2014 6 6 THUS, AS PER MANDATE OF PROVISIONS OF SECTION 147 O F THE ACT, NO ACTION COULD HAVE BEEN TAKEN UNDER THIS PROVISION AFTER EX PIRY OF FOUR YEARS FROM THE END OF THE RELEVANT A.Y UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH A.Y FOR THE REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS NECESSARY FOR ASSESSMENT FOR THAT A.Y. IN THE PRES ENT CASE, THE A.O RECORDED THE FOLLOWING REASONS FOR INITIATION OF RE ASSESSMENT PROCEEDINGS: RETURN OF INCOME WAS FILED ON 30.10.2004 AT NIL I NCOME. THE SAME WAS PROCESSED U/S 143(1) AND THEREAFTER U/S 14 3(3) AT RETURNED INCOME. IT WAS REVEALED THAT THE INCOME DURING THE RELEVANT PREVIOUS YEAR COMPRISED LOANS WRITTEN OFF OF PEARL GLOBAL LT D OF RS. 50,00,000/- WHICH IS COVERED UNDER INCOME FROM OTH ER SOURCES WHICH SHOULD BE DISALLOWED. IN VIEW OF THE ABOVE, I HAVE REASONS TO BELIEVE THA T THE INCOME TO THE TUNE OF RS. 50,00,000/- HAVE ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE IT ACT, 1961. I AM ALSO SATISFIED THAT ON ACCOUNT OF FAILUR E ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL THE MATERIAL FACTS NECESSARY FOR ASSESSMENT FOR THE ABOVE ASSESS MENT YEAR, THE INCOME CHARGEABLE TO TAX TO THE TUNE OF RS.50,0 0,000/- HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTIO N 147 OF THE I.T. ACT, 1961. ITA NO. 184/DEL/2014 7 7 IN VIEW OF THE ABOVE, THE MAIN THRUST OF THE A.O IS THAT THE AMOUNT OF RS. 50 LAKHS LOANS WRITTEN OFF PERTAINING TO PEARL GLOBAL LTD IS COVERED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREA FTER, THE A.O PROCEEDED TO ALLEGE THAT HE IS SATISFIED THAT ON AC COUNT OF FAILURE ON THE PART OF THE A.O TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS IN THIS REGARD. IN THE PRESENT CASE, ORIGINAL ASSESSMENT H AS BEEN FRAMED U/S 143(3) OF THE ACT AFTER DUE SCRUTINY AND AFTER ALL DETAILS WERE FILED BEFORE THE A.O. WE ALSO OBSERVE THAT INCOME WRITTE N BACK AMOUNT HAS BEEN ASSESSED AS BUSINESS INCOME AND CLAIM FOR BROU GHT FORWARD LOSSES OF THE EARLIER YEARS HAS BEEN ALLOWED. WE ALSO ARE IN AGREEMENT WITH THE CONTENTION OF THE LD. AR THAT THE AMOUNT WRITTE N BACK AS LOAN HAS BEEN CAREFULLY ASSED BY THE A.O AS BUSINESS INCOME. THEREFORE, IT CANNOT BE ALLEGED AGAINST THE ASSESSEE THAT THE ASS ESSEE HAD NOT DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS REGARD ING THIS ISSUE DURING THE ASSESSMENT PROCEEDINGS. WE MAY ALSO POINT OUT THAT THE LD. COUNSEL OF THE REVENUE COULD NOT CONTROVERT THIS FA CT AND ANOTHER IMPORTANT ASPECT PERTAINING TO THE ISSUE AS CONTEND ED BY THE ASSESSEE THAT AFTER COMPLETION OF ASSESSMENT U/S 143(3) OF T HE ACT ON 8.12.2006. THE A.O ALSO ISSUED NOTICE U/S 154 OF T HE ACT AND WANTED TO CHANGE THE HEAD OF INCOME FROM IMPUGNED RETURNED BACK AMOUNT AND IN RESPONSE TO THE SAID NOTICE DATED 31.3.2010 REPLY DATED ITA NO. 184/DEL/2014 8 8 20.4.2010 WAS FILED BY THE ASSESSEE BUT THE A.O DID NOT TAKE ANY FURTHER ACTION IN THIS REGARD AND RECTIFICATION PRO CEEDINGS HAS BEEN DROPPED BY THE A.O. THE LD. AR VEHEMENTLY CONTENDE D THAT SUBSEQUENTLY, BY RESORTING TO PROVISIONS OF SECTION 147/148 OF THE ACT, THE A.O CHANGED HIS OPINION WHICH WAS TAKEN AT THE STAGE OF ORIGINAL ASSESSMENT BUT ALSO DURING RECTIFICATION PROCEEDING S WHICH WERE INITIATED AND DROPPED BY HIM. FROM THE COPY OF NOT ICE U/S 154 OF THE ACT AVAILABLE AT PAGES 21 TO 23 OF THE ASSESSEES P APER BOOK, IT IS AMPLY CLEAR THAT THE A.O ON 31.3.2010, ISSUED NOTIC E TO THE ASSESSEE SHOWING HIS INTENTION TO CONVERT HEAD OF INCOME FRO M BUSINESS INCOME TO INCOME FROM OTHER SOURCES PERTAINING TO IMPUGNED AMOUNT OF RS. 15 LAKHS COMPRISING LOANS WRITTEN OFF OF PEARL GLOBAL LIMITED AND THE ASSESSEE HAD ALSO FILED REPLY ON 20.4.2010 EXPLAINI NG THAT THE LOAN WAS GIVEN FOR BUSINESS CONSIDERATION AND THE AMOUNT WRI TTEN OFF WAS TREATED AS PROFIT U/S 41(1) OF THE ACT THEREFORE, IN THE ORIGINAL ASSESSMENT ORDER, THE A.O RIGHTLY TREATED THE SAME AS BUSINESS INCOME AND CONSEQUENTLY IT WAS ADJUSTED AGAINST BROUGHT FO RWARD BUSINESS LOSSES. IN VIEW OF THE ABOVE, WE ARE SATISFIED THA T THE A.O INITIATED REASSESSMENT PROCEEDINGS BEYOND FOUR YEARS PASSED O N ERRONEOUS FACTS THAT THE IMPUGNED AMOUNT HAD ALREADY BEEN OFFERED F OR TAX BY THE ASSESSEE AS BUSINESS INCOME WHEREAS THE A.O NOTED T HAT INCOME TO THE ITA NO. 184/DEL/2014 9 9 TUNE OF RS. 50 LAKHS HAS ESCAPED ASSESSMENT. WE MA Y ALSO POINT OUT THAT THE MAIN DISPUTE WAS REGARDING CHARGING OF THE SAID AMOUNT AS IN THE ORIGINAL ASSESSMENT PROCEEDINGS THE A.O TAXED T HE SAME AS BUSINESS INCOME WHEREAS IN THE REASSESSMENT PROCEED INGS THE A.O HAS SHOWN HIS INTENTION TO TAX THE SAME AS INCOME FROM OTHER SOURCES AND WE MAY ALSO POINT OUT THAT THE RECTIFICATION PROCEE DINGS U/S 154 OF THE ACT INITIATED BY THE A.O EARLIER WERE DROPPED AFTER CONSIDERING THE REPLY OF THE ASSESSEE. THEREFORE, WE DECLINE TO AC CEPT THE ALLEGATION OF THE A.O THAT THERE WAS FAILURE ON THE PART OF TH E ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR AS SESSMENT. THEREFORE, INITIATION OF REASSESSMENT PROCEEDINGS AND ISSUANCE OF NOTICE U/S 147/148 OF THE ACT CANNOT BE HELD AS SUSTAINABLE AN D VALID AND WE HAVE NOT HESITATION TO HOLD THAT THE SAME WAS NOT A VALID ASSESSMENT OF JURISDICTION AND IT WAS BAD IN LAW AND NOT SUSTA INABLE AND CONSEQUENTLY, LEGAL GROUND NO. 1 IS ALLOWED BY RESP ECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT VS. CRAY RESEARCH INDIA LTD [SUPRA] AND NOTICE U/S 148 OF THE ACT AS WELL AS CONSEQUENT ASSESSMENT ORDER DATED 16.12.201 1 ARE QUASHED. ITA NO. 184/DEL/2014 10 10 6. SINCE BY THE EARLIER PART OF THIS ORDER WE HAVE QUASHED THE ASSESSMENT ORDER AS WELL AS NOTICE ISSUED U/S 148 O F THE ACT, THEREFORE, GROUNDS OF THE ASSESSEE ON MERITS HAVE B ECOME ACADEMIC AND INFRUCTUOUS AND ACCORDINGLY WE DISMISS THE SAME AS HAVING BECOME INFRUCTUOUS. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D ON LEGAL GROUNDS. ORDER PRONOUNCED IN THE OPEN COURT ON 29.07.2016. SD/- SD/- (G.D. AGRAWAL) (CHANDRA MOHAN GARG) VICE PRESIDENT JUDICIA L MEMBER DATED : 29 TH JULY, 2016 VL/ COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT REGISTRAR, ITAT, NEW DELHI