M/s. THE RAJPUTANA STORES P. LTD., V. ACIT - 4(3),

ITA 1849/MUM/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65547 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 31-07-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 02-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: V RAJ KUMAR S
• Keywords: Reopening of assessment; Depreciation; Business expenditure; Search and seizure; Charitable institution; Proportionate interest; Tangible material; Difference of opinion; Change of opinion; Ignorance of law
• Section: 143(3); 14A; 37(1); 147; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.1786,1807 & 1849/DEL/2007 ASSESSMENT YEAR : 2001-02, 1999-2000 & 2000-01 M/S RAJPUTANA STORES (P) LTD., ACIT, (NOW JAIPURIA BEVERAGES & FOOD CIRCLE-4 (3), INDUSTRIES LTD), 16- K.G. MARG, MUMBAI. NEW DELHI. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AABCT AABCT AABCT AABCT- -- -7041 7041 7041 7041- -- -C CC C APPELLANT BY : SHRI K. SAMPATH & SHRI V. RAJKUMAR, ADVOCATES. RESPONDENT BY : SMT. ANUSHA KHURANA, SR. DR. ORDER PER TS KAPOOR, AM: THESE ARE THREE APPEALS FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS OF LD CIT(A) ALL OF DATED 24.11.2006. THE GR OUNDS TAKEN BY THE ASSESSEE IN ALL THE THREE APPEALS ARE SAME EXCEPT THE DIF FERENCE IN AMOUNT. ALL THESE APPEALS WERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE, THESE APPEALS ARE DISPOSED OFF BY A COMMON ORDER. AND FOR THE SAKE OF CONVENIENCE, GROUNDS OF APPEALS FOR TH E YEAR 1999-00 ARE REPRODUCED AS UNDER:- 1. THE LD CIT(A) GROSSLY ERRED IN LAW AS WELL AS ON FACTS I N CONFIRMING THE ACTION OF ASSESSING OFFICER OF USURPING T HE JURISDICTION U/S 147 AND 148 OF IT ACT WITHOUT SATISFAC TION OF ALL ITA NO1786,1807&1849/DEL/07 2 THE CONDITIONS NECESSARY AND ESSENTIAL FOR INVOKING THE SAID PROVISIONS AND ASSUMING THE JURISDICTION. 2. THE LD CIT(A) HAS ALSO ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN APPLYING THE PROVISIONS OF SECTION 14A OF THE IT ACT, 1961 AS THE PR OVISO TO THE SAID SECTION PROHIBITS THE ASSESSING OFFICER TO REASSESS U/S 14 7 OR PASS AN ORDER ENHANCING THE ASSESSMENT ORDER OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABI LITY OF THE ASSESSEE U/S 154 FOR ANY ASSESSMENT YEAR BEGINNING ON OR BE FORE THE IST DAY OF APRIL, 2001. 3. THE LD CIT(A) HAS FURTHER ERRED IN LAW AS WELL AS ON F ACTS IN UPHOLDING THE DISALLOWANCE OF THE INTEREST OF ` .14,70,554/- BY APPLYING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 . 4. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LD CIT(A ) HAS FURTHER ERRED IN CONFIRMING THE CALCULATIONS OF THE AMOUNT O F DISALLOWANCES MADE BY THE ASSESSING OFFICER AS AGAINST DISALLOWANCE WHICH SHOULD BE MADE PROPORTIONATELY ON THE AMOUNT OF EXEMPTED INCOME EARNED BY THE APPELLANT I N RELATION TO THE TOTAL INCOME EARNED BY THE APPELLANT. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUND OR GROUNDS ON OR BEFORE THE DATE OF HEARING. THE AMOUNT OF DISALLOWANCE OF INTEREST AS PER GROUND N OI.3 FOR ASSESSMENT YEAR 2000-01 IS ` .33,06,554/- AND FOR THE ASSESSMENT YEAR 2001-02 IS ` .36,51,254/-. 2. FROM THE CRUX OF GROUNDS OF APPEALS TAKEN BY THE A SSESSEE, IT CAN BE CONCLUDED THAT ASSESSEE HAD CHALLENGED THE REOPE NING OF ITA NO1786,1807&1849/DEL/07 3 ASSESSMENT U/S 147 SPECIFICALLY IN VIEW OF PROVISO TO SECTI ON 14A OF THE INCOME TAX ACT, 1961 . 3. THE BRIEF FACTS OF THE CASE ARE THAT RETURNS IN THE CASE OF THE ASSESSEE WERE FILED ON 6.12.1999, 23.11.2000 & 18.10.20 01 DECLARING LOSS OF ` .2,79,070/-, ` .38,58,350/- & ` .25,40,210/- IN RESPECT OF ASSESSMENT YEAR 1999-00, 2000-01 & 2001-02 RESPECTIVELY . THE ASSESSMENT ORDER IN THE YEAR 1999-00 AND IN THE YEAR 20 00-01 WERE COMPLETED U/S 143(1) WHEREAS IN THE YEAR 2001-02 THE ASSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 23.9.2003. ALL THE ABOVE THREE CASES WERE REOPENED U/S 147/148 OF THE ACT. IN V IEW OF THE FACT THAT ASSESSING OFFICER HAD NOTED THAT HUGE AMOUNTS OF IN TEREST WAS CLAIMED AS EXPENDITURE WHEREAS MAJOR PART OF BORROWED FUNDS WERE USED FOR PURCHASE OF SHARES IN A GROUP COMPANY. THEREFO RE, THE ASSESSING OFFICERS BELIEVED THAT PROPORTIONATE DISALLOWA NCE OF INTEREST SHOULD HAVE BEEN DONE AS PER PROVISIONS OF SECTION 14A OF THE ACT. FURTHER RELYING UPON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF AMRITABEN R. SHAH REPORTED IN 238 ITR 77 7, HE FORMED AN OPINION THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT AND THEREFORE PROCEEDINGS U/S 147/148 WERE NECESSARY. THER EFORE, IN VIEW OF ABOVE, NECESSARY NOTICES U/S 148 /WERE ISSUED TO THE A SSESSEE TO WHICH THE LD AR OF THE ASSESSEE OBJECTED TO BECAUSE OF SPECIFIC PROVISO TO SECTION 14A WHICH PROHIBITS REOPENING OF CA SES U/S 147 DUE TO INSERTION OF SECTION 14A OF THE ACT BEFORE ASSESSMENT YEAR 2002-03. THE ASSESSING OFFICER THEN DID NOT TALK ABOUT SECTION 14 A AND SOUGHT ASSESSEES COMMENTS ON THE JUDGMENT OF HON'BLE BOMBAY HIG H COURT WHICH WAS ALSO ONE OF THE REASONS RECORDED FOR REOPENIN G THE CASES. THE ASSESSEE IN HIS REPLY SIMPLY STATED THAT INTEREST U/S 5 7(III) SHOULD HAVE BEEN ALLOWED AGAINST DIVIDEND INCOME. THEREFOR E, THE ASSESSING OFFICER COMPLETED ASSESSMENTS U/S 143(3) READ WITH SECTION 147 OF THE ACT AND MADE ADDITIONS ON ACCOUNT OF PROPORTIONATE D ISALLOWANCE OF ITA NO1786,1807&1849/DEL/07 4 INTEREST IN ALL THE THREE YEARS. WHILE REJECTING THE CONTENTION OF LD AR OF ASSESSEE, THE ASSESSING OFFICER OBSERVED AS UNDER:- THE EXPLANATION/OBJECTION RAISED BY THE ASSESSEE CANNOT BE CONSIDERED. IN THE REASONS FOR REOPENING OF ASSESSMENT, IT HAS BEEN CLEARLY MENTIONED THAT HON'BLE BOMBAY HIGH COU RT JUDGMENT IN THE CASE OF AMRITA BENCH R. SHAH AS REPOR TED IN 238 ITR 777 IS APPLICABLE TO ASSESSEES CASE ON ACCOUNT OF INVESTMENT MADE IN THE SHARES FOR GAINING CONTROL AND AS SUCH INTEREST ATTRIBUTABLE TO SUCH INVESTMENT WAS LIABLE TO BE DISALLOWED. 4. DISSATISFIED WITH THE RE-ASSESSMENT THE ASSESSEE FILED APPE AL BEFORE LD CIT(A) AND SUBMITTED AS UNDER:- A) THAT ASSESSING OFFICER HAD REOPENED THE ASSESSMENT ARBITRA RILY AND PARTICULARLY WHEN NO NEW MATERIAL ON RECORD WAS AVAILABLE FOR APPLYING THE PROVISIONS OF SECTION 14A BY RELYING UPON THE HON'BLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF AM RITA BEN R. SHAH (SUPRA). B) THAT THE AFORESAID JUDGMENT WAS ALREADY AVAILABLE AT THE TIME OF FILING OF THE ORIGINAL RETURN AS WELL AS AT THE TIME OF FRAMING ASSESSMENT U/S 143(1) & 143(3) OF THE ACT. C) THAT CBDT CIRCULAR NO.11/01 DATED 23.7.2001 HAD PUT RESTRICTIONS ON REOPENING OF ASSESSMENT ON ACCOUNT OF PR OVISO OF SECTION 14A AND SUBSEQUENTLY VIDE CLAUSE (X) OF FINANCE BILL 2002 A PROVISO TO SECTION 14A WAS ALSO INSERTED AND REOPENING OF ASSESSMENT ORDER OF ANY ASSESSMENT YEAR BEGINNING ON OR BEF ORE 1.4.2001 WAS PROHIBITED. D) THAT ASSESSING OFFICER HAD FAILED TO APPRECIATE THAT IF AT ALL THE INTEREST WAS TO BE DISALLOWED, THE SAME SHOULD BE DISALLO WED PROPORTIONATELY ON THE AMOUNT OF EXEMPTED INCOME EA RNED BY ITA NO1786,1807&1849/DEL/07 5 THE APPELLANT AND NOT ON ALL THE INVESTMENTS AS PAYMEN TS FOR INVESTMENTS WERE MADE FROM MIXED ACCOUNT OF FUNDS. 5. THE LD CIT(A) DID NOT ACCEPT THE CONTENTION OF L D AR OF ASSESSEE AND HELD THAT JUDGMENT OF JURISDICTIONAL HIGH COURT WAS BINDING ON THE ASSESSING OFFICER AND AS PER THE FACTS OF THE CASE, THE APPELLANT HAD MADE SUBSTANTIAL INVESTMENT IN THE SHARES OF SISTER CONCE RN FOR GAINING CONTROL AND THE INTEREST ATTRIBUTABLE TO FUNDS FOR SUC H INVESTMENT HAD ESCAPED ASSESSMENT . THEREFORE, THE ASSESSING OFFICER WAS FUL LY JUSTIFIED TO REOPEN THE ASSESSMENT U/S 147 OF THE ACT. 6. ON THE GROUND OF APPEAL OF DISALLOWANCE OF PROPOR TIONATE AMOUNT OF INTEREST THE LD CIT(A) HELD THAT ASSESSING OFFICER H AD WORKED OUT THE PROPORTIONATE AMOUNT OF INTEREST ATTRIBUTABLE TO THE INVESTMENT AND THEREFORE THE ASSESSING OFFICER HAD ALREADY DISALLOWED T HE INTEREST OF PROPORTIONATE AMOUNT ONLY. 7. DISSATISFIED WITH THIS, THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. 8. AT THE OUTSET, THE LD AR ARGUED THAT PROVISIONS TO SECTION 14A ARE NOT APPLICABLE FOR ALL THE THREE YEARS IN VIEW O F PROVISO TO SECTION 14A ACCORDING TO WHICH THE PROVISIONS OF SECTION 14A CAN BE APPLIED AFTER REOPENING OF CASES U/S 147 OR FOR MAKING RE-ASSESSME NT U/S 154 ONLY FROM ASSESSMENT YEAR 2002-03. IN THIS RESPECT RELIAN CE WAS PLACED ON PAPER BOOK PAGES 42, 43 & 44 WHEREIN PHOTO COPY OF CLAUSE (10) OF FINANCE BILL 2002 AND MEMORANDUM EXPLAINING PROVISION OF FINANCE BILL 2002 WERE PLACED. 9. HE FURTHER ARGUED THAT NO NEW MATERIAL HAD COME TO THE NOTICE OF ASSESSING OFFICER AS ASSESSEE HAD FURNISHED ALL MATERIAL FACTS AND MOREOVER THE CASE LAW RELIED UPON BY THE ASSESSING OFFI CER FOR REOPENING WAS ALSO DELIVERED BY THE HON'BLE BOMBAY HI GH COURT ON 20.4.1999 WHICH WAS WELL BEFORE THE ASSESSMENT OF CASES O F ASSESSEE U/.S 143(1) AND OR U/S 143(3) OF THE ACT. THEREFORE, HE ARGUED THAT ITA NO1786,1807&1849/DEL/07 6 ASSESSING OFFICER HAD INITIATED PROCEEDINGS ONLY ON CHA NGE OF OPINION WHICH WAS NOT LEGAL IN VIEW OF VARIOUS JUDICIAL PRONO UNCEMENTS. RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS:- 1. COMMISSIONER OF INCOME TAX, GUJARAT. V. BHANJI LAV JI. 79 ITR 582 (SC). 2. CENTURY ENKA LIMITED. V. INCOME TAX OFFICER, CE NTRAL CIRCLE, AND OTHERS. 143 ITR 629(DEL.) 3. CIT V. KELVINATOR OF INDIA LTD/. 320 ITR 561 ( SC). 4. CIT V. PNB FINANCE & INDUSTRIES LTD. 340 ITR 5 0. 5. INCOME TAX OFFICER, INCOME TAX CUM WEALTH TAX CIRCL E II, HYDERABAD. V NAWAB MIR BARKAT ALI KHAN BAHADUR. 97 ITR 2 39. THEREFORE, IN VIEW OF THE ABOVE, THE LD AR ARGUED F ORCEFULLY THAT NEITHER THE CASE SHOULD HAVE BEEN REOPENED U/S 147 IN VIEW OF PROVISO TO SECTION 14A NOR SHOULD HAVE BEEN REOPENED IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS CITED ABOVE. THEREFORE, HE ARGUED TH AT ASSESSMENT MADE BY THE ASSESSING OFFICER BE QUASHED AS THESE WERE BAD IN LAW. 10. ON MERITS, HE ARGUED THAT ASSESSING OFFICER HAD CALC ULATED THE DISALLOWANCE OF INTEREST WITHOUT EXPLAINING ANY NEXUS BETWEEN THE TOTAL FUNDS BORROWED AND INTEREST PAID VIS-A-VIS OWN F UNDS AND AMOUNT PAID ON ACCOUNT OF PURCHASE OF SHARES. THEREFORE, IN V IEW OF JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP IN I.T.A. NO.687/DEL/2009, HE ARGUED THAT ASSESSING OFFICER HAD T O FIRST EXPLAIN THE NEXUS BEFORE MAKING ANY DISALLOWANCE U/S 14A OF TH E ACT. 11. THE LD AR, ON THE OTHER HAND, RELIED UPON THE O RDER OF ASSESSING OFFICER AND LD CIT(A) AND FURTHER RELIANCE WAS PLACE D ON THE FOLLOWING JUDGMENTS:- 1. ACIT V. RAJESH JHAVERI STOCK BROKER LTD. 291 ITR 500 (SC). 2. ALA FIRMS V. CIT 189 ITR 285 (SC). 3. CIT V. NOVAPAN INDIA LTD. 236 ITR 746 (AP). 4. MADRAS RACE CLUIB CHARITABLE TRUST V. CIT 245 ITR 240 (MAD.). ITA NO1786,1807&1849/DEL/07 7 12. THE LD DR ARGUED THAT HON'BLE ANDHRA PRADESH HIG H COURT, HON'BLE MADRAS HIGH COURT AND HON'BLE SUPREME COURT IN THE ABOVE CASES DIRECTLY ANSWERED THE QUESTION WHEREIN RE-ASSESSMENT PROCEEDINGS WERE HELD TO BE VALID WHERE ASSESSING OFFICE R HAD BECOME AWARE OF SOME JUDICIAL PRONOUNCEMENTS AFTER COMPLETIO N OF ASSESSMENT . IN VIEW OF THE ABOVE, SHE ARGUED THAT FACTS AND CIRCUMSTANCES OF THE PRESENT CASE SQUARELY FIT IN THE FA CTS & CIRCUMSTANCES OF CASE LAWS RELIED UPON BY HER. THEREFO RE, SHE ARGUED THAT PROCEEDINGS U/S 147/148 WERE VALIDLY INITIATED A ND ADDITIONS WERE RIGHTLY MADE IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT AND IN VIEW OF JUDGMENT OF HON'BLE BOMBAY HIGH COURT. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAS GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, WE OBSERVE THAT IN THE REASON S RECORDED, THE ASSESSING OFFICER HAD TAKEN BOTH REASONS I.E. SECTION 14A AND THAT OF CASE LAW OF AMRITA BEN R. SHAH (SUPRA) FOR INITIAT ION OF PROCEEDINGS U/S 147/148 OF THE ACT. THE ORDER SHEET IN RESPECT OF ASSESSMENT YEAR 2000-01 PLACED AT PAGE 33 IS REPRODUCED BELOW:- WHILE GOING THROUGH THE CASE RECORDS OF THE ABOVE ASSE SSEE FOR ASSESSMENT YEAR 2000-01, IT IS SEEN THAT THE ASSESSEE HAS INCURRED HUGE INTEREST LIABILITY OF ` .3,49,51,051/-. THIS IS FOR THE REASON THAT THE ASSESSEE HAS INVESTED IN SHARES OF ` .2,45,04,074/-. THUS, ALMOST 70% OF THE BORROWED FUND S ARE UTILIZED FOR INVESTING IN SHARES. HENCE, PROVISION OF SE CTION 14A SHOULD HAVE BEEN APPLICABLE BY WHICH PROPORTIONATE I NTEREST SHOULD HAVE BEEN DISALLOWED. THE MAJORITY OF THE SHARE INVESTMENT IS FOR CONTROLLING PURPOSE. HENCE, MUMBAI HIGH COURT JUDGMENT IN THE CASE OF AMRITABEN SHAH 238 ITR 77 IS APPLICABLE ITA NO1786,1807&1849/DEL/07 8 AND INTEREST ATTRIBUTABLE TO SUCH INVESTMENT IS ALSO LI ABLE TO BE DISALLOWED ON THIS ADDITIONAL GROUND. FROM THE ABOVE, IT IS APPARENT THAT ASSESSING OFFICER H AD REFERRED TO SECTION 14A FOR PROPOSING DISALLOWANCE THEN ADDITIONAL LY HE HAD RELIED UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT FOR M AKING PROPOSED DISALLOWANCE. SECTION 14A(1) ALONG WITH PROVISO READS AS UNDER:- SECTION 14A(1): FOR THE PURPOSES OF COMPUTING THE TOT AL INCOME UNDER THIS CHAPTER NO DEDUCTION SHALL BE ALLOWED IN R ESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT . PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHAL L EMPOWER, THE ASSESSING OFFICER EITHER TO RE-ASSESS U/S 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REFUSING OF REFUNDS ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF ASSESSEE U/S 154 FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE IST DAY OF APRIL, 2001. FROM THE ABOVE, IT IS APPARENT THAT LEGISLATURE HAS VE RY CLEARLY STATED THAT FOR APPLYING PROVISION OF SECTION 14A, RE-ASSESSMENT PROCEEDINGS U/.S 147 CANNOT BE INITIATED IN RESPECT OF YEARS BEFOR E THE ASSESSMENT YEAR 2002-03. THE CASES OF THE ASSESSEE ARE FOR ASSESSMENT Y EAR 1999-00, 2000-01 AND 2001-02. THEREFORE, IT CAN BE SAID THAT FOR THE PURPOSE OF APPLYING SECTION 14A RE-ASSESSMENT PROCEEDINGS U/S 147 SHOULD NOT HAVE BEEN INITIATED IN VIEW OF THE SPECIFI C PROHIBITION PROVISION. 14. NOW WHETHER RE-ASSESSMENT PROCEEDINGS COULD BE INITI ATED IN VIEW OF THE FACT THAT ASSESSING OFFICER BECAME AWARE OF SOME JUDICIAL PRONOUNCEMENTS WHICH LED HIM TO BELIEVE THAT SOME INC OME HAD ITA NO1786,1807&1849/DEL/07 9 ESCAPED ASSESSMENT. THE ANSWER TO THIS QUESTION CAN BE FOU ND OUT BY FIRST FINDING WHETHER ASSESSMENTS IN THESE CASES WERE COMPL ETED U/S 143(1) OR U/S 143(3). BEFORE THIS WE HIGHLIGHT THE FA CTS OF THE CASE AS RELIED UPON BY ASSESSING OFFICER. 15. THE FACTS OF THE CASE OF AMRITABEN R. SHAH (SUPRA) ARE THAT ASSESSEE IN THAT CASE HAD PURCHASED CERTAIN SHARES OUT OF B ORROWED FUNDS AND THE INTEREST ON SUCH BORROWED FUNDS WAS CLAIME D AS DEDUCTION U/S 57(III) OF THE INCOME TAX ACT, 1961, SE CTION 57(III) DEALS WITH DEDUCTION UNDER THE HEAD INCOME FROM OTHER SOU RCES. THE ASSESSEE IN THIS CASE HAD SHOWN INTEREST EXPENDITURE UNDER SEC. 57(III) AND HAD CLAIMED THE EXPENSES AGAINST DIVIDEND INCOME W HICH WAS THEN TAXABLE AS INCOME FROM OTHER SOURCES. THE HON'BLE BOMBAY HIGH COURT HAD HELD THAT EXPENDITURE INCURRED BY WAY OF INTEREST ON LOAN TAKEN BY THE ASSESSEE FOR THE PURPOSE OF ACQUIRING SHARES FOR CONTROLLING INTEREST COULD NOT BE SAID TO BE AN EXPEN DITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INC OME BY WAY OF DIVIDEND AND THEREFORE DEDUCTION OF INTEREST EXPENSE U/S 57(III) WAS NOT ALLOWED. 16. IN THE PRESENT CASE, THE ASSESSEE HAD NOT CLAIMED INT EREST U/S 57(III) OF THE ACT AGAINST INCOME FROM OTHER SOURCES B UT HAD CLAIMED THE SAME AS BUSINESS EXPENDITURE WHICH CAN BE DISALLOWED UNDER THE PROVISIONS OF SECTION 37(1) IF THE SAME WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. TH E PROVISIONS OF SECTION 57(III) & SECTION 37(1) ARE SIMILAR IN NATURE. THE ONLY DIFFERENCE IS THAT THESE APPLY TO DIFFERENT HEADS OF INCOME. HOWE VER, THE PURPOSE OF BOTH THESE SECTIONS IS SAME I.E. TO DISALLOW ANY EXPEN DITURE WHICH WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF EARNING INCOME FROM OTHER SOURCES OR INCOME FROM BUSINESS OR PRO FESSION. ITA NO1786,1807&1849/DEL/07 10 17. THE ABOVE TWO PROVISIONS ARE QUITE OLD AND ASSESSING OFFICER WAS WITHIN HIS RIGHTS TO DISALLOW SUCH EXPENDITURE IF NOT I NCURRED WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INCOME EVE N IN THE ABSENCE OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF AMRITABEN R. SHAH (SUPRA). 18. FOR THE YEARS 1999-2000 & 2000-01, THE ASSESSMENTS WE RE COMPLETED U/S 143(1). U/S 143(1), THE ASSESSING OFFICER IS NOT PERMITTED TO GO BEYOND PRIMARY ADJUSTMENTS SUCH AS AR ITHMETIC CALCULATIONS, CARRY FORWARD OF LOSSES, DEPRECIATION ALL OWANCE AND IS NOT EXPECTED TO GO TO DEBATABLE ISSUES, THEREFORE, IT CANN OT BE SAID THAT ASSESSING OFFICER HAD LOOKED INTO ENTIRE DETAILS AND IF HE HAS NOT LOOKED INTO COMPLETE DETAILS, IT CANNOT BE SAID THAT THE INI TIATION OF PROCEEDINGS U/S 147/148 WERE DUE TO CHANGE IN OPINION . THEREFORE, IN THESE TWO YEARS THE JUDGMENT OF HON'BLE BOMBAY HIGH C OURT BASED UPON VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LD A.R. CAN BE SAID TO BE TANGIBLE MATERIAL ON THE BASIS OF WHICH THE ASSESSING OFFICER COULD HAVE PROCEEDED U/S 147/148 OF THE ACT. THE LAW FOR REOPENING OF CASES RELATING TO ASSESSMENTS COMPLETED U/S 14 3(1) WAS CLEARLY LAID DOWN BY HON'BLE SUPREME COURT IN ACIT V. RAJESH JHAVERI STOCK BROKERS LTD. 291 ITR 500 (SC) WHERE THE APEX C OURT HAD HELD AS UNDER:- TAXING INCOME ESCAPING ASSESSMENT IN THE CASE OF INITIAT ION U/S 143(1) IS COVERED BY THE MAIN PROVISION OF SECTION 147 AS SUBSTITUTED W.E.F. 1.4.1989. FAILURE TO TAKE STEPS U/S 143(3) WILL NOT RENDER THE ASSESSING OFFICER POWERLESS TO INITIATE RE - ASSESSMENT PROCEEDINGS WHEN INITIATION U/S 143(1) HAS BEEN ISSUED. ITA NO1786,1807&1849/DEL/07 11 THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 2001-02 WAS COMPLETE D U/S 143(3) ON 23.9.2003 I.E. MUCH AFTER THE PRONOUNCEME NT OF JUDGMENT OF HON'BLE BOMBAY HIGH COURT. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN THIS YEAR CANNOT BE JUSTIFIED AND ASSESSING OF FICER CANNOT CLAIM TO BE UNAWARE OF LAW OF DISALLOWANCES U/S 37(1) & 57(III). 19. THE ASSESSING OFFICER IS EXPECTED TO KNOW THIS GENERA L AND BASIS RULE OF LAW AND IGNORANCE OF LAW WOULD BE NO GROUND FOR INITIATING RE- ASSESSMENT PROCEEDINGS AS HELD BY HON'BLE COURT IN CENTU RY ENKA LIMITED. V. INCOME TAX OFFICER, CENTRAL CIRCLE & O THERS REPORTED IN 143 ITR 629. THEREFORE, THE ASSESSING OFFICER WAS EXPECTED TO KNOW AB OUT THIS LAW WHILE COMPLETING ASSESSMENTS U/S 143(3) FOR ASSESSME NT YEAR 2001-02 AND HENCE IT CANNOT BE SAID THAT THE SAID JUD GMENT OF HON'BLE BOMBAY HIGH COURT WAS A NEW MATERIAL IN THIS YEAR AS T HE SAID JUDGMENT HAD JUST NARRATED A RULE OF LAW UNDER SECTI ON 57(III) WHICH ITSELF WAS AN ESTABLISHED LAW AS PER THE PROVISIONS OF THE ACT. 20. IN FACT IN THE PRESENT CASE, IT CAN BE SAID THAT ASSESSING OFFICER HAD NOT GIVEN THOUGHT TO THIS DISALLOWANCE OF INTEREST WHILE COMPLETING ASSESSMENT U/S 143(3) BUT WHEN HE CAME TO KNOW ABOUT THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT HE REALIZED THIS AND CH ANGED HIS OPINION AND PROCEEDED U/S 147 /148 OF THE ACT WHICH IS NOT PE RMITTED SPECIFICALLY KEEPING IN VIEW THE OBSERVATIONS MADE BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR OF IN DIA LTD. REPORTED IN 320 ITR 561. THE HON'BLE COURT HAD OBSERVED AS UNDER :- THAT FROM 1.4.1989 POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE AN INTERPRETATION TO THE WORD REASO N TO BELIEVE FAILING WHICH WE ARE AFRAID THAT SECTION 147 WOULD G IVE ARBITRARY POWER TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT O N THE ITA NO1786,1807&1849/DEL/07 12 BASIS OF MERE CHANGE OF OPINION WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN THE POWER TO REVIEW AND POWER TO RE-ASSESS. TH E ASSESSING OFFICER HAS NO POWER TO REVIEW, HE HAS THE POWE R TO RE- ASSESS BUT RE-ASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE CONDITIONS AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED THEN IN THE GARB OF REOPENING OF ASSESSMENT REV IEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHAN GE OF OPINION AS A INBUILT TO CHECK ABUSE OF POWER BY THE A SSESSING OFFICER. HENCE AFTER 1.4.1989, THE ASSESSING OFFICER HA S POWER TO REOPEN PROVIDED THERE IS TANGIBLE MATERIAL TO COME T O THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. 21. AS REGARDS QUANTUM OF DISALLOWANCE, WE OBSERVE THA T ASSESSING OFFICER HAD DISALLOWED PROPORTIONATE INTEREST ON THE BASIS OF FUNDS INVESTED IN THE SHARES OF SISTER CONCERN WHEREAS HE SHOULD HAVE DISALLOWED ONLY THAT PROPORTION OF INTEREST ON FUNDS W HICH WERE NOT USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS O F THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSIONS, THE APPEALS OF T HE ASSESSEE ARE DISPOSED OFF AS UNDER:- GROUND NO.1 IN RESPECT OF ASSESSMENT YEAR 1999-2000 AND 200- 01 ARE DISMISSED AND FOR THE YEAR 2001-02, THIS GROUND IS ALLOWED. GROUND NO.2 & 3 IN RESPECT OF ALL THREE YEARS ARE DISM ISSED AS ASSESSING OFFICER AS WELL AS LD CIT(A) HAD NOT APPLIED P ROVISIONS OF SECTION 14A OF THE ACT. ITA NO1786,1807&1849/DEL/07 13 GROUND NO.4 IS ALLOWED IN THE ASSESSMENT YEAR 1999-2000 AND 2000-01 TO THE EXTENT THAT ASSESSING OFFICER IS DIRECTE D TO CALCULATE THE DISALLOWANCE OF INTEREST ON FUNDS WHICH WERE NOT USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS O F THE ASSESSEE. IN THE ASSESSMENT YEAR 2001-02, THIS GROUND DO NO T REQUIRE ADJUDICATION AS THIS HAS BECOME INFRUTUOUS. 22. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AS DEALT ABOVE. 23. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH DAY OF SEPTEMBER, 2012. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 28.9.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 31.7.2012 DATE OF DICTATION 6.9.2012 DATE OF TYPING 7.9.2012 DATE OF ORDER SIGNED BY 28.9.2012 ITA NO1786,1807&1849/DEL/07 14 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 28.9.2012 & SENT TO THE BENCH CONCERNED.