ACIT, Circle-2(2), Hyderabad, Hyderabad V. Toshali Cements Pvt.Ltd., Hyd, Hyderabad

ITA 185/HYD/2015

• Counselvise Citation: 18522514 RSA 2015
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 27-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y SESHA SRINIVAS
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Reopening of assessment; Depreciation; Period of limitation; Difference of opinion; Assessment record; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, ACCOUNTANT MEMBER AND SHRI RIFAUR RAHAMAN, JUDICIAL MEMBER ITA NOS. 184 & 185/HYD/2015 ASSESSMENT YEARS: 2005-06 & 2006-07 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 2(2), HYDERABAD. VS. M/S TOSHALI CEMENTS PVT LTD., HYDERABAD. PAN AABCT8989K (APPELLANT) (RESPONDENT) REVENUE BY : SHRI Y SESHA SRINIVAS ASSESSEE BY : SHRI V. SIVA KUMAR DATE OF HEARING : 08-09-2015 DATE OF PRONOUNCEMENT : 30-10-2015 O R D E R PER S. RIFAUR RAHAMAN, A.M.: BOTH THESE APPEALS BY REVENUE ARE PERTAINING TO SA ME ASSESSEE DIRECTED AGAINST SEPARATE ORDERS, BOTH, DATED 19/1 2/14 OF LD. CIT(A) 2, HYDERABAD FOR THE AYS 2005-06 AND 2006-07. SINCE IDENTICAL ISSUE IS INVOLVED IN BOTH THESE APPEALS, THE SAME WERE CL UBBED AND HEARD TOGETHER, THEREFORE, WE DISPOSE OF THESE APPEALS BY WAY OF CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS RAISED BY THE REVENUE IN BOTH THE AP PEALS ARE COMMON, WHICH ARE AS UNDER: 1. THE CIT(A) IS ERRED IN LAW AND ON FACTS. 2. THE CIT(A) IS NOT CORRECT IN HOLDING THAT REOPE NING U/S 147 OF THE ACT, IS NULL AND VOID. 2 ITA NOS. 184 & 185 /HYD/2015 TOSHALI CEMENTS P. LTD. 3. THE CIT(A) OUGHT TO HAVE DECIDED THE CASE BASED ON MERITS OF THE CASE. 3. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS FROM AY 2005-06. BRIEFLY THE FACTS ARE, ASSESSEE COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CEMENT, FIL ED ITS RETURN OF INCOME FOR THE AY 2005-06 ON 29/10/05 DECLARING TOT AL LOSS OF RS. 5,56,26,607. AO PASSED THE ASSESSMENT ORDER U/S 143 (3) OF THE INCOME-TAX ACT, 1961 (IN SHORT ACT) ON 26/10/07 A CCEPTING THE RETURNED LOSS. SUBSEQUENTLY, ASSESSEES CASE WAS RE OPENED U/S 147 OF THE ACT BY AO ISSUANCE OF NOTICE U/S 148 ON 25/0 2/11 AND SERVED ON ASSESSEE ON 01/03/2011 FOR THE FOLLOWING REASONS : 'AS SEEN FROM THE ASSESSMENT RECORD AND AS PER TH E DEPRECIATION STATEMENT YOUR COMPANY HAS CLAIMED DE PRECIATION OF RS.4,75,57,035JWHICH INCLUDED DEPRECIATION ON G OODWILL TO THE TUNE OF RS.L,37,60,167/-. AS' 'GOODWILL' IS NO T AN ITEM MENTIONED IN THE DEPRECIATION SCHEDULE OF THE I. T .ACT, THE CLAIM OF DEPRECIATION ON GOODWILL IS NOT IN ORDER. THE M ISTAKE RESULTED IN EXCESS CLAIM OF DEPRECIATION TO THE EXTENT OF RS.L,37,60,167/WHICH RESULTED SHORT COMPUTATION OF INCOME. FURTHER, IT WAS ALSO OBSERVED THAT THE COMPANY APA RT FROM PURCHASING THE ASSETS OF 'CEMENT GRINDING UNIT' AG REED TO TAKE OVER THE LIABILITY OF SALES , TAX DEFERMENT SCHEME AMOUNTING TO RS.11,00,81,342 AND SINCE THE SAID LIABILITY IS OV ER AND ABOVE THE COST OF ASSETS TAKEN OVER, THE SAME IS TREATED AS GOODWILL WHICH WILL BE WRITTEN OFF OVER A PERIOD OF TEN YEA RS FROM 200405. HOWEVER, AS THE SALES TAX LIABILITY WAS ALREADY AL LOWED AS DEDUCTION UNDER THE PROVISIONS OF IT ACT TO THE SE LLER, CLAIMING DEPRECIATION ALLOWANCE ON THE SAME AMOUNT IS NOT I N ORDER.' 4. IN RESPONSE TO NOTICE U/S 148, THE ASSESSEE FILE D ITS RETURN OF INCOME ON 11-03-2011 DECLARING THE SAME LOSS AS PE R THE ORIGINAL RETURN FILED ON 29-10-2005. FURTHER, THE ASSESSEE, VIDE LETTER DATED 11-03-2011, REQUESTED FOR SUPPLY OF THE REASONS FOR RE-OPENING OF THE ASSESSMENT. THE REASONS FOR RE-OPENING OF THE ASSES SMENT WERE COMMUNICATED TO THE ASSESSEE VIDE LETTER DATED 29-0 3-2011. SUBSEQUENTLY, NOTICE U/S 143(2) DATED 01-12-2011 WA S ISSUED AND SERVED ON THE ASSESSEE. ASSESSEE HAS OBJECTED TO TH E REOPENING OF 3 ITA NOS. 184 & 185 /HYD/2015 TOSHALI CEMENTS P. LTD. ASSESSMENT AS THE SAME WAS AGAINST THE PROVISIONS O F SECTION 147 AS THE ASSESSMENT WAS REOPENED AFTER COMPLETION OF FOU R YEARS FROM THE RELEVANT AY I.E. AY 2005-06. AO COMPLETED THE ASSES SMENT BY MAKING ADDITION OF RS. 1,37,60,167 ON ACCOUNT OF DE PRECIATION CLAIMED ON GOODWILL. 5. AGGRIEVED BY THE ORDER OF AO, ASSESSEE HAS PREFE RRED APPEAL BEFORE THE LD. CIT(A). 6. BEFORE LD. CIT(A), ASSESSEE SUBMITTED THAT REOPE NING OF THE ASSESSMENT MADE BY AO WAS BAD IN LAW FOR THE AY 200 5-06 AS THE SAME WAS REOPENED AFTER EXPIRY OF FOUR YEARS FROM T HE END OF THE AY AS PER THE PROVISIONS OF SECTION 147. LD. CIT(A) HA S ALLOWED THE APPEAL OF ASSESSEE RELYING UPON THE FOLLOWING JUDGE MENTS: 1. CIT VS FORAMER FRANCE [264 ITR 566] 2. MAHALAKSHMI MOTORS LTD. VS DCIT [265 ITR 53] 3. CIT VS. KELVINATOR OF INDIA LTD (330 I TR 561) SC 4. CIT VS. EICHER LTD. (330 ITR 561) SC 5. CIT VS. ORIENT CRAFT LTD (354 ITR 536) D ELHI HC 6. TECUMSEH PRODUCTS INDIA PVT. LTD VS ASST. CIT& ANOTHER (361 ITR 29) AP HC 7. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS IN APPEAL BEFORE US. 8. LD. DR AS FAR AS AY 2005-06 IS CONCERNED, RELIE D UPON THE ORDER OF AO. WITH REGARD TO AY 2006-07 IS CONCERNE D, LD. DR SUBMITTED THAT REASSESSMENT PROCEEDINGS WERE INITIA TED WITHIN THE PERIOD OF LIMITATION. HE CONTENDED THAT, LD. CIT(A) HAS NOT LOOKED INTO THE MERITS OF THE CASE AS THE DEPRECIATION WAS CLAI MED ON GOODWILL WHICH IS NOT AS PER SECTION 32(II) OF THE ACT. 9. LD. AR, ON THE OTHER HAND, SUBMITTED THAT REOPEN ING OF ASSESSMENT BY AO IS BAD IN LAW DUE TO THE FACT THAT AS PER THE PROVISO TO SECTION 147, WHERE THE ASSESSMENT U/S 143(3) WAS COMPLETED, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR, UNLESS AN Y INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH A SSESSMENT YEAR 4 ITA NOS. 184 & 185 /HYD/2015 TOSHALI CEMENTS P. LTD. BY REASON OF THE FAILURE ON THE PART OF THE ASSESSE E TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FU LLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THA T ASSESSMENT YEAR. LD. AR SUBMITTED THAT AO HAS NOT FOUND ANY FRESH MA TERIAL FOR REOPENING OF ASSESSMENT BUT HAS ONLY RELIED ON THE INFORMATION, WHICH WAS ALREADY AVAILABLE ON RECORD, AND APPLIED HIS MI ND FOR COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON R ECORD. WE OBSERVE THAT FOR AY 2005-06, AO HAS REOPENED THE ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT AY. ON VERI FICATION OF THE RECORDS, WE FIND THAT THE ASSESSEE WAS NOT IN DEFA ULT, IN FILING THE RETURN U/S 139, IN RESPONSE TO NOTICE U/S 142(1) OR U/S 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR THE ASSESSMENT OF ITS INCOME. 10.1 WE FIND THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 28/10/2005 AND AO COMPLETED THE ASSESSMENT U/S 143( 3) ON 26/10/2007. THE AO REOPENED THE CASE BY ISSUING NOT ICE U/S 148 ON 25/02/2011. AS PER THE FIRST PROVISO TO SECTION 147 , THE AO CAN REOPEN THE ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT AY WHERE THE ASSESSEE IS IN DEFAULT IN FILING OF I TS RETURN OF INCOME U/S 139 OR FAILED TO RESPOND TO NOTICES U/S 142(1), 148 OR FAILED TO FULLY AND TRULY DISCLOSE ALL INFORMATION NECESSARY TO COM PLETE THE ASSESSMENT OF ITS INCOME. IN THE PRESENT CASE, AO C OULD HAVE REOPENED THE ASSESSMENT BY THE END OF AY 2009-10. B UT, IN FACT, THE AO HAS ISSUED NOTICE U/S 148 OF THE ACT ON 25/02/2 011. THEREFORE, THE AO HAS SOUGHT TO REOPEN THE ASSESSMENT AFTER TH E PERIOD OF LIMITATION PRESCRIBED U/S 147 OF THE ACT, EVEN THOU GH THERE WAS NO FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT OF ITS INCOME. THE AO HAS NOT RECORDED ANY FINDING TO SUCH A DEFAULT COMMITTED BY THE ASSE SSEE AND ALSO 5 ITA NOS. 184 & 185 /HYD/2015 TOSHALI CEMENTS P. LTD. ASSESSEE WAS NOT AT FAULT. HENCE, WE DISMISS THE RE VENUE APPEAL AS NOT SUSTAINABLE. 10.2 AS FAR AS AY 2006-07 IS CONCERNED, REOPENING PROCEEDINGS ARE WITHIN THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT AY. FROM THE MATERIAL AVAILABLE ON RECORD, WE OBSERVE THAT T HE ASSESSMENT PROCEEDINGS WERE COMPLETED U/S 143(3) OF THE ACT WH ERE AO HAS APPLIED HIS MIND AND ALSO EXAMINED THE RELEVANT REC ORDS WHICH WERE AVAILABLE IN HIS POSSESSION TO PASS THE RELEVANT AS SESSMENT ORDER. FROM THE RECORDS, WE ALSO OBSERVE THAT AO HAS CONSI DERED THE VERY SAME MATERIAL TO COME TO THE CONCLUSION THAT INCOME HAS ESCAPED ASSESSMENT. THIS, IN OUR OPINION, IS ON CHANGE OF O PINION, WHICH IS NOT SUSTAINABLE. FOR THIS PROPOSITION, WE RELY ON T HE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASES OF CIT VS. KELIVNATOR OF INDIA LTD., AND CIT VS. EICHER LTD., (SUPRA), WHEREIN AFTER EXAMINING THE SCOPE AND AMBIT OF POWER CONFERRED U/S 147 OF THE A CT, IT WAS HELD AS UNDER: THE CONCEPT OF CHANGE OF OPINION ON THE PART OF T HE AO TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE S UBSTITUTION OF SECTION 147 OF THE IT ACT, 1961, BY THE DIRECT TAX LAWS (AMEN DMENT) ACTS, 1987 AND 1989. AFTER THE AMENDMENT, THE AO HAS TO HAVE RE ASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES NOT IMPLY THAT THE AO CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF CHANGE OF OPINION MUST BE TREATED AS AN IN- BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE AFTER APRIL 1,1 989, THE AO HAS POWER TO REOPEN AN ASSESSMENT, PROVIDED THERE IS TANGI BLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INC OME FROM ASSESSMENT. REASON MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF. 10.3 THE FULL BENCH OF THE HONBLE DELHI HIGH COURT IN CASE OF USHA INTERNATIONAL LTD., AFTER TAKING NOTE OF A NUMBER O F DECISIONS OF THE HONBLE SUPREME COURT AS WELL AS DIFFERENT HIGH COU RTS INCLUDING DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. KELVINATOR INDIA (SUPRA) HELD AS UNDER: 39. IN VIEW OF THE ABOVE OBSERVATIONS WE MUST ADD ONE CAVEAT. THERE MAY BE CASES WHERE THE ASSESSING OFFICER D OES NOT AND MAY NOT RAISE ANY WRITTEN QUERY BUT STILL THE ASSESS ING OFFICER IN THE FIRST ROUND/ ORIGINAL PROCEEDINGS MAY HAVE EXAMINED THE SUBJECT MATTER, CLAIM ETC, BECAUSE THE ASPECT OR QUESTION MAY BE TOO APPARENT AND OBVIOUS. TO HOLD THAT THE ASSESSING OFFICER IN TH E FIRST ROUND DID NOT 6 ITA NOS. 184 & 185 /HYD/2015 TOSHALI CEMENTS P. LTD. EXAMINE THE QUESTION OR SUBJECT MATTER AND FORM A N OPINION, WOULD BE CONTRARY AND OPPOSED TO NORMAL HUMAN CONDUCT. SUCH CASES HAVE TO BE EXAMINED INDIVIDUALLY. SOME MATTERS MAY REQUIRE EX AMINATION OF THE ASSESSMENT ORDER OR QUERIES RAISED BY THE ASSESSIN G OFFICER AND ANSWERS GIVEN BY THE ASSESSEE BUT IN OTHERS CASES , A DEEPER SCRUTINY OR EXAMINATION MAY BE NECESSARY. THE ST AND OF THE REVENUE AND THE ASSESSEE WOULD BE RELEVANT. SEVE RAL ASPECTS INCLUDING PAPERS FILED AND SUBMITTED WITH THE RET URN AND DURING THE ORIGINAL PROCEEDINGS ARE RELEVANT AND MATERIAL. SOMETIMES APPLICATION OF MIND AND FORMATION OF OPINION CAN BE ASCERTAINED AND GATHERED EVEN WHEN NO SPECIFIC QUESTION OR QUERY I N WRITING HAD BEEN RAISED BY THE ASSESSING OFFICER. THE ASPECTS AND Q UESTIONS EXAMINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSEL F MAY INDICATE THAT THE ASSESSING OFFICER MUST HAVE APPLIED HIS MIND ON THE ENTRY, CLAIM OR DEDUCTION ETC. IT MAY BE APPARENT AND OBVIOUS TO HOLD THAT THE ASSESSING OFFICER WOULD NOT HAVE GONE INTO THE SA ID QUESTION OR APPLIED HIS MIND. HOWEVER, THIS WOULD DEPEND UPON THE FACT S AND CIRCUMSTANCES OF EACH CASE. 10.3 MOREOVER, FROM THE FIXED ASSETS SCHEDULE FILED BY THE LD. AR, HE HAS CLEARLY DEMONSTRATED THAT THE GOODWILL WAS W RONGLY CAPITALIZED INSTEAD OF CLUBBING THE SALES TAX LIABILITY WITH TH E COST OF PLANT & MACHINERY. WE DO NOT FIND ANY ESCAPEMENT OF INCOME TO THE REVENUE AS THE DEPRECIATION WILL BE SAME WHEN CALCULATED ON THE REVISED PLANT & MACHINERY COST AS EXPLAINED BELOW: AS PER DEPRECIATION SCHEDULE ADDITIONS DEPRECIATION 3. PLANT & MACHINERY 250,502,072 31,312,7 59 7. GOODWILL 110,081,342 13,760,168 360,583,414 45,072,927 ========== ========= AS PER REVISED (AS EXPLAINED ABOVE) 3. PLANT & MACHINERY (AFTER CAPITALIZATION OF SALES TAX LIABILITY) 360,583,414 45 ,072,927 ========= ========= 10.4 APPLYING THE TEST LAID DOWN IN THE DECISIONS R EFERRED TO HEREINABOVE, IN THE PRESENT CASE, AO HAS COMPLETED ORIGINAL ASSESSMENT AFTER MAKING DUE ENQUIRY AND PROPER APPL ICATION OF MIND ON THE ISSUES ON WHICH ASSESSMENT WAS REOPENED. EVE N OTHERWISE, THE AO RELIED ON THE ASSESSEES EXPLANATION ON THE ISSUE VIDE LETTER NO. TCPL/15/08, DTD. NIL, WHICH WAS VERY MUCH AVAIL ABLE ON RECORD BEFORE AO WHILE COMPLETING THE ASSESSMENT U/S 143(3 ) ON 7 ITA NOS. 184 & 185 /HYD/2015 TOSHALI CEMENTS P. LTD. 19/12/2008. HENCE, NO NEW EVIDENCE HAS COME TO THE NOTICE OF THE AO. HENCE, IN OUR VIEW, REOPENING IN THE PRESENT CA SE WAS ON CHANGE OF OPINION AFTER PASSING OF THE ASSESSMENT ORDER. B Y RELYING ON THE RATIO OF THE JUDGMENTS CITED ABOVE AND THE FACTS O N RECORD, WE DISMISS THE REVENUE APPEAL FOR THIS YEAR ALSO. 11. IN THE RESULT, APPEALS OF REVENUE FOR BOTH THE AYS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (RIFAUR RAHAMAN) JUDICIAL MEMBER ACCOUNTA NT MEMBER HYDERABAD, DATED: 30 TH OCTOBER, 2015 KV COPY TO:- 1) ACIT, CIRCLE 2(2), HYDERABAD 2) M/S TOSHALI CEMENTS PVT. LTD., 1233RT, 2 ND FLOOR, SANJEEVA REDDY NAGAR, HYDERABAD 500 038. 3) CIT(A)-2, HYDERABAD 4) CIT-2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER