S4 Carlisle Publishing Services Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 192/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9130 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 03-02-2016
• Court: TRIBUNAL
• Department Lawyers: SUNDAR RAO
• Assessee Lawyers: N V BALAJI
• Keywords: Reopening of assessment; Unexplained cash credit; Depreciation; Share purchase agreement; Wholly owned subsidiary; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 68; 148; 10

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 192/MDS/2016 / ASSESSMENT YEAR :200 8 - 0 9 S4 CARLISL E PUBLISHING SERVICES PVT. LTD., PRAKASH TOWERS, I FLOOR, NO. 141, RAJIV GANDHI SALAI (OMR), KOTTIVAKKAM, CHENNAI 600 041. [PAN: A A F C S2900K ] VS. THE DEPUTY COMMISSIONER OF INCOME TAX , COMPANY CIRCLE VI(1), CHENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI N.V. BALAJI ADVOCATE / RESPONDENT BY : SHRI SUNDAR RAO , CIT / DATE OF HEARING : 1 6 . 0 3 .201 6 / DATE OF P RONOUNCEMENT : 13 . 0 6 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH I S APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX (APPEALS) 15 , CHENNAI , DATED 18 . 12 .20 15 RELEVANT TO THE ASSESSMENT YEAR 200 8 - 0 9. 2. THE FIRST GROUND RAISED IN THIS APPEAL IS WITH REGARD TO REOPENING OF ASSESSMENT. IN THIS CASE, THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] VIDE ORDER DATED I.T.A. NO . 192 /M/ 16 2 21.12.2010. LATER, THE ASSESSING OFFICER, AFTER RECORDING THE REASONS FOR REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT, FRAMED THE IMPUGNED ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF TH E ACT. ACCORDING TO THE AR OF THE ASSESSEE, THE ORIGINAL ASSESSMENT WAS REOPENED WITHOUT ANY FRESH TANGIBLE MATERIAL AND AS SUCH, REOPENING IS BAD IN LAW. HE SUBMITTED THAT THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT AND AT THE TI ME OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FILED ALL THE MATERIALS NECESSARY FOR THE PURPOSE OF ASSESSMENT AND THE REOPENING IS BASED ON NO TANGIBLE MATERIAL. THEREFORE, THE REASSESSMENT FRAMED IS BAD IN LAW. HE RELIED ON THE FOLLOWING CASE IN SUPPORT OF HIS SUBMISSIONS: CIT V. KELVINATOR INDIA LTD. 320 ITR 561 (SC) CIT V. ORIENT CRAFT LTD. 354 ITR 536 (DEL) BAPALAL AND CO. EXPORTS V. JCIT 289 ITR 37 (MAD) I.T.A. NO. 4613/MUM/05 DATED 12.05.2010 3. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON R ECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE ASSESSMENT WAS REOPENED BY RECORDING REASONS AS FOLLOWS: I T WAS ASCERTAINED FROM THE BALANCE SHEET SCHEDULE 2, THE ASSESS EE COMPANY HAS A BALANCE OF RS.1 0,66,98,464 AGAINST SHARE PR EMIUM ACCOUNT IN THE LIABILITIES SIDE. IN THE ASSET SIDE AS PER SCHEDULE 5, UNDER INVESTMENT, THE COMPANY HAS SHOWN AN AMOUNT OF RS.11,85,16,0000 AS INVESTMENT IN S4 CARLISLE PUBLISHING SERVICES INC (A FOREIGN WHOLLY OWNED SUBSIDIARY COMPANY) I.T.A. NO . 192 /M/ 16 3 AS PER THE ISSUED CAPITAL DETAILS OUT OF 2077194 SHARES 1250000 SHARES ARE BONUS SHARES ONLY. THEREFORE THERE IS NO OBVIOUS EXPLANATION FOR THE CREDIT IN THE SHARE PREMIUM ACCOUNT. MOREOVER, THE SHARE PREMIUM ACCOUNT HAS BEEN UTILIZED TO INVEST IN A SUBSIDIARY COMPAN Y. AS PER SEC 78 OF COMPANIES ACT SHARE PREMIUM ACCOUNT CAN BE UTILIZED FOR SPECIFIC PURPOSE BUT NOT TO INVEST IN SUBSIDIARY COMPANY. IT IS EVIDENT FROM THE ACCOUNT THAT SOME UNEXPLAINED AMOUNT HAS BEEN CREDITED IN THE SHARE PREMIUM ACCOUNT AND UTILIZED FO R INVESTMENT IN COMPANIES WHICH IS NOT THE MAIN BUSINESS OF THE ASSESSEE, BUT THE ASSESSEE COMPANY HAS BEEN UTILIZED AS A CONDUIT FOR UNEXPLAINED FUNDS. ACCORDINGLY RS.11,85,16,000/ - IS TO BE TREATED AS UNEX PLAINED CREDIT U/S 68 OF THE I. T. ACT. 4. AS S EEN FROM THE ABOVE, THE ASSESSING OFFICER WHILE GOING THROUGH THE RECORDS CAME TO KNOW THAT THERE IS SOME SHARE PREMIUM ACCOUNT IN THE BALANCE SHEET AT .11,85,16,000/ - AS AGAINST THE ISSUE AND AS PER THE SCHEDULE II TO BALANCE SHEET. CORRESPONDINGLY, IN A SSETS SIDE AS PER SCHEDULE V UNDER THE HEAD INVESTMENT , AN AMOUNT OF . 11,85,16,000/ - WAS SHOWN. THE ISSUED CAPITAL WAS 2077194 SHARES AND OUT OF THIS 1250000 SHARES ARE BONUS SHARES. THERE IS NO PROPER EXPLANATION FOR THE CREDIT IN THE SHARE PREMIUM ACC OUNT. THIS DISCREPANCY WAS NOT NOTICED AT THE TIME OF ORIGINAL ASSESSMENT. HENCE, THE ASSESSMENT WAS REOPENED TO CONSIDER THE INVESTMENT OF .11,85,16,000/ - AS UNEXPLAINED CREDIT UNDER SECTION 68 OF HE ACT. I.T.A. NO . 192 /M/ 16 4 5. NOW, THE CONTENTION OF THE AR IS THAT THE R EASSESSMENT WAS DONE ONLY ON THE BASIS OF SAME SET OF FACTS, WHICH WERE ALREADY AVAILABLE ON RECORD AND IT CANNOT BE A GROUND FOR REOPENING OF THE ASSESSMENT. 6. IT IS A SETTLED LAW THAT ON THE BASIS OF MATERIAL, PRIMA FACIE, AVAILABLE BEFORE THE ASSESSI NG OFFICER, OPINED THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT CAN BE FORMED. THE WORD REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IN CASE THE ASSESSING OFFICER HAS A CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAS ESCAPED ASSESSMENT, ACTION U NDER SECTION 148 OF THE ACT CAN BE TAKEN. BUT OBVIOUSLY, THERE SHOULD BE RELEVANT MATERIAL ON WHICH A REASONABLE MAN COULD HAVE FORMED A REQUISITE BELIEF. WHETHER THIS MATERIAL(S) WOULD CONCLUSIVELY PROVE THE ESCAPEM ENT OF INCOME IS NOT THE CONCERN AT THAT PARTICULAR STAGE. SO WHAT IS REQUIRED IS THE SUBJECTIVE SATISFACTION OF THE ASSESSING OFFICER BASED ON OBJECTIVE MATERIAL EVIDENCE. IN THE GIVEN CAS E, ORIGINAL ASSESSMENT WAS COMPLETED ON 21 . 12 .20 10 UNDER SECTION 14 3(3) OF THE ACT. THE REASON FOR REOPENING WAS RECORDED AS DISCUSSED ABOVE. THE ARGUMENT OF THE LD.AR IS THAT U/S 147 IN CASE THE ASSESSMENT ORDER IS COMPLETED U NDER SECTION 143(3) OF THE ACT , AS HAS BEEN DONE IN THIS CASE, NO ACTION COULD BE TAKEN AFTER TH E EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THE ASSESSEE HAS DISCLOSED FULLY AND TRULY I.T.A. NO . 192 /M/ 16 5 ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THAT ASSESSMENT YEAR, INTER ALIA. 7. THE LD. AR CONTENDED THAT IN THIS CASE, THE ASS ESSING OFFICER HAVE NO TANGIBLE FRESH MATERIAL FOR THE REASSESSMENT FOR THAT ASSESSMENT YEAR. AS SEEN FROM THE REASONS RECORDED WHICH GIVES A CLEAR PICTURE THAT THE ASSESSING OFFICER HAS GOT MATERIAL EVIDENCE TO FORM HIS OPINION THAT INCOME HAS ESCAPED ASS ESSMENT THAT IS WHY HE REOPENED THE ASSESSMENT AND ISSUED NOTICE UNDER SECTION 148 OF THE ACT. THERE CANNOT BE TWO OPINIONS. AT THAT POINT OF TIME OF REOPENING WHEN THE REASONS ARE RECORDED AFTER FORMING OPINION OF ESCAPEMENT OF INCOME IS ONLY RELEVANT. HENCE, THE PLEA OF THE LD. AR IS NOT TENABLE IN THE EYES OF LAW. UNDER SECTION 147, THE ASSESSING OFFICER CAN EITHER ASSESS OR RE - ASSESS BUT FOR TAKING ACTION THERE UNDER, HE HAS TO RECORD REASONS THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IT I S ALSO MANDATED BY SECTION 148(2) TO RECORD REASONS IN WRITING. THE REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT ARE FURTHER SUBJECT TO SECTIONS 148,149,150,151,152 AND 153. BUT IN THE PRESENT CASE, WE ARE REQUIRED TO DECIDE THE LIMITED ISSUE REGA RDING THE VALIDITY OF PROCEEDINGS UNDERTAKEN AFTER FOUR YEARS OF THE ASSESSMENT YEAR IN QUESTION. THE ASSESSING OFFICER IS REQUIRED TO SEE IF THE CONDITIONS LAID IN EXPLANATION 2(C) BECAUSE IN THIS CASE THE ASSESSMENT WAS COMPLETED U/S 143(3) ARE SATISFIED OR NOT. IN CASE, (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDER I.T.A. NO . 192 /M/ 16 6 ASSESSED; OR (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW RATE; OR(III) SUCH INCOME HAS BEEN MADE THE SUBJECTIVE OF EXCESS RELIEF UNDER THIS ACT; OR (IV) EXCESSIVE LOSS OR DEPRECIATION ALLOWANC E OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED, THE ASSESSING OFFICER WOULD HAVE VALID COGNIZANCE U/S 147 OF THE ACT. THE REASONS RECORDED BY THE ASSESSING OFFICER CLEARLY DEMONSTRATES THAT THOUGH THE ASSESSEE PRODUCED BOOKS OF ACCOUNT, THE DISC REPANCY NOTICED BY THE ASSESSING OFFICER CAN ONLY BE POINTED OUT THAT DUE DILIGENT OF ASSESSING OFFICER. AS SUCH, THE PRODUCTION OF BOOKS ITSELF CANNOT CONSTITUTE FULL DISCLOSURE OF ALL MATERIAL FACTS FOR THE PURPOSE OF ASSESSMENT. BEING SO, WE ARE SATISFI ED THAT THE ASSESSING OFFICER HAS REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THIS FACT CONFERS JURISDICTION ON THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT. THE POWER UNDER SECTION 147 TO RE - ASSESS THE INCOME POST 1ST APRIL, 1989 ARE MUCH W IDER THAN THESE USED TO BE BEFORE. BUT STILL THE SCHEMATIC INTERPRETATION OF THE WORDS REASON TO BELIEVE FAILING WHICH SECTION 147 WOULD GIVE ARBITRARILY POWERS TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT ON THE POWER TO AN ASSESSING OFFICER TO REO PEN ANY AND EVERY ASSESSMENT ORDER WHICH WOULD SIMPLY AMOUNT TO A REVIEW. THE CONCEPT CHANGE OF OPINION IS AN IN - BUILT TEST TO CHECK THE ABUSE OF POWER BY THE ASSESSING OFFICER. ON THE BASIS OF CHANGE OF OPINION , WHICH CANNOT BE PER SE A REASON TO REOP EN THE ASSESSMENT. IN OUR OPINION, AS SEEN FROM THE ABOVE REASONS RECORDED, THE ASSESSING OFFICER WOULD HAVE ASCERTAINED THE ESCAPEMENT OF INCOME AT THE I.T.A. NO . 192 /M/ 16 7 TIME OF ORIGINAL ASSESSMENT ALSO ONLY WITH DUE DILIGENT. HENCE, THE REOPENING IS HELD TO BE VALID. EVEN OTHERWISE, IT IS THE DUTY OF THE ASSESSEE TO BRING ALL THE FACTS TO THE KNOWLEDGE OF THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMENT AND ONLY JUST FILING OF DOCUMENTS AT THE TIME OF ASSESSMENT IS NOT ENOUGH AND HE SHOULD BE DREW THE ATTENTION OF THE ASSESSING OFFICER TO ALL NECESSARY MATERIAL. CONSEQUENTLY, WE HOLD THAT THE ENTIRE ASSESSMENT IN THIS CASE IS VALID AND THEREFORE, THE REOPENING OF ASSESSMENT IS UPHELD. 8. THE ASSESSEE HAS ALSO RAISED A GROUND WITH REG ARD TO MERIT ON THE ADDITION O F .10,15,86,144/ - UNDER SECTION 68 OF THE ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS HELD THAT DURING THE ASSESSMENT YEAR 2008 - 09, THE ASSESSEE COMPANY HAD FLOATED A WHOLLY OWNED US SUBSIDIARY BY NAME S4 CARLISLE PUBLISHING SERVICES INC. THE ASSESSEE COMPANY HAS ENTERED INTO A SHARE TRANSFER AND PURCHASE AGREEMENT ON 06.04.2007 WITH M/S. CARLISLE COMMUNICATION INC. U.S.A. CORPORATION CORPORATE UNDER THE LAWS OF IOWA WHEREBY THE SHAREHOLDERS OF CARLISLE COMMUNICATIONS INC. AGREED TO SELL THE SH ARES HELD BY THEM TO S4 CARLISLE PUBLISHING SERVICES INC., A WHOLLY OWNED FOREIGN SUBSIDIARY OF THE ASSESSEE COMPANY, FOR A TOTAL PURCHASE PRICE OF USD $ 3.5 MILLION AND IN RETURN TO INVEST A SUM OF USD $ 2.5 MILLION IN THE ASSESSEE COMPANY SO AS TO HOLD 2 5% OF THE OUTSTANDING CAPITAL OF THE ASSESSEE COMPANY AS ON 31.3.2008. THE ASSESSEE COMPANY HAD SOURCE FOR ONLY 3,60,000 USD, WHEREAS, BY MEANS OF SHARE TRANSFER AND I.T.A. NO . 192 /M/ 16 8 PURCHASE AGREEMENT, THE ASSESSEE COMPANY HAS BOOSTED ITS BALANCE SHEETS TO SHOW DURING THE YEAR CREDITS OF .10.15 CRORES IN ITS BOOKS. IT IS PERTINENT TO NOTE THAT US NATIONALS HAD NOT SHOWN SALE CONSIDERATION OF USD 3.5 MILLION BUT HAD SHOWN ONLY USD 1 MILLION AS SALE CONSIDERATION AND BOOKED CAPITAL LOSS IN THEIR RETURNS FILED BEFORE THE US TAX AUTHORITY. TH EREFORE, IT IS CLEARLY EVIDENT THAT THE ASSESSEE COMPANY DOES NOT HAVE SOURCE FOR 10.15 CRORES CREDITED IN ITS BOOKS OF ACCOUNT. THEREFORE, AN ADDITION TO THE AMOUNT OF .10,15,86,144/ - WAS MADE UNDER THE HEAD UNEXPLAINED CREDITS IN THE BOOKS OF THE ASSESS EE COMPANY UNDER SECTION 68 OF THE ACT. 9. THE LD. CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE COMPANY HAD SOURCE FOR 3,60,000 US $, WHEREAS, BY MEANS OF SHARE TRANSFER AND PURCHASE AGREEMENT IT BOOSTED ITS BALANCE SHEET TO SHOW CREDIT OF .10.15 CRORE S. THE US NATIONALS HAD NOT SHOWN SALE CONSIDERATION OF US$ 3.5 MILLION BUT ONLY US$ 1 MILLION AND HAD BOOKED CAPITAL LOSS IN THEIR RETURNS. FURTHER, THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS FILED A COPY OF SHARE TRANSFER AND PURCHASE AGREEMENT WH ICH IS UNDATED AND UNSIGNED, WHICH HAS NO EVIDENTIARY VALUE. THEREFORE, THE LD. CIT(A) HAS HELD THAT THE ASSESSING OFFICER WAS RIGHT IN ADDING .10,15,86,144/ - UNDER SECTION 68 OF THE ACT. 10. WE HAVE CAREFULLY GONE THROUGH THE ABOVE ORDER OF THE LD. CIT(A). THE ORDER PASSED BY THE LD. CIT(A) IS VERY CRYPTIC ONE AND HE HAS NOT DISCUSSED I.T.A. NO . 192 /M/ 16 9 THE ISSUE IN DETAIL. THEREFORE, WE ARE UNABLE TO APPRECIA TE THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY WE REMIT THE SAME TO THE LD. CIT(A) TO GIVE FINDING ON THE SHARE PURCHASE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH FOREIGN COMPANY AND ALSO RELEVANT ALLOTMENT OF SHARES. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND REMIT THE ISSUE BACK TO THE LD. CIT(A) FOR FRESH CONSIDERATION AND TO PASS A DETAILED SPEAKING ORDER. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 13 TH JUNE , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 1 3 . 0 6 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.