A.C.I.T. RG.3(3), MUMBAI V. RAMA CAPITAL AND FISCAL SERVICES LTD., MUMBAI

ITA 205/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2588 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-11-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH P GAIKWAD
• Assessee Lawyers: J D MISTRI
• Keywords: Reopening of assessment; Capital asset; Tangible material; Fair market value; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 142(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI [BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER] / I .T.A. NO.205/M/13 ( / ASSESSMENT YEAR: 2002-03) & / I .T.A. NO.206/M/13 ( / ASSESSMENT YEAR: 2009-10) DCIT CIR 3(3), ROOM NO.609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020 / VS. M/S. RAMA CAPITAL AND FISCAL SERVICES LTD., 51/52, FREE PRESS HOUSE, 215, NARIMAN POINT, MUMBAI - 400021 ./ ./ PAN/GIR NO. : AAACR7189J ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI. J.D.MISTRI DEPARTMENT BY: SHRI. KAILASH P. GAIKWAD ' #$% & '( / DATE OF HEARING: 31.08.2015 )*+, & '( /DATE OF PRONOUNCEMENT: 30.10.2015 -. / O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED BOTH THE APPEALS MENTIONED AB OVE PERTAINING TO ASSESSMENT YEARS 2002-03 & 2009-10 IN THE CASE O F SAME ASSESSEE. THESE APPEALS ARE BEING TAKEN TOGETHER AND BEING TA KEN TOGETHER FOR ADJUDICATION, FOR THE SAKE OF CONVENIENCE. ITA NO.205&206/M/13 ASSESSMENT YEAR: 2002-03 & 2009-10 2 2. IN CASE OF ASSESSMENT YEAR OF 2002-03 THE ORI GINAL ORDER U/S 143(3) WAS PASSED ON 30.11.2004 DETERMINING THE TOTAL LOS S OF RS. 41,68,872/- AS AGAINST RETURNED LOSS OF RS. 49,22,280/-. ASSESSME NT WAS THEREAFTER REOPENED U/S 147 OF THE INCOME TAX ACT 1961 ( IN SHORT THE ACT) TO BRING TO TAX CLAIM OF FINANCE CHARGES BY THE ASSESSEE, TO DISALLOW INTEREST CLAIMED BY ASSESSEE FOR DIVERSION OF INTEREST BEARING ACTIV ITIES AND LOSS CLAIMED ON SALE OF SHARES AND DEBENTURES. NOTICE U/S. 148 WAS ISSUED ON 30.03.2007. IN RESPONSE TO THE NOTICE ISSUED, ASSESSEE FILED A COPY OF RETURN OF INCOME ON 08.05.2007, DECLARING TOTAL LOSS OF RS.49,22,275 /-, THE SAME AS DECLARED IN THE ORIGINAL RETURN OF INCOME FILED. THE ASSESS EE ALSO REQUESTED TO DISCLOSE THE REASONS FOR REOPENING OF THE ASSESSMEN T. THE A.O. ISSUED NOTICE U/S 142(1) OF THE ACT ON 11/10/2007 TO THE A SSESSEE CALLING FOR EXPLANATION ON THE FOLLOWING POINTS:- (1) FINANCE CHARGES OF RS.45,63,302/-(SCHEDULE VI-OPERATING & OTHER EXPENSES). DETAILS OF ACCEPTANCE/PURPOSE FOR WHICH SALES TAX DEFERRED LIABILITY WAS ACCEPTED. (2) WHY INTEREST DISALLOWANCE SHOULD NOT BE MADE ON INT EREST FREE LOANS GIVEN TO HOLDING COMPANY. (3) DETAILS OF LOSS IN SALE OF SHARES AND DEBENTURE S AND EXPLANATION AS TO WHY THESE LOSS SHOULD NOT BE DISALLOWED. SUBSEQUENTLY, THE FINANCIAL CHARGES TO THE TUNE OF RS. 46,67,915/- AND LOSS CLAIM ON SALE OF SHARES AND DEBENTURES AMOUNTING TO RS.5, 38,332/- ( 1,83,84,865 1,78,46,533) WAS DISALLOWED. 3. THEREAFTER THE ASSESSEE FILED APPEAL BEFORE CIT( A) 7, MUMBAI WHEREIN HE CHALLENGED THE VALIDITY OF REOPENING. THE LEARNED CIT(A) SET ASIDE THE ORDER OF AO BY OBSERVING AS UNDER: I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE APPELLANTS SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT TH E A.O. HAS WORKED OUT THE AFORESAID DISALLOWANCE BASED ON THE APPELLA NTS OWN RECORD WHICH WAS AVAILABLE WITH THE DEPARTMENT DURING THE COURSE OF ITA NO.205&206/M/13 ASSESSMENT YEAR: 2002-03 & 2009-10 3 ASSESSMENT PROCEEDINGS. AS SUBMITTED BY THE APPELL ANT THAT THE ERSTWHILE A.O. HAS CALLED FOR ALL THE DETAILS FOR W HICH THE A.O. HAS REOPENED THE CASE OF THE APPELLANT. FURTHER TO THA T, EVEN I FIND THAT THE A.O. REOPENED THE ASSESSMENT BASED ON THE DETAILS A VAILABLE ON RECORD WITHOUT ANY NEW INFORMATION BROUGHT OR GATHERED BY THE A.O. OTHER THAN WHAT WAS AVAILABLE ON RECORD. HENCE I AM OF T HE CONSIDERED VIEW THAT A.O.S ACTION OF REOPENING OF ASSESSMENT WILL AMOUNTS TO CHANGE OF OPINION, AS HAS BEEN DECLARED AND STATED BY THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 320 I TR 561(SC). FURTHER I FIND THAT THE HONBLE SUPREME COURT IN THE CASE O F ACTI & OTHERS VS. ICICI SECURITIES PRIMARY DEALERSHIP LTD. HAS CLEARL Y HELD THAT REJECTION OF THE OBJECTIONS OF THE ASSESSEE TO THE REOPENING OF THE ASSESSMENT BY THE ASSESSING OFFICER WAS CLEARLY A C HANGE OF OPINION AND THE ORDER REOPENING THE ASSESSMENT WAS NOT SUST AINABLE. IN ADDITION TO THIS, MY VIEW ALSO GETS SUPPORT FROM TH E DECISION OF NYK LINE (INDIA) LTD. VS. DCIT, WHEREIN THE BOMBAY HIGH COURT HAS HELD THAT THE POWER OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT WITHIN A PERIOD OF FOUR YEARS OF THE RELEVANT ASSES SMENT YEAR IS UNDOUBTEDLY WIDER THAN WHERE A PERIOD OF FOUR YEAR S HAS ELAPSED. HOWEVER, THE DECISION OF THE SUPREME COURT IN CIT V S. KELVINATOR OF INDIA LTD. [2010} 320 ITR 561 (SC) MAKES IT CLEAR T HAT AN ASSESSMENT CANNOT BE REOPENED ON THE BASIS OF A MERE CHANGE OF OPINION. THERE SHOULD BE TANGIBLE MATERIAL TO COME TO A CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOME FROM ASSESSMENT YEAR MAY FURNI SH A FOUNDATION TO REOPEN AN ASSESSMENT FOR AN EARLIER ASSESSMENT Y EAR. HOWEVER, THERE MUST BE SOME NEW FACTS WHICH CAME TO LIGHT IN THE COURSE OF ASSESSMENT FOR THE SUBSEQUENT ASSESSMENT YEAR WHICH EMERGE IN THE ORDER OF THE ASSESSMENT. OTHERWISE, A MERE CHANGE O F OPINION ON THE PART OF THE ASSESSING OFFICER IN THE COURSE OF ASSE SSMENT FOR A SUBSEQUENT ASSESSMENT YEAR WOULD NOT BY ITSELF LEGI TIMIZE THE REOPENING OF AN ASSESSMENT FOR AN EARLIER YEAR. HEN CE IN MY CONSIDERED VIEW THE REOPENING OF ASSESSMENT ITSELF IS NOT MAINTAINABLE AS PER PROVISIONS OF LAW, AS ORIGINAL ASSESSMENT WA S COMPLETED U/S 143(3) OF THE IT ACT AFTER CONSIDERING THE COMPLETE RECORDS FROM THE APPELLANT. IN MY VIEW, THE REOPENING IS SIMPLY A C HANGE OF OPINION WITHOUT ANY NEW INFORMATION RECEIVED IN THAT PARTIC ULAR YEAR FROM THE DATE OF ORIGINAL ASSESSMENT TO THE DATE OF THIS ASS ESSMENT ORDER, AS HELD BY THE APEX COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 320 ITR 561(SC). ACCORDINGLY IN MY CONSIDERED VIEW, THIS I S SIMPLY CHANGE OF OPINION & HENCE THE ORIGINAL ASSESSMENT CANNOT BE R EOPENED ON SUCH GROUNDS. THUS, IN VIEW OF THE AFORESAID FACTS OF TH E CASE, I AM OF THE CONSIDERED VIEW THAT THE A.O. WAS NOT JUSTIFIED IN REOPENING THE ASSESSMENT IN THE INSTANT CASE. ACCORDINGLY THE A.O 'S ORDER IS ANNULLED. IT IS NOT IN DISPUTE THAT THE ORIGINAL ASSESSMENT W AS COMPLETED ON 30.11.2004. SUBSEQUENTLY, THE MATTER WAS TAKEN UP UNDER SECTION 147 OF THE ACT. THE ORDER OF THE A.O, NO WHERE SPEAKS ABOUT H AVING A NEW MATERIAL OR ANY ITA NO.205&206/M/13 ASSESSMENT YEAR: 2002-03 & 2009-10 4 TANGIBLE MATERIAL TO REOPEN THE CASE. THE LEARNED CIT(A) HAS RECORDED A FINDING THAT THE ASSESSING OFFICER HAS CALLED FOR R ELEVANT DETAILS DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. HENCE IT IS QU ITE CLEAR THAT THE REOPENING WAS DONE ON THE BASIS OF CHANGE OF OPINION. IT IS WELL SETTLED PROPOSITION THAT REOPENING CANNOT BE DONE ON THE BASIS OF CHANGE OF OPINION. IN THIS REGARD, WE RELY ON THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF KELVINATOR OF INDIA LTD. 320 ITR 561(SC). HENCE, IN OUR VIEW, TH E LEARNED CIT(A) WAS JUSTIFIED IN ANNULLING ITS ASSESSMENT. THEREFORE, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 4. NOW WE SHALL TAKE UP THE APPEAL FILED BY THE REV ENUE FOR A.Y.2009-10. THE REVENUE CLAIM THAT THE ORDER OF LEARNED CIT(A) WAS WRONG AND CONSIDERING THE SALE OF SHARES OF RS.7,99,800/- AT THE RATE OF RS. 1/- PER SHARE. ON PERUSAL ON THE ASSESSMENT ORDER, IT WAS NOTICED THAT THE ASSES SEE COMPANY SOLD THE SHARES OF RS.7,99,800/- OF M/S. RAINBOW AGRI INDUSTRIES LT D., AT A FACE VALUE OF RS.1/-. THE A.O. WAS NOT SATISFIED WITH THE SELLING PRICE A ND DETERMINED VALUE OF EACH SHARE AT RS. 3.50/- ON THE BASIS OF MARKET VALUE. H OWEVER, THE LEARNED CIT(A) ACCEPTED THE SALE PRICE AT RS.1.00 PER SHARE. THE LEARNED REPRESENTATIVE IN SUPPORT OF HIS CONTENTION PLACED RELIANCE ON THE LA W SETTLED IN CASE OF K.P.VARGHESE VS. ITO (1981) 131 ITR 597 (SC) AND RU PEE FINANCE & MANAGEMENT (P) LTD. VS. ACIT 7(2), MUMBAI(22 SOT 17 4). THE ISSUE RELATING TO FARE MARKET VALUE AND SALE VALUE, IS DISCUSSED I N THE CASE OF RUPEE FINANCE & MANAGEMENT (P) LTD. VS. ACIT 7(2), MUMBAI (SUPRA) A S UNDER: SECTION 48 OF THE INCOME TAX ACT, 1961 CAPITAL G AINS COMPUTATION OF ASSESSMENT YEARS 2002-03 AND 2003- 04 WHETHER UNDER SECTION 48 STARTING POINT FOR COMPUTATION OF CAPITAL GAINS IS AMOUNT OF FULL VALUE OF CONSIDERATION RECEIVED OR A CCRUING AS A RESULT OF TRANSFER OF CAPITAL ASSET AND EXPRESSION FULL C ONSIDERATION CANNOT BE CONSTRUED AS HAVING REFERENCE TO MARKET VALUE OF ASSETS TRANSFERRED BUT REFERS TO PRICE BARGAINED FOR BY PARTIES AND IT CANNOT REFER TO ITA NO.205&206/M/13 ASSESSMENT YEAR: 2002-03 & 2009-10 5 ADEQUACY OF CONSIDERATION HELD, YES WHETHER WHE RE ASSESSEE- COMPANIES TRANSFERRED SHARES TO A GROUP COMPANY UND ER AN ARRANGEMENT AT COST FOR WHICH THEY PURCHASED THOSE SHARES AND THERE WAS NO MATERIAL TO SHOW THAT ASSESSEE HAD RECEIVED MORE THAN WHAT HAD BEEN DISCLOSED IN BOOKS, DIFFERENCE BETWEEN FA IR MARKET VALUE AND COST AT WHICH SHARES WERE TRANSFERRED COULD NOT BE BROUGHT TO TAX UNDER HEAD CAPITAL GAINS HELD, YES . THE HONBLE SUPREME COURT IN THE MATTER OF K.P.VAR GHESE VS. ITO (1981) 131 ITR 597 SPEAKS THAT HAS OBSERVED AS UNDE R: SINCE LITERAL INTERPRETATION OF SECTION 52(2) LEAD S TO MANIFESTLY UNREASONABLE AND ABSURD CONSEQUENCE, THE SAME SHOUL D BE CONSTRUED HAVING REGARD TO THE OBJECT AND PURPOSE FOR WHICH I T HAS BEEN ENACTED AND THE SETTING IN WHICH IT OCCURS. A FAIR AND REA SONABLE CONSTRUCTION OF SECTION 52(2)WOULD BE READ INTO IT A CONDITION T HAT IT WOULD APPLY ONLY WHERE THE CONSIDERATION FOR THE TRANSFER IS UN DERSTATED OR, IN OTHER WORDS, THE ASSESSEE HAS ACTUALLY RECEIVED A L ARGER CONSIDERATION FOR THE TRANSFER THAN WHAT IS DECLARED IN THE INSTR UMENT OF TRANSFER AND IT WOULD HAVE NO APPLICATION IN CASE OF A BONA FIDE TRANSACTION WHERE THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFE R IS CORRECTLY DECLARED BY THE ASSESSEE. ACCORDINGLY, IF THE REVENUE SEEKS TO BRING A CASE WITHIN SECTION 52(2), IT MUST SHOW NOT ONLY THAT TH E FAIR MARKET VALUE OF THE CAPITAL ASSET AS ON THE DATE OF THE TRANSFER EX CEEDS THE FULL VALUE OF THE CONSIDERATION DECLARED BY THE ASSESSEE BY NOT L ESS THAN 15 PER CENT OF THE VALUE SO DECLARED, BUT ALSO THAT THE CONSIDE RATION HAS BEEN UNDERSTATED AND THE ASSESSEE HAS ACTUALLY RECEIVED MORE THAN WHAT IS DECLARED BY HIM. THERE ARE TWO DISTINCT CONDITIONS WHICH HAVE TO BE SATISFIED BEFORE SUB-SECTION (2) CAN BE INVOKED BY THE REVENUE AND THE BURDEN OF SHOWING THAT THESE TWO CONDITIONS ARE SAT ISFIED RESTS ON THE REVENUE. THE BURDEN MAY BE DISCHARGED BY THE REVEN UE BY ESTABLISHING FACTS AND CIRCUMSTANCE FROM WHICH A RE ASONABLE INFERENCE CAN BE DRAWN THAT THE ASSESSEE HAS NOT CORRECTLY DE CLARED OR DISCLOSED THE CONSIDERATION RECEIVED BY HIM AND THERE IS UNDE RSTATEMENT OF ITA NO.205&206/M/13 ASSESSMENT YEAR: 2002-03 & 2009-10 6 CONCEALMENT OF THE CONSIDERATION IN RESPECT OF THE TRANSFER. THEREFORE, SECTION 52(2) HAD NO APPLICATION TO THE PRESENT CAS E AND THE ITO COULD HAVE NO REASON TO BELIEVE THAT ANY PART OF THE INCO ME OF THE ASSESSEE HAD ESCAPED ASSESSMENT SO AS TO JUSTIFY THE ISSUE O F A NOTICE UNDER SECTION 148. 5. NOW COMING TO THE CASE IN HAND THE ASSESSEE SOLD 7,99,800 SHARES TO RAINBOW AGRI INDUSTRIES AT THE FACE VALUE AT RS. 1/ -. THE A.O. DETERMINED FAIR MARKET VALUE AT RS. 3.50/- WITHOUT BRINGING ANY MAT ERIAL ON RECORD TO SHOW THAT THE ASSESSEE RECEIVED MORE THAN THE AGREED CONSIDER ATION. IN THE ABOVE SAID JUDGMENTS IT HAS BEEN HELD THAT THE FAIR MARKET VAL UE AND SALE VALUE IS CLEARLY DISTINGUISHABLE. THEREFORE, WE ARE OF THE VIEW THA T, WITHOUT ANY SUPPORTING MATERIAL, THE A.O. CANNOT SUBSTITUTE MARKET VALUE. THEREFORE, ORDER OF THE CIT(A) UNDER CHALLENGE IS NOT REQUIRED TO BE INTERF ERED WITH ON ANY GROUND. 6. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON 30 TH OCTOBER, 2015 SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) - / ACCOUNTANT MEMBER /0 - /JUDICIAL MEMBER 1 ' 2% MUMBAI; 3-# DATED : 30 TH OCTOBER, 2015 MP MP MP MP ITA NO.205&206/M/13 ASSESSMENT YEAR: 2002-03 & 2009-10 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ' 4' ( ) / THE CIT(A)- 4. ' 4' / CIT 5. 5$67 0'0#89 , ( 89, , 1 ' 2% / DR, ITAT, MUMBAI 6. 7:; <% / GUARD FILE. / BY ORDER, 5' 0' //TRUE COPY// / !' (DY./ASSTT. REGISTRAR) '# $ , 1 ' 2% / ITAT, MUMBAI