Appeal Details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 61603 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
11 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-04-2012
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
13-03-2012
Assessment Year
2002-2003
Appeal Filed On
27-04-2011
Judgement Text
ITA 2088/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `A NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.2088/DEL/2011 ASSESSMENT YEAR : 2002-03 DY.COMMISSIONER OF INCOME TAX, VS AMWAY INDIA ENT ERPRISES PVT.LTD., CIRCLE 1(1), ROOM NO. 390, PLOT NO.5, DDA LSC, C.R. BUILDING, OKHLA COMMERCIAL COMPLEX, NEW DELHI. PHASE-II, NEW DELHI. (PAN AAACA5603Q) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI DEV JYOTI DAS, CIT DR RESPONDENT BY : SHRI TARANDEEP SINGH, M ANEESH UPNEJA O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER OF CIT(A)-IV, DELHI DATED 22.2.2011 BY WHICH THE FIRST APPELLATE AUTHORITY ANNULLED THE ORDER OF THE AO DATED 27.3.2009 PASSED U/S 147/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER TO BE REFERRED AS THE ACT) HOLDING THAT THE REOPENING OF ASSESSMENT PERTAINING TO AY 2002-0 3 BY THE AO ON THE BASIS OF AUDIT OBJECTION WAS INVALID. 2. THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER:- THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN ANNULLING THE ORDER U/S 147/143(3) OF THE I.T. ACT WHILE HOLDING INVALID THE REOPENING U/S 147, IGNORING THA T THE ITA 2088/DEL/2011 2 REOPENING OF ASSESSMENT ON THE BASIS OF AUDIT OBJEC TION IS VALID AS PER LAW. RELIANCE IS PLACED ON THE DECISI ON OF HONBLE SUPREME COURT IN CIT(A) VS P.V.S. BEADIES P VT. LTD. 237 ITR 13. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSMENT FOR AY 2002-03 WAS COMPLETED U/S 143(3) VIDE ORDER DATED 2 9.3.2005 AT AN INCOME OF RS. 1,55,63,89,660/-. THE REVENUE AUDIT POINTED OUT THAT THE ASSESSEE COMPANY CLAIMED A DEDUCTION OF RS.2,70,05,517/- UND ER THE HEAD SALES TAX BY DEBITING TO PROFIT AND LOSS ACCOUNT AND THE ASSE SSEE HAD SHOWN THE SALES AS NET OF SALES TAX IN ANNUAL ACCOUNTS. THIS RES ULTED IN UNDER ASSESSMENT OF INCOME BY THE SAME AMOUNT INVOLVING SHORT LEVYIN G OF TAX OF RS.96,40,860. ON THE BASIS OF REVENUE AUDIT REPORT , THE AO NOTICED THAT AS THE ASSESSEE COMPANY HAS SHOWN THE SALES NET OF SA LES TAX, THE DEDUCTION OF SALES TAX PAID BY DEBITING PROFIT & LOSS ACCOUNT WAS IRREGULAR. 4. ON 5.3.2009, THE ASSESSING OFFICER RECORDED ABOV E REASONS AND ACTION U/S 147 OF THE ACT WAS TAKEN AND IN CONSEQUENCE, A NOTICE U/S 148 OF THE ACT WAS ISSUED AGAINST THE ASSESSEE. THE AO ASKED NECE SSARY APPROVAL U/S 151(1) OF THE ACT FOR PROPOSED REMEDIAL ACTION U/S 148 OF THE ACT FROM HIGHER APPROPRIATE AUTHORITY AND THE SAME WAS GRANT ED BY CIT(A)-I VIDE ITS ITA 2088/DEL/2011 3 ORDER DATED 27.3.2009. ON THE SAME DATE, ABOVE MEN TIONED NOTICES WERE ISSUED AND THE PROCEEDINGS WERE CONCLUDED BY THE AO ON 30.12.09 WHEN HE PASSED FINAL ASSESSMENT ORDER ADDING RS. 2,70,05,21 7/- TO THE EARLIER ASSESSED INCOME AS PER ORDER DATED 29.3.2005 AND HE LD THAT THE TOTAL REASSESSED INCOME OF ASSESSEE IS RS.1,58,33,94,877. 5. AGAINST ABOVE ORDER OF AO, THE ASSESSEE PREFERRE D AN APPEAL BEFORE THE CIT(A)-IV, DELHI ON FOLLOWING GROUNDS:- 1. THAT ON FACTS AND IN LAW THE ASSUMPTION OF JUR ISDICTION U/S 147 BY THE AO BY ISSUE OF NOTICE U/S 148 IS VOID AB INITIO AND BAD IN LAW. 1.1 THAT ON FACTS AND IN LAW THE VARIOUS PRE-REQUISIT ES FOR ASSUMPTION OF JURISDICTION U/S 147 ARE NOT MET BY T HE AO, RENDERING THE ORDERS PASSED AS BAD IN LAW. 2. THAT ON FACTS AND IN LAW THE AO ERRED IN MAKING DISALLOWANCE OF RS.2,70,05,217/- ON ACCOUNT OF SALE S TAX LIABILITY. 2.1 THAT ON FACTS AND IN LAW THE AO ERRED IN OBSER VING THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE ITS CLAI M, THAT THE EXPENDITURE OF RS.2,70,05,217/- WAS INCURRED BY IT AS ITS OWN LIABILITY. 3. THAT ON FACTS AND IN LAW THE ORDER OF ASSESSMEN T PASSED BY THE ASSESSING OFFICER (HEREINABOVE REFERRED BY AS T HE AO) IS VOID AB INITIO AND BAD IN LAW. THAT THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, A MEND AND/OR VARY THE GROUND(S) OF APPEAL AT OR BEFORE THE TIME OF HEARING. ITA 2088/DEL/2011 4 6. THE LD. CIT(A)-IV RELYING ON THE JUDGEMENT OF HO NBLE SUPREME COURT IN THE CASE OF CIT VS KELVINATOR OF I NDIA LTD. (2010) 228 CTR(SC) 488 HELD THAT THE FACTS ALREADY AVAILABLE AND CONSIDER ED BY THE AO CANNOT BE CONSIDERED AGAIN FOR REOPENING THE ASSESSMENT U/S 147 OF THE ACT. BECAUSE CHANGE OF OPINION ON T HE SAME MATERIAL, WHICH WAS AVAILABLE AND CONSIDERED BY AO AT THE TIM E OF EARLIER ASSESSMENT, IS NOT ALLOWED UNDER THE RELEVANT PROVI SIONS OF THE ACT, THE LD. CIT(A)-IV ALSO CONSIDERED THIS FACT THAT TH E NOTICE HAS BEEN ISSUED ON THE BASIS OF AN AUDIT OBJECTION BUT HE FU RTHER HELD THAT THE AUDIT OBJECTION WAS ON A LEGAL ISSUE NOT ON FACTS. 7. THE LD. CIT(A) RELYING UPON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF INDIA & EASTERN NEWSPAPER SOCI ETY VS CIT REPORTED AS 119 ITR 996 , HELD THAT THE NOTE OF AN AUDIT PARTY ON LEGAL ISSUE WOULD NOT CONSTITUTE INFORMATION. HE ALSO PL ACED RELIANCE ON THE DECISION OF HONBLE THREE JUDGES BENCH OF HONBLE S UPREME COURT IN THE CASE OF CIT VS LUCAS TVS LTD. REPORTED AS (200 1) 249 ITR 306(SC). THE LD. CIT(A)-IV ALLOWED THE APPEAL WITH THE CON CLUSION THAT THE OBJECTION RAISED BY AUDIT PARTY ON LEGAL I SSUE CANNOT BE SUBJECTED TO PROCEEDINGS U/S 148 READ WITH SECTION 147 OF THE ACT AND ITA 2088/DEL/2011 5 CONSEQUENTLY, THE PROCEEDINGS OF NOTICE U/S 148 OF THE ACT WERE DROPPED. HENCE, THIS APPEAL BY THE REVENUE. 8. WE HAVE CAREFULLY PERUSED THE ENTIRE RECORD AND CONSIDERED THE SUBMISSIONS IN THE LIGHT OF RIVAL ARGUMENTS OF BOTH THE PARTIES. LD. DR HAS PLACED HIS RELIANCE ON THE JUDGEMENT OF HON BLE SUPREME COURT DELIVERED IN THE CASE OF CIT VS P.V.S. BEEDIE S PVT. LTD. 237 ITR 13 (SC). IN THIS CASE, THE HONBLE APEX COURT HELD THAT THE INTERNAL AUDIT PARTY HAD MERELY POINTED OUT THE FAC T WHICH HAD BEEN OVERLOOKED BY THE ITO IN THE ASSESSMENT. THE FACT THAT THE RECOGNITION GRANTED TO THE CHARITABLE TRUST HAD EXP IRED WAS NOT NOTICED BY THE AO. THIS WAS NOT A CASE OF INFORMAT ION ON A QUESTION OF LAW. THE INTERNAL AUDIT PARTY WAS ENTITLED TO P OINT OUT AN IMPORTANT FACTUAL ERROR OR OMISSION IN THE ASSESSMENT. IN TH E CASE OF P.V.S. BEEDIES PVT. LTD. (SUPRA), HONBLE APEX COURT HELD AS UNDER:- WE HAVE CONSIDERED THE MATTER. IT APPEARS THAT THE REOPENING WAS DONE BECAUSE IN THE ORIGINAL ASSESSMENT DONATIONS MADE TO A BODY KNOWN AS P.V.S. MEMORIAL CHARITABLE TRUST WAS HELD BY THE INCOME TA X OFFICER TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80G. BUT SUBSEQUENTLY IT WAS POINTED OUT BY THE INTERNAL AUDIT PARTY THAT THE RECOGNITION WHICH HAD BEEN GRANTED T O THE P.V.S. MEMORIAL CHARITABLE TRUST HAD EXPIRED ON SEPTEMBER 22, 1972. THAT MEANS IT HAD EXPIRED BEFO RE APRIL 1, 1973. THEREFORE, IN THE RELEVANT YEARS OF ACCOUNT THIS TRUST WAS NOT A RECOGNIZED CHARITABLE TRUST. IN THAT VIEW OF THE MATTER, THE DONATION TO P.V.S. MEMORIAL ITA 2088/DEL/2011 6 CHARITABLE TRUST DID NOT QUALIFY FOR DEDUCTION UNDE R SECTION 80G AS A DONATION MADE TO A RECOGNIZED CHARITY. THEREFORE, IN THIS CASE IN THE RELEVANT YEARS OF AC COUNT, THE TRUST WAS NOT A RECOGNIZED CHARITABLE TRUST AND THE DONATION MADE TO THE CHARITABLE TRUST DID NOT QUALIFY FOR DEDUCTION U/S 80G OF THE ACT AS A DONATION MADE TO A RECOGNIZED CHARITY. THE ITO REO PENED ASSESSMENT U/S 147 OF THE ACT ON THE GROUND THAT SUBSEQUENTLY, IT WAS POINTED OUT BY THE INTERNAL AUDIT REPORT THAT THE RECOGNITION G RANTED TO THE TRUST HAD EXPIRED ON 22 ND SEPTEMBER, 1972. THEREFORE, HONBLE SUPREME COURT WAS PLEASED TO HOLD THAT THE REOPENING OF ASSESSMEN T U/S 147 OF THE ACT ON THE BASIS OF FACTUAL ERROR POINTED OUT BY TH E AUDIT PARTY IS PERMISSIBLE UNDER THE LAW. 9. THE COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT IN THE PRESENT CASE, THE LD. CIT(A) RELIED ON THE V IEW TAKEN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS KELVINA TOR OF INDIA LTD. (SUPRA). IN THESE CASES, HONBLE SUPREME COURT HEL D THAT THE CONCEPT OF CHANGE OF OPINION ON THE PART OF AO TO RE-OPEN THE ASSESSMENT DOES NOT STAND OBLITERATED AFTER SUBSTITUTION OF SE CTION 147 OF THE ACT BY DIRECT TAX LAWS (AMENDMENT) ACT 1987 AND 1989. AFTER THE AMENDMENT, THE AO HAS TO HAVE REASON TO BELIEVE THA T THE INCOME HAS ITA 2088/DEL/2011 7 ESCAPED ASSESSMENT BUT THIS DOES NOT IMPLY THAT THE AO CAN RE-OPEN THE ASSESSMENT ON MERE CHANGE OF OPINION. THE CONC EPT OF CHANGE OF OPINION MUST BE TREATED AS AN IN-BUILT TEST TO CHE CK THE ABUSE OF POWER. THEREFORE, AFTER 1.4.1989, THE AO HAS POWER TO RE-OPEN ASSESSMENT PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. THE REASONS MUST HAVE A LINK WITH THE FORMATION OF BELIEF. IN THE CASE OF KELVINATOR OF INDIA (SUPRA), THE HONBLE SUPREME COURT WAS PLEASED TO OBSERVE AS UNDER:- THEREFORE, POST-1 ST APRIL, 1989, POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMA TIC INTERPRETATION TO THE WORDS REASON TO BELIEVE FAI LING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITR ARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMEN TS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO PO WER TO REVIEW; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERT AIN PRECONDITIONS AND IF THE CONCEPT OF CHANGE OF OPIN ION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMEN T, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVI EW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF C HANGE OF OPINION AS AN IN-BUILT TEST TO CHECK ABUSE OF P OWER BY THE ASSESSING OFFICER. HENCE, AFTER 1 ST APRIL, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN.. ITA 2088/DEL/2011 8 10. ON THE BASIS OF ABOVE DISCUSSION, WE ARE OF THE OPINION THAT THE FACTS AND CIRCUMSTANCES IN THE CASE OF P.V.S. BEEDI ES PVT. LTD. (SUPRA) WERE THAT AN IMPORTANT MATERIAL FACT WAS REVEALED B Y THE INTERNAL AUDIT PARTY THAT THE RECOGNITION GRANTED TO THE CHARITABL E TRUST HAD EXPIRED. THEREFORE, THE ENTIRE SCENE CHANGED AND HONBLE SUP REME COURT HELD THAT THE RE-OPENING OF ASSESSMENT IS JUST AND PROPE R IN THE LIGHT OF THIS MATERIAL NEW FACT. THIS WAS NOT BEFORE THE AO AT T HE TIME OF EARLIER ASSESSMENT. BUT IN THE PRESENT CASE, ANNUAL ACCOUN TS AND PROFIT AND LOSS ACCOUNT WERE PRODUCED BEFORE THE AO AT THE TIM E OF EARLIER ASSESSMENT. ON THE BASIS OF THESE ANNUAL ACCOUNTS AND PROFIT AND LOSS ACCOUNTS, THE AUDIT PARTY MADE A LEGAL OBJECTION TH AT THE ASSESSEE COMPANY HAS SHOWN SALES NET OF SALES TAX AND THE ASSESSEE COMPANY ALSO CLAIMED A DEDUCTION OF RS. 2,70,05,217/- UNDER THE HEAD SALES TAX BY DEBITING TO PROFIT AND LOSS ACCOUNT AND THE SAME WAS FOUND IRREGULAR. ON THE BASIS OF THIS LEGAL OBJECTION, T HE AO RE-OPENED THE ASSESSMENT BY THE ORDER DATED 05.03.2009 RECORDING REASONS AS STATED BELOW:- IN THIS CASE, ASSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 29.3.2005 AT INCOME OF RS.1,55,63,89,660/-. THE REVENUE AUDIT HAS POINTED OUT THAT THE ASSESSEE COMPANY CLAIMED A DEDUCTION OF RS.27,00,5217/- UNDER THE HEAD SALES TAX BY DEBITIN G TO PROFIT AND LOSS ACCOUNT AS MENTIONED IN CLAUSE 12(B ) OF ITA 2088/DEL/2011 9 3CD REPORT. ON VERIFICATION OF ASSESSMENT RECORD I T IS REVEALED THAT THE COMPANY HAD SHOWN THE SALES NET OF SALES TAX AS MENTIONED IN NOTES TO ACCOUNT SETS 15 ATTACHED WITH ANNUAL ACCOUNTS. AS THE COMPANY SHOW N THE SALES NET OF SALES TAX, THE DEDUCTION OF SALE S TAX PAID WAS IRREGULAR. THE OMISSION TO ALLOW THE DEDU CTION OF RS.27,00,5217/- OF SALES TAX RESULTED IN UNDER ASSESSMENT OF INCOME BY THE SAME AMOUNT INVOLVING S HORT LEVYING OF TAX OF RS. 96,40,860/-. 11. WE ARE, THEREFORE, CONSTRAINED TO OBSERVE THAT THE REASONS RECORDED BY THE AO ARE ON THE BASIS OF REVENUE AUDI T REPORT DATED 30.10.2002 CLAUSE 12(B). THE COUNSEL APPEARING FOR THE AR FORCEFULLY ALLEGED THAT THE ANNUAL ACCOUNT WITH PROFIT & LOSS ACCOUNT WAS SUBMITTED TO THE AO AND THEY WERE VERY WELL BEFORE HIM AT THE TIME OF EARLIER ASSESSMENT. HE ALSO ADDED THAT MERELY ON T HE BASIS OF LEGAL OBJECTIONS MADE BY THE REVENUE AUDIT PARTY, THE RE- OPENING OF ASSESSMENT IS NOT PERMISSIBLE. 12. WE FURTHER OBSERVE THAT THE FACTS AND CIRCUMSTA NCES IN THE CASE OF P.V.S. BEEDIES PVT. LTD. (SUPRA) ARE NOT COMPARA BLE WITH THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN OUR RESP ECTFUL OPINION, THE FACTS OF THE JUDGMENT IN ABOVE CASE ARE DIFFERENT F ROM THE PRESENT CASE OF THE REVENUE, THEREFORE, THE BENEFIT OF THE RATIO OF ABOVE JUDGMENT IS NOT AVAILABLE TO THE APPELLANT REVENUE. ITA 2088/DEL/2011 10 13. IN A RECENT JUDGEMENT BY THE HONBLE JURISDICT IONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS SIMBHAOLI SUGAR MILL S LTD. (2011) 11 TAXMANN.COM 192 (DELHI) , IT WAS HELD THAT, WHERE THE ASSESSEE MADE COMPLETE DISCLOSURE OF PARTICULARS BEFORE THE AO IN THE PROCEEDINGS OF ASSESSMENT U/S 143(3) OF THE ACT, THE AO WAS NOT JU STIFIED IN INITIATING RE-ASSESSMENT PROCEEDINGS AFTER EXPIRY OF FOUR YEAR S FROM THE RELEVANT ASSESSMENT YEAR MERELY ON THE BASIS OF INTERNAL AUD IT REPORT. 14. ON THE BASIS OF ABOVE DISCUSSION, THE SUM AND S UBSTANCE IS THAT THE REASSESSMENT PROCEEDINGS U/S 147 R/W SECTION 14 8 OF THE ACT CANNOT BE INITIATED MERELY BASED ON THE LEGAL OBJEC TIONS IN THE AUDIT REPORT BECAUSE AN AUDIT IS PRINCIPALLY INTENDED FOR THE PURPOSE OF SATISFYING THE AUDITOR WITH REGARD TO SUFFICIENCY O F RULES AND PROCEDURES PRESCRIBED FOR THE PURPOSE OF SECURING A N EFFECTIVE CHECK ON THE ASSESSMENT, COLLECTION AND PROPER ALLOCATION OF REVENUE. THEREFORE, WE CONCLUDE WITH THE FINAL OBSERVATION T HAT THE AO WAS NOT JUSTIFIED IN THE PROCEEDINGS OF REOPENING OF ASSESS MENT PERTAINING TO AY 2002-03 ON THE BASIS OF AUDIT OBJECTIONS REGARDI NG ANNUAL ACCOUNTING REPORT. WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF LD. CIT(A) IN ALLOWING THE APPEAL OF THE A SSESSEE. HENCE, THIS ITA 2088/DEL/2011 11 APPEAL BY THE REVENUE HAS NO MERIT AND THE SAME DES ERVES TO BE DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.4.2012. SD/- SD/- (SHAMIM YAHYA) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 12 TH APRIL, 2012 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR
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