ACIT, CHENNAI V. M/s. Sterling Tree Magnum India Ltd., CHENNAI

ITA 2152/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57914 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-02-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 22-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Keywords: Source of fund; Difference of opinion; Change of opinion
• Section: 143(3); 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI N. S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO. 1672/MDS/2010 ASSESSMENT YEAR : 2002-03 M/S. STERLING TREE MAGNUM INDIA LTD., NEW NO. 2, OLD NO. 21, 1 ST STREET,VISWANATHAPURAM, KODAMBAKKAM, CHENNAI-600 024. V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-VI(4), CHENNAI. (PAN: AAACS3057J) A N D I.T.A. NO. 2152/MDS/2010 ASSESSMENT YEAR 2002-03 THE ASSISTANT COMMISSIONER V. M/S. STERLING TREE MAGNUM OF INCOME-TAX, INDIA LTD., COMPANY CIRCLE-VI(4), CHENNAI. CHENNAI-600 024. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI G. BASKAR, ADVOCATE DEPARTMENT BY : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEARING : 07-02-2012 DATE OF PRONOUNCEMENT : 1 0/02/2012 O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : ITA NO. 1672/MDS/2010 IS AN APPEAL FILED BY THE ASSESSEE AND ITA NO. 2152/MD S/2010 IS AN APPEAL FILED BY I.T.A. NOS. 1672 & 2152/MDS/2010 2 THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(AP PEALS)-V, CHENNAI IN ITA NO. 347/2009-10 DATED 15-09-2010 FOR THE ASSESSMENT YEA R 2002-03. 2. SHRI G. BASKAR, ADVOCATE REPRESENTED ON BEHALF O F THE ASSESSEE AND SHRI SHAJI P. JACOB, LEARNED SR. DR REPRESENTED ON BEHAL F OF THE REVENUE. 3. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRE SENTATIVE THAT IN THE ASSESSEES APPEAL THE ASSESSEE HAS CHALLENGED THE A CTION OF THE LEARNED CIT(A) IN CONFIRMING THE RE-OPENING OF THE ASSESSMENT AS A LSO THE ACTION OF THE LEARNED CIT(A) IN CONFIRMING AN ADDITION TO THE EXTENT OF ` 1,99,64,992/-. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ASSESSEE IS A COMPANY WHICH IS IN THE BUSINESS OF DEVELOPMENT, MA INTENANCE AND SALE OF TEAK TREES ON UNIT BASIS. IT WAS THE SUBMISSION THAT TH E ASSESSEE HAD FILED ITS RETURN OF INCOME ORIGINALLY ON 30-03-2004 AND THE SAID RET URN WAS PROCESSED AND AN ASSESSMENT ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT FOR SHORT) HAD BEEN ISSUED ON 31-03-2005. IT WAS T HE SUBMISSION THAT SUBSEQUENTLY THE ASSESSING OFFICER HAD ISSUED A NOT ICE U/S 148 DATED 24-03-2009 WHICH WAS BEYOND THE FOUR YEAR PERIOD. IT WAS THE SUBMISSION THAT THE REASONS RECORDED BY THE ASSESSING OFFICER FOR THE PURPOSE O F RE-OPENING WERE THAT FROM 01-04-2000 THE ASSESSEE HAD CHANGED THE ACCOUNTING POLICY. IT WAS THE SUBMISSION THAT IN THE REASONS RECORDED THE ASSESSI NG OFFICER HAD HELD THAT TILL 31-03-2000 THE ASSESSEE COMPANY HAD RECOGNIZED THE AMOUNT COLLECTED ON THE SALE OF TREE UNITS AS ITS INCOME AND OUT OF THE INC OME SO RECEIVED PART OF IT WAS I.T.A. NOS. 1672 & 2152/MDS/2010 3 OFFERED IN THE YEAR IN WHICH THE SALES TOOK PLACE A ND THE BALANCE AMOUNT WAS TREATED AS DEFERRED INCOME OVER A PERIOD OF THE SCH EME AND WHICH WAS TAKEN TO THE BALANCE SHEET AS ADVANCE FOR PLANTATION MAINTE NANCE. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER HAD RECORDED THAT FROM 01-04-2000 THE ASSESSEE HAD CHANGED ITS ACCOUNTING POLICY AND ACCO RDING TO THE NEW ACCOUNTING POLICY, THE AMOUNT RECEIVED ON THE SALE OF TEAK EQU ITY WAS TREATED AS RECEIPT TOWARDS SALE OF UNITS OF THE SCHEME AND TAKEN TO TH E BALANCE SHEET AS SOURCE OF FUND. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER ON THE GROUND THAT THERE WAS NO PROVISION IN THE INCOME TAX ACT FOR DE FERMENT OF INCOME SPREADING OVER A PERIOD OF SCHEME BEING 20 YEARS HAD RECORDED HIS REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. I T WAS THE SUBMISSION THAT WHEN THE ORIGINAL ASSESSMENT ORDER WAS PASSED U/S 1 43(3), THESE FACTS WERE VERY MUCH BEFORE THE ASSESSING OFFICER. IT WAS THE SUBMISSION THAT IN THE REASONS RECORDED THE ASSESSING OFFICER HAS NOT MENT IONED THAT THERE WAS ANY FAULT ON THE PART OF THE ASSESSEE NOT TO DISCLOSE T RUE AND FULL MATERIAL FACTS FOR THE PURPOSE OF ASSESSMENT. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO PAGE 2 OF THE PAPER BOOK WHICH WAS THE DIRECTORS REPORT TO THE SHAREHOLDERS WHEREIN IT WAS MENTIONED THAT THE CHAN GE IN THE ACCOUNTING POLICY WAS ON ACCOUNT OF THE REGULATION AND RECLASSIFICATI ON AS REQUIRED BY SEBI. HE FURTHER DREW OUR ATTENTION TO PAGE 6 OF THE PAPER B OOK WHICH WAS THE AUDITORS REPORT WHEREIN ALSO THE CHANGE IN THE ACCOUNTING PO LICY HAS BEEN MENTIONED TO I.T.A. NOS. 1672 & 2152/MDS/2010 4 BE BASED ON THE SEBI (COLLECTIVE INVESTMENT SCHEME) REGULATIONS, 1999 WHICH IS ALSO RECORDED IN NOTE 1.1 OF THE SCHEDULE 14 ON ACC OUNT FORMING PART OF THE BALANCE SHEET. IT WAS THE FURTHER SUBMISSION THAT DURING THE RELEVANT ASSESSMENT YEAR THERE WAS NO SALE INSOFAR AS THE AS SESSEE HAD STOPPED THE SALE OF TEAK UNITS IN 1998 ITSELF. IT WAS THE SUBMISSI ON THAT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. FOR AMER FRANCE REPORTED IN 264 ITR 566 AS ALSO THE DECISION OF THE HON'BLE JURISDI CTIONAL HIGH COURT OF MADRAS IN THE CASE OF HIGH ENERGY BATTERIES (INDIA) LTD. V. IT O REPORTED IN (2010) 43 DTR (MAD) ON THE MERE REASON THAT THE ACCOUNTING STANDA RDS UNDER WHICH THE BOOKS OF ACCOUNTS WERE MAINTAINED ARE NOT RECOGNIZED BY T HE DEPARTMENT PER SE IS NOT A REASON LOGICAL ENOUGH TO PROVIDE A PLATFORM FOR D ISCREDITING THE ACCOUNTS MAINTAINED BY THE ASSESSEE AND CONSEQUENTLY THE ABS ENCE OF ANY INDICATION AS TO THE MATERIALS AVAILABLE FOR RE-OPENING, THE NOTICE OF REASSESSMENT IS LIABLE TO BE QUASHED. IT WAS THE SUBMISSION THAT THE RE-OPENING AS DONE BY THE ASSESSING OFFICER WAS ONLY ON A CHANGE OF OPINION. 4. IN REPLY, THE LEARNED DR SUBMITTED THAT TILL THE ASSESSMENT YEAR 2000-01 THE ASSESSEE WAS OFFERING 1/20 TH OF ITS RECEIPTS FROM THE SALE OF TEAK UNITS EACH YEAR AND THE ASSESSEE WAS CLAIMING THE EXPENDITURE INCURRED IN FULL AGAINST THE SAID INCOME. FOR THE ASSESSMENT YEAR 2001-02 THE A SSESSEE HAD CHANGED ITS METHOD OF ACCOUNTING AND HAD APPLIED THE REGULATION S ISSUED BY SEBI. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD FILED ITS RETU RN FOR THE ASSESSMENT YEAR I.T.A. NOS. 1672 & 2152/MDS/2010 5 2001-02 BELATEDLY AND THE ASSESSING OFFICER HAD TRE ATED THE SAID RETURN AS NON EST AND HAD LODGED THE SAME. IT WAS THE SUBMISSION TH AT FOR THE ASSESSMENT YEAR 2002-03 WHICH IS THE YEAR UNDER APPEAL, THE RE -OPENING WAS DONE AS THE ASSESSEE HAD NOT MADE A TRUE AND FULL DISCLOSURE OF ALL THE MATERIAL FACTS. IT WAS THE SUBMISSION THAT FOR THE ASSESSMENT YEAR 2001-02 AND THE SUBSEQUENT YEARS THE ASSESSEE HAD NOT DISCLOSED EVEN THE 1/20 TH OF THE INCOME BUT HAD CLAIMED ALL THE EXPENDITURES. IT WAS THE SUBMISSION THAT SEC. 145 OF THE ACT PROVIDED FOR THE ACCOUNTING STANDARDS TO BE FOLLOWED AND THE SEBI S REGULATION WAS NOT ON THE ACCOUNTING STANDARD WHICH WAS NOTIFIED U/S 145 OF THE ACT. IT WAS THE SUBMISSION THAT THE HON'BLE SUPREME COURT IN THE CA SE OF SOUTHERN TECHNOLOGIES LTD. V. JCIT REPORTED IN 320 ITR 577 (SC) HAD CATEG ORICALLY HELD THAT RESERVE BANK OF INDIAS DIRECTION CANNOT OVERRIDE THE PROVI SIONS OF THE INCOME TAX ACT. IT WAS THE SUBMISSION THAT CONSEQUENTLY THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE ITSELF WAS IN VIOLATION OF THE PROVISI ONS OF SEC. 145 OF THE ACT AND CONSEQUENTLY IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT OF MADRAS IN THE CASE OF WCI (MADRAS) (P) LTD. V. ASSI STANT COMMISSIONER OF INCOME-TAX, REPORTED IN 324 ITR 181 (MAD), THE RE-O PENING WAS LIABLE TO BE UPHELD. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE RETURN FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2001-02 CLEARL Y SHOWS THAT THAT RETURN WAS FILED ONLY ON 30-03-2004, MUCH BEYOND THE PRESCRIBE D TIME. THE ASSESSMENT I.T.A. NOS. 1672 & 2152/MDS/2010 6 YEAR 2001-02 IS THE YEAR IN WHICH THE ASSESSEE HAD CHANGED ITS METHOD OF ACCOUNTING, I.E. THE YEAR IN WHICH THE ASSESSEE QUA NTIFIED THE CUMULATIVE EFFECT OF THE CHANGE IN THE METHOD OF ACCOUNTING. THIS RE TURN AS IT WAS FILED BELATEDLY COULD NOT BE ACTED UPON BY THE ASSESSING OFFICER AN D HAD TO BE LODGED AND TREATED AS A NON EST RETURN. COMING TO THE RETURN FOR THE RELEVANT ASS ESSMENT YEAR, BEING THE ASSESSMENT YEAR 2002-03, THE SAID R ETURN WAS ALSO FILED ON 30- 03-2004. IN THIS RETURN THOUGH THE AUDITORS REPOR T AND THE DIRECTORS REPORT ARE PRESENT STATING THAT THERE IS CHANGE IN THE ACCOUNT ING POLICY BASED ON THE SEBI (COLLECTIVE INVESTMENT SCHEMES) REGULATIONS, 1999, THE SAME WOULD NOT HAVE BEEN NOTICED BY THE ASSESSING OFFICER INSOFAR AS TH E CUMULATIVE EFFECT OF THE CHANGE IN THE ACCOUNTING POLICY WOULD NOT BE DISCLO SED AS THIS IS THE SECOND YEAR AFTER THE CHANGE IN THE ACCOUNTING POLICY HAS TAKEN PLACE. THUS WHEN THE ASSESSING OFFICER LOOKS AT THE BALANCE SHEET AND TH E PROFIT & LOSS ACCOUNT IT WOULD NOT HAVE COME TO HIS ATTENTION WITH DUE DILIG ENCE ABOUT THE CHANGE. THUS IT CAN FAIRLY BE SAID THAT THE TRUE AND FULL DISCLO SURE OF THE MATERIAL FACTS HAD NOT BEEN PLACED BEFORE THE ASSESSING OFFICER IN THE RET URN WHEN THE ORIGINAL ASSESSMENT WAS BEING DONE U/S. 143(3) OF THE ACT. FURTHER THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD., RE FERRED TO SUPRA, HAS CATEGORICALLY LAID DOWN THE PRINCIPLE THAT UNLESS T HE METHOD OF ACCOUNTING IS PRESCRIBED UNDER SEC. 145 FOR THE PURPOSE OF COMPUT ATION OF TOTAL INCOME OF THE ASSESSEE FOR INCOME-TAX PURPOSES, NO OTHER METHOD O THER THAN THE PRESCRIBED I.T.A. NOS. 1672 & 2152/MDS/2010 7 METHODS CAN BE ADOPTED. IN ANY CASE, AS WE HAVE HE LD THAT THERE HAS NOT BEEN A FULL AND TRUE DISCLOSURE OF ALL THE MATERIAL FACT S REQUIRED FOR THE PURPOSE OF COMPLETING THE ASSESSMENT, WE ARE OF THE VIEW THAT THE FINDING OF THE LEARNED CIT(A) IN CONFIRMING THE RE-OPENING OF THE ASSESSME NT IS CORRECT AND DOES NOT CALL FOR ANY INTERFERENCE. IN THE CIRCUMSTANCES GRO UNDS NO. 1.1 TO 1.5 IN THE ASSESSEES APPEAL STAND DISMISSED. 6. IN REGARD TO GROUNDS 2.1 TO 3.2 OF THE ASSESSEE S APPEAL AS ALSO GROUNDS 1 TO 3 IN THE REVENUES APPEAL IT WAS SUBMITTED BY THE LEARNED DR THAT THE ASSESSING OFFICER HAD MADE AN ADDITION OF ` 42,06,40,429/- AND THE LEARNED CIT(A) HAD REDUCED THE SAME TO ` 1,99,64,992/-. IT WAS THE SUBMISSION THAT FOR THE PURPOSE OF MAKING THE ADDITION THE ASSESSING OF FICER HAD TAKEN THE AMOUNT RECEIVED AGAINST THE SALE OF TEAK EQUITY SHOWN UNDE R UNIT CAPITAL AS ON 31.03.2002 AT ` 208,85,37,450/-. IT WAS THE SUBMISSION THAT BEFOR E THE LEARNED CIT(A) THE ASSESSEE HAD CALCULATED THE SAME BY TAKI NG THE ADVANCE TOWARDS THE CROP MAINTENANCE AT ` 112,51,21,080/-. IT WAS THE SUBMISSION THAT THIS CALCULATION AS MADE BY THE ASSESSEE AND AS ACCEPTED BY THE LEARNED CIT(A) WAS NOT BEFORE THE ASSESSING OFFICER. IT WAS THE SUBMI SSION THAT THE ISSUE OF COMPUTATION OF THE TAXABLE INCOME MAY BE RESTORED T O THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE COMPUTATION. TO TH IS SUBMISSION OF THE LEARNED DR, THE LEARNED AUTHORISED REPRESENTATIVE RAISED NO SER IOUS OBJECTIONS. CONSEQUENTLY, AS IT IS NOTICED THAT THE LEARNED CIT (A) HAS ONLY ACCEPTED THE I.T.A. NOS. 1672 & 2152/MDS/2010 8 ALTERNATE SUBMISSION OF THE ASSESSEE THAT THE ADDIT ION COULD BE ONLY 1,99,64,992/- WITHOUT HAVING THE SAME VERIFIED BY T HE ASSESSING OFFICER, ESPECIALLY WHEN THE ASSESSING OFFICER HAS MADE AN A DDITION OF ` 42,06,40,429/-, WE ARE OF THE VIEW THAT THE ISSUE OF COMPUTATION WO ULD HAVE TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATI ON AND WE DO SO. IN THE CIRCUMSTANCES, THE ISSUE OF COMPUTATION IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AFTER GRANTING THE ASSESSE E ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS COMPUTATION. IN THE CIRCUMSTANCES , GROUNDS 2.1 TO 3.2 OF THE ASSESSEES APPEAL AND GROUNDS 1 TO 3 OF THE REVENUE S APPEAL STAND ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 1672/MDS/2010 STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE APPEA L OF THE REVENUE IN ITA NO. 2152/MDS/2010 STANDS ALLOWED FOR STATISTICAL PURPOS ES. 8. THE ORDER WAS PRONOUNCED IN THE COURT ON 10/02/2 012. SD/- SD/- (N. S. SAINI) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 10 TH FEBRUARY, 2012. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE