Ramanasekhar Steels Ltd. , Coimbatore V. The Assistant Commissioner of Income Tax, Corporate Range -5, Chennai

ITA 2319/CHNY/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 5479 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 21-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Tangible material; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 147; 148; 139; 143(3)

Judgement Text

आयकर अपीलीय अिधकरण ’डी’ Ɋायपीठ चेɄई मŐ। IN THE INCOME TAX APPELLATE TRIBUNAL“D” BENCH, CHENNAI BEFORE SHRI C.M. GARG, JM & SHRI ARUN KHODPIA, AM आयकर अपील सं./ITA No.2319/Chny/2017 (िनधाŊरण वषŊ / Assessment Year : 2007-2008) M/s Ramanasekhar Steels Ltd. Akshaya Plaza, III Floor, New No.108, Harris Road, Coimbatore-600002 Vs The ACIT, Corporate Range-5, Chennai PAN No. : AAACR 2252 A (अपीलाथŎ /Appellant) .. (ŮȑथŎ / Respondent) िनधाŊįरती की ओर से /Assessee by : Shri G.Baskar, Advocate राजˢ की ओर से /Revenue by : Shri G.Jonhnson, Addl. CIT सुनवाई की तारीख / Date of Hearing : 24/02/2022 घोषणा की तारीख/Date of Pronouncement : 31/03/2022 आदेश / O R D E R Per C.M.Garg, JM : This is an appeal filed by the assessee against the order of the CIT(A)-3, Chennai, dated 30.06.2017 for the assessment year 2007-2008. 2. Ld. Counsel of the assessee submitted that the assessment order pertaining to present appeal is A.Y.2007-2008 and as per first proviso to Section 147 of the Act, no action shall be taken against the assessee under the section after expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason ITA No.2319/Chny/2017 2of the failure on the part of the assessee 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 fully and truly all material facts necessary for his assessment. Ld. Counsel drew our attention towards reasons recorded by the AO vide dated 25.03.2014, copy of which has been submitted by the department before this Bench on 13.01.2022 with a covering letter from the AO vide dated 11.01.2021 and submitted that there is no mention by the AO against the assessee that there was any failure on the part of the assessee to disclose fully and truly all material facts relevant to his assessment for A.Y. 2007-2008. Ld. Counsel vehemently pointed out that only on this count initiation of reassessment proceedings u/s.147 of the Act, notice u/s.148 of the Act, impugned reassessment and first appellate order along with all relevant proceedings are to be held as bad in law and, thus, same should be quashed. Ld. Counsel also submitted that from the reasons recorded, which is clearly discernible there was no new tangible material in the hands of the AO at the time of initiation of reassessment proceedings, therefore, the action of the AO has to be held as bad in law on this count in view of the decision of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator India Ltd. 320 ITR 561 (SC) and the recent decision of the Hon’ble Supreme ITA No.2319/Chny/2017 3Court in the case of ACIT Vs. Marico Ltd., in Special Leave Petition (Civil) No.7367/2020, dated 01.06.2020. 3. Replying to the above, ld. Sr. DR supporting the action of the AO as well as first appellate order, submitted that the original assessment u/s.143(3) of the Act was completed on 10.12.2009 accepting Nil income returned by the assessee. He further submitted that on perusal of the record, the AO noticed that the assessee has concluded that interest payment of Rs.30,97,959/-, which was disallowed u/s.43B of the Act relevant to the assessment year under consideration i.e. A.Y.2007-2008, hence, any amount included for deduction from total income as interest income written back which was already disallowed u/s.43B, need not qualify for such deduction. Therefore, the assessee failed to add back the above amount which is liable to be disallowed u/s.43B of the Act and, thus, the amount of Rs.30,97,959/- has escaped assessment. Ld. Sr. DR also drew our attention towards reasons recorded by the AO vide 25.03.2014 and submitted that under Schedule D of audit accounts of the assessee unsecured loan of Rs.617,81,998/- was shown as interest free sales tax loan but as per para 6(a) of notes forming part of account, this amounts relates to a period of five years beginning from 01.04.1999 which was ended on 31.03.2014 and amount remained unpaid to Government. Ld. Sr. DR also submitted that as the assessee ITA No.2319/Chny/2017 4company has not discharged its liability towards Government, the proportionate amount of sales tax collected and retained by the assessee pertaining to A.Y.2007-2008 has escaped assessment and the same is to be added back to the total income of the assessee. Ld. Sr. DR submitted that there was sufficient material in the hands of the AO at the time of initiation of reassessment proceedings, therefore, it is not a case of lack of intangible or fresh material and the allegation of change of opinion cannot be made against the action of AO in initiating reassessment proceedings. Therefore, initiation of reassessment proceedings u/s.147 of the Act, issuance of notice u/s.148 of the Act and impugned reassessment order and consequential proceedings are valid and the AO has assumed valid jurisdiction to initiate reassessment proceedings. Thus, the contention of the assessee may kindly be dismissed by upholding the reassessment order. 4. Placing rejoinder to the above, ld. Counsel of the assessee submitted that the AO has initiated reassessment proceedings beyond four years without fulfilling the requirement of first proviso to Section 147 of the Act and without having any new tangible material, which was not before him during the original assessment proceedings only on the basis of same material which was before the AO during the scrutiny assessment proceedings. Therefore, it is ITA No.2319/Chny/2017 5a clear case of violation of first proviso to Section 147 of the Act and reassessment order has to be held as barred by limitation and change of opinion on the same material. Therefore, ld. Counsel submitted that the action of the AO in initiating reassessment proceedings u/s.147 of the Act, issuing notice u/s.148 of the Act along with impugned reassessment order and first appellate order may kindly be quashed. 5. On careful consideration of the above rival submissions, first of all, we find it appropriate, just and proper to reproduce the reasons recorded by the AO on 25.03.2014, which reads as follows :- M/s.Ramanasekhar Steels Ltd., AAACR2252A Assessment Year (AV): 2007-08 M/s. Rarnanasekhar Steels Ltd., the Assessee ,filed its Return of Income on 02-11-2007 declaring Nil Income. During the course of Assessment proceedings , it was found that the net profit of Rs.6,20,59,744/- after making additions and allowing depreciation as per IT statement was entirely set off against the carry forward losses for earlier years relating to 2000-01 to 2006-07. The Assessee submitted revised statement of income wherein interest on term loan from SIB disallowed u/s.43B for the assessment years 2003-04 to 2007-08 and credited back to the extent of RS.4,81,14,000/- in assessment year 2007-08 was deducted and the net profit of Rs.6,20,59,744/- was reduced to Rs.1,71,06,622 and also withdrawing depreciation originally claimed to the extent of Rs.34,60,878/-. The assessment u/s 143(3) was completed on 10.12.2009 accepting 'Nil' income returned by the Assessee. On perusal of records, it is found that the Assessee has included interest payment of Rs.30, 97,959/- disallowed under 438 relating to current assessment year viz 2007-08 against withdrawal of interest in the revised returns which is not correct. As seen from the schedules attached to the Balance Sheet, under Schedule 'C -Secured Loans, an amount of Rs.2,08,68,797/- has been shown as SIB funded interest. The conversion of outstanding interest as funded loan cannot be considered as discharge of liability u/s.43B. Hence, any amount included for deduction from total income as interest income written back which was already disallowed u/s.43B ITA No.2319/Chny/2017 6need not qualify for such deduction. Therefore the assessee has failed to add back the above amount which is liable to be disallowed u/s.43B and thus RS.30, 97,959/- has escaped Assessment. Further it was found that Under Schedule 'D'- Unsecured loan, a sum of Rs.67,81,998/- has been shown as interest free sales tax loan. As per Para 6(a) of 'Notes forming part of Accounts', this amount relates to a period of 5 years beginning from 01-04-1999. As the company has not discharged its liability towards Government, the proportionate amount of sales tax collected and retained by the assessee pertaining to A.Y. 2007-08 has escaped Assessment and the same is to be added back to the Total Income of the assessee. Therefore, I have reasons to believe that the sum of Rs.98,79,957/- has escaped assessment. Sd/- (SARATHA G I.R.S.) Deputy Commissioner of Income Tax Company Circle-V(3),Chennai Copy of the above reason has been submitted before the Bench by the Sr. DR on 13.01.2022 along with a covering letter of AO dated 12.01.2021. 6. In view of the above, when we logically analyse and peruse the reasons recorded by the AO for A.Y.2007-2008 for initiation of reassessment proceedings for A.Y.2007-2008 by recording reasons on 25.03.2014, then we clearly find that as per proviso to section 147(1) of the Act, the AO was empowered and entitled to pass reassessment order u/s.143(3)/147 of the Act on or before 31.03.2012 but in the present case the action of initiation of reassessment proceedings was stated on 25.03.2014 by recording reasons and by issuing notice on the same date. We also find it ITA No.2319/Chny/2017 7profitable to reproduce the first proviso to Section 147 of the Act applicable for A.Y.2007-2008, which reads as under :- Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee 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 fully and truly all material facts necessary for his assessment, for that assessment year: 7. From careful reading of above noted proviso to section 147 of the Act, in our humble understanding, first limb of proviso states that no order of reassessment shall be made after expiry of four years from the end of the relevant assessment year which was sought to be reopened by the AO for the purpose of making reassessment. In the present case, the limit of four years ended on 31.03.2012, therefore, after this date, the AO was not entitled and empowered to initiate reassessment proceedings against the assessee, however, second limb of first proviso to section 147 of the Act again empowers the AO to initiate reassessment proceedings in a case where it is found that there was a failure on the part of the assessee to disclose fully and truly all relevant facts and material relevant to his assessment. For invoking second limb of first proviso to section 147(1) of the Act, the AO is duty bound to record an allegation against the assessee in the reasons recorded for initiation of reassessment proceedings that any income chargeable to tax has ITA No.2319/Chny/2017 8escaped assessment for such assessment years by the reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. From the reasons recorded by the AO on 25.03.2014(supra), it is very much clear that no such allegation has been noted by the AO against the assessee in the reasons recorded and we are unable to see any indication of the AO to invoke second limb of first proviso of section 147 of the Act to initiate action against the assessee for reassessment for A.Y.2007-2008 beyond the period of four years, therefore, we are compelled to hold that the initiation of reassessment proceedings u/s.147 of the Act, issuance of notice u/s.147 of the Act, impugned reassessment order as well as first appellate order are hit by second limb of first proviso to section 147 of the Act, therefore, on this count entire action of the AO including impugned reassessment order and first appellate order deserves to be quashed. 8. So far as second part of the arguments of the assessee, we are of the considered view that from the reasons recorded by the AO vide dated 25.03.2014(supra), we clearly note that the AO has only perused the relevant records as well as Notes forming part of Accounts by initiating action against the assessee for reassessment proceedings for A.Y.2007-2008 and there was no new tangible ITA No.2319/Chny/2017 9material in the hands of the AO, which was not before him during original scrutiny assessment proceedings, therefore, it is a clear case of change of opinion, which is again hit by the recent decision of the Hon’ble Supreme Court in the case of Marico Ltd.(supra). The initiation of reassessment proceedings u/s.147 of the Act, notice u/s.148 of the Act, impugned reassessment and first appellate order also deserves to be quashed on this count and we hold so. Thus, grounds No.1 to 4 are allowed on legal grounds. 9. Since by earlier part of this order, we have quashed the impugned reassessment order, therefore, grounds No.5 to 7 on merits, become academic and we are not adjudicating upon the same. 10. In the result, appeal filed by the assessee is partly allowed on legal grounds. Order pronounced as per Rule 34(4) of the ITAT Rules,1963 on 31/03/ 2022. Sd/- (ARUN KHODPIA) Sd/- (C.M.GARG) लेखा सद˟ /ACCOUNTANT MEMBER Ɋाियक सद˟ / JUDICIAL MEMBER Chennai; िदनांक Dated 31/03/2022 Prakash Kumar Mishra, Sr.P.S. ITA No.2319/Chny/2017 10 आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant- 2. ŮȑथŎ / The Respondent- 3. आयकर आयुƅ(अपील) / The CIT(A), 4. आयकर आयुƅ / CIT 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, Chennai / DR, ITAT, Chennai 6. गाडŊ फाईल / Guard file.