M/s. Gujarat State Fertilisers & Chemicals Ltd., Baroda V. The DY.CIT.,Circle-1(1), Baroda

ITA 2445/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85585 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: S R SHAH
• Keywords: Reopening of assessment; Depreciation; Earning of tax free income; Source of fund; Tangible material; Difference of opinion; Revised return; Change of opinion
• Section: 143(3); 14A; 115JB; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFO RE SHRI SHAILENDRA KR. YADAV, J.M. & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 2444 & 2445 / AHD/ 20 1 1 (A SSESSMENT YEAR S : 2006 - 0 7 & 2007 - 08) GUJARAT STATE FERTILIZERS & CHEMICALS LIMITED P.O. FERTILIZER NAGAR, VADODARA - 391 750 V/S D.C.I.T, CIRCLE - 1( 1), BARODA (APPELLANT) (RESPONDENT) PAN: AAACG 7996 C APPELLANT BY : SHRI S.R.SHAH, A.R. RESPONDENT BY : SHRI DINESH SINGH, SR. D.R. ( )/ ORDER DATE OF HEARING : 01 - 01 - 2015 DATE OF PR ONOUNCEMENT : 30 - 01 - 2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE 2 APPEALS FILED BY THE ASSESSEE ARE AGAINST THE ORDER OF CIT(A) - I, BARODA DATED 1.07.2011 FOR A.Y. 2006 - 07 & 2007 - 08 RESPECTIVELY . 2. BEFORE US, AT THE OUTSET, THE LD. A.R. SUBMITTE D THAT THOUGH THE APPEALS PERTAINS TO 2 DIFFERENT YEARS, BUT MOST OF THE GROUNDS ARE COMMON AND THEREFORE BOTH THE APPEALS CAN BE HEARD TOGETHER. WE THEREFORE PROCEED TO DISPOSE OF BOTH THE APPEALS BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE TH US PROCEED WITH THE FACTS OF A.Y. 2006 - 07 IN ITA NO. 2444/AHD/2011. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. ITA NO S. 2444 & 2445/AHD/2011 . A.Y S . 2006 - 07 & 2007 - 08 2 4. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF FERTILIZERS AND CHEMICALS. AS SESSEE FILED ITS ORIGINAL RETURN OF INCOME FOR A.Y. 2006 - 07 ON 29.12.2006 DECLARING TOTAL INCOME OF RS. 49,78,97,223/ - AFTER CLAIMING SET OFF OF BROUGHT FORWARD LOSSES AND CARRY FORWARD DEPRECIATION. THEREAFTER ASSESSEE FILED REVISED RETURN OF INCOME ON 30 .10.2007 . T HE ASSESSMENT WAS INITIALLY FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 26.12.2008 AND THE TOTAL INCOME WAS DETERMINED AT RS. 202,70,19,60 0 / - AND THE BOOK PROFIT OF RS. 423,99,08,469/ - . SUBSEQUENTLY, THE ASSES SMENT WERE REOPENED BY ISSUING NOT ICE U/S. 148 ON 12.03.2010 AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) R.W.S. 147 VIDE ORDER DATED 29.11.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS. 432,03,06,066/ - AND THE BOOK PROFIT AT RS. 395,23,91,496/ - AGGRIEVED BY THE ORDER OF A.O., ASSE SSEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 01 .0 7.201 1 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE A FORESAID ORDER OF CIT(A) ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED VARIOUS GROUNDS WHICH HAVE BEEN LATER ON CONCISED ON 30.12.2014 AND THE SAME READS AS UNDER: - 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS ERRONEOUS AND CONTRARY TO THE PROVISIONS OF LAW & FACTS OF THE CASE AND THEREFORE NEEDS TO BE SUITABLY MODIFIED. IT IS SUBMITTED THAT IT BE SO DONE NOW. 2. THE LEARNED CIT( A) HAS ERRED IN UPHOLDING THE ACTION OF THE A.O. IN REOPENING THE ASSESSMENT U/S 147 OF THE ACT DESPITE THE FACT THAT: I. THERE WAS NO TANGIBLE MATERIAL OTHER THAN THAT ALREADY ON RECORD AT TIME OF ORIGINAL ASSESSMENT II. REOPENING IS BASED ON MERE CHANGE OF OPIN ION III. THE ISSUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS SUBJECT MATTER OF APPEAL BEFORE ITAT IN ORIGINAL PROCEEDINGS IV. THE ISSUE OF ADDITION OF FBT TO BOOK PROFIT WAS COVERED IN FAVOUR OF THE APPELLANT VIDE CBDT CIRCULAR NO. 8/2005 AND ACCORDINGLY, TH ERE WAS NO ESCAPEMENT OF INCOME 3. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A DESPITE THE FACT THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS AND THAT THE AO HAD NOT ESTABLISHED NEXUS BETWEEN INVESTMENT AND BORROW ED FUNDS. IT IS SUBMITTED THAT IT BE SO HELD NOW. 4. THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 50 LACS ON ACCOUNT OF ADMINISTRATIVE EXPENSES RELATABLE TO EXEMPT INCOME WHICH WAS UNREASONABLE HAVING REGARD TO THE FACTS OF THE CASE AND D ERIVED AT ON AN ADHOC BASIS. IT IS SUBMITTED THAT IT BE SO HELD NOW AND THE DISALLOWANCE CONFIRMED BY CIT(A) BE DELETED. 5. GROUND NO. 1 & 2 ARE IN CONNECTION WITH CHALLENGING THE REOPENING OF ASSESSMENT. 6. BEFORE US, LD. A.R. SUBMITTED THAT THE ORIGINAL AS SESSMENT PROCEEDINGS U/S. 143(3) CONCLUDED VIDE ORDER DATED 26.12.2008 AND THEREAFTER NOTICE U/S. 148 WAS ITA NO S. 2444 & 2445/AHD/2011 . A.Y S . 2006 - 07 & 2007 - 08 3 ISSUED ON 12.03.2010 AND THE REASON FOR RE - OPENING THE ASSESSMENT WERE TWO , NAMELY DISALLOWANCE U/S. 14A AND ADDITION OF FRINGE BENEFIT TAX (FBT) TO B OOK PROFITS COMPUTED U/S. 115JB OF THE ACT. WITH RESPECT TO THE DISALLOWANCE U/S. 14A LD. A.R. SUBMITTED THAT THE DETAILS OF EXEMPT INCOME AND SOURCE OF FUNDS INVESTED IN SECURITIES FROM WHICH THE EXEMPT INCOME WERE FURNISHED TO THE A.O DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND AT THAT TIME ASSESSEE HAD ALSO SUBMITTED ITS JUSTIFICATION FOR NOT DISALLOWING EXPENDIT URE U/S. 14A. HE FURTHER SUBMITTED THAT THE A.O AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOR THE REASONS RECORDED AT PARA 5 OF THE ORIGINAL ASSESSMENT ORDER , MADE A DISALLOWANCE OF RS. 1,42,82,000/ - U/S. 14A MEANING THEREBY THAT THE ISSUE OF DISALLOWANCE U/S. 14A WAS EXAMINED BY A.O IN ORIGINAL ASSESSMENT PROCEEDINGS . HE FURTHER SUBMITTED THAT THE ASSESSMENT HAS BEEN RE - OPENED TO REVIEW THE DISALLOWANCE MADE U/S. 14A AND RE - COMPUTE THE DISALLOWANCE AS PER RULE 8D. HE FURTHER SUBMITTED THAT PROVISIONS OF RULE 8D HAVE BEEN INSERTED WITH EFFECT FROM 24.03.2008 AND ARE APPLICABLE FROM A.Y. 2008 - 09 ONWARDS AND THUS WERE NOT AP PLICABLE TO THE YEAR UNDER CONSIDERATION . HE FURTHER SUBMITTED THAT RE - ASSESSMENT IS CLEARLY BASED ON THE CHANGE OF OPINION ON THE ISSUE WHICH HAS ALREADY BEEN DEALT WITH IN DETAIL AND DECIDED IN THE ORIGINAL ASSESSMENT AND THEREFORE THE REASSESSMENT WAS N OT PERMISSIBLE . HE FURTHER PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. (2010) 320 IR 561 (SC), GUJARAT POWER CORPORATION LTD. VS. ACIT (2012) 26 TAXMAN.COM 51 (GUJ). WITH RESPECT TO THE ADDITION OF FBT TO BOOK PROFIT , TH E LD. A.R. SUBMITTED IN THE REASON FOR REOPENING IT WAS STATED THAT FBT WAS NOT ADDED TO THE PROFITS FOR COMPUTING BOOK PROFITS U/S. 115JB AND THEREFORE THERE WAS ESCAPEMENT OF INCOME. THE LD. A.R. SUBMITTED THAT QUESTION NO. 103 OF CIRCLULAR 8/05 ISSUED B Y CBDT CLEARLY MENTIONS THAT FBT IS ALLOWABLE AS DEDUCTION WHILE COMPUTING BOOK PROFIT AND FURTHER THE CIRCULAR ISSUED BY CBDT ARE BINDING ON THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT IN VIEW OF THE AFORESAID CIRCULAR OF CBDT , THERE CANNOT BE ANY RE ASON BY THE A.O TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND THEREF ORE RE - OPENING IS BAD IN LAW ON BOTH THE COUNTS AND THEREFORE SUBMITTED THAT THE RE - OPENING U/S. 147 BE QUASHED BECAUSE IT IS ON ITA NO S. 2444 & 2445/AHD/2011 . A.Y S . 2006 - 07 & 2007 - 08 4 ACCOUNT OF CHANGE OF OPINION AND FURTHER THERE IS NO ES CAPEMENT OF INCOME . ON THE OTHER HAND LD. D.R. RELIED ON THE ORDER OF A.O AND CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ORIGINAL ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 26 .12.2008 AND THEREAFTER THE NOTICE UNDER SECTION 148 HAS BEEN ISSUED ON 12.03.2010 AND THUS RE - OPENING HAS BEEN INITIATED WITHIN A PERIOD OF 4 YEARS FROM THE END OF THE RELEVANT ASSES SMENT YEAR. SINCE THE REOPENING IS WITH A PERIOD OF 4 YEARS , THE PROVISO TO SECTION 147 OF THE ACT IS NOT APPLICABLE AND THEREFORE IT IS NOT NECESSARY FOR THE REVENUE TO PRIMA FACIE ESTABLISH THAT THERE HAS BEEN A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT WHILE ISSUING A NOTICE FOR RE - OPENING A COMPLETED ASSESSMENT. HOWEVER IT IS A SETTLED LAW THAT EVEN IN CASE OF RE - OPENING OF ASSESSMENT WITHIN A PERIOD OF 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YE ARS, THE A.O HAS TO HAVE REASONS TO BELIEVE THAT INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT ON THE BASIS OF TANGIBLE MATERIAL. FURTHER, WHEN ALL MATERIAL FACTS NECESSARY FOR DETERMINATION OF THE INCOME HAS BEEN DISCLOSED BY THE ASSESSEE AND THE A.O HAS TAKEN A PARTICULAR VIEW ON THOSE DISCLOSED FACTS WHILE PASS ING THE ASSESSMENT ORDER IN REGULAR PROCEEDINGS, THEN WITHOUT ANYTHING MORE, IT WOULD NOT BE OPEN FOR THE A.O TO RE - OPEN THE ASSESSMENT PROC EEDINGS AS REOPENING IN SUCH A CASE WOULD BE REOPENING ON ACCOUNT OF CHANGE OF OPINION. IN THE PRESENT CASE THE REAS ONS FOR RE - OPENING INDICATE THAT THE RE - OPENING HAS BEEN INITIATED ON TWO GROUNDS NAMELY DISALLOWANCE U/S. 14A AND ON ACCOUNT OF NON ADDITION OF FBT TO DETERMINE THE BOOK PROFIT FOR THE PURPOSE OF COMPUTING TAX U/S. 115JB. WITH RESPECT TO THE DISALLOWANCE U/S. 14A WE FIND THAT A.O AT PARA 5 OF THE ORIGINAL ASSESSMENT ORDER PASSED ON 26.12.2008 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAD COME TO THE CONCLUSION THAT AS AGAINST NIL EXPENSES SAID TO HAVE BEEN INCURRED BY ASSESSEE AND THEREFORE NO DISAL LOWANCE U/S. 14A, A.O WORKED OUT THE DISALLOWANCE U/S. 14A AT R S . 1.43 CRORES. THUS IT CAN BE SEEN THAT THE A.O IN THE COURSE OF ORIGINAL PROCEEDINGS AND ON THE BASIS OF SUBMISSIONS MADE BY THE ITA NO S. 2444 & 2445/AHD/2011 . A.Y S . 2006 - 07 & 2007 - 08 5 ASSESSEE HAD FORMED AN OPINION ABOUT THE DISALLOWANCE TO BE MA DE U/S. 14A AND HAD ACCORDINGLY MADE THE DISALLOWANCE AND IN SUCH A SITUATION THE REOPENING ON ACCOUNT OF DISALLOWANCE U/S. 14A WOULD BE IN OUR VIEW A CASE OF CHANGE OF OPINION . WITH RESPECT TO THE ADDITION OF FBT TO BOOK PROFIT , WE FIND THAT CBDT IN CIRCU LAR NO. 8/0 5 DATED 29.08.2005 HAS OPINED THAT FBT IS ALLOWABLE DEDUCTION IN COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT AND IN SUCH A SITUATION IN THE PRESENT CASE , IT CANNOT BE SAID THAT THE ASSESSEE S ACTION IN NOT ADDING THE FBT TO BOOK PROFIT HAS RESULTED INTO ESCAPEMENT OF INCOME. FURTHER , BEFORE US REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE AFORESAID C IRCULAR ISSUED BY CBDT H AS BEEN WITHDRAWN BY THE APPROPRIATE AUTHORITIES . IN VIEW OF THE AFORESAID FACTS AND RELYING ON THE DECISIONS RELIED UPON BY LD. A.R. , WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE RE - OPENING IS NOT PERMISSIBLE AS PER LAW . WE THUS SET ASIDE THE RE - OPENING OF THE ASSESSMENT ORDER DATED 29.11.2010 AND ALSO ALL CONSEQUENTIAL ORDERS. THUS THE GROUNDS OF ASSESSEE IS ALLOWED. SINCE THE ISSUE OF RE - OPENING HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE, T HE OTHER TWO GROUNDS OF THE ASSESSEE HAVE BECOME ACADEMIC AND THEREFORE NOT ADJUDICATED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. WE NOW P ROCEE D WITH ITA NO. 2445/AHD/2011 FOR A.Y. 2007 - 08 . THE GROUNDS RAISED BY ASSESSEE READS AS UNDER: - 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS ERRONEOUS AND CONTRARY TO THE PROVISIONS OF LAW & FACTS OF THE CASE AND THEREFORE NEEDS TO BE SUITABLY MODIFIED. IT IS SUBMITTED THAT IT BE SO DONE NOW. 2. THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE A.O. IN REOPENING THE ASSESSMENT U/S 147 OF THE ACT DESPITE THE FACT THAT: (I) THERE WAS NO TANGIBLE MATERIAL OTHER THAN THAT ALREADY ON RECORD AT TIME OF ORIG INAL ASSESSMENT (II) REOPENING IS BASED ON MERE CHANGE OF OPINION (III) THE ISSUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS SUBJECT MATTER OF APPEAL BEFORE ITAT IN ORIGINAL PROCEEDINGS 3. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXP ENDITURE U/S 14A DESPITE THE FACT THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS AND THAT THE AO HAD NOT ESTABLISHED NEXUS BETWEEN INVESTMENT AND BORROWED FUNDS. IT IS SUBMITTED THAT IT BE SO HELD NOW. 4. THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANC E OF RS. 50 LACS ON ACCOUNT OF ADMINISTRATIVE EXPENSES RELATABLE TO EXEMPT INCOME WHICH WAS UNREASONABLE HAVING REGARD TO THE FACTS OF THE CASE AND DERIVED AT ON AN ADHOC BASIS. IT IS SUBMITTED THAT IT BE SO HELD NOW AND THE DISALLOWANCE CONFIRMED BY CIT(A ) BE DELETED. ITA NO S. 2444 & 2445/AHD/2011 . A.Y S . 2006 - 07 & 2007 - 08 6 5. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT ADJUDICATING THE GROUND WITH RESPECT TO GRANT OF MAT CREDIT HOLDING THAT THE MATTER RELATES TO ORDER OF CIT (A) FOR A.Y. 2007 - 08. IT IS SUBMITTED THAT IT BE SO HELD NOW. 6. THE LEARNED CIT( A) HAS ERRED ON FACTS AND IN LAW IN NOT ADJUDICATING THE GROUND WITH RESPECT TO GRANT OF FURTHER CREDIT OF TDS OF RS. 42,08,976/ - . IT IS SUBMITTED THAT IT BE SO HELD NOW. 10. BEFORE US, LD. A.R. SUBMITTED THAT GROUND NO. 5 & 6 ARE NOT PRESSED AND THEREFORE TH E SAME ARE DISMISSED AS NOT PRESSED. 11. WITH RESPECT TO THE OTHER GROUNDS , SINCE IT IS SUBMITTED BY BOTH THE PARTIES THAT THE FACTS ARE IDENTICAL TO THAT OF A.Y. 2006 - 07 , WE THEREFORE FOR THE REASONS STATED HEREINABOVE WHIL E DECIDING THE CASE IN A.Y. 2006 - 0 7 AND FOR SIMILAR REASONS ALLOW THE GROUNDS OF ASSESSEE IN THE CAPTIONED APPEALS. 12. IN THE RESULT, THE APPEAL IN PARTLY ALLOWED. 13. IN THE RESULT, BOTH THE APPEAL S OF ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 30 - 01 - 201 5 . SD/ - SD/ - (SHAI LENDRA KR. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. T RUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPO NDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD