DIAMANT INVESTMENT & FINANCE LTD, MUMBAI V. ACIT RG 2(1), MUMBAI

ITA 2491/MUM/2010

• Counselvise Citation: 249119914 RSA 2010
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 21-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: SHEETAL SH AH
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Income from undisclosed sources; Search and seizure; Earning of tax free income; Source of fund; Cost of acquisition; Tangible material; Difference of opinion; Reason to believe; Unabsorbed depreciation; Change of opinion; Reassessment proceedings
• Section: 143(3); 80HHC; 14A; 115JB; 37(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, D, MUMBAI BEFORE HONBLE PRESIDENT SHRI G.E.VEERABHADRAPPA AND SHRI D.K.AGARWAL (JM) ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) M/S DIAMANT INVESTMENT & FINANCE LTD., 9, BEAU MOON CHAMBERS, 27/33, N.M.ROAD, FORT, MUMBAI-400023 PAN:AAACD2168B ASSISTANT COMMISSIONER OF INCOME TAX RANGE-2(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 APPELLANT V/S RESPONDENT DATE OF HEARING : 11.4.2012 DATE OF PRONOUNCEMENT : 27.4.2012 APPELLANT BY : SHRI RAJAN R.VORA AND MS.SHEETAL SHAH RESPONDENT BY: SHRI C.G.K.NAIR O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17.2.2010 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2003-04. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUF ACTURING, TRADING AND EXPORT OF SILICON CARBIDE CRUCIBLE, GRAPHITE CRUCIBLE ACCESSORIES AND OTHER C ARBON PRODUCTS, FILED RETURN DECLARING TOTAL INCOME OF ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 2 RS.54,82,357/-. HOWEVER, THE ASSESSMENT WAS COMPLE TED AT AN INCOME OF 60,77,160/- VIDE ORDER DATED 27.2.2006 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT T HE ACT). SUBSEQUENTLY, THE AO AFTER RECORDING FOLLOWING REAS ONS ON 26.3.2007 ISSUED NOTICE U/S 148 DATED 28.3.2007 : REASONS FOR ISSUE OF NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 THE ASSESSEE HAS FILED RETURN OF INCOME FOR AY 2003-04 ON THE TOTAL INCOME OF RS.54,82,357/-. TH E ASSESSMENT U/S 143(3) WAS MADE ON 27.2.2006 ON THE TOTAL INCOME OF RS.60,77,160/- 2. ON VERIFICATION OF RECORDS, IT IS SEEN THAT THE ASSESSEE HAS GIVEN THE SCHEME OF SALE OF ITS UNDERT AKING IN NOTE 2(A) OF SCHEDULE 15B OF ITS ANNUAL REPO RT. AS PER AGREEMENT DATED 25.2.2003, IT SOLD TO VESUVIUS INDIA LTD. (VIL) ITS UNDERTAKING IN GIDC MEHSANA WITH EMPLOYEES, TECHNICAL KNOW HOW, FIXED ASSETS, INVENT ORIES (EXCEPTS SOME FINISHED GOODS) EFFECTIVE FROM 1 ST MARCH 2003. THE SALE CONSIDERATION WAS RS.3.89 CRORES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE DID NOT FILE THE COPY OF AGREEMENT FOR SAL E OF ITS UNIT TO VESUVIUS INDIA LTD., PARTICULARLY THE T ERMS FOR SALE AND LIST OF INVENTORY. THIS RESULTED IN UNDER ASSESSMENT ON ACCOUNT OF THE SAME. 3. ASSESSEE HAS WORKED OUT THE NET WORTH OF THE UNDERTAKING TRANSFERRED AT RS.2.29 CRORES. WHILE WO RKING OUT THE CAPITAL GAIN U/S 50B OF THE IT ACT, ASS ESSEE HAS REDUCED THE NET CONSIDERATION OF RS.3.89 CRORE S TO RS.3.07 CRORES ON ACCOUNT OF PAYMENT OF RS.0.82 CR ORES TO THOSE EMPLOYEES OF UNDERTAKING UNDER SALE, WHO H AD TAKEN VRS. HOWEVER, IN VIEW OF NEW PROVISION AVAIL ABLE IN IT ACT, INTRODUCED BY FINANCE ACT, 2002 WHERE T HE PAYMENT OF VRS IS TO BE ALLOWED AS PER SPECIFIC S ECTION 35DDA, ONLY 20% OF THE TOTAL VRS PAYMENT IS ALLOWA BLE AS DEDUCTION UNDER THIS PROVISION. THIS PAYMENT IS A BUSINESS EXPENDITURE AND SHOULD BE CLAIMED U/ S 37(1) OF THE IT ACT AND THEREFORE THE CORRECT APPLICATION OF THIS EXPENDITURE WOULD BE TO REDUCE THE BUSINESS PROFIT BY RS.0.16 CRORE AND INCR EASE ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 3 OF CAPITAL GAIN U/S 50B BY RS.0.16 CRORE. THE UNDE R ASSESSMENT OF INCOME IS WORKED OUT AS UNDER: BUSINESS INCOME AS PER RETURN OF INCOME RS.1.05 CRORES LESS: VRS EXPENDITURE (ALLOWABLE 20% 35DDA) (ONLY 20% OF RS.0.82 CRORE =0.16 CRORES IS ALLOWABLE) RS.0.16 CRORES(-) RS.0.89 CRORES LESS: INVENTORY TRANSFER INCOME RS.0.6 5 CRORES(-) BUSINESS INCOME R S.0.24 CRORES LESS: BROUGHT FORWARD LOSS RS.0. 24 CRORES(-) RS.NIL. (I) LONG TERM CAPITAL GAIN AS PER RETURN OF INCOME RS.0.78 CRO RES ADD: VRS EXPENDITURE WRONGLY CLAIMED (35DDA(6) RS. 0.82 CRORES ADD: INVENTORY VALUE WRONGLY INFLATED RS.0.64 CRORES RS.2.24 CRORES LESS: (I) UNABSORBED DEPRECIATION OF AY 2001-02 RS.0.21 CRORES RS.2.03 CRORES LESS: (I) UNABSORBED DEPRECIATION OF AY 2002-03 RS.0.20 CRORES RS.1.83 CRORES ( II) TOTAL INCOME = (I) + (II)= NIL + RS.(1.83) CRORES = RS.1.83 CRORES 4. IT WILL BE SEEN THAT THE ASSESSEE HAS RETURNED A TOTAL INCOME OF RS.0.54 CRORES. ASSESSEE HAS SUPPRESSED THE TOTAL INCOME OF RS.1.83 CRORES -0. 54 CRORES= RS.1.29 CRORES. 2. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IN THE CASE OF THE ASSESSEE FOR AY 2003- 04. FOR THE PURPOSE, ADMINISTRATIVE APPROVAL TO ISS UE THE NOTICE U/S 148 HAS BEEN ACCORDED ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 4 IN RESPONSE, THE ASSESSEE VIDE LETTER DATED 14.5.2 007 SUBMITTED THAT THE ORIGINAL RETURN FILED SHOULD BE TREATED AS FILED IN RESPECT REPLY TO THE NOTICE U/S 148. THE ASSESSEE ALSO FILED OBJECTION TO THE NOTICE IS SUED U/S 148. THE AO AFTER CONSIDERING THE ASSESSEES OBJECTIONS, HOWEVER, COMPLETED THE ASSESSMENT VIDE ORDER DATED 26.12.2007 PASSED U/S 143(3) READ WITH SECTION 148 OF THE INCOME TAX ACT, 1961 (IN SHORT T HE ACT) AS UNDER : (R S.IN LAKHS) LONG TERM CAPITAL GAIN AS SLUMP SALE NET SALE CONSIDERATION RS.307.38 ADD: VRS REIMBURSEMENT RS.81.62 RS.389.00 LESS: NET WORTH OF THE UNDERTAKING RS.228.95 LONG TERM CAPITAL GAIN I RS.160.05 BUSINESS INCOME RS.105.06 LESS: VRS EXPENDITURE U/S 35DDA @ 20% OF 81.62 LAKHS RS. 16.32 RS. 88.74 LESS: SET OFF OF UNABSORBED BUSINESS LOSS AY 2001-2002 RS.87.55 UNABSORBED DEPRECIATION AY -2001-02 RS.1.19 RS. 88.74 NET BUSINESS INCOME II RS.NIL. ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 5 LESS : UNABSORBED DEPRECIATION RS. 23.60 CAPITAL GAIN RS.136.45 3. ON APPEAL, THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE AO, UPHELD THE ORDER PASSED BY TH E AO AND DISMISSED THE APPEAL. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 5. GROUND NOS.1 AND 2 ARE AGAINST THE CONFIRMATION OF THE ORDER PASSED BY THE AO WITHOUT HAVING JURISDICTION AND IN NOT PROVIDING ENOUGH OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. 6. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS TH E ABOVE GROUNDS WHICH WAS NOT OBJECTED TO BY THE LD. DR. 7. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORTING MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, REJECTED BEING NOT PRESS ED. 8. GROUND NO.3 AND 4 ARE AGAINST THE VALIDITY OF THE ASSESSMENT PROCEEDINGS INITIATED U/S 147/148 OF THE ACT. ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 6 9. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITS THAT THE AO WAS N OT JUSTIFIED IN REOPENING THE ASSESSMENT AS NO NEW MATERIAL HAS COME TO THE NOTICE OF THE AO FOR REOP ENING OF THE ASSESSMENT. HE FURTHER SUBMITS THAT IN THE REASONS RECORDED FOR ISSUANCE OF NOTICE U/S 148, T HE AO IN PARAGRAPH 2 HAS MENTIONED THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE ASSESSEE DID NOT FILE THE COPY OF THE AGREEMENT FOR SALE OF IS UNIT TO VESUVI US INDIA LTD. ACCORDING TO THE LD. COUNSEL FOR THE AS SESSEE THE ONLY REASON FOR REOPENING OF THE ASSESSMENT IS THAT THE ASSESSEE HAS NOT FILED THE COPY OF THE AGREEMEN T OF SALE OF UNIT TO VESUVIUS INDIA LTD., PARTICULARLY T HE TERMS FOR SALE AND LIST OF INVENTORY WHEREAS THE ASSESSE E HAS DULY FILED THE COPY OF AGREEMENT ALONG WITH ALL OTH ER RELEVANT DOCUMENTS APPEARING AT PAGES 65 TO 91 OF T HE ASSESSEES PAPER BOOK. HE FURTHER SUBMITS THAT THE ASSESSEE HAS NOT ONLY FILED THE COPY OF THE BUSINES S PURCHASE AGREEMENT DATED 25.2.2003 WITH M/S VESUVIU S INDIA LTD. BUT ALSO DISCLOSED THE COMPLETE FACTS IN ITS WRITTEN NOTE FORMING THE PART OF THE RETURN APPEARI NG AT PAGE 67 OF THE ASSESSEES PAPER BOOK. HE FURTHER SUBMITS THAT THE AO, AFTER CONSIDERING THE ABOVE ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 7 MATERIAL, HAS PASSED THE ORIGINAL ASSESSMENT ORDER ACCEPTING THE LONG TERM CAPITAL GAIN ON SLUMP SA LES OF RS.78,42,871/- AS DISCLOSED BY THE ASSESSEE. HE FURTHER SUBMITS THAT THE DETAILS OF LONG TERM CAPIT AL GAINS WAS ALSO DISCLOSED AS ANNEXURE-A TO THE COMPUTATION OF INCOME AS APPEARING AT PAGE 101B TO 101E OF THE ASSESSEES PAPER BOOK. IN THE LIGHT OF THE ABOVE MATERIAL HE SUBMITS THAT IT IS NOT TRUE THAT THE ASSESSEE DID NOT FILE COPY OF AGREEMENT FOR SALE OF ITS UNIT TO VESUVIUS INDIA LTD. AND OTHER PARTICULARS. HE FURTHER SUBMITS THAT THE RE-ASSESSMENT PROCEEDINGS HAVE BEEN INITIATED WITHOUT PROPER APPRECIATION OF THE FACTS AND APPLICATION OF MIND AND SINCE THE VERY BASIS ON WHICH THE ASSESSMENT WAS RE-OPENED IS CONTRARY T O THE FACTS OF THE PRESENT CASE, THE RE-ASSESSMENT PROCEEDING INITIATED BY THE AO IS BAD IN LAW. HE F URTHER SUBMITS THAT SINCE THE ASSESSEE HAS DISCLOSED ALL T HE MATERIAL FACTS, THEREFORE, IT IS A CHANGE OF OPINIO N AND THEREFORE THE ENTIRE RE-ASSESSMENT PROCEEDINGS ARE LIABLE TO BE QUASHED. THE RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS : A) CIT V/S KELVINATOR OF INDIA LTD. (2010) 320 ITR 561(SC), B) NYK LINE (INDIA) LTD. V/S DCIT (2012) 68 DTR (BOM) 90, ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 8 C) EXPEDITORS INTERNATIONAL (INDIA) (P) LTD. V/S DCIT (2011) 138 TTJ (DEL)455; AND D) ACIT V/S SHRI AMITABH BACHCHAN IN ITA NO.2994/MUM/2008 (AY: 2002-03) DATED 19.3.2010 HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY TH E AO UNDER SECTIONS 147/148 OF THE ACT AND UPHELD B Y THE CIT(A) BE QUASHED. 10. ON THE OTHER HAND, THE LD. DR WHILE RELYING ON THE ORDER OF THE AO AND LD. CIT(A) FURTHER SUBMITS THAT SIN CE THIS ISSUE HAS NOT BEEN EXAMINED BY THE AO, IT IS NOT THE CASE OF CHANGE OF OPINION, THEREFORE, THE AO WAS FULLY JUSTIFIED IN INITIATING THE PROCEEDINGS U/S 147/148 AND, THEREFORE, THE ORDER P ASSED BY THE AO AND CONFIRMED BY THE LD. CIT(A) BE UPHELD. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD. V/S DCIT (2011) 197 TAXMAN 415 (DEL) FOR THE PROPOSITION THA T MERELY BECAUSE THE MATERIAL LIES IMBEDDED IN MATER IAL OR EVIDENCE, WHICH THE AO COULD HAVE UNCOVERED, BUT DID NOT UNCOVER, IS NOT A GOOD GROUND TO DENY OR STRIKE D OWN A NOTICE FOR RE-ASSESSMENT. THE RELIANCE WAS ALSO PLACED O N THE DECISION IN ANKITA DEPOSITS & ADVANCES (P.) LTD. V/ S CIT (2010) 193 TAXMAN 36 (HP) FOR THE PROPOSITION THAT WHERE, IN CASE, ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 9 NO OPINION HAS BEEN EXPRESSED, THEN WHATEVER BE REA SON AS LONG AS IT PRIMA FACIE SATISFIES CONSCIENCE OF COU RT, COURT WOULD NOT INTERFERE WITH THE ISSUANCE OF NOTICE. HE , THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE AO AND CONFIR MED BY HE LD. CIT(A) BE UPHELD. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE IMPUGNED NOTICE U/S 148 OF THE ACT FOR THE YEAR UND ER CONSIDERATION HAS BEEN ISSUED WITHIN FOUR YEARS AS PROVIDED IN SECTION 149(1)(A) OF THE ACT. WE FURTH ER FIND THAT THE AO HAS INITIATED THE ASSESSMENT PROCEEDINGS U/S 148 ON THE GROUND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE DID NOT FILE THE COPY OF AGREEMENT FOR SALE OF ITS UNIT TO VESUVIUS INDIA LTD., PARTICULARLY THE TERMS FOR SAL E AND LIST OF INVENTORY. THIS RESULTED IN UNDER ASSESSMEN T ON ACCOUNT OF THE SAME. HOWEVER, WE FIND THAT THE ASSESSEE WHILE FILING THE RETURN OF INCOME HAS ENCLOSED FOLLOWING DOCUMENTS :- ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 10 SL. NO. NATURE OF DOCUMENTS/ STATEMENTS NO.OF SHEETS 1 2 3 4 5 6 7 8 9 10 11 12 13 COMPUTATION OF TAXABLE INCOME AND TAX PAYABLE/(REFUNDABLE) LIST OF TDS CERTIFICATES TDS CERTIFICATES (IN ORIGINAL) CHALLAN EVIDENCING PAYMENT OF SELF- ASSESSMENT TAX (INORIGINAL) TAX AUDIT REPORT FOR THE A.Y.2003-04 AUDITED ACCOUNTS FOR THE YEAR ENDED ON 31.3.2003 PRESCRIBED REPORT U/S 50B OF THE I.T.ACT, 1961 BUSINESS PURCHASE AGREEMENT DATED 25.2.2003 WITH VESUVIUS INDIA LIMITED PRESCRIBED REPORT U/S 115JB OF THE I.T.ACT, 1961 PRESCRIBED CERTIFICATE FOR CLAIMING DEDUCTION U/S 80HHC OF THE IT ACT, 1961 FORM NO.18 FOR CHANGE IN ADDRESS OF REGISTERED OFFICE PARTICULARS OF MANAGING DIRECTOR, DIRECTORS, SECRETARY AND PRINCIPAL OFFICERS LIST OF DOCUMENTS AND /OR STATEMENT 1 SET 1 NO. 2 NOS. 1 NO. 1 SET 1 SET 1 SET 1 SET 1 SET 1 SET 1 NO. 1 NO. 1 NO. 12. WE FURTHER FIND THAT IN THE CHART OF COMPUTATIO N OF INCOME APPEARING AT PAGES 101B TO 101E OF THE ASSESSEES P APER BOOK, THE ASSESSEE HAS DISCLOSED THE LONG TERM CAPITAL G AIN ON SALE OF SLUMP SALE RS.78,42,871/-. IN ANNEXURE-A OF THE COMPUTATION ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 11 OF CAPITAL GAIN OF SLUMP SALES U/S 50B, THE ASSESSE E HAS DISCLOSED NET SALE CONSIDERATION RS.3,89,00,000/- LESS RE-IMBURSE MENT ON ACCOUNT OF VRS RS.81,62,330/- AS PER AGREEMENT AND HAS COMPUTE D THE NET LONG TERM CAPITAL GAIN OF RS.78,42,871/-. WE FURTHER F IND THAT THE ASSESSEE HAS ALSO ENCLOSED BUSINESS PURCHASE AGREEMENT DATE D 25.2.2003 APPEARING AT PAGES 68 TO 91 OF THE ASSESSEES PAPER BOOK. THE RELEVANT CLAUSE NO.2.4 OF THE AGREEMENT APPEARING AT PAGE 73 OF THE ASSESSEES PAPER BOOK READS AS UNDER :- 2.4 THE VENDOR AGREES TO MEET ALL EXCLUDED LIABILITIES AND EMPLOYEE OUTSTANDING INCURRED IN RELATION TO THE UNDERTAKING PRIOR TO THE EFFECTIVE DATE EVEN IF THEY CRYSTALLIZE AFTER THE EFFECTIVE DATE. WE FURTHER FIND THAT THE ASSESSEE HAS ALSO FILED NOTE FORMING PART OF THE RETURN MENTIONING THE COMPLETE FACTS ABOUT THE SLUMP SALE U/S 50B OF THE ACT AS UNDER: THE COMPANY VIDE AN AGREEMENT DATED 25 TH FEBRUARY, 2003 HAS SOLD TO VESUVIUS INDIA LTD., A REGISTERED COMPANY SITUATED AT KOLKATA, ITS UNDERTAKING NAMELY, MANUFACTURING FACILITIES AT ITS PLANT AT 212/3, GIDC ESTATE, MEHSANA WITH EMPLOYEES, TECHNICAL KNOW-HOW, FIXED ASSETS AND INVENTORIES AS ON 1.3.2003. IN THE RETURN OF INCOME THE ABOVE TRANSACTION HAS BEEN CONSIDERED FOR TAXATION U/S 50B AS SLUMP SALE. WE FURTHER FIND THAT IN THE RETURN OF INCOME, THE A SSESSEE HAS DISCLOSED LONG TERM CAPITAL GAIN ON SLUMP SALE OF MANUFACTURING FACILITIES AT MEHSANA AS UNDER : ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 12 NET SALE CONSIDERATION (SALE CONSIDERATION OF RS.389,00,000/- (-) REIMBURSEMENT ON ACCOUNT OF VRS OF RS. 81,62,330/-: RS.3,07,37,670 (AS PER ENCLOSED BUSINESS PURCHASE AGREEMENT) 13. IT WILL BE USEFUL TO TAKE NOTE OF THE RELEVANT PROVISIONS OF SECTION 50B OF THE ACT WHICH HAS BEEN INSERTED BY T HE FINANCE ACT, 1999 AND FINANCE ACT 2000 W.E.F.1.4.2000 WHICH IS REPRODUCED AS UNDER: 50B (1) . .. . (2) IN RELATION TO CAPITAL ASSETS BEING AN UNDERTAKING OR DIVISION TRANSFERRED BY WAY OF SUCH SALE, THE NET WORTH OF THE UNDERTAKING OR THE DIVISION, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE COST OF ACQUISITION AND THE COST OF IMPROVEMENT FOR THE PURPOSES OF SECTIONS 48 AND 49 AND NO REGARD SHALL BE GIVEN TO THE PROVISIONS CONTAINED IN THE SECOND PROVISO TO SECTION 48. . . . .. . EXPLANATION 1.FOR THE PURPOSES OF THIS SECTION, NET WORTH SHALL BE THE AGGREGATE VALUE OF TOTAL ASSETS OF THE UNDERTAKING OR DIVISION AS REDUCED BY THE VALUE OF LIABILITIES OF SUCH UNDERTAKING OR DIVISION AS APPEARING IN ITS BOOKS OF ACCOUNT . 14. 32. THE SCOPE AND EFFECT OF THE NEW PROVISIONS WAS EXPLAINED BY THE BOARD IN CIRCULAR NO.779 DATED ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 13 14.9.1999 (1999) 240 ITR (ST.) 3 WHICH IS ALSO REPRODUCED AS BELOW : (XX) A NEW SECTION 50B HAS BEEN INSERTED IN THE INCOME-TAX ACT CONTAINING SPECIAL PROVISION FOR COMPUTATION OF CAPITAL GAINS IN THE CASE OF SLUMP SALE. IT PROVIDES THAT THE PROFITS AND GAINS ARISIN G FROM SLUMP SALE SHALL BE CHARGEABLE TO INCOME-TAX AS CAPITAL GAINS ARISING FROM TRANSFER OF LONG-TERM CAPITAL ASSETS IN THE PREVIOUS YEAR IN WHICH THE TRANSFER TAKES PLACE. HOWEVER, THE PROFITS AND GAINS ARISING FROM SUCH TRANSFER OF ONE OR MORE UNDERTAKINGS HELD FOR LESS THAN 36 MONTHS SHALL BE DEEMED TO BE SHORT-TERM CAPITAL GAINS. IT IS FURTHER PROVIDED THAT THE NET WORTH OF THE UNDERTAKING OR THE DIVISION SHALL BE DEEMED TO BE THE COST OF ACQUISITION AND COST OF IMPROVEMENT FOR THE PURPOSE OF SECTIONS 48 AND 49 AND THE PROVISIONS CONTAINED IN THE SECOND PROVISO TO SECTION 48 RELATING TO ADJUSTMENT FOR COST INFLATIO N INDEX SHALL BE IGNORED. . THE SCOPE AND EFFECT OF SUBSTITUTION W.E.F. 1.4.2 000 OF NEW EXPLANATIONS 1 AND 2 IN PLACE OF THE THEN EXPLANATION TO SEC.50B BY FINANCE ACT 2000 HAVE B EEN ELABORATED IN THE FOLLOWING DEPARTMENTAL CIRCULAR NO.794 DATED 9.8.2000, AS UNDER : 29 . . . 29.2 THE FINANCE ACT, 2000, THEREFORE, SUBSTITUTES THE DEFINITION OF NET WORTH IN SUB-SECTION (2) OF SECTION 50B TO NOW DEFINE NET WORTH AS THE AGGREGATE OF THE COST OF DEPRECIABLE ASSETS AS REDUCED FROM THE BLOCK OF ASSETS OF THE TRANSFERRED COMPANY IN ACCORDANCE WITH SECTION 43(6)(C) (I)(C) AND THE VALUE OF OTHER ASSETS TRANSFERRED AS APPEARING IN THE BOOKS OF ACCOUNT IGNORING ANY REVALUATION. FROM THIS, THE VALUE OF LIABILITIES WI LL BE REDUCED TO ARRIVE AT NET WORTH. (EMPHASIS SUPPLIE D) ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 14 15. THUS FROM THE ABOVE, IT IS CLEAR THAT THE ASSES SEE AS PER RELEVANT PROVISIONS OF THE ACT HAS DISCLOSED ALL TH E MATERIAL FACTS IN ITS RETURN OF INCOME. THE AO ADTER CONSI DERING THE SAME HAS PASSED THE ASSESSMENT ORDER ACCEPTING THE LONG TERM CAPITAL GAIN ON SLUMPS SALE OF RS.78,42,871/- AS D ISCLOSED BY THE ASSESSEE, VIDE ASSESSMENT ORDER DATED 27.2.200 6 PASSED U/S 143(3) OF THE ACT. 16. IT IS NOW WELL SETTLED THAT THE AO CANNOT REO PEN THE ASSESSMENT ON THE ISSUES WHICH HAVE BEEN EXAMINED A ND CONSIDERED AT THE TIME OF ORIGINAL ASSESSMENT. 17. IN HONDA SIEL POWER PRODUCTS LTD.(SUPRA) ALSO REPORTED IN (2012) 340 ITR 53 (DEL) AFFIRMED BY THE HONBLE SUPREME COURT IN (2012) 340 ITR 64(SC) IT HAS BEEN OBSERVED BY THE HONBLE HIGH COURT (PLACITUM 15 AT PAGE 62 OF ITR): 15. IT IS CLEAR FROM THE AFORESAID PARAGRAPH THE P ETITIONER HAS ACCEPTED THAT MATERIAL PARTICULAR REFERRED TO IN THE FIRST PROVISO NOT ONLY REFERS TO DETAILS IN THE RETURN BUT ALSO EXPLA NATIONS AND DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT. THE PETI TIONER HAD NOT STATED ANYTHING OR GIVEN FACTUAL MATRIX TO JUSTIFY AND STATE THAT THE MATERIAL FACTS HAD BEEN FULLY AND TRULY DISCLOSED I N THE ASSESSMENT PROCEEDINGS AND THERE WAS NO OMISSION OR FAILURE ON THE PART OF THE PETITIONER. THE EXPLANATION TO SECTION 147 STIPULAT ES THAT MERE PRODUCTION OF BOOKS OF ACCOUNTS OR OTHER EVIDENCE I S NOT SUFFICIENT. (REFER PARAGRAPH 11 ABOVE WHEREIN JUDGMENT IN THE C ONSOLIDATED PHOTO AND FINVEST LTD. (2006) 281 ITR 394 (DELHI) H AS BEEN QUOTED). THEREFORE, MERELY BECAUSE MATERIAL LIES IM BEDDED IN MATERIAL OR EVIDENCE, WHICH THE ASSESSING OFFICER ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 15 COULD HAVE UNCOVERED BUT DID NOT UNCOVER IS NOT A GOOD GROUND TO DENY OR STRIKE DOWN A NOTICE FOR REASSESS MENT. WHETHER THE ASSESSING OFFICER COULD HAVE FOUND THE TRUTH BUT HE DID NOT, DOES NOT PRECLUDE THE ASSESSING OFF ICER FROM EXERCISING THE POWER OF RE-ASSESSMENT TO BRING TO TAX THE ESCAPED INCOME. IT HAS BEEN HELD (HEADNOTE, PAGE 54): HELD, DISMISSING THE PETITION, THAT AFTER THE RE TURN OF INCOME FOR THE ASSESSMENT YEAR 2000-01 WAS FILED ON NOVEMB ER 30, 2000, THE CASE WAS TAKEN UP IN SCRUTINY. ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT WAS PASSED ON MARCH 7, 20 03. FAILURE ON THE PART OF THE ASSESSING OFFICER TO APPLY SECTI ON 14A WHEN HE PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT DATED MARCH 7, 2003, HAD PRIMA FACIE RESULTED IN E SCAPED INCOME. THE FACT THAT SECTION 14A WAS IN THE STAT UTE BOOK WAS KNOWN TO THE ASSESSING OFFICER AND THE ASSESSEE WHE N THE ORIGINAL ASSESSMENT ORDER WAS PASSED. THERE WAS AN OMISSION AND FAILURE ON THE PART OF THE ASSESSEE TO POINT O UT THE EXPENSES INCURRED RELATABLE TO TAX FREE/EXEMPT INCOME WHICH PRIMA FACIE HAD BEEN CLAIMED AS A DEDUCTION IN THE INCOME AND E XPENDITURE ACCOUNT. THERE WAS, THEREFORE, OMISSION AND FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY MATERI AL FACTS. THE REASSESSMENT PROCEEDINGS WERE VALID. IT HAS BEEN HELD BY THE HONBLE APEX COURT VIDE ORD ER DATED 29.7.2011 AT PAGES 65 TO 340 ITR THAT THE REOPENIN G OF THE ASSESSMENT IS FULLY JUSTIFIED ON THE FACTS AND CIRC UMSTANCES OF THE CASE. 18. THERE IS NO QUARREL WITH THE PRINCIPLE ENUNCIA TED IN THE AFORESAID DECISION. HOWEVER, THE FACTS OF THE PRESEN T CASE ARE ENTIRELY DIFFERENT INASMUCH AS IT IS NOT THE CASE OF THE REVENUE THAT THERE WAS ANY FAILURE ON THE PART OF THE AS SESSEE TO DISCLOSE ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 16 FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR TH E ASSESSMENT, FOR THAT ASSESSMENT YEAR EXCEPT ALLEGING THAT THE ASSESSEE D ID NOT FILE COPY OF THE AGRE EMENT FOR SALE OF ITS UNIT TO M/S VESUVIUS INDIA L TD., PARTICULARLY THE TERMS FOR SALE AND LIST OF INVENTORY WHICH HAS DULY BEEN FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME AS MENTIONED IN PAR AGRAPH 11 OF THIS ORDER, THEREFORE, THE DECISION RELIED ON BY THE DR IS DIST INGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 19. IN ANKITA DEPOSITS & ADVANCES (P.) LTD.(SUPRA) THE RETURNS FILED U/S 143(1) WERE ACCEPTED AS A MAT TER OF COURSE. LATER, THE ASSESSING AUTHORITY ON PERUSA L OF THE COMPUTATION OF INCOME, CAME TO THE PRIMA FACIE VIEW THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF TRADIN G IN SHARES AND THE INCOME SHOWN AS LONG TERM CAPITAL GA IN SHOULD BE COMPUTED UNDER THE HEAD BUSINESS INCOME. ACCORDINGLY HE HELD THAT THE INCOME DERIVED FROM T HE SALE OF SHARES WAS BUSINESS INCOME. ON APPEAL, THE LD. CIT(A) AND THE TRIBUNAL UPHELD THE ORDER OF THE AO. ON FURTHER APPEAL BEFORE THE HONBLE HIGH COURT, THEIR LORDSHIPS AFTER RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN ACIT V/S RAJESH JHAVERI STOCK BROKERS (P.) LTD.(SUPRA) AND OTHER DECISIONS HELD THAT NO REASONED FINDINGS WERE GIVEN ON THE RETURNS FILED BY ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 17 THE ASSESSEE FOR THE THREE PREVIOUS YEARS. THE RETU RNS WERE ACCEPTED AS A MATTER OF COURSE, THEREFORE, THE AO WAS JUSTIFIED IN REOPENING THE ASSESSMENT. 20. THE FACTS OF THE PRESENT CASE ARE ENTIRELY DIFF ERENT INASMUCH AS THE ORIGINAL ASSESSMENT ORDER WAS PASSE D BY THE AO U/S 143(3) OF THE ACT, THEREFORE, THE DECISION RELIED BY THE LD. DR IS DISTINGUISHABL E AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 21. IN CIT V/S KELVINATOR OF INDIA LTD. (2010) 320 ITR 561 (SC), IT HAS BEEN HELD (PAGE 564): ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE T O SECTION 147 OF THE ACT, WE FIND THAT, PRIOR TO THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, REOPENING COULD BE DONE UNDER THE ABOVE TWO CONDITIONS AND FULFILMENT OF THE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT, BUT I N SECTION 147 OF THE ACT (WITH EFFECT FROM 1ST APRIL , 1989), THEY ARE GIVEN A GO-BY AND ONLY ONE CONDITION HAS REMAINED, VIZ., THAT WHERE THE ASSESSING OFFICER H AS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSME NT, CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THER EFORE, POST-1ST APRIL, 1989, POWER TO REOPEN IS MUCH WIDER . HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETAT ION TO THE WORDS 'REASON TO BELIEVE' FAILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASI S OF 'MERE CHANGE OF OPINION', WHICH CANNOT BE PER SE R EASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUA L DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REV IEW ; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITIONS AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTE NDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS A N IN- ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 18 BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSIN G OFFICER. HENCE, AFTER 1ST APRIL, 1989, THE ASSESSIN G OFFICER HAS POWER TO REOPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT, AS QUOTED HEREINABOVE. UNDER THE DIRECT T AX LAWS (AMENDMENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS 'REASON TO BELIEVE' BUT ALSO INSE RTED THE WORD 'OPINION' IN SECTION 147 OF THE ACT. HOWE VER, ON RECEIPT OF REPRESENTATIONS FROM THE COMPANIES A GAINST OMISSION OF THE WORDS 'REASON TO BELIEVE', PARLIAME NT REINTRODUCED THE SAID EXPRESSION AND DELETED THE WO RD 'OPINION' ON THE GROUND THAT IT WOULD VEST ARBITRA RY POWERS IN THE ASSESSING OFFICER. 22. IN NYK LINE (INDIA) LTD.(SUPRA), IT HAS BEEN H ELD (PAGES 91 AND 92): AN ASSESSMENT CANNOT BE REOPENED ON THE BASIS OF A MERE CHANGE OF OPINION; THE TEST IS THAT THERE SHOULD BE TANGIBLE MATERIAL TO COME TO A CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOME FROM ASSESSMENT; A MERE CHANGE OF OPINION ON THE PART OF THE AO IN THE COURSE OF ASSESSMENT FOR A SUBSEQUENT ASSESSMENT YEAR WOULD NOT BY ITSELF LEGITIMISE THE REOPENING OF AN ASSESSMENT FOR AN EARLIER YEAR. 23. IN EXPEDITORS INTERNATIONAL (INDIA) (P) LTD. (SUPRA) IT HAS BEEN OBSERVED AND HELD (HEAD NOTE PAGE 456): HELD : THE ASSESSEE HAS DEMONSTRATED THAT ALL THE RELEVANT ASPECTS HAVE BEEN CONSIDERED BY THE AO IN THE ORIGINAL ASSESSMEN T ORDER THOUGH A SPECIFIC FINDING IS NOT DISCERNIBLE. THE REPLY GIVE N BY THE ASSESSEE TO THE SPECIFIC QUERY IS ALSO AVAILABLE ON RECORD, MORE SO ALONG WITH THE RETURN THE ASSESSEE HAS APPENDED NOTES TO ACCOUNTS. ALL TH ESE THINGS WERE BROUGHT TO THE NOTICE OF THE AO. CONTRARY TO THIS MATERIAL, NOTHING WAS POINTED OUT BY THE DEPARTMENTAL REPRESENTATIVE. ON A DETAILED A NALYSIS OF ALL THE FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THERE WAS NO NE W INFORMATION OR MATERIAL WHICH CAME TO THE NOTICE OF THE AO WHICH CAN AUTHORIZE HIM ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 19 TO FORM AN OPINION THAT INCOME HAS ESCAPED ASSESSME NT. THUS, ASSESSMENT ORDER IS QUASHED.JAL HOTELS CO. LTD. VS. ASSTT. DI RECTOR OF IT (2009) 24 DTR (DEL) 37 AND CIT VS. KALVINATOR OF INDIA LTD. ( 2002) 174 CTR (DEL)(FB) 617 : (2002) 256 ITR 1 (DEL)(FB) FOLLOWED ; CONSOLIDATED PHOTO & FINVEST LTD. VS. ASSTT. CIT (2006) 200 CTR (DEL) 433 : (2006) 281 ITR 394 (DEL) DISTINGUISHED. 24. IN SHRI AMITABH BACHCHAN (SUPRA) IT HAS BEEN OBSERVED AND HELD VIDE PARAGRAPH 7 OF THE ORDER: 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. PERUSAL OF THE REASONS RECORDED FOR INITIATING RE-ASSESSMENT PROCEEDING CLEARLY SHOWS THAT THERE IS NO NEW MATERIAL WHICH HAS COME TO THE KNOWLEDGE OF THE AO AFTER PASSING THE ORIGINAL ASSESSMENT ORDER U/S.143(3) OF THE ACT, WHEREIN THE ISSUE WITH REGARD TO THE DISALLOWANCE OF ESTIMATED EXPENDITURE OF 30% OF THE PROFESSIONAL RECEIPTS WAS SUBJECT MATTER OF CONSIDERATION BY THE AO WHICH WAS CLAIMED BY THE ASSESSEE AS DEDUCTION FROM THE TOTAL PROFESSIONAL RECEIPTS, BUT LATER ON WITHDREW VIDE LETTER DATED 13.3.2004. IT IS ONLY AFTER CONSIDERING THE SAME, THE AO PASSED ORIGINAL ASSESSMENT ORDER U/S.143(3) OF THE ACT ACCEPTING INTERALIA THE DISALLOWANCE OF 30% EXPENSES AS CLAIMED BY THE ASSESSEE. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE AO HAS REASON TO BELIEVE THAT THE ASSESSEE HAS INCURRED THE SAID EXPENSES OUT OF HIS UNDISCLOSED SOURCES OF INCOME JUSTIFYING INVOCATION OF PROVISION OF SEC.69C OF THE ACT. IN THE ABSENCE THEREOF WE ARE OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN INITIATING RE-ASSESSMENT PROCEEDINGS AGAINST THE ASSESSEE. 25. APPLYING THE RATIO OF THE ABOVE DECISIONS TO TH E FACTS OF THE PRESENT CASE WE FIND THE ASSESSEE HAS NOT FAIL ED OR OMITTED TO DISCLOSE MATERIAL FACTS EITHER DELIBERATELY OR I NTENTIONALLY. ON THE OTHER HAND, FULL AND TRUE INFORMATION AND D ETAILS WERE ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 20 FURNISHED AND GIVEN DURING THE COURSE OF ORIGINA L ASSESSMENT PROCEEDINGS. THE RELEVANT AND GERMANE FACTS WERE T RULY AND FULLY DISCLOSED. IN OUR VIEW ONCE PRIMARY FACTS H AVE BEEN DISCLOSED THEN, IT IS FOR THE AO TO DRAW PROPER LEGAL CONCLUSION AND APPLY THE PROVISIONS OF THE STATUT E. IN THE PRESENT CASE, IT IS NOT ALLEGED THAT ANY FACT OR F ACTUAL DETAIL WAS EMBEDDED IN THE EVIDENCE/BOOKS OF ACCOUNT WHICH THE AO COULD HAVE UNCOVERED BUT HE FAILED TO DO SO. THE DETAILS SUBMITTED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME INCLUDING COPY OF BUSINESS PURCHASE AGREEMENT WITH M/S VESUVIUS INDIA LTD. DATED 25.2.2003, SPELT OUT AND IN CATEGORICAL TERMS HAD STATED TRULY AND FULLY THE MA TERIAL FACTS. NOTHING REMAINS TO BE DISCOVERED OR UN-EARTHED. TH IS BEING THE POSITION THE JURISDICTION PRECONDITIONS REQUIRE D FOR REOPENING OF THE ASSESSMENT ORDER ARE NOT SATISFIE D IN THE PRESENT CASE AND ACCORDINGLY THE PROCEEDINGS INITIA TED AND COMPLETED BY THE AO U/S 147/148 AND CONFIRMED BY T HE LD.CIT(A) ARE QUASHED. THE GROUNDS TAKEN BY THE AS SESSEE ARE, THEREFORE, ALLOWED. 26. SINCE, WE HAVE QUASHED THE ASSESSMENT ORDER , THEREFORE, WE DO NOT CONSIDER TO ADJUDICATE THE OTHER GROUNDS T AKEN BY THE ASSESSEE ON MERITS AND HENCE THE SAME ARE, THEREFORE, REJECTED. ITA NO.2491/MUM/2010 (ASSESSMENT YEAR:2003-04) 21 27. IN THE RESULT, THE ASSESSEES APPEAL STANDS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL, 2012. SD SD (G.E.VEERABHADRAPPA) (D.K.AGARWAL) PRESIDENT JUDICI AL MEMBER MUMBAI, DATED 27 TH APRIL,2012. SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI