The ACIT, 1(2), Indore V. M/s. Prestige Food Ltd., Indore

ITA 26/IND/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5857 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-12-2015
• Assessment Year: 1999-2000
• Appeal Filed On: 08-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R R MEENA
• Assessee Lawyers: N D PATWA
• Keywords: Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO. 26/IND/2014 A.Y. : 1999-2000. ACIT, M/S.PRESTIGE FOOD LIMITED, 1(2), VS. 30,JAORA COMPOUND, INDORE INDORE. APPELLANT RESPONDENT PAN NO. AABCP8038K APPELLANTS BY : SHRI R.R.MEENA, DR RESPONDENT BY : SHRI ASHISH GOYAL AND SHRI N.D. PATWA, ADV. O R D E R PER D.T.GARASIA, J.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-I, INDORE, DATED 22.10.2013 FOR THE ASSES SMENT YEAR 1999-2000. DATE OF HEARING : 06 .01.2016 DATE OF PRONOUNCEMENT : 06 .0 1 .2016 ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 2 2 2. THE REVENUE HAS TAKEN FOLLOWING GROUND :- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT TH E REOPENING OF THE CASE WAS NOT VALID BY OBSERVING THAT THERE WAS NO MATERIAL WITH THE AO PRIOR TO REOPENING TO EVEN REMOTELY INDICATE THAT SUCH LIABILITY HAS NOT CRYSTALLIZED AND EVEN AFTER ASSESSMENT NO EVIDENCE WAS FOUND AGAINST THE APPELLANT BECAUSE THE ADDITION WAS MADE DUE TO THE INABILITY OF THE ASSESSEE TO ESTABLISH ITS CLAIM WI TH SUPPORTING DOCUMENTARY EVIDENCES THAT THE CONTINGENT LIABILITIES WERE CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE REOPENING WAS INVALID BECAUSE THE LD. CIT(A) FAILED TO APPRECIATE THAT THE AO HAD MATERIAL EVIDENCES WITH HIM BEFORE PROCEEDING TO REOPEN THE CASE U/S 147. ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 3 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C ARRIES ON THE BUSINESS OF SOLVENT EXTRACTION AND SUSTAINED HEAVY LOSSES FOR LAST SEVERAL YEARS. THE ASSESSEE IS A CO MPANY REGISTERED UNDER BIFR (SICK UNIT). THE ASSESSEE HAS SHOWN THE RETURNED INCOME OF RS. (-) 33,06,80,623/- FOR THE A BOVE ASSESSMENT YEAR. PROFIT & LOSS , BALANCE SHEET, TAX AUDIT REPORT WERE FILED WITH THE RETURN OF INCOME. THE AS SESSMENT WAS COMPLETED U/S 143(1) OF THE INCOME-TAX ACT, 196 1, AND THE RETURN WAS ACCEPTED. LATER ON THE NOTICE U/S 14 7/148 WERE ISSUED AND DISALLOWED RS. 44,15,832/- BY STATI NG THAT CONTINGENT LIABILITIES ARE NOT ALLOWABLE. 4. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS ALLOWED THE APPEAL BY OBSERVING AS UNDER :- 5. MERELY ON THE BASIS OF CLAIM OF CONTINGENT LIAB ILITY OF RS. 44,15,832/- IN PROFIT AND LOSS ACCOUNT AND SOME NOTE BY AUDITOR NOT INDICATING THAT CONTINGENT LIABILITY HAS CRYSTALLIZED IN WHICH YEAR, REOPENING OF THE CASE C ANNOT BE HELD AS JUSTIFIED UNLESS SOME EVIDENCE OR LIVE LINK IS THERE TO INDICATE THAT SUCH CONTINGENT LIABILITY IS NOT C RYSTALLIZED ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 4 4 DURING THE YEAR. AS THERE WAS NO MATERIAL WITH THE AO PRIOR TO REOPENING TO EVEN REMOTELY INDICATE THAT S UCH LIABILITY HAS NOT CRYSTALLIZED, THERE WAS NO LIVE L INK AND NO MATERIAL TO FORM AN OPINION THAT INCOME HAS ESCAPED ASSESSMENT. EVEN AFTER REASSESSMENT PROCEEDINGS, NO EVIDENCE OR MATERIAL IS FOUND AGAINST APPELLANT AND ARGUMENTS PUT FORTH BY APPELLANT COULD NOT BE CONTR OVERTED BY AO. IN VIEW OF THESE FACTS RELYING ON THE DECISI ONS IN CASES OF KELVINATOR OF INDIA LIMITED 320 ITR 561 (S .C.) AND ORIENT CRAFT (APPEAL NO. I.T.A.NO. 555/2012 DATED 12.12.2012 (DELHI HIGH COURT) THE REOPENING OF THE CASE IS NOT VALID. AS A RESULT GROUND NO.(1) OF APPEAL IS A LLOWED. 5. THE LD. DR RELIED UPON THE ORDER OF THE AO. 6. THE LD. AUTHORIZED REPRESENTATIVE FILED THE WRITTEN SUBMISSION WHICH READS AS UNDER :- THE RETURN OF LOSS OF RS. 33.06 CRORES WAS FILED, W HICH WAS ACCEPTED. NOTICE U/S 147 DATED 3.3.2006 FOR REOPENING WAS ISSUED WHICH WAS AFTER FOUR YEARS. T HE CONTINGENT LIABILITIES OF RS. 44,15,832/- OF EARLIE R YEARS ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 5 5 WERE CLAIMED UNDER THE HEAD 'PAST YEAR ADJUSTMENTS' BY STATING THAT THEY WERE ASCERTAINED AND DETERMINE D DURING THE YEAR. THE APPELLANT SUBMITS THAT THE LIABILITIES WERE DISPUTED IN THE EARLIER YEARS. THEY WERE CRYSTALLIS ED DURING THE CURRENT FINANCIAL YEAR AS THE DISPUTE W AS SETTLED. LD AO HAS STATED THAT VARIOUS DOCUMENTS WERE FILED IN SUPPORT OF THE CLAIM. SPECIFIC EXPLAN ATION FOR EACH ENTRIES HAS BEEN GIVEN.LD AO DID NOT FIND FAULT WITH THE EXPLANATION OF THE APPELLANT. HE WRO TE IN THE END: 'I HAVE CONSIDERED THE SUBMISSION OF SHRI K.C. BETALA. IN THE STATEMENT 6(5) OF THE TAX AUDIT REPORT STATES THAT THE CONTINGENT LIABILITIES OF RS. 44,15,832/- OF EARLIER YEARS HAVE BEEN DEBITED AS PAST YEAR EXPENSES IN PROFIT AND LOSS ACCOUNT. THE CONTINGENT LIABILITIES ARE NOT ALLOWABLE DEDUCTION HENCE THE SAME HAVE TO BE DISALLOWED'. ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 6 6 THE ID AO HAD NO BASIS FOR TREATING THE SAME AS CONTINGENT LIABILITIES. LD CIT(A) HELD THAT THE REO PENING WAS NOT VALID DUE TO NON-EXISTENCE OF REASONS U/S. 147. IN THE TAX AUDIT REPORT, THE AUDITOR HAS STATED THA T PRIOR YEAR'S ADJUSTMENT CONSTITUTES VARIOUS ITEMS O F INCOME AND EXPENSES PERTAINING TO EARLIER YEARS AND DETERMINED DURING THE YEAR HAVE BEEN ADJUSTED DURIN G THE YEAR. FURTHER THE AUDITOR HAS REPORTED IN PARA 5, EXPLAINING THE ABOVE POINT, AS UNDER: 'THE COMPANY HAS PROVIDED DISPUTED CLAIMS LIABILITY WITH CUSTOMER'S WHICH WERE SHOWN UNDER CONTINGENT LIABILITY IN THE EARLIER YEAR OF RS. 44,15,832/- SAME HAS BEEN DEBITED IN PROFIT AND LOSS ACCOUNT UNDER THE HEAD OF PAST YEAR ADJUSTMENT ACCOUNT.' THE APPELLANT HAD GIVEN EXPLANATION REGARDING THE CRYSTALLIZATION OF LIABILITIES: ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 7 7 S.NO. NAME OF PARTY AMOUNT REASONS FOR LIABILITY 1. DUBARTAN SHIPPING CORPORATION 13,35,591 DEMURRAGES SETTLED DURING THE YEAR FOR LATE SHIPMENT 2. JUGOLINZA RIZEKA (YUGOSLAVIA) 13,09,952 -DO- 3. SEA TIGER SHIPPING CO. 4,63,267 -DO- 4. FOOD & CIVIL SUPPLIES DEPARTMENT. 1,22,400 RATE DIFFERENCE AS DOC SUPPLIED REACHED LATE DUE TO TRANSPORTATION DELAY. TOTAL 4,15,832 LD AO HAD NO EVIDENCE THAT THE LIABILITIES HAD NOT CRYSTALLIZED DURING THE YEAR. THERE WAS NOT EVEN A PRIMA- FACIE EVIDENCE THAT THE LIABILITIES HAD NOT CRYSTAL LIZED DURING THE YEAR. EVEN IN THE REASSESSMENT ORDER HE HAD NOT BROUGHT SUCH MATERIAL ON RECORD. THE LD. AUTHORIZED REPRESENTATIVE RELIED ON THE FOLLOWING DECISIONS : (A) CIT VS ORIENT CRAFT 29 TAXMANN.COM 392 (DEI.). (B) INDUCTOTHERM INDIA PVT LTD 36 TAXMANN.COM 401 ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 8 8 (GUJ.). (C) M ANJUSHA ESTATE PVT LTD. 314 ITR 263 (GUJ.). (D) MAHAN GUPTA (HUF) 44 TAXMANN.COM 171 (DEL.) (E) TELCO DADAJI DHACKJEE LTD, ITAT MUMBAI. THIRD MEMBER BENCH. IN THE PRESENT CASE, THE ID AO HAD NO MATERIAL TO F ORM 'REASONS' TO 'BELIEVE' THAT INCOME CHARGEABLE TO TA X HAD 'ESCAPED ASSESSMENT'. EVEN IN THE ORDER, WHILE MAKING ADDITION, NO BASIS IS GIVEN. REOPENING IS INVALID. IT IS THEREFORE PRAYED THAT THE FINDINGS OF ID CIT( A MAY KINDLY BE CONFIRMED. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE HAVE GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW AND HAVE ALSO PERUSED THE CASE LAWS RELIED UP ON BY THE LD. AUTHORIZED REPRESENTATIVE. WE FIND THAT IN THE CASE OF KELVINATOR OF INDIA LIMITED 320 ITR 561 (S.C.), THE HON'BLE SUPREME COURT DOES NOT COVER ONLY A CASE WHERE AS. 143(3) ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 9 9 ASSESSMENT IS PASSED BUT ALSO COVERS A CASE WHERE O NLY A SECTION 143(1) INTIMATION IS PASSED. THE SUPREME COURT INTERPRETED THE WORDS 'REASON TO BELIEVE' AND HELD THAT THE AO DID NOT HAVE THE POWER TO REVIEW. WHILE IN THAT CAS E OF A SECTION 143(1) INTIMATION, THE ASSESSEE CANNOT CHALLENGE THE REOPENING ON THE GROUND OF 'CHANGE OF OPINION', HE CAN CHALLENGE IT ON THE GROUND THAT THERE WERE NO 'REAS ONS TO BELIEVE' THAT INCOME HAD ESCAPED ASSESSMENT OR THAT THE SAID REASONS DID NOT HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. EVEN IN THE CASE OF A SECTION 143(1) INTIM ATION, THE AO MUST HAVE 'TANGIBLE MATERIAL' THAT INCOME HAS ESCAP ED ASSESSMENT. ON FACTS, THERE WAS NO 'TANGIBLE MATERI AL' TO SUPPORT THE BELIEF THAT NON-COMPETE FEES AND DEPREC IATION HAD RESULTED IN ESCAPEMENT OF INCOME CHARGEABLE TO TAX. WE UPHOLD THE ACTION OF THE LD. CIT(A) WHO, AFTER RELY ING ON THE DECISIONS IN CASES OF KELVINATOR OF INDIA LIMITED 3 20 ITR 561 (S.C.) AND ORIENT CRAFT (APPEAL NO. I.T.A.NO. 555/2 012 DATED 12.12.2012 (DELHI HIGH COURT), HELD THE REOPENING O F THE CASE ACIT VS. M/S. PRESTIGE FOOD LIMITED, INDORE, I.T.A.NO.26 /IND/2014 A.Y.1999-2000 10 10 AS NOT VALID. OUR INTERFERENCE IS NOT CALLED FOR. G ROUND OF THE REVENUE FAILS. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2016. SD/- (B.C.MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 6 TH JANUARY, 2016. CPU*