DCIT CIR 2(2)(1), MUMBAI V. LARSEN & TOUBRO LTD, MUMBAI

ITA 262/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2067 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 15-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANADI VARMA
• Assessee Lawyers: J D MISTRY
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Assessment record; Change of opinion; Reassessment proceedings
• Section: 147; 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A, BENCH M UMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ITA NO.262/MUM/2016 ( ASSESSMENT YEAR :2005-06 ) DCIT-2(2)(1) ROOM NO.545, 5 TH FLOOR AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 VS. M/S LARSEN & TOUBRO LIMITED L& T HOUSE, N.M.MARG BALLARD ESTATE MUMBAI-400 001 PAN/GIR NO.AAACL0140P APPELLANT ) .. RESPONDENT ) ASSESSEE BY J.D.MISTRY & MADHUR AGARWAL REVENUE BY ANADI VARMA DATE OF HEARING 18/06 /201 9 DATE OF PRONOUNCEMENT 06 /09/2019 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)5, MUMBAI, DATED 27/10/2015 AND IT PERTAINS TO THE ASSESSMENT YEAR 2 005-06. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FAC TS OF THE CASE. 2. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE R THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSMENT REOPENED U/S 147 IS INV ALID AND DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF PRODUCT WARRA NTY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE CIT (A) HAS NOT APPRECIATED EXPLANATION 1 TO SECTION 147 WHICH STAT ES THAT PRODUCTION BEFORE ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 2 THE AO OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHIC H MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE AO W ILL NOT NECESSARILY TO DISCLOSURE WITHIN THE MEANING OF FOREGOING PROVISO, 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT (A) HAS ERRED IN HOLDING THAT THIS WAS A MERE CHANGE OF OPINION, WHEN IN FACT THE ISSUE HAD NOT BEEN CONSIDERED AT ALL AND THERE WAS NO APPLICATION OF MIND ON THE PART OF THE AO AT ANY STAGE IN THE ORIGINAL ASSESSMENT, SO AS T O JUSTIFY THE INFERENCE OF ANY CHANGE OF OPINION, SO AS TO DISCREDIT RE-OPENING AN D REASSESSMENT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN PROVIDING ENGINEERING AND RELATED SERVIC ES, FILED ITS RETURN OF INCOME FOR AY 2005-06 ON 28/10/2005, DECL ARING TOTAL INCOME AT RS. 729,06,67,610/-. THE ASSESSMENT HAS B EEN COMPLETED U/S 143(3) OF THE I.T.ACT, 1961,VIDE ORDE R DATED 29/12/2008 AND DETERMINED TOTAL INCOME AT RS. 946,8 3,63,380/-. SUBSEQUENTLY, THE ASSESSMENT HAS BEEN REOPENED U/S 147 OF THE I.T.ACT, 1961, FOR THE REASONS RECORDED, AS PER WHI CH INCOME CHARGEABLE TO TAX HAD BEEN ESCAPED ASSESSMENT ON AC COUNT OF VARIOUS ISSUES, INCLUDING ALLOWANCE OF INELIGIBLE E XPENDITURE OF A SUM OF RS. 10.47 CRORES, ON ACCOUNT OF PROVISION FOR PR ODUCT WARRANTY. ACCORDINGLY, NOTICE U/S 148 OF THE I.T.ACT, 1961, D ATED 19/03/2012 WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. THERE AFTER, THE CASE HAS BEEN SELECTED FOR SCRUTINY AND THE ASSESSMENT H AS BEEN COMPLETED U/S 143(3) R.W.S. 147 OF THE I.T.ACT, 196 1 AND DETERMINED TOTAL INCOME OF RS. 963,93,21,530/- BY MAKING ADDIT IONS TOWARDS DISALLOWANCE ON WARRANTY EXPENSES OF RS. 10.47 CROR ES, ON THE ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 3 GROUND THAT WARRANTY PROVISIONS HAS BEEN CREATED ON ESTIMATION BASIS, RATHER THAN ON ANY SCIENTIFIC BASIC. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE, THE LD.CIT(A), THE ASSESSEE HAS CHALLENGED REOPENING OF ASSESSMENT U/S 147 ON T WO GROUNDS. THE FIRST ARGUMENTS OF THE ASSESSEE BEFORE THE LD.C IT(A) WAS THAT THE ASSESSMENT HAS BEEN REOPENED ON CHANGE OF OPINI ON WITHOUT THERE BEING ANY TANGIBLE MATERIAL, WHICH IS EVIDENT FROM REASONS RECORDED FOR REOPENING OF ASSESSMENT, WHERE THE LD. AO HAS REFERRED TO ASSESSMENT RECORDS WITHOUT ANY FRESH MA TERIAL IN HIS POSSESSION TO ESTABLISH ESCAPEMENT OF INCOME. THE A SSESEE HAS ALSO CHALLENGED REOPENING OF ASSESSMENT, IN LIGHT O F PROVISO TO SECTION 147 OF THE I.T.ACT, 1961 AND ARGUED THAT UN LESS, THE AO SHOWS THAT THERE IS FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY, ALL MATERIAL FACTS NECESSARY FOR ASSESSM ENT, THE ASSESSMENT CANNOT BE REOPENED AFTER A PERIOD OF FOU R YEARS FROM THE END OF RELEVANT ASSESSMENT YEARS, IF SUCH ASSESSMEN T HAS BEEN COMPLETED U/S 143(3) OF THE I.T.ACT, 1961. 5. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO BY RELIED UPON THE DECISION OF H ONBLE SUPREME ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 4 COURT IN THE CASE OF CIT VS KELVINATOR OF INDIA LT D. 320 ITR 561 HELD THAT THE ASSESSMENT HAS BEEN REOPENED ON MERE CHANG E OF OPINION WITHOUT THERE BEING ANY TANGIBLE MATERIAL BEFORE TH E LD.AO FOR REOPENING THE ASSESSMENT. THE LD.CIT(A), FURTHER OB SERVED THAT IN THE REASONS FOR REOPENING, THE LD. AO HAS MENTIONED THAT ON REVIEW OF THE ASSESSMENT, IT IS OBSERVED THAT THERE IS UND ER ASSESSMENT OF INCOME. THIS STATEMENT SHOWS THAT AFTER REVIEWING T HE CASE RECORDS, HE FOUND THAT CERTAIN INCOME HAD ESCAPED ASSESSMENT . BUT, FACT OF THE MATTER IS THAT THE ASSESEE HAS SUBMITTED A LETT ER DATED 13/12/2018, DURING THE COURSE OF ASSESSMENT PROCEED INGS U/S 143(3), WHERE THE ISSUE ON WHICH THE AO HAS REOPENE D WAS ALREADY DISCUSSED AND ALL THE DETAILS WERE SUBMITTED BEFORE THE AO. THEREFORE, HE OPINED THAT IT IS A CASE OF CHANGE OF OPINION, WHICH IS NOT PERMISSIBLE U/S 147 OF THE ACT. INSOFAR AS, SEC OND ARGUMENTS OF THE ASSESSEE, IN LIGHT OF PROVISO TO SECTION 147 OF THE ACT, THE LD.CIT(A) OBSERVED THAT ON EXAMINATION OF REASONS RECORDED, IT IS SEEN THAT NOWHERE, THE LD. AO HAD STATED THAT THERE WAS FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY, A LL THE MATERIAL FACTS NECESSARY FOR REOPENING ASSESSMENT. ACCORDINGLY, H ELD THAT REOPENING OF ASSESSMENT U/S 147 IS INVALID. CONSEQU ENTLY, THE ADDITIONS MADE BY THE AO TOWARDS PRODUCT WARRANTY I S DELETED. ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 5 AGGRIEVED BY THE LD. CIT(A) ORDER, THE REVENUE IS I N APPEAL BEFORE US. 6. THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS ERR ED IN HOLDING THAT THE REASSESSMENT IS BAD IN LAW WITHOUT APPRECI ATING THE FACT THAT EXPLANATION (1 ) TO SECTION 147 STATES THAT PRODUCT ION BEFORE THE AO OF ACCOUNT BOOKS OR OTHER EVIDENCES FROM WHICH MATE RIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY TH E AO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF PROVISO TO SECTION 147 OF THE ACT. THE LD. DR, FURTHER SUBMITT ED THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSMENT HAS BEEN REOPENED ON MERE CHANGE OF OPINION, WHEN IN FACT THE ISSUE HAD NOT BEEN CONSIDERED AT ALL AND THERE WAS NO APPLICATION OF MIND ON THE PART OF AO AT ANY STAGE IN THE ORIGINAL ASSESSMENT, SO AS T O JUSTIFY THE INFERENCE ANY CHANGE OF OPINION. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DO LGOBINDA PARICHA VS. NIMAI CHARAN MISRA & OTHERS (1959) AIR 914 1959 SCR AND ALSO THE DECISION OF HONBLE SUPREME COURT IN T HE CASE OF CIT VS RAI BAHADUR HARDUTORY MOTILAL CHAMARIA (1967) 66 ITR 443 (SC) 7. THE LD. AR FOR THE ASSESEE, STRONGLY SUPPORTING ORDER OF THE LD. CIT(A) SUBMITTED THAT THE LD. CIT(A) HAS APPREC IATED THE FACTS, ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 6 IN LIGHT OF REASONS RECORDED BY THE LD. AO AND ASS ESSMENT ORDER PASSED U/S 143(3) OF THE I.T.ACT, 1961, TO COME TO THE CONCLUSION THAT THE ASSESSMENT HAS BEEN REOPENED ON CHANGE OF OPINION WITHOUT THERE BEING ANY TANGIBLE MATERIAL, WHICH SU GGEST ESCAPEMENT OF INCOME. THE LD. AR, FURTHER SUBMITTED THAT THE LD. CIT(A) HAD ALSO RECORDED CATEGORICAL FINDINGS, IN L IGHT OF PROVISO TO SECTION 147 OF THE I.T.ACT, 1961 AND HELD THAT UNLE SS, THERE IS A ALLEGATION FROM THE AO THAT THERE IS A FAILURE, ON THE PART OF ASSESEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR ASSESSMENT, THE ASSESSMENT CANNOT BE REOPENED AFTER FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR, IF SUCH A SSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE I.T.ACT, 1961. IN THIS CASE, THERE IS NO DOUBT WITH REGARD TO FACT THAT THE ASSESSMENT HA S BEEN COMPLETED U/S 143(3) OF THE I.T.ACT, 1961, WHERE TH E ASSESEE HAS FILED A DETAILED NOTE ON PRODUCT WARRANTY PROVISION AND THE AO HAS DISCUSSED THE ISSUE IN THE ASSESSMENT AND AFTER B EING SATISFIED WITH EXPLANATION FILED BY THE ASSESEE COMPLETED AS SESSMENT. THEREFORE, THIS IS A CLASSIC CASE OF CHANGE OF OPIN ION, AND HENCE, THE LD.CIT(A) WAS RIGHT IN QUASHING REASSESSMENT PR OCEEDINGS. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITO VS TECHSPAN INDIA (P.) LTD.(2018) 3 02 CTR 74 (SC) AND ALSO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 7 SBI VS ACIT (2019) 103 TAXMANN.COM 164 (BOM.). THE LD. AR HAD ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIG H COURT, IN THE CASE OF PR.CIT VS M/S. L&T IN ITA NO. 135 OF 2016. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CAREFULLY CONSIDERED CASE LAWS RELIED UPO N BY BOTH THE PARTIES. THE ASSESEE HAS CHALLENGED REOPENING OF AS SESSMENT ON TWO GROUNDS. THE LD.CIT(A) HAD ACCEPTED THE ARGUMEN TS OF THE ASSESSEE, IN LIGHT OF PROVISIONS OF SECTION 147 OF THE I.T.ACT, 1961 AND THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3 ) OF THE I.T.ACT, 1961,DATED 29/12/2018 AND CAME TO THE CONC LUSION THAT THE ASSESSMENT HAS BEEN REOPENED ON CHANGE OF OPINION W ITHOUT THERE BEING ANY TANGIBLE MATERIAL, IN THE POSSESSION OF T HE AO, WHICH SUGGEST ESCAPEMENT OF INCOME. THE LD.CIT(A) HAD ALS O RECORDED CATEGORICAL FINDINGS, IN LIGHT OF PROVISO TO SECTIO N 147 OF THE I.T.ACT, 1961 AND HELD THAT UNLESS, THERE IS AN ALLEGATION F ROM THE AO IN THE REASONS RECORDED FOR REOPENING OF ASSESSMENT THAT A NY INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT BY REASONS OF THE FAILURE, ON THE PART OF ASSESEE TO DISCLOSE FULLY A ND TRULY ALL MATERIAL FACTS NECESSARY FOR REASSESSMENT, FOR THAT ASSESSME NT YEAR, THE ASSESSMENT CANNOT BE REOPENED AFTER FOUR YEARS FRO M THE END OF ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 8 RELEVANT ASSESSMENT YEAR, IF SUCH ASSESSMENT HAS BE EN COMPLETED U/S 143(3) OF THE I.T.ACT, 1961. IN THIS CASE, ON P ERUSAL OF FACTS, WE FIND THAT THE ORIGINAL ASSESSMENT HAS BEEN COMPLETE D U/S 143(3) OF THE I.T.ACT, 1961 ON 29/12/2018 AND THE ASSESSMENT HAS BEEN REOPENED AFTER FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEARS WITHOUT MAKING ANY ALLEGATION AS TO FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESS ARY FOR ASSESSMENT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT REOPE NING OF ASSESSMENT, IN THIS CASE WAS MADE ON CHANGE OF OPIN ION WITHOUT THERE BEING ANY TANGIBLE MATERIAL IN THE POSITION O F THE AO, WHICH SUGGEST ESCAPEMENT OF INCOME AND ALSO WITHOUT MAKIN G ANY ALLEGATION AS TO FAILURE ON THE PART OF ASSESEE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR ASSESSM ENT. 9. INSOFAR AS, VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE, WE FIND THAT THE HONBLE SUPREME COURT, IN THE CASE OF ITO VS TECHSPAN INDIA (P.) LTD (SUPRA) HAD HELD THAT WHERE , QUESTION, AS TO HOW AND TO WHAT EXTENT DEDUCTION TO BE ALLOWED U/S 10A WAS WELL CONSIDERED IN ORIGINAL ASSESSMENT PROCEEDINGS ITSEL F, INITIATION REASSESSMENT PROCEEDINGS U/S 147 BY ISSUING A NOTIC E U/S 148, MERELY BECAUSE OF FACT THAT NOW AO WAS OF VIEW THAT DEDUCTION U/S 10A WAS ALLOWED IN EXCESS, WAS BASED ON NOTHING, BU T A CHANGE OF ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 9 OPINION. THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF SBI VS ACIT (SUPRA) HAD CONSIDERED REOPENING, IN LIGHT OF PROVI SO TO SECTION 147 AND HELD THAT WHERE, IN ORIGINAL RETURN OUTSTANDING CREDIT INTEREST LYING IN INTER BRANCH ACCOUNT FOR MORE THAN 10YEARS AS ON 30/09/2010 WAS CREDITED TO PROFIT AND LOSS ACCOUNT BY ASSESEE BANK, AS PER RBI INSTRUCTIONS, BUT SAME WAS NOT OFFERED T O TAX, IN ACCORDANCE WITH THE TRIBUNAL DECISION, REASSESSMENT AFTER FOUR YEARS WAS UNJUSTIFIED. THE HONBLE BOMBAY HIGH COUR T IN PR.CIT VS M/S L&T LTD. HAD CONSIDERED IDENTICAL ISSUE AND HEL D THAT IN THE ABSENCE OF THE STATUTORY REQUIREMENT OF INCOME CHAR GEABLE TO TAX HAD BEEN ESCAPED ASSESSMENT DUE TO THE FAILURE, ON THE PART OF ASSESEE TO DISCLOSE FULLY AND TRULY, ALL MATERIAL F ACTS BEING SATISFIED, THE TRIBUNAL CORRECTLY HELD THAT THE NOTICE OF REAS SESSMENT WAS INVALID. AS REGARDS, CASE LAWS RELIED UPON BY THE LD. DR, WE FIND THAT IN CASE OF CIT VS RAI BAHADUR HARDUTORY MOTILA L CHAMARIA (SUPRA), THE HONBLE SUPREME COURT HAS EXPLAINED, T HE TERM WHAT CONSIDERATION BY THE ITO MEANS AND HELD THAT CONSID ERATION DOES NOT MEAN INCIDENTAL OR COLLATERAL EXAMINATION OF AN Y MATTER BY THE AO IN THE PROCESS OF ASSESSMENT AND THERE MUST BE SOMETHING IN THE ASSESSMENT ORDER TO SHOW THAT THE ITO APPLIED H IS MIND TO THE PARTICULAR SUBJECT OF THE MATTER OR PARTICULAR SOUR CE OF INCOME WITH A VIEW TO ITS TAXABILITY OR TO ITS NON-TAXABILITY AND NOT TO ANY INCIDENTAL ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 10 CONNECTIONS. WE FIND THAT THE FACTS OF THE CASE LAW S RELIED UPON BY THE LD. DR IS NOT APPLICABLE TO THE FACTS AND CIRCU MSTANCES OF THIS CASE BECAUSE, IN THIS CASE, THE LD. AO HAS EXAMINED THE ISSUE IN ORIGINAL ASSESSMENT PROCEEDINGS AND AFTER BEING SAT ISFIED WITH EXPLANATION FURNISHED BY THE ASSESSEE ACCEPTED THE CLAIM. INSOFAR AS, THE DECISION OF HONBLE SUPREME COURT IN THE CA SE OF DOLGOBINDA PARICHA VS. NIMAI CHARAN MISRA & OTHRS, WE FIND THAT THE WORD OPINION HAS BEEN EXPLAINED BY THE HONBLE SUPREME COURT, IN THE LIGHT OF INDIAN EVIDENCE ACT, 1872 AND IT IS A SETTLED POSITION OF LAW THAT THE INDIAN EVIDENCE ACT, 1872 IS NOT STRIC TLY APPLICABLE TO INCOME TAX PROCEEDINGS, THE FINDING RECORDED BY THE HONBLE SUPREME COURT, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THAT CASE MAY NOT BE STRICTLY APPLICABLE TO FACTS OF THIS CA SE. 10. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOL LOWING THE CASE LAWS DISCUSSED HEREINABOVE, WE ARE OF THE CONSIDERE D VIEW THAT THE LD.CIT(A) HAS RIGHTLY QUASHED REASSESSMENT PROCEEDI NGS, THEREFORE, INITIATED U/S 147 OF THE I.T.ACT, 1961 AND HENCE, W E ARE INCLINED TO UPHOLD, THE FINDINGS OF THE LD.CIT(A) AND DISMISSED APPEAL FILED BY THE REVENUE. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ITA NO.262/MUM/2016 LARSEN & TOUBRO LIMITED 11 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 06 /09 /2019 SD/- ( SAKTIJIT DEY ) SD/- ( G. MANJUNATHA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 06 /09/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//