Nagappa Motors Private Limited, CHENNAI V. ITO (OSD), CHENNAI

ITA 2686/CHNY/2014

• Counselvise Citation: 268621714 RSA 2014
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 08-09-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 27-10-2014
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: A SATYASEELAN
• Keywords: Reopening of assessment; Proportionate interest; Additional evidence; Reasonable cause; Difference of opinion; Reason to believe; Change of opinion

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ ITA NO. 2686/MDS/2014 / ASSESSMENT YEAR : 2004-05 M/S. NAGAPPA MOTORS PRIVATE LIMITED, 13, BALFOUR ROAD, KILPAUK, CHENNAI-600010. PAN AAACN3575G ( /APPELLANT) VS THE INCOME-TAX OFFICER(OSD), COMPANY CIRCLE-IV(4), CHENNAI 34. ( /RESPONDENT) / APPELLANT BY : SHRI A. SATYASEELAN, ADVOCATE / RESPONDENT BY : SHRI A.B.KOLI, JCIT / DATE OF HEARING : 08.09.2015 ! / DATE OF PRONOUNCEMENT : 23.09.2015 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 30 .4.2014 FOR THE ASSESSMENT YEAR 2004-05. - - ITA 2686/14 2 2. THE FIRST GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO REOPENING OF ASSESSMENT AFTER FOUR Y EARS THOUGH THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) RE AD WITH SEC.147 OF THE ACT. THE SECOND GROUND IS WITH REGA RD TO DISALLOWANCE U/S.40A(2) OF THE ACT. 3. THE ASSESSEE BEFORE US FILED ADDITIONAL EVIDENCE IN THE FORM OF PAPER BOOK CONTAINING PAGES 1 TO 51. THE A SSESSEE HAS ALSO FILED AN AFFIDAVIT SEEKING ADMISSION OF ADDITI ONAL EVIDENCE. THE REASONS ADVANCED BY THE ASSESSEE IN THE AFFIDAV IT ARE GENERAL IN NATURE AND THERE IS DELAY IN FILING THE ADDITIONAL EVIDENCE. THIS AFFIDAVIT IS FILED ON 3.9.15, THOUG H THE ASSESSEE FILED THE APPEAL BEFORE THE TRIBUNAL ON 27.10.2014. IN OUR OPINION, THE REASONS ADVANCED BY THE ASSESSEE FOR N OT FILING THIS EVIDENCE BEFORE THE LOWER AUTHORITIES AND DELAYING IN FILING THE SAME WAS NOT EXPLAINED. IN OUR OPINION THERE IS NO REASONABLE CAUSE FOR NOT FILING THIS EVIDENCE BEFORE US. ACCO RDINGLY, WE DECLINE TO ADMIT THE ADDITIONAL EVIDENCE FILED BEFO RE US. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSM ENT WAS ORIGINALLY COMPLETED U/S.143(3) R.W.S. 147 ON 29.11 .2006 ASSESSING THE TOTAL INCOME AT ` 40,39,105/-. SUBSEQUENTLY, IT - - ITA 2686/14 3 WAS NOTICED THAT THE ASSESSEE HAD ADVANCED A SUM OF `50,00,000/- TO M/S. NAGAPPA PETRO PRODUCTS (P) LTD. CLAIMED TO BE FOR THE PURCHASE OF LAND. THE AGREEMENT HAD BEEN SIGNED BY SHRI M. PALANIAPPAN, DIRECTOR OF THE ASSESSEE CO MPANY, HOLDING 50% SHARES, IN M/S. NAGAPPA PETRO PRODUCTS (P) LTD. AS THE TRANSACTION HAD TAKEN PLACE BETWEEN THE ASSE SSEE AND THE OTHER COMPANY WHERE THE DIRECTOR WAS HAVING SUB STANTIAL INTEREST AND HAD ENTERED INTO AGREEMENT SIGNING ON BEHALF OF THE OTHER COMPANY, INTEREST WAS REQUIRED TO BE DISALLOW ED BY INVOKING THE PROVISIONS OF SEC.40A(2) WITH RESPECT TO INTEREST FREE ADVANCE OF ` 50,00,000/-. ACCORDING TO THE ASSESSING OFFICER, THE NON-DISALLOWANCE OF PROPORTIONATE INTEREST ON ` 50,00,000/- HAD RESULTED IN INCOME ESCAPING ASSESSMENT. ACCORD INGLY, THE ASSESSMENT WAS COMPLETED AGAINST UNDER SEC.143(3) R .W.S.147 OF THE ACT ARRIVING AT THE TOTAL INCOME OF ` 48,22,550/- BY ADDING ` 7,83,440/- TO THE INCOME ASSESSED VIDE EARLIER ASS ESSMENT ORDER VIZ., ` 40,39,105/-. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX(APP EALS), WHO DISMISSED THE APPEAL OF THE ASSESSEE. AGAINST THIS , THE ASSESSEE IS IN APPEAL BEFORE US. - - ITA 2686/14 4 5. THE LD. AR SUBMITTED THAT ORIGINALLY ASSESSMENT WAS COMPLETED U/S.143(3) R.W.S. 147 OF THE ACT ON 29.11 .2006. HOWEVER, THE ASSESSING OFFICER BY A LETTER DATED 5. 10.2006 CALLED FOR DETAILS WITH REGARD TO ADVANCE OF ` 50 LAKHS TO M/S. NAGAPPA PETRO PRODUCTS LTD., WHICH READS AS FOLLOWS : 1. LOANS & ADVANCES ` 50.00 LAKHS TO M/S. NAGAPPA PETRO PRODUCTS. (A) FURNISH COPY OF AGREEMENT ENTERED WITH M/S. NAGAPPA PETRO PRODUCTS FOR PURCHASE OF LAND. (B) DETAILS OF DATE OF AGREEMENT, DATE OF PAYMENT OF ` 50.00 LAKHS, CHEQUE NO., AND BANK DETAILS. (C) COPY OF AGREEMENT BETWEEN M/S. NAGAPPA PETRO PRODUCTS AND SELLER OF LAND WHICH IS CLAIMED TO BE UNDER DISPUTE. DETAILS OF NAME, ADDRESS, PAN OF THE SELLER. 2. IT IS SEEN THAT DURING THE YEAR, THE ASSESSEE H AS BORROWED FUNDS TO THE TUNE OF ` 1.19 CRORES AND INTEREST EXPENSES OF ` 18.64 LAKHS. ALSO ASSESSEE HAS ADVANCED INTEREST FREE LOAN OF ` 2.00 LAKHS TO SRI JAYAMARUTHI SEVA TRUST. SHOW CEASE WHEY THE CORRESPONDING INTEREST SHOULD NOT BE DISALLOWED. 3. RENT ADVANCE: ` 50.00 LAKHS TO M/S. NAGAPPA MOTORS FIRM. (A) FURNISH DETAILS OF DATE OF PAYMENT OF ADVANCE. (B) MODE OF PAYMENT, CHEQUE NO. AND BANK DETAILS. 4. UNSECURED LOANS 1.19 CRORES SUBMIT COPY OF LOAN SANCTION LETTER. - - ITA 2686/14 5 THE ABOVE INFORMATION IS CALLED FOR U/S.142(1) . YOUR CASE IS POSTED FOR HEARING ON 13.10.2006 AT 3. 30 PM 5.1 THE LD. AR SUBMITTED THAT THE ASSESSEE HAS FILE D A DETAILED REPLY VIDE LETTER DATED 18.9.2006 BEFORE T HE ASSESSING OFFICER, WHICH WAS DULY CONSIDERED BY HIM AND HE HA S PASSED THE ORDER ON 29.11.2006. ACCORDING TO THE LD. AR, THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL NECESSARY DETAILS FOR THE PURPOSES OF ASSESSMENT. THE SAME W AS CONSIDERED BY THE ASSESSING OFFICER IN HIS ASSESSME NT ORDER DATED 29.11.2006 AND A SUM OF ` 31,327/- WAS DISALLOWED TOWARDS INTEREST FREE ADVANCE GIVEN TO SRI PANCHAMU KA SRI JAYAMARUTHI SEVA TRUST. THE LD. AR FURTHER SUBMI TTED THAT SINCE THE AO HAS PASSED THE REOPENED ASSESSMENT ORD ER DATED 29.11.2006 AFTER CONSIDERING ALL THE PARTICULARS FU RNISHED BY THE ASSESSEE, THE REOPENING IS NOTHING BUT CHANGE OF OP INION AND THE ASSESSMENT CANNOT BE REOPENED. TO SUPPORT HIS VIEW, THE LD. AR RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS KELVINATOR OF INDIA LTD., 320 ITR 561. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE INITIAL REOPENING WAS FOR THE LIMITED PURPOSE OF CONSIDERIN G THE - - ITA 2686/14 6 ALLOWANCE OF EXPENDITURE ON THE DIRECTORS EDUCATIO N AND THE POINT RELATING TO THE NON-DISALLOWANCE OF PROPORTIO NATE INTEREST ON ` 50.00 LAKHS, WHEN THE ASSESSEE WAS INCURRING INTER EST EXPENDITURE ON BORROWED FUNDS, WAS NOT LOOKED INTO AND THE AO HAD NOT APPLIED HIS MIND TO THE ISSUE OR FORMED ANY OPINION THEREON IN THE EARLIER REOPENED ASSESSMENT. FURTHE R, THE LD. DR CONTENDED THAT THE AO HAD NOT RECORDED ANY EXPLICIT OPINION ON THE ASPECT OF DISALLOWANCE OF THE SAID LOAN ADVANCE D INTEREST FREE TO SISTER CONCERN WHICH WAS NOW SOUGHT TO BE E XAMINED AFRESH IN THE ORDER U/S.143(3) R.W.S. 147. HENCE, THE LD. DR SUBMITTED THAT IT COULD NOT BE SAID, AS CONTENDED B Y THE LD. AR THAT THE REOPENING WAS DUE TO CHANGE OF OPINION. F URTHER, THE LD. DR SUBMITTED THAT THE NOTICE U/S.148 RELATING TO TH E IMPUGNED ASSESSMENT WAS ISSUED ON 12.1.2010, WHICH IS WELL W ITHIN SIX YEARS FROM THE END OF THE INSTANT ASSESSMENT YEAR 2 004-05 IN TERMS OF SEC.149(1)(B), AS THE INCOME ESCAPING ASSE SSMENT AS PER THE AO, WAS MORE THAN ` 1,00,000/-. THEREFORE, THE LD. DR SUBMITTED THAT THE LD. ARS OBJECTIONS REGARDING RE OPENING OF THE IMPUGNED ASSESSMENT IS NOT VALID AND HE SUPPORTED T HE ORDER OF THE CIT(APPEALS). - - ITA 2686/14 7 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE ASSESSMENT WAS REOPEN ED FOR THE FOLLOWING REASONS: IT IS SEEN FROM THE DETAILS AVAILABLE IN THE IT MR FOR ASSESSMENT YEAR 2004-05, M. PALANIAPPAN, DIRECTOR O F THE COMPANY HOLDING 50% SHARES, HAS SIGNED THE AGREEMENT, ON BEHALF OF M/S. NAGAPPA PETRO PRODUCTS ENTERED INTO BETWEEN NAGAPPA PETROPRODUCTS AND THE ASSESSEE COMPANY FOR PURCHASE OF LAND AND ADVANCE OF ` 50,00,000/- WAS MADE, WHICH IS STILL PENDING AS THE TRANSACTION WAS NOT FINALIZED DUE TO LEGAL DISP UTE OVER THE NAGAPPA PETRO PRODUCTS LTD. AND THEIR SELL ER. AS THE TRANSACTION HAS TAKEN PLACE BETWEEN THE ASSESSEE COMPANY AND THE OTHER COMPANY WHERE THE DIRECTOR HAVING SUBSTANTIAL INTEREST IN THE ASSESSE E COMPANY HAS ENTERED INTO AGREEMENT WITH OTHER COMPANY WHERE THE DIRECTOR WAS THE AUTHORIZED SIGNATORY, DISALLOWANCE OF PROPORTIONATE INTEREST TOWARDS ADVANCE MADE OUT OF BORROWED FUNDS FOR WHICH INTEREST EXPENDITURE WAS CLAIMED WAS NOT CONSIDERED IN THE SCRUTINY ASSESSMENT. I HAVE REASON TO BELIEVE THAT EXCESS EXPENDI TURE WAS ALLOWED TO THE ASSESSEE COMPANY, WHICH NEEDS TO BE DISALLOWED U/S.40A(2)(B) ON THE ADVANCE PAYMENT OF ` .50,00,000/-. 7.1 AS SEEN FROM THE EARLIER ASSESSMENT ORDER, THE AO CALLED FOR THE DETAILS VIDE HIS LETTER DATED 5.10.2006 WHI CH IS PLACED AT PG. 39 OF THE PAPER BOOK, WHICH IS EXTRACTED IN PAR AGRAPH 5 ABOVE. THE ASSESSEE VIDE ITS LETTER DATED 18.9.200 6 REPLIED TO THE QUESTIONS. AFTER CONSIDERING THE SAME, THE AO PASSED THE - - ITA 2686/14 8 ASSESSMENT ORDER ON 29.11.2006 AND HE MADE AN ADDIT ION OF ` 31,327/- AND THE ISSUE WAS DISCUSSED IN PARA 2 OF T HE ASSESSMENT ORDER DATED 29.11.2006, WHICH IS AS UNDE R : 2. THE ASSESSEE ADVANCED ` 2.00 LAKHS AS INTEREST FREE ADVANCE TO SHRI PANCHAMUKA SRI JAYAMARUTHI SEVA TRUST. THE ASSESSEE HAS BORROWED FUNDS OF ` 1.19 CRORES AND HAS PAID INTEREST OF ` 18.69 LAKHS. AS BORROWED FUNDS HAVE BEEN UTILIZED TO ADVANCE INTERE ST FREE LOAN, THE PROPORTIONATE INTEREST OF `3 1,327/- IS DISALLOWED. SO IT IS TO BE SAID THAT THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL THE MATERIAL FACTS BEFORE THE AO. THE ASSESSMENT YEAR IS 2004-05. REOPENING NOTICE WAS I SSUED TO THE ASSESSEE ON 12.1.2010. I.E. AFTER THE END OF FO UR YEARS OF THE RELEVANT ASSESSMENT YEAR. BEYOND FOUR YEARS, THE A SSESSMENT IS TO BE REOPENED, THERE MUST BE A FAILURE ON THE P ART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT. IN THIS CASE, THERE WAS NOT EVEN AN ALLEGATION TO THE EFFECT THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL F ACTS FOR THE PURPOSE OF ASSESSMENT. THE ASSESSEE DISCLOSED ALL MATERIAL FACTS AT THE TIME OF ASSESSMENT U/S.143(3) R.W.S.14 7 OF THE ACT. ON 29.11.2006, EXPRESSLY CLARIFIED ALL THE DETAILS REQUIRED BY THE - - ITA 2686/14 9 AO FOR THE PURPOSE OF ASSESSMENT ON THIS ISSUE. TH E AO AFTER DULY CONSIDERING THE CLARIFICATION GIVEN BY THE ASS ESSEE PASSED THE ORDER U/S.143(3) R.W.S.147. HENCE, THE CONDITI ON FOR REOPENING OF ASSESSMENT BEYOND THE PERIOD OF FOUR Y EARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR WAS NOT FUL FILLED. EVEN DURING THE COURSE OF HEARING, IT WAS NOT THE SUBMIS SION OF THE REVENUE THAT THERE WAS ANY SUPPRESSION OF MATERIA L OF FACTS. IN VIEW OF THE ABOVE, REOPENING OF ASSESSMENT U/S.1 47 BEYOND THE PERIOD OF 4 YEARS CANNOT BE SUSTAINED, THE ORDE R OF REOPENING OF THE ASSESSMENT CANNOT BE SUSTAINED. SINCE, WE H AVE ANNULLED THE REOPENING OF THE ASSESSMENT ITSELF, TH E GROUND RAISED BY THE ASSESSEE ON ACCOUNT OF ADDITION U/S.4 0A(2) OF THE ACT, HAS BECOME INFRUCTUOUS. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, TH E 23 RD OF SEPT, 2015 AT CHENNAI. SD/- SD/- ( '# $%& ' ) ( ' & ( ) ) *+,-..-/-01234-54-6-37 *+,-234-5889-4 :7 % '; /JUDICIAL MEMBER ';<=>>8?2@-2@A1BC14 '% /CHENNAI, D' /DATED, THE 23 RD SEPT., 2015. MPO* - - ITA 2686/14 10 'E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I*7 /CIT(A) 4. I /CIT 5. GJ$ K /DR 6. $LM /GF.