DCIT, CHENNAI V. M/s. Farida Prime Tannery Pvt. Ltd., CHENNAI

ITA 2789/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7944 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 26-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Keywords: Reopening of assessment; Depreciation; Audit objection; Question of law; Speculation loss; Difference of opinion; Assessment record; Change of opinion
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 43(5); 251; 13; 119

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.2789/MDS./2016 / ASSESSMENT YEAR : 2009-10 THE DCIT, CORPORATE CIRCLE 2(1), CHENNAI 600 034. VS. M / S.FARIDA PRIME TANNERY PVT LTD., 15/4,MOUNT POONAMALLEE ROAD, RAMAPURAM, CHENNAI 600 089. [PAN AAACF 8819 R] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT, DR /RESPONDENT BY : SHRI S.VIDYA, C.A / DATE OF HEARING : 21 - 12 - 2016 / DATE OF PRONOUNCEMENT : 09 - 02 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-6CHENNAI D ATED 21.07.2016 PERTAINING TO ASSESSMENT YEAR 2009-10. 2. THE MAIN GRIEVANCE OF THE REVENUE IN ITS APPEA L IS WITH REGARD TO REOPENING IS BAD IN LAW. ITA NO.2789/16 :- 2 -: 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIL ED RETURN OF INCOME ON 18.09.2009 DECLARING AN INCOME OF ` 2,50,66,610/-. SUBSEQUENTLY, THE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 12.12.2011 ASSESSING THE INCOME AT ` 6,04,62,942/-. THE ASSESSMENT WAS REOPENED ON THE REASON THAT THE ASS ESSEE CLAIMED LOSS ON FORWARD CONTRACT AT ` 2,47,93,531/- DUE TO TRADE IN FOREIGN EXCHANGE DERIVATIVES, WHICH IS REQUIRED TO BE DISAL LOWED SINCE IT IS NOT COVERED U/S.43(5)(D) OF THE ACT. ACCORDINGLY, THE R EASSESSMENT WAS COMPLETED U/S.143(3) R.W.S.147 OF THE ACT ON 20.03. 2015 DISALLOWING LOSS OF FOREIGN EXCHANGE AMOUNTING TO ` 1,97,55,214/-. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE LD.CIT(A) CH ALLENGING THE REOPENING OF ASSESSMENT AND ALSO WITH REGARD TO DI SALLOWANCE OF LOSS ON FORWARD CONTRACT AT ` 1,97,55,214/-. ON APPEAL, THE LD.CIT(A) DECIDED BOTH THE ISSUES IN FAVOUR OF THE ASSESSEE. AGGRIEVED WITH THE ORDER OF LD.CIT(A), REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, LD.D.R SUBMITTED THAT THE ASSESSMENT WAS RIGHTLY REOPENED ON THE BASIS OF AUDIT OBJECTIONS. IN SUPPO RT OF HIS ARGUMENT, LD.D.R RELIED ON THE DECISION OF SUPREME COURT IN T HE CASE OF PVS BEEDIES PVT. LTD. IN 237 ITR 13 WHEREIN IT WAS HELD THAT THE RE-OPENING OF ASSESSMENT ON THE BASIS OF AUDIT OBJECTIONS WER E VALID. FURTHER, LD.D.R PLACED RELIANCE IN THE JUDGEMENT OF JURISDI CTIONAL HIGH COURT IN THE CASE OF PVP VENTURES LTD. IN 382 ITR 282 WHEREI N IT WAS HELD THAT ITA NO.2789/16 :- 3 -: WHERE AO HAD GIVEN COGENT REASONS IN HIS SPEAKING O RDER WHILE REJECTING OBJECTIONS RAISED BY ASSESSEE AGAINST REO PENING OF ASSESSMENT , IT COULD NOT BE SAID THAT AO HAD NOT A PPLIED HIS MIND AND REOPENED ASSESSMENT SOLELY BASED ON AUDIT REPORT. 5. ON THE OTHER HAND, LD.A.R SUBMITTED BEFORE US THAT THE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 12.12.2011 BY MAKING AN ADDITION OF RS.3,53,963/- TOWARDS DISALLOWANCE UNDER SECTION 40(A)(IA)OF THE ACT. LATER ON, A NOTICE UNDER SECTION 147 OF THE ACT ON 24.03.2014, AT THE INSTANCE REVENUE AUDIT OBJECTIONS. THE RESPONDENT C OMPANY REPLIED ON 15.04.2015, STATING THAT, THE RETURN FILED UNDER SE CTION 139 OF THE ACT, MAY BE TREATED AS THE RETURN FILED UNDER SECTION 148 OF THE ACT AND REQUESTED THE OFFICER TO FURNISH THE REASONS RECORDED FOR RE-OPEN ING THE ASSESSMENT UNDER SECTION 148 OF THE ACT. THE LEARNED AO, ON 15.05.20 14, FURNISHED THE REASONS RECORDED FOR RE-OPENING THE ASSESSMENT UNDE R SECTION 147 OF THE ACT AS FOLLOWS: THE LOSS CLAIMED ON FORWARD CONTRACT OF RS. 2,47, 93,531/- DUE TO TRADE IN FOREIGN EXCHANGE DERIVATIVES, IS A LOSS INCURRED NOT ON BUSINESS BUT IT IS A LIABILITY OF CONTINGENT NATURE . SINCE IT IS NOT COVERED U/S 43(5) (D), THE SAME IS REQUIRED TO BE D ISALLOWED. IN RESPONSE, THE ASSESSEE COMPANY OBJECTED THE RE-O PENING OF THE ASSESSMENT VIDE ITS LETTER DATED 19.02.2015, STATIN G THAT, ALL THE DETAILS, EXPLANATIONS IS ALREADY FURNISHED BEFORE THE AO DUR ING THE SCRUTINY ASSESSMENT AND HENCE, THE RE-OPENING OF THE ASSESSM ENT UNDER SECTION 147 ITA NO.2789/16 :- 4 -: OF THE ACT IS INVALID. THE LEARNED AO DISMISSED THE OBJECTION RAISED BY THE ASSESSEE AND PASSED AN ORDER ON 17.02.2015 AS BELOW : THE ABOVE AVERMENTS HAVE BEEN CONSIDERED. THE FACT S THAT A MASS OF MATERIAL WAS PROVIDED DURING THE COURSE OF ASSESSMENT DOES NOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THE SAME WAS CONSIDERED DURING THE ASSESSMENT PROCEEDINGS. IT WA S TO PROVIDE FOR SUCH A SCENARIO THAT EXPLANATION 1 TO SECTION 1 47 WAS ENACTED. MOREOVER, THERE IS A CATENA OF DECISION BY DIFFERENT JUDICIAL AUTHORITIES TO THE EFFECT THAT WHERE NO OP INION IS EXPRESSED, THERE CANNOT BE A CHANGE OF OPINION. IT IS PERTINENT TO NOTE THAT THE FULL BENCH DELHI HIGH COURT, IN THE C ASE OF LISHA INTERNATIONAL LTD 348 ITR 485 HAS HELP THAT WHERE N O OPINION IS EXPRESSED IN THE ASSESSMENT ORDER, THERE CANNOT BE ANY QUESTION OF CHANGE OF OPINION. IN ANY CASE, THE ISSUE OF INV ESTMENT BY THE ASSESSEE IN CERTAIN COMPANIES AS QUID PRO QUO WAS N EVER EXAMINED AT THE TIME OF ORIGINAL ASSESSMENT AS THE SAID I INFORMATION WAS NOT AVAILABLE AT THAT TIME. THE ISS UE UNDER CONSIDERATION WAS ALSO NEVER DISCUSSED IN THE ASSES SMENT ORDER. IF ONE WERE GO BY THE CONTENTIONS OF THE AR, EVEN C ANNOT BE ANY QUESTION OF CHANGE OF OPINION. THE OBJECTIONS ARE T HEREFORE NOT SUSTAINABLE AND ARE REJECTED. I THEREFORE HOLD THAT THE PROCEEDINGS U/S 148 DATED 24.3 .1 4 HAVE BEEN VALID LY INITIATED AND THE SAME ARE CONTINUED. THE LD.A.R SUBMITTED THAT THE RESPONDENT COMPANY HA D IN FACT SUBMITTED MASS OF MATERIAL DURING THE COURSE OF ASSESSMENT WH ICH IS NOT IN DISPUTE. THE LEARNED AO DISMISSED OUR OBJECTION FOR RE-OPENI NG ASSESSMENT ONLY OF THE GROUND THAT, THE ISSUE OF INVESTMENT BY THE ASS ESSEE IN CERTAIN ITA NO.2789/16 :- 5 -: COMPANIES AS QUID PRO QUO WAS NEVER EXAMINED AT THE TIME OF THE ORIGINAL ASSESSMENT, AS THE SAID INFORMATION WAS NOT AVAILAB LE AT THAT TIME. 5.1 THE LD.A.R SUBMITTED THAT, THE REASONS FOR RE -OPENING THE ASSESSMENT WAS NOT ON THE ISSUE OF INVESTMENT BY TH E ASSESSEE IN CERTAIN COMPANIES, BUT THE RE-OPENING WAS DONE ON THE ISSUE OF LOSS OF CANCELLATION OF FORWARD CONTRACTS. HENCE, THE OBJECTIONS DISMISS ED BY THE LEARNED ASSESSING OFFICER ARE TOTALLY UNJUSTIFIED AND UNLAW FUL. IT WAS INFORMED THAT, THE RE-ASSESSMENT WAS INITIATED BASED ON THE AUDIT OBJECTION. EVEN THE AO EXPLAINED BEFORE THE AUDIT PARTY THAT, THE LOSS OF CANCELLATION OF FORWARD CONTRACT IS AN ALLOWABLE EXPENDITURE AND NOT A SPEC ULATIVE LOSS. THE AUDIT PARTY, DID NOT ACCEPT THE REPLY MADE BY THE AO AND HENCE, THE LEARNED AO ISSUED THE NOTICE UNDER SECTION 147 OF THE ACT TO T HE ASSESSEE. DESPITE THE INITIAL DISAGREEMENT OF THE AO AND THE OBJECTION RA ISED BY THE AUDIT PARTY, HE ISSUED THE NOTICE UNDER SECTION 147 ONLY AT THE INS TANCE OF THE AUDIT PARTY. THE SAME ARE EVIDENT FROM THE PAGE 5 OF THE ORDER O F THE CIT(A). HENCE, THE LD.A.R PLEADED THAT THE ISSUE OF NOTICE UNDER SEC TION 147 OF THE ACT IS UNLAWFUL AND THE SAME IS TO BE QUASHED. FURTHER, LD .A.R PLACED RELIANCE ON JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF J AGAT JAYANTHILAL PARIKH VS. DCIT IN 32 TAXMARIN.COM 161 (GUJARAT). FINALLY, LD.A.R CONTENDED THAT CONSIDERING THE FACTS AND SUBMISSIONS PLACED ON R ECORD, THE RE-OPENING WAS NOT BASED ON AN INDEPENDENT OPINION AND THE RE- ASSESSMENT PROCEEDINGS ARE VOID AB INITIO. ITA NO.2789/16 :- 6 -: 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THERE IS NO DISPUTE THAT THE REASON FOR REOPENING OF ASSESSMENT IS OBJECTION RAISED BY THE REVENUE A UDIT REGARDING THE ALLOWABILITY OF LOSS ON FORWARD CONTRACT OF ` 2,47,93,531/- DUE TO TRADE IN FOREIGN EXCHANGE DERIVATIVES. IT IS ALSO UNDISP UTED FACT THAT THERE IS NO OTHER MATERIAL IN THE HANDS OF AO TO REOPEN THE ASSESSMENT AFTER CONCLUDED THE ASSESSMENT U/S.143(3) OF THE ACT AND TO ISSUE OF NOTICE U/S.148 OF THE ACT ON 214.03.2014. IT IS WE LL SETTLED PRINCIPLE THAT THE AO CAN FORM AN INDEPENDENT OPINION ON AN I SSUE WHICH MAY HAVE BEEN BROUGHT TO HIS NOTICE BY AUDIT PARTY AND SEEK TO REOPEN THE ASSESSMENT , PROVIDED IT IS AOS INDEPENDENT BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. REFERENCE IN THIS ASPECT MAY BE MADE TO THE DECISION OF SUPREME COURT IN THE CASE OF ADANI EXPORTS [1999] 240 ITR 224 (GUJ) THAT THOUGH THE AU DIT OBJECTION MAY SERVE AS INFORMATION, THE BASIS OF WHICH THE INCOME -TAX OFFICER CAN ACT, THE ULTIMATE ACTION MUST DEPEND DIRECTLY AND S OLELY ON THE FORMATION OF BELIEF BY THE INCOME- TAX OFFICER ON H IS OWN WHERE SUCH INFORMATION PASSED ON TO HIM BY THE AUDIT THAT INCO ME HAS ESCAPED ASSESSMENT. IN THE SAID DECISION, THE COURT HAD REF ERRED TO AND RELIED UPON THE DECISION OF THE SUPREME COURT IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIETY V. CIT REPORTED IN [1979] 119 ITR 996 (SC) ITA NO.2789/16 :- 7 -: WHEREIN HELD THAT: 'IN THE PRESENT CASE, BY SCRUPULOUSLY ANALYSING THE AUDIT OBJECTION IN GREAT DETAIL, THE ASSESSING OFFICER HA S DEMONSTRABLY SHOWN TO HAVE HELD THE BELIEF PRIOR TO THE ISSUANCE OF NOTICE AS WELL AS AFTER THE ISSU ANCE OF NOTICE THAT THE ORIG INAL ASSESSMENT WAS NOT ERRONEOUS AND SO FAR AS HE WAS CONCERNED, H E DID NOT BELIEVE AT ANY TIME THAT INCOME HAS ESCAPED ASSESSM ENT ON ACCOUNT OF ERRONEOUS COMPUTATION OF BENEFIT UNDER S ECTION 80HHC. HE HAS BEEN CONSISTENT IN HIS SUBMISSION OF HIS REPORT TO THE SUPERIOR OFFICERS. THE MERE FACT THAT AS A S UB ORDINATE OFFICER HE ADDED THE SUGGESTION THAT IF HIS VIEW IS NOT ACCEPTED, REMEDIAL ACTIONS MAY BE TAKEN CANNOT BE SAID TO BE BELIEF HELD BY HIM. HE HAS NO AUTHORITY TO SURRENDER OR ABDICAT E HIS FUNCTION TO HIS SUPERIORS, NOR THE SUPERIORS CAN AR ROGATE TO THEMSELVES SUCH AUTHORITY.' IT WAS IN THIS CONTEXT, IT IS IMPORTANT TO KNOW WH ETHER RECORDING OF THE REASONS AND CONSEQUENT ISSUANCE OF NOTICE U/S.148 OF THE ACT WAS ON THE BASIS OF AN INDEPENDENT OPINION OF THE ASSESSING OF FICER ON THE QUESTION OF LAW AND FACTS WHICH MAY HAVE BEEN BROUGHT TO HER NO TICE BY THE AUDIT PARTY OR WHETHER THE AO EVENTUALLY HELD A BELIEF THAT SU CH GROUNDS WERE NOT VALID AND THAT THE AO WAS UNDER COMPULSION TO REOPEN THE ASSESSMENT SOLELY UNDER INSISTENCE OF THE AUDIT PARTY. THE AO HAS E XPLAINED BEFORE THE AUDIT PARTY THAT LOSS AND CANCELLATION OF FORWARD CONTRAC T IS AN ALLOWABLE EXPENDITURE AD NOT A SPECULATION LOSS. LATER ON TH E SAME REASON, WHEN THE AUDIT PARTY DID NOT ACCEPT THE VERSION OF THE AO, T HE AO OPTED TO REOPEN THE CONCLUDED ASSESSMENT. THIS IS NOTHING BUT THERE IS NO INDEPENDENT FORMATION OF OPINION BY THE AO AND IT IS ONLY ON AC COUNT OF COMPULSION ITA NO.2789/16 :- 8 -: EXERTED BY THE REVENUE AUDIT PARTY. IT CANNOT BE A REASON FOR REOPENING OF THE ASSESSMENT. IN OTHER WORDS, IN THE ABSENCE OF I NDEPENDENT BELIEF OF AO TO HOLD THAT, INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NO ASSESSMENT CAN BE RE-OPENED AT THE INSTANCE OF THE AUDIT PARTY. THE SAME VIEW WAS TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF C. SESHACHALAM CHETTY (DECD.) IN [2000] 243 ITR 531 (M AD), GUJARAT HIGH COURT IN THE CASE OF SHETH BROTHERS VS. JCIT IN [20 01] 251 ITR 270 (GUJ) AND MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS . DIGVIJAY SINGH IN [2007] 292 ITR 314 (MP). 6.1 NOW, COMING TO THE JUDGEMENT RELIED BY THE LD. D.R IN THE CASE OF FIRST LEASING COMPANY OF INDIA LTD IN 241 ITR 248, IN THAT CASE THE AUDIT PARTY HAS ONLY BROUGHT THE ISSUE TO THE ATTENTION OF THE AO. THE RELEVANT RULES FOR THE GRANT OF EXTRA DEPRECIATION, WHICH WA S WRONGLY ALLOWED TO THE ASSESSEE, REPORT OF AUDIT PARTY CONSTRUED, INFORMA TION WITHIN THE MEANING OF SEC.147(B) OF THE ACT AND THE AO HAS RIGHTLY IN ITIATED THE RE-ASSESSMENT PROCEEDINGS, AVAILABILITY OF OTHER AVENUES OF RECTI FICATION OR REVISION WAS NO BAR. AS SEEN FROM THE FACTS OF THE ABOVE CASE, THE AO NOT OBJECTED THE AUDIT OBJECTION AFTER REVENUE AUDIT PARTY BROUGHT TO THE ATTENTION OF THE AO RELEVANT PROVISIONS OF SUB-ITEM (III) OF PART -1 A PPENDIX-1 OF THE INCOME TAX RULES, 1962 TO REOPEN THE ASSESSMENT RECORDING THE REASON THAT THE ASSESSEE WAS NOT ENTITLED FOR EXTRA DEPRECIATION AL LOWANCE, AS THE ASSESSEE WAS NOT USING THE MACHINERY IN THE HOTEL BUSINESS R UN BY THE ASSESSEE. ACCORDINGLY, AO WITHDREW THE EXTRA DEPRECIATION ALL OWANCES GRANTED TO THE ASSESSEE EARLIER AND COMPLETED THE RE-ASSESSMENT . THE JURISDICTIONAL HIGH ITA NO.2789/16 :- 9 -: COURT IN THAT CASE OBSERVED THAT AUDIT PARTY BROUGH T TO ATTENTION OF THE AO ONLY RELEVANT PROVISIONS OF THE INCOME TAX RULES RE GARDING ALLOWABILITY OF EXTRA SHIFT ALLOWANCE FOR APPROVED RULES AND IT IS NOT INTERPRETED THE SAID PROVISIONS. HOWEVER, IN THE PRESENT CASE, THE AO H AVING OBJECTED THE FINDINGS OF THE REVENUE AUDIT PARTY, HE COULD NOT R ELY ON THE SAME AUDIT OBJECTION TO REOPEN THE ASSESSMENT. BEING SO, WE A RE OF THE OPINION THAT RE-OPENING OF ASSESSMENT BY THE AO IS BAD IN LAW. A CCORDINGLY, RE- ASSESSMENT ORDER IS CANCELLED. 7. SINCE WE HAVE ANNULLED, THE RE-ASSESSMENT ORDE R ITSELF, WE ARE NOT GOING INTO ADJUDICATION OF OTHER GROUNDS RAISED BY THE REVENUE ON MERITS I.E. ALLOWABILITY OF FOREIGN EXCHANGE LOSS O N ACCOUNT OF CANCELLATION OF FORWARD CONTRACT 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON 09 TH FEBRUARY, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 09 TH FEBRUARY, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 4. - 1 / CIT 2. / RESPONDENT 5. /23- 4 / DR 3. - 1-!' / CIT(A) 6. 3&-5 / GF