ACIT 6(1), MUMBAI V. BOROSIL GLASS WORKS LTD, MUMBAI

ITA 2803/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62559 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-05-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 11-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V RAVI NAMBOODRI
• Assessee Lawyers: VINAY SETHY
• Keywords: Reopening of assessment; Capital asset; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 148; 6; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT AND SHRI S.S.GODARA, JUDICIAL MEMBER ITA NO. 2803/M/2011 ASSESSMENT YEAR: 2000-01 DCIT 6(1), ROOM NO. 506, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 . . APPELLANT VS. M/S. BOROSIL GLASS WORKS LTD., 44, KHANNA CONSTRUCTION HOUSE, DR. R.G. THANDANI MARG, WORLI, MUMBAI 400 018. PAN: AAACB 5484G .. RESPONDENT APPELLANT BY: SHRI K.V. RAVI NAMBOODRI RESPONDENT BY: SHRI VINAY SETHY DATE OF HEARING: 17.5.2012 DATE OF ORDER: 15.6.201 2 ORDER PER S.S. GODARA, JM: THIS REVENUES APPEAL IS DIRECTED AGAINST ORDER DAT ED 28.01.2011 PASSED BY LD. CIT (A) PERTAINING TO AY 2000-01. 2. WE REPRODUCE HEREUNDER THE FOLLOWING SUBSTANTIV E GROUNDS FOR OUR CONSIDERATION: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT (A) ERRED IN QUASHING THE ASSESSMENT FRAMED U/S 143 (3) R.W.S. 147 HOLDING THE SAME AS BAD IN LAW WITHOUT APPRECIATING THE FACTS T HAT ASSESSEE FAILED TO BRING THE 2 ITA NO. 2803/M/2011 ENTIRE FACTS TO THE NOTICE OF ASSESSING OFFICER DUR ING THE ORIGINAL COURSE OF SCRUTINY PROCEEDINGS U/S 143(3) AND THEREFORE, THERE IS A FA ILURE ON THE PART OF ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 10,36 ,210/- BEING INTEREST EXPENSES NOT CAPITALIZED HOLDING THAT ONLY REQUIREMENT IS TH AT OF UTILIZATION OF FUND FOR THE PURPOSE OF BUSINESS AND THEREFORE, IGNORING THE FAC TS THAT THE SAID INTEREST WAS PAID ON THE BORROWED FUNDS, WHICH WERE UTILIZED FOR THE PURPOSE OF OBTAINING CAPITAL ASSETS. SINCE, BOTH GROUNDS ARE INTER-CONNECTED, THEY ARE BEING DECIDED TOGETHER. 3. RELEVANT FACTS OF THE CASE ARE THAT ON 17.3.2003 , THE AO HAD COMPLETED ASSESSEES (WHO IS INVOLVED IN BUSINESS OF GLASS MA NUFACTURING) ASSESSMENT U/S 143(3) OF THE ACT DETERMINING INCOME AS RS. 2,27,13,730/- AS AGAINST DECLARED LOSS OF RS. 24,71,389/- AND BOOK PROFIT OF RS. 7,24,910/- U/S 1 15JA. 4. ON 30.3.2007, THE AO REOPENED ASSESSMENT BY ISSU ING NOTICE U/S 148 OF THE ACT BY CITING FOLLOWING REASON IN SUPPORT: IT IS OBSERVED FROM THE BALANCE SHEET THAT AN AMOUN T OF RS. 854.73 LAKHS WAS PAID AS INTEREST DURING THE AY 2000-01. THIS I S RS. 112.50 LAKHS MORE THAN THE EARLIER WAS SIMILARLY THERE IS AN INCREASE OF LOAN DURING THE YEAR AS WELL AS INCREASES THE ASSET OF THE ASSESSEE TO T HE TUNE OF RS. 857.57 LAKHS. OUT OF THIS AN AMOUNT OF RS.563.35 LAKHS PE RTAIN TO THE CAPITAL WORK IN PROGRESS OR CAPITAL ADVANCE WHICH WAS NOT P UT TO USE. THIS CONSTITUTED 66% OF THE INCREASE IN ASSET. THEREFOR E, 66% OF THE INCREASE IN THE INTEREST SHOULD HAVE BEEN DISALLOWED, WHICH AMOUNT TO RS. 74.25 LAKHS, AS CAPITAL EXPENDITURE U/S 43(1) EXPLANATION 8. I THEREFORE HAVE REASON TO BELIEVE THAT INCOME TO THE EXTENT OF RS. 74.25 LAKHS HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT. 5. THE ASSESSEE APPEARED IN REOPENING PROCESS AND P RAYED THAT THE INTEREST (SUPRA) SHOULD BE CAPITALIZED ON THE BASIS OF ADDITION TO W IP (WORK IN PROGRESS). THE AO NEGATED ASSESSEES PLEA IN REASSESSMENT ORDER DATED 1.12.2008 AS UNDER:- 3 ITA NO. 2803/M/2011 I HAVE GONE THROUGH THE SUBMISSION OF THE ASSESSEE. THE BASIC CONTENTION OF THE ASSESSEE IS THAT INTEREST SHOULD BE CAPITALIZED ON THE BASIS OF ADDITION TO WIP. I HAVE CAREFULLY GONE TH ROUGH THE ARITHMETIC CALCULATION OF THE ASSESSEE AND I AM OF THE OPINION THAT THE SUBMISSION OF THE ASSESSEE IS ACCEPTABLE AS PER THE ARITHMETIC CA LCULATION SUBMITTED. AMOUNT TO BE CAPITALIZED RS. 37,84,716/- LESS AMOUNT ALREADY CAPITALIZED RS.27,48,500/- AMOUNT CAPITALIZED AND ADDED TO TOTAL INCOME RS.10,36,216/- SUBJECT TO THE ABOVE REMARKS, TOTAL INCOME OF THE A SSESSEE IS COMPUTED AS UNDER: TOTAL INCOME DETERMINED VIDE ORDER U/S 154 DATED 17.3.2008. RS. 6,57,669/ - ADD: ADDITION MADE AS PER DISCUSSION ABOVE TOTAL INCOME RS. 10,36,216/ - RS. 16,93,885/- ROUNDED OFF TO. RS. 16,93,885/ - 6. IN APPEAL, THE LD CIT (A) HAS ACCEPTED ASSESSEE S CONTENTION ON VALIDITY OF REOPENING OR ASSESSMENT AS ALSO ON MERITS. ON TH E ISSUE OF LEGALITY, IT HAS BEEN HELD AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE REASONS RECORDED BY THE AO FOR REOPENING OF THE ASSESSMENT. THE APPELLANTS CASE FALLS BEYOND FOUR YEARS PERIOD AND, THEREFORE, THE ASSESSMENT CAN BE REOPENED AS PER PROVISO TO SEC. 147 OF THE IT ACT O NLY. AS PER THIS PROVISO AN ASSESSMENT BEYOND FOUR YEARS CAN BE REOPENED IN CASE THERE IS A FAILURE ON THE ART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS FULLY AND TRULY. THUS FAILURE ATTRIBUTABLE TO THE APPELLANT IS THE BASIC INGREDIENTS FOR REOPENING OF THE ASSESSMENT BEYOND FOUR YEARS. IN THE CASE OF THE APPELLANT ASSESSMENT WAS COMPLETED U/S 143(3) OF TH E ACT DATED 17.3.2003 WHERE THE APPELLANT HAD DISCLOSED ALL THE MATERIAL FACTS FULLY AND TRULY AND REQUISITE DETAILS AS CALLED FOR BY THE AO WERE ALSO FILED. THE 4 ITA NO. 2803/M/2011 ORIGINAL ASSESSMENT ORDER WAS FRAMED AFTER PERUSING THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. I FIND THAT THE ASSESSMENT HAS BEEN REOPENED U/S 14 7 OF THE ACT ON THE BASIS OF MATERIAL ALREADY AVAILABLE ON RECOR D AND WHICH WAS COLLECTED BY THE AO DURING ORIGINAL ASSESSMENT PROC EEDINGS. NO NEW MATERIAL OR NO NEW FACTS HAVE COME TO THE NOTICE OF THE AO POINTING OUT THE ESCAPEMENT OF INCOME WHICH WARRANTED THE REOPEN ING OF THE ASSESSMENT. IT SEEMS THAT THE AO HAS AGAIN SCRUTINI ZED THE SAME MATERIAL ON RECORD AND ISSUED NOTICE FOR REOPENING OF THE AS SESSMENT U/S 147 R.W.S 148. I FURTHER NOTICED THAT THE AO HAS FILED TO BR ING THE RECORD ANY MATERIAL TO JUSTIFY THE REOPENING OF THE ASSESSMENT AND ALSO FAIL TO POINT OUT AS TO WHAT WAS THE FAILURE ON THE PART OF THE A PPELLANT TO DISCLOSE ALL MATERIAL FACTS FULLY AND TRULY REQUIRE FOR THE PURP OSE OF REOPENING OF ASSESSMENT. SO FAR AS THE APPELLANT IS CONCERNED, THE APPELLANT HAS IN GOOD FAITH FILED ALL THE REQUISITE INFORMATION AND DETAILS AT THE TIME OF ORIGINAL ASSESSMENT AND THE APPELLANT HAS IN NO WAY WITHHELD ANY INFORMATION AND DETAILS AT THE TIME OF ORIGINAL ASS ESSMENT AND THE APPELLANT HAS IN NO WAY WITHHELD ANY INFORMATION RE QUIRED FOR THE COMPLETION OF ASSESSMENT AT THE FIRST STAGE ITSELF. IN MY CONSIDERED OPINION, I FEEL THAT THERE WAS NO FAILURE ON THE PA RT OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL THE NECESSARY INFORMAT ION. AS GATHERED FROM THE FACTS OF THE CASE, THE AO HAS MERELY REVIEWED THE E XISTING MATERIAL ON RECORD AND HAS DRAWN A DIFFERENT INFERENCE IN THE M ATTER WHICH IS NOTHING BUT CHANGE OF OPINION. NO ASSESSMENT CAN BE REOPEN ED ON THE BASIS OF CHANGE OF OPINION. FOR REOPENING OF THE ASSESSMENT BEYOND FOUR YEARS, IT IS ESSENTIAL THAT AND THEREBY INCOME HAS ESCAPED AS SESSMENT. THIS IMPLIED THAT THE FAILURE ON THE PART OF THE APPELLA NT MEANS THAT CERTAIN INFORMATION/DETAILS HAVE NOT BEEN FURNISHED. NO SU CH FINDING HAS BEEN GIVEN BY THE AO. DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS DRAWN MY ATTENTION TO VARIOUS COURT DECISIONS CITED SUPRA WH ICH ARE SQUARELY APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. I N THIS CONNECTION, THE DECISION OF AP HIGH COURT IN THE CASE OF SIRPUR PAP ER MILLS LTD VS. ITO 5 ITA NO. 2803/M/2011 (1978) 114 ITR 404 (AP) IS NOTEWORTHY. IN THIS CAS E THE HONBLE COURT HAS HELD THAT THE RESPONSIBILITY OF THE ASSESSEE IS LIM ITED TO THE DISCLOSURE OF ALL PRIMARY FACTS AND NOTHING BEYOND. IT IS FOR THE AS SESSING AUTHORITY TO DRAW PROPER CONCLUSION FROM THESE FACTS. IF THE CO NCLUSION DRAWN BY THE AO FROM THE PRIMARY FACTS DISCLOSED BY THE AO IS ER RONEOUS, THE AO CANNOT REOPEN THE ASSESSMENT MERELY ON BASIS OF CHANGE OF OPINION. THE ALLAHABAD HIGH COURT IN THE CASE OF JP BAJPAI (HUF) VS. CIT (2004) 269 ITR 040 (ALL) HELD THE SAME VIEW. I FIND THAT THE AO HAS MERELY BASED HIS REASONS OF BELIEF ON THE EXISTING MATERIAL THAT IS BALANCE SHEET FOR THE RELEVANT PERIOD WHICH WAS ALREADY AVAILABLE WITH HI M DURING ORIGINAL ASSESSMENT PROCEEDINGS. BESIDES THIS BASIS OF REAS ON TO BELIEVE, THERE IS NOTHING ON RECORD TO SHOW THAT THERE IS A FAILURE T O DISCLOSE FULLY AND TRULY THE MATERIAL FACTS BY THE APPELLANT. IT IS THEREFORE, SEEN THAT THE REOPENING OF THE ASS ESSMENT IS NOT IN ACCORDANCE WITH THE PROVISO TO SEC. 147 OF THE ACT INASMUCH AS THAT NO FAILURE IS SEEN ON THE PART OF THE APPELLANT THAT T HE APPELLANT FAILED TO DISCLOSE ALL MATERIAL FACTS NECESSARY FOR COMPLETIO N OF ASSESSMENT. THE AO HAS NOT BROUGHT ANY MATERIAL FACTS ON RECORD TO PRO VE THIS FACT. NO ASSESSMENT CAN BE REOPENED ON THE BASIS OF CHANGE O F OPINION. THE BASIS FOR ESCAPEMENT OF INCOME IN AN ASSESSMENT BEYOND FO UR YEARS IS TO BE BASED ONLY ON THE FAILURE ON THE PART OF THE APPELL ANT. SUCH FINDINGS ARE TOTALLY MISSING IN THE REASONS RECORDED BY THE AO. THE REOPENING OF THE ASSESSMENT THEREFORE CANNOT BE UPHELD. ACCORDINGLY , I HOLD THAT THE OPENING OF THE ASSESSMENT IS AGAINST THE PROVISIONS OF LAW AND THEREFORE, I HOLD THAT THE REASSESSMENT FRAMED U/S 147 R.W.S.L 1 48 IS NOT AS PER PROVISIONS OF LAW. ACCORDINGLY, THE ASSESSMENT IS HELD TO BE BAD-IN-LAW AND IS THEREFORE DESERVED TO BE QUASHED. SIMILARLY, ON MERITS AS WELL, ASSESSEES APPEAL HAS BEEN ALLOWED BY ARRIVING AT THE FOLLOWING FINDINGS:- I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT V ERY CAREFULLY AND PERUSED THE ASSESSMENT ORDER. THE APPELLANTS HAS USED BORROWED FUNDS FOR THE PURPOSE OF ITS BUSINESS AND CLAIMED D EDUCTION OF INTEREST U/S 6 ITA NO. 2803/M/2011 36(1)(III) OF THE ACT AS REVENUE EXPENDITURE. THE AO DISALLOWED A PART OF THE INTEREST AMOUNTING TO RS. 10,36,216/- HOLDING T HAT THE SAME IS INCURRED FOR ACQUIRING CAPITAL ASSETS. AFTER GOING THROUGH THE FACTS OF THE CASE, AS WELL AS THE CONTENTIONS OF THE APPELLANT, I FIND THAT THE REQUIREMENT OF LAW FOR OBTAINING FUNDS IS ITS USE F OR THE PURPOSE OF BUSINESS ONLY. ONCE THE FUNDS ARE BORROWED AND USE D FOR THE PURPOSE OF BUSINESS, THE CLAIM OF INTEREST HAS TO BE ALLOWED U /S 36(1)(III) OF THE ACT. NO DISTINCTION CAN BE MADE WHETHER THE FUNDS HAVE B EEN BORROWED FOR ACQUIRING CAPITAL ASSET OR REVENUE. THE ONLY REQUI REMENT IS THAT OF UTILIZATION OF FUND FOR THE PURPOSE OF BUSINESS. T HE APPELLANT BORROWED FUNDS FOR THE PURPOSE OF BUSINESS AND THEREFORE THE CLAIM OF INTEREST U/S 36(1)(III) IS JUSTIFIED. THE RELIANCE OF THE APPEL LANT ON THE SUPREME COURT DECISION IN THE CASE OF DY. CIT VS. CORE HEALTH CAR E LTD. REPORTED IN 298 ITR 194 (SC) IS A WELL PLACED RELIANCE AND THE RATI O OF THIS JUDGMENT IS FULLY AND SQUARELY APPLICABLE TO THE FACTS OF THE A PPELLANTS CASE. THUS I FIND THAT EVEN ON MERIT THE DISALLOWANCE CANNOT BE UPHELD. THE ADDITION, THEREFORE DELETED. THE APPELLANT THUS SUCCEEDS ON BOTH THE GROUNDS. 7. THE LD DR IN SUPPORT OF THE ISSUES HAS ARGUED T HAT IN THE INSTANT CASE, THE ASSESSEES INCOME HAD ESCAPED ASSESSMENT AS INTERES T IN EXCESS @ 66% OF RS. 74.25 LAKHS AS CAPITAL EXPENDITURE U/S 43(1) EXPLANATION 8 OF THE ACT AS IT WAS ONLY IN THIS VIEW OF THE FACTS THAT REOPENING NOTICE HAD BEEN IS SUED AFTER FOUR YEARS FROM THE END OF AY IN HAND. THEREFORE, LD CIT (A) HAS ERRED IN UPSETTING THE REOPENING ON VALIDITY AS WELL AS MERITS. ACCORDINGLY, HE HAS PRAYED FOR ACC EPTANCE OF THE ISSUES IN FAVOUR OF REVENUE. 8. OPPOSING REVENUES ARGUMENTS, LD AR BEFORE US HA S STATED THAT THE REOPENING NOTICE IN HAND IS NOT VALID IN THE EYES OF LAW AS I T WAS ISSUED ON 30.3.2007 (AFTER MORE THAN FOUR YEARS OF THE END OF RELEVANT AY I.E. 1999 .2000) WHICH IS CONTRARY TO PROVISIONS IN THE ACT I.E. SEC. 147 AS THERE IS NO FAILURE ON PART OF THE ASSESSEE TO DISCLOSE ALL FACTS NECESSARY IN ASSESSMENT PROCEEDI NGS. FURTHER, NO INCOME OF THE 7 ITA NO. 2803/M/2011 ASSESSEE HAD ESCAPED ASSESSMENT AT THE TIME OF ASSE SSMENT ORDER DATE 17.3.2003 U/S 143(3) OF THE ACT AS NO NEW MATERIAL HAS COME IN TH E NOTICE OF AO WHICH COULD GIVE RISE TO ANY SCOPE FOR REOPENING. HENCE, HE HAS SUB MITTED THAT THE SAME IS MERE CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER TH E PROVISIONS OF THE ACT. FURTHER, HE HAS STRONGLY SUPPORTED THE CIT (A)S ORDER IN TH E LIGHT OF CASE LAW REPORTED AS 298 ITR 194 (SC) DCIT VS. CORE HEALTH CARE. 9. LD. AR HAS STRONGLY SUPPORTED CIT (A) ORDER IN T HE LIGHT OF DCIT VS. CORE HEALTH CARE 298 ITR 194 (SC). 10. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH RE LEVANT FINDINGS WITH REGARD TO VALIDITY OF PROCEEDINGS. IN OUR VIEW, THE ENTIRE RE ASSESSMENT IS BAD IN LAW BEING BASED ON MERE CHANGE OF OPINION AS THERE WAS NO FAILURE O N PART OF ASSESSEE IN DISCLOSING ALL MATERIAL PARTICULARS. THE AO HAS NOT COME IN POSIT ION OF ANY NEW MATERIAL SO AS TO FORM AN OPINION THAT ANY INCOME HAS ESCAPED ASSESSM ENT ATTRIBUTABLE TO FAILURE ON PART OF THE ASSESSEE IN DISCLOSING MATERIAL FACTS. 10.1. AS REGARDS MERITS, WE FIND THAT THE BORRO WED AMOUNT IS FOR THE PURPOSE OF BUSINESS WITHIN THE MEANING OF SEC. 36(I)(III) OF T HE ACT. THERE IS NO DISPUTE THAT BORROWED FUNDS WERE USED IN BUSINESS. THE SAID FIND INGS ARE ALSO SUPPORTED BY DECISION OF HONBLE APEX COURT IN CORE HEALTH CASE (SUPRA). HENCE, WE SEE NO REASON TO INTERFERE. 11. DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.6.2012. SD/- SD/- (G.E. VEERABHADRAPPA) (S.S. GODARA ) PRESIDENT JUDICIAL MEM BER DATE : 15.6.2012 AT :MUMBAI 8 ITA NO. 2803/M/2011 OKK COPY TO : 1. DCIT 6(1), MUMBAI. 2. M/S. BOROSIL GLAS WORKS LTD., MUMBAI. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR B, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI