SAF YEAST CO. P. LTD, MUMBAI V. DCIT RATNAGIRI CIR RATNAGIRI, MUMBAI

ITA 2984/MUM/2011

• Counselvise Citation: 298419914 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 27-07-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA; MANJUNATHA SWAMY
• Assessee Lawyers: J P BAIRAGRA
• Keywords: Depreciation; Tangible material; Block assessment
• Section: 147; 148; 37; 40A(3); 153A; 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI A.D.JAIN (JM) AND RAJENDRA (AM) . . , , ./ I.T.A. NO. 2905 / MUM/20 1 1 ( / ASSESSMENT YEAR : 200 1 - 0 2 ) THE ASSTT. COMMISSIONER OF INCOME TAX CC - 40, ROOM NO.653, 6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. M/S SAF YEAST CO.PVT.LTD., 419, SWASTIK CHAMBERS, CHEMBUR, MUMBAI - 400071 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 2984/ MUM/20 11 ( / ASSESSMENT YEAR : 2001 - 02 ) M/S SAF YEAST CO.PVT.LTD., 419, SWASTIK CHAMBERS, CHEMBUR, MUMBAI - 400071 / VS. THE DY. C OMMISSIONER OF INCOME TAX - , RATNAGIRI CIRCLE, RATNAGIRI. AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AADCS9080J / REVENUE BY SHRI MANJUNATHA SWAMY AND SHRI S S RANA / ASSESSEE BY SHRI J P BAIRAGRA / DATE OF HEARING : 27. 7 . 201 5 / DATE OF PRONOUNCEMENT : 31. 7. 201 5 ITA NO. 2905 / MUM/20 1 1 AND 2984/MUM/2011 2 / O R D E R PER A D JAI N ( J M) I.T.A. NO.2905/MUM/2011 THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2001 - 02, CONTENDING THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.16,11,931/ - , BEING 20% DISTRIBUTION EXPENSES. 2. AS PER THE RECO RD, THE AO MADE ADHOC DISALLOWANCE AT RATE OF 20% OF THE DISTRIBUTION EXPENSES, ON THE GROUND THAT SUCH EXPENSES WERE NOT FULLY VERIFIABLE AND THEY WERE SUPPORTED BY SELF MADE VOUCHERS ONLY . THE LD. CIT(A) DELETED THE DISALLOWANCE . 3. AT THE OUTSET, THE LD.DR HAS PLACED STRONG RELIANCE ON THE ORDER OF AO. THE LD. DR HAS CONTENDED THAT WHILE WRONGLY DELETING THE ADDITION, THE LD.CIT(A) FAILED TO APPRECIATE THAT THE ENTIRE AMOUNT OF DISTRIBUTION EXPENSES OF RS.80,59,654/ - DID NOT STAND ALLOWABLE AS BUSI NESS EXPENSES UNDER THE PROVISIONS OF SECTION 37(1) OF THE INCOME TAX ACT, 1961 ( THE ACT ), AND THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT THE EXPENSES WERE NOT FULLY VERIFIABLE AND WERE SUPPORTED ONLY BY SELF MADE VOUCHERS. 4. ON THE CONTRARY, THE L D.COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE TRIBUNAL, VIDE ORDER DATED 18.10.2012, PASSED IN THE ASSESSEES OWN CASE, IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR , I.E. , AY 2002 - 03; HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 5. IN THIS REGA RD, IT IS SEEN THAT THE TRIBUNAL (MUMBA I BENCH) IN THE ASSESSEES CASE FOR AY 2002 - 03, DELETED THE DISALLOWANCE MADE FOR THE YEAR , BY OBSERV ING AS FOLLOWS : ITA NO. 2905 / MUM/20 1 1 AND 2984/MUM/2011 3 6. WE OBSERVE THAT AO HAS MADE ADHOC DISALLOWANCE WHILE COMPLETING ASSESSMENT U/S.143(3) R.W.S . 153A OF THE ACT, WHICH ARE NOT BASED ON ANY OF THE SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH. WE ARE OF THE CONSIDERED VIEW THAT WHILE MAKING THE ASSESSMENT PURSUANT TO SEARCH TAKEN PLACE AND THAT TOO IN A CASE WHERE ORIGINAL RETURN HAD ALREADY B EEN ACCEPTED U/S.143(1) OF THE ACT BEFORE THE SEARCH HAD TAKEN PLACE, ADHOC DISALLOWANCE MADE BY AO IS NOT JUSTIFIED. SIMILAR QUESTION WAS ALSO CONSIDERED IN THE BLOCK ASSESSMENT BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX V. A SHIM KRISHNA MONDAL, 270 ITR 160 (CAL),WHEREIN, IT WAS HELD THAT NO ADDITION CAN BE MADE IN THE BLOCK ASSESSMENT BASED ON ESTIMATE. IN VIEW OF ABOVE FACTS THAT THE ADHOC DISALLOWANCE IS NOT BASED ON ANY MATERIAL FOUND DURING THE COURSE OF SEARCH THAT THE C LAIM OF THE ASSESSEE IS NOT GENUINE, WE HOLD THE ORDER OF LD CIT(A) TO DELETE THE ADHOC DISALLOWANCE MADE BY AO DOES NOT CALL FOR ANY INTERFERENCE. THE ADHOC DISALLOWANCE HAVING BEEN BASED ON NO SEIZED MATERIAL , THE TRIBUNAL HAVING DELETED THE DISALLOWA NCE UNDER SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE , FOLLOWING THE DECISION IN THE CASE OF CIT V/S ASHIM KRISHNA MONDAL , 270 ITR 160 (CAL) , N O CONTRARY DECISION HAVING BEEN PLACED BEFORE US AND THE TRIBUNAL DECISION (SUPRA) BEING IN THE ASSESSEES OW N CASE FOR THE IMMEDIATELY SUCCEEDING YEAR , UNDER SIMILAR FACTS AND CIRCUMSTANCES , RESPECTFULLY FOLLOWING T HE SAID DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, THE GRIEVANCE OF THE DEPARTMENT IS REJECTED . I.T.A. NO.29 84 /MUM/2011 6 . THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2001 - 02, RAISING THE FOLLOWING EFFECTIVE GROUNDS : 1. THE CIT(A) ERRED IN DISALLOWING THE CLAIM OF DEPRECIATION OF RS.73,37,491/ - 2. THE LD. CIT(A) ERRED IN LAW IN NOT APPRECI ATING THA T THE LAND USED FOR TREATING TOXIC EFFLUENT AT THE APPELLANTS FACTORY HAD ERODED AND BECOME TOTALLY USELESS DURING THE CO URSE OF CARRYING OUT I TS BUSINESS. THEREFORE, THE CIT(A) ERRED IN NOT ALLOWING TH E CLAIM OF ITA NO. 2905 / MUM/20 1 1 AND 2984/MUM/2011 4 RS.73,37,491/ - AS GENUINE BUSI NESS EXPENDITURE U/S 37 (1) OF THE ACT. 3. THE NOTICE ISSUED U/S 148 IS BAD IN LAW . 7. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT GROUND NO.3 PERTAINING TO A JURISDICTIONAL ISSUE, IT IS BEING TAKEN UP FIRST . TAKING US THROUGH THE FIRST PAGE O F THE ASSESSMENT ORDER, IT HAS BEEN POINTED OUT THAT THE RETURN OF INCOME FILED WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (THE ACT.) . DRAWING OUR ATTENTION TO PAGE 2, PARA 2 OF THE ASSESSMENT ORDER, THE LD. COUNSEL OF THE ASSESSEE HAS CONTENDED THAT THE AO HAS STATED THAT SUBSEQUENT TO THE PROCESSING OF THE RETURN OF INCOME, WHILE RECORDING THE REASONS FOR REOPENING OF THE COMPLETED ASSESSMENT, THE AO RECORDED THAT IT WAS ON THE VERIFICATION OF THE CASE RECORD THAT IT WAS NOTICED THAT E XCESSIVE RELIEF HAD BEEN CLAIMED BY T HE ASSESSEE. THE LD.COUNSEL CONTEN D S THAT AS SUCH, THE ACTION OF REOPENING THE COMPLETED ASSESSMENT OF THE ASSESSEE IS PATENTLY ILLEGAL , I N AS MUCH AS THERE WAS NO MATERIAL BEFORE THE AO FOR FORMING A BELIEF OF ESCAPEM ENT OF INCOME. RELIANCE HAS BEEN PLACED ON : I) H V TRANSMISSION LTD V/S ITO ITA NO.2230/MUM/2010 DATED 7.10.2011; II) DELTA AIRLINES, INC V/S ITO (2013) 153 TTJ 506; III) CIT V/S ORIENT CRAFT LTD (2013) 215 TAXMAN 28; IV) M/S ORIENT CRAFT LT D V/S DCIT - ITA NO.3461(DEL)08 AND 1415(DEL)2009,1941 (DEL) 09 AND 3604 (DEL) 10 FOR AY - 2002 - 03 - DATED 22.02.2012 (AUTHORED BY ONE OF THE JUDICIAL MEMBER) 8 . IN THE ABOVE CASES, BESIDES THE OTHERS, WHICH WE ARE NOT CITING FOR REPETITION , IT HAS CLEARLY B E EN HELD TO THE EFFECT THAT WHERE THERE IS NO TANGIBLE MATERIAL BEFORE THE AO TO COME TO THE CONCLUSION THAT THE INCOME HAS ESCAPED ASSESSMENT, EVEN IN A CASE WHERE THE RETURN OF INCOME FILED BY THE ASSESSEE HAS ONLY BEEN PROCESSED UNDER SECTION 143(1) OF THE ACT, ITA NO. 2905 / MUM/20 1 1 AND 2984/MUM/2011 5 THE COMPLETED ASSESSMENT CANNOT BE REOPENED . IN THE PRESENT CASE, AS CORRECTLY POINTED OUT, PARA 2 OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT AFTER PROCESSING THE NECESSARY RETURN OF INCOME, ON VERIFICATION OF THE CASE RECORD , IT WAS NOTICED BY THE AO THAT EXCESSIVE RELIEF HAD BEEN CLAIMED BY THE ASSESSEE. EVEN THE REASONS RECORDED FOR REOPENING THE COMPLETED ASSESSMENT , READ AS FOLLOW S : IN THIS CASE, IT IS SEEN THAT ASSESSEE HAS CLAIMED DE PRECIATION ON LAND AMOUNTING TO RS.73,37,49 1/ - . AS P ER L EGAL PROVISIONS UNDER THE INCOME - TAX, NO DEPRECIATION IS ALLO WABLE. ACCORDINGLY, ASSESSEE HAS CLAIMED EXCESS DEDUC T ION AND THEREFORE I NCOME C HARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IT IS FURTHER SEEN TH A T IN THE AUDIT REPORT IT IS CLEARLY MENTIONED TH AT AMOUNT OF EXPENDITURE INADMISSIBLE U/S. 40A(3) IS OF RS.21,600 / - , EVEN IF IT IS TAKEN TH A T 20% OF THIS IS TO BE DISAL L OWED THEN DISAL L OWANCE HAS TO BE OF RS.4, 320/ - . INSTEAD ASSESSEE HAS DISAL LOWED ONLY RS .1080 / - . IT IS THEREFORE, CLEAR THAT INCOME CHA RGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN VIEW OF THE ABOVE, I HAVE REASONS TO BELIEVE THAT IN THE CASE OF ASSESSEE FOR A Y.2001 - 02, INCOME CHARGEABLE TO TAX HAS ESCAPE D ASSESSMENT WITHIN T HE MEANING OF SEC. 147 OF THE I.T.ACT. 1961. ACCORDINGLY N OT ICE UN DER SEC. 148 IS BEING ISSUED FOR ASSESSMENT YEAR 2001 - 02' 9 . EVIDENTLY, THE REASONS RECORDED FOR REOPENING THE COMPLETED ASSESSMENT OF THE ASSESSEE DID NOT POINT OUT ANY MATERIAL, TANGIBLE , OR OTHERWISE, AS HAVING COME TO THE POSSESSION OF THE AO , SO AS TO ENABLE HIM TO FORM THE OPINION THAT INCOME HAD ESCAPED ASSESSMENT. THUS, IT IS ONLY A CASE OF RECORDING THE REASONS FOR RE - ASSESSMENT SANS ANY MATERIAL FOR THE FORMATION OF SUCH A BELIEF. THEREFORE, SUCH REOPENING OF THE COMPLETED ASSESSMENT IS VOID AB INTIO AND UNSUSTAINABLE IN LAW. THE VERY INITIATION OF THE REOPENING PROCESS, THEREFORE, CANNOT STAND. IT IS CANCELLED . AS A CONSEQUENCE , THEREOF , NOTHING MORE SURVIVES FOR ADJUDICATION. THE GROUND S RAISED BY THE ASSESSEE ARE , THEREFORE , ACCEPTED. ITA NO. 2905 / MUM/20 1 1 AND 2984/MUM/2011 6 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THAT APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 31ST JULY , 2015. 31ST JULY , 2015 SD SD ( / RAJENDRA) ( . . , / A.D. JAIN ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: 31ST JULY ,2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI