DEVKI FINANCE & TRADING P. LTD, MUMBAI V. ITO WD 8(1)(3), MUMBAI

ITA 33/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84306 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 02-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Additional evidence; Tangible material; Bad and doubtful debts; Difference of opinion; Assessment record; Change of opinion; Reassessment proceedings
• Section: 143(3); 148; 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI . . , BEFORE SHRI I.P. BANSAL, JM ./ I.T.A. NO.33/MUM/2014 ( / ASSESSMENT YEAR : 2005-06 M/S. DEVKI FINANCE & TRADING PVT. LTD., C/O. PUSHPA R. MASTER, 406, SHRIBHUVAN CHS, 289, SVP ROAD, 4 TH KHETWADI, MUMBAI 400004 / VS. THE INCOME TAX OFFICER, WARD 8(1) (3), MUMBAI. ! ./ '# ./ PAN/GIR NO. : AAACD2549N ( $ / APPELLANT ) .. ( %& $ / RESPONDENT ) APPELLANT BY SHRI HARI S. RAHEJA RESPONDENT BY SHRI NEIL PHILIP ' ()! / DATE OF HEARING : 01/12/2014 *+ ' ()! / DATE OF PRONOUNCEMENT : 01/12/2014 , / O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-16 MUMBAI DATED 11/10/2013 FOR ASSESSME NT YEAR 2005-06. THE GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN AW THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE REOPENING OF THE ASSES SMENT U/S 148 OF THE INCOME-TAX ACT 1961. 2. THE APPELLANT SUBMITS THAT IN THE ASSESSMENT ORI GINALLY COMPLETED U/S 143(3), ALL THE NECESSARY EXAMINATION WAS MADE AND THAT THER E WAS NO NEW MATERIAL BEFORE THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT ESPE CIALLY SINCE THE ASSESSING OFFICER HAS HIMSELF STATED THAT FROM THE DETAILS A VAILABLE ON RECORD IT IS SEEN THAT THE ASSESSEE HAS 3 THE APPELLANT SUBMITS THAT THIS IS A CASE OF CHAN GE OF OPINION AND HENCE THE REOPENING OF THE ASSESSMENT IS BAD IN LAW AND OUG HT TO BE QUASHED. WITHOUT PREJUDICE TO THE ABOVE : 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO THAT THE APPELLANT HAD FAILED TO COMPLY WITH THE ./ I.T.A. NO.33/MUM/2014 ( / ASSESSMENT YEAR : 2005-06 2 PROVISIONS OF S.36(2) AND THAT THE CLAIM OF BAD DEB TS WAS WRONGLY ALLOWED IN THE HANDS OF THE APPELLANT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) WAS NOT JUSTIFIED IN REJECTING THE MATERIAL EVIDENCE HOLDIN G IT AS ADDITIONAL EVIDENCE HAVING FAILED TO APPRECIATE THE STATE OF THE MIND OF THE D IRECTOR AND THUS ERRED IN CONFIRMING THE DISALLOWANCE. 6. THE APPELLANT SUBMITS THAT THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO EXAMINE MR. BHAVIN C. MEHTA INSTEAD OF MERELY RELYING IN HI S LETTER FILED IN TAPAL IN ORDER TO CONFIRM THE ADDITION. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS GROSSLY ERRED IN STATING THAT THE APPELLANT HAD NOT HING TO SAY OR SUBMIT WHEN INFACT THE APPELLANT AGAIN SUBMITS THAT THE COMPANY HAD D ONE GENUINE TRANSACTION ON BEHALF OF MR. BHAVIN MEHTA AND SINCE THE SAME RESU LTED IN A LOSS MR. MEHTA FOUND IT ADVANTAGEOUS TO DENY THE TRANSACTIONS. 8. THE APPELLANT RELIES UPON THE PAST TRANSACTION WITH MR. MEHTA IN SUPPORT OF THE GENUINENESS OF ITS CLAIM OF BAD DEBT. 9. THE APPELLANT SUBMITS THAT IDENTITY OF THE CREDI TORS IS ESTABLISHED AND THE DEBT HAS BEEN OFFERED AS PART OF THE APPELLANTS BUSINES S INCOME IN THE PAST 2. THE IMPUGNED ASSESSMENT IS AN ORDER DATED 28/9/ 2012 PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT, WHEREIN A SUM OF RS.7,98,823/- WAS ADDED TO THE INCOME OF THE ASSESSEE, WHICH WAS CLAIMED AS BAD DEBT. EARLIER THE ASSESSMENT WAS FRAMED VIDE ORDER DATED 6/11/2007 PA SSED UNDER SECTION 143(3) OF THE ACT, COPY OF THIS ORDER IS ALSO PLACED ON RE CORD. LD. DR HAS ALSO BROUGHT ASSESSMENT RECORD AS VIDE ORDER SHEET ENTRY DATE D 2/7/2014, HE WAS REQUIRED TO PRODUCE ASSESSMENT RECORD. IT IS OBSERVED FRO M THE ASSESSMENT RECORD THAT DURING THE COURSE OF ORIGINAL HEARING VIDE NOTICE D ATED 14/09/2007 THE ASSESSEE WAS REQUIRED TO FURNISH FOLLOWING DETAILS IN RESPE CT OF BAD DEBT. IV. DETAILS OF BAD DEBTS ALONGWITH THE NAME AND AD DRESS OF THE PARTIES AND DETAILS OF MEASURES TAKEN TO RECOVER THE DEBTS. 2.1 IT WAS ALSO OBSERVED THAT ASSESSEE HAS FILED D OCUMENTARY EVIDENCE IN RESPONSE TO SUCH QUERY RAISED BY THE AO WHICH INCL UDE CORRESPONDENCE ENTERED INTO BY THE ASSESSEE WITH MR. BHAVIN C. MEHTA, WHOS E BAD DEBT WAS WRITTEN OFF BY THE ASSESSEE. THUS, IT IS A CASE WHERE THE AO H AS RAISED QUERY REGARDING ALLOWABILITY OR OTHERWISE OF BAD DEBT WRITTEN OFF A ND ASSESSEE HAS FILED REPLY TO ./ I.T.A. NO.33/MUM/2014 ( / ASSESSMENT YEAR : 2005-06 3 SHOW THAT THERE WERE NO CHANCES OF RECOVERY OF THE SAID AMOUNT AS THE PERSON TO WHOM SUCH DEBT BELONGED HAD REFUSED TO RECOGNIZE SUCH CLAIM. THUS, IT IS A CASE WHERE AO HAS RAISED QUERY REGARDING ALLOWABIL ITY OR OTHERWISE OF THE BAD DEBT WRITTEN OFF AND ASSESSEE HAS FILED CORRESPONDE NCE SHOWING THAT THE SAME WAS NOT RECOVERABLE. IT IS ON THE BASIS OF THESE FACTS, IT IS THE CASE OF THE ASSESSEE THAT ASSESSMENT COULD NOT BE REOPENED AS F IRSTLY, THERE WAS NO EXTERNAL MATERIAL TO COME TO A CONCLUSION THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. SECONDLY, THE RE-ASSESSMENT PROCEEDING S HAVE BEEN INITIATED ONLY ON MERE CHANGE OF OPINION. THE REASONS WHICH HAV E BEEN REPRODUCED IN THE ASSESSMENT ORDER WERE REFERRED TO SHOW THAT A BELIE F WAS FORMED BY THE AO ON THE BASIS OF MATERIAL EXISTING ON RECORD AND FOR TH E SAKE OF COMPLETENESS THOSE REASONS ARE REPRODUCED BELOW: ON VERIFICATION OF THE RECORDS AS PER P & L ACCOU NT, IT IS SEEN THAT THE ASSESSEE HAS CLAIMED BAD DEBTS OF RS. 7,923,823,80/- . FROM THE DETAILS AVAILABLE ON RECORD, IT IS SEEN THAT THE ASSESSEE HAS WRITEEN TWO LETTE RS TO SHRI BHAVIN C MEHTA (DEBTOR) VIDE LETTER DT 01.04.2002 AND 03.01.2005, REQUESTIN G THE SAID DEBTOR FOR MAKING PAYMENT OF OUTSTANDING AMOUNT IN RESPONSE, VIDE LET TER DT 24.11.2002 AND 08.01.2005, SHRI BHAVIN MEHTA HAVE DENIED OF CARRYI NG OUT ANY BUSINESS TRANSACTIONS DURING THE RELEVANT PERIOD WITH THE AS SESSEE AND NO AMOUNT WAS DUE FROM HIS SIDE TO BE PAID TO THE ASSESSEE COMPANY. F ROM THE SUBMISSION MADE BY SHRI BHAVIN MEHTA, IT IS CLEAR THAT THE ASSESSEE FA ILED TO IDENTIFY THE DEBTOR AND ALSO FAILED TO PROVE THE SAID DEBT WAS OFFERED AS INCOME IN THE PRECEDING YEARS. THE ASSESSEE HAS FAILED TO COMPLY WITH SECTION 36(2) OF THE I. TAX ACT, 1961 AND BY ALLOWING THE BAD DEBTS U/S 36(1)(VII) OF THE ACT, T HERE IS AN ESCAPEMENT OF INCOME TO THE TUNE OF RS. 798,823/-. THEREFORE, I HAVE REASON S TO BELIEVE THAT THE INCOME OF RS.7,98,823/- CHARGEABLE TO TAX HAS ESCAPED ASSESSM ENT AS PER EXPLANATION 2(C) OF SECTION 147 OF THE I.T. ACT 1961. 2.2 IT IS THE CASE OF THE ASSESSEE THAT REASSESSMEN T PROCEEDINGS ARE INVALID AS THEY ARE BASED ON CHANGE OF OPINION AND REFERENCE I S MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELV INATOR OF INDIA LTD., 320 ITR 561, WHEREIN IT HAS BEEN HELD THAT AFTER FIRST APR IL, 1989, THE AO HAS POWER TO RE-OPEN THE ASSESSMENT UNDER SECTION 147, PROVIDED AO HAS REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND THERE IS TAN GIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOM E; MERE CHANGE OF OPINION CANNOT PER- SE BE A REASON TO REOPEN. ./ I.T.A. NO.33/MUM/2014 ( / ASSESSMENT YEAR : 2005-06 4 2.3 HOWEVER, LD. DR RELIED UPON THE ORDER PASSED B Y AO & LD. CIT(A). IT WAS PLEADED BY LD. DR THAT ASSESSEE COULD NOT MAKE OUT A CASE FOR ALLOWABILITY OF BAD DEBT, THEREFORE, ASSESSABLE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. THUS, IT WAS PLEADED BY LD. DR THAT LD. CIT(A) HAS RIGHTLY UPHELD THE RE- ASSESSMENT PROCEEDINGS. 3. I HAVE HEARD BOTH THE PARTIES ON THE ISSUE OF VA LIDITY OR OTHERWISE OF RE- ASSESSMENT PROCEEDINGS. I HAVE ALSO GONE THROUGH A SSESSMENT RECORD AND REFERENCE TO THE QUERY RAISED BY THE AO AND REPLY G IVEN BY THE ASSESSEE HAS ALREADY BEEN MADE IN THE EARLIER PART OF THIS ORDE R. IN THE REASONS RECORDED FOR REOPENING THE ASSESSMENT THERE IS NO REFERENCE TO ANY TANGIBLE MATERIAL WHICH WAS NOT THERE DURING THE COURSE OF INITIAL ASSESSME NT. THE FACTS MENTIONED IN THE REASONS ARE ALL GATHERED FROM ORIGINAL ASSESSME NT RECORD. THEREFORE, IT IS A CASE WHERE NO NEW MATERIAL HAS BEEN USED BY THE AO TO COME TO A CONCLUSION THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSM ENT. RATHER, IT IS A CASE OF CHANGE OF OPINION AS THERE IS MATERIAL ON RECORD TO SHOW THAT THE QUERY IN REGARD TO DISALLOWANCE WAS RAISED BY THE AO AND REPLY WAS FURNISHED BY THE ASSESSEE. THEREFORE, IT IS A CASE OF MERE CHANGE OF OPINION A ND WILL NOT FALL WITHIN THE PURVIEW OF SECTION 148 OF THE ACT WHICH AUTHORIZE T HE DEPARTMENT TO REOPEN THE CASE. 4. IN THIS VIEW OF THE SITUATION, ACCEPTING THE S UBMISSION OF LD. AR THAT REASSESSMENT PROCEEDINGS ARE NOT VALIDLY INITIATED I HOLD THAT THE IMPUGNED REASSESSMENT IS INVALID AND ASSESSMENT FRAMED IN PURSUANCE THEREOF DOES NOT STAND AS TEST OF LAW. 4.1 SINCE I HELD THAT REASSESSMENT PROCEEDINGS ARE INVALID I DO NOT GO INTO THE QUESTION OF MERITS OF THE ADDITION, THEREFORE, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ./ I.T.A. NO.33/MUM/2014 ( / ASSESSMENT YEAR : 2005-06 5 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/12/2014 . , ' *+ ! - ./ 01/12/2014 + ' 0 SD/- . . (I.P.BANSAL) /JUDICIAL MEMBER MUMBAI; . DATED 01/12/2014 , , , , ' '' ' %(1 %(1 %(1 %(1 21( 21( 21( 21( / COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. %& $ / THE RESPONDENT. 3. 3 ( ) / THE CIT(A)- 4. 3 / CIT 5. 140 %( , , / DR, ITAT, MUMBAI 6. 05 6 / GUARD FILE. , , , , / BY ORDER, &1( %( //TRUE COPY// 7 77 7 / 8 8 8 8 ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . .VM , SR. PS