DCIT 9(3), MUMBAI V. SHRIRPUR GOLD REFINERY LTD, MUMBAI

ITA 3312/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88527 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 03-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 29-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY
• Assessee Lawyers: B S SHARMA
• Keywords: Reopening of assessment; Depreciation; Audit objection; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.3312/MUM/2013 ASSESSMENT YEAR:2006-07 DY. COMMISSIONER OF INCOME- TAX, CIRCLE-9(3), , ROOM NO.229, 2 ND FLOOR , AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S SHIRPUR GOLD REFINERY, 5-A, TRISHALA PREMISES, 122, SHEIKH MEMON STREET, ZAVERI BAZAR, MUMBAI-400002 ( / RR REVENUE) ( /ASSESSEE) P.A. NO. AAACA4896K / REVENUE BY SHRI MANJUNATHA SWAMY CIT-DR / ASSESSEE BY): SHRI B.S. SHARMA & SHRI DALPAT SHAH ! / DATE OF HEARING : 11/02/2015 ! /DATE OF ORDER 04/03/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 14/02/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, ON THE GROUND THAT WHETHER THE LD. CIT(A) ERRED IN HOL DING THAT REASSESSMENT PROCEEDINGS U/S 147/148 OF THE INCOME TAX M/S SHIRPUR GOLD REFINERY 2 ACT, 1961 (HEREINAFTER THE ACT) WAS BAD IN LAW IN H OLDING THAT IT WAS BASED ON CHANGE OF OPINION. 2. DURING HEARING THE LD.CIT-DR, SHRI MANJUNATH SWA MY DEFENDED THE REOPENING OF ASSESSMENT BY CONTENDING THAT THE LD. CIT(A) DID NOT APPRECIATE THAT THERE WAS SUFFIC IENT MATERIAL ON RECORD WITH THE ASSESSING OFFICER, THAT INCOME A S ESCAPED ASSESSMENT AND THERE WAS CIRCUMSTANTIAL EVIDENCE LE ADING TO BELIEF FOR SUCH REOPENING WHICH WAS BASED ON STRONG EVIDENCE. IT WAS ALSO PLEADED THAT REOPENING WAS WITHIN FOUR YEARS. 2.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE, SHRI B.S. SHARMA ALONG WITH SHRI DALPAT SHAH, DEFENDED T HE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY SUBM ITTING THAT NOTICE U/S 148 OF THE ACT WAS ISSUED ON THE BA SIS OF AUDIT OBJECTION WHICH CANNOT BE A BASIS FOR REOPENING THE ASSESSMENT. IT WAS ALSO CONTENDED THAT THE ANNUAL REPORT OF THE ASSESSEE WAS WITH THE ASSESSING OFFICER AND NO DISCUSSION WAS MADE BY HIM ON DEPRECIATION. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERU SED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BR IEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REFINING OF GOLD AND SILVER, DECLARED LOSS OF RS.57,11,80,299/- IN ITS R ETURN FILED ON 11/09/2009, WHICH WAS COMPLETED U/S 143(3) OF THE A CT ON 22/12/2008 ASSESSING THE LOSS AT RS.39,55,38,874/- . THE CASE OF THE ASSESSEE WAS REOPENED U/S 147 OF THE AC T, AFTER OBTAINING THE APPROVAL FROM THE LD. COMMISSIONER. NOTICE U/S 148 OF THE ACT WAS DULY SERVED UPON THE ASSESSEE. A S PER M/S SHIRPUR GOLD REFINERY 3 LETTER DATED 05/12/2008, THE ASSESSEE INFORMED THAT IT HAS SET UP A REFINERY WITH THE CAPACITY OF 217 TPA OF GOLD AND SILVER AND AS ON DATE WAS NOT IN OPERATION. AS PER ITS ANN UAL REPORT, UNDER THE HEAD TECHNOLOGY ABSORPTION, CONSERVATION OF ENERGY, FOREIGN EXCHANGE AND OUTGOING, IT WAS STATED THAT T HE ASSESSEE HAS NOT YET COMMENCED COMMERCIAL PRODUCTION. IT HA S ALSO BEEN INFORMED THAT PROCEDURE AND SYSTEM FOR COMMENC EMENT OF THE OPERATION OF THE COMPANY HAS BEEN PUT IN PLA CE. IT WAS FURTHER MENTIONED THAT THERE WERE NO EMPLOYEES ON I TS ROLE. THE ASSESSEE FURTHER EXPLAINED THAT IT IS NOT IN OP ERATION EXCEPT FOR MAINTENANCE WORK ON PLANT AND MACHINERY. IN VIEW OF THESE EXPLANATIONS, THE LD. ASSESSING OFFIC ER FOUND THAT THE ASSESSEE HAS NEITHER COMMENCED ITS BUSINESS OF REFINING OF GOLD AND SILVER NOR PUT THE ASSET INTO USE AND F URTHER DID NOT DEBIT ANY EXPENSE TO THE PROFIT AND LOSS ACCOUN T SHOWING ANY INCLINATION TOWARDS ANY ACTIVITY UNDERTAKEN FOR REFINING OF GOLD AND SILVER. THE PURCHASE OF RAW MATERIAL, BEI NG WORK IN PROGRESS (SILVER AND GOLD) REMAINED THE SAME THROUG HOUT THE YEAR, WHILE EXPENSES ON POWER AND FUEL HAVE BEEN DE BITED. THE ONLY RECEIPT OF RS.5,01,989/- ARE ON ACCOUNT OF DIVIDEND, GUEST HOUSE, INSURANCE CLAIM, INTEREST, RENT, BALAN CES WRITTEN OFF AND MISCELLANEOUS RECEIPT. THE LD. ASSESSING O FFICER FOLLOWED THE DECISION FROM HONBLE APEX COURT IN MY SORE MINERALS LTD. (239 ITR 755) AND LIQUIDATORS OF PURS HA LIMITED (25 ITR 265), WHEREIN, IT WAS HELD THAT THE EXPRESS ION USE FOR THE PURPOSES OF BUSINESS MEANS USE FOR THE PURPOSE OF BUSINESS DURING THE ACCOUNTING YEAR AND ACCORDINGLY DEPRECIATION ALLOWANCE COULD NOT BE ALLOWED AS THE MACHINERY WAS NOT USE AT ALL. IN VIEW OF THIS FACTUAL POSITI ON, THE LD. AO M/S SHIRPUR GOLD REFINERY 4 HAD REASON TO BELIEVE THAT EXPENSES DEBITED OF RS.8 3,99,255/- TO THE PROFIT AND LOSS ACCOUNT AS WELL AS THE DEPRE CIATION OF RS.38,85,44,414/-, ON THE FIXED ASSETS IS NOT ALLOW ABLE EXPENDITURE AND ALSO THE BUSINESS AND DEPRECIATION LOSS OF RS.39,55,38,874/- HAVE BEEN ALLOWED IN EXCESS, THUS , WITHIN THE MEANING OF SECTION 147/148 PROCEEDINGS WERE INI TIATED. THE LD. AO, THEREAFTER, ISSUED NOTICE U/S 143(2)/14 2(1) OF THE ACT ALONG WITH REASONS SO RECORDED. THE ASSESSEE OB JECTED THE REOPENING OF ASSESSMENT CLAIMING THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY SINCE THE SCHEDULES TO BALANCE-SHEET CONTAINS RELEVANT DETAIL S. THE LD. AO PLACE RELIANCE UPON THE DECISION FROM HONBLE AP EX COURT IN RAJESH JHAVERI STOCK BROKERS PVT. LTD. (2007) 29 1 ITR 500 (SC) AND PRAFULL CHUNNILAL PATEL VS ACIT (236 ITR 8 32)(GUJ.), WHEREIN, IT WAS HELD THAT ALL THAT IS REQUIRED FOR ISSUE OF NOTICE U/S 137 IS REASON TO BELIEVE THAT SOME INCOME HAS ESCAPED ASSESSMENT. IN PARA-6 OF THE ASSESSMENT ORDER, THE RE IS CATEGORICAL FINDING THAT THE ASSESSEE HAS NOT PLACE D ANY MATERIAL TO SUBSTANTIATE THE CONTENTION THAT REOPEN ING WAS DUE TO AUDIT OBJECTION. 3.1. ON APPEAL, BEFORE THE LD. CIT(A), IT WAS HELD THAT THERE WAS CHANGE OF OPINION BY THE ASSESSING OFFICER, CON SEQUENTLY, REOPENING IS NOT PERMISSIBLE. 3.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDE R, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AV AILABLE ON RECORD AND THE ASSERTIONS MADE BY THE LD. RESPEC TIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT AFTER INSERTION OF EXPLANATION -3 TO SECTION 147 OF THE ACT BY THE FINANCE (NO.2) ACT OF 2009 WITH EFFECT FROM 01/ 04/1989 M/S SHIRPUR GOLD REFINERY 5 SECTION 147 HAS AN EFFECT THAT ASSESSING OFFICER HA S TO ASSESS OR REASSESS INCOME (SUCH INCOME) WHICH HAS ESCAPED ASSESSMENT AND WHICH WAS BASIS OF FORMATION OF BELI EF AND, IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHE R INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH CAME TO THE NOTICE DURING THE COURSE OF PROCEEDINGS. IDENTICAL WAS HE LD BY HONBLE JURISDICTIONAL HIGH COURT IN CIT VS JET AIR WAYS INDIA PVT. LTD. (2010) 195 TAXMAN 117 (MUM.) AND THE FULL BENCH DECISION FROM HONBLE KERALA HIGH COURT IN CIT VS B EST WOOD INDUSTRIES AND SAW MILLS (2011) 11 TAXMAN.COM 278 (KERALA)(FB). A PLAIN READING OF EXPLANATION-3 TO SECTION 147 CLEARLY DEPICTS THAT THE AO HAS POWER TO MAKE ADDIT ION, WHERE HE ARRIVED TO A CONCLUSION THAT INCOME HAS ESCAPED ASSESSMENT WHICH CAME TO HIS NOTICE DURING THE COUR SE OF PROCEEDINGS OF REASSESSMENT U/S 148. OUR VIEW IS F ORTIFIED BY THE DECISION IN MAJINDER SINGH KANG VS CIT (2012) 2 5 TAXMAN.COM 124/344 ITR 358 (P & H) AND JAY BHARAT M ARUTI LTD. VS CIT (2010) TAX LR 476 (DEL.) AND V. LAKSHMI REDDY VS ITO (2011) 196 TAXMAN 78 (MAD.). THE PROVISION OF THE ACT IS VERY MUCH CLEAR AS WITH EFFECT FROM 01/04/1989, THE AO HAS WIDE POWERS TO INITIATE PROCEEDINGS OF REOPENING. THE HONBLE KERALA HIGH COURT IN CIT VS ABDUL KHADAR AHMAD (200 6) 156 TAXMAN 206 (KERALA) EVEN WENT TO THE EXTENT SO LONG AS THE AO HAS INDEPENDENTLY APPLIED HIS MIND TO ALL THE RELEV ANT ASPECT AND HAS ARRIVED TO A BELIEF THE REOPENING CANNOT BE SAID TO BE INVALID. WE ARE AWARE THAT MERE CHANGE OF OPINION CANNOT FORM THE BASIS OF REOPENING WHEN THE NECESSARY FACT S WERE FULLY AND TRULY DISCLOSED BY THE ASSESSEE IN THAT S ITUATION, THE ITO IS NOT ENTITLED TO REOPEN THE ASSESSMENT MERELY ON THE M/S SHIRPUR GOLD REFINERY 6 BASIS OF CHANGE OF OPINION. HOWEVER, POWERS UNDER AMENDED PROVISION ARE WIDE ENOUGH WHERE THERE IS A REASONAB LE BELIEF WITH THE ASSESSING OFFICER, THAT INCOME HAS ESCAPED ASSESSMENT, BECAUSE THE POWERS WITH EFFECT FROM 01/ 04/1989 ARE CONTEXTUALLY DIFFERENT AND THE CUMULATIVE CONDI TIONS SPELT OUT IN CLAUSES (A) AND (B) OF SECTION 147, PRIOR TO ITS AMENDMENT ARE NOT PRESENT IN THE AMENDED PROVISION. THE ONLY CONDITION FOR ACTION IS THAT THE ASSESSING OFF ICER SHOULD HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSE SSMENT. SUCH BELIEF CAN BE REACHED IN ANY MANNER AND IS NOT QUALIFIED BY A PRE-CONDITION OF FAITH AND TRUE DISCLOSURE OF MATERIAL FACTS BY AN ASSESSEE AS CONTEMPLATED IN PRE-AMENDED SECTI ON 147. VIEWED IN THAT ANGLE, POWER TO REOPEN ASSESSMENT IS MUCH WIDER UNDER THE AMENDED PROVISION. OUR VIEW IS FOR TIFIED BY THE DECISION FROM HONBLE DELHI HIGH COURT IN BAWA ABHAI SINGH VS DCIT (2001) 117 TAXMAN 12 AND RAKESH AGARW AL VS ACIT (1996) 87 TAXMAN 306 (DEL.). THE HONBLE APEX COURT IN CIT VS SUN ENGINEERING WORKS PVT. LTD. 198 ITR 297 (SC) CLEARLY HELD THAT PROCEEDINGS U/S 147 ARE FOR THE B ENEFIT FOR THE REVENUE, WHICH ARE AIMED AT GATHERING THE ESCA PED INCOME. AT THE SAME TIME, WE ARE AWARE THAT POWER S U/S 147 AND 148 OF THE ACT ARE NOT UNBRIDLED ONE AS IT IS H EDGED WITH SEVERAL SAFEGUARDS CONCEIVED IN THE INTEREST OF ELI MINATING ROOM FOR ABUSE OF THIS POWER BY THE AO. HOWEVER, T HE MATERIAL AVAILABLE ON RECORD CLEARLY INDICATES THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT, THEREFORE , THE LD. AO WAS WITHIN HIS JURISDICTION TO REOPEN THE ASSESS MENT. THE HONBLE APEX COURT IN ESS ESS KAY ENGINEERING CO. PVT. LTD. (2001) 247 ITR 818 (SC) HELD THAT MERELY BECAUSE TH E CASE OF M/S SHIRPUR GOLD REFINERY 7 THE ASSESSEE WAS CORRECT IN ORIGINAL ASSESSMENT FOR THE RELEVANT ASSESSMENT YEAR, IT DOES NOT PRECLUDE THE ITO TO REOPEN THE ASSESSMENT OF AN EARLIER YEAR ON THE BAS IS OF FINDING OF HIS FACT THAT FRESH MATERIAL CAME TO HIS KNOWLEDGE. WE NOTE THAT THE LD. AO IN PARA-6 OF THE ASSESSMENT ORDER HAS CLEARLY PEN DOWN THAT THE ASSESSEE HAS NOT PLACED A NY MATERIAL TO SUBSTANTIATE THE CONTENTION THAT REOPEN ING WAS DONE MERELY DUE TO AUDIT OBJECTION. EVEN FROM THE ANNUAL REPORT OF THE ASSESSEE COMPANY, IT WAS STATED BY TH E AUDITOR THAT THE ASSESSEE IS YET TO COMMENCED SALES ON COMM ERCIAL BASIS AND THE ASSESSING OFFICER FOUND THAT ASSESSEE HAS NOT YET COMMENCED BUSINESS AND ASSET WAS NOT PUT TO USE NOR ANY EXPENSES WERE DEBITED TO THE PROFIT AND LOSS ACCOUN T SHOWING ANY INCLINATION TOWARDS ANY ACTIVITY UNDERTAKEN FOR REFINING OF GOLD/SILVER AND FURTHER THE PURCHASE OF RAW MATERIA L BEING WORK IN PROGRESS REMAINED THE SAME THROUGHOUT THE Y EAR. THE MATERIAL AVAILABLE ON RECORD AND THE FACTUAL FINDIN G RECORDED IN THE ASSESSMENT ORDER CLEARLY INDICATES THAT THE LD. AO WAS WITHIN JUSTIFIABLE LIMIT TO REOPEN THE ASSESSMENT. ON THE OTHER HAND, THE LD. CIT(A) HAS NOT DEALT WITH THE OBJECTI ONS MADE IN THE ASSESSMENT ORDER AND MERELY OPINED THAT THE REO PENING WAS ON THE BASIS OF CHANGE OF OPINION. IF THE ASSE SSEE IS VERY MUCH CLEAR IN ITS APPROACH AND IN A POSITION TO SUB STANTIATE ITS CLAIM THEN THERE IS NO REASON TO FIGHT ON TECHN ICALITIES AND IS EXPECTED TO EXPLAIN THE CLEAR POSITION DURING RE ASSESSMENT PROCEEDINGS. IN VIEW OF THE MATERIAL AVAILABLE ON RECORD AND THE JUDICIAL DECISIONS MENTIONED HEREINABOVE, WE FI ND NO INFIRMITY IN THE ASSESSMENT ORDER FOR REOPENING THE M/S SHIRPUR GOLD REFINERY 8 ASSESSMENT, THEREFORE, THE IMPUGNED ORDER IS REVERS ED. THE APPEAL OF THE REVENUE IS ALLOWED. FINALLY, THE APPEAL OF THE REVENUE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 04/03/2015 . SD/ - (RAJENDRA) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER MUMBAI; $ DATED : 04/03/201 5 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. &' () / THE APPELLANT 2. *+() / THE RESPONDENT. 3. , , - ( &' ) / THE CIT, MUMBAI. 4. , , - / CIT(A)- , MUMBAI 5. /01 *2 , , &' ! &23 , / DR, ITAT, MUMBAI 6. 14 5 / GUARD FILE. / BY ORDER, +/' * //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI