SECUTITIES TRADING CORPORATION OF INDIA LTD, MUMBAI V. DCIT 1(3), MUMBAI

ITA 3314/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1967 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2002-2003
• Appeal Filed On: 19-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Assessee Lawyers: S R BHANDARI
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, E BENCH, MUMBAI. BEFORE SHRI S.V.MEHROTRA, AM & SMT ASHA VIJAYRAGHA VAN,JM I.T.A. NO.3314/MUM/2009 ASSESSMENT YEAR: 2002-03 SECURITIES TRADING CORPORATION OF V. THE DCIT 1(3 ), INDIA LTD., MARATHON EMPEROR, MARATHON AAYAKAR BHA VAN, M.K. ROAD, NEXTGEN COMPOUND, OFF GANPATRAO MUMBAI. KADAM MARG, LOWER PAREL(W) MUMBAI-13. PA NO.AAGCS 9709 K (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI S.R.BHANDARI REVENUE BY : SHRI T.T.JACOB O R D E R PER S.V.MEHROTRA, AM THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 23.3.2009 OF LD CIT (A)-XXI, MUMBAI FOR THE ASSESSMENT YEAR 200 2-03. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF REOPENI NG THE ASSESSMENT UNDER SECTION 147 WITHOUT APPRECIATING THE FACT THAT THER E IS NO ESCAPEMENT OF INCOME. 2. WITHOUT PREJUDICE TO THE GROUND NO.1 ABOVE, ON T HE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONFIR MING ADDITION OF RS.1,05,00,000/- TO THE VALUE OF CLOSING STOCK, WIT HOUT APPRECIATING THAT CHANGE IN METHOD OF MUTUAL FUNDS WAS BONAFIDE. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS REGISTER ED PRIMARY DEALER WITH RBI FOR DEALING IN GOVERNMENT SECURITIES. IT HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.3,15,01,21,601/- AND THE ASSESSMENT UNDER SEC TION 143(3) WAS COMPLETED AT A TOTAL ITA NO.3314/M/2009 M/S. SECURITIES TRADING CORPORATION OF INDIA LTD . 2 INCOME OF RS.3,16,33,65,790/-. THE CASE WAS SUBSEQ UENTLY REOPENED U/S.147 BY ISSUE OF NOTICE U/S.148 FOR THE FOLLOWING REASONS: IT IS NOTICED THAT THE ASSESSEE COMPANY HAS VALUED THE CLOSING STOCK OF UNITS, MUTUAL FUND OF UTI AT LOWER OF COST OR END ASSET VA LUE AS AGAINST THE EARLIER PRACTICE OF LOWER OF COST OR OF MARKET VALUE. THUS , DUE TO THIS CHANGE IN THE METHOD OF VALUATION OF THE SAID CLOSING STOCK, PROF IT FOR THE YEAR HAS LOWERED BY RS.105 LAKHS. ADOPTION OF NEW METHOD AS AGAINST THE EARLIER METHO D REGULARLY EMPLOYED BY THE ASSESSEE AND THEREBY RESULTING IN DECREASE IN PROFI T OF RS.105 LAKHS AS PER PROVISIONS OF SECTION 145A OF THE I.T.ACT, 1961. IN VIEW OF THE ABOVE, IT IS SEEN THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS TOTAL INCOME FOR THE A.Y. 2002-0 3 TO THE EXTENT OF RS.105 LAKHS. I HAVE, THEREFORE, REASONS TO BELIEVE THAT THE INCO ME CHARGEABLE TO TAX IN THE CASE OF THE ASSESSEE FOR A.Y. 2002-903, HAS ESCAPED ASSE SSMENT WITHIN THE MEANING OF PROVISIONS OF SECTION 147 OF THE I.T.ACT, 1961. ISSUE NOTICE U/S.148 OF THE I.T.ACT, AFTER CONSIDERING THE ASSESSEES CONTENTION, THE AS SESSMENT WAS COMPLETED AFTER MAKING ADDITION OF RS. 1,05,00,000/- ON ACCOUNT OF PROFITS BEING LOWER BY THE SAID AMOUNT IN VIEW OF CHANGE IN METHOD OF ACCOUNTING. 3. BEFORE LD CIT (A), THE ASSESSEE HAD RAISED PRIMA RILY TWO ISSUES, FIRSTLY, REGARDING VALIDITY OF REOPENING OF ASSESSMENT U/S.147 AND SEC ONDLY, ON MERITS BEING THE ADDITION OF RS.105 LAKHS MADE TO THE VALUE OF CLOSING STOCK AND TO THE INCOME. LD CIT (A) RELYING ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VASANT CHUNILAL PATEL V ACIT, 236 ITR 841 (GUJ), WHEREIN, IT WAS HELD THAT IF THE AO HONESTLY COMES TO A CONCLUSION THAT A MISTAKE HAS BEEN MADE, IT MATTER NOTHING SO FAR AS HIS JURISDICTION TO INITIA TE THE PROCEEDINGS UNDER SECTION 147 IS CONCERNED, THAT HE MAY HAVE TO COME TO AN ERRONEOUS CONCLUSION, WHETHER ON LAW OR ON FACTS. HE CAN EXERCISE HIS JURISDICTION TO INITIAT E PROCEEDINGS U/S.147 EVEN IN SUCH CASE, UPHELD THE 147 PROCEEDINGS. ON MERITS ALSO, HE CONF IRMED THE FINDINGS OF THE AO. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMI SSIONS MADE BEFORE LD CIT (A) AND REFERRED TO PAGE 7 OF PB AND POINTED OUT THAT I N SCHEDULE-7 OF THE BALANCE SHEET, THE ITA NO.3314/M/2009 M/S. SECURITIES TRADING CORPORATION OF INDIA LTD . 3 DETAILS OF CURRENT ASSET (STOCK-IN-TRADE)HAS BEEN G IVEN WHICH INCLUDE THE FINANCIAL INSTRUMENT AND OTHER BONDS AGGREGATING TO RS.44,924 .51 CRORES. HE FURTHER REFERRED TO PAGE 10 OF PB TO DEMONSTRATE THAT THE STOCK IN TRAD E HAD BEEN VALUED AT COST OR MARKET PRICE, WHICHEVER IS LOWER UPTO 31.3.2002, WHICH, IN TER ALIA, INCLUDED UTI NEP-99. LD COUNSEL FURTHER REFERRED TO PAGE 16 OF PB, WHEREIN, SIGNIFICANT ACCOUNTING POLICIES (SCH.17 TO BALANCE SHEET) FOLLOWED BY ASSESSEE IN P REPARATION OF ITS ACCOUNTS, IS CONTAINED, IN WHICH, IT IS STATED THAT FI & OTHER B ONDS HELD AS STOCK IN TRADE ARE VALUED AT COST OR MARKET PRICE, WHICHEVER IS LOWER. HE POINT ED OUT THAT IN CLAUSE (D), IT WAS FURTHER STATED THAT THE UNITS OF MUTUAL FUND/UTI WERE VALUE D AT THE COST OR NET ASSET VALUE, WHICHEVER IS LOWER. FURTHER, HE REFERRED TO SCHEDU LE-18, WHICH CONTAINS NOTES FORMING PART OF ACCOUNTS AND POINTED OUT THAT FOLLOWING NOT E HAD BEEN CLEARLY GIVEN IN THE NOTES TO ACCOUNT: THE CLOSING STOCK OF UNITS OF MUTUAL FUND/UNIT TRUS T OF INDIA ARE VALUED AT LOWER OF COST OR NET ASSET VALUE AS AGAINST THE EAR LIER PRACTICE OF VALUING THESE SECURITIES AT LOWER OF COST OR MARKET VALUE. AS A RESULT OF THE CHANGE IN THE VALUATION POLICY, THE PROFIT FOR THE YEAR IS LOWER BY RS.105 LAKHS. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO DIREC T QUESTION WAS ASKED ON THIS ISSUE BUT SINCE ALL THE DETAILS HAD BEEN GIVEN IN THE BALANCE SHEET, THEREFORE, IT IS A CASE OF CHANGE OF OPINION AS NO FRESH INFORMATION/MATERIAL CAME TO THE NOTICE OF AO ON THE BASIS OF WHICH, THERE COULD BE ANY PRIMA FACIE, REASON TO B ELIEVE REGARDING ESCAPEMENT OF INCOME. 5. LD D.R. SUBMITTED THAT SINCE THE AO HAD NOT ENQU IRED INTO THIS ISSUE AND ADMITTEDLY, THE PROFITS WERE UNDERSTATED BY RS.1.05 CRORES, THEREFORE, IT IS A CLEAR CASE OF ESCAPEMENT OF INCOME. HE RELIED ON THE DECISION DA TED 16.9.2009 OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF M/S. EMA INDIA LTD. V. ACIT, (CIVIL MISC. WRIT PETITION NO.181 (TAX) 2004 WHEREIN, UNDER IDENTICAL CIRCUMSTANCES, IT WAS HELD THAT IF CERTAIN ITEMS OF INCOME HAD ESCAPED NOTICE OF THE A O AND NO DISCUSSION ON CHARGEABILITY OF THE TAX ON THE SAID ITEMS WAS MADE BY THE AO IN THE ORDER, THEN INITIATION OF PROCEEDINGS U/S.147 IS IN ACCORDANCE WITH LAW AND N O FAULT WAS FOUND FOR THE APPROACH ADOPTED BY THE AO. THE HONBLE HIGH COURT HAS, I NTER ALIA, OBSERVED AS UNDER:- ON A COMBINED READING OF THE JUDGMENTS OF THE APEX COURT IN KALYANJI MAVJI(SUPRA), INDIAN EASTERN NEWSPAPER SOCIETY AND A.L. A. FIRM (SUPRA), WOULD MAKE IT CLEAR THAT THE PROPOSITION NO.4 VIZ; WHERE THE INFORMATION MAY BE OBTAINED EVEN FROM THE RECORD OF THE ORIGINAL ASSES SMENT FROM AN INVESTIGATION OF ITA NO.3314/M/2009 M/S. SECURITIES TRADING CORPORATION OF INDIA LTD . 4 THE MATERIALS ON THE RECORD, OR THE FACTS DISCLOSED THEREBY OR FROM OTHER ENQUIRY OR RESEARCH INTO FACTS OR LAW: STILL HOLDS GOOD AND TH E FACTS OF THE PRESENT CASE CLEARLY INDICATES THAT CERTAIN ITEMS OF INCOME THOUGH CHARG EABLE TO TAX HAD ESCAPED THE NOTICE OF THE AO AND NO DISCUSSION OF CHARGEABILITY OF THE TAX ON THE SAID ITEMS OF INCOME WAS MADE BY THE AO IN THE ORDER. THEREFORE, IN THE LIGHT OF THE JUDGMENT OF THE APEX COURT IN A.L.A. FIRM (SUPRA) THE INITIA TION OF PROCEEDINGS UNDER SECTION 147 OF THE ACT IS IN ACCORDANCE WITH LAW AN D NO FAULT CAN BE FOUND WITH THE APPROACH ADOPTED BY THE ASSESSING OFFICER. .THIRDLY, WHERE THE ASSESSMENT ORDER HAS BEEN PAS SED AND CERTAIN ITEMS OF INCOME WERE NOT AT ALL DISCUSSED AND IT ESCAPED THE NOTICE OF THE ASSESSING OFFICER AS A RESULT OF WHICH, THE REASSESSMENT ORDER IS PAS SED IN RESPECT TO THOSE ITEMS OF INCOME, IN THE CIRCUMSTANCES, IT CANNOT BE SAID THA T IT WOULD AMOUNT TO REVIEW. SINCE THE ASSESSING OFFICER IN THE ORIGINAL ASSESSM ENT ORDER DID NOT FORM ANY VIEW OR ANY OPINION WITH REGARD TO THE ITEMS OF INCOME W HICH ESCAPED ITS NOTICE, IT WILL NOT AMOUNT TO REVIEW OF THE ORDER OR CHANGE OF OPIN ION. WHEN NO OPINION WAS FORMED BY THE ASSESSING AUTHORITY HOW CAN THERE BE ANY CHANGE OF OPINION. INITIATION OF REASSESSMENT PROCEEDING IS PERMISSIB LE WHERE IT IS FOUND THAT THE ASSESSING OFFICER HAD PASSED AN ORDER OF ASSESSMENT WITHOUT ANY APPLICATION OF MIND AND SUCH APPLICATION OF MIND CAN BE FOUND OUT FROM THE ORDER OF ASSESSMENT ITSELF INASMUCH AS IN THE EVENT THE ORDER OF ASSESS MENT DOES NOT CONTAIN ANY DISCUSSION ON A PARTICULAR ISSUE, THE SAME MAY BE H ELD TO HAVE BEEN RENDERED WITHOUT ANY APPLICATION OF MIND. 6. IN THE REJOINDER, LD COUNSEL RELIED ON THE DECIS ION OF HONBLE DELHI HIGH COURT IN THE CASE OF KELVINATOR INDIA LTD, 256 ITR 1(DEL). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD OF THE CASE. ADMITTEDLY, THE ASSESSMENT YEAR IS 2002-03 AND THE NOTICE U/S.148 HAD BEEN ISSUED ON 7.43.2007. THUS, THE REOPENING HAS BEEN DONE WITHI N FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND, THEREFORE, ADMITTEDLY FIRST PROVISO TO SECTION 147 IS NOT APPLICABLE TO THE FACTS OF THE CASE. THE REOPENING WAS DONE ON THE GROUND THAT THE ASSESSEE HAD CHANGED THE METHOD OF VALUATION OF UNI TS OF MUTUAL FUND AT COST OR NET ASSET VALUE WHICHEVER WAS LOWER, AS AGAINST ITS EARLIER P RACTICE OF COST OR MARKET VALUE, WHICHEVER IS LOWER. THE MODE OF VALUATION HAD BEEN DISCLOSED IN THE NOTE TO THE ACCOUNTS AS (NOTE -1 OF SCHEDULE 18 TO THE ACCOUNTS). THE LAW RELATING TO REASSESSMENT PROCEEDINGS HAS UNDERGONE CONSIDERABLE CHANGE AND I F THE AO HAS REASON TO BELIEVE REGARDING ESCAPEMENT OF INCOME THEN HE CAN REOPEN T HE ASSESSMENT U/S.147. HOWEVER, THIS REOPENING IS SUBJECT TO ONE RIDER THAT SAME CA NNOT BE DONE ON THE BASIS OF MERE CHANGE OF OPINION. THIS HAS BEEN HELD BY THE HONB LE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR INDIA LTD., 320 ITR 561 (SC), THUS, U PHOLDING THE DECISION OF THE HONBLE ITA NO.3314/M/2009 M/S. SECURITIES TRADING CORPORATION OF INDIA LTD . 5 DELHI HIGH COURT IN THE SAID CASE REPORTED AT 256 I TR 1(DEL) WHILE UPHOLDING THE DECISION, THE HONBLE SUPREME COURT, INTER ALIA, HE LD THAT THE AO HAS POWER TO REOPEN THE ASSESSMENT PROVIDED THERE WAS TANGIBLE MATERIAL T O COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT BUT MERELY ON THE BASIS OF CHANGE OF OPINION, THE REOPENING IS NOT JUSTIFIED AS THE SAME WOULD NO T ARBITRARILY BEFORE THE AO TO REOPEN THE ASSESSMENT. THE HONBLE DELHI HIGH COURT IN TH E CASE OF KELVINATOR OF INDIA LTD (SUPRA), HAD, INTER ALIA, OBSERVED AS UNDER: AN ORDER OF ASSESSMENT CAN BE PASSED EITHER IN TER MS OF SUB-SECTION(1) OF SECTION 143 OR SUB-SECTION(3) OF SECTION 143. WHEN A REGULA R ORDER OF ASSESSMENT IS PASSED IN TERMS OF THE SUB-SECTION(3) OF SECTION 14 3, A PRESUMPTION CAN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION O F MIND. IT IS WELL KNOWN THAT A PRESUMPTION CAN ALSO BE RAISED TO THE EFFECT THAT I N TERM OF CLAUSE (C) OF SECTION 114 OF THE INDIAN EVIDENCE ACT, 1872, JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULARLY PERFORMED. IF IT BE HELD THAT AN ORDER W HICH HAS BEEN PASSED PURPORTEDLY WITHOUT APPLICATION OF MIND WOULD ITSELF CONFER JUR ISDICTION UPON THE AO TO REOPEN THE PROCEEDING WITHOUT ANYTHING FURTHER, THE SAME WOULD AMOUNT TO GIVING A PREMIUM TO AN AUTHORITY EXERCISING QUASI JUDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. HENCE, IT IS CLEAR THAT SECTION 147 OF T HE ACT DOES NOT POSTULATE CONFERMENT OF POWER UPON THE ASSESSING OFFICER TO I NITIATE REASSESSMENT PROCEEDINGS UPON A MERE CHANGE OF OPINION. THE ABOVE FINDINGS WERE GIVEN IN THE CONTEXT OF FOL LOWING REASONS RECORDED BY THE ASSESSING OFFICER: ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON NO VEMBER 12,1989,ON INCOME OF RS.6,34,225. THE PERUSAL OF THE RECORD S HOWS THAT THE ASSESSEE MAINTAINS THE BOOKS ON MERCANTILE BASIS. IN THE YE AR UNDER CONSIDERATION, THE ASSESSEE CLAIMED INTEREST OF RS.41.28 LAKHS WHICH I N FACT PERTAINS TO THE EARLIER ASSESSMENT YEAS (SECTION 140B P(C-3) PAGE 21 OF PRI NTED BALANCE SHEET). THIS WAS NOT ALLOWABLE EXPENDITURE IN THIS YEAR. FURTHER, T AX AUDIT REPORT SHOWS THAT THE FOLLOWING ITEMS WERE DISALLOWABLE: DISALLOWABLE DISALLOWED LESS DISALLOWABLE 1. GUEST HOUSE EXPENSES 2,67,485 91,485 1,76,000 2. UNDER RULE 6B 1,74,098 90,795 83,303 3. CLUB EXPENDITURE 5,329 1,029 4,300 TOTAL 2,63,603 TOTAL UNDERASSESSMENT IS TO THE TUNE OF RS.43,91,60 3. THE CASE IS COVERED UNDER SECTION 147. NOTICE UNDER SECTION 148 IS ISSUED. IN THE PRESENT CASE ALSO, THE REASSESSMENT PROCEED INGS HAVE BEEN INITIATED ON THE BASIS OF OBSERVATIONS OF TAX AUDITORS REGARDING UNDERSTATEME NT OF INCOME. THUS, WHEN ALL THE DETAILS WERE BEFORE THE AO AT THE TIME OF ASSESSMEN T AND NO FRESH TANGIBLE MATERIAL HAS COME TO HIS NOTICE, IT WILL BE A CASE OF CHANGE OF OPINION AND, THEREFORE, THE PROCEEDINGS ITA NO.3314/M/2009 M/S. SECURITIES TRADING CORPORATION OF INDIA LTD . 6 U/S.147 ARE VITIATED IN LAW. IN VIEW OF ABOVE DI SCUSSION, FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA (SUPRA), WE HOLD THAT THE NOTICE U/S.148 WAS BAD IN LAW BEING BASED ON CHANGE OF OPI NION AND, THEREFORE, REASSESSMENT PROCEEDINGS ARE QUASHED. 8. AS WE HAVE QUASHED THE REOPENING OF ASSESSMENT, WE DO NOT CONSIDER IT NECESSARY TO GO INTO THE MERITS OF THE CASE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED, PRONOUNCED ON 30 TH APRIL, 2010 SD/- (ASHA VIJAYRAGHAVAN) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANTMEMBER) MUMBAI, DATED 30 TH APRIL, 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-XXI, MUMBA I 4. COMMISSIONER OF INCOME TAX, CITY-1, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI DATE INITIALS 1. DRAFT DICTATED ON 15.4.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 16.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER ITA NO.3314/M/2009 M/S. SECURITIES TRADING CORPORATION OF INDIA LTD . 7 ITA NO.3314/M/2009 M/S. SECURITIES TRADING CORPORATION OF INDIA LTD . 8