ELLORA RESORT MANAGEMENT P. LTD, MUMBAI V. CIT 6, MUMBAI

ITA 3351/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79354 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: YOGESH A THAR
• Keywords: Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 148; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I B ENCH, MUMBAI , !', % % % % &' . % . () . % . , !' * BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR.S.T.M. PAVALAN, JUDICIAL MEMBER ./ I.T.A. NO.3351/MUM/2014 ( + + + + / ASSESSMENT YEAR :2009-10 M/S. ELLORA RESORT MANAGEMENT PVT. LTD., 2 ND FLOOR, BLOCK NO. 5, 167, READY MONEY TERRACE, DR. ANNBIE BESANT ROAD, MUMBAI-400 018 / VS. THE CIT-6, AAYAKAR BHAVAN, MUMBAI-400 020 ', ./ -. ./ PAN/GIR NO. :AABCE 1363L ( ,/ / APPELLANT ) .. ( 01,/ / RESPONDENT ) ,/ 2 / APPELLANT BY: SHRI YOGESH A. THAR 01,/ 3 2 / RESPONDENT BY: SHRI A.C. TEJPAL 3 4) / DATE OF HEARING :02.07.2014 56+ 3 4) / DATE OF PRONOUNCEMENT :11.07.2014 !7 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT-6, MUMBAI DT.29.03.2014 PERTAINING TO A.Y. 2009 -10. ITA NO. 3351/M/2014 2 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE AS SESSEE IS THAT THE CIT-6, MUMBAI ERRED IN INVOKING THE PROVISIONS OF S EC. 263 OF THE ACT AND DIRECTING REVISION OF THE ORDER PASSED U/S. 147 R.W.S. 143(3) OF THE ACT ON THE ALLEGED GROUND THAT THE SAID ASSESSMENT ORDE R WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3. FACTS ON RECORD SHOW THAT ON PERUSING THE ASSESS MENT ORDER PASSED BY THE AO U/S. 143(3) ON 30.12.2011, THE CIT AT PAR A-3 OF HIS NOTICE U/S. 263 OF THE ACT OBSERVED AS UNDER: IT IS OBSERVED THAT AO HAD CALLED VARIOUS DETAILS INCLUDING DETAILS RELATING TO UNSECURED LOANS AS WELL AS LOAN S AND ADVANCES GIVEN. THE DETAILS OF THE INTEREST PAID A S WELL AS THE INTEREST RECEIVED HAS ALSO BEEN CALLED FOR. UN FORTUNATELY, THE AO ACTED IN A MECHANICAL FASHION AND AO FAILED TO CARRY OUT ANY RELEVANT AND MEANINGFUL ENQUIRY BASED ON TH E DETAILS CALLED FOR. IT IS APPARENT FROM THE RECORD THAT ASSESSEE IS MANAGING AND MAINTAINING THE FACILITIES LIKE CLUB H OUSE, SPORTS COMPLEX & GYMNASIUM DEVELOPED BY GAROL INFO SERVICES LTD AT AURANGABAD. AS PER THE MEMORANDUM AND ARTICLES OF ASSOCIATION THE ASSESSEE COMPANY HAS BE EN FLOATED TO CARRY ON TRADE OR BUSINESS IN INDIA OR E LSEWHERE AS MANAGERS, ADVISERS, MAINTAINERS, RUNNERS, OWNERS , DEVELOPERS, DECORATORS, ARCHITECTS OF RESORTS, HOTE LS, BARS, PERMIT ROOMS, RESTAURANTS, MALLS, CLUBS INCLUDING H EALTH CLUBS, TRAINING CENTERS, HOSPITALS, FITNESS CENTERS , BUSINESS UNDERTAKINGS, FACTORIES, RESIDENTIAL FLATS AND COMP LEXES, COMMERCIAL COMPLEXES, BUNGALOWS, STADIUMS, AIRPORTS , RAILWAY STATIONS AND FOR THE SAID PURPOSE ACQUIRE L AND, BUILDINGS AND FACILITIES ON LEASEHOLD OR FREEHOLD B ASIS, TO PROVIDE LODGING, RESTAURANTS, EATING HOUSES, BAR, S WIMMING POOL AND OTHER FACILITIES TO THE PUBLIC INCLUDING T OURISTS VISITORS AND OTHER DELEGATES COMING TO INDIA FROM F OREIGN COUNTRIES AND TO MEMBERS OF DELEGATIONS AND MISSION S FROM FOREIGN COUNTRIES AND TO ENCOURAGE AND CARRY ON AND FACILITATE TOURIST TRADE IN INDIA. THUS, IT IS APP ARENT FROM THE ITA NO. 3351/M/2014 3 ABOVE THAT ASSESSEE COMPANY WAS NOT IN THE BUSINESS OF GIVING OF LOANS AND ADVANCES. 4. AT PARA 4.1, THE CIT FURTHER OBSERVED AS UNDER: SINCE, PRIMA-FACIE THE ASSESSEE IS NOT IN THE BUSI NESS OF ADVANCING LOANS AND ADVANCES THE NETTING OF INTERES T PAID AGAINST INTEREST RECEIVED IS NOT PERMISSIBLE. THIS HAS RESULTED IN ERRONEOUS ORDER WHICH IS ALSO PREJUDICI AL TO THE INTEREST OF THE REVENUE. FURTHER, AS MENTIONED ABOV E THE INTRIGUING FEATURE OF THE TRANSACTION I.E. LENDERS AND BORROWERS BEING FROM THE SAME GROUP AND ASSESSEE COMPANY BEING USED ONLY AS A CONDUIT TO TRANSFER MO NEY FROM ONE ENTITY TO THE OTHER ENTITY UNDER THE SAME MANAGEMENT HAS NOT BEEN EXAMINED BY THE AO. HE ACT ED IN A MECHANICAL FASHION IN ACCEPTING THE CLAIM OF THE ASSESSEE AT THE FACE VALUE. 5. IN RESPONSE TO THIS NOTICE, ASSESSEE FILED A DET AILED REPLY WHICH IS ANNEXED TO THE ORDER OF THE CIT AS ANNEXURE. IT WA S EXPLAINED THAT ACTIVITY OF TAKING LOAN AND GIVING LOAN WAS IN FURT HERANCE OF ANCILLARY OBJECTS OF THE COMPANY IN THE MEMORANDUM OF ASSOCI ATION. IT WAS POINTED OUT THAT THE ASSESSEE HAD EARNED NET INTER EST INCOME WHICH HAS BEEN OFFERED TO TAX. THE INTEREST INCOME EARNED WA S RS. 6.31 CRORES AND INTEREST EXPENDITURE WAS RS. 5.89 CRORES THUS SHOWI NG THE NET INTEREST INCOME OF RS. 41.84 LAKHS. THE ASSESSEE FURTHER EX PLAINED THAT THE ASSESSMENT WAS REOPENED BY THE AO U/S. 147 OF THE ACT ON THE ALLEGED REASONS THAT INCOME TO THE EXTENT OF RS. 5.40 CRORE S WHICH WAS THE DIFFERENCE BETWEEN THE TURNOVER SHOWN IN THE P&L AC COUNT AND AS PER TDS DETAILS OBTAINED THROUGH ITD SYSTEM HAS ESCAPED ASSESSMENT. THE ASSESSEE HAD PROVIDED THE DETAILS OF INTEREST RECEI VED ALONGWITH TDS CERTIFICATES AND IT WAS EXPLAINED THAT THE INCOME H AS BEEN SHOWN AS NET OF EXPENSES IN THE PROFIT AND LOSS ACCOUNT THEREFORE N O INCOME CHARGEABLE TO ITA NO. 3351/M/2014 4 TAX HAS ESCAPED ASSESSMENT. THE ASSESSEE FURTHER CLAIMED THAT THE REASONS FOR INVOKING THE PROVISIONS OF SEC. 263 ARE BAD IN LAW BECAUSE FOR THE SAME REASON THE ASSESSMENT WAS REOPENED U/S. 147 OF THE ACT AND THEREFORE THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5.1. THE CIT AFTER PERUSING THE SUBMISSIONS OF THE ASSESSEE CAME TO THE CONCLUSION THAT THE ASSESSEE COMPANY WAS NOT IN TH E BUSINESS OF GIVING OF LOANS AND ADVANCES. THE CIT FURTHER OBSERVED TH AT THE AO HAS ACTED IN MECHANICAL AND PERFUNCTORY MANNER AND DID NOT CONSIDER WHAT WERE TERMS AND CONDITIONS OF THIS LOAN, WHAT REASONS WE RE ADVANCED TO THE LENDERS AS PURPOSE OF TAKING LOAN, WHAT SECURITY WA S ASKED FOR. IT IS ALSO NOT KNOWN HOW THE BORROWED APPROACHED THE ASSESSEE AND WHAT REASONS WERE THERE AT THE TIME OF OBTAINING LOAN. ACCORDIN G TO THE CIT, THE NATURE OF LOAN AND TERMS AND CONDITIONS HAS NOT BEEN CONSI DERED BY THE AO AT ALL, MERELY BECAUSE INTEREST OF RS. 41.84 LAKHS WAS OFFERED FOR TAX AND ACCEPTED BY THE AO DOES NOT PER SE MEAN THAT THE AO HAS ARRIVED AT CONSCIOUS DECISION THAT INTEREST INCOME HAS BEEN G ENUINELY EARNED AND THAT HE WAS SATISFIED ABOUT THE NEXUS OF AMOUNT HAS BEEN RECEIVED FROM ONE ENTITY OF WOCKHARDT GROUP AND THEN GIVING THE L OAN TO OTHER ENTITY OF WOCKHARDT GROUP AT AN INTEREST WHICH WAS HIGHER THA N THE AMOUNT OF INTEREST PAID BY IT TO THE LENDER. THE CIT FINALLY CONCLUDED THAT NO RELEVANT AND MEANINGFUL INQUIRIES HAVE BEEN CARRIED OUT WITH REGARD TO THE INCOME OFFERED FOR TAX AT RS. 41.84 LAKHS, THE ASSESSMENT ORDER IS THEREFORE, ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE AND WENT ON TO SET ASIDE THE ASSESSMENT ORDER WITH THE FOLLO WING DIRECTIONS: THE AO IS DIRECTED TO FRAME FRESH ASSESSMENT ORDER IN ACCORDANCE WITH PROVISIONS OF LAW AFTER GIVING REAS ONABLE ITA NO. 3351/M/2014 5 OPPORTUNITY OF HEARING TO THE ASSESSEE. THE AO IS DIRECTED TO EXAMINE ALL THE ISSUES RAISED ABOVE AND TAKE APPROP RIATE ACTION AS WARRANTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE IN ACCORDANCE WITH LAW, IN THE COURSE OF COMPL ETING ASSESSMENT. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS REOPENED BECAUSE THE ASSESSEE HAS CLAIMED TDS AMOUNTING TO RS. 1.43 CRORES ON A TURNOVER OF RS. 9 3.55 LAKHS. AS PER INFORMATION AVAILABLE WITH THE AO, THE ASSESSEE HAS RECEIVED AN INCOME OF RS. 6.33 CRORES. THE ASSESSMENT WAS REOPENED BE CAUSE IN THE OPINION OF THE AO, INCOME TO THE EXTENT OF RS. 5.04 CRORES HAS ESCAPED ASSESSMENT. THE LD. COUNSEL FURTHER STATED THAT DUR ING THE REASSESSMENT PROCEEDINGS, THE DIFFERENCE WAS RECONCILED AND THE RETURNED LOSS WAS ACCEPTED AFTER VERIFYING THE DETAILS AND THE SUBMIS SIONS OF THE ASSESSEE. IT IS THE SAY OF THE LD. COUNSEL THAT ALL THE DETAILS RELATING TO THE LOANS AND ADVANCES GIVEN AND TAKEN WERE BEFORE THE AO, THE AO HAS DULY VERIFIED THE INTEREST RECEIVED AND INTEREST PAID BY THE ASSE SSEE. THE AO HAS ALSO VERIFIED THAT THE NET INTEREST RECEIVED AND PAID WA S A POSITIVE FIGURE AND THE ASSESSEE HAS SHOWN THE NET INTEREST INCOME EARN ED IN ITS RETURN OF INCOME. THE LD. COUNSEL STRONGLY SUBMITTED THAT BY ANY STRETCH OF IMAGINATION, THE ASSESSMENT ORDER CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE EVEN IF THE MAIN BUSINESS OF THE ASSESSEE WAS NOT MONEY LENDING. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE FINDINGS OF THE CIT. IT IS THE SAY OF THE LD. DR T HAT BY NOT VERIFYING THE NATURE OF BUSINESS OF THE ASSESSEE, THE AO HAS MADE HIS ORDER ERRONEOUS ITA NO. 3351/M/2014 6 AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE THE CIT HAS RIGHTLY INVOKED HIS POWERS U/S. 263 OF THE ACT AND SET ASIDE THE ASSESSMENT DIRECTING THE AO TO REFRAME THE ASSESSME NT IN ACCORDANCE WITH PROVISIONS OF LAW. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE CA REFULLY PERUSED THE ORDER OF THE CIT AND THE SUBMISSIONS MADE BY T HE ASSESSEE. WE HAVE ALSO CAREFULLY PERUSED THE NOTICE U/S. 263 OF THE ACT, THE RELEVANT CONTENTS HAVE BEEN EXHIBITED ELSEWHERE. 8.1. A BARE READING OF SEC. 263 MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION BY THE COMMISIONER SUO MOTU UNDER IT IS THAT THE ORDER OF THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THUS TWIN CONDITIONS HAV E TO BE SATISFIED BEFORE INVOKING SEC. 263 - (1) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS AND (2) IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF ONE OF THEM IS ABSENT, RECOURSE CANNOT BE HAD TO SEC. 263( 1) OF THE ACT. FOR THESE OBSERVATIONS, WE DRAW SUPPORT FROM THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS CIT 243 ITR 83. FURTHER THE ERROR ENVISAGED BY SEC. 263 IS NOT ONE WHICH DEPENDS ON POSSIBILITY OR GUESS WORK, IT SHOULD BE ACTUALLY AN ERROR OF EITHER OF FACT OR OF LAW. 8.2. LET US NOW CONSIDER THE ENQUIRIES MADE BY THE AO DURING THE COURSE OF REASSESSMENT PROCEEDINGS BUT PRIOR TO THA T LET US CONSIDER THE REASONS FOR REOPENING OF THE ASSESSMENT: ITA NO. 3351/M/2014 7 THE RETURN OF INCOME WAS E-FILED ON 30.9.2009 DECLA RING TOTAL INCOME AT RS. 38,11,498/-. THE ASSESSEE HAS CLAIMED TDS AMOUNTING TO RS. 1,43,09,707/-. AS PER PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS SHOWN TURNOVER AT RS. 93, 55,388/-. AS PER TDS DETAILS OBTAINED THROUGH ITD SYSTEM, IT IS SEEN THAT THE ASSESSEE HAS RECEIVED AN INCOME OF RS. 6,3 3,69,285/- IN VIEW OF THE ABOVE, THERE IS REASON TO BELIEVE TH AT THE ASSESSEE HAS NOT SHOWN ITS TOTAL INCOME IN PROFIT AND LOSS ACCOUNT TO THE EXTENT OF RS. 5,40,13,897/-. ACCORD INGLY THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WIT HIN THE MEANING OF SECTION 147 OF THE I.T. ACT. SINCE, THE RELEVANT ASSESSMENT YEAR IS 2009-10 AND NO SCRUTINY ASSESSMENT ORDER IS PASSED IN THIS CASE, T HE ASSESSMENT PROCEEDINGS IS RE-OPENED BY THE UNDERSIG NED IN CONSONANCE TO THE PROVISIONS OF SEC. 151 OF THE I.T . ACT. NOTICE U/S. 148 IS SEPARATELY ISSUED. 8.3 ON 19.1.2011, THE AO ISSUED A QUERY LETTER REQU IRING THE ASSESSEE TO FILE DETAILS RELATING TO INTER ALIA AT ITEM NO. 9- DETAIL OF UNSECURED LOAN TAKEN ALONGWITH COPY OF LEDGER ACCOUNT OF LENDER IN THE BOOKS OF THE COMPANY AND AT ITEM NO. 10, DETAILS OF LOAN GIVEN B Y THE COMPANY ALONGWITH COPY OF LEDGER ACCOUNT OF BORROWERS IN TH E BOOKS OF THE COMPANY. THIS NOTE IS AT PAGE-2 OF THE PAPER BOOK. THE ASSESSEE FILED NECESSARY DETAILS ALONG WITH COPIES OF LEDGER ACCOU NTS AS CALLED FOR BY THE AO. VIDE REPLY DT. 18.10.2011 WHICH IS AT PAGE-33 OF THE PAPER BOOK, THE ASSESSEE ALSO EXPLAINED WHY THERE WAS A DIFFERENCE BETWEEN THE TURNOVER ITA NO. 3351/M/2014 8 AND THE INTEREST INCOME. IT WAS EXPLAINED THAT THE INTEREST INCOME HAS BEEN SHOWN AS NET OF EXPENSES IN THE PROFIT AND LOS S ACCOUNT. 8.4. AFTER CONSIDERING THE DETAILS FILED BY THE ASS ESSEE, THE AO COMPLETED THE ASSESSMENT U/S. 147 R.W. SEC. 143(3) AND ACCEPTED THE FACT THAT INTEREST INCOME SHOWN IN THE PROFIT AND LOSS A CCOUNT IS NET INTEREST I.E. INTEREST INCOME HAS BEEN SHOWN AFTER TAKING INTO CO NSIDERATION THE INTEREST EXPENSES. THUS IT IS CLEAR THAT THE AO HAS MADE SP ECIFIC ENQUIRIES IN RELATION TO THE LOANS AND ADVANCES TAKEN AND GIVEN BY THE COMPANY TO WHICH THE ASSESSEE HAS GIVEN SPECIFIC REPLY WITH SU PPORTING DOCUMENTARY EVIDENCES DURING THE COURSE OF THE ASSESSMENT PROCE EDINGS. IT CANNOT BE SAID THAT THE AO HAS NOT MADE ANY MEANINGFUL ENQUIR IES OR HAS ACTED IN MECHANICAL AND PERFUNCTORY MANNER AS ALLEGED BY THE CIT. THE ORDER OF THE AO MAY BE BRIEF AND CRYPTIC BUT THAT BY ITSELF IS NOT SUFFICIENT REASON TO BRAND THE ASSESSMENT ORDER AS ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF THE REVENUE. THE SCOPE OF INTERFERENCE U/S. 26 3 IS NOT TO SET ASIDE MERELY UNFAVOURABLE ORDERS AND BRING TO TAX SOME MO RE MONEY TO THE TREASURY NOR IS THE SECTION MEANT TO GET AT SHEER E SCAPEMENT OF REVENUE WHICH IS TAKEN CARE OF BY OTHER PROVISIONS IN THE A CT. POWER U/S. 263 CANNOT BE EXERCISED FOR STARTING FISHING AND ROVING ENQUIRIES. IN THE GARB OF EXERCISING POWER U/S. 263, THE COMMISSIONER CANN OT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROV ING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. 8.5. AFTER CONSIDERING THE ENTIRE FACTS AND THE MAT ERIAL EVIDENCES BROUGHT ON RECORD REPRODUCED ELSEWHERE IN THE ORDER BY US, IN OUR VIEW, NEITHER THE AO HAS ERRED ON FACTS NOR ON LAW WHILE FRAMING THE ASSESSMENT ORDER U/S. 147 R.W. SEC. 143(3) OF THE A CT. THEREFORE THE ORDER OF THE CIT U/S. 263 OF THE ACT DOES NOT STAND ON I TS OWN LEG. WE, ITA NO. 3351/M/2014 9 ACCORDINGLY SET ASIDE THE ORDER OF THE CIT U/S. 263 DT. 29.3.2014 AND RESTORE THAT OF THE AO. ASSESSEE SUCCEEDS. APPEAL IS ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JULY, 2014 . !7 3 6+ 8 9! : 11.7.2014 6 3 ; SD/- SD/- (DR. S.T.M. PAVALAN) (N.K. BILLAIYA) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 9! DATED 11.7.2014 . . ./ RJ , SR. PS !7 !7 !7 !7 3 33 3 04 04 04 04 <+4 <+4 <+4 <+4 / COPY OF THE ORDER FORWARDED TO : 1. ,/ / THE APPELLANT 2. 01,/ / THE RESPONDENT. 3. = ( ) / THE CIT(A)- 4. = / CIT 5. >; 04 , , / DR, ITAT, MUMBAI 6. ;& ? / GUARD FILE. !7 !7 !7 !7 / BY ORDER, 14 04 //TRUE COPY// @ @@ @ / A A A A - - - - (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI