MAANRAJ TRADING P. LTD (UNDER LIQUIDATION), MUMBAI V. DCIT CIR 6(3), MUMBAI

ITA 3388/MUM/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78910 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 02-06-2014
• Assessment Year: 1998-1999
• Appeal Filed On: 22-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Keywords: Business income; Tangible material; Difference of opinion; Deemed dividend; Change of opinion
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUM BAI . , . ... , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI DR. S. T . M. PAVALAN, JM !./ I.T.A. NO. 3388/MUM/2009 ( / ASSESSMENT YEAR: 1998-99) MAANRAJ TRADING PRIVATE LIMITED POONAM CHAMBERS, 101E, 1 ST FLOOR, DR. A. B. ROAD, WORLI, MUMBAI-400 018 / VS. DY. CIT, CIRCLE 6(3), AAYAKAR BHAVAN, M. K. ROAD, NEW MARINE LINES, MUMBAI-400 020 # !./$% ! ./PAN/GIR NO. AAACM 0150 E ( #& /APPELLANT ) : ( '(#& / RESPONDENT ) #& ) * / APPELLANT BY : SHRI PERCY PARDIWALLA '(#& ) * / RESPONDENT BY : SMT. S. PADMAJA, DR + , ) - / DATE OF HEARING : 02.06.2014 ./0 ) - / DATE OF PRONOUNCEMENT : 02.06.2014 1 / O R D E R PER D. KARUNAKARA RAO, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-XXVI, MUMBAI DATED 17.02.2009. THE ASSESSEE RAISED VARIOUS GROUN DS ON AN ADDITIONAL GROUND IN THE APPEAL. ONE OF THE GROUNDS RAISED BY THE ASSESSEE R ELATES TO THE VALIDITY OF THE REASSESSMENT PASSED U/S.143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961. IT IS THE LEGAL CONTENTION OF THE ASSESSEE THAT THE REASSESSMENT, W HICH IS MADE BEYOND THE PERIOD OF FOUR YEARS WHEN THERE IS NO DEFECT OF DISCLOSURE FROM TH E ASSESSEES SIDE, IS NOT VALID. 2. IN THE REGARD, AT THE VERY OUTSET, THE LD. COUNS EL FOR THE ASSESSEE MENTIONED BEFORE US THAT THE ASSESSMENT MADE U/S.143(3) OF THE ACT O N 29.03.2001 WAS REOPENED ON 2 ITA NO. 3388/MUM/2009 (A.Y. 1998-99) MAANRAJ TRADING PRIVATE LIMITED VS. DY. CIT 31.03.2005 FOR THREE REASONS AND THE SAID REASONS A RE PLACED AT PAGE 12 OF THE PAPER BOOK. THE LD. COUNSEL BROUGHT OUT EACH OF THE THREE REASO NS AND MENTIONED THAT THE SAID REASONS ARE NOT SUSTAINABLE LEGALLY FOR THE FOLLOWI NG REASONS. THE ASSESSMENT IS REOPENED EITHER ON THE BASIS OF THE INFORMATION ALREADY FURN ISHED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME OR DURING THE REGULAR ASSESSMENT P ROCEEDINGS, OR THERE IS NO ESCAPEMENT OF INCOME CONSIDERING THE SIMILARITY OF TAX RATES ( REASON 2). FURTHER, IT IS THE SUBMISSION OF THE LD. COUNSEL THAT THE ASSESSING OFFICER (A.O. ) ATTENDED TO THIS ISSUE DURING THE REGULAR ASSESSMENT PROCEEDINGS AND COMPLETED ASSESS MENT U/S. 143(3) WITHOUT MAKING ANY ADDITIONS. REFERRING TO EACH OF THE ISSUES RECO RDED IN THE REASONS, THE LD. COUNSEL BROUGHT OUR ATTENTION TO THE FIRST ISSUE RELATING TO THE APPLICATION OF THE PROVISION OF SECTION 2(22)(E) OF THE ACT TO THE SUM OF RS.22.63 CRORES. IN THIS REGARD, REFERRING TO THE SAID REASON, THE LD. COUNSEL MENTIONED THAT THE A.O . RELIED/REFERRED TO THE FORM 3CD REPORT, WHICH WAS FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME. IT WAS AVAILABLE TO THE A.O. AT THE TIME OF REGULAR ASSESSMENT. THE LD. COUNSEL MENTIONED THAT NECESSARY OPINION WAS FOUND BY THE A.O. ON THE APPLICABILITY OF THE PROVISION OF SECTION 2(22)(E) OF THE ACT TO THE SAID SUM AND OPINED AGAINST MAKING A DDITION. IN THIS REGARD, THE LD. COUNSEL BROUGHT OUR ATTENTION TO THE ENTRIES ABOUT THE SHAREHOLDING OF THE DIRECTORS ON THE SISTER CONCERNS AND THE DETAILS ON SUBSTANTIAL INTEREST THEREIN. THE LD. COUNSEL BROUGHT OUR ATTENTION TO PAGES 52 AND 54 OF THE PAPER BOOK (POINT NO. 1 AND POINT NO. 9) TO SUPPORT THE SAME. A.O. DID NOT MAKE ADDITION ONLY AFTER EXA MINING THE APPLICABILITY OF THE SAID PROVISION RELATING TO THE DEEMED DIVIDEND TO THE SA ID SUM. FURTHER, TAKING US THROUGH THE ORDERS OF THE A.O., THE LD. COUNSEL MENTIONED THAT THERE IS NO EXTRANEOUS OR TANGIBLE MATERIAL GATHERED BY THE A.O. WHICH WORKED AS A LIVE WIRE FOR FACILITATING REOPENING OF THE ASSESSMENT VALIDLY. CONSIDERING THE ABOVE, THE LD. COUNSEL MENTIONED THAT IT IS THE CASE OF CHANGE OF OPINION AND THERE IS NO FAILURE ON PART OF THE ASSESSEE TO DISCLOSE ANY MATERIAL/OR FACTS NECESSARY FOR MAKING ASSESSMENT I N THE RETURN OF INCOME OR IN THE REGULAR ASSESSMENT. THEREFORE ON THIS REASONING, TH E FIRST ISSUE RELATING TO SECTION 2(22)(E) OF THE ACT IS MISCONCEIVED. THEREFORE, IT IS THE PR AYER OF THE ASSESSEES COUNSEL THAT THE REASSESSMENT MADE ON THIS ISSUE SHOULD BE DISMISSED . 3 ITA NO. 3388/MUM/2009 (A.Y. 1998-99) MAANRAJ TRADING PRIVATE LIMITED VS. DY. CIT 3. ON THE OTHER HAND, SMT. S. PADMAJA, THE LD. CIT- DR FOR THE REVENUE RELIED HEAVILY ON THE REASSESSMENT ORDER OF THE A.O. AND T HE LD. CIT(A) AND MENTIONED THAT THE REASSESSMENT SHOULD BE UPHELD. SHE RELIED ON THE AL LAHABAD HIGH COURT JUDGMENT IN THE CASE OF EMA INDIA LTD. VS. ACIT [2009] 226 CTR 659 (ALL) FOR THE PREPOSITION THAT VALID REASSESSMENT MADE BY THE A.O. IS VALID WHEN THERE I S NO APPLICATION OF MIND BY THE A.O. DURING THE MAKING OF THE REGULAR ASSESSMENT. 4. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE MATERIAL PLACED BEFORE US. AFTE R ASSIMILATING THE ABOVE REFERRED FACTS AND ARGUMENTS, WE FIND THAT THE ARGUMENTS MADE OUT BY THE LD. COUNSEL DESERVE MERIT ON THIS ISSUE. IT IS UNDISPUTED FACT THAT THE MATERIAL /OR DOCUMENTS FILED BY THE ASSESSEE IS THE SOURCE OF INFORMATION FOR REOPENING BY THE A.O. ON THIS ISSUE RELATING TO THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THERE IS NO TANGIBLE M ATERIAL GATHERED BY THE A.O. WHICH WORKED AS A LIVE WIRE FOR THE A.O. TO ASSUME JURISD ICTION VALIDLY. WE ALSO FIND THAT THE A.O. ALREADY ENQUIRED INTO THIS ISSUE DURING THE MA KING OF THE REGULAR ASSESSMENT. THEREFORE, IN OUR OPINION, THE REASSESSMENT MADE BY THE A.O. ON THE REASONS RECORDED INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE UPHELD. THIS PART OF THE GROUND IS ALLOWED. 5. REASONING NO. 2 RELATES TO THE CHARGEABILITY OF THE GAINS ON SALE OF SHARES/UNITS ON PROPER HEAD OF INCOME. IT IS THE CASE OF THE ASSESS EE THAT THE ASSESSEE AMALGAMATED FOUR OF THE CONCERNS, WHO EARNED SHORT TERM CAPITAL GAIN S AND OFFERED THE SAME UNDER THE HEAD CAPITAL GAINS. PER CONTRA, IT IS THE CASE OF THE A.O. THAT THE SAID GAINS SHOULD BE TAXED UNDER THE HEAD BUSINESS INCOME. THERE IS NO DISPU TE ON THE FACT THAT THE SAID GAINS ARE SHORT TERM CAPITAL GAINS AND THEY ARE EARNED ON THE SALE OF SHARES/UNITS. DURING THE PROCEEDINGS BEFORE US, AT THE VERY OUTSET, THE LD. COUNSEL BROUGHT OUR ATTENTION TO PAGE NO. 23 OF THE PAPER BOOK AND MENTIONED THAT THE ASS ESSEE REPORTED THE SHORT TERM CAPITAL GAINS OF RS.3,90,155/-. FURTHER, HE BROUGHT OUR ATT ENTION TO THE COPY OF THE REASSESSMENT ORDER AND READ OUT THE NOTE OF THE A.O. LEFT ON PAGE 11 OF THE ASSESSMENT ORDER AND THE SAME READS AS UNDER: 4 ITA NO. 3388/MUM/2009 (A.Y. 1998-99) MAANRAJ TRADING PRIVATE LIMITED VS. DY. CIT NOTE: AS DISCUSSED IN PARA (8) ABOVE, THE SHORT T ERM CAPITAL GAIN RECEIVED BY THE ASSESSEE AMOUNTING TO RS.3,90,155/- IS TREATED AS BUSINESS INCOME. HOWEVER, THE SAME WILL NOT HAVE ANY IMPACT ON THE TAX PAYABLE AS WELL AS IN COMPUTATION OF TOTAL INCOME. READING THE ABOVE, THE LD. COUNSEL MENTIONS THAT TH E SAID AMOUNT EVEN IF TAXED UNDER THE HEAD BUSINESS INCOME, THERE IS NO TAX I MPLICATION, AND THEREFORE, THERE IS NO TAX YIELDING - CONCEALMENT OF INCOME. THERE IS NO D ISPUTE ON THE FACT THAT THERE IS NO CONCEALMENT OF INCOME ON THIS ACCOUNT. 6. THE LD. DR HAS SO SPECIAL ARGUMENT TO MAKE ON TH IS ISSUE EXCEPT RELYING ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. ON HEARING BOTH THE PARTIES AND PERUSING THE FAC TS PLACED BEFORE US AND AFTER PERUSING THE ABOVE MENTIONED NOTE OF THE A.O., WE ARE OF THE OPINION THAT NO CONCEALMENT OF INCOME IS MADE ON THIS GROUND. THERE FORE, WE AFFIRM THE ARGUMENT OF THE LD. COUNSEL AND DISMISS THE REASSESSMENT MADE BY TH E A.O. ON THIS ACCOUNT. 8. THE THIRD REASON GIVEN BY THE A.O. FOR REASSESSMENT RELATES TO THE CAPITAL NATURE OF THE SUM OF RS.1 LAC PAID BY THE ASSESSEE TO M/S. S. V. GHATALIA & ASSOCIATES. IT IS THE CASE OF THE REVENUE THAT THE SAID AMOUNT IS A CAPIT AL IN NATURE AS THE EXPENDITURE IS INCURRED BY THE ASSESSEE FOR AMALGAMATION OF WORK. MENTIONING THAT THIS ISSUE IS ALSO A SUBJECT MATTER OF ENQUIRY BY THE A.O. DURING THE RE GULAR ASSESSMENT PROCEEDINGS, THE LD. COUNSEL BROUGHT OUR ATTENTION TO PAGE 54 (POINT NO. 4) AS WELL AS PAGE 57 OF THE PAPER BOOK, CONTAINING THE DETAILS OF EXPENSES VIDE ANNEX URE 1 AND MENTIONED THAT THE SAID DETAILS WERE AVAILABLE AS DISCLOSED BY THE ASSESSEE TO THE A.O. AND THE ASSESSMENT WAS COMPLETED WITHOUT MAKING ADDITION ON THIS ACCOUNT A FTER EXAMINING THE RELEVANT DETAILS. THERE IS NO DEFECT OF DISCLOSURE ON THIS ISSUE ALSO ON PART OF THE ASSESSEE. THEREFORE, THE PROVISO TO SECTION 147 OF THE ACT HAS NO APPLICATIO N. ON PERUSAL OF THE SAID PAGES, WHICH IS A REPLY LETTER FILED BY THE ASSESSEE TO THE A.O. VIDE HIS REPLY DATED NIL, WE FIND THE ISSUE WAS THE SUBJECT MATTER OF ENQUIRY DURING THE REGULA R ASSESSMENT PROCEEDINGS. HENCE, THERE IS NO REASON FOR THE A.O. TO REEXAMINE THE SA ME UNDER THE PROVISION OF SECTION 147 5 ITA NO. 3388/MUM/2009 (A.Y. 1998-99) MAANRAJ TRADING PRIVATE LIMITED VS. DY. CIT OF THE ACT. THEREFORE, THE REASSESSMENT ORDER MADE BY THE A.O. ON THIS ISSUE IS NOT SUSTAINABLE. WE ALSO FIND THE DECISION RELIED UPON BY THE LD. DR FROM THE JUDGMENT OF THE ALLAHABAD HIGH COURT DOES NOT RELATE TO THE PROVISI ON OF SECTION 147 OF THE ACT. THEREFORE, THE SAME IS DISTINGUISHABLE ON FACTS. 9. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THA T THE LEGAL ISSUE RAISED BY THE ASSESSEE RELATING TO THE VALIDITY OF THE REASSESSME NT IS DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, THE ADJUDICATION OF THE OTHER ISSUES RAI SED BY THE ASSESSEE BECOMES AN ACADEMIC EXERCISE. THEREFORE, THE SAID GROUNDS ARE DISMISSED AS ACADEMIC. 10. IN THE RESULT, THE ASSESSEES IS PARTLY ALLOWED 2-3 452- ) !61 7 - ) $- 89 ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE, 2014 SD/- SD/- (DR. S. T. M. PAVALAN) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + !:, MUMBAI; ;! DATED : 02.06.2014 .../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '(#& / THE RESPONDENT 3. + <- ( ) / THE CIT(A) 4. + <- / CIT - CONCERNED 5. ? @A '-B4 , B4 , + !:, / DR, ITAT, MUMBAI 6. A5 C, / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , + !:, / ITAT, MUMBAI