NILESH AJITKUMAR JAIN, MUMBAI V. ITO, WARD- 3(2), NASHIK

ITA 3488/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8842 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 22-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KETAN L VAJANI
• Keywords: Reason to believe; Reassessment proceedings
• Section: 143(3); 143(1); 201; 48; 148; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI , !',#$% BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . 3488 / /201 9 ($,. . 2009-10 ) ITA NO.3488/MUM/2019 (A.Y.2009-10) SHRI NILESH AJIT KUMAR JAIN, 309-310, LODHA COMPLEX, SHASTRI CIRCLE, UDAIPUR RAJASTHAN 313 001 PAN: ACBPJ 0496Q ...... '. / APPELLANT , VS. INCOME TAX OFFICER, WARD 3(2),NASIK MAHARASHTRA- 422 002 ..... /$0/ RESPONDENT '.1/ APPELLANT BY : SHRI KETAN L. VAJANI /$01/ RESPONDENT BY : SHRI RAHUL RAMAN ,2$0 '/ DATE OF HEARING : 05/03/2020 34 2$0 '/ DATE OF PRONOUNCEMENT : 27/07/2020 / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF PRINCIPAL COMMISSIONER OF INCOME TAX-1, NASIK (IN SHORT THE PCIT) DATED 28/03/2019 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1 961 (IN SHORT THE ACT). 2 . 3488 / /201 9 ($,. .2009-10 ) ITA NO.3488/MUM/2019(A.Y.2009-10) 2. SHRI KETAN L. VAJNANI, APPEARING ON BEHALF OF TH E ASSESSEE SUBMITTED THAT ASSESSEE HAD FILED RETURN OF INCOME FOR THE IMPUGNE D ASSESSMENT YEAR ON 23/09/2008 DECLARING TOTAL INCOME OF RS.16,44,220/- . THE RETURN OF THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, ASSESSMENT WAS REOPENED ON THE GROUND THAT THERE WA S MISUSE OF CLIENT CODE MODIFICATION. CONSEQUENTLY, NOTICE UNDER SECTION 1 48 OF THE ACT WAS ISSUED TO THE ASSESSEE ON 31/03/2016. ORDER UNDER SECTION 14 3(3) R.W.S. 147 OF THE ACT WAS PASSED ON 02/05/2016 WITHOUT ANY ADDITION. THE REAFTER, THE PCIT INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT ON THE GRO UND THAT ASSESSING OFFICER HAS FAILED TO EXAMINE INTEREST EXPENDITURE AMOUNTIN G TO RS.4,94,882/- CLAIMED IN THE P&L ACCOUNT. THE PCIT OBSERVED THAT THE ASS ESSEE DID NOT HAVE ITS OWN CAPITAL, THEREFORE, THE LOAN WAS GIVEN FROM BORROWE D FUNDS. THE PCIT FURTHER OBSERVED THAT THE ASSESSEE HAS NOT SHOWN ANY INTERE ST FROM BORROWED MONEY, AS SUCH, INTEREST EXPENDITURE DEBITED TO THE P&L AC COUNT WAS REQUIRED TO BE DISALLOWED IN PROPORTION TO MONEY BORROWED BUT NOT USED FOR BUSINESS PURPOSE. THE LD.AUTHORIZED REPRESENTATIVE OF THE A SSESSEE CONTENDED THAT THE SCOPE OF EXAMINATION IN REASSESSMENT PROCEEDINGS AV AILABLE TO THE ASSESSING OFFICER WAS LIMITED TO EXAMINE MISUSE OF CLIENT COD E MODIFICATION. SINCE, NO ADDITION WAS MADE BY THE ASSESSING OFFICER, FOR WHI CH ASSESSMENT WAS REOPENED, THE ASSESSING OFFICER COULD NOT HAVE TRAV ELLED TO OTHER ISSUES. TO BUTTRESS HIS ARGUMENTS THE LD.AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JET AIRWAYS (INDIA) LIMITED REPORTED AS 331 ITR 236 (BO M). THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE F URTHER CONTENDED THAT SINCE THE ASSESSMENT ORDER WAS PASSED IN CONFO RMITY WITH THE BINDING 3 . 3488 / /201 9 ($,. .2009-10 ) ITA NO.3488/MUM/2019(A.Y.2009-10) DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, THE PCIT WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. IN SUPPORT OF HIS CONTENTION, THE LD.AUTHORIZED REPRESENTATIVE PLACED RELIANCE ON THE DECISION RENDERED IN THE CASE OF CIT VS. PAUL BROTHERS REPORTED AS 216 I TR 548(BOM). 3. ON THE OTHER HAND, SHRI RAHUL RAMAN, REPRESENTIN G THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER. THE LD. DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT IN REASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER HAS FAILED TO EXAMINE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. THE BALANCE SHEET OF THE ASSESSEE AS ON 31/03/2009 SHOWS LOAN OF RS.46.36 LACS TAKEN BY THE ASSESSEE AND AT THE SAME TIME THE ASSESSEE HAS ADVANCED LOAN OF RS.25.94 LACS. OWN INTEREST FREE FUNDS OF THE ASSESSEE IN THE FORM OF CAPITAL OR RESERVES WERE NOT SUFFICIENT TO ADVANCE THE LOANS. 4. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE PERUSED THE IMPUGNED ORDER AND THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSMENT WAS REOPENED TO EXAMINE MISUSE OF CLIENT CODE MODIFICATION FOR TAX EVASION. NO ADDITION WAS MADE BY THE ASSESSING OFFICER IN RESPECT OF THE ISSUE FOR WHICH THE ASSESSMENT WAS REOPENED. IT I S A WELL SETTLED LAW THAT WHERE NO ADDITION IS MADE ON THE ISSUE FOR WHICH TH E ASSESSMENT IS REOPENED, IT IS NOT OPEN TO THE ASSESSING OFFICER TO MAKE IND EPENDENT ADDITION FOR WHICH HE HAD NOT RECORDED REASON TO BELIEVE FOR ISSUING N OTICE U/S 148 OF THE ACT. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. JET AIRWAYS (INDIA) LIMITED (SUPRA) HAS ELUCIDATED THIS PRINCIPLE. THE RELEVANT EXTRACT OF THE FINDINGS OF THE HONBLE COURT ON THIS ISSUE READS A S UNDER:- 4 . 3488 / /201 9 ($,. .2009-10 ) ITA NO.3488/MUM/2019(A.Y.2009-10) 16. EXPLANATION 3 LIFTS THE EMBARGO, WHICH WAS INSERTE D BY JUDICIAL INTERPRETATION, ON THE MAKING OF AN ASSESSMENT OR REASSESSMENT ON GROU NDS OTHER THAN THOSE ON THE BASIS OF WHICH A NOTICE WAS ISSUED UNDER SECTION 14 8 SETTING OUT THE REASONS FOR THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THOSE JU DICIAL DECISIONS HAD HELD THAT WHEN THE ASSESSMENT WAS SOUGHT TO BE REOPENED ON TH E GROUND THAT INCOME HAD ESCAPED ASSESSMENT ON A CERTAIN ISSUE, THE ASSESSIN G OFFICER COULD NOT MAKE AN ASSESSMENT OR REASSESSMENT ON ANOTHER ISSUE WHICH C AME TO HIS NOTICE DURING THE PROCEEDINGS. THIS INTERPRETATION WILL NO LONGER HOL D THE FIELD AFTER THE INSERTION OF EXPLANATION 3 BY THE FINANCE ACT (NO. 2) OF 2009 . HOWEVER, EXPLANATION 3 DOES NOT AND CANNOT OVERRIDE THE NECESSITY OF FULFILLING THE CONDITIONS SET OUT IN THE SUBSTANTIVE PART OF SECTION 147. AN EXPLANATION TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CONTENTS AND CANNOT BE CONSTRUED TO OVERRIDE IT OR RENDER THE SUBSTANCE AND CORE NUGATORY. SECTION 147 HAS THIS EFFECT THAT THE ASSESSING OFFI CER HAS TO ASSESS OR REASSESS THE INCOME ('SUCH INCOME') WHICH ESCAPED A SSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH , COMES TO HIS NOTICE DURING THE COURSE OF THE PROCEEDINGS. HOWEVER, IF AFTER IS SUING A NOTICE UNDER SECTION 148, HE ACCEPTED THE CONTENTION OF THE ASSESSEE AND HOLD S THAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESCAPED AS SESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, A FRESH NOTICE UNDER SECTIO N 148 WOULD BE NECESSARY, THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE. (EMPHASIZED BY US.) THE HONBLE HIGH COURT WHILE PASSING THE AFORESAID JUDGMENT ALSO CONSIDERED THE DECISION OF HONBLE SUPREME COURT OF INDIA IN T HE CASE OF CIT VS. SUN ENGINEERING WORKS (P) LTD. REPORTED AS 198 ITR 297, WHEREIN, THE HONBLE APEX COURT INTERPRETED THE PROVISIONS OF SECTION 147 AS THEY S TOOD PRIOR TO THE AMENDMENT ON 1-4-1989 . 5. THUS, IN VIEW OF THE SETTLED LEGAL POSITION, WE FIND NO ERROR IN THE ACTION OF ASSESSING OFFICER IN NOT TRAVELLING TO OTHER ISS UES FOR MAKING ADDITION ONCE NO ADDITION WAS MADE ON THE ISSUE FOR WHICH ASSESSM ENT WAS REOPENED. THE PCIT CLEARLY ERRED IN INVOKING REVISIONAL JURISDICT ION ON AN ISSUE, WHICH THE ASSESSING OFFICER COULD NOT HAVE EXAMINED IN REASSE SSMENT PROCEEDINGS. 5 . 3488 / /201 9 ($,. .2009-10 ) ITA NO.3488/MUM/2019(A.Y.2009-10) 6. WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. AC CORDINGLY, THE IMPUGNED ORDER IS SET-ASIDE AND THE APPEAL OF ASSESSEE IS AL LOWED. 7. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED . 8. THIS APPEAL WAS HEARD ON 05/03/2020. AS PER RUL E 34(5) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963, (ITAT RULES, 1963), THE ORDER WAS REQUIRED TO BE ORDINARILY PRONOUNCED WITHIN A PER IOD OF 90 DAYS FROM THE DATE OF CONCLUSION OF THE HEARING OF APPEAL. THE IN STANT APPEAL WAS HEARD PRIOR TO THE LOCKDOWN DECLARED BY THE HONBLE PRIME MINIS TER ON 24-03-2020 IN VIEW OF COVID-19 PANDEMIC. THE LOCKDOWN WAS FORCED DUE T O EXTRA ORDINARY CIRCUMSTANCES CAUSED BY WORLD WIDE SPREAD OF COVID- 19. THEREAFTER, THE LOCKDOWN WAS EXTENDED FROM TIME TO TIME. THEREFORE , THE PRONOUNCEMENT OF ORDER BEYOND THE PERIOD OF 90 DAYS FROM THE DATE OF HEARING IS NOT UNDER ORDINARY CIRCUMSTANCES. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. JSW LTD., ITA NO.6264/MUM/2018 FOR A.Y 201 3-14 DECIDED ON 14/05/2020, UNDER IDENTICAL CIRCUMSTANCES, AFTER CO NSIDERING THE PROVISIONS OF RULE 34(5) OF THE ITAT RULES, 1963, JUDGEMENTS REND ERED BY HONBLE APEX COURT AND THE HONBLE BOMBAY HIGH COURT ON THE ISSU E OF TIME LIMIT FOR PRONOUNCEMENT OF ORDERS BY THE TRIBUNAL AND THE CIR CUMSTANCES LEADING TO LOCKDOWN HELD:- 10. IN THE LIGHT OF THE ABOVE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT RATHER THAN TAKING A PEDANTIC VIEW OF THE RULE REQUIRING P RONOUNCEMENT OF ORDERS WITHIN 90 DAYS, DISREGARDING THE IMPORTANT FACT THAT THE ENTI RE COUNTRY WAS IN LOCKDOWN, WE SHOULD COMPUTE THE PERIOD OF 90 DAYS BY EXCLUDING A T LEAST THE PERIOD DURING WHICH THE LOCKDOWN WAS IN FORCE. WE MUST FACTOR GROUND RE ALITIES IN MIND WHILE INTERPRETING THE TIME LIMIT FOR THE PRONOUNCEMENT OF THE ORDER. LAW IS NOT BROODING OMNIPOTENCE IN THE SKY. IT IS A PRAGMATIC TOOL OF THE SOCIAL OR DER. THE TENETS OF LAW BEING ENACTED ON THE BASIS OF PRAGMATISM, AND THAT IS HOW THE LAW IS REQUIRED TO INTERPRETED. THE INTERPRETATION SO ASSIGNED BY US IS NOT ONLY INCONS ONANCE WITH THE LETTER AND SPIRIT OF RULE 34(5) BUT IS ALSO A PRAGMATIC APPROACH AT A TI ME WHEN A DISASTER, NOTIFIED UNDER 6 . 3488 / /201 9 ($,. .2009-10 ) ITA NO.3488/MUM/2019(A.Y.2009-10) THE DISASTER MANAGEMENT ACT 2005, IS CAUSING UNPREC EDENTED DISRUPTION IN THE FUNCTIONING OF OUR JUSTICE DELIVERY SYSTEM. UNDOUBT EDLY, IN THE CASE OF OTTERS CLUB VS DIT [(2017) 392 ITR 244 (BOM)], HONBLE BOMBAY HIGH COURT DID NOT APPROVE AN ORDER BEING PASSED BY THE TRIBUNAL BEYOND A PERIOD OF 90 DAYS, BUT THEN IN THE PRESENT SITUATION HONBLE BOMBAY HIGH COURT ITSELF HAS, VID E JUDGMENT DATED 15TH APRIL 2020, HELD THAT DIRECTED WHILE CALCULATING THE TIME FOR DISPOSAL OF MATTERS MADE TIME- BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY . THE EXTRAORDINARY STEPS TAKEN SUO MOTU BY HONBLE J URISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT ALSO INDICATE THAT THIS PERIO D OF LOCKDOWN CANNOT BE TREATED AS AN ORDINARY PERIOD DURING WHICH THE NORMAL TIME LIMITS ARE TO REMAIN IN FORCE. IN OUR CONSIDERED VIEW, EVEN WITHOUT THE WORDS ORDINA RILY, IN THE LIGHT OF THE ABOVE ANALYSIS OF THE LEGAL POSITION, THE PERIOD DURING W HICH ITA NO. 6103 AND LOCKOUT WAS IN FORCE IS TO EXCLUDED FOR THE PURPOSE OF TIME LIM ITS SET OUT IN RULE 34(5) OF THE APPELLATE TRIBUNAL RULES, 1963. VIEWED THUS, THE EX CEPTION, TO 90-DAY TIME-LIMIT FOR PRONOUNCEMENT OF ORDERS, INHERENT IN RULE 34(5)(C), WITH RESPECT TO THE PRONOUNCEMENT OF ORDERS WITHIN NINETY DAYS, CLEARLY COMES INTO PLAY IN THE PRESENT CASE. OF COURSE, THERE IS NO, AND THERE CANNOT BE A NY, BAR ON THE DISCRETION OF THE BENCHES TO REFIX THE MATTERS FOR CLARIFICATIONS BEC AUSE OF CONSIDERABLE TIME LAG BETWEEN THE POINT OF TIME WHEN THE HEARING IS CONCL UDED AND THE POINT OF TIME WHEN THE ORDER THEREON IS BEING FINALIZED, BUT THEN, IN OUR CONSIDERED VIEW, NO SUCH EXERCISE WAS REQUIRED TO BE CARRIED OUT ON THE FACTS OF THIS CASE. THUS, IN LIGHT OF ABOVE FACTS AND THE DECISION OF C OORDINATE BENCH, THE PRESENT ORDER IS PRONOUNCED BEYOND THE PERIOD OF 90 DAYS. 9. THE APPEAL OF THE ASSESSE IS ALLOWED. ORDER PRON OUNCED UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE DETAILS ON THE NOTICE BOARD. ORDER PRONOUNCED ON MONDAY THE 27TH DAY OF J ULY, 2020. SD/- SD/- (SANJAY ARORA) (VIKAS AWA STHY) / ACCOUNTANT MEMBER #$ / JUDICIAL MEMBER / MUMBAI, 6,/ DATED 27 /07/2020 VM , SR. PS(O/S) 7 . 3488 / /201 9 ($,. .2009-10 ) ITA NO.3488/MUM/2019(A.Y.2009-10) COPY OF THE ORDER FORWARDED TO : 1. '. / THE APPELLANT , 2. /$0 / THE RESPONDENT. 3. 70 ( ) / THE CIT(A)- 4. 70 CIT 5. !89/$0$, , . . . , / DR, ITAT, MUMBAI 6. 9:;<= / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI