THE ADIT (I.T) 3(1), MUMBAI V. M/S. HONKONG SHANGHAI BANKING CORP. LTD,

ITA 3555/MUM/2004

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101313 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 30-12-2014
• Assessment Year: 1994-1995
• Appeal Filed On: 07-05-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Reopening of assessment; Business income; Earning of tax free income
• Section: 14A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.3555/MUM/2004 ASSESSMENT YEAR: 1994-95 ADIT (IT) - 3(1 ), SCINDIA HOUSE, R.NO.136, 1 ST FLOOR, N.M.ROAD, MUMBAI-400038 VS. M/S. HONGKONG SHANGHAI BANKING CORP. LTD., 52/60, MAHATMA GANDHI ROAD, P.O. BOX 128, MUMBAI-1 (APPELLANT) (RESPONDENT) AND C.O. NO.40/MUM/2005 (ARISING OUT OF 3555/MUM/2004 AY-1994-95 ) M/S. HONGKONG SHANGHAI BANKING CORP. LTD., 52/60, MAHATMA GANDHI ROAD, P.O. BOX 128, MUMBAI-1 VS. ADIT (IT) - 3(1), SCINDIA HOUSE, R.NO.136, 1 ST FLOOR, N.M. ROAD, MUMBAI-400038 (APPELLANT) (RESPONDENT) REVENUE BY : SHRI PANKAJ KUMAR (DR) ASSESSEE BY : SHRI ARVIND SONDE DATE OF HEARING : 22.09.2015 DATE OF PRONOUNCEMENT : 09.10.2015 2 ITA NO.3555/M/04 & C .O.40/M/05 MS HONG KONG SHANGHAI BANKING CORP. LTD. O R D E R PER PAWAN SINGH, JM: 1. THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20.02.2004 OF THE CIT(A)-33, MUMBAI FOR ASSES SMENT YEAR(AY) 1994-95 ON THE FOLLOWING GROUNDS OF APPEAL: 1. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT REOPENING OF T HE ASSESSMENT FOR AY. 1994-95 IS MISCONCEIVED AND BAD IN LAW. 2. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CANCELLING THE ASSESSMENT A ND THEREBY ALLOWING THE CLAIM OF THE ASSESSEE OF BROKEN PERIOD INTEREST OF RS. 1,53,89,788/- THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) ON THE ABOVE GROUNDS SET ASIDE AND THAT OF THE AO RESTORED. 2. THE BRIEF FACT OF THE CASE ARE THAT ASSESSEE FILED HIS RETURN OF INCOME IN RESPECT OF AY1994-95, DECLARING TOTAL INCOME OF RS. 89,67,26,090/- ON 29.11.1994. THE CASE WAS SELECTED FOR SCRUTINY AND AFTER GIVING PROPER HEARING, THE AO DETERMINED THE TOTAL INCOME OF ASSE SSEE OF RS. 96,36,15,820/- VIDE ORDER DATED 28.02.1997. 3. THE AO SUBSEQUENTLY RE-OPENED THE ASSESSMENT BY ISS UING NOTICE DATED 25.05.2001 U/S 148 OF THE ACT ON THE FOLLOWING REAS ONS: (I) FOR APPLYING THE PROVISIONS OF SECTION 14A TO T HE TAX EXEMPT INCOME SINCE THE PROVISIONS WERE BROUGHT ON THE STA TUTE BY THE FINANCE ACT, 2001 W.R.E.F. 1-4-1962. (II) FOR EXAMINING THE CLAIM FOR DEDUCTION OF EXPEN SES ON EXPATRIATE STAFF. (III) FOR CONSIDERING THE ALLOWANCE OF BROKEN PERIO D INTEREST ON SECURITIES SOLD. (IV) FOR EXAMINING THE DEDUCTION ALLOWED FOR INTERE ST-TAX (V) FOR EXAMINING THE ALLOWANCE ON ACCOUNT OF ENTER TAINMENT EXPENSES. 3 ITA NO.3555/M/04 & C .O.40/M/05 MS HONG KONG SHANGHAI BANKING CORP. LTD. IT IS PERTINENT TO NOTE THE ASSESSMENT HAD BEEN RE- OPENED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR W ITHOUT POINTING OUT THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DIS CLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR COMPUTING THE TOTAL IN COME. THEREAFTER, THE AO COMPLETED THE RE-OPENED ASSESSMENT BY MAKING VAR IOUS ADDITIONS. 4. THE ORDER OF AO WAS CHALLENGED BY THE ASSESSEE BEFO RE CIT(A), INTER ALIA, CHALLENGING THE VALIDITY OF REOPENING OF ASSESSMENT . 5. THE CIT(A) ACCEPTED PLEA OF THE ASSESSEE WITH REGAR D TO THE VALIDITY OF REOPENING AND ACCORDINGLY DECIDED THE SAME IN FAVOU R OF THE ASSESSEE WITH THE FOLLOWING OBSERVATION: I HAVE PERUSED THE ORDER PASSED BY THE AO AND THE SUBMISSIONS MADE BY THE AR RESPECTIVELY. THE ASSESSMENT WAS REO PENED ON VARIOUS COUNTS. HOWEVER, AS PER THE CIRCULAR OF CBD T ONE OF THESE DID NOT SURVIVE AND THREE WERE FOUND NOT TO BEEN TE NABLE BY THE AO HIMSELF. INSOFAR AS THE BROKEN PERIOD INTEREST ON S ECURITIES SOLD DURING THE YEAR IS CONCERNED, CONSIDERING THE HISTO RY OF ASSESSMENTS IN THE APPELLANTS OWN CASE THE REASON RECORDED BY T HE AO IS NOT TENABLE AT ALL. THE APPELLANTS HAVE KEPT IN THE PAP ER BOOK FILED, RELEVANT EXTRACTS OF THE ASSESSMENT ORDERS RIGHT FR OM THE ASSESSMENT YEAR 1991-92 UPTO 1997-98 FROM WHICH IT IS CLEAR TH AT THE BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECURITIES WHIC H REMAINED UNSOLD AT THE END OF THE RELEVANT PREVIOUS YEAR HAS BEEN D ISALLOWED BY THE AO AND ALLOWANCE HAS BEEN MADE FOR THE BROKEN PERIO D INTEREST DISALLOWED IN THE EARLIER YEARS IN RESPECT OF SECUR ITIES WHICH WERE SOLD DURING THE RELEVANT PREVIOUS YEAR. CONSIDERING THE FACTS OF THE CASE, I AM FIRMLY OF THE VIEW THAT THE AOS CONTENT ION FOR REOPENING THE ASSESSMENT ON THIS GROUND IS MISCONCEIVED. THE AO HAS NOT RECORDED ANY FINDING TO THE EFFECT THAT THERE HAS B EEN ANY FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOS E ALL MATERIAL FACTS IN THIS CONNECTION. THEREFORE, REOPENING CANNOT BE DON E BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT A SSESSMENT YEAR. THE RE-OPENING ORDER PASSED BY THE AO IS BAD IN LAW AND IS THEREFORE CANCELLED. 4 ITA NO.3555/M/04 & C .O.40/M/05 MS HONG KONG SHANGHAI BANKING CORP. LTD. 6. AGGRIEVED BY THE ORDER OF CIT(A) DATED 20.02.204, THE REVENUE HAS FILED PRESENT APPEAL. 7. WE HAVE HEARD THE AR OF THE REVENUE AND AR OF THE A SSESSEE AND PERUSED THE AVAILABLE ON RECORD. 8. THERE IS NO DISPUTED THAT ORIGINAL ASSESSMENT OF ASSESSEE IN RESPECT OF AY 1994-95 WAS COMPLETED ON 28.02.1997, FURTHER THE RE NO DISPUTE OF NOTICE OF REOPENING WAS ISSUED ON 25.05.2001. THUS IT CAN BE NOTICED THAT THE REOPENING WAS BEYOND FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR UNDER CONSIDERATION. WE HAVE EARLIER NOTICED THAT THE AO HAS NOT RECORDED ANY FINDING THAT THERE WAS FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS IN THIS CONNECTION, WHICH IS A MANDATORY CONDITION PRESCRIBED IN THE FIRST PROVISO TO SEC. 147 OF THE ACT. SINCE THE AO HAS NOT COMPLIED THE MANDATORY CONDITI ON PRESCRIBED IN THE FIRST PROVISO TO SECTION 147 OF THE ACT, ON THIS CO UNT ALONE THE RE-OPENING OF ASSESSMENT IS LIABLE TO BE QUASHED. HENCE WE DO NO T FIND ANY INFIRMITY IN THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. THE LD . AR CHALLENGED THE VALIDITY OF RE-OPENING ON THE FOLLOWING GROUNDS ALS O: (A) THE REASONS RECORDED BY THE AO DOES NOT BEAR TH E DATE AND HENCE IT IS NOT KNOWN AS TO WHETHER THE AO RECORDED THE REAS ONS AT THE TIME OF ISSUING NOTICE. (B) THE NOTICE ISSUED BY THE AO IS SILENT ABOUT THE DISAPPROVAL TO BE OBTAINED FROM CIT(A) (C) THE ISSUE RELATING TO PROPER PERIOD OF INTEREST IS CONSISTENT ISSUE ARISING EVERY YEAR AND HENCE THE SAME CANNOT CONSTI TUTE ESCAPEMENT OF INCOME. 5 ITA NO.3555/M/04 & C .O.40/M/05 MS HONG KONG SHANGHAI BANKING CORP. LTD. SINCE WE HAVE UPHELD THE ORDER OF LD CIT(A) ON THE FIRST GROUND DISCUSSED ABOVE, WE DO NOT FIND IT NECESSARY TO ADDRESS OTHER GROUNDS URGED BY LD A.R. 9. THE LD. DR, HOWEVER, COULD NOT CONTRADICTORY THE FA CTUAL ASPECTS SUBMITTED BY LD. AR. 10. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE ORDER OF CIT(A), SETTING ASIDE OF THE ORDER OF THE AO BY CANCELLING THE REOP ENING, DOES NOT REQUIRE ANY INTERFERENCE. 11. IN THE ABOVE CIRCUMSTANCES THE APPEAL OF THE REVENU E IS DISMISSED. C.NO. 40/MUM/2005 1. 1.THE NOTICE OF THE APPEAL NO.3555/ MUM/2004 WAS SE RVED UPON THE ASSESSEE ON 29.12.2004 AND ON RECEIPT OF THE NOTICE THE PRESENT C.O WAS FILED BY THE ASSESSEE ON THE FOLLOWING GROUNDS:: 1.THE CIT(A) OUGHT TO HAVE HELD THAT THE AO ERRED I N NOT ACCEPTING THE RESPONDENTS CLAIM THAT THE BROKEN PERIOD INTEREST P AID ON SECURITIES PURCHASED DURING THE YEAR SHOULD BE ALLOWED AS A DE DUCTION IN ARRIVING AT THE BUSINESS INCOME OF THE RESPONDENTS. 2.WITHOUT PREJUDICE TO (1) ABOVE, THE CIT(A) OUGHT TO HAVE HELD THAT THE AO ERRED IN DISALLOWING THE AMOUNT OF RS. 1,53,89,7 88/- BEING BROKEN PERIOD INTEREST ON SECURITIES SOLD DURING THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1994-95. 2. SINCE THE APPEAL OF THE REVENUE IS DISMISSED, HENCE THE CO. OF THE ASSESSEE HAS BECOME INFRUCTUOUS. 6 ITA NO.3555/M/04 & C .O.40/M/05 MS HONG KONG SHANGHAI BANKING CORP. LTD. 3. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED A ND THE CROSS OBJECTION OF THE ASSESSEE HAS BECOME INFRUCTUOUS AN D ALSO DISMISSED. 4. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH OCTOBER, 2015. SD/- SD/- (B. R. BASKARAN) ( PAWAN SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED 09/10/2015 S.K.PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. $ //TRUE COPY/