RED ROSE TEXTILES INDUSTRIES P.LTD, MUMBAI V. ASST CIT CIR 4(3), MUMBAI

ITA 3714/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92409 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-03-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Keywords: Business income; Depreciation; Difference of opinion; Unabsorbed depreciation; Change of opinion
• Section: 143(3); 115JB; 32; 147; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 3714MUM/2011 ASSESSMENT YEAR: 2000-01 RED ROSE TEXTILES INDUSTRIES P. LTD. 95, ATMARAM MERCHANT ROAD. LABH NIEWAS, MUMBAI 400 020 PAN:AABCR 2088 P VS. ACIT CIR - 4(3) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NI SHIT GANDHI REVENUE BY : SHRI LOVE KUMAR DATE OF HEARING : 19 .03.2015 DATE OF PRONOUNCEMENT : 17 .04.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST ORDER DATED 01.03.2011, PASSED BY THE LD.CIT(A)-8, MUMBAI FOR THE QUANTUM OF ASSESSMENT U/S 143(3) OF THE ACT, FOR THE A.Y. 2000-01. 2. IN VARIOUS GROUNDS OF APPEAL, THE ASSESSEE HAS C HALLENGED THE IMPUGNED ORDER ON FOLLOWING GROUND:- I) IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED TH E VALIDITY OF REOPENING U/S 147. II) IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF DEDUCTION U/S 80IA; ITA NO. 3714MUM/2011 ASSESSMENT YEAR: 2000-01 2 III) IN GROUND NO. 3 THE ASSESSEE HAS CHALLENGED TH E COMPUTATION OF BOOK PROFIT U/S 115JB WITH RESPECT TO THE PROFITS E LIGIBLE FOR DEDUCTION U/S 80IA. 3. THE BRIEF FACTS OF THE CASE QUA THE LEGAL ISSUE RAISED ARE THAT, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURING OF TEXTURISED, TWISTED AND DYED YARN FROM ITS UNIT BAS ED IN SILVASSA, DADAR AND NAGAR HAVELI. THE YARN UNIT IN SILVASSA COMMENC ED ITS PRODUCTION IN THE PREVIOUS YEAR 1998-99, RELEVANT TO THE ASSESSME NT YEAR 1999-00. DURING THE COURSE OF THE ORIGINAL ASSESSMENT PROCEE DINGS, DEDUCTION U/S 80IA WAS SUBJECT MATTER OF SCRUTINY BY THE AO AND A FTER DETAILED DISCUSSION, THE ASSESSEES ENTIRE CLAIM FOR DEDUCTI ON U/S 80IA OF RS.32,16,823/- WAS DISALLOWED. IN THE FIRST APPELLA TE PROCEEDING THE SAID DEDUCTION WAS ALLOWED BY THE LD. CIT(A) AND ALSO CO NFIRMED BY THE TRIBUNAL VIDE ORDER DATED 10.10.2006. IT IS ALSO RE LEVANT TO MENTION HERE THAT, A SHOW CAUSE NOTICE U/S 263 WAS ALSO ISSUED V IDE NOTICE DATED 03.03.2004 BY THE LD. CIT MUMBAI. HOWEVER, THE SAID PROCEEDINGS WERE DROPPED AFTER ASSESSEES EXPLANATION. THEREAFTER, T HE ASSESSEES CASE HAS BEEN REOPENED U/S 147 BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR BY ISSUANCE OF NOTICE DATED 08.03.2006 U/S 148 ON FOLLOWING REASONS: THE ASSESSEE HAD FILED RETURN OF INCOME ON 28/11/2 000 DECLARING TOTAL INCOME OF RS.NIL. IT IS FURTHER OBS ERVED THAT IN THE COMPUTATION OF BUSINESS INCOME, THE ASSESSEE HAD AD DED BACK DEPRECIATION OF RS.36,64,424/- BUT HAD CLAIMED DEDU CTION OF DEPRECIATION AS PER I.T RULES. THE ASSESSEE HAD CLA IMED SET OFF OF UNABSORBED DEPRECIATION OF PREVIOUS YEAR AGAINST TH E BUSINESS INCOME AND ON THE BALANCE INCOME CLAIMED DEDUCTION U/ S 80IA MAKING THE TOTAL BUSINESS INCOME AT RS. NIL. THE BOMBAY HIGH COURT IN THE CASE OF M/S. INDIAN RA YON CORPORATION [261 ITR 98] HELD THAT BEFORE ALLOWING DEDUCTION ITA NO. 3714MUM/2011 ASSESSMENT YEAR: 2000-01 3 UNDER CHAPTER VI-A CLAIM OF DEPRECIATION SHOULD BE ALLOWED. THIS VIEW HAS BEEN FURTHER AFFIRMED BY THE ITAT, SPECIAL BENCH, AHMEDABAD REPORTED IN 98 ITD 165. CONSIDERING THESE DECISION S, THE ASSESSEE SHOULD HAVE CLAIMED CURRENT YEARS DEPR ECIATION BEFORE CLAIMING DEDUCTION U/S 80IA AND THE ASSESSEE WOULD. NOT HAVE BEEN ENTITLED FOR ANY DEDUCTION U/S 80IA SINCE THESE WOULD NOT HAVE BEEN ANY PROFITS. IN THE ASSESSMENT ORDER U/S 143(3) DT 31/1/2003 THE A.O REJECTED THE ASSESSEE'S CLAIM U/S 80IA ON THE GROUN D THAT THE ASSESSEE WAS NOT INVOLVED IN MANUFACTURING ACTIVITY . THE CIT(A)IV, MUMBAI VIDE HIS ORDER DATED 9/7/2003 HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S 80IA AS IT W AS INVOLVED IN MANUFACTURING ACTIVITY. THE AO WHILE GIVING EFFECT TO CIT(A)'S ORDER ALLOWED THE ASSESSEE'S CLAIM U/S 80IA IN TOTO WITHOUT CONSIDERING THE DEPRECIATION OF THE CURRENT YEAR. THUS, IN THE LIGHT OF DECISIONS OF BOMBAY HIGH COU RT AND ITAT, SPECIAL BENCH, AHMEDABAD TAXABLE INCOME OF RS.31,71 ,371/- HAD ESCAPED' ASSESSMENT IN VIEW OF THE ASSESSEES FAILU RE TO CLAIM CURRENT YEARS DEPRECIATION BEFORE CLAIMING DEDUCTIO N U/S 80IA. THUS, TAXABLE INCOME HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF PROVISIONS OF SECTION 147. ACCORDINGLY N OTICE U/S 148 OF THE I.T. ACT ISSUED BY MY PREDECESSOR. THUS, THE AO HAS SOUGHT TO REOPEN THE CASE ON THE G ROUND THAT, WHILE COMPUTING THE DEDUCTION U/S 80IA, THE ASSESSING OFF ICER HAS ALLOWED THE ASSESSEES CLAIM WITHOUT CONSIDERING THE DEPRECIATI ON OF THE CURRENT YEAR ON THE BASIS OF HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF M/S. INDIAN RAYON CORPORATION REPORTED IN 261 ITR 98, WH EREIN IT WAS HELD THAT BEFORE ALLOWING DEDUCTION UNDER CHAPTER VIA, C LAIM OF DEPRECIATION SHOULD BE ALLOWED. ACCORDINGLY, THE ASSESSING OFFIC ER REDUCED THE DEDUCTION AFTER ALLOWING THE DEPRECIATION. HE FURTH ER OBSERVED THAT ASSESSEE HAD NOT FURNISHED AUDIT REPORT IN PRESCRIB ED FROM 10CCB ALONG WITH RETURN OF INCOME, THEREFORE, THE ASSESSEE IS N OT ENTITLED FOR DEDUCTION US/ 80IA. THIS HAS BEEN CONFIRMED BY THE LD. CIT(A) INCLUDING THE ASESSEES GROUND FOR VALIDITY OF REOPENING U/S 147. ITA NO. 3714MUM/2011 ASSESSMENT YEAR: 2000-01 4 4. BEFORE US, LEARNED COUNSEL SUBMITTED THAT, ONCE THE AO HAS DULY APPLIED HIS MIND DURING THE COURSE OF THE ASSESSMEN T PROCEEDINGS WITH REGARD TO CLAIM OF DEDUCTION U/S 80IA AND WAS ALSO A SUBJECT MATTER OF APPEAL BEFORE THE LD. CIT(A), THEN THE ASSESSEES C ASE CANNOT BE REOPENED ON THE CLAIM OF DEDUCTION U/S 80IA ON A D IFFERENT GROUND AS IT AMOUNTS TO CHANGE OF OPINION. FURTHER REOPENING O F THE ASSESSMENT IS ALSO HIT BY PROVISO TO SECTION 147, BECAUSE THE REOPENING HAS BEEN DON E AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IN SUPPORT OF HIS CONTENTION HE RELIED UPON F OLLOWING CASE LAWS: I) HINDUSTAN LEVER LTD. VS. R.B. VADKAR (2004) 268 ITR 332 (BOM) II) TITANOR COMPONENTS LTD. VS. ACIT & ORS. (2012) 343 ITR 183 (BOM) III) DYNACRAFT AIR CONTROLS VS. SNEHA JOSHI & ORS. (2013) 355 ITR 102 (BOM) GENERAL MOTORS INDIA P. LTD. VS. DCIT (2014) 360 IT R 527 (GUJ) HE SUBMITTED THAT ASSESSEE HAS DISCLOSED ALL THE RE LEVANT FACTS ABOUT THE CLAIM OF DEDUCTION AND DEPRECIATION NOT ONLY IN THE RETURN OF INCOME BUT ALSO IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. T HUS, THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. FURTHER THE EXPLANATION 5 TO SECTION 32 CAME W.E.F. 01.04.2002. PRIOR TO THAT, IT WAS NO T MANDATORY FOR THE ASSESSEE TO CLAIM DEDUCTION IN RESPECT OF DEPRECIAT ION WHILE COMPUTING THE TOTAL INCOME. LASTLY, HE SUBMITTED THAT NOTICE HAS BEEN SANCTIONED BY ADDITIONAL CIT AND NOT BY CIT AS PER THE MANDATO RY REQUIREMENT U/S 151(1), THEREFORE, THE ENTIRE NOTICE U/S 148 IS BAD IN LAW. 5. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE AO AS WELL AS LD. CIT(A) AND SUBMITTED THAT ASSESSE E WHILE COMPUTING THE DEDUCTION U/S 80IA HAD TO FIRST ALLOW DEPRECIAT ION WHICH WAS THE LAW IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL H IGH COURT. THIS ITSELF ITA NO. 3714MUM/2011 ASSESSMENT YEAR: 2000-01 5 WAS FAILURE ON THE PART OF THE ASSESSEE. THEREFORE, THE REOPENING HAS RIGHTLY BEEN INITIATED BY THE AO. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEES RETURN OF INCOME FILED U/S 139(1) AND CLAIM FOR DED UCTION U/S 80IA WAS SUBJECT MATTER OF SCRUTINY ASSESSMENT PROCEEDING U/ S 143(3). SUCH A CLAIM OF DEDUCTION WAS COMPLETELY DENIED BY THE AO VIDE ORDER DATED 31.01.2003 PASSED U/S 143(3). THE ASSESSEES CLAIM WAS FINALLY ALLOWED BY LD. CIT(A) WHICH WAS ALSO CONFIRMED BY THE TRIBU NAL. NOW AFTER THE EXPIRY OF FOUR YEARS, FROM THE END OF THE RELEVANT ASSESSMENT YEAR, SUCH AN ASSESSMENT HAS BEEN SOUGHT TO BE REOPENED ON THE GROUND THAT, WHILE COMPUTING THE DEDUCTION U/S 80IA, THE CURRENT YEAR DEPRECIATION SHOULD HAVE BEEN ALLOWED FIRST, WHICH HAS NOT BEEN DONE. IN THE CASES WHERE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) THE STATUTE PROVIDES A TIME LIMIT OF 4 YEARS FOR REOPENING SUCH AN ASSESSM ENT, UNLESS THE ASSESSEE HAS FAILED TO FURNISH THE RETURN UNDER THE PRESCRIBED SECTIONS OR HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. IN THE TAX AUDIT REPORT, NOT ONLY THE A SSESSEE HAS DISCLOSED THE PARTICULARS OF DEPRECIATION BUT ALSO THE CLAIM OF DEDUCTION U/S 80IA. NOT ONLY THAT, THERE WAS SPECIFIC QUERY B Y THE AO DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, WHERE AS SESSEE WAS REQUIRED TO FURNISH THE DETAILS OF WORKING OF DEPRECIATION. IN RESPONSE THE ASSESSEE HAD SUBMITTED THE DETAILS ALONG WITH CONDI TIONS FULFILLING THE CLAIM OF DEDUCTION U/S 80IA. ONCE, THE ASSESSEE HAS MADE SUCH A DISCLOSURE, THEN IT WAS UPON THE ASSESSING OFFICER TO DRAW THE LEGAL INFERENCE. HERE IN THIS CASE THERE WAS NO FAILURE O N THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERI AL FACTS NECESSARY FOR ITS ITA NO. 3714MUM/2011 ASSESSMENT YEAR: 2000-01 6 ASSESSMENT. IF THERE IS NO FAILURE ON THE PART OF T HE ASSESSEE, THEN REOPENING THE ASSESSMENT BEYOND THE PERIOD OF FOUR YEARS IS BARRED BY THE STATUTE. THUS, ON THIS GROUND ALONE THE PROCEED INGS INITIATED VIDE NOTICE DATED 08.03.2006 U/S 148 IS BAD IN LAW WITHI N THE TERMS OF PROVISO TO SECTION 147. FURTHER WE AGREE WITH THE C ONTENTION OF THE LEARNED COUNSEL THAT PRIOR TO INSERTION OF EXPLANATION 5 TO SECTION 32, IT WAS NOT MANDATORY FOR THE ASSESSEE TO CLAIM DEDUCTI ON IN RESPECT OF DEPRECIATION WHILE COMPUTING HIS TOTAL INCOME. THUS , THERE BEING NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY OF MATERIAL FACTS NECESSARY FOR THE ASSESSMENT, THE REOPENING U /S 147 IN THIS CASE IS VOID AB INITIO AND ACCORDINGLY, THE IMPUGNED ASSES SMENT ORDER DATED 28.08.2006 PASSED U/S 143(3) R.W.S. 147 IS QUASHED. ACCORDINGLY, GROUND NO. 1 IS ALLOWED. 7. SINCE WE HAVE ALREADY QUASH THE ASSESSMENT ORDER , THE OTHER ISSUE ON MERITS HAVE BECOME PURELY ACADEMIC AND HEN CE ARE TREATED AS INFRUCTUOUS. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF APRIL, 2015. SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:17 .04.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH // TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.