S. KUMARS ONLINE LTD, MUMBAI V. DCIT CIR 7(2), NAVI MUMBAI

ITA 3760/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8697 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 26-09-2012
• Assessment Year: misc
• Appeal Filed On: 10-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K SIVARAM AJAY SINGH
• Keywords: Business income; Depreciation; Opportunity of being heard; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 115JB; 148; 6; 144; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.3760/M/2010 ASSESSMENT YEAR:2001-2002 M/S. S. KUMARS ONLINE LTD., AVADH BUILDING, 2 ND FLOOR, SHREE RAM MILLS PREMISES, G.K. MARG, WORLI, MUMBAI 400 018. PAN: AADCS9248J VS. DY. COMMISSIONER OF INCOME-TAX, CIRCLE-7(2), INCOME TAX OFFICE, AAYAKAR BHAVAN, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. SIVARAM / AJAY SINGH RESPONDENT BY : SHRI RAKESH RANJAN, DR DATE OF HEARING: 26.09.2012 DATE OF ORDER : 12.10.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 10.05.2010 IS DIRECTED AGAINST THE ORDER OF CIT (A)-13, MUMBAI DATED 5.1.2010 IN RELATION TO ASSESSMENT YEAR 2001-2002. 2. IN THE PRESENT APPEAL, ASSESSEE HAS RAISED THE FO LLOWING GROUNDS: 1. THE CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO BY REOPENING OF AN ASSESSMENT, BY ISSUING NOTICE U/S 148 OF THE INCOME TAX ACT, 1961, WHICH WAS DULY COMPLETED BY PASSING AN ORDER U/S 14 3 (3) OF THE INCOME TAX ACT, 1961. IT CAN ALSO BE NOTICED FROM THE ASSESS MENT ORDER THAT NO FRESH MATERIAL WAS BROUGHT ON RECORD WHICH WAS NOT AVAILA BLE AT THE TIME OF COMPLETING THE ASSESSMENT ORDER U/S 143 (3) OF INCO ME TAX ACT, 1961. ACCORDINGLY, NOTICE ISSUED U/S 148 WAS WITHOUT VALI D REASONS AND CONSEQUENT ASSESSMENT COMPLETED U/S 143 (3) R.W.S. 147 SHOULD BE QUASHED AND ASSESSMENT ORDER U/S 143 (3) SHOULD BE RESTORED. 2. THE CIT (A) HAS ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIATION OF RS. 43,76,595/- (ALTHOUGH IN ASSESSMENT ORDER, AMOU NT OF DEPRECIATION CLAIMED IS ERRONEOUSLY MENTIONED AT RS. 9,92,635/-) CLAIMED BY THE ASSESSEE COMPANY AND ALLOWED IN THE ORIGINAL ASSESSMENT ORDE R U/S 143 (3) OF INCOME-TAX ACT, 1961. IT IS SUBMITTED THAT DISALLO WANCE OF THE DEPRECIATION WITHOUT BRINGING MY FRESH MATERIAL IN RECORD AND TH E SAME AMOUNTS TO CHANGE OF OPINION AND ACCORDINGLY, THE CLAIM OF DEP RECIATION OF THE ASSESSEE SHOULD BE ALLOWED. 3. THE CIT (A) HAS ERRED IN CONFIRMING TREATMENT OF INTEREST EARNED ON FIXED DEPOSITS OF RS. 29,48,775/- AND OTHER RECEIPTS OF RS. 2,45,354/- AS 2 M/S. S. KUMARS ONLINE LTD., INCOME FROM OTHER SOURCES INSTEAD OF THE SAME BEING OFFERED AND ASSESSED AS BUSINESS INCOME IN THE ORIGINAL ASSES SMENT ORDER U/S 143(3) OF INCOME TAX ACT, 1961. IT IS SUBMITTED THAT SUCH AR BITRARY DISALLOWANCE OF THE DEPRECIATION WITHOUT BRINGING ANY FRESH MATERIAL IN RECORD AND THE SAME AMOUNTS TO CHANGE OF OPINION AND ACCORDINGLY, THE C LAIM OF DEPRECIATION OF THE ASSESSEE SHOULD BE ALLOWED. 3. BRIEFLY STATED THE FACTS OF THE PRESENT CASE ARE THAT THE ASSESSEE FILED ORIGINAL RETURN OF INCOME ON 30.10.2001 DECLARING LOSS OF RS . 11,82,466/-. AO SCRUTINIZED THE SAID RETURN AND DETERMINED THE ASSESSED INCOME AT RS. 1,86,577/- AS PER SECTION 115JB OF THE ACT. ASSESSING OFFICER ALLOWED THE CLA IM OF DEPRECIATION AT RS.43,76,595/-. ON FINDING THAT THE ASSESSEE IS YET START THE BUSINESS OF E- COMMERCE, FOR WITHDRAWING THE CLAIM OF DEPRECIATION , THE AO ISSUED NOTICE U/S 154 OF THE ACT ON 20.2.2008. REASONS GIVEN FOR RECTIFI CATION PROPOSAL READ AS UNDER: THE PARTICULARS OF MISTAKE PROPOSED TO BE RECTIFIE D: THE COMPANY HAS NOT STARTED BUSINESS OF E-COMMERCE AND EARNED ANY INCOME THERE FROM BUT EARNED ONLY INCOME FROM OTHER SOURCES VIZ. INTEREST ON FIXED DEPOSITS, DIVIDEND AND MISCELLANE OUS RECEIPTS DURING THE PREVIOUS YEAR. HENCE, DEPRECIATION OF RS. 43.7 7 LAKHS CLAIMED ON ASSETS PURCHASED OF RS. 1,05,02,061/- SHOULD NOT HA VE BEEN ALLOWED. ASSESSEE OBJECTED THE SAME ON THE GROUND OF CHANGE OF OPINION AND THE DEBATABLE NATURE OF THE ISSUES VIDE THE LETTER DATED 19.3.2008. AO DID NOT PASS ANY ORDER AO U/S 154 OF THE ACT. HOWEVER, THE AO ISSUED NOTICE U /S 148 OF THE ACT DATED 29.3.2008. THE REASONS RECORDED FOR ISSUANCE OF TH E NOTICE READ AS FOLLOWS: THE COMPANY HAS NOT STARTED E-COMMERCE AND EARNED ANY INCOME THEREFROM BUT EARNED ONLY INCOME FROM OTHER SOURCES , I.E. INTEREST ON FDRS, DIVIDEND & MISCELLANEOUS RECEIPTS DURING THE PREVIO US YEAR. HENCE, THE DEPRECIATION OF RS. 43.77 LAKH CLAIMED ON ASSETS PU RCHASED OF RS. 1.05 CRORES SHOULD NOT HAVE BEEN ALLOWED. I HAVE THEREFORE REA SON TO BELIEVE THAT INCOME CHARGED TO TAX HAS ESCAPED ASSESSMENT, BY RE ASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. 4. AO POSTED THE CASE OF HEARING ON VARIOUS DATES A ND THERE WAS NO COMPLIANCE FROM THE ASSESSEE. THEREFORE, AO MADE AN EX-PARTE R E-ASSESSMENT U/S 144 R.W.S. 147 OF THE ACT DATED 31.12.2008 AND WITHDREW THE CL AIM OF DEPRECIATION OF RS. 43,76,595/- AND FINALLY DETERMINED THE ASSESSED INC OME AT RS. 31,94,129/- INSTEAD 3 M/S. S. KUMARS ONLINE LTD., OF RS. 1,86,577/- ORIGINALLY DETERMINED BY HIM. A O DID NOT ALLOW THE DEPRECIATION AS EVIDENT FROM THE COMPUTATION. HOWEVER, IN THE BODY OF THE ORDER, THE ASSESSING OFFICER ERRONEOUSLY MADE AN ADDITION ON ACCOUNT OF THE SAID DEPRECIATION AMOUNTING TO RS. 9,92,635/- ONLY. AO DISALLOWED THE DEPRECIA TION FOR THE REASONS THAT THE ASSETS OF THE BUSINESS WERE NOT USED FOR THE PURPOS E OF THE BUSINESS, ASSESSEE FAILED TO DISCHARGE THE ONUS ABOUT THE COMMENCEMENT OF BUS INESS AND ABSENCE OF ANY INCOME CREDITED TO THE PROFIT & LOSS ACCOUNT. CONSE QUENT TO THE FINDING THAT THE BUSINESS HAS NOT STARTED DURING THE YEAR UNDER CONS IDERATION, AO TAXED THE INTEREST RECEIPTS AND OTHER RECEIPTS UNDER THE HEAD INCOME FROM OTHER SOURCE AGAINST THE CLAIM OF THE ASSESSEE THAT THEY ARE BUSINESS RECEI PTS. 5. AGGRIEVED WITH THE ABOVE EX-PARTE REASSESSMENT O RDER OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) AND QUESTIONED T HE VALIDITY OF REOPENING AND COMPLETION OF THE EX-PARTE ASSESSMENT WITHOUT PROVI DING SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ASSESSEE QUESTIONED TH E CHARGING OF THE INTEREST AND OTHER RECEIPTS UNDER THE HEAD INCOME FROM OTHER SOU RCES TOO. ASSESSEE ALSO QUESTIONED THE INACCURATE DISALLOWANCE OF DEPRECIAT ION. IN THIS REGARD, THE ASSESSEE FILED A LETTER DATED 20.2.2004 SUBMITTING VARIOUS D ETAILS AND SUBMISSIONS. 6. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE CONTESTED THE VALIDITY OF THE ASSUMPTION OF JURISDICTION U/S 148 OF THE ACT AND A LSO CONTESTED THAT THE ASSETS ARE PUT USE AS THE BUSINESS ALREADY COMMENCED. HE SUBMI TTED THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEPRECIATION. ASSESSEE SUB MITTED THAT THE ASSESSEES FAILURE TO RAISE INVOICES SHOWING THE BUSINESS PROFITS SHOU LD BE DISTINGUISHED FROM THE FACT OF COMMENCEMENT OF E-COMMERCE BUSINESS. ON HEARING THE ASSESSEE, THE CIT (A) CAME TO THE CONCLUSION, WITHOUT PROPER DISCUSSION A ND THE SAME WAS GIVEN IN PARA 2.4 OF THE IMPUGNED ORDER WHICH IS REPRODUCED AS UN DER: 2.4. IT IS THEREFORE HELD THAT A) REASSESSMENT PROCEEDINGS WERE VALID. B) THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION DURING THE YEAR AS THE BUSINESS HAD NOT COMMENCED. 4 M/S. S. KUMARS ONLINE LTD., C) THE CASE HAS BEEN DECIDED ON MERITS. MERE INADVERT ENT ERROR IN WRONG MENTIONING THE SECTION CANNOT VITIATE THE PRO CEEDINGS ESPECIALLY WHEN THE CASE HAS BEEN DECIDED ON MERITS . D) DEPRECIATION TO BE DISALLOWED IN THE COMPUTATION OF INCOME WILL BE RS. 43,76,595/- INSTEAD OF RS. 9,92,635/- AS DONE B Y THE AO. THIS IS AN APPARENT CLERICAL MISTAKE. THE AO SHALL ENHA NCE THE TAXABLE INCOME ACCORDINGLY. 2.5. THESE GROUNDS OF APPEAL ARE THEREFORE DISMISSE D. 7. IT IS EVIDENT FROM THE ABOVE FINDING OF THE CIT ( A) AND HIS FINDINGS REVOLVE AROUND THE GROUNDS RELATING TO VALIDITY OF REASSESS MENT, REASSESSMENT OF EX-PARTE ASSESSMENT AND THE DISALLOWANCE OF DEPRECIATION OF RS. 43,76,595/-. THE CIT (A) CONFIRMED THE FINDING OF THE AO. REGARDING OTHER GR OUNDS RELATING TO TAXABILITY OF INTEREST ON FIXED DEPOSITS, DIVIDEND AND OTHER MISCE LLANEOUS RECEIPTS UNDER THE HEAD INCOME FROM OTHER SOURCES, THERE IS NO DISCU SSION IN THE ORDER. AGGRIEVED WITH THE ABOVE DECISION OF CIT (A), ASSESSEE FILED THE PRESENT APPEAL. 8. BEFORE US, SHRI K. SIVARAM, LD COUNSEL FOR THE A SSESSEE WAS VERY CRITICAL OF THE MANNER THE REASSESSMENT PROCEEDINGS WERE INITIA TED. IN THIS REGARD, HE BROUGHT OUR ATTENTION THE INCOMPLETE PROCEEDINGS WHICH WERE INITIATED U/S 154 OF THE ACT, THE AOS FAILURE TO FURNISH THE COPY OF THE REASONS , FAILURE TO ADDRESS TO THE OBJECTIONS IF ANY TO BE RAISED BY THE ASSESSEE. ASS ESSEES COUNSEL DEMONSTRATED THE INFIRMITIES IN THE ORDER RELATING TO THE INCORRECT FIGURES REGARDING DEPRECIATION CLAIM. DR SHIVARAM MENTIONED THAT THE AO MESSED UP THE DEP RECIATION FIGURES COMPUTED UNDER THE COMPANY ACT AND THE INCOME TAX ACT. REGARD ING THE EX-PARTE REASSESSMENT MADE U/S 144 OF THE ACT, DR SHIVRAM ME NTIONED THAT THE ASSESSING OFFICER ERRONEOUSLY MADE THE EX-PARTE ASSESSMENT U/ S 144A OF THE ACT WHILE THE ASSESSEE IS COOPERATING WITH THE REASSESSMENT PROCE EDINGS. IN THIS REGARD, LD COUNSEL BROUGHT TO OUR ATTENTION THE WRITTEN SUBMIS SION MADE VIDE THE LETTER 20.2.2004. HE MENTIONED THAT THE SAID LETTER WAS S UBMITTED BEFORE THE DATE OF COMPLETION OF THE REASSESSMENT DATED 31.12.2008 AND IT NEVER FIND PLACE IN THE ORDER OF THE AO. HE FURTHER MENTIONED THAT ASSESSI NG OFFICER DID NOT SUPPLY THE COPIES OF THE REASONS RECORDED BEFORE REOPENING THE ASSESSMENT DESPITE REQUEST FROM THE ASSESSEES SIDE. IN THIS REGARD, LD COUNS EL MENTIONED THAT THE PROCEDURE PRESCRIBED BY THE HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD 5 M/S. S. KUMARS ONLINE LTD., (259 ITR 19) WAS NOT COMPLIED WITH. FURTHER, HE AR GUED THAT THE ASSESSMENT WAS REOPENED AFTER EXPIRY OF FOUR YEARS. IN THAT CASE, THE PROVISO OF SECTION 147 BECOMES APPLICABLE WHICH CASTS ONUS ON THE AO TO DE MONSTRATE WHETHER THE ASSESSEE FAILED TO DISCLOSE FULLY AND TRULY THE BAS IC FACTS NECESSARY FOR MAKING ASSESSMENT. IN THAT SENSE, THE ASSESSING OFFICER S HOULD NOT HAVE REOPENED THE ASSESSMENT FOR WITHDRAWING THE CLAIM OF DEPRECIATIO N WHICH WAS ACTUALLY ALLOWED AFTER EXAMINING THE RELEVANT DOCUMENTS. FINALLY, T HE LD COUNSEL MENTIONED THE GROUNDS RAISED BY THE ASSESSEE MAY BE SENT TO THE F ILE OF THE AO FOR COMPLYING WITH THE AOS DIRECTION IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD (SUPRA) AND MAKE THE REASSESSMENT IN ACCORDANCE WITH THE PROCESS OF LAW. 9. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO GONE THOUGH THE JUDGMENT OF THE APEX COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD (259 ITR 19) CITED BY THE LD COUNSEL. HONBLE SUPREME COURT PROVIDED GUIDELINES TO BE FOLLOWED BY THE AO IN MATTERS OF REASSESSMENT PROCEEDINGS AND THE GIST OF THE SAID J UDGMENT IS PROVIDED AS UNDER: S. 148: REASSESSMENT NOTICE FOR REASSESSMENT R EASONS FOR ISSUE OF NOTICE FILING OF RETURN PROCEDURE TO BE ADOPTED BY THE ASSESSEE SPEAKING ORDER [S. 143(2)] WHEN A NOTICE UNDER SECTION 148 OF THE INCOME TAX A CT, 1961 IS ISSUED THE PROPER COURSE OF ACTION FOR THE ASSESSEE IS TO FILE THE RETURN AND IF HE SO DESIRES, TO SEEK REASONS FOR ISSUING THE NOTICES. THE ASSESSING OFFICER IS BOUND TO FURNISH REASONS WITHIN A REASONABLE TIME. ON RECEIPT OF REASONS, THE ASSESSEE IS ENTITLED TO FILE THE OBJECTION TO I SSUANCE OF NOTICES AND THE ASSESSING OFFICER IS BOUND TO DISPOSE OF THE SAME B Y PASSING A SPEAKING ORDER. (AYS. 1992-93 TO 1998-99). (GKN DRIVESHAFTS (INDIA) LTD VS. ITO (2003) 259 ITR 19 / 173 TAXATION 50 / 179 CTR 11 (SC) FURTHER, WE FIND THERE ARE SERIES OF MISTAKES THAT CREPT IN MAKING OF THIS REASSESSMENT. TO NAME FEW, FROM THE ORIGINAL ASSESS MENT ORDER PASSED ON 20.2.2004, WE FIND THAT THE CLAIM OF DEPRECIATION W AS ALLOWED AFTER EXAMINING THE 6 M/S. S. KUMARS ONLINE LTD., DETAILS AS SEEN FROM PARA 3 OF THE SAID ORDER. WE FIND THAT THE AO INITIATED THE PROCEEDINGS U/S 154 OF THE ACT AND THERE IS NOTHING ON RECORD TO KNOW THE OUTCOME OF THE SAME. IN THE REASSESSMENT PROCEEDINGS ALSO, WE FIND THAT THE ASSESSEE FILED WRITTEN SUBMISSIONS VIDE THE DATED 20.2.2004 I.E. B EFORE THE COMPLETION OF REASSESSMENT AND THE REASSESSMENT ORDER WAS COMPLET ED ON 31.3.2004 WITHOUT CONSIDERING THE SAID LETTER WHICH WAS IN FACT RECEI VED BY THE AO HIMSELF AS EVIDENT FROM THE SIGNATURE MADE ON IT. THE REASSESSMENT ORD ER MENTIONS THAT THERE IS NO COMPLIANCE FROM THE ASSESSEE AND, THEREFORE, THE AS SESSMENT WAS MADE U/S 144 R.W.S. 147 OF THE ACT. IN OUR OPINION, THE SAID STA TEMENT IS NOT CREDIBLE ENTIRELY. FURTHER, IT IS AN UNDISPUTED FACT THAT ASSESSEE WAS NOT GIVEN COPIES OF THE REASONS AND THE AO DID NOT FOLLOW THE PROCEDURE PRESCRIBED IN THE CITED JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHIFT S (INDIA) LTD (SUPRA). THE SAID OBJECTIONS OF THE ASSESSEE, IF ANY, WERE NOT CALLED FOR BEFORE VALIDLY INITIATING THE REASSESSMENT PROCEEDINGS U/S 148 OF THE ACT. IN TH ESE CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE REQUEST OF THE ASSES SEES COUNSEL FOR REMANDING THE GROUNDS TO THE FILE OF THE AO FOR EXAMINING THEM AF RESH NEEDS FAVORABLE CONSIDERATION. WE ACCORDINGLY, SET ASIDE ALL THE G ROUNDS TO THE FILE OF AO FOR FRESH ADJUDICATION AFTER GRANTING A REASONABLE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE GROUNDS RAISED ARE DISPOSED OF. 11. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF OCTOBER, 2012. SD/- SD/- (H.L. KARWA) (D. KARUNAKARA RAO) PRESIDENT ACC OUNTANT MEMBER DATE :12.10.2012 AT :MUMBAI OKK 7 M/S. S. KUMARS ONLINE LTD., COPY TO : 1. M/S. S. KUMARS ONLINE LTD., MUMBAI. 2. DCIT, CIRCLE 7(2), MUMBAI. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR J, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI