IDEAL PROPERTIES P. LTD, MUMBAI V. ASST CIT CEN CIR 23, MUMBAI

ITA 3782/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83545 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY B SAWANT
• Keywords: Business expenditure; Earning of tax free income; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 14A; 148

Judgement Text

, INCOME TAX APPELLATE TRIBUNALMUMBAI BENCH ES I MUMBAI , , ! BEFORE S.SH.VIJAY PAL RAO,JUDICIAL MEMBER AND RAJEN DRA,ACCOUNTANT MEMBER ./ ITA NO.3782/MUM/2013 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI SANJAY B. SAWANT + * / REVENUE BY : SHRI MANOJ MISHRA ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 20/08/2014 -.# + ), / DATE OF PRONOUNCEMENT : 20/08/2014 PER RAJENDRA,AM ' ' ' ' : CHALLENGING THE ORDER DT.28.03.2013 OF THE CIT(A)-4 0,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 147 DATED 09.11.2012 IS BAD IN LAW AS THE PROCEEDINGS U/S 148 ARE INITIATED ON MERE CHANGE OF OPINION ON SAME SET OF FACTS. 2(A).ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AS ALSO IN LAW, THE LEARNED CIT(A) ERRED IN NOT DELETING FULLY THE DISALLOWANCE MADE BY THE AC. U/S 14A OF THE INCOME-TAX ACT, 1961 IN A SUM OF RS.1,77,529/- AND INSTEAD IN CONFIRMING THE SAME AT RS.1,00,000I- IN SPITE OF EXTENSIVE QUOTATION OF CASE-LAWS FAVOURABLE TO THE APPELLANT. 2(B).ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AS ALSO IN LAW, THE DECISION OF THE C 11(A) IS ARBITRARY, BASED ON HIS SUBJECTIVE STANDARD AND, TH EREFORE, IS NOT LEGALLY SUSTAINABLE. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER O R DELETE ANY OF THE ABOVE GROUNDS. VIDE ITS LETTER DATED 10.04.2013,THE ASSESSEE HAS R AISED ADDITIONAL GROUND OF APPEAL AS GROUND NO.1.IT WAS STATED THAT IN THE APPELLATE PROCEEDING S,IT HAD RAISED ONLY ONE ISSUE BUT IN THE STATEMENT OF FACTS IT HAD RAISED THE ISSUE OF VALIDITY OF REA SSESSMENT PROCEEDINGS.IT WAS ARGUED THAT THE NOTICE U/S.148 WAS ISSUED AS A RESULT OF CHANGE OF OPINION .WE ARE OF THE OPINION THAT THE GROUND NO.1 IS ARISING OUT OF THE ORDER OF THE FIRST APPELLATE AUT HORITY(FAA)AND IS A PURE LEGAL ISSUE THAT DOES NOT REQUIRE INVESTIGATION OF FACTS.THEREFORE,WE ADM IT THE ADDITIONAL GROUND OF APPEAL I.E.GROUND NO.1. BRIEF FACTS OF THE CASE: 2. IN THIS CASE,ASSESSMENT U/S.143(3) OF THE ACT WAS O RIGINALLY COMPLETED ON 17/11/2009, ACCEPTING IDEAL PROPERTIES PVT. LTD., CONSTRUCTION HOUSE 'B', 5TH FLOOR, 623, LINKING ROAD, KHAR (W), MUMBAI-400051 PAN: AAACI1215J VS ASST. CIT CENTRAL CIRCLE-23, AAYAKAR BHAVAN, MUMBAI-400020 THE RETURNED INCOME OF RS.3,59,740/-. SUBSEQUENTLY, THE ASSESSING OFFICER(AO) NOTICED THAT DURING THE YEAR, THE ASSESSEE HAD BUSINESS LOSS OF PS.1,19,694/- AND LONG-TERM CAPITAL GAIN OF RS.4,79,432/- AND AFTER SETTING OFF THE ABOVE BUSIN ESS LOSS AGAINST THE LONG-TERM CAPITAL GAIN, IT HAD ARRIVED AT THE INCOME OF RS.3,59,740/-,THAT IT HAD DIVIDEND RECEIPTS OF RS.1,09,12,450/-, WHICH WAS CLAIMED EXEMPT U/S.10(34) OF THE ACT,THAT IT HA D NOT QUANTIFIED ANY AMOUNT OF EXPENDITURE ATTRIBUTED TO EXEMPTED INCOME WHICH NEEDED TO BE DI SALLOWED IN TERMS OF SEC. 14A OF THE ACT.HE WORKED OUT THE AMOUNT DISALLOWABLE U/S. 14A READ WI TH RULE 8D AT RS. 1,77,529/-, AND AS NO DISALLOWANCE WAS MADE WHILE COMPLETING THE ORIGINAL ASSESSMENT, HE HELD THAT HE HAD REASON TO BELIEVE THAT INCOME TO THE EXTENT OF RS.1,77,529/- HAD ESCAPED ASSESSMENT AND ISSUED A NOTICE U/S. 148 TO THE APPELLANT. DURING THE PROCEEDINGS U/S. 1 43(3) READ WITH SEC. 147, THE AO DID NOT ACCEPT THE APPELLANTS CONTENTION THAT NO DISALLOWANCE U/S . 14A WAS CALLED FOR IN ITS CASE. HE HELD THAT SINCE NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF E XPENDITURE INCURRED IN RELATION TO INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME AS PER SEC.14 A OF THE ACT AND IT HAD EXEMPT INCOME BEING DIVIDEND INCOME AND HAD NOT QUANTIFIED ANY AMOUNT O F EXPENDITURE ATTRIBUTED TO THE EXEMPT INCOME, DISALLOWANCE U/S.14A READ WITH RULE 8D HAD TO HE MADE.ACCORDINGLY, HE PROCEEDED,TO WORK OUT THE AMOUNT DISALLOWABLE. ACCORDING TO AO, NO AMOUNT WAS DISALLOWABLE AS PER CLAUSE (I) OF RULE 8D(2), AND THE AMOUNTS DISALLOWABLE AS PER CLAUSES (II) AND (III) OF RULE 8D(2) WERE WORKED OUT BY HIM AT RS.92,370/- AND RS.85,159/-RES PECTIVELY. THUS, THE AO MADE A TOTAL DISALLOWANCE OF RS.L,77,529/- U/S.14A R.W.S.RULE 8D . 3. DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSE SSEE ARGUED THAT AS PER THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD.(328 ITR 81)PROVISIONS OF RULE 8D WERE NOT APPLICABLE TO ASSESSMENT YEARS PRIOR TO A.Y. 2008-09,THAT THE AO COULD NOT HAVE MADE THE DISALLOWANCE,THAT IT HAD INTEREST-FRE E FUNDS IN FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS AMOUNTING TO RS.2.08 CRORES, AS AGAINST THE TOTAL INVESTMENT AS ON 31/3/2007 AMOUNTING TO RS.2.04 CRORES,THAT IT HAD HAD SUFFICI ENT FUNDS FOR MAKING INVESTMENTS,THAT IT HAD EVEN REPAID PART OF THE LOAN DURING THE YEAR,THAT O UT OF THE TOTAL EXPENDITURE OF RS. 1,52,461/- INCURRED DURING THE YEAR, AFTER EXCLUDING THE INTER EST EXPENSES OF RS.1,04,253/-, THE REMAINING EXPENDITURE OF RS.48,208/- WAS GENERAL EXPENDITURE INCURRED FOR SUSTAINING THE CORPORATE EXISTENCE OF THE ASSESSEE-COMPANY,THAT A COMPANY NO T EARNING ANY INCOME, WHILE CARRYING ON ANY BUSINESS,IN AN ACCOUNTING PERIOD WAS ELIGIBLE TO CL AIM SUCH EXPENDITURE AS BUSINESS EXPENDITURE /BUSINESS LOSS AND SUCH EXPENDITURE COULD NOT BE TR EATED AS EXPENDITURE IN RELATION TO EARNING TAX- FREE INCOME,THAT THE PROVISIONS OF SEC. 14A AND RUL E 8D COULD BE APPLIED ONLY WHERE THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEC IN RESPECT OF EXPENDITURE IN RELATI ON TO EXEMPT INCOME,THAT IN THE ASSESSMENT ORDER, THE AO HAD NOT RECORDED ANY SUCH SATISFACTION,THAT THE DISALLOWANCE SHOULD BE DELETED. AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT THE AO HAD MADE DISALLOWANCE OF RS.1,77,529/- U/S.14A R EAD WITH RULE 8D,THAT IN PARA 2 OF ASSESSMENT ORDER REASONS FOR DISALLOWANCE HAD BEEN DISCUSSED IN DETAIL,THAT THE AO HAD RECORDED HIS SATISFACTION FOR INVOKING THE PROVISIONS OF THE SECTION 14 A OF THE ACT,THAT IN VIEW OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT, RULE 8D-WAS NOT APPLICABLE FOR THE YEAR UNDER APPEAL,THAT HONBLE HIGH COURT HAD HELD THAT DISALL OWANCE U/S. 14A COULD BE MADE ON REASONABLE BASIS EVEN IN THE YEARS WHEN RULE 8D WAS NOT APPLIC ABLE,THAT IT WAS NOTED FROM THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE THAT IT HAD RECEIVED EXEMPT DIVIDEND INCOME OF RS.1,09,12,450/- DURING THE YEAR,THAT THE TOTAL EXPENDITURE, INCLUDING INTE REST EXPENDITURE, DEBITED TO THE PROFIT & LOSS ACCOUNT WAS RS.1,52,461/-,THAT THE ASSESSEE HAD NOT BROUGHT ON RECORD ANY EVIDENCE THAT THE ENTIRE EXPENDITURE WAS FOR EARNING INCOME OTHER THA N EXEMPT INCOME,THAT NO NEXUS COULD BE PROVED IT THAT THE LOAN TAKEN WAS NOT UTILISED FOR ACQUISITION OF SHARES FROM WHERE EXEMPT INCOME WAS DERIVED,THAT THE ACCOUNTS OF ASSESSEE WERE MIXE D FOR ACCOUNTING EXEMPT AND NON-EXEMPT INCOME. HE RESTRICTED THE DISALLOWANCE MADE BY THE AO,TO RS.1,00,000/-. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)STATED T HAT THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3)OF THE ACT,THAT THE AO HAD MADE INQUIRIES ABOUT THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF THE ACT,THAT HE DID NOT MAKE ANY ADD ITION ON THAT ACCOUNT,THAT IN THE REASONS RECORDED FOR RE-OPENING THE ASSESSMENT THE AO HAD N OT BROUGHT ANYTHING THAT COULD BE HELD TO REASONABLE,THAT IT WAS A CASE OF MERE CHANGE OF OPI NION,THAT IN THE CASE OF SISTER CONCERN;WHERE SIMILAR ADDITION WAS RESTRICTED BY THE FAA TO RS.1 LAKHS IN SIMILAR CIRCUMSTANCES;TRIBUNAL HAD DELETED THE ADDITION. HE RELIED UPON THE CASES OF ( I) CARTINI INDIA LTD. (314 ITR 275) (II) GENERAL INSURANCE CORPN. OF INDIA (342 ITR 27) (III) KELVIN ATOR OF INDIA LTD. (320 ITR 561) (IV) KELVINATOR OF INDIA LTD.(256 ITR 1) (V) FORAMER FRA NCE (264 ITR 566) & FORAMER FRANCE (247 ITR 436). DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE AO HAD ISSUED A NOTICE U/S.148 OF THE ACT,AS HE WAS OF THE OPINION THAT THE TAXABLE INCOME HAS ESCAPED ASSESSMENT.WE WOULD LIKE TO REPRODUCE THE R EASONS RECORDED BY THE AO ON 09.11.2012, BEFORE ISSUING THE NOTICE AND SAME READ AS UNDER: IN THE PRESENT CASE, RETURN OF INCOME WAS FILED ON 31.10.2007 DECLARING LOSS OF RS.3,59,738/-. ASSESSEES INCOME COMPRISED OF THE FOLLOWING: I.INCOME FROM CAPITAL GAIN RS4, 79,432/- II.LOSS FROM BUSINESS/PROFESSION RSI,19,694/ - TOTAL RS. 3,59,740/- ASSESSMENT U/S 143(3) OF THE IT ACT, 1961 WAS COMPL ETED ON 17.10.2009 DETERMINING TOTAL INCOME AT RS.3,59740/-. 2. ON CAREFUL PERUSAL OF THE RETURN OF INCOME AND O THER DETAILS SUBMITTED AT THE TIME OF ASSESSMENT , IT WAS NOTICED THAT THE ASSESSEE HAD DIVIDEND RECEI PTS OF RS. 1,09,12,450/- WHICH HAS BEEN CLAIMED EXEMPT U/S 10(34) OF THE ITACT, 1961. SECTION 14A O F THE IT ACT, 1961 PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DO NOT FORM A PART OF THE TOTAL TAXABLE INCOME. IN THE PRESENT CASE ASSESSEE HAS CLAIMED DIVIDEND RECEIPTS AS EXEMPT INCOME. HOWEVER, ASSESSEE-COMPAN Y HAS NOT QUANTIFIED ANY AMOUNT OF EXPENDITURE ATTRIBUTED TO EXEMPTED INCOME WHICH NEE DS TO BE DISALLOWED IN TERMS OF SECTION 14A OF THE ITACT, 1961. 3, SECTION 14A OF THE IT ACT, 1961 PROVIDES THAT NO DEDUCTION SHALL BE AL/OWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DO NOT FORM PART OF THE TOTAL TAXABLE INCOME. IN THE PRESENT CASE, ASSESSEE HAS C LAIMED DIVIDEND AS EXEMPT INCOME. HOWEVER, ASSESSEE HAS NOT QUANTIFIED ANY AMOUNT OF EXPENDITU RE ATTRIBUTED EXEMPTED INCOME WHICH NEEDS TO BE DISALLOWED IN TERMS OF SECTION 14A OF THE IT ACT, 1 961. 4.DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDI NGS, NO DISALLOWANCE U/S 14A OF THE IT ACT, 1961 WAS MADE EVEN THOUGH A PRIMARY CONDITION OF EXEMPTE D INCOME WAS SATISFIED. 5.RULE 8D PROVIDES FOR METHOD FOR DETERMINING OF AN AMOUNT OF EXPENDITURE IN RELATION TO THE INCOME NOT INCLUDED IN THE TOTAL INCOME. COMPUTATION OF AM OUNT DISALLOWABLE IN TERMS OF RULE 8D IS AS UNDER: XXXXX 6.ON THE FACTS OF THE CASE, I HAVE REASON TO BELIEV E THAT EXPENDITURE ATTRIBUTED TO EXEMPTED PART OF INCOME HAVE REMAINED TO BE DISALLOWED AND AS SUCH I NCOME TO THAT EXTENT HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE IT ACT, 19 61. SUCH INCOME HAS ESCAPED DUE TO FAILURE ON THE PART OF THE ASSESSEE TO PUT FORTH CORRECT PARTICULA RS OF INCOME AFTER DISALLOWING EXPENDITURE WITHIN THE MEANING OF SECTION 14A AND ENHANCING INCOME ACC ORDINGLY. 7.IN THE PRESENT CASE ESCAPED INCOME WITHIN THE MEA NING OF SECTION 14A IS WORKED OUT TO RS.1,51,042/- AND AS STICH CONDITIONS STIPULATED U/ S 149(1)(B) OF THE IT ACT, 1961 IS SATISFIED. 8.IN VIEW OF THE AFORESAID I AM SATISFIED THAT THIS IS A FIT CASE FOR ISSUANCE OF NOTICE U/S 148 OF TH E ITACT, 1961. A CURSORY GLANCE AT THE ABOVE MENTIONED REASONS PRO VE THAT THERE IS NO MATERIAL THAT COULD JUSTIFY THE DISTURBANCE OF A COMPLETED ASSESSMENT. IN A REC ENT DECISION IN THE CASE OF ARONI COMMERCIALS LTD.(362ITR 403) THE HONBLE JURISDICTIONAL HIGH CO URT HAS;WHILE DISCUSSING THE BASIC PRINCIPLE GOVERNING THE REASSESSMENT PROCEEDINGS;HELD AS UNDE R: THE PRIMARY REQUIREMENT TO REOPEN ANY ASSESSMENT I S A REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE REASON SHOULD BE BASED ON TANGIBLE MATERIAL. TANGIBLE MATERIAL WOULD MEAN FACTUAL MATERIAL AND NOT INFERE NCE OR OPINION ON MATERIAL ALREADY IN EXISTENCE AND CONSIDERED DURING THE ASSESSMENT PROC EEDINGS(EMPHASIS SUPPLIED). ONCE A QUERY IS RAISED DURING THE ORIGINAL ASSESSMENT PROCEEDING S AND THE ASSESSEE HAS REPLIED TO IT, IT FOLLOWS THAT THE QUERY RAISED WAS A SUBJECT OF CONSIDERATIO N OF THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT. IT IS NOT NECESSARY THAT THE ASSESSMENT ORDER SHOULD CONTAIN REFERENCE OR DISCUSSION TO DISCLOSE HIS SATISFACTION IN RESPECT OF THE QUERY R AISED. THE REASONS FOR REOPENING AN ASSESSMENT HAVE TO BE TESTED OR EXAMINED ONLY ON THE BASIS OF THE REASONS RECORDED AT THE TIME OF ISSUING A NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 196 1, SEEKING TO REOPEN AN ASSESSMENT. THESE REASONS CANNOT BE IMPROVED UPON OR SUPPLEMENTED MUC H LESS SUBSTITUTED BY AFFIDAVIT OR ORAL SUBMISSIONS. WE ARE UNABLE TO FIND ANY TANGIBLE MATERIAL IN THE REASONS RECORDED BY THE AO.HE HAS AT THE TIME OF ORIGINAL ASSESSMENT ALREADY DELIBERATED UPON THE ISSUE OF DISALLOWANCE TO BE MADE U/S.14A OF THE ACT.THEREFORE,IT CAN SAFELY BE HELD THAT IN THE CASE UNDER CONSIDERATION THERE WAS NO TANGIBLE MATERIAL.IN THESE CIRCUMSTANCES,WE ARE OF THE OPINI ON THAT THE REASSESSMENT PROCEEDINGS WERE INITIATED DUE TO CHANGE OF OPINION OF THE AO AND NO T BECAUSE THERE WAS TANGIBLE MATERIAL.COURTS ARE OF THE VIEW THAT IF A NOTICES IS ISSUED U/S.148 BECAUSE OF CHANGE OF OPINION,THEN SAME IS TO CONSIDERED BAD IN LAW AND HAS TO BE QUASHED.CONSIDE RING THE FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE REVERSING THE ORDER OF THE FAA AND DECI DE THE EFFECTIVE GROUND OF APPEAL(GOA-1)IN FAVOUR OF THE ASSESSEE.REMAINING GROUNDS ARE ALLOWE D FOR STATISTICAL PURPOSES. AS A RESULT,APPEAL FILED BY T HE ASSESSEE STANDS ALLOWED. /)0 '() 1 2 + 3 4 + ) 56 . ORDER PRONOUNCED IN T HE OPEN COURT ON 20TH AUGUST, 2014 . 7 + -.# 8 9' 20.08. 201 4 . + 3 : SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9' / DATE: 20.08.2014 S.K. 7 7 7 7 + ++ + &) &) &) &) ;#) ;#) ;#) ;#) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR I BENCH, ITAT, MUMBAI / >3 &)' , . . . 6. GUARD FILE/ 3 / ') ') ') ') &) &)&) &) //TRUE COPY// 7' / BY ORDER, ? / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI