ITO, Rohtak V. Sh. Satya Prakash Aggarwal & Sons (HUF), Rohtak

ITA 3792/DEL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1224 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 05-02-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 09-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K UPADHAYA
• Assessee Lawyers: UMANG AGARWAL; BHARAT BHUSHAN
• Keywords: Reopening of assessment; Charitable institution; Audit objection; Question of law; Tax effect; Reassessment proceedings
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH G GG G : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI I.C.SUDHIR I.C.SUDHIR I.C.SUDHIR I.C.SUDHIR, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.3792/DEL/2011 3792/DEL/2011 3792/DEL/2011 3792/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2005 2005 2005 2005- -- -06 0606 06 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -2, 2,2, 2, ROHTAK. ROHTAK. ROHTAK. ROHTAK. VS. VS. VS. VS. SHRI SATYA PARKASH A SHRI SATYA PARKASH A SHRI SATYA PARKASH A SHRI SATYA PARKASH AGGARWAL & GGARWAL & GGARWAL & GGARWAL & SONS (HUF), SONS (HUF), SONS (HUF), SONS (HUF), C/O M/S LAXMI OIL MILLS, C/O M/S LAXMI OIL MILLS, C/O M/S LAXMI OIL MILLS, C/O M/S LAXMI OIL MILLS, JHAJJAR ROAD, JHAJJAR ROAD, JHAJJAR ROAD, JHAJJAR ROAD, ROHTAK. ROHTAK. ROHTAK. ROHTAK. PAN : AAEHS8081B. PAN : AAEHS8081B. PAN : AAEHS8081B. PAN : AAEHS8081B. (APPELLANT) (RESPONDENT) CROSS CROSS CROSS CROSS- -- -OBJECTION NO.458/DEL/2012 OBJECTION NO.458/DEL/2012 OBJECTION NO.458/DEL/2012 OBJECTION NO.458/DEL/2012 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2005 2005 2005 2005- -- -06 0606 06 SHRI SATYA PARKASH AGGARWAL SHRI SATYA PARKASH AGGARWAL SHRI SATYA PARKASH AGGARWAL SHRI SATYA PARKASH AGGARWAL & SONS (HUF), & SONS (HUF), & SONS (HUF), & SONS (HUF), C/O M/S LAXMI OIL MIL C/O M/S LAXMI OIL MIL C/O M/S LAXMI OIL MIL C/O M/S LAXMI OIL MILLS, LS,LS, LS, JHAJJAR ROAD, JHAJJAR ROAD, JHAJJAR ROAD, JHAJJAR ROAD, ROHTAK. ROHTAK. ROHTAK. ROHTAK. PAN : AAEHS8081B. PAN : AAEHS8081B. PAN : AAEHS8081B. PAN : AAEHS8081B. VS. VS. VS. VS. INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -2, 2,2, 2, ROHTAK. ROHTAK. ROHTAK. ROHTAK. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI S.K.UPADHAYA, SR.DR. ASSESSEE BY : SHRI UMANG AGARWAL AND SHRI BHARAT BHUSHAN, ADVOCATES. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D DD D.AGRAWAL, .AGRAWAL, .AGRAWAL, .AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A), ROHTAK DATED 3 RD JUNE, 2011 FOR THE ASSESSMENT YEAR 2005-06. ITA-3792/DEL/2011 & C.O.458/DEL/2012 2 2. AT THE TIME OF HEARING BEFORE US, IT WAS STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN THE CROSS-OBJECTIO N, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF REOPENING OF ASSESSMENT AND, THEREFORE, THE CROSS-OBJECTION SHOULD BE ADJUDICATED FIRST. THE L EARNED DR ALSO AGREED WITH THE SUBMISSION OF THE ASSESSEES COUNSE L. WE, THEREFORE, PROCEED TO ADJUDICATE THE CROSS-OBJECTION. 3. IN THE CROSS-OBJECTION, FOLLOWING GROUNDS ARE RA ISED:- 1. THAT THE LEARNED AUTHORITIES BELOW HAVE ERRED I N LAW AS WELL AS ON FACTS OF THE CASE IN HOLDING THE INIT IATION OF RE- ASSESSMENT PROCEEDINGS U/S 147 OF THE I.TAX ACT AS VALID THOUGH THE APPELLANT HAS DISCLOSED ALL RELEVANT PAR TICULARS IN THE RETURN OF INCOME WHICH IS ON RECORD. THUS T HE INITIATION OF PROCEEDINGS U/S 148 MERELY FOR MAKING FISHING ENQUIRIES ARE TOTALLY WRONG AND ILLEGAL. 2. THAT THE LEARNED AUTHORITIES BELOW HAVE NOT INTERPRETED THE PROVISIONS OF SECTION 148/147 OF I. TAX ACT PROPERLY AS NO NEW INFORMATION HAS COME TO THE KNOW LEDGE OF ASSESSING OFFICER AFTER FILING OF RETURN EXCEPT THE AUDIT OBJECTION RAISED BY AUDIT PARTY. THE AUTHORITIES B ELOW HAVE WRONGLY IGNORED THE HON'BLE SUPREME COURT AND HIGH COURT DECISIONS THAT NO VALID INITIATION OF REASSESSMENT PROCEEDINGS CAN BE MADE ON THE BASIS OF AUDIT OBJEC TION. THUS THE ASSESSMENT ORDER FRAMED ON INVALID PROCEED INGS IS TOTALLY WRONG, ILLEGAL AND VOID AB INITIO. 3. THAT THE AUTHORITIES BELOW HAVE NOT DEALT THE OBJECTIONS RAISED BY THE APPELLANT AGAINST INITIATI ON OF REASSESSMENT PROCEEDINGS BY A SPEAKING ORDER. EVEN THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND INDEPEND ENTLY THAT PARTICULARS OF INCOME HAS ESCAPED ASSESSMENT A ND HAS MERELY FOLLOWED AUDIT OBJECTIONS RAISED BY AUDI T PARTY. THUS, THE INITIATION OF REASSESSMENT PROCEEDINGS U/ S 148 OF THE I.T. ACT IS TOTALLY WRONG, ILLEGAL AND VOID AB INITIO. 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE REFERRED TO PAGE 1 OF THE ASSESSEES PAPER BOOK WHICH IS REASONS RECORDED FOR REOPENING OF ASSESSMENT. THEN HE REFERRED TO PAGES 2 & 3 OF THE ASSESSEES PAPER BOOK WHICH IS T HE AUDIT OBJECTION. ITA-3792/DEL/2011 & C.O.458/DEL/2012 3 HE POINTED OUT THAT THE REASONS RECORDED FOR REOPEN ING OF ASSESSMENT ARE IDENTICAL TO THE AUDIT OBJECTION. EVEN THE WOR DINGS ARE SAME. HE, THEREFORE, STATED THAT THE ASSESSING OFFICER HAS RE OPENED THE ASSESSMENT SIMPLY ON THE BASIS OF AUDIT OBJECTION W ITHOUT INDEPENDENT APPLICATION OF MIND. THE SAME IS INVALID AND, THER EFORE, THE REOPENING OF ASSESSMENT SHOULD BE QUASHED. HE FURTHER STATED THAT IN THE REASONS RECORDED, THE ASSESSING OFFICER HAS HELD TH E ESCAPEMENT OF INCOME ON THE GROUND THAT BORROWED MONEY HAS BEEN D IVERTED FOR NON- BUSINESS PURPOSES AND, THEREFORE, INTEREST SHOULD B E DISALLOWED. HOWEVER, IN THE ASSESSMENT ORDER, NO SUCH FINDING I S RECORDED. ON THE OTHER HAND, ALL THE EXPENSES HAVE BEEN DISALLOWED O N THE GROUND THAT THE ASSESSEES BUSINESS IN THE NAME OF M/S SATYA PA RKASH & SONS HUF IS DISCONTINUED. THEREFORE, WHEN NO ADDITION/DISAL LOWANCE IS MADE ON THE BASIS OF WHICH ASSESSMENT WAS REOPENED, REOPENI NG OF ASSESSMENT IS INVALID. HE FURTHER SUBMITTED THAT IN THE IMMED IATELY PRECEDING YEAR, ON IDENTICAL FACTS, IN THE ASSESSMENT ORDER P ASSED UNDER SECTION 143(3), THE ASSESSING OFFICER ALLOWED THE EXPENSES OF SATYA PARKASH AGGARWAL & SONS, HUF. HE, THEREFORE, SUBMITTED THA T THE REOPENING OF ASSESSMENT IS NOT VALID. IN SUPPORT OF THIS CONTEN TION, HE RELIED UPON THE FOLLOWING DECISIONS:- (I) INDIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT, NEW D ELHI 119 ITR 996 (SC). (II) DELHI HIGH COURT DECISION DATED 2 ND JANUARY, 2013 IN XEROX MODICORP LTD. VS. DCIT IN W.P.(C) NOS.8483/2010, 8485/2010 & 8486/2010. (III) AIR INDIA VS. V.K.SRIVASTAVA, CIT & OTHERS 213 IT R 739 (BOMBAY). (IV) TRANSWORLD INTERNATIONAL INC. VS. JCIT 273 ITR 24 2 (DELHI). 5. THE LEARNED DR, ON THE OTHER HAND, STATED THAT T HE REOPENING OF ASSESSMENT HAD BEEN MADE BY THE ASSESSING OFFICER B ECAUSE THERE ITA-3792/DEL/2011 & C.O.458/DEL/2012 4 WAS ESCAPEMENT OF INCOME. ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(1) ACCEPTING THE RETURNED INCOME. AFTE R THE AUDIT OBJECTION, THE ASSESSING OFFICER HAS DULY APPLIED H IS MIND AND SINCE HE FULLY AGREED WITH THE VIEWS EXPRESSED BY THE AUDIT PARTY, HE RECORDED THE SAME AS THE REASONS FOR REOPENING OF ASSESSMENT . HE ALSO STATED THAT WHILE JUDGING THE VALIDITY OF REOPENING OF ASS ESSMENT, SUFFICIENCY OF MATERIAL CANNOT BE EXAMINED. IF THERE IS A PRIMA FACIE CASE OF ESCAPEMENT OF INCOME, REOPENING OF ASSESSMENT IS VA LID. IN THIS CASE, ASSESSEE CLAIMED THE DEDUCTION FOR INTEREST WHICH W AS NOT PERMISSIBLE, THEREFORE, CERTAINLY, THERE WAS ESCAPEMENT OF INCOM E. THEREFORE, THE ASSESSMENT WAS VALIDLY REOPENED AND THE SAME SHOULD BE SUSTAINED. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE F OLLOWING DECISIONS:- (I) CIT VS. (1) KELVINATOR OF INDIA LTD. & (2) EICHER L TD. 320 ITR 561 (SC). (II) RAYMOND WOOLLEN MILLS LTD. VS. ITO & OTHERS 236 I TR 34. (III) CIT VS. P.V.S. BEEDIES PVT.LTD. 237 ITR 13 (SC). (IV) CIT VS. USHA INTERNATIONAL LTD. 348 ITR 485 (DELH I). 6. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE REA SONS RECORDED FOR ISSUE OF NOTICE UNDER SECTION 148 READ AS UNDER:- THE ASSESSEE IS THE OWNER OF TWO CONCERNS STYLED A S (I) M/S RISHI SHIP BREAKERS (II) M/S SATYA PRAKASH & SO NS (HUF), ROHTAK. IN THE PROFIT & LOSS ACCOUNT OF M/S RISHI SHIP BREAKERS, THE ASSESSEE HAD CLAIMED DEDUCTION O F RS.2495407/- AND IN M/S SATYA PRAKASH & SONS, OF RS.4337681/- ON ACCOUNT OF INTEREST PAID ON BORROWE D FUNDS. SCRUTINY OF PROFIT AND LOSS ACCOUNT AND BAL ANCE SHEET OF M/S SATYA PRAKASH & SONS (HUF) REVEALED TH AT THE UNIT OF THE ASSESSEE IS NOT CARRYING OUT ANY BUSINE SS, AND HAD SHOWN PROFIT OF RS.619758/- ON THE SALE OF SHAR ES ASSESSABLE UNDER HEAD CAPITAL GAINS AND RS.11469/- AS INTEREST AND RS.3593795/- AS MONEY FORFEITED ASSESS ABLE UNDER HEAD OTHER SOURCES ONLY. DETAILS OF OWN CAPI TAL, ITA-3792/DEL/2011 & C.O.458/DEL/2012 5 BORROWINGS AND ITS UTILIZATION AS PER BALANCE SHEET WERE AS UNDER:- IN THE BOOKS OF M/S SATYA PRAKASH & SONS OWN CAPITAL (5613779-1133240) (CREDIT BALANCE RS.5613779) RS.4480539/- LESS : BALANCE UNDER RISHI SHIP BREAKERS RS.1133240/- PERSONAL INVESTMENTS : OWN CAR, FLAT & SHARES : 1195025 + 1452568 + 2235688 RS.4883281/- LOANS/BORROWINGS FROM BANKS AND OTHERS RS.12041369/- LOANS & ADVANCES GRANTED BY THE ASSESSEE RS.12784203/- FROM THE ABOVE IT WAS OBVIOUS THAT THE ASSESSEE WAS NOT HAVING ANY CAPITAL OF HIS OWN, BUT HAD PROVIDED INT EREST FREE LOANS & ADVANCES OF RS.12784203/- TO HIS RELAT IVES & OTHERS BY ARRANGING THE BORROWED FUND FOR THEIR USE AND CLAIMED DEDUCTION OF INTEREST OF RS.4337681/- BY WA Y OF DEBIT IN THE PROFIT AND LOSS ACCOUNT OF M/S SATYA P RAKASH & SONS. SINCE THE ENTIRE BORROWINGS WERE DIVERTED BY PROVIDING AS INTEREST FREE LOAN TO OTHERS DEDUCTION S OF RS.4337681/- AS INTEREST PAID WAS NOT ADMISSIBLE. UNDER THE PROVISIONS OF SECTION 36(1)(III) OF I.T.ACT 196 1, DEDUCTION OF INTEREST ON BORROWED FUNDS IS ADMISSIB LE PROVIDED THE FUNDS SO RAISED ARE UTILIZED FOR BUSIN ESS PURPOSES OF THE ASSESSEE. THE AUDIT OBJECTION DATED 24 TH JUNE, 2008 READS AS UNDER:- UNDER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, DEDUCTION OF INTEREST ON BORROWED FUNDS IS ADMISSIB LE PROVIDED THE FUNDS SO RAISED ARE UTILIZED FOR THE B USINESS PURPOSES OF THE ASSESSEE. ASSESSEE IS OWNER OF TWO CONCERNS STYLED AS (I) M/S RISHI SHIP BREAKERS MUMBAI (II) M/S SATYA PARKASH & SONS (HUF) ROHTAK. IN PROFIT & LOSS ACCOUNT OF M/S RISHI SHIP BREAKERS, ASSESSEE HAD CLAIMED DEDUCTION OF RS.2495407 AND IN M/S SATYA PARKASH & SONS, OF RS.4337681 ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS. SCRUTINY OF PROFI T & LOSS ACCOUNT AND THE BALANCE SHEET OF M/S SATYA PARKASH & SONS (HUF) REVEALED THAT THIS UNIT OF THE ASSESSEE WAS NOT ITA-3792/DEL/2011 & C.O.458/DEL/2012 6 CARRYING OUT ANY BUSINESS, AND HAD SHOWN PROFITS OF RS.619758 ON SALE OF SHARES ASSESSABLE UNDER CAPITA L GAINS AND OF 11469 AS INTEREST AND RS.3593795 AS MONEY FORFEITED ASSESSABLE UNDER OTHER SOURCES ONLY. DET AILS OF OWN CAPITAL, BORROWINGS AND ITS UTILIZATION AS PER BALANCE SHEET WERE AS UNDER: IN THE BOOKS OF M/S SATYA PARKASH & SONS OWN CAPITAL (5613779-1133240) = RS.4480539 (CREDIT BALANCE) : RS.5613779 LESS MINUS BALANCE UNDER RISHI SHIP BREAKERS = RS.1133240 PERSONAL INVESTMENT: OWN CAR, FLAT & SHARES : 1195025+1452568+2235688 = RS.4883281 LOANS/BORROWINGS FROM BANK & OTHERS : = RS.1204136 9 LOANS & ADVANCES GRANTED BY ASSESSEE: = RS.1278420 3 FROM THE ABOVE, IT WAS OBVIOUS THAT THE ASSESSEE WA S NOT HAVING ANY CAPITAL OF HIS OWN, BUT HAS PROVIDED INT EREST FREE LOAN & ADVANCES OF RS.12784203 TO HIS RELATIVE S AND OTHERS BY ARRANGING THE BORROWED FUNDS FOR THEIR US E AND CLAIMED DEDUCTION OF INTEREST OF RS.4337681 BY WAY OF DEBIT IN THE PROFIT & LOSS ACCOUNT OF M/S SATYA PRA KASH & SONS. SINCE THE ENTIRE BORROWINGS WERE DIVERTED BY PROVIDING AS INTEREST FREE LOANS TO OTHERS, DEDUCTI ON OF RS.4337681 AS INTEREST PAID WAS NOT ADMISSIBLE. OM ISSION TO DO SO RESULTED IN UNDER ASSESSMENT OF INCOME OF RS.4337681 INVOLVING TAX EFFECT OF RS.1593317 AS UN DER: 7. FROM A PERUSAL OF ABOVE AUDIT OBJECTION AND REAS ONS RECORDED, IT IS EVIDENT THAT THE ASSESSING OFFICER SIMPLY IN VER BATIM COPIED THE AUDIT OBJECTION IN THE FORM OF REASONS RECORDED FOR REOPENING OF ASSESSMENT UNDER SECTION 148. THUS, IT IS OBVIOUS THAT THERE IS NO INDEPENDENT APPLICATION OF MIND BY THE ASSESSING OF FICER AND SIMPLY ON THE BASIS OF AUDIT OBJECTION, REOPENING OF ASSES SMENT HAS BEEN MADE. THE LEARNED DR TRIED TO JUSTIFY THE IN VERBA TIM COPY OF THE AUDIT OBJECTION ON THE GROUND THAT SINCE THE ASSESSING OF FICER AFTER APPLICATION OF MIND ENTIRELY AGREED WITH THE AUDIT OBJECTION, HE RECORDED THE SAME WORDS, WHICH WERE IN AUDIT OBJECT ION AS HIS REASONS FOR REOPENING OF ASSESSMENT. WE ARE NOT IMPRESSED WITH THIS ITA-3792/DEL/2011 & C.O.458/DEL/2012 7 ARGUMENT OF THE LEARNED DR. IF THERE IS AN APPLICA TION OF MIND, IT SHOULD BE APPARENT FROM THE MATERIAL PLACED BEFORE US. WHEN THE REASONS RECORDED ARE IN VERBATIM COPY OF THE AUDIT OBJECTION, THE ONLY INFERENCE WHICH CAN BE DRAWN BY US IS THAT THERE WA S NO INDEPENDENT APPLICATION OF MIND BY THE ASSESSING OFFICER AND HE SIMPLY ON THE BASIS OF AUDIT OBJECTION PROCEEDED TO REOPEN THE ASSESSME NT. 8. WITH THIS FACTUAL BACKGROUND, LET US NOW EXAMINE THE LEGAL POSITION ABOUT THE VALIDITY OF REOPENING OF ASSESSM ENT ON THE BASIS OF AUDIT OBJECTION. BOTH THE PARTIES HAVE RELIED UPON A LARGE NUMBER OF DECISIONS. HOWEVER, IN THE FOLLOWING DECISIONS, TH E ASPECT OF VALIDITY OF REOPENING OF ASSESSMENT ON THE BASIS OF AUDIT OBJEC TION HAS BEEN CONSIDERED. THEREFORE, WE SHALL DEAL WITH ONLY THO SE CASES. 9. IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCI ETY (SUPRA), THE HONBLE APEX COURT HELD AS UNDER:- THE OPINION OF AN INTERNAL AUDIT PARTY OF THE INCO ME-TAX DEPARTMENT ON A POINT OF LAW CANNOT BE REGARDED AS INFORMATION WITHIN THE MEANING OF S. 147(B) OF TH E I.T.ACT, 1961, FOR THE PURPOSE OF REOPENING AN ASSESSMENT. 10. IN THE CASE OF AIR INDIA (SUPRA), HONBLE BOMBA Y HIGH COURT HELD AS UNDER:- THAT THE REOPENING OF THE ASSESSMENT BASED ON THE AUDIT OBJECTION WAS WITHOUT JURISDICTION. THE COMMISSION ER OF INCOME-TAX HAD FAILED TO EXERCISE JURISDICTION BY P LACING BLIND RELIANCE UPON THE OPINION EXPRESSED BY THE MI NISTRY OF LAW. IT WAS NOT PERMISSIBLE TO REOPEN THE COMPL ETED ASSESSMENT IN PURSUANCE OF AN AUDIT OBJECTION AND, CONSEQUENTLY, THE ISSUE WHETHER THE CHEF WAS A TECH NICIAN OR NOT COULD NOT HAVE BEEN EXAMINED. THE ORDER PAS SED BY THE COMMISSIONER OF INCOME-TAX WAS LIABLE TO BE QUASHED. ITA-3792/DEL/2011 & C.O.458/DEL/2012 8 11. IN THE CASE OF P.V.S. BEEDIES PVT.LTD. (SUPRA) RELIED UPON BY THE LEARNED DR, HONBLE APEX COURT HELD AS UNDER:- HELD, ALLOWING THE APPEAL OF THE DEPARTMENT, THAT THE INTERNAL AUDIT PARTY HAD MERELY POINTED OUT A FACT WHICH HAD BEEN OVERLOOKED BY THE INCOME-TAX OFFICER IN TH E ASSESSMENT. THE FACT THAT THE RECOGNITION GRANTED TO THE CHARITABLE TRUST HAD EXPIRED ON SEPTEMBER 22, 1972, WAS NOT NOTICED BY THE INCOME-TAX OFFICER. THIS WAS NO T A CASE OF INFORMATION ON A QUESTION OF LAW. THE INTERNAL AUDIT PARTY WAS ENTITLED TO POINT OUT A FACTUAL ERROR OR OMISSION IN THE ASSESSMENT. REOPENING OF A CASE ON THE BASIS O F A FACTUAL ERROR POINTED OUT BY THE AUDIT PARTY WAS PE RMISSIBLE UNDER LAW. THEREFORE, THE REOPENING OF THE ASSESSM ENT WAS VALID. 12. HONBLE JURISDICTIONAL HIGH COURT IN A RECENT D ECISION DATED 2 ND JANUARY, 2013 IN W.P.(C) NOS.8483 TO 8486/2010 IN T HE CASE OF XEROX MODICORP LTD., HELD AT PARAGRAPH 17 OF THE DECISION AS UNDER:- 17. IT IS DIFFICULT TO SUSTAIN THE NOTICE ISSUED U /S. 148. THE AUDIT OBJECTION IS ONLY AN INFERENCE THAT THE R OYALTY PAYMENT RESULTED IN A CAPITAL BENEFIT; SUCH AN OPIN ION EXPRESSED BY THE AUDIT CANNOT CONSTITUTE TANGIBLE M ATERIAL ON THE BASIS OF WHICH THE ASSESSMENT CAN BE REOPENE D. IN THE CASE OF INDIAN EASTERN AND NEWSPAPER SOCIETY V. CIT, (1979) 119 ITR 996 THE SUPREME COURT EXPRESSED THE VIEW THAT INFORMATION AS TO CORRECT LEGAL POSITION MUST COME FROM A FORMAL SOURCE OR BODY WHICH IS COMPETENT TO PRONOUNCE UPON THE ISSUE AND THAT REVENUE AUDIT IS NOT COMPETENT TO PRONOUNCE ON ISSUES OF LAW. THERE IS NO AVERMENT THAT THE REVENUE AUDIT ONLY POINTED OUT TO ANY FACTUAL ASPECT OR MATERIAL OR PRIMARY FACT THAT WAS OMITTED TO BE DISCLOSED BY THE PETITIONER. 13. LET US APPLY THE RATIO OF THE ABOVE DECISION TO THE FACTS UNDER APPEAL BEFORE US. HONBLE APEX COURT IN THE CASE O F P.V.S. BEEDIES PVT.LTD. (SUPRA) HAVE HELD THAT WHEN THE INTERNAL A UDIT PARTY POINTED OUT A FACT THAT WAS OVERLOOKED BY THE INCOME TAX OF FICER IN THE ITA-3792/DEL/2011 & C.O.458/DEL/2012 9 ASSESSMENT, THEN THE REOPENING ON THE BASIS OF SUCH FACTUAL ERROR POINTED OUT BY THE AUDIT PARTY WAS PERMISSIBLE UNDE R THE LAW. HOWEVER, AS PER THE DECISION OF HONBLE APEX COURT IN THE CASE OF INDIAN EASTERN AND NEWSPAPER SOCIETY (SUPRA), THE O PINION OF AN INTERNAL AUDIT PARTY ON A POINT OF LAW CANNOT BE RE GARDED AS INFORMATION FOR THE PURPOSE OF REOPENING OF ASSESSM ENT. HONBLE BOMBAY HIGH COURT IN THE CASE OF AIR INDIA (SUPRA) HAS TAKEN A VIEW THAT REOPENING OF ASSESSMENT BASED ON THE AUDIT OBJ ECTION IS WITHOUT JURISDICTION. HONBLE JURISDICTIONAL HIGH COURT IN THE RECENT DECISION IN THE CASE OF XEROX MODICORP LTD. (SUPRA) HAS EXPRESS ED THE VIEW THAT IT IS DIFFICULT TO SUSTAIN NOTICE UNDER SECTION 148 IS SUED ON THE BASIS OF AUDIT OBJECTION. WHILE TAKING THE SAID VIEW, THEY HAVE RELIED UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF INDIA N EASTERN AND NEWSPAPER SOCIETY (SUPRA). 14. IN THE CASE UNDER APPEAL BEFORE US, FROM A PERU SAL OF THE AUDIT OBJECTION, IT IS EVIDENT THAT AUDIT PARTY HAS NOT P OINTED OUT ANY FACTUAL ERROR OR OMISSION BUT HAS EXPRESSED THE OPINION ON THE ANALYSIS OF THE BALANCE SHEET OF ONE OF THE TWO CONCERNS OF THE ASS ESSEE THAT THE INTEREST PAID BY THE ASSESSEE NEEDS TO BE DISALLOWE D BECAUSE THE BORROWED FUNDS WERE DIVERTED BY PROVIDING INTEREST FREE LOANS TO OTHERS. THE AUDIT OBJECTION IS BASED UPON THE LEGA L OPINION EXPRESSED BY THEM AND NOT POINTING OUT ANY FACTUAL ERROR OR O MISSION AND, THEREFORE, ON THESE FACTS, THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF XEROX MODICORP LTD. (SUPRA), O F THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AIR INDIA (SUPRA) AND OF HONBLE APEX COURT IN THE CASE OF INDIAN EASTERN AND NEWSPAPER S OCIETY (SUPRA) WOULD BE APPLICABLE. THE DECISION OF HONBLE APEX COURT IN THE CASE OF P.V.S. BEEDIES PVT.LTD. (SUPRA) RELIED UPON BY THE LEARNED DR WOULD NOT BE APPLICABLE TO THE FACTS OF THE ASSESSEES CASE B ECAUSE IN THAT CASE, THERE WAS ONLY A FACTUAL ERROR. IN THAT CASE, THE RECOGNITION GRANTED TO THE CHARITABLE TRUST HAD EXPIRED ON 22 ND SEPTEMBER, 1972 WHICH WAS ITA-3792/DEL/2011 & C.O.458/DEL/2012 10 NOT NOTICED BY THE INCOME-TAX OFFICER. THIS FACTUA L ERROR WAS POINTED OUT BY THE AUDIT PARTY AND, THEREFORE, ON THESE FAC TS, HONBLE APEX COURT HAD HELD THE REOPENING OF ASSESSMENT TO BE VA LID. HOWEVER, IN THE CASE UNDER APPEAL BEFORE US, THE AUDIT PARTY HA D EXPRESSED THE LEGAL OPINION THAT INTEREST ON THE BORROWED MONEY S HOULD BE DISALLOWED BECAUSE, IN THEIR OPINION, BORROWED MONE Y HAS BEEN DIVERTED FOR INTEREST FREE LOANS AND ADVANCES AND, THEREFORE, NOT USED FOR THE PURPOSE OF THE BUSINESS. 15. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING TH E DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF XE ROX MODICORP LTD. (SUPRA), OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF AIR INDIA (SUPRA) AND OF HONBLE APEX COURT IN THE CASE OF IN DIAN EASTERN AND NEWSPAPER SOCIETY (SUPRA), WE HOLD THAT THE REOPENI NG OF ASSESSMENT WAS NOT VALID. THE SAME IS QUASHED AND THE CROSS-O BJECTION OF THE ASSESSEE IS ALLOWED. 16. SINCE WHILE DISPOSING OF THE ASSESSEES CROSS-O BJECTION, WE HAVE ALREADY QUASHED THE REOPENING OF ASSESSMENT, THEREF ORE, WHEN THE IMPUGNED ASSESSMENT ORDER DOES NOT SURVIVE, THE REV ENUES APPEAL HAS BEEN RENDERED INFRUCTUOUS. ACCORDINGLY, THE SA ME IS DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED WHILE THE CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY, 2013. SD/- SD/- ( (( (I.C.SUDHIR I.C.SUDHIR I.C.SUDHIR I.C.SUDHIR) )) ) (G.D.AGR (G.D.AGR (G.D.AGR (G.D.AGRAWAL) AWAL) AWAL) AWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 15.02.2013 VK. ITA-3792/DEL/2011 & C.O.458/DEL/2012 11 COPY FORWARDED TO: - 1. REVENUE : INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD INCOME TAX OFFICER, WARD- -- -2, ROHTAK. 2, ROHTAK. 2, ROHTAK. 2, ROHTAK. 2. ASSESSEE : SHRI SATYA PARKASH AGGARWAL & SON S (HUF), SHRI SATYA PARKASH AGGARWAL & SONS (HUF), SHRI SATYA PARKASH AGGARWAL & SONS (HUF), SHRI SATYA PARKASH AGGARWAL & SONS (HUF), C/O M/S LAXMI OIL MILLS, JHAJJAR ROAD, ROHTAK. C/O M/S LAXMI OIL MILLS, JHAJJAR ROAD, ROHTAK. C/O M/S LAXMI OIL MILLS, JHAJJAR ROAD, ROHTAK. C/O M/S LAXMI OIL MILLS, JHAJJAR ROAD, ROHTAK. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR