M/S.SAMKIT GEMS, MUMBAI V. ITO 19(3)(2), MUMBAI

ITA 3980/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5960 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 05-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: K A VAIDYALINGAN
• Keywords: Reopening of assessment; Search and seizure; Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 3980 /MUM/201 8 (A.Y: 2009 - 10) M/S. SAMKIT GEMS 12A, PARADISE APARTMENT OPP. MATRU ASH I SH BUILDING NEPEAN SEA ROAD MUMBAI 400 006 PAN: AAKFS 8254 Q V. INCOME TAX OFFICER WARD NO. 19 (3)(2 ) MATRU MANDIR, TARDEV ROAD MUMBAI 400 007 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.A. VAIDYALINGAN DEPARTMENT BY : SHRI CHAITANYA ANJARIA DATE OF HEARING : 06 .06.2019 DATE OF PRONOUNCEMENT : 31 .07 .2019 O R D E R PER C.N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 51 MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 27.03.2018 FOR THE A.Y. 2009 - 10. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: - 1. THE LEARNED CIT (A) ERRED IN UPHOLDING THE VALIDITY OF THE REASSESSMENT PROCEEDINGS U/S. 147 WITHOUT APPRECIATING THE FACT THAT THERE WAS NO FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT O F THE YEAR WHICH WAS ORIGINALLY COMPLETED U/S. 143 (3) . 2. THE LEARNED CIT (A) ERRED IN BRUSHING ASIDE THE APPELLANT'S CHALLENGE TO THE VALIDITY OF NOTICE U/S. 148 AS THE SANCTION OF THE APPROPRIATE AUTHORITY AS PER 2 ITA NO. 3980/MUM/2018 (A.Y: 2009 - 10) M/S. SAMKIT GEMS SECTION 151 (2), I.E. OF THE CIT - 16, MUMBAI WAS NOT OBTAINED BY OBSERVING THAT THIS IS A BASELESS ALLEGATION WITHOUT ANY DOCUMENTARY EVIDENCE. 3. THE LEARNED CIT(A) ERRED ON FACTS AND IN HIS OBSERVATION THAT 'AS REGARDS THE CONTENTION OF THE ASSESSEE THAT ALL THE MATERIAL FACTS WERE DULY DISC LOSED IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE SAME IS FOUND TO BE INCORRECT SINCE THE FACT THAT THE ASSESSEE WAS PAYING INTEREST ON THE CREDIT BALANCE OF THE PARTNERS, BUT NOT CHARGING INTEREST ON THEIR DEBIT BALANCES WAS NOT AT ALL DISCLOSED IN THE OR IGINAL ASSESSMENT PROCEEDINGS AS FACT OF PAYMENT OF INTEREST TO PARTNERS ON THEIR CREDIT BALANCES AND NON - CHARGING OF INTEREST ON THEIR DEBIT BALANCES WAS DISCLOSED IN THE AUDITED SCHEDULE OF PARTNERS' CAPITAL ACCOUNTS FILED DURING THE COURSE OF ORIGINAL ASSESSMENT. 4. THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST OF RS.1,68,421 / - PAID TO PARTNERS ON THEIR CAPITAL ACCOUNTS WHICH IS IN ACCORDANCE WITH THE PROVISIONS OF SEC. 40 B(IV) 3. BRIEFLY STATED FACTS ARE, THE ASSESSEE A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING OF DIAMONDS FILED RETURN OF INCOME ON 22.09.2009 D ECLARING INCOME OF .3 , 79 , 610/ - . THE ASSESSMENT WAS COMPLETE D U/S. 143(3) OF THE ACT ON 23.11.2011 ACCEPTING THE INCOME RETURN ED . SUBSEQUENTLY NOTICE U/S. 148 OF THE ACT DATED 31.03.2015 WAS ISSUED REOPENING THE ASSESSMENT AND THE RE ASSESSMENT WAS COMPLETED U/S. 143(3) R.W.S. 147 OF THE ACT ON 23.03.20 16 DETERMINING THE INCOME OF . 5 , 48 , 030/ - . WHILE COMPLETING THE RE ASSESSMENT TH E ASSESSING OFFICER MADE ADDITION OF .1 , 68 , 421/ - BY DISALLOWING INTEREST PAID TO ONE OF THE PARTNERS ON HIS CAPITAL . ASSESSEE CHALLENGED THE REOPENING OF ASSESSMENT AS WELL AS THE ADDITION S/DISALLOWANCE MADE ON MERITS. LD.CIT(A) SUSTAINED THE REOPENING OF ASSESSMENT AND ALSO THE ADDITION MADE ON MERITS. 4. BEFORE ME , LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSMENT IN THIS CASE WAS COMPLETED U/S. 143(3) OF THE ACT ON 23.11.2011 AND 3 ITA NO. 3980/MUM/2018 (A.Y: 2009 - 10) M/S. SAMKIT GEMS SUBSEQUENTLY ASSESSMENT WAS REOPENED BEYOND A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT Y EAR BY ISSUE OF NOTICE DATED 31.03.2015 U/S. 148 OF THE ACT A ND T HEREFORE PROVISO TO SECTION 147 OF THE ACT APPLIES ACCORDING TO WHICH THE ASSESSMENT CAN BE REOPENED ONLY BY THE REASON OF THE FAILURE ON THE PART OF THE A SSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THE LD. COUNSEL FOR THE ASSESSEE INVITING MY ATTENTION TO THE REASONS RECORDED FOR REOPENING OF ASSESSMENT WHICH IS PLACED AT PAGE NO. 20 OF THE PAPER BOOK SUBMITS THAT T HE ASSESSMENT WAS REOPENED NOT BASED ON ANY EXTERNAL MATERIALS CAME INTO THE POSSESSION OF THE ASSESSING OFFICER SUBSEQUENT TO COMPLETION OF ASSESSMENT. REFERRING TO THE REASONS RECORDED FOR REOPENING OF ASSESSMENT THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT NOTHING IS MENTIONED ABOUT THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IN FACT THE REASONS RECORDED SHOWS THAT ALL THE INFORMATION IS AVAILABLE ON RECORD AND BASED ON THE INFORMATION ALREADY AVAILABLE ON RECORD THE ASSESSMENT WAS REOPENED. REFERRING TO THE REASONS RECORDED THE LD. CO UNSEL FOR THE ASSESSEE SUBMITS THAT THE INFORMATION WAS IN FACT FLOWING FROM THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS SHOWN NEGATIVE CAPITAL THE BALANCE OF .1 , 03 , 94 , 794/ - AND ALSO THAT ASSESSEE PAID INTEREST 4 ITA NO. 3980/MUM/2018 (A.Y: 2009 - 10) M/S. SAMKIT GEMS OF .1 , 68 , 421/ - ON T HE CREDIT BALANCE OF ONE OF THE PARTNERS. IT IS ALSO NOTICED BY THE ASSESSING OFFICER FROM THE RECORDS THAT PARTNERS ALSO WITHDRAWN FROM THE BUSINESS AND T HEREFORE HE WAS OF THE OPINION THAT PARTNERS ARE LIABLE TO PAY INTEREST ON CAPITAL. FOR THIS REASON , THE ASSESSMENT WAS SOUGHT TO BE REOPENED. THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THERE IS NO WHISPER ON ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. LD. COUNSEL F OR THE ASSESSEE FURTHER INVITING MY ATTENTION TO THE PAGE NO. 4 OF THE PAPER BOOK WHICH IS THE 3CD REPORT SUBMITS THAT THE FACT OF INTEREST PAID BY THE ASSESSEE TO ONE OF THE PARTNERS WAS ALSO REPORTED IN THE 3CD REPORT WHICH WAS FILED ALONG WITH RETURN OF INCOME. IT WAS SUBMITTED THAT EVEN IN THE RETURN OF INCOME THE PAYMENT OF INTEREST TO PARTNER WAS REFLECTED . RELIANCE WAS PLACED ON FOLLOWING DECISIONS: - . 1. FORAMER VS CIT (2001) 247 ITR 0436 (ALL), WHICH HAS BEEN AFFIRMED BY THE HON. SUPREME COURT IN (2003) 264 ITR 0566 (SC) 2. MADHUKAR KHOSLA (2014) 90 CCH 0023 (DEL) 3. KELVINATOR OF INDIA LIMITED - 320 ITR 0561 (SC) 4. POOL CHAND BAJRANG LAL & ANOTHER (1993) 203 ITR 456 (SC) 5. SUN PHARMACEUTICAL INDUST RI ES LTD. W.P.(C) 6729/2011 (DEL) 6. CARLTON OVERSEAS LIMITED VS ITO (2009) 318 ITR 0295 (DEL) 7. ACIT VS PERFECT CORPORATE SERVICES LTD. (ITA NO.3100/MUM/2017) 5. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW . 6. HEARD RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE REASONS RECORDED FOR REOPENING OF 5 ITA NO. 3980/MUM/2018 (A.Y: 2009 - 10) M/S. SAMKIT GEMS ASSESSMENT, I NOTICE THAT ON THE BASIS OF THE FACTS ON RECORD THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT ASSESSEE HAS SHOWN NEGATI VE CAPITAL IN THE BALANCE SHEET AND ASSESSEE ALSO PAID INTEREST OF .1 , 68 , 421/ - TO ONE OF THE PARTNERS. ASSESSING OFFICER ALSO NOTICED THAT PARTNERS HAVE WITHDRAWN FROM THE FIRM AND NO INTEREST WAS CHARGED BY ASSESSEE . THEREFORE, THE ASSESSMENT WAS REOPE NED FOR DISALLOW ING INTEREST PAID BY THE ASSESSEE TO ONE OF THE PARTNERS. ON A PERUSAL OF THE REASONS RECORDED , I FIND THAT THERE IS NO ALLEGATION BY THE ASSESSING OFFICER THAT THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR COMPLETION OF ASSESSMENT FOR THIS YEAR. SINCE THE ASSESSMENT WAS REOPENED BEYOND FOUR YEARS FROM THE END OF TH E RELEVANT A SSESSMENT Y EAR , PROVISO TO SECTION 147 OF THE ACT APPLIES ACCORDING TO WHICH THE ASSESSMENT CAN BE REOPENED ONLY IF THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NEC ESSARY FOR COMPLETION OF ASSESSMENT. ALL THE INFORMATION WAS GATHERED FROM THE ASSESSMENT RECORD BY THE ASSESSING OFFICER AND NO INFORMATION HAS BEEN GATHERED FROM OUTSIDE THE ASSESSMENT RECORDS. 7. THE HON'BLE DELHI HIGH COURT IN THE CASE OF MADHUKAR KHOSLA V. ACIT (SUPRA) HELD THAT WHERE THE REASSESSMENT WAS CLEARLY NOT ON THE BASIS OF ANY NEW OR TANGIBLE INFORMATION OR FACTS THE REVENUE CAME BY AND IT WAS IN EFFECT RE - APPRECIATION OR REVIEW OF THE FACTS THAT WERE ALREADY 6 ITA NO. 3980/MUM/2018 (A.Y: 2009 - 10) M/S. SAMKIT GEMS PROVIDED ALONG WITH THE ORIGINAL RE TURN FILED BY THE ASSESSEE , THE REOPENING OF ASSESSMENT AFTER EXPIRY OF FOUR YEARS WOULD A MOUNT TO IMPERMISSIBLE REVIEW. 8. HON'BLE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD., [320 ITR 561] IT HAS BEEN HELD AS UNDER: - 6. ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE TO SECTION 147 OF THE ACT, WE FIND THAT, PRIOR TO DIRECT TAX LAWS (AMENDMENT) ACT, 1987, RE - OPENING COULD BE DONE UNDER ABOVE TWO CONDITIONS AND FULFILLMENT OF THE SAID C ONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT, BUT IN SECTION 147 OF THE ACT [WITH EFFECT FROM 1ST APRIL, 1989], THEY ARE GIVEN A GO - BY AND ONLY ONE CONDITION HAS REMAINED, VIZ., THAT WHERE THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSM ENT, CONFERS JURISDICTION TO RE OPEN THE ASSESSMENT. THEREFORE, PO ST - 1ST APRIL, 1989, POWER TO RE OPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHE MATIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE' FAILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO RE - OPEN ASSESSMENTS ON THE BASIS OF 'MERE CHANGE O F OPINION', WHICH CANNOT BE PER SE REASON TO RE - OPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO RE - ASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE HAS THE POWER TO RE - ASSESS. BUT RE - ASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE - CONDITION AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF RE - OPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN IN - BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1ST APRIL, 1989, ASSESSING OFFICER HAS POWER TO RE - OPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT, AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMEND MENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS 'REASON TO BELIEVE' BUT ALSO INSERTED THE WORD 'OPINION' IN SECTION 147 OF THE ACT. HOWEVER, ON RECEIPT OF REPRESENTATIONS FROM THE COMPANIES AGAIN ST OMISSION OF T HE WORDS 'REASON TO BELIEVE', PARLIAMENT RE - INTRODUCED THE SAID EXPRESSION AND DELETED THE WORD 'OPINION' ON THE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE ASSESSING OFFICER. WE QUOTE HEREINBELOW THE RELEVANT PORTION OF CIRCULAR NO.5 49 DATED 31ST OCTOBER, 1989, WHICH READS AS FOLLOWS: '7.2 AMENDMENT MADE BY THE AMENDING ACT , 1989, TO REINTRODUCE THE EXPRESSION `REASON TO BELIEVE' IN SECTION 147 . -- A NUMBER OF REPRESENTATIONS WERE RECEIVED AGAINST THE OMISSION OF THE WORDS `REASON TO BELIEVE' FROM SECTION 147 AND THEIR SUBSTITUTION BY THE `OPINION' OF THE ASSESSING OFFICER. IT WAS POINTED OUT THAT THE MEANING OF THE EXPRESSION, `REASON TO BELIEVE' HAD BEEN EXPLAINED IN A NUMBER OF COURT RULINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN PAST ASSESSMENTS ON MERE CHANGE OF OPINION. TO ALLAY THESE FEARS, THE AMENDING ACT , 1989, HAS AGAIN AMENDED SECTION 147 TO REINTRODUCE THE EXPRESSION `HAS REASON TO BELIEVE' IN PLACE OF THE WORDS `FOR REASONS TO BE RECORDED BY HIM IN WRITING, IS OF THE OPINION'. OTHER PROVISIONS OF THE NEW SECTION 147 , HOWEVER, REMAIN THE SAME.' 7 ITA NO. 3980/MUM/2018 (A.Y: 2009 - 10) M/S. SAMKIT GEMS 9. IT HAS BEEN HELD BY THE HON'BLE SUPREME COURT THAT T HE ASSESSING OFFICER HAS POWER TO REOPENING OF ASSESSMENT PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THER E IS ESCAPEMENT OF INCOME FROM ASSESSMENT. IT HAS BEEN HELD THAT THE ASSESSING OFFICER HAS NO POWER TO REVIEW AND HE HAS POWER TO REASSESS. 10. IN THE CASE ON HAND SUGGEST THAT THE ASSESSING OFFICER ON MERE CHANGE OF OPINION BASED ON THE INFORMATION ALREADY A VAILABLE ON RECORD SOUGHT TO REOPEN THE ASSESSMENT WHICH IS NOT PERMISSIBLE IN VIEW OF THE PROVISO TO SECTION 147 OF THE ACT AS THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR COMPLETION OF ASSESSMENT. THUS, THE RE - ASSESSMENT MADE U/S. 143 (3) R.W.S. 147 OF THE ACT IS QUASHED ON THE PRELIMINARY GROUND ITSELF. AS THE ASSESSMENT WAS QUASHED ON PRELIMINARY GROUND , ALL OTHER GROUNDS ON MERITS ARE NOT ADJUDICATE D AS IT BECOMES ONLY ACADEMIC. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31 ST JULY 2019 SD / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 31 / 0 7 / 2019 GIRIDHAR , S R. PS 8 ITA NO. 3980/MUM/2018 (A.Y: 2009 - 10) M/S. SAMKIT GEMS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM