M/s. Hiralal Mancharam & Sons Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(2), Surat

ITA 3983/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9441 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-09-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 30-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: R N VEPARI
• Keywords: Unexplained cash credit; Depreciation; Reason to believe; Set aside
• Section: 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI G.D.AGARWAL, VICE-PRESIDENT AND T.K. SHARMA, JUDICIAL MEMBER) ITA NO.3983/AHD/2007 [ASSTT. YEAR : 2003-2004] HIRALAL MANCHARAM & SONS LTD. HIRALAL COLONY, A.K. ROAD SURAT. VS. ITO, WARD-1(2) SURAT. ITA NO.4294/AHD/2007 [ASSTT. YEAR : 2003-2004] ITO, WARD-1(2) SURAT. VS. HIRALAL MANCHARAM & SONS LTD. HIRALAL COLONY, A.K. ROAD SURAT. ITA NO.3984/AHD/2007 [ASSTT. YEAR : 2003-2004] HIRALAL MANCHARAM & SONS LTD. HIRALAL COLONY, A.K. ROAD SURAT. VS. ITO, WARD-1(2) SURAT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.N. VEPARI REVENUE BY : SHRI C.K. MISHRA O R D E R G.D. AGARWAL, VICE-PRESIDENT: THE FIRST TWO APPEALS ARE CROSS APPEALS AGAINST THE SAME ORDER OF THE CIT(A)-I, SUR AT WHILE THE THIRD ONE IS AGAINST THE ORDER OF THE CIT-I, SURAT. SINCE ISSUE RAISED IN ALL THESE APPEALS ARE INTERRELATED, FOR THE SAKE OF CONVENIENCE, WE DISPO SE OF ALL OF THEM BY THIS COMMON ORDER. 2. FIRST WE SHALL TAKE UP ITA NO.3983/AHD/2007. T HE FIRST GROUND RAISED IN THIS APPEAL READS AS UNDER: HIRALAL MANCHARAM & SONS LTD. VS. ITO, WARD-1(2), SURAT -2- 1. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ASSESSMENT REOPENED U/S.147 MADE BY THE AO. 3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT AS PER THE COPY OF THE REASONS RECORDED FOR RE OPENING OF THE ASSESSMENT SUPPLIED BY THE AO, IT IS EVIDENT THAT THE ASSESSME NT WAS REOPENED ON THE GROUND THAT EXCESS DEPRECIATION WAS CLAIMED BY THE ASSESSEE. HE POINTED OUT THAT IN THE REASONS RECORDED, THE AO HAS MENTIONED THAT THERE WAS REVALUATION OF ASSETS THAT THE ASSESSEE HAS CLAIMED AND WAS ALL OWED THE DEPRECIATION ON THE REVALUATION OF ASSETS. THAT IN THE BOOKS OF ACCOUN TS, THE DEPRECIATION WAS CLAIMED ON THE BASIS OF BOOK VALUE, BUT IN THE RETU RN OF INCOME THE DEPRECIATION WAS CLAIMED ON WDV ONLY. THUS, NO DEPRECIATION WAS CLAIMED ON THE REVALUATION OF THE ASSETS. HE ALSO POINTED OUT THA T THE REVALUATION OF THE ASSETS WAS MADE IN ASSESSMENT YEAR 1993-94 AND THEREAFTER EVERY YEAR THE ASSESSEE IS CLAIMING THE DEPRECIATION ONLY ON THE WDV AS PERMIS SIBLE UNDER THE INCOME TAX ACT. THUS, THERE WAS NO ESCAPEMENT OF INCOME A T ALL. THIS POSITION IS ALSO EVIDENT FROM THE FACT THAT IN THE ORDER OF THE REAS SESSMENT, THE AO DID NOT DISALLOW ANY DEPRECIATION. ON THE OTHER HAND, THE ADDITION/DISALLOWANCE HAS BEEN MADE ON SOME OTHER GROUND, WHICH WAS NOT THE B ASIS FOR REOPENING OF THE ASSESSMENT. HE THEREFORE SUBMITTED THAT THE GROUND ON WHICH THE ASSESSMENT WAS REOPENED WAS ON NON-EXISTING MATERIAL AND THERE FORE REOPENING DESERVES TO BE QUASHED. HE ALSO POINTED OUT THAT IF THE REASON S FOR REOPENING ARE PERUSED, IT WOULD BE EVIDENT THAT THE AO EITHER DID NOT PROPERL Y APPLY HIS MIND OR HE WAS CONFUSED. BECAUSE AT ONE STAGE HE STATED THAT THE DEPRECATION OF RS.7,96,113/- WAS REQUIRED TO BE DEBITED TO ASSETS REVALUATION RE SERVE ACCOUNT, BUT HE FINALLY CONCLUDED THAT THERE WAS ESCAPEMENT OF INCOME OF RS .39,80,564/-. THAT THE TOTAL DEPRECIATION CLAIMED BY THE ASSESSEE WAS RS.3 9,80,564/-. ALONG WITH THE RETURN OF INCOME, THE ASSESSEE HAS FURNISHED DEPREC IATION CHART FROM WHICH THIS FACT WAS CLEAR THAT THE DEPRECIATION WAS CLAIMED ON WDV OF ASSETS AS WELL AS THE ADDITION DURING THE YEAR UNDER CONSIDERATION. IN VIEW OF THE ABOVE FACTS, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE REOPEN ING OF THE ASSESSMENT WAS HIRALAL MANCHARAM & SONS LTD. VS. ITO, WARD-1(2), SURAT -3- NOT VALID, THE SAME SHOULD BE QUASHED. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I) HINDUSTAN DORR OLIVER LTD. VS. DCIT, 4 DTR (BOM) 61 ; II) CIT VS. SHRI RAM SINGH, 8 DTR (RAJ) 118; III) JAYBHARA MARUTI LTD. CIT, 223 CTR (DEL) 269; IV) DCIT VS. RAVINA ASSOCIATES P. LTD., 15 DTR (DELH)(T RI.) 1; V) CHHAGAN LAL URF VIDHYA SAGAR GUPTA VS. ITO, 118 TTJ (JD) 276; VI) TRAVANCORE CEMENTS LTD. VS. ACIT, 219 CTR (KER.) 35 9 4. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. HE HAS STATED THAT AT THE TIME OF REOPENING OF THE ASSESSMENT ONLY PRIMA FACIE BELIEF OF THE AO IS REQUIRED AND THERE IS NO NECES SITY OF CONCLUSIVE FINDING OF THE ESCAPEMENT OF INCOME. SI NCE AT THE TIME OF ISSUE OF NOTICE, THE AO WAS OF PRIMA FACIE BELIEF THAT THERE WAS AN EXCESS CLAIM OF DEPRECIATION, THE ASSESSMENT WAS REOPENED. HOWEVER , WHEN THE RE-ASSESSMENT WAS COMPLETED, THE AO WAS SATISFIED THAT THERE WAS NO EXCESS CLAIM OF DEPRECIATION AND THEREFORE NO DISALLOWANCE WAS MADE OUT OF THE CLAIM OF THE DEPRECIATION. FURTHER, MERELY BECAUSE IN THE FINAL ASSESSMENT, DEPRECIATION WAS NOT DISALLOWED, IT COULD NOT BE CONCLUDED THAT REOP ENING OF THE ASSESSMENT WAS INVALID. 5. WE HAVE CAREFULLY CONSIDERED ARGUMENTS OF BOTH T HE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE AO RECORDED THE FOLLOWING REASONS FOR REOPENING OF THE ASSESSMENT: IN THIS CASE, RETURN OF INCOME WAS FILED BY THE AS SESSMENT COMPANY FOR A.Y.2003-04 ON 23.11.2004 ON 23.11.2004, DECLARING NIL INCOME. THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE AC T ON 23.12.03, ON THE RETURNED INCOME. ON PERUSAL OF THE BALANCE SHEET AS ON 31.3.2003, IT IS SEEN THAT THERE IS A CREDIT BALANCE OF RS.2,50,00,236 LYING UNDER THE HEAD FIXED ASSETS REVALUATION RESERVE ACCOUNT AS ON 31.3.2003 AND 31 .3.2002. THUS, IT HIRALAL MANCHARAM & SONS LTD. VS. ITO, WARD-1(2), SURAT -4- CAN BE SEEN THAT THE ASSETS OF THE COMPANY WAS REVA LUED IN THE PAST AND REVALUATION RESERVE WAS CREATED. IT IS ALSO REVEAL ED THAT THE ASSESSEE HAS CLAIMED RS.39,80,564/- AS PER I.T.ACT AND WAS ALLOWED DURING THE PREVIOUS YEAR, RELEVANT TO A.Y.2003-04. HOWEVER, N O PROPORTIONATE DEPRECIATION TO THE EXTENT RELATABLE TO INCREASE VA LUE OF ASSETS HAS BEEN DEBITED TO FIXED ASSETS REVALUATION RESERVE ACCOUN T. ACCORDINGLY, DEPRECIATION AT 20% OF RS.7,96,113/- WAS REQUIRED T O BE DEBITED TO ASSETS REVALUATION RESERVE ACCOUNTS. THIS IS IN VIOLATION OF ACCOUNTING PRINCIPLE, WHICH CAUSED UNDER STATEMENT OF INCOME BY RS.39,80,564/-. CONSIDERING THE ABOVE FACTS, I THEREFORE, HAVE REAS ON TO BELIEVE THAT THE INCOME OF RS.39,80,564/- CHARGEABLE TO TAX HAS ESCA PED ASSESSMENT FOR A.Y.2003-04. FROM THE ABOVE, IT IS EVIDENT THAT AS PER THE AO, T HERE WAS ESCAPEMENT OF INCOME TO THE EXTENT OF RS.39,80,564/-. ACCORDINGL Y TO HIM, IT WAS BECAUSE THE ASSESSEE CLAIMED DEPRECATION ON REVALUATION RESERVE ACCOUNT. THE ABOVE FINDING OF THE AO IS FACTUALLY INCORRECT. THE ASSE SSEE HAS CLAIMED TOTAL DEPRECIATION OF RS.39,80,564/-. AT PAGE NO.345 OF THE ASSESSEES PAPER-BOOK, THERE IS A WORKING OF THE DEPRECIATION CLAIMED BY T HE ASSESSEE. THIS WORKING IS FILED ALONG WITH COMPUTATION OF THE INCOME FOR THE YEAR UNDER CONSIDERATION. FROM THIS WORKING OF THE DEPRECIATION, IT IS EVIDEN T THAT THE ENTIRE DEPRECIATION WAS CLAIMED ON THE WDV ON VARIOUS BLOCKS OF THE ASS ETS AS WELL AS THE ADDITION DURING THE YEAR UNDER CONSIDERATION. THUS, PRIMA FACIE NO DEPRECIATION WAS CLAIMED ON REVALUATION RESERVE ACCOUNT. MOREOVER, IN THE ASSESSMENT ORDER PASSED BY THE AO AFTER REOPENING OF THE ASSESSMENT, THERE IS NO DISALLOWANCE OUT OF THE DEPRECIATION CLAIMED BY THE ASSESSEE. T HE ONLY ADDITION MADE BY THE AO WAS IN RESPECT OF UNEXPLAINED CREDITORS AND CERT AIN DISALLOWANCE UNDER SECTION 40A(2)(B). THE LEARNED DR HAS CONTENDED T HAT AT THE TIME OF REOPENING OF THE ASSESSMENT ONLY PRIMA FACIE BELIEF OF THE AO WITH REGARD TO ESCAPEMENT OF INCOME IS REQUIRED AND NOT FINAL CONC LUSION OF THE ESCAPEMENT OF THE INCOME. HOWEVER, EVEN FOR ARRIVING AT SUCH PRIMA FACIE BELIEF, THERE HAS TO BE SOME MATERIAL. IF REASON TO BELIEVE IS ARRIVE D AT ON NO MATERIAL OR NON- HIRALAL MANCHARAM & SONS LTD. VS. ITO, WARD-1(2), SURAT -5- EXISTING MATERIAL, REOPENING CANNOT BE SUSTAINED. HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN DORR OLIVER LTD. (SUPRA) H ELD AS UNDER: 7. CONSIDERING THE ABOVE DISCUSSION AS THE NOTICE ITSELF IS NOT BASED ON ANY MATERIAL AND/OR NON-EXISTING MATERIAL, THE F ORMATION OF OPINION OR REASONS TO BELIEVE IS BASED ON NO MATERIAL, MU ST BE QUASHED AND SET ASIDE. CONSEQUENTLY, PETITION MADE ABSOLUTE IN TER MS OF PRAYER CL. (A). THERE SHALL BE NO ORDER AS TO COSTS. 6. SIMILAR VIEW IS TAKEN BY DELHI HIGH COURT IN THE CASE OF JAYBHARA MARUTI LTD. (SUPRA) AS WELL AS KERALA HIGH COURT IN THE CASE OF TRAVANCORE CEMENTS LTD. (SUPRA). IN THE CASE OF THE ASSESSEE ALSO, THE AOS BELIEF WAS THAT THE ASSESSEE CLAIMED DEPRECIATION ON REVALUATI ON OF ASSETS. HOWEVER, THE DEPRECIATION CHART FURNISHED ALONG WITH RETURN CLEA RLY SHOWS THAT NO DEPRECIATION WAS CLAIMED ON REVALUATION OF ASSETS. THUS, THE AOS FINDING WAS BASED ON INCORRECT FACTS. ON THESE FACTS, DECISION S OF HONBLE BOMBAY, DELHI AND KERALA HIGH COURTS, REFERRED ABOVE WOULD BE SQU ARELY APPLICABLE. RESPECTFULLY FOLLOWING THE SAME, WE QUASH THE NOTIC E ISSUED UNDER SECTION 148. ONCE THE NOTICE ISSUED UNDER SECTION 148 IS QUASHED , ASSESSMENT COMPLETED IN PURSUANCE TO SUCH NOTICE, CANNOT SURVIVE, THE SAME IS ALSO QUASHED. 7. SINCE WE HAVE QUASHED THE ASSESSMENT ORDER UNDER CONSIDERATION, THE OTHER GROUNDS RAISED IN THE ASSESSEES APPEAL AS WE LL AS THE GROUNDS IN THE CROSS APPEALS BY THE REVENUE IN ITA NO.4294/AHD/2007 DOES NOT REQUIRE ANY ADJUDICATION. 8. ITA NO.3984/AHD/2007 IS THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER UNDER SECTION 154 PASSED BY THE AO WHEREIN HE HAD RECTIFIED THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3)/147. SINCE WE HAVE ALREADY QUASHED THE ASSESSMENT ORDER PASSED IN PURSUANCE TO NOTICE UNDER SECTION 148, THE ORDER UNDER SECTION 154 ALSO DOES NOT SURVIVE. THE SAME IS ALSO QUASHED. HIRALAL MANCHARAM & SONS LTD. VS. ITO, WARD-1(2), SURAT -6- 9. IN RESULT, THE ASSESSEES APPEAL VIDE ITA NO.398 3/AHD/2007 AS WELL AS 3984/AHD/2007 ARE DEEMED TO BE ALLOWED WHILE THE RE VENUES APPEAL VIDE ITA NO.4294/AHD/2007 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH NOVEMBER, 2010. SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 04-11-2010 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD