DCIT 10(1), MUMBAI V. VISIOMED (I) LTD, MUMBAI

ITA 404/MUM/2011

• Counselvise Citation: 40419914 RSA 2011
• Duration Of Justice: 3 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-03-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 14-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMBVIT MISHRA
• Assessee Lawyers: VASANT I PATEL; SAMEER SAWLA
• Keywords: Tangible material; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 147; 148; 263; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE S/SHRI D. MANMOHAN , VICE-PRESIDENT AND B.R.BASKARAN (AM) , . , . . , ./I.T.A. NO.404/MUM/2011 ( ! ' / ASSESSMENT YEAR : 2004-05) ASSTT. COMMISSIONER OF INCOME TAX,RANGE-10(1), ROOM NO.455,AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020. / VS. M/S VISIOMED (INDIA)LTD., 159, CST ROAD, KALINA, SANTACRUZ(E), MUMBAI-400098 ( #$ / APPELLANT) .. ( %&#$ / RESPONDENT) # ./ '( ./ PAN/GIRNO.:AAACV2196D #$ ) / APPELLANT BY : SHRI SAMBVIT MISHRA %&#$ * ) /RESPONDENT BY : MS.VASANTI PATEL AND SHRI SAMEER SAWLA + , * -. / DATE OF HEARING : 23.7.2014 / '! * -. /DATE OF PRONOUNCEMENT : 17.9.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 10-11- 2010 PASSED BY LD CIT(A)-21, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2004-05. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN HOLDING THAT THE REASSESSMENT PROCEEDINGS INITIATED BY THE AO IS BAD IN LAW. 2. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. THE ORIGINAL ASSESSMENT IN THE INSTANT CASE COMPLETED U/S 143(3) OF THE ACT ON 29.11.2006. SUBSEQUENTLY THE AO REOPENED THE ASSESSMENT BY ISSU ING NOTICE U/S 148 ON 25.3.2009, I.E., WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. THE AO ALSO INTIMATED THE REASONS FOR RE-OPENING TO THE AS SESSEE. ACCORDING TO THE AO, I.T.A. NO.404/MUM/2011 2 IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE CLAIM M ADE BY THE ASSESSEE WITH REGARD TO THE LONG TERM CAPITAL LOSS OF RS.4,01,31, 897/- ARISING ON CONVERSION OF PREFERENCE SHARES INTO EQUITY SHARES WAS ALLOWED TO THE ASSESSEE. ACCORDING TO THE AO, THE LOSS AROSE IN RESPECT OF THE FOLLOWING SHARES, I.E., ON CONVERSION OF PREFERENCE SHARES INTO EQUITY SHARES:- 1. POLYNOVA INDUSTRIES PVT LTD - 1,39 ,57,704 2. BERG TRADING PVT. LTD - 1,12,29,530 3. GARD INDS. PVT LTD - 1,49,20,564 THE AO REFERRED TO THE PROVISIONS OF SEC. 47(X) OF THE ACT, ACCORDING TO WHICH ANY TRANSFER BY WAY OF CONVERSION OF BONDS OR DEBEN TURES, DEBENTURE STOCK OR DEPOSIT CERTIFICATE IN ANY FORM OF ASSESSEE COMPANY INTO SHARES OR DEBENTURES OF THE COMPANY IS NOT RENDERED AS TRANSFER. THE ASSESSEE HAD BROUGHT FORWARD LONG TERM CAPITAL LOSS OF RS.2,37,94,671/- FOR AY 2 003-04. THE AO TOOK THE VIEW THAT BOTH THE LOSSES AGGREGATING TO RS.6,39,26 ,568/- ARE NOT ALLOWABLE TO THE ASSESSEE. ACCORDINGLY, THE AO FORMED THE BELIE F THAT THE INCOME OF THE ASSESSEE WAS UNDER ASSESSED TO THE TUNE OF RS.6,39, 26,568/- AND THEREBY THE SAME HAS ESCAPED THE ASSESSMENT WITHIN THE MEANING OF SEC. 147 OF THE ACT. 3. HOWEVER, THE AO COMPLETED THE REASSESSMENT PROCEEDINGS ADDING THE LONG TERM CAPITAL LOSS OF RS.4,01,31,897/- TO THE T OTAL INCOME OF THE ASSESSEE WITHOUT DISCUSSING ANYTHING ABOUT THE BROUGHT FORWA RD LOSS, REFERRED ABOVE. 4. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THA T THE PREFERENCE SHARES OF POLYNOVA INDUSTRIES WERE REDEEMED DURING THE YEAR U NDER CONSIDERATION. IT WAS FURTHER SUBMITTED THAT THE PREFERENCE SHARES OF BER G TRADING PVT LTD AND GARG INDUSTRIES LTD WERE CONVERTED INTO EQUITY SHARES IN THE IMMEDIATELY PRECEDING YEAR, I.E., AY 2003-04 AND THE ASSESSEE HAS COMPUTE D THE LONG TERM CAPITAL LOSS IN THAT YEAR, WHICH HAS BEEN ALLOWED BY THE ASSESSI NG OFFICER AFTER CARRYING OUT NECESSARY EXAMINATION. IT WAS FURTHER SUBMITTED THA T THE EQUITY SHARES SO ALLOTTED IN THE ABOVE SAID TWO COMPANIES WERE SOLD DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED THAT ALL T HESE DETAILS WERE EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. ACCORDINGLY IT WAS CONTENDED THAT THE RECOURSE TO T HE PROVISIONS OF SEC. 147 OF THE ACT WAS RESORTED ONLY TO REVIEW THE CONCLUDED I SSUES WITHOUT ANY COGENT I.T.A. NO.404/MUM/2011 3 REASONS OR ANY FRESH TANGIBLE MATERIAL. IT WAS FUR THER SUBMITTED THAT THE ASSESSEE HAD FILED ITS OBJECTIONS TO THE RE-OPENING AFTER THE RECEIPT OF REASONS, BUT THE AO HAS COMPLETED THE REASSESSMENT WITHOUT C ONSIDERING THE OBJECTIONS AND PASSING A SPEAKING ORDER THEREON IN TERMS OF TH E DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF GKN DRIVESHAF TS (INDIA) LTD VS. ITO (259 ITR 19). 5. WITH REGARD TO THE VIEW EXPRESSED BY THE AO THA T THE BROUGHT FORWARD LOSS RELATING TO AY CAN NOT BE ALLOWED TO BE SET OF F, THE ASSESSEE SUBMITTED BEFORE LD CIT(A) THAT THE ASSESSMENT ORDER OF AY 20 03-04 WAS SUBJECTED TO REVISION U/S 263 OF THE ACT AND ALSO RE-OPENING OF ASSESSMENT U/S 148 OF THE ACT AND THE SAID CLAIM WAS ALLOWED IN THOSE PROCEEDINGS . 6. THE LD CIT(A), ON EXAMINATION OF THE BALANCE SHEETS OF THE ASSESSEE, NOTICED THAT THE PREFERENCE SHARES OF BERG TRADING LTD AND GARG INDUSTRIES LTD WERE CONVERTED INTO EQUITY SHARES IN AY 2003-04 AND NOT DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS ALSO ALLO WED THE LOSS ARISING ON SUCH CONVERSION TO BE CARRIED FORWARD. THE LD CIT(A) FU RTHER NOTICED THAT THE FINANCIAL STATEMENTS DO NOT SHOW CONVERSION OF PREF ERENCE SHARES OF M/S POLYNOVA INDUSTRIES LTD INTO EQUITY SHARES, AS PRES UMED BY THE AO. THE LD CIT(A) NOTICED THAT THE ASSESSEE HAD ADDRESSED A LE TTER DATED AUG 28, 2006 TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS RELATING TO AY 2004-05, WHEREIN IT HAD EXPLAINED ABOUT THE REDEMPTION OF PR EFERENCE SHARES OF POLYNOVA INDUSTRIES LTD. FURTHER IT WAS SEEN THAT THE AO HA D ISSUED A LETTER DATED 10.10.2006 TO THE ASSESSEE WHEREIN THE AO HAD MADE ENQUIRIES IN RESPECT OF SALE OF SHARES OF M/S BERG TRADING P LTD AND M/S GA RG INDUSTRIES LTD. HENCE THE LD CIT(A) FOUND THAT THERE WAS MERIT IN THE CONTENT IONS OF THE ASSESSEE THAT THE AO HAS REOPENED THE ASSESSMENTS ONLY TO REVIEW THE FACTS AND IT WAS ONLY CASE OF CHANGE OF OPINION. FURTHER THE LD CIT(A) HELD THAT THE AO HAS FORMED THE OPINION ON INCORRECT FACTS AND CONSEQUENTLY THE ASS UMPTION OF JURISDICTION ON THE BASIS OF SUCH INCORRECT BELIEF WAS A CASE OF INCORR ECT ASSUMPTION OF JURISDICTION. ACCORDINGLY, THE LD CIT(A) HELD THAT THE NOTICE ISS UED U/S 148 WAS BAD IN LAW AND CONSEQUENTLY HELD THAT THE REASSESSMENT ORDER F RAMED BY THE AO WAS INVALID. AGGRIEVED, THE REVENUE HAS FILED THIS APP EAL BEFORE US. I.T.A. NO.404/MUM/2011 4 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE RECORD. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS CLAIMED THE LONG TERM CAPITAL LOSS ARISING ON CONVERSION OF PREFERENCE SHARES OF THREE COMPANIES INTO EQUITY SHARES. HOWEVER, THE FACTS EXAMINED BY LD CIT(A) S HOW THAT THE PREFERENCE SHARES OF TWO COMPANIES WERE CONVERTED INTO EQUITY SHARES IN THE IMMEDIATELY PRECEDING YEAR AND THE PREFERENCE SHARES OF ANOTHER COMPANY WERE NOT CONVERTED AT ALL. DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE HAS SOLD THE EQUITY SHARES OF TWO COMPANIES SO CONVERTED IN THE IMMEDIATELY PRECEDING YEAR. THE PREFERENCE SHARES OF THE THIRD COMPANY WAS REDE EMED DURING THE YEAR. THUS, IT IS SEEN THAT THE LD CIT(A) HAS GIVEN A CLE AR FINDING THAT THE VIEW ENTERTAINED BY THE AO THAT THE LONG TERM CAPITAL LO SS HAS ARISEN DUE TO CONVERSION OF PREFERENCE SHARES INTO EQUITY SHARES WAS WRONG. ACCORDINGLY THE LD CIT(A) HAS EXPRESSED THE VIEW THAT THE RE-OPENIN G OF ASSESSMENT ON THE BASIS OF INCORRECT ASSUMPTION OF FACTS WAS BAD IN L AW. THOUGH THE LD D.R STRONGLY DEFENDED THE ORDER OF THE AO ON THESE ASPE CTS, YET HE COULD NOT CONTROVERT THE FINDINGS GIVEN BY THE LD CIT(A) ON T HE FACTS. THE ABOVE SAID VIEW TAKEN BY LD CIT(A) FINDS SUPPORT FROM THE DECISION RENDERED BY AHMEDABAD SMC BENCH OF TRIBUNAL IN THE CASE OF MAHADEV TRADING C O. VS. ITO (2012) 135 ITD 1 (AHD). 8. THE LD A.R PLACED RELIANCE ON THE DECISION REND ERED BY JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF PRASHANT S JOSHI V S. ITO (2010)(324 ITR 154), WHEREIN THE HONBLE HIGH COURT HAS EXPRESSED THE VI EW THAT THE REASONS WHICH ARE RECORDED BY THE ASSESSING OFFICER FOR REOPENING AN ASSESSMENT ARE THE ONLY REASONS WHICH CAN BE CONSIDERED WHEN THE FORMATION OF THE BELIEF IS IMPUGNED. IN THE INSTANT CASE, THE AO HAD FORMED THE BELIEF A BOUT THE ESCAPEMENT OF INCOME ON THE REASONING THAT THE LONG TERM CAPITAL LOSS HAS ARISEN IN THE HANDS OF THE ASSESSEE ON CONVERSION OF PREFERENCE SHARES INTO EQUITY SHARES. HOWEVER, THE LD CIT(A) HAS, AFTER EXAMINATION OF THE FACTS, HAS GIVEN A FINDING THAT THE SAID BELIEF WAS WRONG. HENCE THE VIEW TAKEN BY LD CIT(A) GETS FORTIFIED BY THE DECISION OF JURISDICTIONAL HIGH COURT. I.T.A. NO.404/MUM/2011 5 9. FURTHER, THE DISCUSSIONS MADE BY THE LD CIT(A) ALSO SHOW THAT THE ASSESSEE HAD INFORMED ABOUT THE REDEMPTION OF PREFE RENCE SHARES OF M/S POLYNOVA INDUSTRIES LTD IN ITS LETTER DATED AUGUST 28, 2006. FURTHER THE DETAILS OF SALE OF EQUITY SHARES WERE ALSO INFORMED TO THE AO BY THE ASSESSEE IN ITS LETTER DATED 10.10.2006. THE LD CIT(A) HAD ALSO OBSERVED THAT THE VARIOUS OTHER DOCUMENTS FILED BY THE ASSESSEE SHOW THAT THE DETAI LS OF REDEMPTION OF PREFERENCE SHARES OF POLYNOVA INDUSTRIES LTD AND T HE DETAILS OF SALE OF EQUITY SHARES OF OTHER TWO COMPANIES WERE DULY CONSIDERED BY THE AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS. ACCORDINGLY, THE LD CIT(A) HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE THAT THE ASSESSMENT HAS BEEN REOPENED ONLY ON CHANGE OF OPINION AND TO REVIEW THE CONCLUDED ISSUE S. 10. UNDER THE ABOVE SET OF FACTS, THE LD CIT(A) HAS CONCLUDED AS UNDER:- 2.3 (G) THE ABOVE FACTS AND DISCUSSION CLEARLY SH OWS THAT DURING THE YEAR THE PREFERENCE SHARES OF THE ABOVE THREE COMPA NIES WERE NOT CONVERTED INTO EQUITY SHARES. SINCE THE AO FORMED HIS OPINION SOLELY ON THE BASE THAT THE CONVERSION OF PREFERENCE SHARES O F THESE COMPANIES INTO EQUITY SHARES GIVE RISE TO LONG TERM CAPITAL LOSS A ND RESULTING INTO ALLOWANCE OF EXCESS LOSS AND THEREBY ESCAPEMENT OF INCOME, THE VERY BASE FOR FORMING SUCH OPINION WAS INCORRECT AND NOT SUPPORTED BY FACTS. IN FACT DURING ORIGINAL ASSESSMENT PROCEEDINGS ITSE LF, THE CORRECT FACTS WERE BROUGHT INTO THE KNOWLEDGE OF A.O AND THE SAME WERE ALREADY FORMING PART OF RECORD. MOREOVER, THE CONVERSION O F PREFERENCE SHARES INTO EQUITY SHARES OF BERG TRADING CO. AND GARG IND USTRIES LTD TOOK PLACE IN A.Y 2003-04 AND NOT IN THIS YEAR. IN THE FACTS AND CIRCUMSTANCES, THE FORMATION OF BELIEF U/S 147 WAS ON INCORRECT FACTS AND CONSEQUENTLY THE ASSUMPTION OF JURISDICTION ON THE BASIS OF SUCH BEL IEF WAS INCORRECT ASSUMPTION OF JURISDICTION. CONSEQUENTLY THE NOTIC E ISSUED U/S 148 WAS ALSO BAD IN LAW. CONSEQUENTLY THE ASSESSMENT FRAME D U/S 143(3)/147 ON THE BASIS OF INCORRECT ASSUMPTION OF JURISDICTION W AS INVALID. 11. THE FOREGOING DISCUSSIONS SHOW THAT THE LD CIT (A) HAS ARRIVED AT THE ABOVE SAID CONCLUSION ON PROPER APPRECIATION OF FACTS AND APPLICABLE LAWS. WE HAVE ALREADY NOTICED THAT THE REVENUE COULD NOT CONTROVE RT THE FINDINGS GIVEN BY LD CIT(A). ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER AND ACCORDINGLY UPHOLD THE SAME. I.T.A. NO.404/MUM/2011 6 12. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 17TH SEPT, 2014 . / '! + 0 1 2 3 17TH SEPT, 2014 * 4, 5 SD SD ( . / D. MANMOHAN ) ( . . ,/ B.R. BASKARAN) / VICE- PRESIDENT / ACCOUNTANT MEMBER + , MUMBAI: 17TH SEPT,2014. . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. #$ / THE APPELLANT 2. %&#$ / THE RESPONDENT. 3. + 6- ( ) / THE CIT(A)- CONCERNED 4. + 6- / CIT CONCERNED 5. 6. 784 %- 9 , . 9 ! , + , / DR, ITAT, MUMBAI CONCERNED 4 , / GUARD FILE. : + / BY ORDER, TRUE COPY ' (ASSTT. REGISTRAR) . 9 ! , + , /ITAT, MUMBAI