ITO 14(3)-2, MUMBAI V. DEVIDAS SOONDERDAS & CO., MUMBAI

ITA 4176/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8942 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-08-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A PANT SR
• Keywords: Business expenditure; Cost of acquisition; Tangible material; Difference of opinion; Tax effect; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 147

Judgement Text

PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT & SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.AS. NO. 4175 & 4176/MUM/2011 ASSESSMENT YEARS : 2002-03 & 2003-04 INCOME TAX OFFICER 14(3)-2, MUMBAI. VS. M/S DEVIDAS SOONDERDAS & CO., 220, VIJAY GALLI, M.J.MARKET, MUMBAI 400 002. PAN: AAAFD 1703 F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.A.PANT. SR. A.R. RESPONDENT BY : SHRI NITESH JOSHI. DATE OF HEARING:07-08-2012. DATE OF PRONOUNCEMENT: 05.09.2012 O R D E R PER VIVEK VARMA, JM: THE INSTANT APPEALS ARE FILED BY THE DEPARTMENT AGA INST THE ORDER OF CIT(A) 25, DATED 02-03-2011. AS THE ISSUES INVOLVED AND THE GROUNDS OF APPEAL, TAKEN BY THE DEPARTMENT ARE IDEN TICAL, WE, FOR THE SAKE OF BREVITY AND CONVENIENCE, DISPOSE OFF THE IN STANT APPEALS VIDE A COMMON ORDER. THE DEPARTMENT HAS RAISED THE FOLLOWI NG GROUNDS IN THE TWO IMPUGNED YEARS : GROUNDS OF APPEAL FOR A.Y 2002-03: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ACTION TAKEN BY THE A SSESSING OFFICER U/S 147 OF THE IT ACT, 1961, IS A MERE CHANGE OF OPINION AND CONTRARY TO JUDICIAL PRONOUNCEMENTS AND HENCE NOT SUSTAINABLE IN THE EYES OF LAW. 2. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THA T THE ASSESSING OFFICER HAS NOT DEALT WITH THE ISSUE OF CLAIM OF INTEREST IN TH E ORIGINAL ASSESSMENT AND THEREFORE IT COULD NOT BE SAID THAT AN OPINION IN RESPECT OF ALL OWABILITY OF INTEREST CLAIM HAS BEEN M/S DEVIDAS SUNDERDAS & CO. I.T.A.NOS.417 5 & 4176/M/11 PAGE 2 OF 9 FORMED BY THE ASSESSING OFFICER WHILE COMPLETING TH E ORIGINAL ASSESSMENT AND THAT INCOME ESCAPING ASSESSMENT COVERS THE CASE OF A DIS COVERY OF MISTAKE IN THE ASSESSMENT CAUSED BY EITHER AN ERRONEOUS CONSIDERAT ION OF TRANSACTION OR DUE TO NON- CONSIDERATION OF TRANSACTION WHICH IS WELL SUPPORTE D BY JUDICIAL PRONOUNCEMENTS. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDITION MA DE BY THE A.O. OF RS. 2,66,000/-ON ACCOUNT OF INTEREST ON BORROWED CAPITA L USED FOR ADVANCING LOAN TO SISTER CONCERNS WITHOUT APPRECIATING THE FACT THAT DURING THE YEAR THE ASSESSEE HAD GIVEN INTEREST FREE LOANS AND ADVANCES TO SISTER CO NCERNS/RELATIVES, MAKING INVESTMENT IN SHARES WHERE THERE IS NO TAXABLE INCO ME, WHEREAS THE ASSESSEE HAD PAID INTEREST ON BORROWED FUNDS. THEREFORE, THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE A.O. HAS RIGHTLY DISALLOWED THE AMOUNT OF RS. 2 ,66,000/- ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS DIVERTED FOR THE PURPOSE OF NON-BUSINESS ACTIVITY. 4. THE LD. CIT(A) ERRED IN DELETING THE ADDITION MA DE BY THE A.O. OF RS. 10,75,946/- B) TREATING INTEREST AS CAPITAL EXPENSE S WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS BEEN FOLLOWING A STRANGE SYSTEM OF ACCOUNTING OF SHARE TRADING AND CAPITAL GAINS WITHOUT APPRECIATING THE FACT THAT TH E INTEREST AMOUNTS PERTAINING TO THE INVESTMENT ACCOUNT OF THE ASSESSEE WERE TREATED AS FORMING PART OF THE COST OF ACQUISITION OF THE SHARES HELD IN INVESTMENT ACCOUN T BY THE ASSESSEE. THEREFORE, THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE A.O. HAS RIG HTLY DISALLOWED THE AMOUNT OF RS. 10,75,946/- BY TREATING IT AS CAPITAL IN NATURE FOR MING PART OF THE COST OF ACQUISITION OF THE INVESTMENTS. 5. FOR THESE AND ANY OTHER REASONS THAT MAY BE URGE D AT THE TIME OF HEARING , IT IS REQUESTED THAT THE ORDER OF THE CIT(A) BE QUASHE D AND THAT OF THE A.O. BE RESTORED. GROUNDS OF APPEAL FOR A.Y. 2003-04: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ACTION TAKEN BY THE A SSESSING OFFICER U/S. 147 OF THE IT. ACT, 1961, IS A MERE CHANGE OF OPINION AND CONTRARY TO JUDICIAL PRONOUNCEMENTS AND HENCE NOT SUSTAINABLE IN THE EYES OF LAW. 2. THE LD. CIT(A) FAILED TO APPRECIATE THE FAC T THAT THE ASSESSING OFFICER HAS NOT DEALT WITH THE ISSUE OF CLAIM OF INTEREST IN THE OR IGINAL ASSESSMENT AND THEREFORE T COULD NOT BE SAID THAT AN OPINION IN RESPECT OF ALL OWABILITY OF INTEREST CLAIM HAS BEEN FORMED BY THE ASSESSING OFFICER WHILE COMPLETING TH E ORIGINAL ASSESSMENT AND THAT INCOME ESCAPING ASSESSMENT COVERS THE CASE OF A DIS COVERY OF MISTAKE IN THE ASSESSMENT CAUSED BY EITHER AN ERRONEOUS CONSIDERAT ION OF TRANSACTION OR DUE TO NON- CONSIDERATION OF TRANSACTION WHICH IS WELL SUPPORTE D BY JUDICIAL PRONOUNCEMENTS. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDIT ION MADE BY THE AC. OF RS. 2,91,000/-ON ACCOUNT OF INTEREST ON BORROWED CAPITA L USED FOR ADVANCING LOAN TO SISTER CONCERNS WITHOUT APPRECIATING THE FACT THAT DURING THE YEAR THE ASSESSEE HAD GIVEN INTEREST FREE LOANS AND ADVANCES TO SISTER CO NCERNS/RELATIVES, MAKING INVESTMENT IN SHARES WHERE THERE IS NO TAXABLE INCO ME, WHEREAS THE ASSESSEE HAD PAID INTEREST ON BORROWED FUNDS. THEREFORE, THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE AC. HAS RIGHTLY DISALLOWED THE AMOUNT OF RS. 2, 91000/- ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS DIVERTED FOR THE PURPOSE OF NON-BUSINESS ACTIVITY. 4. THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON MADE BY THE AC. OF RS. 11,24,607/- BY TREATING INTEREST AS CAPITAL EXPENSE S WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS BEEN FOLLOWING A STRANGE SYSTEM OF ACCOUNTING OF SHARE TRADING AND CAPITAL GAINS WITHOUT APPRECIATING THE FACT THAT TH E INTEREST AMOUNTS PERTAINING TO THE INVESTMENT ACCOUNT OF THE ASSESSEE WERE TREATED AS FORMING PART OF THE COST OF ACQUISITION OF THE SHARES HELD IN INVESTMENT ACCOUN T BY THE ASSESSEE. THEREFORE, THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE A.O. HAS RIG HTLY DISALLOWED THE AMOUNT OF RS. 11,24,607/- BY TREATING IT AS CAPITAL IN NATURE FOR MING PART OF THE COST OF ACQUISITION OF THE INVESTMENTS. 5. FOR THESE AND ANY OTHER REASONS THAT MAY BE URGED AT THE TIME OF HEARING. IT IS REQUESTED THAT THE ORDER OF THE CIT(A) BE QUASHED A ND THAT OF THE A.O. BE RESTORED. M/S DEVIDAS SUNDERDAS & CO. I.T.A.NOS.417 5 & 4176/M/11 PAGE 3 OF 9 2. THE BRIEF FACTS OF THE CASE ARE THAT THE REGULAR ASSESSMENT FOR ASSESSMENT YEARS 2002-03 AND 2003-04, U/S 143(3) WE RE FRAMED VIDE ORDERS DATED 08.02.2005 AND 16.01.2006. THEREAFTER, THE AO ISSUED A NOTICES U/S 148, DATED 26.03.2007 AND 12.04.2007. A S A CONSEQUENCE OF THE INITIATION OF REASSESSMENT PROCEEDINGS, ASSE SSMENTS U/S 143(3) READ WITH SECTION 147 WERE FRAMED VIDE ORDER DATED 19.11.2007 AND 15.12.2008, RESPECTIVELY. THE ASSESSEE, OBJECTED TO THE INITIATION OF RE- ASSESSMENT PROCEEDINGS, WHICH WERE NOT DISPOSED OFF BY THE AO. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS, THE ASSESSEE PLACED ITS OBJECTIONS ON THE REASONS FOR REOPENING THAT IT IS A MERE CHANGE IN OPINION. THE AO, REJECTED THE CONTENTIONS OF THE AS SESSEE IN THE RE- ASSESSMENT PROCEEDINGS, BUT, AS IS APPARENT FROM TH E IMPUGNED ORDER OF THE CIT(A), THE BASIC OBJECTIONS , AS RAISED BY THE ASSESSEE, WERE ALSO NOT DISPOSED OFF BY THE AO, PRIOR TO THE PROSE CUTION OF ASSESSMENT PROCEEDINGS. 3. THE AO, DESPITE THE LEGAL OBJECTIONS RAISED BY T HE ASSESSEE, WHICH WENT TO THE ROOT OF THE INITIATION OF REASSES SMENT PROCEEDINGS, AND IGNORING THE RATIO, AS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF GKN DRIVESHAFTS, PROCEEDED TO FRAME THE ASS ESSMENTS U/S 143(3) READ WITH SECTION 147. 4. THE ASSESSEE TOOK THE LEGAL ISSUE ON INITIA TION OF RE-ASSESSMENT PROCEEDINGS AND ADDITIONS MADE ON MERITS, BEFORE TH E CIT(A), BEFORE WHOM, THE ASSESSEE SUBMITTED AS UNDER: THE POINT OF ADDITION U/S 147 WAS ALREADY CONSIDER ED IN ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT. HE SUBMITTED A COPY OF QUESTIONA RY ISSUED BY THE THEN AO IN M/S DEVIDAS SUNDERDAS & CO. I.T.A.NOS.417 5 & 4176/M/11 PAGE 4 OF 9 ORIGINAL ASSESSMENT U/S 143(3) WHEREIN DETAILS OF I NTEREST PAYMENTS WERE CALLED FOR. HE ALSO SUBMITTED THE ASSESSEES REPLY DATED 8.12.2 004 ON INTEREST EXPENSES. ACCORDING TO HIM, THE ISSUE AS TO INTEREST EXPENSES WAS CONSIDERED IN ORIGINAL U/S 143(3) OF THE ACT. THEREAFTER BY INVOKING SECTION 1 47 THE DISALLOWANCE OF INTEREST MADE BY THE AO IS MERE CHANGE OF OPINION WHICH IS N OT PERMISSIBLE IN VIEW OF HONBLE SUPREME COURTS DECISION IN THE CASE OF CIT VS KELVINATOR OF INDIA LTD. AND OTHER JUDICIAL PRONOUNCEMENTS RENDERED BY DIFFERENT HONBLE COURTS INCLUDING HONBLE JURISDICTIONAL HIGH COURT. HE SUBMITTED THA T EVEN ON MERIT INTEREST DISALLOWANCE IS NOT TENABLE IN THE EYES OF LAW. HE SUBMITTED THAT THE AO HAD DISALLOWED INTEREST EXPENSES FOR THE REASON THAT IN TEREST FREE ADVANCES ARE MADE TO SISTER CONCERN. HE ALSO DISALLOWED THE PART INTERES T EXPENSES FOR THE REASON THAT BORROWING IS UTILIZED FOR THE PURPOSE OF COST OF A CQUISITION OF SHARES ETC. HE SUBMITTED THAT THE AO HAD OVERLOOKED THE FACT THAT THERE ARE MORE INTEREST FREE ADVANCES RECEIVED DURING THE YEAR AS WELL AS IN PAS T THAN INTEREST FREE ADVANCES. HE POINTED OUT THAT THE ASSESSEE HAD RECEIVED INTEREST FREE ADVANCE OF RS. 1.04 CRORES IN AGGREGATE UPTO THE YEAR WHEREAS INTEREST FREE ADVAN CE WERE GIVEN AT RS. 17.73 LAKHS INCLUDING EARLIER YEARS LOANS. IN FACT DURING THE EAR INTEREST FREE ADVANCES WERE GIVEN TO THE EXTENT OF RS. 2.15 LAKHS ONLY. HE FURT HER SUBMITTED THAT WHILE DISALLOWING INTEREST EXPENSES FOR THE REASON OF UTILIZING FUND FOR COST OF ACQUISITION OF SHARES, HE SHOULD HAVE ADDED TO THE COST OF SHARES WHICH ULTIM ATELY HAD NEUTRAL TAX EFFECT BECAUSE CAPITAL GAIN ON SHARE WAS TAXABLE IN RELEVA NT YEAR AND THE ASSESSEE IS ALSO ENGAGED IN A TRADING PROFIT FROM INVESTMENT IN SHAR ES. ON BOTH COUNT THE ADDITIONS MADE BY THE AO ARE NOT SUSTAINABLE IN THE EYES OF L AW ON MERITS. WITHOUT PREJUDICE TO THESE ARGUMENTS HE SUBMITTED T HAT NO NEXUS IS PROVED THAT BORROWING WAS UTILIZED FOR NON BUSINESS PURPOSE. HO WEVER HE VEHEMENTLY ARGUED THAT IN VIEW OF JUDICIAL PRONOUNCEMENTS RELIED UPON BY HIM, THE ASSESSMENT U/S 147 IS NULL AND VOID. THE JUDICIAL PRONOUNCEMENTS DISCUSSE D BY HIM RELIED UPON ARE REPRODUCED AS UNDER. 1. CIT VS. KELVINATOR OF INDIA (SUPREME COURT) THOUGH THE POWER TO REOPEN UNDER THE AMENDED S. 1 47 IS MUCH WIDER, ONE TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS REASON TO BE LIEVE FAILING S. 147 WOULD GIVE ARBITRARY POWERS TO THE AO TO RE-OPEN ASSESSMENTS O N THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE REASON TO RE-OPEN. ONE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND P OWER TO RE-ASSESS. THE AO HAS NO POWER TO REVIEW; HE HAS THE POWER TO RE-ASSES. B UT 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 GRAB OF RE-OPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST T REAT THE CONCEPT OF CHANGE OF OPINION AS IN-BUILT TEST TO CHECK ABUSE OF POWER B Y THE AO. HENCE, AFTER 1.4.1989, THE AO HAS POWER TO RE-OPEN, PROVIDED THERE IS TAN GIBLE 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. THIS I S SUPPORTED BY CIRCULAR NO.549 DATED 31.10.1989 WHICH CLARIFIED THAT THE WORDS REASON T O BELIEVE DID NOT MEAN A CHANGE OF OPINION. 2. CIT VS. EICHER LIMITED (294 ITR 310) REASONING: IF THE ENTIRE MATERIAL HAD BEEN PLACED B Y THE ASSESSEE BEFORE THE AO AT THE TIME WHEN THE ORIGINAL ASSESSMENT WAS MADE AND THE AO APPLIED HIS MIND TO THAT MATERIAL AND ACCEPTED THE VIEW CANVASSED BY THE ASS ESSEE BY THE ASSESSEE, THEN MERELY BECAUSE HE DID NOT EXPRESS THIS IN THE ASSES SMENT ORDER, THAT BY ITSELF WOULD NOT GIVE HIM A GROUND TO CONCLUDE THAT INCOME HAS E SCAPED ASSESSMENT AND, THEREFORE, THE ASSESSMENT NEEDED TO BE RE-OPENED. 3. THE HIGH COURT OF JUDICATURE AT BOMBAY OR DINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.139 OF 2010. AVENTIS PHARMA LTD. V S. THE ACIT-18(1)2 & THE ADDI. CIT-18(1) DATED 8.3.2010. THERE IS MERIT IN THE SUBMISSION WHICH HAS BEEN URG ED ON BEHALF OF THE ASSESSEE THAT THERE WAS NO TANGIBLE MATERIAL BEFORE THE AO ON THE BASIS OF WHICH THE ASSESSMENT COULD HAVE BEEN REOPENED AND WHAT IS SOUGHT TO HE D ONE IS TO PROPOSE A RE- ASSESSMENT ON THE BASIS OF A MERE CHANGE OF OPINION . THIS, IS VIEW OF THE SETTLED POSITION OF LAW IS IMPERMISSIBLE. NO TANGIBLE MATER IAL IS SHOWN ON THE BASIS OF WHICH M/S DEVIDAS SUNDERDAS & CO. I.T.A.NOS.417 5 & 4176/M/11 PAGE 5 OF 9 THE ASSESSMENT IS SOUGHT TO HE REOPENED. IN THE ABS ENCE OF TANGIBLE MATERIAL, WHAT THE AO HAS DONE WHILE REOPENING THE ASSESSMENT IS ONLY TO CHANGE THE OPINION WHICH WAS FORMED EARLIER ON THE ALLOWABILITY OF THE DEDUCTION . THE POWER OF REOPEN AN ASSESSMENT IS CONDITIONAL ON THE FORMATION OF A REA SON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE POWER IS NOT AKIN TO A REVIEW. THE EXISTENCE OF TANGIBLE MATERIAL IS NECESSARY TO ENSU RE AGAINST AN ARBITRARY EXERCISE OF POWER. THERE IS NO TANGIBLE MATERIAL IN THE PRESENT CASE. 4. REGENCY PARK PROPERTY MANAGEMENT SERVICES (P) LT D. VS. CIT ITAT, DELHI DECIDED ON 1ST JANUARY, 2010. WHERE THE AO HAS ENQUIRED INTO AN ISSUE AND BEING S ATISFIED NOT MADE ANY ADDITION, THERE IS NO REQUIREMENT IN LAW TO MAKE A DETAILED D ISCUSSION OF THAT ISSUE IN THE ASSESSMENT ORDER PASSED BY THE AO AN ENQUIRY WAS PU T BY THE AO AND DETAILED REPLY WAS GIVEN AND AFTER BEING SATISFIED THE AO HAD ACCE PTED THE CLAIM OF THE ASSESSEE. 5. IN THE CASE OF SUNBEAM AUTO LTD., DELHI HC. NO. 1399 OF 2006 DECISION DATED 11.9.2009. THE AO IN THE ASSESSMENT ORDER IS NOT REQUIRED TO G IVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, O NE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWI NG THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. THE COUNSEL FOR THE ASSESSEE I S RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN LACK O F INQUIRY AND INADEQUATE INQUIRY. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO PASS ORDERS UNDER S. 263, ME RELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. 4. AFTER CAREFUL CONSIDERATION OF ARGUMENTS OF LD. AR ON OBJECTION AGAINST ASSESSMENT U/S.147 OF THE ACT, IT IMMENSELY TRANSPI RES THAT THERE IS SUBSTANTIAL FORCE IN THE ARGUMENTS OF THE LD. AR. IT IS UNDISPUTED TH AT IN THIS CASE A SCRUTINY ASSESSMENT HAD ALREADY BEEN TAKEN PLACE U/S 143(3) OF THE ACT. IN THE SAID ASSESSMENT, THE AO HAD CALLED FOR DETAILS OF INTERE ST EXPENSES WHICH WERE GIVEN BY THE ASSESSEE. IT IS ALSO SUBMITTED THAT THE ASSESSE E IN ORIGINAL RETURN HIMSELF HAD DISALLOWED INTEREST EXPENSES OF RS. 5 LAKHS SUOMOTU (AS PER GROUND OF APPEAL). THE AO HAD REOPENED THE ASSESSMENT U/S 147 OF THE ACT F OR THE PURPOSE OF DISALLOWANCE OF INTEREST EXPENSES. IT IS ALSO SEEN THAT IN ASSES SMENT ORDER U/S 147, THE AO HAD NOT DISPOSED OFF OBJECTION MADE BY THE ASSESSEE AGAINST U/S 147 IN VIEW OF HONBLE SUPREME COURTS DECISION IN THE CASE OF GKN DRIVESH AFTS (259 ITR 19) WHEREIN HONBLE SUPREME COURT HAD HELD THAT THE AO IS DUTY BOUND TO FIRST DECIDE ON THE OBJECTION RAISED AND ONLY THEN HE CAN PROCEED TO MA KE ASSESSMENT U/S 147 WHICH THE AO HAD FAILED TO DO SO. EVEN ON MERIT ALSO DISALLOW ANCE MADE BY THE AO IS NOT TENABLE IN THE EYES OF LAW. HE HAD NOT CONSIDERED T HAT THERE ARE INTEREST FREE ADVANCES RECEIVED BY THE ASSESSEE TO THE EXTENT OF RS. 1.04 CORES AS AGAINST INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO THE EXTENT O F RS. 17.73 LAKHS CUMULATIVELY TILL THE END OF FINANCIAL YEAR. IN FACT DURING THE YEAR INTEREST FREE ADVANCES WERE GIVEN TO THE EXTENT OF RS. 2.15 LAKHS WHEREAS INTEREST FREE ADVANCES WERE RECEIVED TO THE EXTENT OF RS. 18.97 LAKHS DURING THE YEAR. THE HONBLE ITA TS AS WELL AS HONBLE HIGH COURTS HAVE HELD IN SO MANY CASES THAT ASSESSEE IS ENTITLED FOR SET OFF OF INTEREST FREE FUND AVAILABLE ASSESSEE AGAINST INTEREST FREE ADVAN CES GIVEN BY HIM. THE AO HAD NOT CONSIDERED ALL THESE ASPECTS AND BLINDLY MADE ADDIT ION BY HOOK AND CROOK AND HE ALSO DISALLOWED A PART OF INTEREST EXPENSES FOR THE REASON THAT BORROWING MADE BY THE ASSESSEE IS ATTRIBUTABLE TO PURCHASE OF SHARES. WHI LE HOLDING SUCH CONCLUSION HE DID NOT CARE TO INCREASE THE COST OF ACQUISITION WHILE COMPUTATION OF LTCG/ STCG (THE SAME WAS TAXABLE DURING THE YEAR). HE ALSO OVERLOOK ED THE FACT THAT ASSESSEE IS ALSO ENGAGED IN SHARE TRADING SO ANY BORROWING UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES IS TO BE HELD AS BUSINESS EXPENSES. DUE TO T HIS REASON ALSO ADDITION IS NOT SUSTAINABLE IN THE EYES OF LAW ON MERITS ALSO. IN L IGHT OF SUCH DEMERITS OF ADDITIONS, THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LD. AR ARE SQUARELY APPLICABLE TO THE FACTS OF THE CASE. THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD (SUPRA) HAD HELD THAT MERE CHANGE OF OPINION IS NOT PERMISSIBLE TO REOPEN THE ASSESSMENT OTHERWISE IT WOULD AMOUNT TO ASSIGNING A RBITRARY POWERS TO THE AO TO REOPEN THE ASSESSMENT. SIMILARLY THE HONBLE HIGH C OURT OF DELHI IN THE CASE OF CIT VS. EICHER LTD. (294 ITR 310) HAD HELD THAT IF THE ENTIRE MATERIAL HAD BEEN PLACED BY THE ASSESSEE BEFORE THE AO AT THE TIME WHEN THE ORI GINAL ASSESSMENT WAS MADE AND M/S DEVIDAS SUNDERDAS & CO. I.T.A.NOS.417 5 & 4176/M/11 PAGE 6 OF 9 THE AO APPLIED HIS MIND TO THAT MATERIAL AND ACCEPT ED THE VIEW CANVASSED BY THE ASSESSEE, THEN MERELY BECAUSE HE DID NOT EXPRESS TH IS IN THE ASSESSMENT ORDER, THAT BY ITSELF WOULD NOT GIVE HIM A GROUND TO CONCLUDE THAT INCOME HAS ESCAPED ASSESSMENT. SIMILARLY UNREPORTED DECISION OF HONBLE HIGH COURT OF MUMBAI IN THE CASE OF AVENTIS PHARMA LTD. DATED 8.3.2010 SUBSTANTIATE THE ARGUMENTS OF THE LD. AR. HAVING REGARD TO ALL THE FACTS AS A WHOLE IN LIGHT OF MERITS/DEMERITS OF ADDITION, IT IMMENSELY TRANSPIRES THAT ACTION U/S.147 IS NOT SUS TAINABLE IN THE EYES OF LAW. ACCORDINGLY ADDITIONS MADE BY THE AO REQUIRE TO BE DELETED ON BOTH GROUNDS. IN RESULT, BOTH THE GROUNDS OF APPEAL ARE ALLOWED. 5. THE CIT(A), AFTER CONSIDERING THE DETAILED SUBMI SSIONS OF THE ASSESSEE, CANCELLED THE RE-ASSESSMENT PROCEEDINGS A ND ALSO DELETED THE ADDITIONS ON MERITS. 6. IT IS AGAINST THIS ORDER, THAT, THE DEPARTME NT HAS FILED THE APPEALS. 7. THE DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO, WHEREAS, THE A.R. RELIED ON THE SUBMISSIONS MADE BEFORE THE CIT(A) AND THE ORDER OF THE CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O PERUSED THE TWO ORDERS. 9. PATENTLY, AS SEEN FROM THE ORDERS, WE FIND THAT THE ASSESSEE HAD BEEN AGITATING BEFORE THE AO, WITH REGARD TO THE REASONS , AS WELL AS THE DISPOSAL OF THE OBJECTIONS . FROM THE REASONS , IT IS APPARENT, THAT THE BASIS FOR INITIATION OF RE-ASSESSMENT PROCEEDIN GS HAD BEEN THE CHARGE OF INTEREST, WHICH WAS EXAMINED BY THE AO, W HILE FRAMING THE REGULAR ASSESSMENT. THE CIT(A) HAS ALSO BROUGHT ON RECORD THE FACT , THAT THE AO DID NOT DISPOSE OFF THE OBJECTIONS, AT ALL, AS PER THE DECISION LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF GKN DRIVESHAFTS. THE CIT(A) CAME TO THE CONCLUSION, THA T, THE AO IS DUTY BOUND TO FIRST DECIDE ON THE OBJECTIONS RAISED AND ONLY THEN HE M/S DEVIDAS SUNDERDAS & CO. I.T.A.NOS.417 5 & 4176/M/11 PAGE 7 OF 9 CAN PROCEED TO MAKE ASSESSMENT U/S 147 WHICH THE AO HAD FAILED TO DO SO . THE CIT(A), FINALLY CONCLUDED THAT, ACTION U/S 147 IS NOT SUSTAINABLE IN THE EYES OF LAW . AS THE CIT(A) HAS GIVEN HIS FINDINGS ON THE BASIC PREMISE OF RE-ASSESSMENT PROCEEDINGS, WHI CH HAS DEMOLISHED THE ENTIRE FOUNDATION OF THE INITIATION OF RE-ASSES SMENT PROCEEDINGS, WE, DO NOT INTEND TO DISTURB THE OBSERVATIONS ON TH E FOUNDING FACTS, AS ARRIVED AT BY THE CIT(A), WHEREIN, HE HAS HELD THAT THE RE-ASSESSMENT PROCEEDINGS WERE BAD IN LAW. WE CONCUR WITH THE FINDINGS OF THE CIT(A) AND SUSTAIN THE SAME AND HOLD THE REASSESSME NT PROCEEDINGS TO BE VOID . AS A CONSEQUENCE, REJECT THE GROUND RAISED BY THE DEPARTMENT. 10. SINCE WE HAVE HELD THAT THE RE-ASSESSMENT PROCE EDINGS ARE BAD IN LAW AND VOID, WE DO NOT THINK IT NECESSARY TO GO INTO THE GROUNDS ON MERITS, AS THEY BECAME VOID THEMSELVES. 11. THE APPEALS, THUS, FILED BY THE DEPARTMENT FOR ASSESSMENT YEARS 2002-03 AND 2003-04 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 05/09/2012. SD/- (G.E. VEERABHADRAPPA) PRESIDENT SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 05/09/2012 . P/-* COPY TO- 1) APPELLANT 2) RESPONDENT M/S DEVIDAS SUNDERDAS & CO. I.T.A.NOS.417 5 & 4176/M/11 PAGE 8 OF 9 3) CITA MUMBAI. 4) CIT CITY MUMBAI 5) DR BENCH MUMBAI TRUE COPY BY ORDER DY /ASST.REGISTRAR,ITAT MUMBAI.