Shalimar Agro Products Ltd, New Delhi V. ITO, New Delhi

ITA 4202/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5744 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-03-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 27-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: SANJAY MEHRA
• Keywords: Reopening of assessment; Depreciation; Search and seizure; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 147; 139

Judgement Text

ITA NO. 4202/DEL/2009 A.Y. 2001-02 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 4202/DEL/2009 A.Y. : 2001-02 M/S SHALIMAR AGRO PRODUCTS LIMITED VS. INCOME TAX OFFICER 8(1), 15/76, 2 ND FLOOR, OLD RAJINDER NAGAR, NEW DELHI NEW DELHI 110 060 [PAN: AACS2832F] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY MEHRA, FCA DEPARTMENT BY : SHRI T. VASANTHAN, SR. DR O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT(A) DATED 20.8.2009 PERTAINING TO ASSESSMENT YEAR 2001- 02. 2. THE ISSUE RAISED READS AS UNDER:- THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW I N INITIATING THE PROCEEDINGS U/S 147, THE CASE BEING COVERED UNDER THE PROVISO, AS THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO FURNISH THE MATERIAL FACTS REGARDING ALLOWABILITY OF BAD DEBTS BEFORE THE ASSESSING OF FICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3). THE ASSESSING OFFICER ERRED ON FACTS IN INITIATIN G THE PROCEEDINGS U/S 147, SOLELY BASED ON A CHANGE OF OPINION, ON THE ERRONEO US BASIS BY HOLDING THAT THE ASSESSMENT ORDER ORIGINALLY PASSED U/S 143(3) I S TOTALLY SILENT ABOUT THE ITA NO. 4202/DEL/2009 A.Y. 2001-02 2 CLAIM OF BAD DEBTS ALTHOUGH PROPER INQUIRY WAS MADE AT THE TIME OF ORIGINAL ASSESSMENT. 3. THE ASSESSEE IN THIS CASE IS A PUBLIC LIMITED C OMPANY ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCIAL ACTIVITIES AND CARRYING ON NON-BANKING FINANCIAL ACTIVITIES. THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) ON 5.6.2003. LATER ON NOTICE U./S 148 WAS ISSUED ON 20.11.2007 I.E. 4 YEARS AFTER THE COMPLETION OF THE ASSESSMENT YEAR. THE REASONS RECO RDED FOR REOPENING READ AS UNDER:- THE ASSESSEE COMPANY IS A PUBLIC LIMITED COMPANY E NGAGED IN THE BUSINESS OF INVESTMENT AND FINANCIAL ACTIVITIES AND CARRYING ON NON- BANKING FINANCIAL ACTIVITIES. THE COMPANY HAD BEE N GIVING LOANS/ ADVANCES TO VARIOUS PERSONS/COMPANIES. THE RETURN OF INCOME WAS FILED AT A LOSS OF RS. 181918/- AND THE ASSESSMENT WAS COMPLETED U/S 143(3) AT A LOSS OF RS. 181,918/-. THE ASSESSEE HAD WRITTEN OFF AN TOTAL AM OUNT OF RS. 1878935/- ON ACCOUNT OF BAD DEBTS. (THE PARITIES ARE M/S RAM A ROLL GALVA STEELS LTD. 623,900/-, M/S RAMA SEC. LTD. RS. 700,000/-, SHRI R AMA NAND JAIN RS. 555,035/-), AS STATED BY THE ASSESSEE IN ITS REPLY DURING ASSTT. PROCEEDINGS THAT THE COMPANY HAD BEEN GIVING LOANS / ADVANCES T O VARIOUS PERSONS/COMPANIES DURING THE ORDINARY COURSE OF BUS INESS AND THE AMOUNT OF BAD DEBTS WAS EITHER GIVEN BY THE ASSESSEE COMPA NY AS A LOAN TO THE OUTSIDE COMPANY OR PAID AN ADVANCE FOR THE PURCHASE OF SHARES TO SUCH COMPANY / PARTIES WHICH FORMS PART OF THE MAIN OBJEC TS OF THE COMPANY. SINCE THE ASSESSEE IS IN THE BUSINESS OF INVESTMENT AND FINANCIAL ACTIVITIES AND CARRYING ON NON-BANKING FINANCIAL ACTIVITIES, T HE AMOUNT PAID IS CAPITAL IN NATURE AND THE EXPENDITURE SHOULD HAVE BEEN TREA TED AS CAPITAL LOSS, WHICH RESULTED IN UNDERASSESSMENT OF INCOME BY RS. 1878,935/-. THEREFORE, I HAVE REASON TO BELIEVE THAT THE INCOME TO THE T UNE OF RS. 1878,935/- HAS ESCAPED ASSESSMENT. 4. AGAINST THE ASSESSMENT COMPLETED U/S 147 ASSESS EE IN HIS APPEAL BEFORE THE LD. CIT(A) AT THE THRESHOLD AGITATED THE REOPEN ING CONTENDING THE SAME TO BE ITA NO. 4202/DEL/2009 A.Y. 2001-02 3 BAD. LD. CIT(A) CONSIDERING THE AFORESAID, OBSERVE D THAT IN THE ORIGINAL RETURN OF INCOME ASSESSEE HAS CLAIMED DEDUCTION OF BAD DEBT WRITTEN OFF TO THE EXTENT OF RS. 1878935/-. HE FURTHER OBSERVED THAT THE ASSESSM ENT ORDER U/S 143(3) WAS ONLY A 9 LINES ORDER. THE POINT WAS NEVER A PART OF T HE ORDER AND IT ESCAPED THE ATTENTION OF THE AO. LD. CIT(A) FURTHER HAS HELD THAT IT CANNOT BE SAID THAT AO HAD NO MATERIAL TO ENTERTAIN THE PRIMA-FACIE BELIEF THA T THE APPELLANT COMPANY HAS MADE A CLAIM OF BAD DEBT WRITTEN OFF WHICH ACCORDI NG TO HIM WAS NOT ALLOWABLE DEDUCTION AS PER THE PROVISIONS OF LAW. HENCE, C IT(A) CONCLUDED THAT THE CONTENTION WAS THAT THERE WAS NO MATERIAL FOR FORMA TION OF THE BELIEF AS POSTULATED U/S 147 TO REOPEN THE ASSESSMENT CANNOT BE SUSTAINED. 5. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE CONTENTIONS ARE TWO FOLDS. FIRSTLY, IT IS CONTENDED THAT THE NOTICE FOR REASSESSMENT WAS AFTER 4 YEARS AFTER ASSESSMENT YEA R AND THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIAL F ACTS. SECONDLY AOS ACTION HAS BEEN CLAIMED TO BE A CHANGE OF OPINION. 7. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS ON THIS ISSUE. IT WOULD BE WORTHWHILE TO REFER THE PROVISION OF S ECTION 147 IN THIS REGARD. AFTER THE AMENDING ACT, 1989, SECTION 147 READS AS UNDER: ITA NO. 4202/DEL/2009 A.Y. 2001-02 4 INCOME ESCAPING ASSESSMENT - 147. IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSE SS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS T HE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THI S SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASS ESSMENT YEAR). PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER T HE EXPIRY OF FOUR YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSE E TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB- SECTION(1) OF SECTION 142 OR SECTION 148 OR TO DISC LOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FO R THAT ASSESSMENT YEAR.' 8. A READING OF THE ABOVE PROVISO MAKES IT CLEAR THAT NO ACTION SHALL BE TAKEN ON THIS ACCOUNT AFTER THE EXPIRY OF 4 YEARS FROM TH E END OF THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME HAS ESCAPED ASSES SMENT BECAUSE OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETUR N OR TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR THAT ASSESSMENT YEAR. NOW IT IS AN ADMITTED FACT OF THE CASE THAT ASSESSEE HAS CLAIMED DEDUCTION OF BAD DEBT WRITTEN OFF TO THE EXTENT OF RS. 1878935/- AND THE SAID CLAIM WAS VER Y MUCH BEFORE THE AO WHEN ITA NO. 4202/DEL/2009 A.Y. 2001-02 5 HE PASSED THE ORIGINAL ASSESSMENT ORDER U/S 143(3) . HENCE BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THERE WAS ANY FAIL URE ON THE PART OF THE ASSESSEE IN NOT DISCLOSING ALL THE MATERIALS FULLY AND TRULY RE QUIRED IN THIS REGARD. HENCE IN OUR CONSIDERED OPINION THE ASSESSEES CONTENTION T HAT THE REOPENING IN THIS CASE CLEARLY ATTRACTS THE PROVISO OF SECTION 147 IS QUIT E COGENT AND IN THAT VIEW OF THE MATTER THE REASSESSMENT IS CLEARLY BAD IN LAW. 8.1 ANOTHER ASPECT OF THE ASSESSEES AGITATION AGAI NST THE REOPENING IS THAT IT IS RESULT OF CHANGE OF OPINION OF THE AO WHICH IS NO PERMISSIBLE IN LAW. IN THIS REGARD, IT IS TRUE THAT THERE IS NO DISCUSSION ON THE PART OF THE AO IN THE ASSESSMENT ORDER IN THIS REGARD. BUT IT IS ALSO AN ADMITTED FACT THAT THE ASSESSMENT WAS DONE U/S 143(3) OF THE IT ACT. LD. COUNSEL OF THE ASSESSEE SUBMITTED BEFORE US A PAPER BOOK. IN PAGES 28 TO 3 2 HE HAS PRODUCED THE COPY OF LETTER ADDRESSED TO ITO SUBMITTED DURING THE ORIGIN AL COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2001-02. THE SAID LETTER IS D ATED 20.2.2003 AND IT CONTAINS NOTE OF ALLOWABILITY OF CLAIM ON BAD DEBT WRITTEN O FF AS DESIRED BY THE AO. 8.2 FROM THE PERUSAL OF THE SAID NOTE AND THE LETTE R IT IS AMPLY CLEAR THAT AO HAS ASKED FOR THE DETAILS OF THE CLAIM OF BAD DEBT AND THE NECESSARY DETAILS WERE SUPPLIED BY THE ASSESSEE. HENCE, THE REOPENING OF T HE SAME POINT AGAIN IS CLEARLY ITA NO. 4202/DEL/2009 A.Y. 2001-02 6 CHANGE OF OPINION AND NOT PERMISSIBLE UNDER LAW. IN THIS REGARD WE PLACE RELIANCE UPON THE HONBLE APEX COURT DECISION IN T HE CASE OF CIT VS. KELIVNATOR OF INDIA LTD. & ANR. REPORTED IN 320 ITR 561 WHEREIN IT HAS BEEN HELD THAT SUCH A CHANGE OF OPINION IS NOT PERMISSIBLE IN LAW. HON BLE APEX COURT IN THE AFORESAID CASE HAS ANALYSED IN DETAIL THE PROVISIONS OF SECTI ON 147 OF THE IT ACT AND HELD AS UNDER:- AFTER THE AMENDING ACT, 1989, SECTION 147 READS AS UNDER: INCOME ESCAPING ASSESSMENT - 147. IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSE SS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS T HE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THI S SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASS ESSMENT YEAR). ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE T O 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 AN D FULFILLMENT OF THE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT, BUT IN SECTION 147 OF THE ACT [W ITH EFFECT FROM 1ST APRIL, 1989], THEY ARE GIVEN A GO-BY AND ONLY ONE CONDITIO N HAS REMAINED, VIZ., THAT WHERE THE ASSESSING OFFICER HAS REASON TO BEL IEVE THAT INCOME HAS ESCAPED ASSESSMENT, CONFERS JURISDICTION TO REOPEN T HE ASSESSMENT. THEREFORE, POST-1ST APRIL, 1989, POWER TO RE-OPEN I S MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC 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 ASSESSME NTS ON THE BASIS OF ITA NO. 4202/DEL/2009 A.Y. 2001-02 7 MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE RE ASON TO RE-OPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BE TWEEN POWER TO REVIEW AND POWER TO RE-ASSESS. THE ASSESSING OFFICER HAS N O POWER TO REVIEW; HE HAS THE POWER TO RE-ASSESS. BUT RE-ASSESSMENT HAS T O BE BASED ON FULFILLMENT OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF CHA NGE OF OPINION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF RE- OPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ON E 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, 1 989, ASSESSING OFFICER HAS POWER TO RE-OPEN, PROVIDED THERE IS TANGIBLE MATER IAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BEL IEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT, AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, PA RLIAMENT NOT ONLY DELETED THE WORDS REASON TO BELIEVE BUT ALSO INSE RTED THE WORD OPINION IN SECTION 147 OF THE ACT. HOWEVER, ON RECEIPT OF R EPRESENTATIONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS REASON TO BELIEVE, PARLIAMENT RE-INTRODUCED THE SAID EXPRESSION AND DELETED THE W ORD OPINION ON THE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE A SSESSING OFFICER. WE QUOTE HEREINBELOW THE RELEVANT PORTION OF CIRCULAR NO.549 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 S ECTION 147. A NUMBER OF REPRESENTATIONS WERE RECEIVED AGAINST T HE OMISSION OF THE WORDS `REASON TO BELIEVE' FROM SECT ION 147 AND THEIR SUBSTITUTION BY THE `OPINION' OF THE ASSESSIN G OFFICER. IT WAS POINTED OUT THAT THE MEANING OF THE EXPRESSION, `REASON TO BELIEVE' HAD BEEN EXPLAINED IN A NUMBER OF COURT RU LINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM SEC TION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICE R TO REOPEN PAST ASSESSMENTS ON MERE CHANGE OF OPINION. TO ALLA Y THESE FEARS, THE AMENDING ACT, 1989, HAS AGAIN AMENDED SE CTION 147 TO REINTRODUCE THE EXPRESSION `HAS REASON TO BELIEV E' IN PLACE OF THE WORDS `FOR REASONS TO BE RECORDED BY HIM IN WRI TING, IS OF THE OPINION'. OTHER PROVISIONS OF THE NEW SECTION 1 47, HOWEVER, REMAIN THE SAME. ITA NO. 4202/DEL/2009 A.Y. 2001-02 8 FOR THE AFORE-STATED REASONS, WE SEE NO MERIT IN TH ESE CIVIL APPEALS FILED BY THE DEPARTMENT, HENCE, DISMISSED W ITH NO ORDER AS TO COSTS. 9. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AN D PRECEDENT, WE HOLD THAT THE REASSESSMENT IN THIS CASE IS BAD IN LAW AND AC CORDINGLY THE SAME IS QUASHED. 10. SINCE WE HAVE ALREADY QUASHED THE REOPENING OF ASSESSMENT, THE ADJUDICATION ON MERITS IS NOW ONLY OF ACADEMIC INTER EST AND HENCE WE ARE NOT DEALING WITH THE SAME. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/03/2010. SD/- SD/- [A.D. JAIN) [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 26/03/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. D R, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES