Shri Jatin Patel legal heir to deceased Chhotubhai Patel, Khandwa V. THE ITO, Khandwa

ITA 421/IND/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6004 (ITAT-INDORE)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: AMIT CHOUDHARY
• Keywords: Tangible material; Difference of opinion; Change of opinion
• Section: 143(3); 80HHC; 14A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE (SINGLE MEMBER CASE) BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER I.T.A.NO. 421/IND/2016 A.Y. : 2008-09 SHRI JATIN PATEL, L/H TO DECEASED CHHOTUBHAI PATEL, ITO, KHANDWA KHANDWA VS APPELLANT RESPONDENT PAN NO. AFSPP5819B A PPELLANT BY : SHRI MAHESH AGRAWAL, ADV. AND SHRI AMIT CHOUDHARY, CA RESPONDENT BY : SHRI R.A.VERMA, DR O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-22, NEW DELHI, CAMP AT INDORE, DATED 17.0 2.2016 FOR THE ASSESSMENT YEAR 2008-09. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL AND PARTNER IN THE FIRM M/S. B.S.PATEL. IT HAS ITS DATE OF HEARING : 09 .0 6 20 16 DATE OF PRONOUNCEMENT : 09 .0 6 . 201 6 SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 2 2 HEAD OFFICE AT KHANDWA AND BRANCH AT BURHANPUR. THE FIRM WAS MAINTAINING TWO SETS OF BOOKS OF ACCOUNTS ONE AT HEAD OFFICE AND ANOTHER AT BRANCH OFFICE. THE ASSESSEE H AS INCOME UNDER THE HEAD SALARY AND INTEREST IN ADDITION TO INCOME FROM FIRM AS PARTNER. THE FIRST ASSESSMENT WAS ALRE ADY COMPLETED U/S 143(3) ON 29 TH OCTOBER, 2010. THE COPY OF ORDER IS PLACED AT PAGES NO. 70-71 OF THE PAPER BOOK. SU BSEQUENTLY, THE SAME CASE WAS REOPENED U/S 147 R.W.S. 148 WITHOUT ANY TANGIBLE MATERIAL. THE AOS CONTENTION WAS THAT THE ASSESSEE HAS WITHDRAWN THE AMOUNT FROM PARTNERSHIP AND PAID IN TEREST OF RS. 6,03,955/-ON HIS DRAWINGS FROM PARTNERSHIP FI RM. THE SAME IS COVERED UNDER SECTION 14A, AS THE AMOUNT WIT HDRAWN WAS INVESTED IN COMPANY ON WHICH TAX FREE DIVIDEND WAS RECEIVED BY THE ASSESSEE. THE AO HELD THAT FROM THE PERUSAL OF THE DETAILS SUBMITTED BY THE ASSESSEE, THE AMOUNT F ROM THE PARTNERSHIP FIRM WAS NOT INVESTED IN M/S. B. S. PATE L BIDI (P) LIMITED FOR EARNING TAX FREE DIVIDENDS. HOWEVER, TH ERE WAS NO INCOME EARNED ON THE AMOUNT WITHDRAWN FROM THE FIRM O N WHICH INTEREST WAS PAID. THE AO FINALLY HAS DISALLOW ED THE INTEREST OF RS. 6,03,955/-. SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 3 3 3. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CI T(A) HAS DISMISSED THE APPEAL BY OBSERVING AS UNDER :- 7.1 FROM A PERUSAL OF THE ABOVE FACTS, IT IS APPA RENT THAT THOUGH THE AO ISSUED NOTICE U/S 148 AND SHOW CAUSE FOR ADDITION U/S 14A, THE DISALLOWANCE HAS NO T BEEN MADE U/S 14A. IT HAS BEEN MADE FOR USE OF BORROWED FUNDS, FOR NON BUSINESS PURPOSE. CONSIDERING THE FACTS OF THE CASE, AS DISCUSSED ABOVE, THE ADDITION IS CONFIRMED. 8. THE APPELLANT HAS ALSO CHALLENGED THE VALIDITY OF REOPENING U/S 147 BY ISSUE OF NOTICE U/S 148 AND HAS STRONGLY OBJECTED TO THE REOPENING OF ASSESSMEN T CLAIMING IT TO BE A CASE OF CHANGE OF OPINION. THE ASSESSMENT ORDER U/S 143(3) IN THIS CASE WAS PASSED ON 29.10.2010. THE SAID ORDER IS VERY CRYPTI C ORDER OF JUST TWO PARAGRAPHS. THE APPELLANT HAS NOT BEEN ABLE TO FURNISH ANY EVIDENCE TO ESTABLISH THAT THIS ISSUE WAS EXAMINED THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CONSOLIDATED PHOTO & FINVEST SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 4 4 LIMITED REPORTED IN 281 ITR 394 HAS HELD THAT PRINCIPLE OF CHANGE OF OPINION APPLIES ONLY WHEN AN OPINION IS FORMED AFTER APPLICATION OF MIND ON THE ISSUE. MOREOVER, THE NOTICE U/S 148 IN THE PRESENT CASE, WAS ISSUED WITHIN FOR YEARS FROM THE END OF T HE RELEVANT ASSESSMENT YEAR AND, THEREFORE, THE PROVIS O TO SECTION 147 DOES NOT APPLY. THE AO NOTICED INVESTMENT OF RS. 50 LAKHS IN A COMPANY, DIVIDEND INCOME FROM WHICH IS EXEMPT, AND ALSO NOTICE INTERE ST PAYMENT BY PARTNER ON DEBIT BALANCE IN THE BOOKS OF PARTNERSHIP FIRM. SINCE DEDUCTION OF INTEREST PAYME NT WAS CLAIMED BY THE APPELLANT, THE AO HAD ENOUGH MATERIAL BEFORE HIM TO FORM HIS BELIEF REGARDING ESCAPEMENT OF INCOME. THEREFORE, GROUND NO. 1 OF TH E APPEAL IS DISMISSED. 4. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED THE WRITTEN SYNOPSIS, WHICH IS PLACED ON RE CORD. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE CONT ENDED THAT THE ADDITION PROPOSED WHILE REOPENING OF THE ASSESSM ENT HAS NOT BEEN FINALLY MADE. IN SUCH CASES THE REOPENING OF THE SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 5 5 ASSESSMENT IS BAD IN LAW. THE LD. AUTHORIZED REPRES ENTATIVE FOR THE ASSESSEE RELIED UPON THE FOLLOWING CASE LAWS IN WHICH THE SAME VIEW WAS EXPRESSED:- (I) CIT-5 BOMBAY VS. JET AIRWAYS (I) LIMITED, (2010) 195 TAXMAN 117 (BOM) (II) RANBAXY LABORATORIES LIMITED VS. DCIT, (2013) 30 TAXMANN.COM, 410 (DEL) (III) SWARNADHARA IJMII INTEGRATED TOWNSHIP DEVELOPMENT COMPANY, MADHAPUR VS. DCIT, CIRCLE 3(3), (2013) 37 TAXMAN.COM 18 (HYDREBAD TRIBUNAL ) 5. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSE E FURTHER CONTENDED THAT THERE IS NET CREDIT OF INTER EST ON PARTNERS CAPITAL AT RS. 1,36,119/- [7,40,074/- (-) 6,03,955/-]. ASSESSEE IS PARTNER IN ONLY ONE FIRM M/S. B. S. PA TEL AND IT HAS TWO DIVISIONS ONE AT KHANDWA AND ANOTHER AT BURHANPUR. IN PARTNERS CAPITAL ACCOUNT THERE WAS CREDIT BALANCE IN ONE DIVISION, HENCE ASSESSEES CAPITAL A CCOUNT WAS CREDITED WITH INTEREST OF RS. 7,40,074/- AND DEBIT B ALANCE IN ANOTHER DIVISION OF THE SAME LEGAL ENTITY AND ASSES SEES ACCOUNT IN FIRM WAS DEBITED WITH INTEREST OF RS. 6,03 ,955/-. THUS, OVER-ALL THERE WAS INCOME FROM INTEREST ON PA RTNERS SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 6 6 CAPITAL AT RS. 1,36,119/- TAXABLE AS PROFIT AND G AINS OF BUSINESS ,OR PROFESSION BY VIRTUE OF SECTION 28(V) . THE ABOVE FACTS WERE ON THE FACE OF COMPUTATION ITSELF AND HE NCE THERE WAS NO SUPPRESSION OF FACTS BY THE ASSESSEE AND, THE REFORE, THE REASSESSMENT U/S 147 R.W.S. 148 IS BAD IN LAW. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 7. I HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PART IES. I HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW. I HAVE PERUSED THE CASE LAWS RELIED UPON BY THE LD. AUTHORI ZED REPRESENTATIVE FOR THE ASSESSEE. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS CHALLENGED THE ISSUANCE OF NOTICE U/S 148 FOR REOPENING OF THE ASSESSMENT ALRE ADY COMPLETED U/S 143(3) OF THE ACT. I FOUND THAT THERE WAS NO FRESH MATERIAL BROUGHT ON RECORD BY THE AO AS ALL T HE DETAILS WERE ALREADY BEFORE HIM WHILE MAKING THE ASSESSMENT U /S 143(3). THE REASON GIVEN FOR REOPENING THE ASSESSME NT BY THE AO WAS CONTRADICTED BY HIMSELF. I FIND THAT IN OPENI NG PARA IN HIS ASSESSMENT ORDER, THE AO WHILE MENTIONING THE RE ASON FOR REOPENING STATED THAT THE AMOUNT WITHDRAWN FROM THE F IRM SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 7 7 WAS INVESTED FOR EARNING TAX FREE DIVIDEND, BUT ON P AGE 4 HE CONCLUDED THAT THE AMOUNT WITHDRAWN FROM THE PARTNERS HIP FIRM WAS NOT INVESTED FOR EARNING TAX FREE DIVIDEND. HOWEVER, HE DISALLOWED THE INTEREST ON THE GROUND THAT THERE WAS NO INCOME OUT OF INVESTMENT MADE OUT OF DRAWING FROM TH E PARTNERSHIP FIRM. LOOKING TO THE FACTS AND CIRCUMST ANCES OF THE CASE, I HOLD THAT THE ISSUANCE OF NOTICE U/S 14 8 FOR MAKING REASSESSMENT WAS BAD IN LAW. HENCE, THE WHOLE ASSESSME NT HAS BECOME NULL AND VOID. I FURTHER FIND THAT THE O RIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME-TA X ACT, 1961. THE ASSESSMENT ORDER WAS PASSED ON 29.10.2010. THEREAFTER, THE ASSESSMENT WAS REOPENED ON THE GROUN D THAT THE INTEREST U/S 14A WAS DISALLOWED ON THE GROUND TH AT THE ASSESSEE HAS INVESTED THE AMOUNT OF RS. 50,00,000/- ON WHICH HE HAS EARNED THE DIVIDEND INCOME. THOUGH THE ASSES SEE HAS INVESTED RS. 50,00,000/- FROM THE PARTNERSHIP FIRM, THE AO SHOULD HAVE DISALLOWED THE INTEREST ON PARTNERS CA PITAL. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE HAS ALREADY FILED ALL THE RELEVANT MAT ERIAL BEFORE THE AO AND COPY OF AUDITED BALANCE SHEET, PROFIT AN D LOSS SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 8 8 ACCOUNT WITH ALL THE SCHEDULES AND ANNEXURES. COPY O F PARTNERSHIP DEED WAS FILED DURING THE ORIGINAL ASSES SMENT BEFORE THE AO U/S 143(3). THEREFORE, IT IS MERELY C HANGE OF OPINION AND IF THERE IS CHANGE OF OPINION, THE ASSE SSMENT CANNOT BE REOPENED U/S 148. I FIND THAT THE LD. AUT HORIZED REPRESENTATIVE FOR THE ASSESSEE HAS RELIED UPON THE DECISION ON THE SAME LINES OF HON'BLE BOMBAY HIGH COURT IN T HE CASE OF CIT-5, MUMBAI VS. JET AIRWAYS (I) LIMITED, (2010) 19 5 TAXMAN 117 (BOM), WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS HELD AS UNDER :- SECTION 147 OF THE INCOME-TAX ACT, 1961 INCOME ESCAPING ASSESSMENT NON-DISCLOSURE OF PRIMARY FACTS ASSESSMENT YEARS 1994-95 AND 1995-96 WHETHER AN EXPLANATION TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CONTENT AND CANNOT BE CONSTRUED TO OVERRIDE IT OR TO RENDER SUBSTANCE AND CORE NUGATORY HELD, YES WHETHER AFTER INSERTION OF EXPLANATION 3 TO SECTION 147 BY FINANCE (NO.2) ACT, 2009, WITH EFFECT FROM 1.4.1989, SECTION SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 9 9 147 HAS AN EFFECT THAT ASSESSING OFFICER HAS TO ASSESS OR REASSESS INCOME (SUCH INCOME) WHICH ESCAPED ASSESSMENT AND WHICH WAS BASIS OF FORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE DURING COURSE OF PROCEEDINGS HELD, YES WHETHER, HOWEVER, IF AFTER ISSUING A NOTICE UNDER SECTION 148, HE ACCEPTS CONTENTION OF ASSESSEE AND HOLDS THAT INCOME, HAS, AS A MEMBER OF FACT, NOT ESCAPED ASSESSMENT, IT IS NOT OPEN TO HIM TO INDEPENDENTLY ASSESS SOME OTHER INCOME; IF HE INTENDS TO DO SO, A FRESH NOTICE UNDER SECTION 148 WOULD BE NECESSARY, LEGALITY OF WHICH WOULD BE TESTED IN EVENT OF A CHALLENGE BY ASSESSEE HELD, YES. 8. I FIND THAT THE LD. AUTHORIZED REPRESENTATIVE FOR T HE ASSESSEE HAS ALSO RELIED UPON THE DECISION ON SIMIL AR LINES IN THE CASE OF RANBAXY LABORATORIES LIMITED VS. DCIT, (2013) 30 SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 10 10 TAXMANN.COM, 410 (DEL), WHEREIN THE HON'BLE DELHI HI GH COURT HAS HELD AS UNDER :- SECTION 147, READ WITH 80HHC, OF THE INCOME-TAX ACT, 1961 INCOME ESCAPING ASSESSMENT NON- DISCLOSURE OF PRIMARY FACTS TO DISALLOW DEDUCTION UNDER SECTION 80HHC ASSESSMENT YEAR 2003-04 ASSESSING OFFICER REOPENED ASSESSMENT ON GROUND THAT WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC ASSESSEE HAD NOT CONSIDERED ENTIRE RESEARCH AND DEVELOPMENT EXPENDITURE AS A PART OF INDIRECT COST WHICH RESULTED IN EXCESS ALLOWANCE OF DEDUCTIO N WHETHER SINCE AO HAD SPECIFICALLY RAISED QUERIES IN RESPECT OF THESE ITEMS WHICH HAD BEEN ANSWERED BY ASSESSEE IN DETAILS AND IT WAS ONLY THEREAFTER ASSESSING OFFICER HAD COMPLETED ASSESSMENT, IMPUGNED PROCEEDINGS AMOUNTED TO A MERE CHANGE OF OPINION AND, HENCE SAME WAS TO BE QUASHED HELD, YES [PARA 14] ( IN FAVOUR OF ASSESSEE). SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 11 11 9. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I FIND THAT THE ABOVE DECISIONS RELIED UPON BY THE LD. AU THORIZED REPRESENTATIVE FOR THE ASSESSEE ARE SQUARELY APPLIC ABLE IN THE ASSESSEES CASE. THEREFORE, I HOLD THAT IT IS MEREL Y CHANGE OF OPINION AND IF THERE IS CHANGE OF OPINION, THE ASSE SSMENT CANNOT BE REOPENED U/S 148. I HOLD THAT THE ISSUANC E OF NOTICE U/S 148 FOR MAKING REASSESSMENT WAS BAD IN LAW. HENCE , THE WHOLE ASSESSMENT HAS BECOME NULL AND VOID. 10. SINCE THE ASSESSMENT HAS BECOME NULL AND VOID AB INITIO, THE OTHER GROUNDS TAKEN BY THE ASSESSEE HA VE BECOME INFRUCTUOUS. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT O N 09 TH JUNE, 2016, SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 09 TH JUNE, 2016. SHRI JATIN PATEL, L/H LATE CHHOTUBHAI PATEL, KHANDW A VS. ITO, KHANDWA I.T.A.NO. 421/IND/2016 A.Y. 2008-09 12 12 CPU*