The ITO, Ward-1 (1) (3), RAJKOT-GUJARAT V. M/s Swapnalok Developers, RAJKOT-GUJARAT

ITA 438/RJT/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5200 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 22-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANJIT SINGH CIRDR
• Assessee Lawyers: DM RINDANI
• Keywords: Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 40(b); 142(1); 153A; 80IB; 80IA; 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.438/RJT/2015 (ASSESSMENT YEAR: 2007-08) THE ITO WARD-1(1)(3) RAJKOT VS. M/S.SWAPNALOK DEVELOPERS C/O.BHUPENDRA T. PACHANI AAKASHDEEP, KALAVAD ROAD 11-A, SAINAGAR CO-OP. SOCIETY RAJKOT [PAN NO. ABAFS 8095 A ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI RANJIT SINGH, CIR-DR RESPONDENT BY : SHRI D.M. RINDANI, AR DATE OF HEARING 04/09/2019 DATE OF PRONOUNCEMENT 22/10 /2019 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEA LS)1, RAJKOT [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-I/RJT/0228/14-15 DATED 30/06/2015 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) R.W.S.147 OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS 'THE ACT') DATED 02 /03/2015 RELEVANT TO ASSESSMENT YEAR (AY) 2007-08 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD.CIT(A) HAS ERRED FACTS IN LAW AS WELL AS ON FACTS IN NOT UPHOLDING THE RE-OPENING OF ASSESSMENT U/S.147. - 2 - ITA NO. 438/RJT/2015 ITO VS. M/S.SWAPNALOK DEVELOPERS ASST.YEAR 2007-08 2. THE LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE ADDITIONS MADE BY THE AO BY RE-OPENING ASSESSMENT U/S.147 AND REDUCING THE C LAIM OF DEDUCTION MADE U/S.80IB(10) ON ACCOUNT OF INTEREST ON PARTNERS CAPITAL AND REMUNE RATION. 3. THE APPELLANT CRAVES FOR LEAVE TO ALTER, AMEND AND /OR ADD ANY GROUND OF APPEAL. 2. THE 1 ST ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CI T(A) ERRED IN HOLDING THE PROCEEDINGS UNDER SECTION 147 OF THE ACT AS INV ALID. 3. AT THE OUTSET, WE NOTE THAT THE LEARNED CIT (A ) HAS QUASHED THE ASSESSMENT FRAMED UNDER SECTION 147 OF THE ACT BY OBSERVING TH AT IT WAS BASED ON THE CHANGE OF OPINION. BEFORE WE EMBARK UPON ENQUIRY WHETHER T HE LEARNED CIT (A) WAS CORRECT IN QUASHING THE ASSESSMENT FRAMED UNDER SEC TION 147 OF THE ACT, IT IS PERTINENT TO REFER THE REASONS RECORDED FOR INITIAT ING THE PROCEEDINGS UNDER SECTION 147 OF THE ACT. THE REASONS RECORDED READS AS UNDER : 2. ON VERIFICATION OF RECORDS IT WAS NOTICED THAT THE ASSESSEE FIRM HAS CLAIMED DEDUCTION UNDER SECTION 80IB(10) OF THE I.T.ACT FOR THE ASSES SMENT YEAR 2007-08 AT RS. 3,92,64,437/- ON VERIFICATION OF PARTNERSHIP DEED OF THE FIRM DATED 02.12.2004, IT IS NOTICED THAT THE ASSESSEE IS A PARTNERSHIP FIRM CONSISTING OF TEN PARTNERS HAVING EQUAL SHARE @ 10%. AS PER THE CONTENTS OF THE PARTNERSHIP DEED SIMPLE INTEREST @ 12% PER ANNUM WA S TO BE PAID TO THE PARTNERS ON THE BALANCE AMOUNT TO THEIR CREDIT OF THE CAPITAL OR CU RRENT ACCOUNT. FURTHER AS PER THE PROVISIONS OF PARTNERSHIP DEED SHRI MAHENDRAKUMAR D. ZALAWADIA ON E OF THE WORKING PARTNER OF THE FIRM HAS TO BE PAID REMUNERATION UNDER SECTION 40(B) (V) OF THE I.T.ACT. IT WAS HOWEVER, NOTICED THAT THE ASSESSEE HAS NOT PROVIDED FOR THE INTEREST AND REMU NERATION AS PER THE CONTENTS OF THE PARTNERSHIP DEED. BY NOT PROVIDING FOR INTEREST AND REMUNERATIO N TO THE PARTNER, THE ASSESSEE WAS BENEFITED FOR HIGHER CLAIM OF DEDUCTION UNDER SECTION 80IB (1 0) OF THE I.T.ACT AS NON-PROVISION RESULTED IN HIGHER PROFIT TO THE FIRM. THE INTEREST PAYABLE TO PARTNERS WORKS OUT TO RS. 10,25,271/- AND REMUNERATION PAYABLE TO SHRI MAHENDRA D. ZALAVADIA, COMES TO RS. 1,58,79,299/-. TOTAL INTEREST AND REMUNERATION PAYABLE COMES TO RS. 1,69,05,070/- . SINCE AN AMOUNT OF RS. 1,69,05,070/- BEING INTEREST AND REMUNERATION FOR A;Y.2007-08 WER E NOT ALLOWED TO THE PARTNER ELIGIBLE AS PER THE PROVISIONS OF PARTNERSHIP DEED, THE ASSESSEE WA S ALLOWED EXCESSIVE DEDUCTION UNDER SECTION 80IB (10) OF THE I.T.ACT TO THAT EXTENT. SUCH EXC ESS DEDUCTION U/S.80IB(10) OF THE I.T.ACT GRANTED TO THE FIRM IS REQUIRED TO BE DISALLOWED. 3. SINCE AN AMOUNT OF RS.1,679,05,070/- HAS NOT BE EN ALLOWED TO THE PARTNERS OF THE FIRM AS INTEREST AND REMUNERATION, AS PER THE PROVISIONS OF PARTNERSHIP DEED, THE ASSESSEE HAS BEEN ALLOWED EXCESS DEDUCTION U/S.80IB(10) OF THE I.T. A CT, TO THAT EXTENT WITHIN THE MEANING OF EXPLANATION 2(C)(III) TO SEC. 147 OF THE I.T.ACT. - 3 - ITA NO. 438/RJT/2015 ITO VS. M/S.SWAPNALOK DEVELOPERS ASST.YEAR 2007-08 4. I HAVE THEREFORE REASONS TO BELIEVE THAT INCOM E HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC.147 OF THE I.T.ACT. 4. THE LEARNED CIT (A) HAS QUASHED THE ASSESSMEN T FRAMED UNDER SECTION 147 OF THE ACT BY OBSERVING THAT THE INITIATION OF PROCEED INGS THEREIN WAS NOTHING BUT THE CHANGE OF OPINION BASED ON SAME SET OF DOCUMENTS WH ICH WERE EXAMINED BY THE AO IN THE ASSESSMENT PROCEEDINGS FRAMED UNDER SECTI ON 153A OF THE ACT VIDE ORDER DATED 19 TH DECEMBER 2012 AND EVEN PRIOR TO THAT ASSESSMENT OR DER FRAMED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 18 TH DECEMBER 2009. HOWEVER, THE LEARNED DR FOR THE REVENUE BEFORE US S UBMITTED THAT THE ASSESSEE IN ORDER TO CLAIM HIGHER DEDUCTION UNDER SECTION 80IB( 10) OF THE ACT HAS NOT PROVIDED INTEREST ON CAPITAL AND REMUNERATION TO PARTNER AS PER THE DEED OF PARTNERSHIP. 5. ON THE OTHER HAND, THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 26 AND SUBMITTED THAT THE ISSUE REGARDIN G THE DEDUCTION UNDER SECTION 80IB(10) CLAIMED BY THE ASSESSEE WAS RAISED BY THE AO DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. THE LE ARNED AR IN SUPPORT OF HIS CONTENTION DREW OUR ATTENTION ON PAGE 16-17 OF THE PAPER BOOK WHERE THE QUESTION REGARDING THE CLAIM UNDER SECTION 80-IA WAS RAISED, PARTICULARLY, THE QUESTION NO. 20 TO 23 BY THE AO. THE LEARNED AR ALSO DREW OUR ATTENTION ON PAGE 18-2 0 OF THE PAPER BOOK WHERE THE REPLY OF THE ASSESSEE WAS PLACED AGAINST THE NOTICE ISSUED UNDER SECTION 142(1) OF THE ACT. - 4 - ITA NO. 438/RJT/2015 ITO VS. M/S.SWAPNALOK DEVELOPERS ASST.YEAR 2007-08 BOTH THE LEARNED DR AND THE AR BEFORE US RELIED ON THE ORDER OF THE AUTHORITIES BELOW TO THE EXTENT FAVOURABLE TO THEM. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS, ESPECIALLY THE IMPUGNED ORDERS AND THE SUBMISSION MADE THEREIN BY THE LEARNED COUNSEL FOR THE ASSESSEE. IN THE PRESENT CASE THE ASSESSMENT WAS FR AMED UNDER SECTION 153A OF THE ACT VIDE ORDER DATED 19 TH DECEMBER 2012 IN WHICH RETURN OF ASSESSEE ACCEPTED WITHOUT MAKING ADVERSE REMARK. BEFORE THAT THERE WA S ALSO THE ASSESSMENT FRAMED UNDER 143(3) OF THE ACT. DURING THE ASSESSMENT PROC EEDING UNDER SECTION 143(3) OF THE ACT, THE AO HAS QUESTIONED ABOUT THE DEDUCTION U/S 80IA(10) CLAIMED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE RELEV ANT QUERY/QUESTION RAISED BY THE AO READS AS UNDER: 80IA DEDUCTION 20. NATURE OF BUSINESS ACTIVITIES CARRIED OUT DUR ING THE F.Y. 2006-07. 21. PLEASE FURNISH THE EVIDENCE THAT SUCH ENTERPRI SE IS OWNED BY COMPANY REGISTERED UNDER OR BY CONSORTIUM OF SUCH COMPANY (NAME, ADDRESS, PAN, CO PY OF AGREEMENT, IF ANY.) 22. FURNISH THE DATE ON WHICH OPERATING AND MAINTA INING FACILITY/ACTIVITIES STARTED. 23. PLEASE PRODUCE THE COPY OF AGREEMENT WITH CENT RAL GOVT./STATE GOVT./LOCAL AUTHORITY OR ANY OTHER STATUTORY BODY FOR SUCH BUSINESS ACTIVITIES. 7. THE ASSESSEE IN RESPONSE TO SUCH NOTICE HAS MADE A REPLY VIDE LETTER DATED NIL BY FURNISHING THE EXPLANATION REGARDING THE CLA IM OF DEDUCTION WHICH CAN BE VERIFIED FROM PAGE 20 OF THE PAPER BOOK. THUS, IT IS CLEAR THAT THE AO IN THE ORIGINAL ASSES SMENT PROCEEDINGS HAS CONDUCTED ENQUIRIES ABOUT THE IMPUGNED DEDUCTION. THEREFORE, THE REOPENING UNDER SECTION - 5 - ITA NO. 438/RJT/2015 ITO VS. M/S.SWAPNALOK DEVELOPERS ASST.YEAR 2007-08 147 OF THE ACT BASED ON THE SAME SET OF DOCUMENTS E XAMINED DURING THE ORIGINAL PROCEEDINGS IS NOT SUSTAINABLE. IN THIS CONNECTION WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VERSUS KELVINATOR INDIA LTD REPORTED IN 320 ITR 561 WHEREIN IT WAS HE LD AS UNDER: THE ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDE D THERE IS 'TANGIBLE MATERIAL' TO COME TO CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. UNDER THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, THE PARLIAMENT NOT ONLY DELE TED THE WORDS 'REASON TO BELIEVE' BUT ALSO INSERTED THE WORD 'OPINION' IN SECTION 147. HOWEVER , ON RECEIPT OF REPRESENTATIONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS 'REASON TO BELIEVE', THE PARLIAMENT RE-INTRODUCED THE SAID EXPRESSION AND DELETED THE WORD 'OPINION' ON T HE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE ASSESSING OFFICER. WE ALSO DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT POWER CORPORATION LTD VERSUS ACIT REPORTED IN 26 TAXMANN.COM 51 WHEREIN IT WAS HELD AS UNDER: 37. COMING TO THE SECOND QUESTION, AS RECORDED, CONTEN TION OF THE PETITIONER IS THAT AS IN THE PRESENT CASE, ONCE THE ASSESSING OFFICER EXAMINES A CERTAIN CLAIM OF THE ASSESSEE IN THE ORIGINAL ASSESSMENT PROCEEDINGS, RAISES QUERIES, RECEIVES RE PLIES, BUT THEREAFTER MAKES NO ADDITIONS OR DISALLOWANCES, WITHOUT GIVING REASONS, IT WOULD NOT BE PERMISSIBLE TO REOPEN THE ASSESSMENT EVEN WITHIN FOUR YEARS ON VERY SAME GROUNDS. THE CONTENT ION OF THE REVENUE IS THAT IN ABSENCE OF ANY DIRECT DISCUSSION IN THE ASSESSMENT ORDER, THE ASSE SSING OFFICER CANNOT BE STATED TO HAVE FORMED ANY OPINION AND THAT THEREFORE, REOPENING WITHIN A PERIOD OF FOUR YEARS OF SUCH AN ASSESSMENT WOULD BE PERMISSIBLE. 38. IN THIS CONTEXT, WE MAY RECALL THAT AS HELD BY THE APEX COURT IN THE CASE OF (1) KELVINATOR OF INDIA LTD. (SUPRA), EVEN AFTER 1.4.1989, REOPENING OF AN ASSESSMENT PREVIOUSLY FRAMED AFTER SCRUTINY WOULD NOT BE PERMISSIBLE ON A MERE CHANGE OF OPINION AND THAT THE ASSESSING OFFICER MUST HAVE SOME TANGIBLE MATERIAL TO FORM A BELIEF T HAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE CONCEPT OF CHANGE OF OPINION IS NOT DONE AWAY WITH IN THE NEWLY AMENDED SECTION 147 OF THE ACT. THUS, IN VIEW OF THE ABOVE WE HOLD THAT THE REOPENI NG OF THE IMPUGNED CASE UNDER SECTION 147 OF THE ACT IN ITSELF IS INVALID AND AGA INST THE LAWS SETTLED BY THE HONBLE SUPREME COURT/ GUJARAT HIGH COURT IN THE CA SES CITED ABOVE. WE ALSO NOTE THAT THE LEARNED CIT (A) ALSO HELD THE REASSESSMENT FRAMED UNDER SECTION 147 OF THE ACT AS INVALID BY OBSERVING THAT THE CLAIM OF DEDUCTION WAS - 6 - ITA NO. 438/RJT/2015 ITO VS. M/S.SWAPNALOK DEVELOPERS ASST.YEAR 2007-08 ALLOWED AFTER DUE VERIFICATION IN ENQUIRIES IN PRIO R ASSESSMENT ORDER FRAMED UNDER SECTION 153A AND 143(3) AND NOTICE UNDER SECTION 14 8 WAS ISSUED WITHOUT ANY TANGIBLE MATERIAL. 8. THE LEARNED DR, AT THE TIME OF HEARING, HAS NO T BROUGHT ANYTHING ON RECORD CONTRARY TO THE FINDING OF THE LEARNED CIT (A). THE REFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF THE LEARNED C IT (A). AS WE HAVE QUASHED THE ASSESSMENT FRAMED UNDER SECTION 147 OF THE ACT, THE REFORE WE ARE NOT INCLINED TO DECIDE THE ISSUE ON MERITS. IN VIEW OF THE ABOVE, T HE GROUND OF APPEAL FILED BY THE REVENUE, ON TECHNICAL REASON AS ELABORATED ABOVE, I S DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 22 / 10 /2019 SD/- SD/- (MS. MADHUMITA ROY) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 22/ 10 /2019 .., . ../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-1, RAJKOT 5. '#$ , % , /DR,ITAT, RAJKOT 6. $23 45 / GUARD FILE. / BY ORDER, ' //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, / ITAT, RAJKOT